UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 000-25169
GENEREX BIOTECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 98-0178636
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
33 Harbour Square, Suite 202, Toronto, Canada M5J 2G2
(Address of principal executive offices) (Zip Code)
Telephone Number: (416) 364-2551
Internet Website: www.generex.com
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.001 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at November 8, 2004, based on the closing sales price as of that
date, was approximately $24,780,884.
At November 8, 2004, the registrant had 34,829,648 shares of common stock
outstanding.
Documents incorporated by reference: Proxy Statement to be filed within 120 days
after the end of the fiscal year.
FORWARD-LOOKING STATEMENTS
Certain statements in the "Business" (Item 1) and "Management's Discussion and
Analysis of Financial Condition and Results of Operation" (Item 7) sections and
elsewhere in this Annual Report on Form 10-K of Generex Biotechnology
Corporation for the fiscal year ended July 31, 2004 constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. This Act limits our liability in any lawsuit based on forward looking
statements we have made. All statements, other than statements of historical
facts, included in this annual report that address activities, events or
developments that we expect or anticipate will or may occur in the future,
including such matters as our projections, future capital expenditures, business
strategy, competitive strengths, goals, expansion, market and industry
developments and the growth of our businesses and operations, are
forward-looking statements. These statements can be identified by introductory
words such as "expects," "plans," "intends," "believes," "will," "estimates,"
"forecasts," "projects" or words of similar meaning, and by the fact that they
do not relate strictly to historical or current facts. Our forward-looking
statements address, among other things:
o our expectations concerning product candidates for our technologies;
o our expectations concerning existing or potential development and
license agreements for third-party collaborations and joint ventures;
o our expectations of when different phases of clinical activity may
commence; and
o our expectations of when regulatory submissions may be filed or when
regulatory approvals may be received.
Any or all of our forward-looking statements may turn out to be wrong. They may
be affected by inaccurate assumptions that we might make or by known or unknown
risks and uncertainties. Actual outcomes and results may differ materially from
what is expressed or implied in our forward-looking statements. Among the
factors that could affect future results are:
o the inherent uncertainties of product development based on our new and
as yet not fully proven technologies;
o the risks and uncertainties regarding the actual effect on humans of
seemingly safe and efficacious formulations and treatments when tested
clinically;
o the inherent uncertainties associated with clinical trials of product
candidates; and
o the inherent uncertainties associated with the process of obtaining
regulatory approval to market product candidates.
Additional factors that could affect future results are set forth throughout the
"Business" (Item 1) section, including the subsection entitled "Certain
Additional Risk Factors," and elsewhere in this annual report. Because of the
risks and uncertainties associated with forward-looking statements, you should
not place undue reliance on them. Further, any forward-looking statement speaks
only as of the date on which it is made, and we undertake no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which the statement is made or to reflect the occurrence of
unanticipated events.
PART I
ITEM 1. BUSINESS
OVERVIEW
Generex Biotechnology Corporation is engaged primarily in the research and
development of drug delivery technologies. Our primary focus at the present time
is our proprietary technology for the administration of formulations of large
molecule drugs to the oral (buccal) cavity using a hand-held aerosol applicator.
A substantial number of large molecule drugs (i.e., drugs composed of molecules
with a higher than specified molecular weight) have been approved for sale in
the United States or are presently undergoing clinical trials as part of the
process to obtain such approval, including various proteins, peptides,
monoclonal antibodies, hormones and vaccines. Unlike small molecule drugs, which
generally can be administered by various methods, large molecule drugs
historically have been administered predominately by injection. The principal
reasons for this have been the vulnerability of large molecule drugs to
digestion and the relatively large size of the molecule itself, which makes
absorption into the blood stream through the skin or mucosa inefficient or
ineffective.
All injection therapies involve varying degrees of discomfort and inconvenience.
With chronic and sub-chronic diseases, the discomfort and inconvenience
associated with injection therapies frequently results in less than optimal
patient acceptance of, and compliance with, the prescribed treatment plan. Poor
acceptance and compliance can lead to medical complications and higher disease
management costs. Also, elderly, infirm and pediatric patients with chronic or
sub-chronic conditions may not be able to self-inject their medications. In such
cases assistance is required which increases both the cost and inconvenience of
the therapy.
Our goal is to develop proprietary formulations of large molecule drugs that can
be administered through the buccal mucosa, primarily the inner cheek walls,
thereby eliminating or reducing the need for injections. We believe that our
buccal delivery technology is a platform technology that has application to many
large molecule drugs, and provides a convenient, non-invasive, accurate and cost
effective way to administer such drugs. We have identified several large
molecule drugs as possible candidates for development, but to date have focused
our development efforts on a buccal insulin product.
Our first product is an insulin formulation that is administered as a fine spray
into the oral cavity using a hand-held aerosol spray applicator. Between January
1999 and September 2000, we conducted limited clinical trials on this product in
the United States, Canada and Europe. In September 2000, we entered into an
agreement (the "Development and License Agreement") to develop this product with
Eli Lilly and Company ("Lilly"). To date, over 800 patients with diabetes have
been dosed with our oral insulin product at approved facilities in seven
countries. We conducted several clinical trials with insulin supplied by Lilly
under our Development and License Agreement. Lilly did not, however, authorize
or conduct any clinical trials or provide financial support for those trials. We
did receive a $1,000,000 up front payment from Lilly. On May 23, 2003, we
announced that we had agreed with Lilly to end the Development and License
Agreement for the development and commercialization of buccal delivery of
insulin. On November 5, 2003, we entered into a termination agreement with Lilly
terminating the Development and License Agreement, effective as of June 2, 2003.
In accordance with the termination agreement, we retain all of the intellectual
property and commercialization rights with respect to buccal spray drug delivery
technology, and we have the continuing right to develop and commercialize the
product. We also entered into a Bulk Supply Agreement (the "Bulk Supply
Agreement") for the sale of human insulin crystals by Lilly to us over a three
year period. The Bulk Supply Agreement establishes purchase prices, minimum
purchase requirements, maximum amounts which may be purchased in each year and a
non-refundable prepayment of $1,500,000 to be applied against amounts due for
purchases.
2
In January 2001, we established a joint venture with Elan International
Services, Ltd. ("EIS"), a wholly-owned subsidiary of Elan Corporation, plc (EIS
and Elan Corporation, plc being collectively referred to as "Elan"), to pursue
the application of certain of our and Elan's drug delivery technologies,
including our platform technology for the buccal delivery of pharmaceutical
products, for the treatment of prostate cancer, endometriosis and/or the
suppression of testosterone and estrogen. In January 2002, we and Elan agreed to
expand the joint venture to encompass the buccal delivery of morphine for the
treatment of pain and agreed to pursue buccal morphine as the initial
pharmaceutical product for development under Generex (Bermuda) Ltd., the entity
through which the joint venture is being conducted. This expansion of the joint
venture occurred after we successfully completed a proof of concept clinical
study of morphine delivery using our proprietary buccal delivery technology.
In connection with the joint venture, EIS purchased 1,000 shares of a new series
of our preferred stock, designated as Series A Preferred Stock, for $12,015,000.
We applied the proceeds from the sale of the Series A Preferred Stock to
subscribe for an 80.1% equity ownership interest in Generex (Bermuda), Ltd. EIS
paid in capital of $2,985,000 to subscribe for a 19.9% equity ownership interest
in the joint venture entity. Alternatively, the Series A Preferred Stock may be
converted, under certain conditions, into shares of our common stock. Subsequent
to its purchase of the shares of Series A Preferred Stock, EIS transferred the
shares to an affiliate of Elan. While we presently own 80.1% of the joint
venture entity, the Elan affiliate has the right, subject to certain conditions,
to increase its ownership up to 50% by exchanging the Series A Preferred Stock
for 30.1% of our equity ownership of the joint venture entity. In accordance
with the terms of the Series A Preferred Stock, if any shares of Series A
Preferred Stock are outstanding on January 16, 2007, we are required to redeem
the shares of Series A Preferred Stock at a redemption price equal to the
aggregate Series A Preferred Stock liquidation preference (which currently
equals the aggregate original purchase price of the Series A Preferred Stock),
either in cash, or in shares of common stock with a fair market value equal to
the redemption price. In January 2002, 2003 and 2004, pursuant to the terms of
the agreement with EIS, the Elan affiliate received a 6% stock dividend of
Series A Preferred Stock.
EIS also purchased 344,116 shares of our common stock for $5,000,000. We were
permitted to use the proceeds of this sale for any corporate purpose. If the
joint venture achieves certain milestones, we may require EIS to purchase an
additional $1,000,000 of our common stock at a 30% premium to the then
prevailing fair market value of our common stock.
Generex (Bermuda), Ltd. was granted non-exclusive licenses to utilize our buccal
delivery technology and certain Elan drug delivery technologies. Using the funds
from its initial capitalization, Generex (Bermuda), Ltd. paid a non-refundable
license fee of $15,000,000 to Elan in consideration for being granted the rights
to utilize the Elan drug delivery technologies.
To date we have not received any substantial economic support from Elan in
connection with the joint venture or the development of the morphine product,
other than its initial capital contribution. However, we have continued to
conduct research and development activities with the morphine product.
3
In August 2003, we acquired Antigen Express, Inc. Antigen is engaged in the
research and development of technologies and immunomedicines for the treatment
of malignant, infectious, autoimmune and allergic diseases.
Our immunomedicine products work by stimulating the immune system to either
attack offending agents (i.e., cancer cells, bacteria, and viruses) or to stop
attacking benign elements (i.e., self proteins and allergens). Our
immunomedicine products are based on two platform technologies that were
discovered by an executive officer of Antigen, the Ii-Key hybrid peptides and
Ii-Suppression. The immunomedicine products are in the pre-clinical stage of
development, and trials in human patients are not expected for at least 6
months. Development efforts are underway in melanoma, breast cancer, prostate
cancer, HIV, influenza virus, smallpox, SARS and Type I diabetes mellitus. We
are establishing collaborations with clinical investigators at academic centers
to advance the technology, with the ultimate goal of conducting human clinical
testing.
We do not expect to receive any revenues from product sales in the current
fiscal year. However, we have received and we expect to continue to receive some
revenue from research grants for Antigen's immunomedicine products. To date, we
have received a total of $627,184 in such research grants. We do not expect the
research grants to fully fund Antigen's expenses. We expect to satisfy all of
our cash needs during the current year from capital raised through equity
financings.
We are a development stage company, and from inception through the end of fiscal
year 2004 had not received any revenues from operations other than the up-front
payment from Lilly. We have no products approved for commercial sale by drug
regulatory authorities. We have begun the regulatory approval process for only
three products, our oral insulin formulation, morphine and fentanyl. We believe
that our buccal delivery technology is a platform technology that has
application to a large number of large molecule drugs in addition to insulin.
Estrogen, heparin, monoclonal antibodies, human growth hormone, fertility
hormone, as well as a number of vaccines are among the compounds that we have
identified as possible candidates for product development.
Buccal Delivery Technology
Our buccal delivery technology involves the preparation of a proprietary
formulation in which an active pharmaceutical agent is placed in a solution with
a combination of absorption enhancers and other excipients classified generally
recognized as safe ("GRAS") by the Food and Drug Administration ("FDA") when
used in accordance with specified quantity and other limitations. The resulting
formulation is aerosolized with a pharmaceutical grade chemical propellant and
is administered to the patient using our proprietary RapidMist(TM) device. The
device is a small, lightweight, hand-held, easy-to-use aerosol applicator
comprised of a container for the formulation, a metered dose valve, an actuator
and dust cap. Using the device, the patient self-administers the formulation by
spraying it into the mouth. The device contains multiple applications, the
number being dependent, among other things, on the concentration of the
formulation. Absorption of the pharmaceutical agent occurs in the buccal cavity,
principally through the inner cheek walls. In clinical studies of our insulin
product Oralin(TM), insulin absorption in the buccal cavity has been shown to be
very efficacious. We are also evaluating the use of our RapidMist device for the
delivery of both morphine and fentanyl.
4
Buccal Insulin Product
Insulin is a hormone that is naturally secreted by the pancreas to regulate the
level of glucose, a type of sugar, in the bloodstream. The term diabetes refers
to a group of disorders that are characterized by the inability of the body to
properly regulate blood glucose levels. When glucose is abundant, it is
converted into fat and stored for use when food is not available. When glucose
is not available from food, these fats are broken down into free fatty acids
that stimulate glucose production. Insulin acts by stimulating the use of
glucose as fuel and by inhibiting the production of glucose. In a healthy
individual, a balance is maintained between insulin secretion and glucose
metabolism.
There are two major types of diabetes. Type 1 diabetes (juvenile onset diabetes
or insulin dependent diabetes) refers to the condition where the pancreas
produces little or no insulin. Type 1 diabetes accounts for 5-10 percent of
diabetes cases. It often occurs in children and young adults. Type 1 diabetics
must take daily insulin injections, typically three to five times per day, to
regulate blood glucose levels.
In Type 2 diabetes (adult onset or non-insulin dependent diabetes mellitus), the
body does not produce enough insulin, or cannot properly use the insulin
produced. Type 2 diabetes is the most common form of the disease and accounts
for 90-95 percent of diabetes cases. In addition to insulin therapy, Type 2
diabetics may take oral drugs that stimulate the production of insulin by the
pancreas or that help the body to more effectively use insulin.
If not treated, diabetes can lead to blindness, kidney disease, nerve disease,
amputation, heart disease and stroke. Each year, between 12,000 and 24,000
people lose their sight because of diabetes. Diabetes is also the leading cause
of end-stage renal disease (kidney failure), accounting for about 40% of new
cases.
In addition, about 60-70 percent of people with diabetes have mild to severe
forms of diabetic nerve damage, which, in severe forms, can lead to lower limb
amputations. Diabetics are also 2 to 4 times more likely to have heart disease,
which is present in 75 percent of diabetes-related deaths, and are 2 to 4 times
more likely to suffer a stroke.
There is no known cure for diabetes. The World Health Organization estimates
that there are currently over 1.5 billion diabetics worldwide. It is further
estimated that this number will almost double by the year 2025. There are
estimated to be 17 million people suffering from diabetes in North America
alone, approximately 5 million of whom are undiagnosed, and diabetes is the
second largest cause of death by disease in North America.
We conducted the first clinical trials of our buccal insulin formulation with
human subjects in Ecuador in January 1998. We ultimately conducted a number of
studies in Ecuador in 1998, each of which involved a selection of between 8 and
10 patients. The principal purpose of these studies was to evaluate the
effectiveness of our oral insulin formulation in humans compared with injected
insulin and placebos. In March 2004, we entered into a Letter of Intent for the
establishment of a joint venture with Pharma Brand S.A., a distributor of
pharmaceutical products in Central and Latin America. In furtherance of this
joint venture, in August 2004, the Oralin(TM) dossier has been submitted to the
Ecuador Ministry of Public Health seeking approval for the manufacturing,
marketing, distribution and sale of Oralin(TM) and RapidMist(TM) Diabetes
Management System.
5
On the basis of the test results in Ecuador and other pre-clinical data, we made
an Investigatory New Drug submission to the Health Protection Branch in Canada
(Canada's equivalent to the United States' Food and Drug Administration) in July
1998, and received permission from the Canadian regulators to proceed with
clinical trials in September 1998. We filed an Investigational New Drug
Application with the Food and Drug Administration in October 1998, and received
FDA approval to proceed with human trials in November 1998.
We began our clinical trial programs in Canada and the United States in January
1999. Between January 1999 and September 2000 we conducted clinical trials of
our insulin formulation involving approximately 200 Type 1 and Type 2 diabetic
patients and healthy volunteers. The study protocol in most trials involved
administration of two different doses of our insulin formulation following
either a liquid sustacal meal or a standard meal challenge. The objective of
these studies was to evaluate our insulin formulation's efficacy in controlling
post-prandial (meal related) glucose levels. These trials demonstrated that our
insulin formulation controlled post-prandial hyperglycemia in a manner
comparable to injected insulin.
In April 2003, we were granted permission to commence Phase II-B clinical trials
in Canada. In September 2003, we commenced a 90 day study in 80 Type 2 diabetic
patients with poorly controlled blood glucose. The objective of the study is to
determine the metabolic effect of our insulin product.
We continue to conduct limited clinical studies and seek additional
collaborative partners in the United States, and other countries.
Other Large Molecule Drug Projects
We have identified numerous compounds, other than insulin, as candidates for
product development.
Morphine and Fentanyl
The delivery of morphine and fentanyl by oral formulation (pills) and injection
for the treatment of moderate to severe breakthrough and postoperative pain
often fails to provide patients with adequate relief and control (breakthrough
and postoperative pain are characterized as being moderate to severe in
intensity, having a rapid onset of action and a short to medium duration). Not
only does delivery by pills have a slow onset of action, it is often difficult
for patients to adjust their doses, with the result that patients are either
over or under medicated. Injections are invasive and require an attendant to
administer the medication which reduces the patient's control over the pain and
may cause increased anxiety. Often, patients must wait in pain until an
attendant can medicate them.
We seek to develop a buccal delivery formulation for morphine and fentanyl that
will have a critical series of attributes well suited for the treatment of
breakthrough and post operative pain and which will be cost effective and will
have a demonstrable improvement over current delivery methods. These include
fast access to the circulatory system, precise dosing control and a simple,
self-administration procedure.
6
We made an Investigatory New Drug submission for buccal morphine to the Health
Protection Branch in Canada in January 2002, and received permission from the
Canadian regulators to proceed with clinical trials in March 2002. We have
commenced clinical trials in Ecuador and we are in the process of recruiting
investigators to conduct clinical trials in Canada. In January 2002, we filed an
Investigational New Drug Application for buccal morphine with the Food and Drug
Administration. The buccal morphine product is being developed by Generex
Bermuda under our joint venture with a subsidiary of Elan Corporation.
We made an Investigatory New Drug submission for fentanyl to the Health
Protection Branch in Canada in August 2002, and received permission from the
Canadian regulators to proceed with clinical trials in October 2002.
Other Products
We have had discussions of possible research collaborations with various
pharmaceutical companies concerning use of our large molecule drug delivery
technology with insulin, morphine, fentanyl and other compounds, including
monoclonal antibodies, human growth hormone, fertility hormone, estrogen and
heparin, and a number of vaccines.
Prior to September 2000, we had not aggressively pursued development
opportunities apart from insulin because we believed it was more advantageous to
concentrate our resources, particularly our financial resources, on developing
the insulin product. While the insulin product remains our first priority, we
continue developmental work for buccal delivery formulation for morphine and
fentanyl.
Immunomedicine Technology and Products
Our new subsidiary, Antigen, is engaged in research and development of
technologies and immunomedicines for the treatment of malignant, infectious,
autoimmune and allergic diseases. Our immunomedicine products work by
stimulating the immune system to either attack offending agents (i.e., cancer
cells, bacteria, and viruses) or to stop attacking benign elements (i.e., self
proteins and allergens). Our immunomedicine products are based on two platform
technologies that were discovered by an executive officer of Antigen, the Ii-Key
hybrid peptides and Ii-Suppression. These technologies are expected to greatly
boost immune cell responses which treat the ailments and conditions.
We have not filed an Investigational New Drug application to begin clinical
trials. Rather, our immunomedicine products are in the pre-clinical stage of
development and trials in human patients are not expected for at least 6 months.
For more details regarding our acquisition of Antigen, see "Management's
Discussion and Analysis of Financial Conditions and Results of Operations" (Item
7) below.
CORPORATE HISTORY
We were incorporated in Delaware in September 1997 for the purpose of acquiring
Generex Pharmaceuticals, Inc., a Canadian corporation formed in November 1995 to
engage in pharmaceutical and biotechnological research and other activities. Our
acquisition of Generex Pharmaceuticals was completed in October 1997 in a
transaction in which the holders of all outstanding shares of Generex
Pharmaceuticals exchanged their shares for shares of our common stock.
7
In January 1998, we participated in a "reverse acquisition" with Green Mt. P.
S., Inc., a previously inactive Idaho corporation formed in 1983. As a result of
this transaction, our shareholders (the former shareholders of Generex
Pharmaceuticals) acquired a majority (approximately 90%) of the outstanding
capital stock of Green Mt., we became a wholly-owned subsidiary of Green Mt.,
Green Mt. changed its corporate name to Generex Biotechnology Corporation
("Generex Idaho"), and we changed our corporate name to GBC Delaware, Inc.
Because the reverse acquisition resulted in our shareholders becoming the
majority holders of Generex Idaho, we were treated as the acquiring corporation
in the transaction for accounting purposes. Thus, our historical financial
statements, which essentially represented the historical financial statements of
Generex Pharmaceuticals, were deemed to be the historical financial statements
of Generex Idaho.
In April 1999, we completed a reorganization in which we merged with Generex
Idaho. In this transaction, all outstanding shares of Generex Idaho were
converted into our shares, Generex Idaho ceased to exist as a separate entity,
and we changed our corporate name back to "Generex Biotechnology Corporation".
This reorganization did not result in any material change in our historical
financial statements or current financial reporting.
In August 2003, subsequent to the end of fiscal 2003, we acquired all of the
capital stock of Antigen in exchange for approximately 2,800,000 shares of our
common stock, and Antigen became our wholly owned subsidiary.
GOVERNMENT REGULATION
Our research and development activities, and the eventual manufacturing and
marketing of our products, are subject to extensive regulation by the Food and
Drug Administration in the United States ("FDA") and comparable regulatory
authorities in other countries. Among other things, extensive regulation puts a
burden on our ability to bring products to market. While these regulations apply
to all competitors in our industry, many of our competitors have extensive
experience in dealing with the FDA and other regulators, while we do not. Also,
other companies in our industry do not depend completely on products which still
need to be approved by government regulators, as we now do.
If requisite regulatory approvals are not obtained and maintained, our business
will be substantially harmed. In many if not all cases, we expect that our
development partners will control or participate extensively in the regulatory
approval process once a development agreement is in place. The following
discussion summarizes the principal features of food and drug regulation in the
United States and other countries as they affect our business.
United States
All aspects of our research, development and foreseeable commercial activities
are subject to extensive regulation by the FDA and other regulatory authorities
in the United States. United States federal and state statutes and regulations
govern, among other things, the testing, manufacturing, safety, efficacy,
labeling, storage, record keeping, approval, advertising and promotion of
pharmaceutical products. The regulatory approval process, including clinical
trials, usually takes several years and requires the expenditure of substantial
resources. If regulatory approval of a product is granted, the approval may
include significant limitations on the uses for which the product may be
marketed. The steps required before a pharmaceutical product may be marketed in
the United States include:
8
o preclinical tests;
o the submission to the FDA of an Investigational New Drug application,
which must become effective before human clinical trials commence;
o human clinical trials to establish the safety and efficacy of the drug;
o the submission of a New Drug Application to the FDA; and
o FDA approval of the New Drug Application, including approval of all
product labeling and advertising.
Pre-clinical tests include laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of each product. The results of the pre-clinical tests are
submitted to the FDA as part of the Investigational New Drug application and are
reviewed by the FDA before the commencement of human clinical trials. Unless the
FDA objects to the Investigational New Drug application, the Investigational New
Drug application becomes effective 30 days following its receipt by the FDA. The
Investigational New Drug application for our oral insulin formulation became
effective in November 1998. We filed an Investigational New Drug application for
buccal morphine in January 2002.
Clinical trials involve the administration of the new drug to humans under the
supervision of a qualified investigator. The protocols for the trials must be
submitted to the FDA as part of the Investigational New Drug application. Also,
each clinical trial must be approved and conducted under the auspices of an
Institutional Review Board, which considers, among other things, ethical
factors, the safety of human subjects, and the possible liability of the
institution conducting the clinical trials.
Clinical trials are typically conducted in three sequential phases (Phase I,
Phase II, and Phase III), but the phases may overlap. Phase I clinical trials
test the drug on healthy human subjects for safety and other aspects, but not
effectiveness. Phase II clinical trials are conducted in a limited patient
population to gather evidence about the efficacy of the drug for specific
purposes, to determine dosage tolerance and optimal dosages, and to identify
possible adverse effects and safety risks. When a compound has shown evidence of
efficacy and acceptable safety in Phase II evaluations, Phase III clinical
trials are undertaken to evaluate clinical efficacy and to test for safety in an
expanded patient population at clinical trial sites in different geographical
locations. The FDA and other regulatory authorities require that the safety and
efficacy of therapeutic product candidates be supported through at least two
adequate and well-controlled Phase III clinical trials.
In the United States, the results of pre-clinical studies and clinical trials,
if successful, are submitted to the FDA in a New Drug Application to seek
approval to market and commercialize the drug product for a specified use. The
FDA may deny a New Drug Application if it believes that applicable regulatory
criteria are not satisfied. The FDA also may require additional testing for
safety and efficacy of the drug. We cannot be sure that any of our proposed
products will receive the FDA approval. Even if approved by the FDA, our
products and the facilities used to manufacture our products will remain subject
to review and periodic inspection by the FDA.
To supply drug products for use in the United States, foreign and domestic
manufacturing facilities must be registered with, and approved by the FDA.
Manufacturing facilities must also comply with the FDA's Good Manufacturing
Practices, and domestic facilities are subject to periodic inspection by the
FDA. Products manufactured outside the United States are inspected by regulatory
authorities in those countries under agreements with the FDA. To comply with
Good Manufacturing Practices, manufacturers must expend substantial funds, time
and effort in the area of production and quality control. The FDA stringently
applies its regulatory standards for manufacturing. Discovery of previously
unknown problems with respect to a product, manufacturer or facility may result
in consequences with commercial significance. These include restrictions on the
product, manufacturer or facility, suspensions of regulatory approvals,
operating restrictions, delays in obtaining new product approvals, withdrawals
of the product from the market, product recalls, fines, injunctions and criminal
prosecution.
9
Foreign Countries
Before we are permitted to market any of our products outside of the United
States, those products will be subject to regulatory approval by foreign
government agencies similar to the FDA. These requirements vary widely from
country to country. Generally, however, no action can be taken to market any
drug product in a country until an appropriate application has been approved by
the regulatory authorities in that country. FDA approval does not assure
approval by other regulatory authorities. The current approval process varies
from country to country, and the time spent in gaining approval varies from that
required for FDA approval. The Canadian regulatory process is substantially
similar to that of the United States. We obtained regulatory approval to begin
clinical trials of our oral insulin formulation in Canada in November 1998. In
Ecuador, regulatory authorities approved the limited non-commercial distribution
of our oral insulin formulation in September 1998. In August 2004, we submitted
the Oralin(TM) dossier to the Ecuador Ministry of Public Health seeking approval
for the manufacturing, marketing, distribution and sale of Oralin(TM) and
RapidMist(TM) Diabetes Management System. We obtained regulatory approval to
begin clinical trials of our buccal morphine product in Canada in March 2002 and
received regulatory approval to begin clinical trials of our fentanyl product in
Canada in October 2002. We are currently in the process of recruiting
investigators to conduct clinical trials of our buccal morphine product.
MARKETING
We intend to rely on collaborative arrangements with one or more other companies
that possess strong pharmaceutical marketing and distribution resources to
perform these functions for us. Accordingly, we will not have the same control
over marketing and distribution that we would have if we conducted these
functions ourselves.
With respect to the Generex Bermuda joint venture, Elan may, at its option,
choose to market morphine or any other product developed under the joint
venture. With respect to the Pharma Brand joint venture, we will work closely
with Pharma Brand to aggressively seek approval for the manufacture, production,
packaging and distribution of Oralin(TM) in Central and Latin America. Except
for these arrangements, we do not have any agreements with any other companies
for marketing or distributing our products. With respect to our insulin product,
we possess the worldwide marketing rights to this product after they reverted to
us upon the termination in June 2003 of the development and license agreement
with Lilly.
10
MANUFACTURING
To date, we have produced our oral insulin formulation only under laboratory
conditions on a small scale. In December 2000, we completed our pilot
manufacturing facility in Toronto in the same commercial complex in which our
original laboratory is located, and we are in the process of obtaining
regulatory approval for the facility. We believe that this facility will be
capable of producing our insulin product at levels necessary to supply our needs
for late stage human clinical trials of the product and for initial commercial
sales outside the United States, even though we have not yet actually produced
product at those levels. We will need to significantly increase our
manufacturing capability in order to manufacture any product in commercial
quantities.
We own facilities in Brampton and Mississauga, Ontario, all within 25 miles from
downtown Toronto that were purchased with the intention of improving and
equipping them for manufacturing. These facilities are currently leased to
unrelated third parties, however, we believe we can place these facilities into
production of our insulin product or other products within 12 to 18 months lead
time if additional production capabilities are necessary.
Our new subsidiary Antigen leases office and laboratory space in Worcester,
Massachusetts, which is sufficient for its present needs. The laboratory is
approximately 820 square feet and has permission to store and use biohazardous
(including recombinant DNA materials) and flammable chemicals.
RAW MATERIAL SUPPLIES
The excipients used in our formulation are available from numerous sources in
sufficient quantities for clinical purposes, and we believe that they will be
available in sufficient quantities for commercial purposes when required,
although we have not yet attempted to secure a commercial supply of any such
products.
Components suitable for our RapidMist(TM) device are available from a limited
number of potential suppliers, as is the chemical propellant used in the device.
We believe that the components which now comprise the device will be utilized
with the commercial version of our insulin product. We also expect to use the
RapidMist(TM) device in connection with our buccal morphine and fentanyl
products. We have also secured supply arrangements with the manufacturers of all
other components and the propellant that we presently use in our RapidMist(TM)
device for commercial quantities of such components and the propellant. All such
suppliers are prominent, reputable and reliable suppliers to the pharmaceutical
industry. Because we now have a single supplier for each of these components and
propellant, however, we are more vulnerable to supply interruptions than would
be the case if we had multiple suppliers for each component. We do not believe
that the risk of a single source of supply for proprietary raw materials or
device components is unusual in the pharmaceutical industry.
Insulin is available worldwide from only a few sources. However, alternative
supplies of insulin are under development in Europe. Upon termination in June
2003 of our license agreement with Lilly, we entered into a Bulk Supply
Agreement with Lilly, pursuant to which Lilly is required to provide us with
human insulin crystals over a three (3) year period. We also believe future
development and marketing partners under licensing and development agreements,
if any, will provide, or assist us to obtain, pharmaceutical compounds that are
used in products covered under such agreements.
11
While morphine is a controlled substance, it is readily available for use in
clinical trials. We currently have the appropriate licenses and facilities for
acquiring and storing morphine in Canada. Various regulatory issues surround the
import of morphine into the United States and we will need to address these
issues prior to commencing clinical trials in the United States.
Raw materials for our pre-clinical development stage immunomedicine products
include amino acids (for peptide therapeutics) and oligonucleotides (for genetic
constructs). These materials are readily available from commercial suppliers. We
utilize the services of several commercial laboratories for the manufacturing of
our pre-clinical development stage immunomedicine products.
INTELLECTUAL PROPERTY
We currently have fifteen issued U.S. patents pertaining to aspects of buccal
delivery technology and covering our oral insulin formulation. We have six U.S.
patent applications and one Canadian patent application pending, which also
relate to aspects of our buccal delivery technology, our oral insulin
formulation and our oral morphine formulation. In addition, we hold one U.S.
patent and two Canadian patents and have one U.S. application pending that
pertains to delivery technologies other than our buccal delivery technology.
We also have an indirect interest in three drug delivery patents held by another
company, Centrum Biotechnologies, Inc., which is 50% owned by us.
Our new subsidiary Antigen currently holds six issued U.S. patents, two
Australian patents, and a number of pending U.S. and foreign patent applications
concerning technology for modulating the immune system via activation of
antigen-specific helper T lymphocytes. Some of these patents are held under
exclusive licenses from the University of Massachusetts. Dr. Humphreys and Dr.
Xu, officers of Antigen, are the listed inventors or co-inventors on all of
these patents and patent applications, including those licensed from the
University of Massachusetts.
Our long-term success will substantially depend upon our ability to obtain
patent protection for our technology and our ability to protect our technology
from infringement, misappropriation, discovery and duplication. We cannot be
sure that any of our pending patent applications will be granted, or that any
patents which we own or obtain in the future will fully protect our position.
Our patent rights, and the patent rights of biotechnology and pharmaceutical
companies in general, are highly uncertain and include complex legal and factual
issues. We believe that our existing technology and the patents which we hold or
for which we have applied do not infringe any one else's patent rights. We
believe our patent rights will provide meaningful protection against others
duplicating our proprietary technologies. We cannot be sure of this, however,
because of the complexity of the legal and scientific issues that could arise in
litigation over these issues. (See "Legal Proceedings" (Item 3) for discussion
of certain legal proceedings involving intellectual property issues.)
We also rely on trade secrets and other unpatented proprietary information. We
seek to protect this information, in part, by confidentiality agreements with
our employees, consultants, advisors and collaborators.
12
COMPETITION
We expect that products based upon our buccal delivery technology and any other
products that we may develop will compete directly with products developed by
pharmaceutical and biotechnology companies, universities, government agencies
and public and private research organizations.
Products developed by our competitors may use a different active pharmaceutical
agent or treatment to treat the same medical condition or indication as our
product or may provide for the delivery of substantially the same active
pharmaceutical ingredient as our products using different methods of
administration. For example, a number of pharmaceutical and biotechnology
companies are engaged in various stages of research, development and testing of
alternatives to insulin therapy for the treatment of diabetes, as well as new
methods of delivering insulin. These methods, including nasal, transdermal,
needle free (high pressure) injection and pulmonary, may ultimately successfully
deliver insulin to diabetic patients. Some biotechnology companies have also
developed different technologies to enhance the presentation of peptide
antigens. Many of our competitors and potential competitors have substantially
greater scientific research and product development capabilities, as well as
financial, marketing and human resources, than we do.
Where the same or substantially the same active ingredient is available using
alternative delivery means or the same or substantially the same result is
achievable with a different treatment or technology, we expect that competition
among products will be based, among other things, on product safety, efficacy,
ease of use, availability, price, marketing and distribution. When different
active pharmaceutical ingredients are involved, these same competitive factors
will apply to both the active agent and the delivery method.
We consider other drug delivery and biotechnology companies to be direct
competitors for the cooperation and support of major drug and biotechnology
companies that own or market proprietary pharmaceutical compounds and
technologies, as well as for the ultimate patient market. Of primary concern to
us are the competitor companies that are known to be developing delivery systems
for insulin and other pharmaceutical agents that we have identified as product
candidates and technologies to enhance the presentation of peptide antigens.
Buccal Insulin Product
Nektar Therapeutics (formally Inhale Therapeutic Systems, Inc.) ("Nektar") is
developing a customized insulin formulation that is processed into a fine, dry
powder and administered to the deep lung using a proprietary inhalation device
developed for this purpose. Nektar is developing its insulin product in
collaboration with Pfizer, Inc., which in turn has announced agreements to
co-develop and co-promote the use of inhaled insulin with Aventis, a leading
pharmaceutical company which presently manufactures insulin for sale primarily
in Europe. As reported in March 2004, the European Medicines Evaluation Agency
(EMEA) has accepted the filing of a marketing authorization application for
Exubera(R) (inhaled human insulin powder). Nektar is also developing pulmonary
products with large molecule drugs other than insulin, and has stated that it is
investigating the use of its inhalation technology with small molecule drugs.
Aradigm Corporation ("Aradigm"), which has announced a joint development
agreement with Novo Nordisk A/S to jointly develop a pulmonary delivery system
for insulin by inhalation, also may be considered a direct competitor of ours in
the insulin area. Novo Nordisk is one of the two leading manufacturers of
insulin in the world, the other being Lilly. Aradigm and Novo Nordisk initiated
Phase III clinical trials in September 2002. In April 2004, Novo Nordisk
announced results from a planned interim analysis of the initial Phase III trial
and has decided to amend the current trial protocol. Novo Nordisk will make
decisions concerning the structure and timing of additional clinical trials
after these observations have been fully assessed.
13
Other companies have announced development efforts relating to alternative (to
injection) methods of delivering insulin or other large molecule drugs,
including Alkermes Pharmaceuticals, Inc., which announced a collaboration with
Lilly in April 2000 to develop a pulmonary method of administering insulin and
is currently undergoing Phase II clinical trials. There are also a number of
companies developing alternative means of delivering insulin in the form of oral
pills, transdermal patches, and intranasal methods, which are at early stages of
development.
In addition to other delivery systems for insulin, there are numerous products
which have been approved for use in the treatment of Type 2 diabetics in place
of or in addition to insulin therapy. These products may also be considered
competitive with insulin products.
Buccal Morphine and Fentanyl Products
Cephalon, Inc. currently markets Actiq(R) in the United States and has recently
acquired the rights to the product in Europe. Actiq(R) delivers buccal
transmucosal fentanyl to the cheek walls through the use of a lollipop. On
November 4, 1998 the FDA cleared Actiq(R) for marketing for use in the
management of breakthrough cancer pain. The product was launched in March 1999
in the United States.
Aradigm is developing the hand-held AERx Pain Management System for the
treatment of breakthrough cancer pain. The AERx Pain Management System is a
pulmonary delivery system to deliver the drug through inhalation. AERx has
distinct advantages over the administration by injection of morphine and similar
opiate-derived pain control drugs. Aradigm is in progress to complete both Phase
I and II clinical trials of these formulations.
Nastech Pharmaceuticals is developing an intranasal formulation of morphine that
is in Phase II clinical trials. Results reported to date show the product to be
safe and efficacious in the treatment of episodes of breakthrough pain. Nastech
is currently seeking a licensing partner for this product.
Immunomedicine Technology and Products
A number of companies that are engaged in the development of immunomedicines
employ technologies that are competitive to our new subsidiary, Antigen. Zycos
Inc. has developed the Biotope(R) technology, Cel-Sci Corporation has developed
the LEAPS delivery technology and Epimmune Inc. has developed the PADRE(R)
technology. These companies have initiated early stage clinical trials for
several products for the treatment of cancer, autoimmune, and allergic diseases.
These companies also have established collaborations with academic centers and
other companies for the development of certain products. We have not initiated
clinical trials with any of our immunomedicine products, nor have we established
commercial collaborations to date.
ENVIRONMENTAL COMPLIANCE
Our manufacturing, research and development activities involve the controlled
use of hazardous materials and chemicals. We believe that our procedures for
handling and disposing of these materials comply with all applicable government
regulations. However, we cannot eliminate the risk of accidental contamination
or injury from these materials. If an accident occurred, we could be held liable
for damages, and these damages could severely impact our financial condition. We
are also subject to many environmental, health and workplace safety laws and
regulations, particularly those governing laboratory procedures, exposure to
blood-borne pathogens, and the handling of hazardous biological materials.
Violations and the cost of compliance with these laws and regulations could
adversely affect us. However, we do not believe that compliance with the United
States, Canadian or other environmental laws will have a material effect on us
in the foreseeable future.
14
RESEARCH AND DEVELOPMENT EXPENDITURES
A substantial portion of our activities to date have been in research and
development. In the period from inception to July 31, 2004, our expenditures on
research and development were $47,387,932. These included $8,522,984 in the year
ended July 31, 2004, $5,150,075 in the year ended July 31, 2003 and $6,618,820
in the year ended July 31, 2002. The increase in our research and development
expenses in 2004 compared to 2003 is due principally to activities of Antigen
and our increased development of oral insulin formulation compared to last year,
including the purchase of bulk insulin. The decrease in our research and
development expenses in 2003 compared to 2002 is due principally to contraction
of our ongoing research and development activities under our collaboration with
Elan and the collaboration with Lilly, which ended in May 2003.
EMPLOYEES
At September 30, 2004, we had twenty-five full-time employees, including our
executive officers and other individuals who work for us full time but are
employed by management companies that provide their services and including eight
employees of our new subsidiary Antigen. Fourteen of our employees are executive
and administrative, nine are scientific and technical personnel who engage
primarily in development activities and in preparing formulations for testing
and clinical trials, and two are engaged in corporate and product promotion,
public relations and investor relations. We believe our employee relations are
good. None of our employees are covered by a collective bargaining agreement.
We will continue to need qualified scientific personnel and personnel with
experience in clinical testing, government regulation and manufacturing. We may
have difficulty in obtaining qualified scientific and technical personnel as
there is strong competition for these people from other pharmaceutical and
biotechnology companies as well as universities and research institutions. Our
business could be materially harmed if we are unable to recruit and retain
qualified scientific, administrative and executive personnel to support our
expanding activities, or if one or more members of our limited scientific and
management staff were unable or unwilling to continue their association with us.
We do not have fixed term agreements with any of our key management or
scientific staff, other than Dr. Pankaj Modi who, on August 26, 2004, resigned
from his position as Vice President, Research and Development and terminated his
Consulting Agreement with us, see "Developments in Fiscal 2004" under
Management's Discussion and Analysis. While Dr. Modi's resignation was effective
immediately, pursuant to the terms of the Consulting Agreement, the effective
date of termination of the Consulting Agreement is August 25, 2005.
15
We also use non-employee consultants to assist us in formulating research and
development strategy, in preparing regulatory submissions, in developing
protocols for clinical trials, and in designing, equipping and staffing our
manufacturing facilities. We also use non-employee consultants to assist us in
business development. These consultants and advisors usually have the right to
terminate their relationship with us on short notice. Loss of some of these key
advisors could interrupt or delay development of one or more of our products or
otherwise adversely affect our business plans.
16
EXECUTIVE OFFICERS AND DIRECTORS
NAME AGE POSITION HELD WITH GENEREX
Anna E. Gluskin 53 Chairman, President, Chief Executive Officer and
Director
Rose C. Perri 37 Chief Operating Officer, Acting Chief Financial Officer,
Treasurer, Secretary and Director
Gerald Bernstein, M.D. 71 Director, Vice President Medical Affairs
Mark Fletcher, Esquire 39 Executive Vice President and General Counsel
J. Michael Rosen 53 Director
John P. Barratt 60 Director
Mindy J. Allport-Settle 37 Director
Brian T. McGee 43 Director
All directors are elected to hold office until the next annual meeting of
stockholders following election and until their successors are duly elected and
qualified. Executive officers are appointed by the Board of Directors and serve
at the discretion of the Board.
Anna E. Gluskin -- Director since September 1997. Ms. Gluskin has served as the
President and Chief Executive Officer of Generex since October 1997 and the
Chairman since November 2002. She held comparable positions with Generex
Pharmaceuticals, Inc. from its formation in 1995 until its acquisition by
Generex in October 1997.
Rose C. Perri -- Director since September 1997. Ms. Rose Perri has served as
Treasurer and Secretary of Generex since October 1997, and as Chief Operating
Officer since August 1998. She was an officer of Generex Pharmaceuticals, Inc.
from its formation in 1995 until its acquisition by Generex in October 1997.
Effective November 2002, Ms. Perri became acting Chief Financial Officer.
Gerald Bernstein, M.D. -- Director since October 2002. Dr. Gerald Bernstein has
served as Vice President of Generex since October 1, 2001. Dr. Bernstein acts as
a key liaison for Generex on medical and scientific affairs to the medical,
scientific and financial communities and consults with Generex under a
consulting agreement on research and medical affairs and on development
activities. Dr. Bernstein has been an associate clinical professor at the Albert
Einstein College of Medicine in New York and an attending physician at Beth
Israel Medical Center, Lenox Hill Hospital and Montefore Medical Center, all in
New York since 1999. He was president of the American Diabetes Association from
1997 to 1998.
Mark Fletcher, Esq. -- Mr. Fletcher has served as our Executive Vice President
and General Counsel since April 2003. From October 2001 to March 2003, Mr.
Fletcher was engaged in the private practice of law as a partner at Goodman and
Carr LLP, a leading Toronto law firm. From March 1993 to September 2001, Mr.
Fletcher was a partner at Brans, Lehun, Baldwin LLP, a law firm in Toronto. Mr.
Fletcher received his LL.B. from the University of Western Ontario in 1989 and
was admitted to the Ontario Bar in 1991.
17
J. Michael Rosen -- Director since August 2000. Mr. Rosen has been a principal
in a number of related travel management and hotel marketing businesses since
1978. The principal companies in this group, all of which are headquartered in
Ontario, are Uniworld Travel & Tours, Inc., Nevada Vacations, Inc., Casino
Vacations, Inc. and Casino Tours, Inc. Mr. Rosen presently serves as the
President or a Vice President, and the Chief Financial Officer, of each of these
companies. Mr. Rosen is an accountant by training, and was engaged in the
private practice of accounting prior to 1978.
John P. Barratt -- Director since March 2003. Mr. Barratt is Court appointed
Responsible Person and Liquidation Manager of Beyond.com Corporation,
Debtor-in-Possession, A US Chapter 11 Bankruptcy Case. Prior to his appointment
in 2002, he served as Chief Operating Officer of Beyond.com, since 2000. From
January 1996 to September 2000, Mr. Barratt served as partner-in-residence for
the Quorum Group of Companies, an international investment partnership
specializing in providing debt and equity capital to the emerging high growth
technology sector. From 1988 to December 1995, Mr. Barratt was Executive Vice
President and Chief Operating Officer of Coscan Development Corporation. He
previously held a number of senior-level management positions, including Deputy
Chief Executive of Lloyds Bank Canada. Mr. Barratt also currently serves on the
Board of Directors and is Chairman of the Credit Committee and member of the
Audit Committee for the Bank of China (Canada), as a director and a member of
the Audit Committee of GLP NT Corporation and BNN Split Corporation. Mr. Barratt
also serves on the Advisory Board of Brascan SoundVest Diversified Income Fund
and Brascan SoundVest Total Return Fund.
Mindy J. Allport-Settle - Director since February 2004. Ms. Allport-Settle has
been President and Chief Executive Officer of Integrated Development, LLC
("Integrated") since 1998. Integrated is an independent consulting firm to the
pharmaceutical industry, providing informed guidance in operational, project and
contract management, new business development and regulatory compliance. In
addition to her position with Integrated, Ms. Allport-Settle has been a
Vice-President of Impact Management Services, Inc. ("IMS") since 2003, which
also provides consulting services to the pharmaceutical industry. In her current
positions at Integrated and IMS, Ms. Allport-Settle has worked with several
major pharmaceutical companies. From 2001 to 2002, Ms. Allport-Settle was
Director of Client Services for Scriptorium Publishing Service. From 1992 to
1994, Ms. Allport-Settle was an Eye Bank Technician/Organ Procurement Surgeon
for NC Eye & Human Tissue Bank; and from 1991 to 1998, Ms. Allport-Settle was a
Freelance Writer and Photographer. Ms. Allport-Settle is currently working on
her M.B.A. in Global Management at the University of Phoenix and expects to
receive her degree in 2005.
Brian T. McGee - Director since March 2004. Mr. McGee has been a partner of
Zeifman & Company, LLP ("Zeifman") since 1995. Mr. McGee began working at
Zeifman shortly after receiving a B.A. degree in Commerce from the University of
Toronto in 1985. Zeifman is a Chartered Accounting firm based in Toronto,
Ontario. A significant element of Zeifman's business is public corporation
accounting and auditing. Mr. McGee is a Chartered Accountant. Throughout his
career, Mr. McGee has focused on, among other areas, public corporation
accounting and auditing. In 1992, Mr. McGee completed courses focused on
International Taxation and Corporation Reorganizations at the Canadian Institute
of Chartered Accountants and in 2003, Mr. McGee completed corporate governance
courses on compensation and audit committees at Harvard Business School.
18
OTHER KEY EMPLOYEES AND CONSULTANTS
Slava Jarnitskii is our Financial Controller. He began his employment with
Generex Pharmaceuticals in September 1996 and has been in the employment of
Generex since its acquisition of Generex Pharmaceuticals in October 1997. Before
his employment with Generex Pharmaceuticals, Mr. Jarnitskii received a Masters
of Business Administration degree from York University in September 1996.
Dr. Robert E. Humphreys, M.D., Ph.D., is currently Executive Vice-President and
Chief Operating Officer of our subsidiary, Antigen Express, Inc. Dr. Humphreys
founded Antigen in 1996 and was its President. He has extensive experience in
the National Institute of Health, arthritis, cancer and diabetes study sections.
Dr. Humphreys is an inventor on (six) 6 awarded US patents and has over 150
peer-reviewed publications. Prior to founding Antigen, Dr. Humphreys was
Professor of Medicine and Pharmacology at University of Massachusetts Medical
School. He received his M.D. and Ph.D. degrees from Yale University and was a
post-doctoral fellow in biochemistry at Harvard University. He also received his
clinical training at Bethesda Naval Hospital and was an Officer at the Naval
Medical Research Institute.
Eric von Hofe, PhD, is currently a Vice President of Technology Development of
our subsidiary, Antigen Express, Inc. He has extensive experience with
technology development projects, including his previous position at Millennium
Pharmaceuticals as Director of Programs & Operations, Discovery Research. Prior
to that, Dr. von Hofe was Director, New Targets at Hybridon, Inc., where he
coordinated in-house and collaborative research that critically validated gene
targets for novel antisense medicines. He received his Ph.D. from the University
of Southern California in Experimental Pathology and was a postdoctoral fellow
at both the University of Zurich and Harvard School of Public Health. His work
has been published in twenty-eight articles in peer- reviewed journals and he
has been an inventor on four patents. Dr. von Hofe was Assistant Professor of
Pharmacology at the University of Massachusetts Medical School, where he
received a National Cancer Institute Career Development Award for defining
mechanisms by which alkylating carcinogens create cancers.
Dr. Minzhen Xu is Vice President - Biology of Antigen. Dr. Xu received an M.D.
from Shanghai Medical University in China and a Ph.D. in immunology from
University of Massachusetts Medical School. He has been with Antigen since its
inception and is the company's chief experimentalist.
CERTAIN ADDITIONAL RISK FACTORS
In addition to historical facts or statements of current condition, this Annual
Report on Form 10-K contains forward-looking statements. Forward-looking
statements provide our current expectations or forecasts of future events.
The following discussion outlines certain factors that we think could cause our
actual outcomes and results to differ materially from our forward-looking
statements. These factors are in addition to those set forth elsewhere in this
Annual Report on Form 10-K.
19
Risks Related to Our Financial Condition
We have a history of losses, and will incur additional losses.
We are a development stage company with a limited history of operations, and do
not expect ongoing revenues from operation in the immediately foreseeable
future. To date, we have not been profitable and our accumulated net loss before
preferred stock dividend was $ 94,231,316 at July 31, 2004. Our losses have
resulted principally from costs incurred in research and development, including
clinical trials, and from general and administrative costs associated with our
operations. While we seek to attain profitability, we cannot be sure that we
will ever achieve product and other revenue sufficient for us to attain this
objective.
Our product candidates are in research or early stages of pre-clinical and
clinical development. We will need to conduct substantial additional research,
development and clinical trials. We will also need to receive necessary
regulatory clearances both in the United States and foreign countries and obtain
meaningful patent protection for and establish freedom to commercialize each of
our product candidates. We cannot be sure that we will obtain required
regulatory approvals, or successfully research, develop, commercialize,
manufacture and market any other product candidates. We expect that these
activities, together with future general and administrative activities, will
result in significant expenses for the foreseeable future.
We need additional capital
To progress in product development or marketing, we will need additional capital
which may not be available to us. This may delay our progress in product
development or market.
We will require funds in excess of our existing cash resources:
o to proceed with the development of our buccal insulin product;
o to proceed under our joint venture with Elan, which requires us to fund
80.1% of initial product development costs;
o to develop other buccal and immunomedicine products;
o to develop new products based on our buccal delivery and immunomedicine
technologies, including clinical testing relating to new products;
o to develop or acquire other technologies or other lines of business;
o to establish and expand our manufacturing capabilities;
o to finance general and administrative and research activities that are
not related to specific products under development; and
o to finance the research and development activities of our new
subsidiary Antigen.
In the past, we have funded most of our development and other costs through
equity financing. We anticipate that our existing capital resources will enable
us to maintain currently planned operations through the next twelve months.
However, this expectation is based on our current operating plan, which could
change as a result of many factors, and we may need additional funding sooner
than anticipated. Because our operating and capital resources are insufficient
to meet future requirements, we will have to raise additional funds in the near
future to continue the development and commercialization of our products.
Unforeseen problems, including materially negative developments in our joint
venture with Elan, in our clinical trials or in general economic conditions,
could interfere with our ability to raise additional equity capital or
materially adversely affect the terms upon which such funding is available.
Recent changes in the application of the rules of the NASDAQ Stock Market may
also make it more difficult for us to raise private equity capital.
20
It is possible that we will be unable to obtain additional funding as and when
we need it. If we were unable to obtain additional funding as and when needed,
we could be forced to delay the progress of certain development efforts. Such a
scenario poses risks. For example, our ability to bring a product to market and
obtain revenues could be delayed, our competitors could develop products ahead
of us, and/or we could be forced to relinquish rights to technologies, products
or potential products.
New equity financing could dilute current stockholders.
If we raise funds through equity financing to meet the needs discussed above, it
will have a dilutive effect on existing holders of our shares by reducing their
percentage ownership. The shares may be sold at a time when the market price is
low because we need the funds. This will dilute existing holders more than if
our stock price was higher. In addition, equity financings normally involve
shares sold at a discount to the current market price.
Our research and development and marketing efforts are likely to be highly
dependent on corporate collaborators and other third parties who may not devote
sufficient time, resources and attention to our programs, which may limit our
efforts to successfully develop and market potential products.
Because we have limited resources, we have sought to enter into collaboration
agreements with other pharmaceutical companies that will assist us in
developing, testing, obtaining governmental approval for and commercializing
products using our buccal delivery and immunomedicine technologies. Any
collaborator with whom we may enter into such collaboration agreements may not
support fully our research and commercial interests since our program may
compete for time, attention and resources with such collaborator's internal
programs. Therefore, these collaborators may not commit sufficient resources to
our program to move it forward effectively, or that the program will advance as
rapidly as it might if we had retained complete control of all research,
development, regulatory and commercialization decisions.
Risks Related to Our Technologies
Because our technologies and products are at an early stage of development, we
cannot expect revenues in the foreseeable future.
We have no products approved for commercial sale at the present time. To be
profitable, we must successfully research, develop, obtain regulatory approval
for, manufacture, introduce, market and distribute our products under
development. We may not be successful in one or more of these stages of the
development of our products, and/or any of the products we develop may not be
commercially viable.
While over 800 patients with diabetes have been dosed with our oral insulin
formulation at approved facilities in seven countries, our insulin product has
not been approved for marketing in any country. Until we have developed a
commercially viable product which receives regulatory approval, we will not
receive revenues from ongoing operations.
21
We will not receive revenues from operations until we receive regulatory
approval to sell our products. Many factors impact our ability to obtain
approvals for commercially viable products.
We have no products approved for commercial sale by drug regulatory authorities.
We have begun the regulatory approval process for our oral insulin formulation,
buccal morphine and fentanyl products. Our immunomedicine products are in the
pre-clinical stage of development.
Pre-clinical and clinical trials of our products, and the manufacturing and
marketing of our technologies, are subject to extensive, costly and rigorous
regulation by governmental authorities in the United States, Canada and other
countries. The process of obtaining required regulatory approvals from the FDA
and other regulatory authorities often takes many years, is expensive and can
vary significantly based on the type, complexity and novelty of the product
candidates. For these reasons, it is possible we will never receive approval for
one or more product candidates.
Delays in obtaining United States or foreign approvals for our products could
result in substantial additional costs to us, and, therefore, could adversely
affect our ability to compete with other companies. If regulatory approval is
ultimately granted, the approval may place limitations on the intended use of
the product we wish to commercialize, and may restrict the way in which we are
permitted to market the product.
Due to legal and factual uncertainties regarding the scope and protection
afforded by patents and other proprietary rights, we may not have meaningful
protection from competition.
Our long-term success will substantially depend upon our ability to protect our
proprietary technologies from infringement, misappropriation, discovery and
duplication and avoid infringing the proprietary rights of others. Our patent
rights, and the patent rights of biotechnology and pharmaceutical companies in
general, are highly uncertain and include complex legal and factual issues.
Because of this, our pending patent applications may not be granted. These
uncertainties also mean that any patents that we own or will obtain in the
future could be subject to challenge, and even if not challenged, may not
provide us with meaningful protection from competition. Due to our financial
uncertainties, we may not possess the financial resources necessary to enforce
our patents. Patents already issued to us or our pending applications may become
subject to dispute, and any dispute could be resolved against us.
Because a substantial number of patents have been issued in the field of
alternative drug delivery and because patent positions can be highly uncertain
and frequently involve complex legal and factual questions, the breadth of
claims obtained in any application or the enforceability of our patents cannot
be predicted. Consequently, we do not know whether any of our pending or future
patent applications will result in the issuance of patents or, to the extent
patents have been issued or will be issued, whether these patents will be
subject to further proceedings limiting their scope, will provide significant
proprietary protection or competitive advantage, or will be circumvented or
invalidated.
Also because of these legal and factual uncertainties, and because pending
patent applications are held in secrecy for varying periods in the United States
and other countries, even after reasonable investigation we may not know with
certainty whether any products that we (or a licensee) may develop will infringe
upon any patent or other intellectual property right of a third party. For
example, we are aware of certain patents owned by third parties that such
parties could attempt to use in the future in efforts to affect our freedom to
practice some of the patents that we own or have applied for. Based upon the
science and scope of these third party patents, we believe that the patents that
we own or have applied for do not infringe any such third party patents,
however, we cannot know for certain whether we could successfully defend our
position, if challenged. We may incur substantial costs if we are required to
defend ourselves in patent suits brought by third parties. These legal actions
could seek damages and seek to enjoin testing, manufacturing and marketing of
the accused product or process. In addition to potential liability for
significant damages, we could be required to obtain a license to continue to
manufacture or market the accused product or process.
22
Risks Related to Marketing of Our Potential Products
We may not become, or stay, profitable even if our products are approved for
sale.
Even if we obtain regulatory approval to market our oral insulin product or any
other product candidate, many factors may prevent the product from ever being
sold in commercial quantities. Some of these factors are beyond our control,
such as:
o acceptance of the formulation or treatment by health care professionals
and diabetic patients;
o the availability, effectiveness and relative cost of alternative
diabetes or immunomedicine treatments that may be developed by
competitors; and
o the availability of third-party (i.e., insurer and governmental agency)
reimbursements.
We may not be able to compete with treatments now being marketed and developed,
or which may be developed and marketed in the future by other companies.
Our products will compete with existing and new therapies and treatments. We are
aware of a number of companies currently seeking to develop alternative means of
delivering insulin, as well as new drugs intended to replace insulin therapy at
least in part. We are also aware of a number of companies currently seeking to
develop alternative means of enhancing and suppressing peptides. In the longer
term, we also face competition from companies that seek to develop cures for
diabetes and other malignant, infectious, autoimmune and allergic diseases
through techniques for correcting the genetic deficiencies that underlie such
diseases.
We will have to depend upon others for marketing and distribution of our
products, and we may be forced to enter into contracts limiting the benefits we
may receive and the control we have over our products. We intend to rely on
collaborative arrangements with one or more other companies that possess strong
marketing and distribution resources to perform these functions for us. We may
not be able to enter into beneficial contracts, and we may be forced to enter
into contracts for the marketing and distribution of our products that
substantially limit the potential benefits to us from commercializing these
products. In addition, we will not have the same control over marketing and
distribution that we would have if we conducted these functions ourselves.
Numerous pharmaceutical, biotechnology and drug delivery companies, hospitals,
research organizations, individual scientists and nonprofit organizations are
engaged in the development of alternatives to our technologies. Many of these
companies have greater research and development capabilities, experience,
manufacturing, marketing, financial and managerial resources than we do.
Accordingly, our competitors may succeed in developing competing technologies,
obtaining FDA approval for products or gaining market acceptance more rapidly
than we can.
23
If government programs and insurance companies do not agree to pay for or
reimburse patients for our products, we will not be successful.
Sales of our potential products depend in part on the availability of
reimbursement by third-party payors such as government health administration
authorities, private health insurers and other organizations. Third-party payors
often challenge the price and cost-effectiveness of medical products and
services. FDA approval of health care products does not guarantee that these
third party payors will pay for the products. Even if third party payors do
accept our product, the amounts they pay may not be adequate to enable us to
realize a profit. Legislation and regulations affecting the pricing of
pharmaceuticals may change before our products are approved for marketing and
any such changes could further limit reimbursement.
Risks Related to Potential Liabilities
We face significant product liability risks, which may have a negative effect on
our financial condition.
The administration of drugs or treatments to humans, whether in clinical trials
or commercially, can result in product liability claims whether or not the drugs
or treatments are actually at fault for causing an injury. Furthermore, our
products may cause, or may appear to have caused, serious adverse side effects
(including death) or potentially dangerous drug interactions that we may not
learn about or understand fully until the drug or treatment has been
administered to patients for some time. Product liability claims can be
expensive to defend and may result in large judgments or settlements against us,
which could have a severe negative effect on our financial condition. We
maintain product liability insurance in amounts we believe to be commercially
reasonable for our current level of activity and exposure, but claims could
exceed our coverage limits. Furthermore, due to factors in the insurance market
generally and our own experience, we may not always be able to purchase
sufficient insurance at an affordable price. Even if a product liability claim
is not successful, the adverse publicity and time and expense of defending such
a claim may interfere with our business.
Outcome of an Arbitration Proceeding with Sands Brothers may have an adverse
impact on us.
On October 2, 1998, Sands Brothers & Co. Ltd., a New York City-based investment
banking and brokerage firm, initiated an arbitration against us under New York
Stock Exchange rules. Sands alleged that it had the right to receive, for
nominal consideration, approximately 1.5 million shares of our common stock.
Sands based its claim upon an October 1997 letter agreement that was purported
by Sands to confirm an agreement appointing Sands as the exclusive financial
advisor to Generex Pharmaceuticals, Inc., a subsidiary that we acquired in late
1997. In exchange therefor, the letter agreement purported to grant Sands the
right to acquire 17% of Generex Pharmaceuticals' common stock for nominal
consideration. Sands claimed that its right to receive shares of Generex
Pharmaceuticals' common stock applies to our common stock since outstanding
shares of Generex Pharmaceuticals' common stock were converted into shares of
our common stock in the acquisition. Sands' claims also included additional
shares allegedly due as a fee related to that acquisition, and $144,000 in
monthly fees allegedly due under the terms of the purported agreement.
24
After several arbitration and court proceedings, on October 29, 2002, the
Appellate Division of the New York Supreme Court issued a decision remanding the
issue of damages to a new panel of arbitrators and limiting the issue of damages
before the new panel to reliance damages which is not to include an award of
lost profits. Reliance damages are out-of-pocket damages incurred by Sands.
On August 17, 2004, the Arbitration Panel of the New York Stock Exchange issued
a final award in the case of Sands vs. the Company, awarding Sands $150,000 in
reliance damages. No motion to confirm this award has been filed by Sands as of
the date of this report. Sands has not sought leave to appeal the vacaturs of
the prior panel's warrant award to the New York Court of Appeals. As such, the
award is subject to further legal proceedings.
The case is still ongoing and our ultimate liability cannot yet be determined
with certainty. Our financial condition would be materially adversely affected
to the extent that Sands receives shares of our common stock for little or no
consideration or substantial monetary damages as a result of this legal
proceeding. We are not able to estimate an amount or range of potential loss
from this legal proceeding at the present time.
Risks Related to the Market for Our Common Stock
If our common stock is delisted from the NASDAQ SmallCap Market and/or becomes
subject to Penny Stock regulations, the market price for our stock may be
reduced and it may be more difficult for us to obtain financing.
On June 5, 2003, our common stock was delisted from the NASDAQ National Market
because of our failure to maintain a minimum of $10,000,000 in stockholders'
equity. On June 5, 2003, our stock began trading on the NASDAQ SmallCap Market.
The NASDAQ SmallCap Market has its own standards for continued listing,
including a minimum of $2.5 million stockholders' equity. As of July 31, 2004,
our stockholders' equity was $529,751 which makes us noncompliant with their
standard for continued listing.
In addition, for continued listing on both the NASDAQ National Market and
SmallCap Market, our stock price must be at least $1.00. During periods in
fiscal 2004 and the beginning of fiscal 2005, our stock price dropped close to
and below $1.00 per share. If we do not meet this requirement in the future, we
may be subject to delisting by NASDAQ.
If our stock is delisted from NASDAQ, there will be less interest for our stock
in the market. This may result in lower prices for our stock and make it more
difficult for us to obtain financing.
If our stock is not listed on NASDAQ and fails to maintain a price of $5.00 or
more per share, our stock would become subject to the Securities and Exchange
Commission's "Penny Stock" rules. These rules require a broker to deliver, prior
to any transaction involving a Penny Stock, a disclosure schedule explaining the
Penny Stock Market and its risks. Additionally, broker/dealers who recommend
Penny Stocks to persons other than established customers and accredited
investors must make a special written suitability determination and receive the
purchaser's written agreement to a transaction prior to the sale. In the event
our stock becomes subject to these rules, it will become more difficult for
broker/dealers to sell our common stock. Therefore, it may be more difficult for
us to obtain financing.
25
The price of Our Common Stock may be volatile.
There may be wide fluctuations in the price of our common stock. These
fluctuations may be caused by several factors including:
o announcements of research activities and technology innovations or new
products by us or our competitors;
o changes in market valuation of companies in our industry generally;
o variations in operating results;
o changes in governmental regulations;
o developments in patent and other proprietary rights;
o public concern as to the safety of drugs or treatments developed by us
or others;
o results of clinical trials of our products or our competitors'
products; and
o regulatory action or inaction on our products or our competitors'
products.
From time to time, we may hire companies to assist us in pursuing investor
relations strategies to generate increased volumes of investment in our common
stock. Such activities may result, among other things, in causing the price of
our common stock to increase on a short-term basis.
Furthermore, the stock market generally and the market for stocks of companies
with lower market capitalizations and small biopharmaceutical companies, like
us, have from time to time experienced, and likely will again experience
significant price and volume fluctuations that are unrelated to the operating
performance of a particular company.
Our outstanding Special Voting Rights Preferred Stock and provisions of our
Restated Certificate of Incorporation could delay or prevent the acquisition or
sale of our business.
Holders of our Special Voting Rights Preferred Stock have the ability to prevent
any change of control in us. Dr. Pankaj Modi, owns all of our Special Voting
Rights Preferred Stock. In addition, our Restated Certificate of Incorporation
permits our Board of Directors to designate new series of preferred stock and
issue those shares without any vote or action by our stockholders. Such newly
authorized and issued shares of preferred stock could contain terms that grant
special voting rights to the holders of such shares that make it more difficult
to obtain stockholder approval for an acquisition of our business or increase
the cost of any such acquisition.
26
ITEM 2. PROPERTIES
Our executive and principal administrative offices occupy approximately 5,000
square feet of office space in the Business Centre at 33 Harbour Square in
downtown Toronto, Ontario, Canada. We own the Business Centre, which comprises
approximately 9,100 square feet of usable space. The space in the Business
Centre that is not used by us is leased to third parties.
We own a laboratory facility in Toronto that we have used for limited production
of our oral insulin formulation for clinical purposes, and have completed a
pilot manufacturing facility for our insulin product in the same commercial
complex. Our laboratory facility is approximately 2,650 square feet. Our pilot
manufacturing facility, which also includes laboratory facilities, is
approximately 4,800 square feet. We also own all additional units in the same
building where our pilot manufacturing facility is located. These units are
currently leased to third parties and one is being used for storage. All of
these spaces could be used for manufacturing facilities if necessary. We have
obtained regulatory approval for the laboratory facility, and we are currently
in the process of obtaining regulatory approval for the pilot manufacturing
facility.
We have mortgages on our Toronto properties totaling $2,224,783 at July 31,
2004. These mortgages require the payment of interest, with minimal principal
reduction, prior to their due dates. These mortgages currently require an
aggregate $17,313 in monthly debt service payments. Aggregate principal
maturities for these mortgages will be $1,366,122 in fiscal 2005 and $858,661 in
fiscal 2006.
We lease approximately 1,710 square feet of office and laboratory space in
Worcester, Massachusetts that Antigen uses for its research and development
activities at an annual rent of $94,085. This space is sufficient for Antigen's
present activities.
We do not expect to need manufacturing capabilities related to our insulin
product beyond our pilot facility before the end of the current fiscal year. We
own an 11,625 square foot building in Brampton, Ontario, which is approximately
25 miles outside Toronto, and a 13,500 square foot building in Mississauga,
Ontario, which is about 20 miles from downtown Toronto, for ultimate use in
manufacturing. We have done preliminary work on these facilities, but we do not
expect to make a substantial investment in improving and equipping them for
manufacturing operations until our requirements in this area are better defined.
Both properties are currently leased to third parties.
We could use our other properties to expand research, development or testing of
our buccal and immunomedicine products if current facilities prove inadequate
for our needs.
27
ITEM 3. LEGAL PROCEEDINGS
Sands Brothers & Co. Ltd. v. Generex Biotechnology Corporation. On October 2,
1998, Sands Brothers & Co. Ltd., a New York City-based investment banking and
brokerage firm, initiated an arbitration against us under New York Stock
Exchange rules. Sands alleged that it had the right to receive, for nominal
consideration, approximately 1.5 million shares of our common stock. Sands based
its claim upon an October 1997 letter agreement that was purported by Sands to
confirm an agreement appointing Sands as the exclusive financial advisor to
Generex Pharmaceuticals, Inc., a subsidiary of us that was acquired in late
1997. In exchange, the letter agreement purported to grant Sands the right to
acquire 17% of Generex Pharmaceuticals' common stock for nominal consideration.
Sands claimed that its right to receive shares of Generex Pharmaceuticals'
common stock applies to our common stock since outstanding shares of Generex
Pharmaceuticals' common stock were converted into shares of our common stock in
the acquisition. Sands' claims also included additional shares allegedly due as
a fee related to that acquisition, and $144,000 in monthly fees allegedly due
under the terms of the purported agreement.
Pursuant to an arbitration award dated September 22, 1999, the arbitration panel
that heard this case awarded Sands $14,070 and issued a declaratory judgment
requiring us to issue to Sands a warrant to purchase 1,530,020 shares of our
common stock pursuant to and in accordance with the terms of the purported
October 1997 letter agreement. On October 13, 1999, Sands commenced a special
proceeding to confirm the arbitration award in the Supreme Court of the State of
New York, County of New York (the "New York Supreme Court"). On November 10,
1999, we moved to vacate the arbitration award. On March 20, 2000, the New York
Supreme Court granted Sands' petition to confirm the award and denied our motion
to vacate the award. We appealed and on January 23, 2001, the New York State
Appellate Division, First Department (the "Appellate Division"), modified the
judgment of the New York Supreme Court that had confirmed the arbitration award
against us. The Appellate Division affirmed the portion of the New York Supreme
Court judgment that had confirmed the granting of monetary relief of $14,070 to
Sands but modified the judgment to vacate the portion of the arbitration award
directing the issuance to Sands of a warrant to purchase 1,530,020 shares of our
common stock. The Appellate Division held that the portion of the award
directing us to issue warrants to Sands is too indefinite to be enforceable and
remanded the matter to the arbitration panel for a final and definite award with
respect to such relief or its equivalent (including possibly an award of
monetary damages). The arbitration panel commenced hearings on the matters
remanded by the Appellate Division in June 2001. On November 7, 2001, the
arbitration panel issued an award again requiring us to issue to Sands a warrant
to purchase 1,530,020 shares of our common stock purportedly pursuant to and in
accordance with the terms of the October 1997 letter agreement. Thereafter,
Sands submitted a motion to the New York Supreme Court to modify and confirm the
arbitration panel's award while we filed a motion with the court to vacate the
arbitration award. On February 25, 2002, the New York Supreme Court vacated the
arbitration panel's award. The Supreme Court concluded that the arbitration
panel had "disregarded the plain meaning" of the directive given by the
Appellate Division in the Appellate Division's January 23, 2001 decision that
remanded the matter of the warrant for reconsideration by the panel. The Supreme
Court found that the arbitration panel's award "lacks a rational basis". The
Supreme Court also remanded the matter to the New York Stock Exchange on the
issue of whether the arbitration panel should be disqualified. Sands has
appealed the February 25, 2002 order of the Supreme Court to the Appellate
Division. We filed a cross-appeal on issues relating to the disqualification of
the arbitration panel.
28
On October 29, 2002, the Appellate Division issued a decision and order
unanimously modifying the lower court's order by remanding the issue of damages
to a new panel of arbitrators and otherwise affirming the lower court's order.
The Appellate Division's decision and order limits the issue of damages before
the new panel of arbitrators to reliance damages which is not to include an
award of lost profits. Reliance damages are out-of-pocket damages incurred by
Sands. The Appellate Division stated that the lower court properly determined
that the arbitration award, which had granted Sands warrants for 1,530,020
shares of the registrant's stock, was incorrect.
On March 18, 2003, the Appellate Division of the Supreme Court of New York
denied a motion by Sands for re-argument of the October 29, 2002 decision, or,
in the alternative, for leave to appeal to the Court of Appeals. A new
arbitration took place in early June 2004.
On August 17, 2004, the Arbitration Panel of the New York Stock Exchange issued
a final award in the case of Sands vs. the Company, awarding Sands $150,000 in
reliance damages. No motion to confirm this award has been filed by Sands as of
the date of this report. Sands has not sought leave to appeal the vacaturs of
the prior panel's warrant award to the New York Court of Appeals. As such, the
award is subject to further legal proceedings.
At the present time, we are not able to predict the ultimate outcome of this
legal proceeding or to estimate a range of possible loss from this legal
proceeding. Therefore, no provision has been recorded in the accompanying
financial statements.
Subash Chandarana et al. v. Generex Biotechnology Corporation. In February 2001,
a former business associate of Dr. Pankaj Modi ("Modi"), and an entity called
Centrum Technologies Inc. ("CTI") commenced an action in the Ontario Superior
Court of Justice against us and Modi seeking, among other things, damages for
alleged breaches of contract and tortious acts related to a business
relationship between this former associate and Modi that ceased in July 1996.
The plaintiffs' statement of claim also seeks to enjoin the use, if any, by us
of three patents allegedly owned by CTI. On July 20, 2001, we filed a
preliminary motion to dismiss the action of CTI as a nonexistent entity or,
alternatively, to stay such action on the grounds of want of authority of such
entity to commence the action. The plaintiffs brought a cross motion to amend
the statement of claim to substitute Centrum Biotechnologies, Inc. ("CBI") for
CTI. CBI is a corporation of which 50 percent of the shares are owned by the
former business associate and the remaining 50 percent are owned by us.
Consequently, the shareholders of CBI are in a deadlock. The court granted our
motion to dismiss the action of CTI and denied the plaintiffs' cross motion
without prejudice to the former business associate to seek leave to bring a
derivative action in the name of or on behalf of CBI. The former business
associate subsequently filed an application with the Ontario Superior Court of
Justice for an order granting him leave to file an action in the name of and on
behalf of CBI against Modi and us. We have opposed the application which is now
pending before the Court. In September 2003, the Ontario Superior Court of
Justice granted the request and issued an order giving the former business
associate leave to file an action in the name of and on behalf of CBI against
Modi and us. A statement of claim was served in July 2004. We are not able to
predict the ultimate outcome of this legal proceeding at the present time or to
estimate an amount or range of potential loss, if any, from this legal
proceeding.
We are involved in certain other legal proceedings in addition to those
specifically described herein. Subject to the uncertainty inherent in all
litigation, we do not believe at the present time that the resolution of any of
these legal proceedings is likely to have a material adverse effect on our
financial position, operations or cash flows.
29
With respect to all litigation, as additional information concerning the
estimates used by us becomes known, we reassess its position both with respect
to accrued liabilities and other potential exposures.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Generex Biotechnology Corporation
was held on May 17, 2004. At the meeting, 19,786,399 shares of Common Stock were
represented and entitled to vote. Generex stockholders elected all nominees to
the Board of Directors, approved a proposal relating to issuance of common stock
at less than market value and ratified the appointment of BDO Dunwoody, LLP as
independent public accountants for the fiscal year ending July 31, 2004. The
results of the vote for the Board of Directors was as follows:
- ------------------------------------------------------------ ------------------ ------------------- ------------------
Election of nominees to Board of
Directors for terms expiring May 2004 Votes For Votes Against Abstentions
- ------------------------------------- --------- ------------- -----------
- ------------------------------------------------------------ ------------------ ------------------- ------------------
Mindy Allport- Settle 19,492,947 0 293,452
- ------------------------------------------------------------ ------------------ ------------------- ------------------
John P. Barratt 19,497,602 0 288,797
- ------------------------------------------------------------ ------------------ ------------------- ------------------
Gerald Bernstein, M.D. 19,324,977 0 461,422
- ------------------------------------------------------------ ------------------ ------------------- ------------------
Anna E. Gluskin 19,466,979 0 319,420
- ------------------------------------------------------------ ------------------ ------------------- ------------------
Brian T. McGee 19,479,476 0 306,923
- ------------------------------------------------------------ ------------------ ------------------- ------------------
Rose C. Perri 19,454,744 0 331,655
- ------------------------------------------------------------ ------------------ ------------------- ------------------
J. Michael Rosen 19,489,126 0 297,273
- ------------------------------------------------------------ ------------------ ------------------- ------------------
The approved proposal relating to issuance of below market priced securities was
to authorize the Board of Directors, in the three-month period commencing with
the date of the meeting, to issue, without prior stockholder approval, in
connection with capital raising transactions, and/or acquisitions of assets,
businesses or companies, up to 10,000,000 shares of common stock, including
options, warrants, securities or other rights convertible into common stock, in
the aggregate, in excess of the number of shares that NASDAQ's Rules
4350(i)(1)(C) and (D) permit the Company to issue in such transactions without
prior stockholder approval. The issuance of such 10,000,000 shares to be upon
such terms as the Board of Directors shall deem to be in the best interests of
the Company, for a price of not less than 70% of the price at the time of such
issuance and for an aggregate consideration not to exceed $50,000,000. The
authorization also applies to prior issuances of common stock which are
considered retroactively to have been issued at below market price due to
"integration" with a new issuance.
30
The results of the votes on the proposals were as follows:
- ------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Broker
Votes For Votes Against Abstention Non-Votes
--------- ------------- ---------- ---------
- ------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Proposal to Authorize Issuance 6,052,604 834,765 57,382 12,841,648
of Shares at below Market Prices
- ------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Ratification of BDO Dunwoody 19,547,356 189,187 49,856 0
As Independent Public Accountants
- ------------------------------------------------ ----------------- ---------------- ----------------- ----------------
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our common stock has been listed on the NASDAQ SmallCap Market since June 5,
2003. From May 5, 2000 to June 4, 2004, our common stock was listed on the
NASDAQ National Market. From February 1998 to May 2000, the "bid" and "asked"
prices for our common stock were quoted on the OTC Bulletin Board operated by
the National Association of Securities Dealers. Prior to February 1998, there
was no public market for our common stock.
The table below sets forth the high and low, intra-day sales prices of our
common stock reported on the NASDAQ National Market for each fiscal quarter (or
portion thereof) in the prior two years ended July 31, 2004. The table below
also sets forth the high and low closing "bid" prices for our common stock
reported on the NASDAQ SmallCap Market for the period from June 5, 2003 to July
31, 2004.
SALES PRICES
(EXCEPT WHERE INDICATED)
HIGH LOW
FISCAL 2003
First Quarter $2.63 $0.85
Second Quarter $2.60 $1.00
Third Quarter $1.42 $0.65
Fourth Quarter
05/01/03 - 06/04/03 $1.72 $0.87
06/05/03 - 07/31/03* $2.63 $1.35
FISCAL 2004
First Quarter $2.47 $1.12
Second Quarter $2.32 $1.23
Third Quarter $2.02 $1.26
Fourth Quarter $1.86 $1.00
* High and low closing "bid" prices, which represent prices between dealers, do
not include retail markup, markdown or commission and may not represent actual
transactions.
The closing sales price for our common stock reported on November 8, 2004, was
$0.80.
At November 8, 2004, there were 720 holders of record of our common stock.
31
EXISTING STOCK COMPENSATION PLANS
The following table sets forth information as of July 31, 2004 regarding our
existing compensation plans and individual compensation arrangements pursuant to
which our equity securities are authorized for issuance to employees or
non-employees (such as directors, consultants and advisors) in exchange for
consideration in the form of services:
---------------------------- --------------------------- ------------------------- -------------------------
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
Plan Category warrants and rights warrants and rights column (a))
---------------------------- --------------------------- ------------------------- -------------------------
(a) (b) (c)
---------------------------- --------------------------- ------------------------- -------------------------
Equity compensation
plans approved by
security holders
1998 Stock Option Plan 643,500 $5.00 0
2000 Stock Option Plan 1,229,500 $7.50 770,500
2002 Stock Option Plan 5,341,159 $2.39 2,658,841
--------- ----- ---------
Total 7,214,159 $3.49 3,429,341
---------------------------- --------------------------- ------------------------- -------------------------
Equity compensation 0 0 0
plans not approved by
security holders
---------------------------- --------------------------- ------------------------- -------------------------
Total 7,214,159 $3.49 3,429,341
---------------------------- --------------------------- ------------------------- -------------------------
DIVIDENDS
We have not paid dividends on our common stock in the past and have no present
intention of paying dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
In the fiscal year ended July 31, 2004 and subsequent period we sold common
stock and other securities in transactions in reliance upon exemptions from the
registration requirements of the Securities Act of 1933 as follows:
o On August 8, 2003, we acquired all of the outstanding capital stock of
Antigen Express, Inc. pursuant to an Agreement and Plan of Merger
("Merger Agreement"). Pursuant to the Merger Agreement, Antigen became
our wholly-owned subsidiary. Upon consummation of the Merger, we issued
an aggregate of approximately 1,779,974 shares of our common stock to
the former Antigen shareholders in connection with the Merger, and
issued an additional 1,000,000 shares on January 31, 2004. The shares
of our common stock issued in connection with the Merger were
restricted securities. However, they are registered for resale pursuant
to a registration statement on Form S-3 that became effective in
November 2003.
32
o During the fiscal quarter ended October 31, 2003, we issued an
aggregate of 487,500 shares to Jeffrey Trenk, Sound Capital
Incorporated, Global Advisory Services, LLC and CEOcast Inc. for
consulting services. For financial reporting purposes, we recognized an
expense of $918,000 in connection with the issuance of these shares for
services, which was approximately equal to the fair market value of the
shares when issued. As these transactions were not eligible for S-8
registration, we relied on Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act") in connection with the issuance of
these shares. The shares are restricted, and each of the consultants,
being primarily engaged in the financial industry, had access to the
information which would have been presented in a registration statement
and sufficient sophistication so as to not require the protections
afforded by registration under the Securities Act. 150,000 of these
shares have been registered for resale on form S-3.
o In January 2004, we completed three private placements of our common
stock and warrants with four accredited investors. Under the terms of
the private placements, we sold units, consisting of an aggregate of
1,984,808 shares of common stock and five-year warrants to purchase an
aggregate of 496,202 shares of common stock, for gross proceeds of
$3,000,000. In addition to the shares of common stock and warrants
purchased by the investors at each closing, each investor received an
additional investment right to purchase for a period of time up to the
same number of shares of common stock and warrants initially purchased
by such investor. Each investor's additional investment right is
exercisable into additional shares of our common stock and warrants at
an exercise price equal to the last bid price, on a consolidated basis,
on the trading day immediately proceeding the date on which definitive
agreements were signed by us and each investor. The exercise price of
all warrants is equal to 130% of such bid price. We undertook the
offerings in reliance upon Rule 506 of Regulation D and Section
18(b)(4)(D) of the Securities Act of 1933. The proceeds from the
private placements will be used for working capital and other general
corporate purposes directly related to our growth, and the development
of our products.
o In February 2004, we completed three additional private placements of
common stock and warrants with three accredited investors. Pursuant to
the terms of these private placements, we sold units, consisting of an
aggregate of 829,092 shares of common stock and five year warrants to
purchase an aggregate of 207,274 shares of common stock, for gross
proceeds of $1,264,000. In addition to the shares of common stock and
warrants purchased by the investors at each closing, each investor
received an additional investment right to purchase for a period of
time up to the same number of shares of common stock and warrants
initially purchased by such investor. Each investor's additional
investment right is exercisable into additional shares of our common
stock and warrants at an exercise price equal to the last bid price, on
a consolidated basis, on the trading day immediately proceeding the
date on which definitive agreements were signed by us and each
investor. The exercise price of all warrants is equal to 130% of such
bid price. We undertook the offerings in reliance upon Rule 506 of
Regulation D and Section 18(b)(4)(D) of the Securities Act. The
proceeds from the private placements will be used for working capital
and other general corporate purposes directly related to our growth,
and the development of our products.
33
o On February 6, 2004, we authorized the issuance of an aggregate of
175,000 shares to Sound Capital Incorporated and Global Advisory
Services, LLC for consulting services. For financial reporting
purposes, we recognized an expense of $287,000 in connection with the
issuance of these shares for services, which was approximately equal to
the fair market value of the shares when issued. As transactions were
not eligible for S-8 registration, we relied on Section 4(2) of the
Securities Act in connection with the issuance of these shares. The
shares are restricted, and each of the consultants, being primarily
engaged in the financial industry, had access to the information which
would have been presented in a registration statement and sufficient
sophistication so as to not require the protections afforded by
registration under the Securities Act. All of these shares have been
registered for resale on form S-3.
o In July 2004, we completed a private placement of our common stock and
warrants with four accredited investors. In accordance with the terms
of the private placement, we sold units, consisting of an aggregate of
2,459,016 shares of our common stock and five-year warrants to purchase
an aggregate of 1,967,213 shares of common stock, for gross proceeds of
$3,000,000. In addition to the shares of common stock and warrants
purchased by the investors at closing, each received an additional
investment right to purchase for a period of time up to the same number
of shares of common stock and warrants initially purchased by such
investor. Each investor's additional investment right is exercisable
into additional shares of our common stock and warrants at an exercise
price equal to the last bid price, on a consolidated basis, on the
trading day immediately proceeding the date on which definitive
agreements were signed by us and each investor. The exercise price of
all warrants is equal to 130% of such bid price. We undertook the
offerings in reliance upon Rule 506 of Regulation D and Section
18(b)(4)(D) of the Securities Act of 1933. The proceeds from the
private placement will be used for working capital and other general
corporate purposes directly related to our growth, and the development
of our products.
o During the first fiscal quarter of 2005, we issued 770,000 shares and
500,000 warrants to purchase our common stock to consultants in
exchange for services. For financial reporting purposes, we recognized
an expense of $1,254,300 in connection with the issuance of these
shares and warrants, which represents their fair market value.
On November 10, 2004, the Company entered into definitive agreements
with four accredited investors, pursuant to which the Company will
issue convertible promissory notes for aggregate gross proceeds of
$4,000,000. The notes carry a 6% coupon and a 15 month term and
amortize in 13 equal monthly installments commencing in the third month
of the term. The notes are convertible into registered common stock of
the Company at a per share price equal to the 10-day Volume Weighted
Average Price (VWAP) on the closing date. The coupon and amortization
payments are payable in cash or, at the Company's option, in registered
stock valued at a 10% discount to the 20-day VWAP at as the payment
date. The transaction terms include 100% five-year warrant coverage at
a per share exercise price equal to a 10% premium to the 10-day VWAP on
the closing date and a 100% additional investment right exercisable for
up to twelve months following the effective date of the registration
statement in respect of the transaction.
34
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from and should be read in
conjunction with our financial statements and related notes, which appear
elsewhere in this Annual Report on Form 10-K. Our financial statements for the
year ended July 31, 2004 and July 31, 2003 were audited by BDO Dunwoody, LLP.
Our financial statements for the years ended July 31, 2002 and 2001 were audited
by Deloitte & Touche LLP. Our financial statements for the year ended July 31,
2000 were audited by WithumSmith+Brown.
In thousands, except per share data
Year Ended July 31,
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Operating Results:
Revenue $627 -- -- $1,000 --
Net Loss ($18,363) $(13,262) $(13,693) $(27,097) $(8,841)
Net Loss Available to ($19,173) $(14,026) $(14,414) $(27,097) $(8,841)
Common Stockholders
Cash Dividends per share -- -- -- -- --
Common Stockholders
Loss per Common Share:
Basic and Diluted Net Loss (.64) (.67) (.70) (1.44) (.58)
Per Common Share
Financial Positions:
Total Assets $19,012 $22,639 $28,161 $42,666 $10,341
Long-Term Debt $2,225 $1,895 $663 $693 $722
Series A, Preferred Stock $14,310 $13,501 $12,736 $12,015 --
Stockholder's Equity $530 $5,857 $12,863 $27,307 $8,415
35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
GENERAL
Corporate History
We were incorporated in Delaware in September 1997 for the purpose of acquiring
Generex Pharmaceuticals, Inc., a Canadian corporation formed in November 1995 to
engage in pharmaceutical and biotechnological research and other activities. Our
acquisition of Generex Pharmaceuticals was completed in October 1997 in a
transaction in which the holders of all outstanding shares of Generex
Pharmaceuticals exchanged their shares for shares of our common stock.
In January 1998, we participated in a "reverse acquisition" with Green Mt. P.
S., Inc., a previously inactive Idaho corporation formed in 1983. As a result of
this transaction, our stockholders (the former shareholders of Generex
Pharmaceuticals) acquired a majority (approximately 90%) of the outstanding
capital stock of Green Mt., we became a wholly-owned subsidiary of Green Mt.,
Green Mt. changed its corporate name to Generex Biotechnology Corporation
("Generex Idaho"), and we changed our corporate name to GBC Delaware, Inc.
Because the reverse acquisition resulted in our stockholders becoming the
majority holders of Generex Idaho, we were treated as the acquiring corporation
in the transaction for accounting purposes. Thus, our historical financial
statements, which essentially represented the historical financial statements of
Generex Pharmaceuticals, were deemed to be the historical financial statements
of Generex Idaho.
In April 1999, we completed a reorganization in which we merged with Generex
Idaho. In this transaction, all outstanding shares of Generex Idaho were
converted into our shares, Generex Idaho ceased to exist as a separate entity,
and we changed our corporate name back to "Generex Biotechnology Corporation."
This reorganization did not result in any material change in our historical
financial statements or current financial reporting.
In August, 2003, we acquired Antigen Express, Inc. ("Antigen") pursuant to the
terms of an Agreement and Plan of Merger (the "Merger Agreement"). Antigen is
engaged in the research and development of technologies and immunomedicines for
the treatment of malignant, infectious, autoimmune and allergic diseases. For
details about this acquisition, see "Business History."
Business History
We are primarily engaged in the development of proprietary drug delivery
technology. Our principal business focus has been to develop a technology for
buccal delivery (absorption through the inner cheek walls) of large molecule
drugs, i.e., drugs composed of molecules with molecular weights above a
specified level. Large molecule drugs historically have been administered only
by injection because their size inhibits or precludes absorption if administered
by oral, transdermal, transnasal or other means.
36
Our first product is an insulin formulation that is administered as a fine spray
into the oral cavity using a hand-held aerosol spray applicator. Between January
1999 and September 2000, we conducted limited clinical trials on this product in
the United States, Canada and Europe. In September 2000, we entered into an
agreement (the "Development and License Agreement") to develop this product with
Eli Lilly and Company ("Lilly"). To date, over 800 patients with diabetes have
been dosed with our oral insulin product at approved facilities in seven
countries. We have conducted several clinical trials with insulin supplied by
Lilly under our agreement. Lilly did not, however, authorize or conduct any
clinical trials or provide financial support for those trials. We did receive a
$1,000,000 up front payment from Lilly. On May 23, 2003, we announced that we
had agreed with Lilly to end the Development and License Agreement for the
development and commercialization of buccal delivery of insulin. On November 5,
2003, we entered into a termination agreement with Lilly terminating the
Development and License Agreement, effective as of June 2, 2003. We will retain
all of the intellectual property and commercialization rights with respect to
buccal spray drug delivery technology, and we will have the continuing right to
develop and commercialize the product. We also entered into a Bulk Supply
Agreement (the "Bulk Supply Agreement") for the sale of human insulin crystals
by Lilly to us over a three year period. The Bulk Supply Agreement establishes
purchase prices, minimum purchase requirements, maximum amounts which may be
purchased in each year and a non-refundable prepayment of $1,500,000 to be
applied against amounts due for purchases.
In January 2001, we established a joint venture with Elan International
Services, Ltd. ("EIS"), a wholly-owned subsidiary of Elan Corporation, plc (EIS
and Elan Corporation, plc being collectively referred to as "Elan"), to pursue
the application of certain of our and Elan's drug delivery technologies,
including our platform technology for the buccal delivery of pharmaceutical
products, for the treatment of prostate cancer, endometriosis and/or the
suppression of testosterone and estrogen. In January 2002, we and Elan agreed to
expand the joint venture to encompass the buccal delivery of morphine for the
treatment of pain and agreed to pursue buccal morphine as the initial
pharmaceutical product for development under Generex (Bermuda) Ltd., the entity
through which the joint venture is being conducted. This expansion of the joint
venture occurred after we successfully completed a proof of concept clinical
study of morphine delivery using our proprietary buccal delivery technology.
In connection with the joint venture, EIS purchased 1,000 shares of a new series
of our preferred stock, designated as Series A Preferred Stock, for $12,015,000.
We applied the proceeds from the sale of the Series A Preferred Stock to
subscribe for an 80.1% equity ownership interest in Generex (Bermuda), Ltd. EIS
paid in capital of $2,985,000 to subscribe for a 19.9% equity ownership interest
in the joint venture entity. Subsequent to its purchase of the Shares of Series
A Preferred Stock, EIS transferred the shares to an affiliate of Elan. While we
presently own 80.1% of the joint venture entity, the Elan affiliate has the
right, subject to certain conditions, to increase its ownership up to 50% by
exchanging the Series A Preferred Stock for 30.1% of our equity ownership of the
joint venture entity. Alternatively, the Series A Preferred Stock may be
converted, under certain conditions, into shares of our common stock. In
accordance with the terms of the Series A Preferred Stock, if any shares of
Series A Preferred Stock are outstanding on January 16, 2007, we are required to
redeem the shares of Series A Preferred Stock at a redemption price equal to the
aggregate Series A Preferred Stock liquidation preference (which currently
equals the aggregate original purchase price of the Series A Preferred Stock),
either in cash, or in shares of common stock with a fair market value equal to
the redemption price. In January 2002, 2003 and 2004, pursuant to the terms of
the agreement with EIS, the Elan affiliate received a 6% stock dividend of
Series A Preferred Stock.
EIS also purchased 344,116 shares of our common stock for $5,000,000. We were
permitted to use the proceeds of this sale for any corporate purpose. If the
joint venture achieves certain milestones, we may require EIS to purchase an
additional $1,000,000 of our common stock at a 30% premium to the then
prevailing fair market value of our common stock.
37
Generex (Bermuda), Ltd. was granted non-exclusive licenses to utilize our buccal
delivery technology and certain Elan drug delivery technologies. Using the funds
from its initial capitalization, Generex (Bermuda), Ltd. paid a non-refundable
license fee of $15,000,000 to Elan in consideration for being granted the rights
to utilize the Elan drug delivery technologies.
To date we have not received any substantial economic support from Elan in
connection with the joint venture or the development of the morphine product,
other than its initial capital contribution. However, we have continued to
conduct research and development activities with the morphine product.
Our new subsidiary Antigen is engaged in research and development of
technologies and immunomedicines for the treatment of malignant, infectious,
autoimmune and allergic diseases. Our immunomedicine products work by
stimulating the immune system to either attack offending agents (i.e., cancer
cells, bacteria, and viruses) or to stop attacking benign elements (i.e., self
proteins and allergens). Our immunomedicine products are based on two platform
technologies that were discovered by an executive officer of Antigen, the Ii-Key
hybrid peptides and Ii-Suppression. The immunomedicine products are in the
pre-clinical stage of development, and trials in human patients are not expected
for at least 12 months. Development efforts are underway in melanoma, breast
cancer, prostate cancer, HIV, SARS vaccine and Type I diabetes. We are
establishing collaborations with academic centers to advance the technology,
with the ultimate goal of conducting human clinical testing.
We do not expect to receive any revenues from product sales in the current
fiscal year. However, we have received and we expect to continue to receive some
revenue from research grants for Antigen's immunomedicine products. To date, we
have received a total of $627,184 in such research grants. We expect to satisfy
all of our cash needs during the current year from capital raised through equity
financings.
Disclosure Regarding Research and Development Projects
Our major research and development projects are the refinement of our basic
buccal delivery technology, our buccal insulin project and our buccal morphine
product.
Both our insulin product and our morphine product are in clinical trials. In
Canada, we have recently begun Phase II-B trials for insulin. In order to obtain
FDA and Canadian HPB approval for any of our product candidates, we will be
required to complete "Phase III" trials which involve testing our product with a
large number of patients over a significant period of time. The conduct of Phase
III trials will require significantly greater funds than we either have on hand
or have experience in raising in any year or two years' time. We will therefore
need to receive funding from a corporate collaborator, or engage in fundraising
on a scale with which we have no experience.
Because of various uncertainties, we cannot predict the timing of completion of
our buccal insulin or buccal morphine products. These uncertainties include the
success of current studies, our ability to obtain the required financing and the
time required to obtain regulatory approval even if our research and development
efforts are completed and successful. For the same reasons, we cannot predict
when any products may begin to produce net cash inflows.
38
Most of our buccal delivery research and development activities to date have
involved developing our platform technology for use with insulin and morphine.
Insubstantial amounts have been expended on projects with other drugs, and those
projects involved a substantial amount of platform technology development.
Therefore, in the past, we have not made significant distinctions in the
accounting for research and development expenses among products, as a
significant portion of all research has involved improvements to the platform
technology in connection with insulin, which may benefit all of our potential
products. During fiscal 2004, approximately 88% of our $8,522,984 research
expenses were attributable to insulin and platform technology development, and
approximately 1% was attributable to morphine and fentanyl projects. As morphine
and fentanyl are both narcotic painkillers, the research is related. During
fiscal 2003, approximately 94% of our $5,150,075 of research and development was
expended for insulin and platform technology, and approximately 5.5% for
morphine and fentanyl.
Approximately 11%, or $937,385 of our research and development expenses for the
fiscal year ended July 31, 2004 were related to Antigen's immunomedicine
products. Because these products are in a very early, pre-clinical stage of
development, all of the expenses were accounted for as basic research and no
distinctions were made as to particular products. Because of the early stage of
development, we cannot predict the timing of completion of any products arising
from this technology, or when products from this technology might begin
producing revenues. However, we can predict that we do not expect to begin
clinical trials during the current fiscal year.
Developments in Fiscal 2004
In August 2003, we acquired all of the outstanding capital stock of Antigen
pursuant to an Agreement and Plan of Merger (the "Merger Agreement") between us,
Antigen and AGEXP Acquisition, Inc. ("AGEXP"), our wholly owned subsidiary that
was formed for purposes of the transaction. Pursuant to the Merger Agreement:
o AGEXP merged with and into Antigen (the "Merger");
o Antigen became our wholly owned subsidiary; and
o all of the former shareholders of Antigen were entitled to receive
shares of our common stock in exchange for their shares of Antigen
capital stock.
Antigen has facilities and its headquarters located at Worcester, Massachusetts.
Antigen is engaged in research and development to develop immunomedicines for
the treatment of malignant, infectious, autoimmune and allergic diseases.
Antigen's potential products are based on two platform technologies (Ii-Key
hybrid peptides and Ii-Suppression) discovered by an officer of Antigen.
The Merger Agreement provided for each holder of Antigen common stock and each
holder of each of the four outstanding series of Antigen preferred stock to
receive shares of our common stock for each share of Antigen common stock or
preferred stock held by such holder. The Merger Agreement established exchange
rates for the conversion of Antigen common and the various series of preferred
stock into our common stock. Upon consummation of the Merger, we issued an
aggregate of approximately 1,779,974 shares of our common stock to the former
Antigen stockholders in connection with the Merger, and issued an additional
1,000,000 shares on January 31, 2004. In addition, pursuant to the Merger
Agreement, we assumed Antigen common stock purchase options. These options have
been exercised for a total of 105,000 shares at an average exercise price of
$0.40 per share. The remainder of the option shares expired November 6, 2003.
39
The shares of our common stock issued in connection with the Merger are
restricted securities. However, they are registered for resale pursuant to a
registration statement on Form S-3 that became effective in November 2003
More information regarding the accounting for this transaction is contained in
Note 3 to our consolidated financial statements contained in this report.
We have committed to funding at least $2,000,000 for Antigen's research and
development projects in the next two years.
In January 2004, we completed three private placements of our common stock and
warrants. Under the terms of the private placements, we sold units, consisting
of an aggregate of 1,984,808 shares of common stock and five-year warrants to
purchase an aggregate of 496,202 shares of common stock, to four accredited
investors for gross proceeds of $3,000,000. In addition to the shares of common
stock and warrants purchased by the investors at each closing, each investor
received an additional investment right to purchase for a period of time up to
the same number of shares of common stock and warrants initially purchased by
such investor.
We anticipate using the proceeds from the private placements for working capital
and other general corporate purposes directly related to our growth, and the
development of our products.
On January 31, 2004, we issued 1,000,000 shares of our common stock we were
obligated to issue to the former shareholders of Antigen in accordance with the
terms of the Merger Agreement.
In February 2004, we completed three additional private placements of common
stock and warrants with three accredited investors. Pursuant to the terms of
these private placements, we sold units, consisting of 829,092 shares of common
stock and five year warrants to purchase 207,274 shares of common stock, for
gross proceeds of $1,264,000. In addition to the shares of common stock and
warrants purchased by the investors at each closing, each investor received an
additional investment right to purchase for a period of time up to the same
number of shares of common stock and warrants initially purchased by such
investor.
We anticipate using the proceeds from the private placements for working capital
and other general corporate purposes directly related to our growth, and the
development of our products.
On February 3, 2004, we announced the resignations of Peter Levitch and Dr.
Pankaj Modi from our Board of Directors.
On February 12, 2004, we announced the appointment of Mindy J. Allport-Settle to
our Board of Directors, filling the vacancy left from Mr. Levitch's resignation.
Ms. Allport-Settle has been President and Chief Executive Officer of Integrated
Development, LLC ("Integrated") since 1998. Integrated is an independent
consulting firm to the pharmaceutical industry, providing informed guidance in
operational, project and contract management, new business development and
regulatory compliance. In addition to her position with Integrated, Ms.
Allport-Settle has been a Vice-President of Impact Management Services, Inc.
("IMS") since 2003, which also provides consulting services to the
pharmaceutical industry. In her current positions at Integrated and IMS, Ms.
Allport-Settle has worked with companies such as GlaxoSmithKline, Pfizer,
AstraZeneca, Johnson Controls and DSM Pharmaceuticals.
40
On March 9, 2004, we entered into a Memorandum of Agreement as a result of
termination of one of our employees, whereby we are required to pay
approximately $432,000 and issue stock options to purchase 450,000 shares of our
common stock at $1.47 per share.
On March 17, 2004, we announced the appointment of Brian McGee to our Board of
Directors. Mr. McGee has been a partner of Zeifman & Company, LLP, Chartered
Accounting firm based in Toronto, Ontario, since 1995. Mr. McGee began working
at Zeifman shortly after receiving a B.A. degree in Commerce from the University
of Toronto in 1985.
In July 2004, we completed a private placement of our common stock and warrants
with four accredited investors. In accordance with the terms of the private
placement, we sold units, consisting of an aggregate of 2,459,016 shares of our
common stock and five-year warrants to purchase an aggregate of 1,967,213 shares
of common stock, for gross proceeds of $3,000,000. In addition to the shares of
common stock and warrants purchased by the investors at closing, each received
an additional investment right to purchase for a period of time up to the same
number of shares of common stock and warrants initially purchased by such
investor. Each investor's additional investment right is exercisable into
additional shares of our common stock and warrants at an exercise price equal to
the last bid price, on a consolidated basis, on the trading day immediately
proceeding the date on which definitive agreements were signed by us and each
investor. The exercise price of all warrants is equal to 130% of such bid price.
We undertook the offerings in reliance upon Rule 506 of Regulation D and Section
18(b)(4)(D) of the Securities Act of 1933. The proceeds from the private
placements will be used for working capital and other general corporate purposes
directly related to our growth, and the development of our products.
Developments Subsequent to Fiscal 2004.
On August 10, 2004 we issued an aggregate 770,000 shares of our common stock and
500,000 warrants to purchase our common stock to certain consultants in exchange
for financial services recognizing expense of $1,254,300 to financial services.
On August 17, 2004, the Arbitration Panel of the New York Stock Exchange issued
a final award in the case of Sands vs. the Company, awarding Sands $150,000 in
reliance damages. No motion to confirm this award has been filed by Sands as of
the date of this report. Sands has not sought leave to appeal the vacaturs of
the prior panel's warrant award to the New York Court of Appeals.
On August 26, 2004, Dr. Pankaj Modi resigned from his position as an officer of
the Company (Vice-President, Research & Development). Also, on August 26, 2004
Dr. Modi gave notice to the Company that the Consulting Agreement between Dr.
Modi and the Company will terminate effective August 25, 2005. See "Developments
in Fiscal 2004" under Management's Discussion and Analysis. We do not believe
that Dr. Modi's resignation or the termination of his Consulting Agreement with
us will materially adversely affect us.
On October 18, 2004, the Company entered into Securities Purchase Agreement to
sell 800,000 shares of common stock at $2.50 per share for the gross proceeds of
$2,000,000. The closing date for this transaction is to be agreed upon, but in
no event later than December 10, 2004.
41
On November 10, 2004, the Company entered into definitive agreements with four
accredited investors, pursuant to which the Company will issue convertible
promissory notes for aggregate gross proceeds of $4,000,000. The notes carry a
6% coupon and a 15 month term and amortize in 13 equal monthly installments
commencing in the third month of the term. The notes are convertible into
registered common stock of the Company at a per share price equal to the 10-day
Volume Weighted Average Price (VWAP) on the closing date. The coupon and
amortization payments are payable in cash or, at the Company's option, in
registered stock valued at a 10% discount to the 20-day VWAP at as the payment
date. The transaction terms include 100% five-year warrant coverage at a per
share exercise price equal to a 10% premium to the 10-day VWAP on the closing
date and a 100% additional investment right exercisable for up to twelve months
following the effective date of the registration statement in respect of the
transaction.
RESTATEMENT
Subsequent to the issuance of its financial statements for the year ended July
31, 2001, management determined that its Series A Preferred stock should be
reclassified from stockholders' equity, in accordance with Emerging Issues Task
Force Topic D-98, "Classification and Measurement of Redeemable Securities,"
because the redemption feature of the Series A Preferred stock is beyond our
control. This restatement did not affect net loss for the year ended July 31,
2001, nor did it affect total assets. The Series A Preferred stock should have
been included outside the statement of stockholders' equity from the date of its
issuance in January 2001.
RESULTS OF OPERATIONS - - 2004 COMPARED WITH 2003
We had a net loss of $18,362,583 for the year ended July 31, 2004 (fiscal 2004)
compared to a net loss of $13,261,764 in the year ended July 31, 2003 (fiscal
2003). The net loss for fiscal 2004 and 2003 excludes $810,003 and $764,154,
respectively, in non-cash stock dividend on preferred shares. The increase in
our fiscal 2004 net loss resulted from an increase in research and development
expenses (to $8,522,984 from $5,150,075) and an increase in general and
administrative expenses (to $10,669,541 from $8,698,615)
The increase in research and development expenses for fiscal 2004 reflects
research and development activities of Antigen, the increase in activities of
regulatory consultants, bulk insulin purchases and an increase in depreciation
of the patents due to additional patents acquired in the Antigen Merger. The
increase in general and administrative expenses for fiscal 2004 reflects the
increase in consulting services, increased level of participation in industry
shows and seminars, travel associated with shows and financing activities,
increased insurance and depreciation expenses as well as termination agreements.
The increase in general and administrative expenses was partially offset by a
decrease in legal and litigation expenses and a reduction in executive
compensation.
Our interest and miscellaneous income (net of interest expense) in fiscal 2004
decreased to $129,198 from $565,511 in fiscal 2003 due to decreases in our cash
and short-term investments and lower interest rates. We received higher income
from rental operations (net of expense) of $73,560 in fiscal 2004 compared to
$20,790 in fiscal 2003.
In both of the last two fiscal years, we incurred substantial expenses for
financial advisory and other financing services that were not related to a
specific financing and, therefore, were accounted for as general and
administrative expenses. These expenses ($2,256,503 in fiscal 2004 and
$2,239,431 in fiscal 2003) were paid partially through the issuance of common
stock and/or warrants and options to purchase common stock.
42
RESULTS OF OPERATIONS - - 2003 COMPARED WITH 2002
We had a net loss of $13,261,764 for the year ended July 31, 2003 (fiscal 2003)
compared to a net loss of $13,693,034 in the year ended July 31, 2002 (fiscal
2002). The net loss for fiscal 2003 and 2002 excludes $764,154 and $720,900,
respectively, in preferred stock dividend on preferred shares. The decrease in
our fiscal 2003 net loss resulted from a decrease in research and development
expenses (to $5,150,075 from $6,618,820) that was offset in part by an increase
in general and administrative expenses (to $8,698,615 from $7,911,626)
The increase in general and administrative expenses for fiscal 2003 reflects the
issuance of common stock, options and warrants to employees, consultants and
advisors for services rendered that resulted in an increase in non-cash charges
of $882,698 (to $1,313,585 from $430,887). The increase in general and
administrative expenses was partially offset by a decrease in legal and
litigation expenses and a reduction in travel expenses. The decrease in research
and development expenses for fiscal 2003 reflects the decreased level of
research and development activities under our collaboration with Elan and under
the collaboration with Lilly, which terminated in May 2003.
Our interest and miscellaneous income (net of interest expense) in fiscal 2003
decreased to $565,511 from $784,852 in fiscal 2002 due to decreases in our cash
and short-term investments and lower interest rates. We received income from
rental operations (net of expense) of $20,790 in fiscal 2003. We did not receive
any income from rental operations in fiscal 2003.
In both of the last two fiscal years, we incurred substantial expenses for
financial advisory and other financing services that were not related to a
specific financing and, therefore, were accounted for as general and
administrative expenses. These expenses ($2,239,431 in fiscal 2003 and
$1,144,252 in fiscal 2002) were paid partially through the issuance of common
stock and/or warrants and options to purchase common stock.
In addition, in fiscal 2003, the minority shareholder's share of the loss
generated by Generex (Bermuda), Ltd., was $625 as compared to a $52,560 in
fiscal 2002.
LIQUIDITY AND CAPITAL RESOURCES
To date we have financed our development stage activities primarily through
private placements of common stock. In fiscal 2004, we raised an aggregate of
approximately $7,264,000 from private placements. In fiscal 2004 we granted
stock options, warrants and shares of common stock to employees, consultants and
advisors with a value of $1,538,405 for services rendered, all of which are
included in general and administrative expenses. In September 2001, we began a
program to repurchase up to $1 million of our common stock from the open market.
Through July 31, 2004 we repurchased and cancelled a total of 149,500 shares of
common stock for $483,869 at an average price of $3.24 per share.
Notwithstanding the repurchase of the shares of common stock, our net loss
resulted in a decrease in stockholders' equity to $529,751 at July 31, 2004,
versus $5,856,965 at July 31, 2003.
43
At July 31, 2004, we had on hand cash and short term investments (primarily
notes of U.S. corporations) of approximately $5 million versus approximately
$14.7 million at July 31, 2003.
We believe that our current cash position is sufficient to meet all of our
working capital needs for at least the next 12 months. Beyond that, we may
require additional funds to support our working capital requirements or for
other purposes and may seek to raise funds through private or public equity
financing or from other sources. If we were unable to raise additional capital
as needed, we could be required to "scale back" or otherwise revise our business
plan. Any significant scale back of operations or modification of our business
plan due to a lack of funding could be expected to materially and adversely
affect our prospects.
In the past we have funded most of our development and other costs with equity
financing. While we have been able to raise equity capital as required,
unforeseen problems with our clinical program or materially negative
developments in general economic conditions could interfere with our ability to
raise additional equity capital as needed, or materially adversely affect the
terms upon which such capital is available.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations
is based on our consolidated financial statements which have been prepared in
conformity with accounting principles generally accepted in the United States of
America. It requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
We consider certain accounting policies related to impairment of long-lived
assets, intangible assets and accrued liabilities to be critical to our business
operations and the understanding of our results of operations:
Impairment of Long-Lived Assets. Management reviews for impairment whenever
events or changes in circumstances indicate that the carrying amount of property
and equipment may not be recoverable under the provisions of Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." If it is determined that an impairment loss has
occurred based upon expected future cash flows, the loss is recognized in the
Statement of Operations.
Intangible Assets. We have intangible assets related to patents. The
determination of the related estimated useful lives and whether or not these
assets are impaired involves significant judgments. In assessing the
recoverability of these intangible assets, we use an estimate of undiscounted
operating income and related cash flows over the remaining useful life, market
conditions and other factors to determine the recoverability of the asset. If
these estimates or their related assumptions change in the future, we may be
required to record impairment charges against these assets.
Estimating accrued liabilities, specifically litigation accruals. Management's
current estimated range of liabilities related to pending litigation is based on
management's best estimate of future costs. While the final resolution of the
litigation could result in amounts different than current accruals, and
therefore have an impact on our consolidated financial results in a future
reporting period, management believes the ultimate outcome will not have a
significant effect on our consolidated results of operations, financial position
or cash flows.
44
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
45
CONTRACTUAL OBLIGATIONS
- --------------------------------------------------------------------------------------------------------------------------
Payments Due by Period
- --------------------------------------------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL LESS THAN 1 1-3 YEARS 3-5 YEARS MORE THAN
YEAR 5 YEARS
- ---------------------------------------------------- ------------ ------------- ------------- ------------- --------------
Long-Term Debt Obligations 2,224,783 1,366,122 858,661 0 0
- ---------------------------------------------------- ------------ ------------- ------------- ------------- --------------
Capital Lease Obligations 0 0 0 0 0
- ---------------------------------------------------- ------------ ------------- ------------- ------------- --------------
Operating Lease Obligations 108,206 37,345 57,284 13,578 0
- ---------------------------------------------------- ------------ ------------- ------------- ------------- --------------
Purchase Obligations 0 0 0 0 0
- ---------------------------------------------------- ------------ ------------- ------------- ------------- --------------
Other Long-Term Liabilities Reflected on the 0 0 0 0 0
Registrant's Balance Sheet under GAAP
- ---------------------------------------------------- ------------ ------------- ------------- ------------- --------------
Total 2,332,989 1,403,467 915,945 13,578 0
- ---------------------------------------------------- ------------ ------------- ------------- ------------- --------------
TRANSACTIONS WITH AFFILIATES
On May 3, 2001, we advanced $334,300 to each of three senior officers, who are
also our stockholders, in exchange for promissory notes. These notes bore
interest at 8.5 percent per annum and were payable in full on May 1, 2002. These
notes were guaranteed by a related company owned by these officers and secured
by a pledge of 2,500,000 shares of our common stock owned by this related
company. On June 3, 2002, our Board of Directors extended the maturity date of
the loans to October 1, 2002. The other terms and conditions of the loans and
guaranty remained unchanged and in full force and effect. As of July 31, 2002,
the balance outstanding on these notes, including accrued interest, was
$1,114,084. Pursuant to a decision made by the Compensation Committee as of
August 30, 2002, these loans were satisfied through the application of 592,716
shares of pledged stock, at a value of $1.90 per share, which represented the
lowest closing price during the sixty days prior to August 30, 2002.
Prior to January 1, 1999, a portion of our general and administrative expenses
resulted from transactions with affiliated persons, and a number of capital
transactions also involved affiliated persons. Although these transactions were
not the result of "arms-length" negotiations, we do not believe that this fact
had a material impact on our results of operations or financial position. Prior
to December 31, 1998, we classified certain payments to executive officers for
compensation and expense reimbursements as "Research and Development - related
party" and "General and Administrative - related party" because the executive
officers received such payments through personal services corporations rather
than directly. After December 31, 1998, these payments have been and will
continue to be accounted for as though the payments were made directly to the
officers, and not as a related party transaction. We do not foresee a need for,
and therefore do not anticipate, any related party transactions in the current
fiscal year.
On August 7, 2002, we purchased real estate with an aggregate purchase price of
approximately $1.6 million from an unaffiliated party. In connection with that
transaction, Angara Enterprises, Inc., a licensed real estate broker that is an
affiliate of Anna Gluskin, received a commission from the proceeds of the sale
to the seller in the amount of 3% of the purchase price, or $45,714. We believe
that this is less than the aggregate commission which would have been payable if
a commission had been negotiated with an unaffiliated broker on an arm's length
basis.
We utilize a management company to manage all of our real properties. The
property management company is owned by Rose Perri, Anna Gluskin and the estate
of Mark Perri, our former Chairman of the Board. In the fiscal years ended July
31, 2004 and 2003 we paid the management company approximately $40,180 and
$33,237, respectively, in management fees.
46
NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." The primary objectives of this
interpretation are to provide guidance on the identification of entities for
which control is achieved through means other than through voting rights
("variable interest entities") and how to determine when and which business
enterprise (the "primary beneficiary") should consolidate the variable interest
entity. This new model for consolidation applies to an entity in which either
(i) the equity investors (if any) do not have a controlling financial interest;
or (ii) the equity investment at risk is insufficient to finance that entity's
activities without receiving additional subordinated financial support from
other parties. In addition, FIN 46 requires that the primary beneficiary, as
well as all other enterprises with a significant variable interest entity, make
additional disclosures. Certain disclosure requirements of FIN 46 were effective
for financial statements issued after January 31, 2003. In December 2003, the
FASB issued FIN 46 (revised December 2003), "Consolidation of Variable Interest
Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. The
effective dates and impact of FIN 46 and FIN 46-R are as follows: (i)
Special-purpose entities ("SPEs") created prior to February 1, 2003. The Company
must apply either the provisions of FIN 46 or early adopt the provisions of FIN
46-R at the end of the first interim or annual reporting period ending after
December 15, 2003. (ii) Non-SPEs created prior to February 1, 2003. The Company
is required to adopt FIN 46-R at the end of the first interim or annual
reporting period ending after March 15, 2004. (iii) All entities, regardless of
whether an SPE, that were created subsequent to January 31, 2003. The provisions
of FIN 46 were applicable for variable interests in entities obtained after
January 31, 2003. The Company does not have any arrangements with variable
interest entities that will require consolidation of their financial information
in the financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The changes are intended to improve financial reporting
by requiring that contracts with comparable characteristics be accounted for
similarly. Additionally, those changes are expected to result in more consistent
reporting of contracts as either derivatives or hybrid instruments. SFAS No. 149
is effective for contracts and hedging relationships entered into or modified
after June 30, 2003, and for provisions that relate to SFAS No. 133
implementation issues that have been effective for fiscal quarters that began
prior to June 15, 2003, apply in accordance with their respective effective
dates. The adoption of this statement did not have a significant effect on the
Company's consolidated financial position or results of operations.
47
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liability and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liability and equity. It also
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003, except for mandatory redeemable noncontrolling interests. The adoption of
this statement did not have a significant effect on the Company's consolidated
financial position or results of operations.
48
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks associated with changes in the exchange rates
between U.S. and Canadian currencies and with changes in the interest rates
related to our fixed rate debt. We do not believe that any of these risks will
have a material impact on our financial condition, results of operations and
cash flows.
At the present time, we maintain our cash in short term government or government
guaranteed instruments, short term commercial paper, interest bearing bank
deposits or demand bank deposits which do not earn interest. A substantial
majority of these instruments and deposits are denominated in U.S. dollars, with
the exception of funds denominated in Canadian dollars on deposit in Canadian
banks to meet short term operating needs in Canada. At the present time, with
the exception of professional fees and costs associated with the conduct of
clinical trials in the United States and Europe, substantially all of our
operating expense obligations are denominated in Canadian dollars. We do not
presently employ any hedging or similar strategy intended to mitigate against
losses that could be incurred as a result of fluctuations in the exchange rates
between U.S. and Canadian currencies.
As of July 31, 2004, we have a fixed rate debt totaling $2,224,783 comprised of
$787,402 at 5.8%, $300,920 at 8.5%, $573,184 at 9.7%, $187,127 at 10% and
$376,150 at 11.5%. All interest rates are fixed and the instruments mature from
July 2005 through August 2006. As our fixed rate debt matures, we will likely
refinance such debt at their existing market interest rates which may be more or
less than the fixed interest rates on the maturing debt. Because this debt is
fixed rate debt, if interest rates were to increase 100 basis points prior to
maturity, there would be no impact on earnings or cash flows.
We have not issued nor do we own any long term debt instruments, or any other
financial instruments, for trading purposes and as to which we would be subject
to material market risks.
49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Registered Chartered Accountants F-1-2
Consolidated Balance Sheets
July 31, 2004 and 2003 F-3
Consolidated Statements of Operations
For the Years Ended July 31, 2004, 2003 and 2002
and Cumulative From Inception to July 31, 2004 F-4
Consolidated Statements of Changes in Stockholders' Equity
For the Period November 2, 1995 (Date of Inception)
to July 31, 2004 F-5 - F-13
Consolidated Statements of Cash Flows
For the Years Ended July 31, 2004, 2003 and 2002
and Cumulative From Inception to July 31, 2004 F-14
Notes to Consolidated Financial Statements F-15 - F-40
REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
To the Directors and Stockholders of
Generex Biotechnology Corporation
(A Development Stage Company)
We have audited the consolidated balance sheets of Generex Biotechnology
Corporation (a development stage company) as at July 31, 2004 and 2003 and the
consolidated statements of operation, stockholder's equity and cash flows for
the years then ended and for the period from November 2, 1995 (date of
inception) to July 31, 2004. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the
consolidated financial statements of Generex Biotechnology Corporation for the
period from November 2, 1995 (date of inception) to July 31, 2002. Such
statements are included in the cumulative inception to July 31, 2004 totals on
the consolidated statements of operations and cash flows and reflect a net loss
of 67% of the related cumulative total. Those statements were audited by other
auditors whose report has been furnished to us and our opinion, insofar as it
relates to amounts for the period from November 2, 1995 (date of inception) to
July 31, 2004 included in the cumulative totals, is based solely upon the report
of the other auditors.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, these
consolidated financial statements present fairly, in all material respects, the
financial position of Generex Biotechnology Corporation (a development stage
company) as at July 31, 2004 and 2003 and the results of its operations and cash
flows for the years then ended and for the period from November 2, 1995 (date of
inception) to July 31, 2004 in conformity with United States generally accepted
accounting principles.
/s/ BDO Dunwoody LLP
Independent Registered Chartered Accountants
Toronto, Ontario
October 6, 2004, except for Note 20
which is as of November 10, 2004
F-1
REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
To the Board of Directors and Stockholders of
Generex Biotechnology Corporation:
We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity and cash flows of Generex Biotechnology Corporation and
subsidiaries (a development stage company) for the year ended July 31, 2002 and
for the period from November 2, 1995 (date of inception) to July 31, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The Company's financial statements for the period from November 2,
1995 (date of inception) through July 31, 2000 were audited by other auditors
whose report, dated September 14, 2000, expressed an unqualified opinion on
those statements. The financial statements for the period November 2, 1995 (date
of inception) through July 31, 2000 reflect total revenues and net loss of $-0-
and $21,816,725, respectively, of the related totals. The other auditors' report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for such prior period, is based solely on the report of such auditors.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, such
financial statements present fairly, in all material respects, the results of
operations and cash flows of the Company for the year ended July 31, 2002 and
for the period from November 2, 1995 (date of inception) to July 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche, LLP
Independent Registered Chartered Accountants
Toronto, Ontario
October 7, 2002
F-2
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
July 31, July 31,
2004 2003
------------ -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 4,950,419 $ 12,356,578
Restricted cash 206,421 188,967
Short-term investments -- 2,362,071
Other current assets 870,934 319,293
------------ ------------
Total Current Assets 6,027,774 15,226,909
Property and Equipment, Net 4,291,622 4,218,832
Assets Held for Investment, Net 2,250,506 1,906,312
Patents, Net 5,696,905 898,876
Deposits 395,889 25,000
Due From Related Party 349,294 362,779
------------ ------------
TOTAL ASSETS $ 19,011,990 $ 22,638,708
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,947,399 $ 1,386,214
Current maturities of long-term debt 1,366,122 426,767
------------ ------------
Total Current Liabilities 3,313,521 1,812,981
Long-Term Debt, Less Current Maturities 858,661 1,468,708
Commitments and Contingencies
Series A, Preferred stock, $.001 par value; authorized 1,000,000 shares, stated
at redemption value, 1,191 and 1,123 shares issued and outstanding
at July 31, 2004 and 2003, respectively 14,310,057 13,500,054
Stockholders' Equity:
Special Voting Rights Preferred stock, $.001 par value; authorized, issued and
outstanding 1,000 shares at July 31, 2004 and 2003 1 1
Common stock, $.001 par value; authorized 150,000,000 and 50,000,000
shares at July 31, 2004 and 2003, respectively issued 36,688,664 and
26,017,524 shares at July 31, 2004 and 2003, respectively, and outstanding
36,688,664 and 25,275,308 shares at July 31, 2004 and 2003, respectively 34,264 26,017
Treasury stock, at cost; -0- and 742,216 shares at July 31, 2004
and 2003, respectively -- (1,610,026)
Additional paid-in capital 97,110,291 85,065,980
Notes receivable - common stock (384,803) (359,998)
Deficit accumulated during the development stage (96,526,373) (77,353,787)
Accumulated other comprehensive income 296,371 88,778
------------ ------------
Total Stockholders' Equity 529,751 5,856,965
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,011,990 $ 22,638,708
============ ============
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-3
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative From
For the Years Ended November 2, 1995
July 31, (Date of Inception)
----------------------------------------------------- to July 31,
2004 2003 2002 2004
------------- ------------- ------------- -------------------
Revenues $ 627,184 $ -- $ -- $ 1,627,184
Operating Expenses:
Research and development 8,522,984 5,150,075 6,618,820 47,167,714
Research and development - related party -- -- -- 220,218
General and administrative 10,669,541 8,698,615 7,911,626 54,251,312
General and administrative - related party -- -- -- 314,328
------------- ------------- ------------- -------------
Total Operating Expenses 19,192,525 13,848,690 14,530,446 101,953,572
------------- ------------- ------------- -------------
Operating Loss (18,565,341) (13,848,690) (14,530,446) (100,326,388)
Other Income (Expense):
Miscellaneous income (expense) (3,593) 94,376 15,995 125,348
Income from Rental Operations, net 73,560 20,790 -- 94,350
Interest income 249,264 543,336 833,167 3,371,612
Interest expense (116,473) (72,201) (64,310) (534,423)
------------- ------------- ------------- -------------
Net Loss Before Undernoted (18,362,583) (13,262,389) (13,745,594) (97,269,501)
Minority Interest Share of Loss -- 625 52,560 3,038,185
------------- ------------- ------------- -------------
Net Loss (18,362,583) (13,261,764) (13,693,034) (94,231,316)
Preferred Stock Dividend 810,003 764,154 720,900 2,295,057
------------- ------------- ------------- -------------
Net Loss Available to Common Shareholders $ (19,172,586) $ (14,025,918) $ (14,413,934) $ (96,526,373)
============= ============= ============= =============
Basic and Diluted Net Loss Per Common Share $ (.64) $ (.67) $ (.70)
============= ============= =============
Weighted Average Number of Shares of Common
Stock Outstanding 30,167,535 20,885,164 20,660,079
============= ============= =============
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-4
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 2004
SVR
Preferred Common
Stock Stock
----- -----
Shares Amount Shares Amount
------- ------- --------- ----------
Balance November 2, 1995
(Inception) - $ - - $ -
Issuance of common stock for cash,
February 1996, $.0254 - - 321,429 321
Issuance of common stock for cash,
February 1996, $.0510 - - 35,142 35
Issuance of common stock for cash,
February 1996, $.5099 - - 216,428 216
Issuance of common stock for cash,
March 1996, $10.2428 - - 2,500 3
Issuance of common stock for cash,
April 1996, $.0516 - - 489,850 490
Issuance of common stock for cash,
May 1996, $.0512 - - 115,571 116
Issuance of common stock for cash,
May 1996, $.5115 - - 428,072 428
Issuance of common stock for cash,
May 1996, $10.2302 - - 129,818 130
Issuance of common stock for cash,
July 1996, $.0051 - - 2,606,528 2,606
Issuance of common stock for cash,
July 1996, $.0255 - - 142,857 143
Issuance of common stock for cash,
July 1996, $.0513 - - 35,714 36
Issuance of common stock for cash,
July 1996, $10.1847 - - 63,855 64
Costs related to issuance of common
stock - - - -
Founders Shares transferred for services
rendered - - - -
Comprehensive Income (Loss):
Net loss - - - -
Other comprehensive income (loss)
Currency translation adjustment - - - -
Total Comprehensive Income (Loss)
------- ------- --------- ----------
Balance, July 31, 1996 - $ - 4,587,764 $ 4,588
------- ------- --------- ----------
Treasury Notes
Stock Additional Receivable -
----- Paid-In Common
Shares Amount Capital Stock
------- ------- ----------- --------
Balance November 2, 1995
(Inception) - $ - $ - $ -
Issuance of common stock for cash,
February 1996, $.0254 - - 7,838 -
Issuance of common stock for cash,
February 1996, $.0510 - - 1,757 -
Issuance of common stock for cash,
February 1996, $.5099 - - 110,142 -
Issuance of common stock for cash,
March 1996, $10.2428 - - 25,604 -
Issuance of common stock for cash,
April 1996, $.0516 - - 24,773 -
Issuance of common stock for cash,
May 1996, $.0512 - - 5,796 -
Issuance of common stock for cash,
May 1996, $.5115 - - 218,534 -
Issuance of common stock for cash,
May 1996, $10.2302 - - 1,327,934
Issuance of common stock for cash, -
July 1996, $.0051 - - 10,777
Issuance of common stock for cash,
July 1996, $.0255 - - 3,494 -
Issuance of common stock for cash,
July 1996, $.0513 - - 1,797 -
Issuance of common stock for cash,
July 1996, $10.1847 - - 650,282 -
Costs related to issuance of common
stock - - (10,252) -
Founders Shares transferred for services
rendered - - 330,025 -
Comprehensive Income (Loss):
Net loss - - - -
Other comprehensive income (loss)
Currency translation adjustment - - - -
Total Comprehensive Income (Loss)
------- ------- ----------- --------
Balance, July 31, 1996 - $ - $ 2,708,501 $ -
------- ------- ----------- --------
Deficit
Accumulated Accumulated
During the Other Total
Development Comprehensive Stockholders'
Stage Income (Loss) Equity
---------- ---------- -----------
Balance November 2, 1995
(Inception) $ - $ - $ -
Issuance of common stock for cash,
February 1996, $.0254 - - 8,159
Issuance of common stock for cash,
February 1996, $.0510 - - 1,792
Issuance of common stock for cash,
February 1996, $.5099 - - 110,358
Issuance of common stock for cash,
March 1996, $10.2428 - - 25,607
Issuance of common stock for cash,
April 1996, $.0516 - - 25,263
Issuance of common stock for cash,
May 1996, $.0512 - - 5,912
Issuance of common stock for cash,
May 1996, $.5115 - - 218,962
Issuance of common stock for cash,
May 1996, $10.2302 - - 1,328,064
Issuance of common stock for cash,
July 1996, $.0051 - - 13,383
Issuance of common stock for cash,
July 1996, $.0255 - - 3,637
Issuance of common stock for cash,
July 1996, $.0513 - - 1,833
Issuance of common stock for cash,
July 1996, $10.1847 - - 650,346
Costs related to issuance of common
stock - - (10,252)
Founders Shares transferred for services
rendered - - 330,025
Comprehensive Income (Loss):
Net loss (693,448) - (693,448)
Other comprehensive income (loss)
Currency translation adjustment - (4,017) (4,017)
---------- ---------- -----------
Total Comprehensive Income (Loss) (693,448) (4,017) (697,465)
---------- ---------- -----------
Balance, July 31, 1996 $ (693,448) $ (4,017) $ 2,015,624
---------- ---------- -----------
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-5
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 2004
SVR
Preferred Common
Stock Stock
----- -----
Shares Amount Shares Amount
------- ------- --------- ----------
Balance, August 1, 1996 -- $ -- 4,587,764 $ 4,588
Issuance of common stock for cash,
September 1996, $.0509 -- -- 2,143 2
Issuance of common stock for cash,
December 1996, $10.2421 -- -- 1,429 1
Issuance of common stock for cash,
January 1997, $.0518 -- -- 1,466 1
Issuance of common stock for cash,
March 1997, $10.0833 -- -- 12 --
Issuance of common stock for cash,
May 1997, $.0512 -- -- 4,233 4
Issuance of common stock for cash,
May 1997, $.5060 -- -- 4,285,714 4,286
Costs related to issuance of common
stock, May 1997 -- -- -- --
Issuance of common stock for cash,
May 1997, $10.1194 -- -- 18,214 18
Issuance of common stock for cash,
June 1997, $.0504 -- -- 10,714 11
Issuance of common stock for cash,
June 1997, $.5047 -- -- 32,143 32
Issuance of common stock for cash,
June 1997, $8.9810 -- -- 29,579 30
Issuance of common stock for cash,
June 1997, $10.0978 -- -- 714 1
Issuance of common stock for cash,
July 1997, $10.1214 -- -- 25,993 26
Costs related to issuance of common
stock -- -- -- --
Founders Shares transferred for services
rendered -- -- -- --
Comprehensive Income (Loss):
Net loss -- -- -- --
Other comprehensive income (loss)
Currency translation adjustment -- -- -- --
Total Comprehensive Income (Loss)
----------- ----------- --------- -----------
Balance, July 31, 1997 -- $ -- 9,000,118 $ 9,000
=========== =========== ========= ===========
Treasury Notes
Stock Additional Receivable -
----- Paid-In Common
Shares Amount Capital Stock
------- ------- ----------- --------
Balance, August 1, 1996 -- $ -- $ 2,708,501 $ --
Issuance of common stock for cash,
September 1996, $.0509 -- -- 107 --
Issuance of common stock for cash,
December 1996, $10.2421 -- -- 14,635 --
Issuance of common stock for cash,
January 1997, $.0518 -- -- 75 --
Issuance of common stock for cash,
March 1997, $10.0833 -- -- 121 --
Issuance of common stock for cash,
May 1997, $.0512 -- -- 213 --
Issuance of common stock for cash,
May 1997, $.5060 -- -- 2,164,127 --
Costs related to issuance of common
stock, May 1997 -- -- (108,421) --
Issuance of common stock for cash,
May 1997, $10.1194 -- -- 184,297 --
Issuance of common stock for cash,
June 1997, $.0504 -- -- 529 --
Issuance of common stock for cash,
June 1997, $.5047 -- -- 16,190 --
Issuance of common stock for cash,
June 1997, $8.9810 -- -- 265,618 --
Issuance of common stock for cash,
June 1997, $10.0978 -- -- 7,209 --
Issuance of common stock for cash,
July 1997, $10.1214 -- -- 263,060 --
Costs related to issuance of common
stock -- -- (26,960) --
Founders Shares transferred for services
rendered -- -- 23,481 --
Comprehensive Income (Loss):
Net loss -- -- -- --
Other comprehensive income (loss)
Currency translation adjustment -- -- -- --
Total Comprehensive Income (Loss)
------- ----------- ----------- -----------
Balance, July 31, 1997 -- $ -- $ 5,512,782 $ --
======= =========== =========== ===========
Deficit
Accumulated Accumulated
During the Other Total
Development Comprehensive Stockholders'
Stage Income (Loss) Equity
---------- ---------- -----------
Balance, August 1, 1996 $ (693,448) $ (4,017) $ 2,015,624
Issuance of common stock for cash,
September 1996, $.0509 -- -- 109
Issuance of common stock for cash,
December 1996, $10.2421 -- -- 14,636
Issuance of common stock for cash,
January 1997, $.0518 -- -- 76
Issuance of common stock for cash,
March 1997, $10.0833 -- -- 121
Issuance of common stock for cash,
May 1997, $.0512 -- -- 217
Issuance of common stock for cash,
May 1997, $.5060 -- -- 2,168,413
Costs related to issuance of common
stock, May 1997 -- -- (108,421)
Issuance of common stock for cash,
May 1997, $10.1194 -- -- 184,315
Issuance of common stock for cash,
June 1997, $.0504 -- -- 540
Issuance of common stock for cash,
June 1997, $.5047 -- -- 16,222
Issuance of common stock for cash,
June 1997, $8.9810 -- -- 265,648
Issuance of common stock for cash,
June 1997, $10.0978 -- -- 7,210
Issuance of common stock for cash,
July 1997, $10.1214 -- -- 263,086
Costs related to issuance of common
stock -- -- (26,960)
Founders Shares transferred for services
rendered -- -- 23,481
Comprehensive Income (Loss):
Net loss (1,379,024) -- (1,379,024)
Other comprehensive income (loss)
Currency translation adjustment -- 3,543 3,543
----------- ----------- -----------
Total Comprehensive Income (Loss) (1,379,024) 3,543 (1,375,481)
----------- ----------- -----------
Balance, July 31, 1997 $(2,072,472) $ (474) $ 3,448,836
=========== =========== ===========
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-6
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 2004
SVR
Preferred Common
Stock Stock
----- ------
Shares Amount Shares Amount
---------------- ---------------- ---------------- ----------------
Balance, August 1, 1997 -- $ -- 9,000,118 $ 9,000
Issuance of warrants in exchange for
services rendered, October 1997, $.50 -- -- -- --
Issuance of common stock in exchange
for services rendered, December 1997, $0.05 -- -- 234,000 234
Issuance of SVR Preferred Stock in exchange
for services rendered, January 1998, $.001 1,000 1 -- --
Shares issued pursuant to the January 9, 1998
reverse merger between GBC-Delaware, Inc.
and Generex Biotechnology Corporation -- -- 1,105,000 1,105
Issuance of common stock for cash, March
1998, $2.50 -- -- 70,753 71
Issuance of common stock for cash, April
1998, $2.50 -- -- 60,000 60
Issuance of common stock in exchange
for services rendered, April 1998, $2.50 -- -- 38,172 38
Issuance of common stock for cash, May
1998, $2.50 -- -- 756,500 757
Issuance of common stock in exchange
for services rendered, May 1998, $2.50 -- -- 162,000 162
Issuance of warrants in exchange for
services rendered, May 1998, $.60 -- -- -- --
Issuance of common stock for cash, June
1998, $2.50 -- -- 286,000 286
Exercise of warrants for cash, June
1998, $0.0667 -- -- 234,000 234
Issuance of common stock in exchange
for services rendered, June 1998, $2.50 -- -- 24,729 24
Comprehensive Income (Loss):
Net loss -- -- -- --
Other comprehensive income (loss)
Currency translation adjustment -- -- -- --
Total Comprehensive Income (Loss)
------------ ---------- ---------- ----------
Balance, July 31, 1998 1,000 $ 1 11,971,272 $ 11,971
============ ========== ========== ==========
Treasury Notes
Stock Additional Receivable -
----- Paid-In Common
Shares Amount Capital Stock
---------------- ----------------- ------------------ ----------------
Balance, August 1, 1997 -- $ -- $5,512,782 $ --
Issuance of warrants in exchange for
services rendered, October 1997, $.50 -- -- 234,000 --
Issuance of common stock in exchange
for services rendered, December 1997, $0.05 -- -- 10,698 --
Issuance of SVR Preferred Stock in exchange
for services rendered, January 1998, $.001 -- -- 99 --
Shares issued pursuant to the January 9, 1998
reverse merger between GBC-Delaware, Inc.
and Generex Biotechnology Corporation -- -- (1,105) --
Issuance of common stock for cash, March
1998, $2.50 -- -- 176,812 --
Issuance of common stock for cash, April
1998, $2.50 -- -- 149,940 --
Issuance of common stock in exchange
for services rendered, April 1998, $2.50 -- -- 95,392 --
Issuance of common stock for cash, May
1998, $2.50 -- -- 1,890,493 --
Issuance of common stock in exchange
for services rendered, May 1998, $2.50 -- -- 404,838 --
Issuance of warrants in exchange for
services rendered, May 1998, $.60 -- -- 300,000 --
Issuance of common stock for cash, June
1998, $2.50 -- -- 714,714 --
Exercise of warrants for cash, June
1998, $0.0667 -- -- 15,374 --
Issuance of common stock in exchange
for services rendered, June 1998, $2.50 -- -- 61,799 --
Comprehensive Income (Loss):
Net loss -- -- -- --
Other comprehensive income (loss)
Currency translation adjustment -- -- -- --
Total Comprehensive Income (Loss)
---------- ---------- ---------- ---------
Balance, July 31, 1998 -- $ -- $9,565,836 $ --
========== ========== ========== =========
Deficit
Accumulated Accumulated
During the Other Total
Development Comprehensive Stockholders'
Stage Income (Loss) Equity
------------------- ----------------- -------------------
Balance, August 1, 1997 $ (2,072,472) $ (474) $ 3,448,836
Issuance of warrants in exchange for
services rendered, October 1997, $.50 -- -- 234,000
Issuance of common stock in exchange
for services rendered, December 1997, $0.05 -- -- 10,932
Issuance of SVR Preferred Stock in exchange
for services rendered, January 1998, $.001 -- -- 100
Shares issued pursuant to the January 9, 1998
reverse merger between GBC-Delaware, Inc.
and Generex Biotechnology Corporation -- -- --
Issuance of common stock for cash, March
1998, $2.50 -- -- 176,883
Issuance of common stock for cash, April
1998, $2.50 -- -- 150,000
Issuance of common stock in exchange
for services rendered, April 1998, $2.50 -- -- 95,430
Issuance of common stock for cash, May
1998, $2.50 -- -- 1,891,250
Issuance of common stock in exchange
for services rendered, May 1998, $2.50 -- -- 405,000
Issuance of warrants in exchange for
services rendered, May 1998, $.60 -- -- 300,000
Issuance of common stock for cash, June
1998, $2.50 -- -- 715,000
Exercise of warrants for cash, June
1998, $0.0667 -- -- 15,608
Issuance of common stock in exchange
for services rendered, June 1998, $2.50 -- -- 61,823
Comprehensive Income (Loss):
Net loss (4,663,604) -- (4,663,604)
Other comprehensive income (loss)
Currency translation adjustment -- (198,959) (198,959)
------------ ------------- ------------
Total Comprehensive Income (Loss) (4,663,604) (198,959) 4,862,563
------------ ------------- ------------
Balance, July 31, 1998 $ (6,736,076) $ (199,433) $ 2,642,299
============ ============= ============
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-7
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 2004
SVR
Preferred Common
Stock Stock
----- ------
Shares Amount Shares Amount
---------------- ---------------- ---------------- ----------------
Balance, August 1, 1998 1,000 $ 1 11,971,272 $ 11,971
Issuance of common stock for cash, August
1998, $3.00 -- -- 100,000 100
Issuance of common stock for cash, August
1998, $3.50 -- -- 19,482 19
Redemption of common stock for cash,
September 1998, $7.75 -- -- (15,357) (15)
Issuance of common stock for cash,
September-- October 1998, $3.00 -- -- 220,297 220
Issuance of common stock for cash, August--
October 1998, $4.10 -- -- 210,818 211
Issuance of common stock in exchange for
services rendered, August-- October 1998, $2.50 -- -- 21,439 21
Issuance of common stock in exchange for
services rendered, August-- October 1998, $4.10 -- -- 18,065 18
Issuance of common stock in exchange
for services rendered, September 1998, $4.10 -- -- 180,000 180
Issuance of warrants in exchange for
services rendered, October 1998, $.26 -- -- -- --
Issuance of stock options in exchange for
services rendered, November 1998, $1.85 -- -- -- --
Issuance of warrants in exchange for
services rendered, November 1998, $1.64 -- -- -- --
Issuance of common stock for cash,
November 1998-- January 1999, $3.50 -- -- 180,000 180
Issuance of common stock for cash,
November 1998-- January 1999, $4.00 -- -- 275,000 275
Issuance of common stock for cash,
November 1998-- January 1999, $4.10 -- -- 96,852 97
Issuance of common stock in exchange
for services rendered, November 1998--
January 1999, $4.10 -- -- 28,718 29
Issuance of common stock for cash,
November 1998-- January 1999, $5.00 -- -- 20,000 20
Issuance of common stock for cash,
November 1998-- January 1999, $5.50 -- -- 15,000 15
Issuance of common stock in exchange for
services rendered, January 1999, $5.00 -- -- 392 --
Issuance of common stock for cash,
February 1999, $5.00 -- -- 6,000 6
Issuance of common stock in exchange for
services rendered, February 1999, $6.00 -- -- 5,000 5
Issuance of common stock for cash,
March 1999, $6.00 -- -- 11,000 11
Issuance of common stock for cash,
April 1999, $5.50 -- -- 363,637 364
Issuance of warrants in exchange for
services rendered, April 1999, $3.21 -- -- -- --
Issuance of warrants in exchange for
services rendered, April 1999, $3.17 -- -- -- --
Issuance of warrants in exchange for
services rendered, April 1999, $2.89 -- -- -- --
Issuance of warrants in exchange for
services rendered, April 1999, $3.27 -- -- -- --
Stock adjustment -- -- 714 1
Issuance of common stock for cash,
May 1999, $5.50 -- -- 272,728 273
Issuance of common stock in exchange for
services rendered, May-- June 1999, $5.50 -- -- 60,874 61
Exercise of warrants for cash, June 1999, $5.50 -- -- 388,375 389
Exercise of warrants in exchange for note
receivable, June 1999, $5.00 -- -- 94,776 95
Exercise of warrants in exchange for services
rendered, June 1999, $5.00 -- -- 13,396 13
Reduction of note receivable in exchange for
services rendered -- -- -- --
Shares tendered in conjunction with warrant
exercise, June 1999, $7.8125 -- -- (323,920) (324)
Exercise of warrants for shares tendered,
June 1999, $5.00 -- -- 506,125 506
Cost of warrants redeemed for cash -- -- -- --
Cost related to warrant redemption, June 1999 -- -- -- --
Costs related to issuance of common stock -- -- -- --
Comprehensive Income (Loss):
Net Loss -- -- -- --
Other comprehensive income (loss):
Currency translation adjustment -- -- -- --
------------ ------------ ---------- -----------
Total Comprehensive Income (Loss)
Balance, July 31, 1999 1,000 $ 1 14,740,683 $ 14,741
============ ============ ========== ===========
Treasury Notes
Stock Additional Receivable -
----- Paid-In Common
Shares Amount Capital Stock
---------------- ----------------- ------------------ ----------------
Balance, August 1, 1998 -- $ -- $ 9,565,836 $ --
Issuance of common stock for cash, August
1998, $3.00 -- -- 299,900 --
Issuance of common stock for cash, August
1998, $3.50 -- -- 68,168 --
Redemption of common stock for cash,
September 1998, $7.75 -- -- (119,051) --
Issuance of common stock for cash,
September-- October 1998, $3.00 -- -- 660,671 --
Issuance of common stock for cash, August--
October 1998, $4.10 -- -- 864,142 --
Issuance of common stock in exchange for
services rendered, August-- October 1998, $2.50 -- -- 53,577 --
Issuance of common stock in exchange for
services rendered, August-- October 1998, $4.10 -- -- 74,048 --
Issuance of common stock in exchange
for services rendered, September 1998, $4.10 -- -- 737,820 --
Issuance of warrants in exchange for
services rendered, October 1998, $.26 -- -- 2,064 --
Issuance of stock options in exchange for
services rendered, November 1998, $1.85 -- -- 92,500 --
Issuance of warrants in exchange for
services rendered, November 1998, $1.64 -- -- 246,000 --
Issuance of common stock for cash,
November 1998-- January 1999, $3.50 -- -- 629,820 --
Issuance of common stock for cash,
November 1998-- January 1999, $4.00 -- -- 1,099,725 --
Issuance of common stock for cash,
November 1998-- January 1999, $4.10 -- -- 397,003 --
Issuance of common stock in exchange
for services rendered, November 1998--
January 1999, $4.10 -- -- 117,715 --
Issuance of common stock for cash,
November 1998-- January 1999, $5.00 -- -- 99,980 --
Issuance of common stock for cash,
November 1998-- January 1999, $5.50 -- -- 82,485 --
Issuance of common stock in exchange for
services rendered, January 1999, $5.00 -- -- 1,960 --
Issuance of common stock for cash,
February 1999, $5.00 -- -- 29,994 --
Issuance of common stock in exchange for
services rendered, February 1999, $6.00 -- -- 29,995 --
Issuance of common stock for cash,
March 1999, $6.00 -- -- 65,989 --
Issuance of common stock for cash,
April 1999, $5.50 -- -- 1,999,640 --
Issuance of warrants in exchange for
services rendered, April 1999, $3.21 -- -- 160,500 --
Issuance of warrants in exchange for
services rendered, April 1999, $3.17 -- -- 317,000 --
Issuance of warrants in exchange for
services rendered, April 1999, $2.89 -- -- 144,500 --
Issuance of warrants in exchange for
services rendered, April 1999, $3.27 184,310 --
Stock adjustment -- -- (1) --
Issuance of common stock for cash,
May 1999, $5.50 -- -- 1,499,731 --
Issuance of common stock in exchange for
services rendered, May-- June 1999, $5.50 -- -- 334,746 --
Exercise of warrants for cash, June 1999, $5.50 -- 1,941,484 --
Exercise of warrants in exchange for note
receivable, June 1999, $5.00 -- -- 473,787 (473,882)
Exercise of warrants in exchange for services
rendered, June 1999, $5.00 -- -- 66,967 --
Reduction of note receivable in exchange for
services rendered -- -- -- 38,979
Shares tendered in conjunction with warrant
exercise, June 1999, $7.8125 -- -- (2,530,301) --
Exercise of warrants for shares tendered,
June 1999, $5.00 -- -- 2,530,119 --
Cost of warrants redeemed for cash -- (3,769) --
Cost related to warrant redemption, June 1999 -- -- (135,431) --
Costs related to issuance of common stock -- -- (1,179,895) --
Comprehensive Income (Loss):
Net Loss -- -- -- --
Other comprehensive income (loss):
Currency translation adjustment -- -- -- --
------------ ----------- ----------- -----------
Total Comprehensive Income (Loss)
Balance, July 31, 1999 - $ - $20,903,728 $ (434,903)
============ =========== =========== ===========
Deficit
Accumulated Accumulated
During the Other Total
Development Comprehensive Stockholders'
Stage Income (Loss) Equity
------------------- ----------------- -------------------
Balance, August 1, 1998 $ (6,736,076) $ (199,433) $ 2,642,299
Issuance of common stock for cash, August
1998, $3.00 -- -- 300,000
Issuance of common stock for cash, August
1998, $3.50 -- -- 68,187
Redemption of common stock for cash,
September 1998, $7.75 -- -- (119,066)
Issuance of common stock for cash,
September-- October 1998, $3.00 -- -- 660,891
Issuance of common stock for cash, August--
October 1998, $4.10 -- -- 864,353
Issuance of common stock in exchange for
services rendered, August-- October 1998, $2.50 -- -- 53,598
Issuance of common stock in exchange for
services rendered, August-- October 1998, $4.10 -- -- 74,066
Issuance of common stock in exchange
for services rendered, September 1998, $4.10 -- -- 738,000
Issuance of warrants in exchange for
services rendered, October 1998, $.26 -- -- 2,064
Issuance of stock options in exchange for
services rendered, November 1998, $1.85 -- -- 92,500
Issuance of warrants in exchange for
services rendered, November 1998, $1.64 -- -- 246,000
Issuance of common stock for cash,
November 1998-- January 1999, $3.50 -- -- 630,000
Issuance of common stock for cash,
November 1998-- January 1999, $4.00 -- -- 1,100,000
Issuance of common stock for cash,
November 1998-- January 1999, $4.10 -- -- 397,100
Issuance of common stock in exchange
for services rendered, November 1998--
January 1999, $4.10 -- -- 117,744
Issuance of common stock for cash,
November 1998-- January 1999, $5.00 -- -- 100,000
Issuance of common stock for cash,
November 1998-- January 1999, $5.50 -- -- 82,500
Issuance of common stock in exchange for
services rendered, January 1999, $5.00 -- -- 1,960
Issuance of common stock for cash,
February 1999, $5.00 -- -- 30,000
Issuance of common stock in exchange for
services rendered, February 1999, $6.00 -- -- 30,000
Issuance of common stock for cash,
March 1999, $6.00 -- -- 66,000
Issuance of common stock for cash,
April 1999, $5.50 -- -- 2,000,004
Issuance of warrants in exchange for
services rendered, April 1999, $3.21 -- -- 160,500
Issuance of warrants in exchange for
services rendered, April 1999, $3.17 -- -- 317,000
Issuance of warrants in exchange for
services rendered, April 1999, $2.89 -- -- 144,500
Issuance of warrants in exchange for
services rendered, April 1999, $3.27 -- -- 184,310
Stock adjustment -- -- --
Issuance of common stock for cash,
May 1999, $5.50 -- -- 1,500,004
Issuance of common stock in exchange for
services rendered, May-- June 1999, $5.50 334,807
Exercise of warrants for cash, June 1999, $5.50 -- -- 1,941,873
Exercise of warrants in exchange for note
receivable, June 1999, $5.00 -- -- --
Exercise of warrants in exchange for services
rendered, June 1999, $5.00 -- -- 66,980
Reduction of note receivable in exchange for
services rendered -- -- 38,979
Shares tendered in conjunction with warrant
exercise, June 1999, $7.8125 -- -- (2,530,625)
Exercise of warrants for shares tendered,
June 1999, $5.00 -- -- 2,530,625
Cost of warrants redeemed for cash -- -- (3,769)
Cost related to warrant redemption, June 1999 -- -- (135,431)
Costs related to issuance of common stock -- -- (1,179,895)
Comprehensive Income (Loss):
Net Loss (6,239,602) -- (6,239,602)
Other comprehensive income (loss):
Currency translation adjustment -- 1,393 1,393
-------------- -------------- ---------------
Total Comprehensive Income (Loss) (6,239,602) 1,393 (6,238,209)
-------------- -------------- ---------------
Balance, July 31, 1999 $ (12,975,678) $ (198,040) $ 7,309,849
============== ============== ===============
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-8
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 2004
SVR
Preferred Common
Stock Stock
----- ------
Shares Amount Shares Amount
---------------- ---------------- ---------------- ----------------
Balance, August 1, 1999 1,000 $ 1 14,740,683 $ 14,741
Adjustment for exercise of warrants recorded
June 1999, $5.00 -- -- (2,300) (2)
Issuance of common stock for cash,
September 1999, $6.00 -- -- 2,500 2
Issuance of common stock for cash pursuant to
private placement, January 2000, $4.25 -- -- 470,590 471
Financing costs associated with private placement,
January, 2000 -- -- -- --
Issuance of stock in exchange for services
rendered, January 2000, $5.00 -- -- 8,100 8
Granting of stock options for services
rendered, January 2000 -- -- -- --
Granting of warrants for services rendered,
January 2000 -- -- -- --
Exercise of warrants for cash, February 2000, $5.50 -- -- 2,000 2
Exercise of warrants for cash, March 2000, $5.50 -- -- 29,091 29
Exercise of warrants for cash, March 2000, $6.00 -- -- 2,000 2
Exercise of warrants for cash, March 2000, $7.50 -- -- 8,000 8
Issuance of common stock for cash pursuant to
private placement, June 2000, $6.00 -- -- 1,041,669 1,042
Financing costs associated with private
placement, June 2000 -- -- -- --
Issuance of common stock for services,
June 2000, $6.00 -- -- 4,300 4
Exercise of warrants for cash, July 2000, $6.00 -- -- 3,000 3
Exercise of warrants for cash, July 2000, $7.50 -- -- 16,700 17
Granting of stock options for services
rendered, July 2000 -- -- -- --
Reduction of note receivable in exchange for
services rendered -- -- -- --
Accrued interest on note receivable -- -- -- --
Comprehensive Income (Loss):
Net Loss -- -- -- --
Other comprehensive income (loss):
Currency translation adjustment -- -- -- --
----------- ---------- ----------- ----------
Total Comprehensive Income (Loss)
Balance, July 31, 2000 1,000 $ 1 16,326,333 $ 16,327
=========== ========== =========== ==========
Treasury Notes
Stock Additional Receivable -
----- Paid-In Common
Shares Amount Capital Stock
------------ ----------------- ------------------ ----------------
Balance, August 1, 1999 -- $ -- $ 20,903,728 $ (434,903)
Adjustment for exercise of warrants recorded
June 1999, $5.00 -- -- 2 --
Issuance of common stock for cash,
September 1999, $6.00 -- -- 14,998 --
Issuance of common stock for cash pursuant to
private placement, January 2000, $4.25 -- -- 1,999,537 --
Financing costs associated with private placement,
January, 2000 -- -- (220,192) --
Issuance of stock in exchange for services
rendered, January 2000, $5.00 -- -- 40,492 --
Granting of stock options for services
rendered, January 2000 -- -- 568,850 --
Granting of warrants for services rendered,
January 2000 -- -- 355,500 --
Exercise of warrants for cash, February 2000, $5.50 -- -- 10,998 --
Exercise of warrants for cash, March 2000, $5.50 -- -- 159,972 --
Exercise of warrants for cash, March 2000, $6.00 -- -- 11,998 --
Exercise of warrants for cash, March 2000, $7.50 -- -- 59,992 --
Issuance of common stock for cash pursuant to
private placement, June 2000, $6.00 -- -- 6,248,972 --
Financing costs associated with private
placement, June 2000 -- -- (385,607) --
Issuance of common stock for services,
June 2000, $6.00 -- -- 25,796 --
Exercise of warrants for cash, July 2000, $6.00 -- -- 17,997 --
Exercise of warrants for cash, July 2000, $7.50 -- -- 125,233 --
Granting of stock options for services
rendered, July 2000 -- -- 496,800 --
Reduction of note receivable in exchange for
services rendered -- -- -- 384,903
Accrued interest on note receivable -- -- -- (4,118)
Comprehensive Income (Loss):
Net Loss -- -- -- --
Other comprehensive income (loss):
Currency translation adjustment -- -- -- --
---------- ---------- ------------ -----------
Total Comprehensive Income (Loss)
Balance, July 31, 2000 -- $ -- $ 30,435,066 $ (54,118)
========== ========== ============ ===========
Deficit
Accumulated Accumulated
During the Other Total
Development Comprehensive Stockholders'
Stage Income (Loss) Equity
------------------- ----------------- -------------------
Balance, August 1, 1999 $ (12,975,678) $ (198,040) $ 7,309,849
Adjustment for exercise of warrants recorded
June 1999, $5.00 -- -- --
Issuance of common stock for cash,
September 1999, $6.00 -- -- 15,000
Issuance of common stock for cash pursuant to
private placement, January 2000, $4.25 -- -- 2,000,008
Financing costs associated with private placement,
January, 2000 -- -- (220,192)
Issuance of stock in exchange for services
rendered, January 2000, $5.00 -- -- 40,500
Granting of stock options for services
rendered, January 2000 -- -- 568,850
Granting of warrants for services rendered,
January 2000 -- -- 355,500
Exercise of warrants for cash, February 2000, $5.50 -- -- 11,000
Exercise of warrants for cash, March 2000, $5.50 -- -- 160,001
Exercise of warrants for cash, March 2000, $6.00 -- -- 12,000
Exercise of warrants for cash, March 2000, $7.50 -- -- 60,000
Issuance of common stock for cash pursuant to
private placement, June 2000, $6.00 -- -- 6,250,014
Financing costs associated with private
placement, June 2000 -- -- (385,607)
Issuance of common stock for services,
June 2000, $6.00 -- -- 25,800
Exercise of warrants for cash, July 2000, $6.00 -- -- 18,000
Exercise of warrants for cash, July 2000, $7.50 -- -- 125,250
Granting of stock options for services
rendered, July 2000 -- -- 496,800
Reduction of note receivable in exchange for
services rendered -- -- 384,903
Accrued interest on note receivable -- -- (4,118)
Comprehensive Income (Loss):
Net Loss (8,841,047) -- (8,841,047)
Other comprehensive income (loss):
Currency translation adjustment -- 32,514 32,514
-------------- ----------- ------------
Total Comprehensive Income (Loss) (8,841,047) 32,514 (8,808,533)
-------------- ----------- ------------
Balance, July 31, 2000 $ (21,816,725) $ (165,526) $ 8,415,025
============== =========== ============
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-9
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 2004
SVR
Preferred Common
Stock Stock
----- ------
Shares Amount Shares Amount
---------------- ---------------- ---------------- ---------------- -
Balance, August 1, 2000 1,000 $ 1 16,326,333 $ 16,327
Exercise of warrants for cash, August 2000, $6.00 -- -- 2,000 2
Issuance of common stock for services rendered
August 2000 -- -- 35,000 35
Issuance of warrants in exchange for equity line
agreement, August 2000 -- -- -- --
Exercise of warrants for cash, August 2000, $7.50 -- -- 30,300 30
Exercise of warrants for cash, August 2000, $8.6625 -- -- 30,000 30
Cashless exercise of warrants, August 2000 -- -- 8,600 9
Exercise of warrants for cash, August 2000, $10.00 -- -- 10,000 10
Exercise of warrants for cash, September 2000, $8.6625 -- -- 63,335 63
Exercise of warrants for cash, September 2000, $5.50 -- -- 16,182 16
Exercise of warrants for cash, September 2000, $6.00 -- -- 53,087 53
Exercise of warrants for cash, September 2000, $10.00 -- -- 9,584 10
Exercise of warrants for cash, September 2000, $7.50 -- -- 32,416 32
Issuance of common stock for cash pursuant to
private placement, October 2000, $11.00 -- -- 2,151,093 2,151
Exercise of warrants for cash, Oct. 2000, $6.00 -- -- 1,000 1
Financing costs associated with private placement,
October 2000 -- -- -- --
Exercise of warrants for cash, November-- December
2000, $4.25 -- -- 23,528 23
Cashless exercise of warrants, December 2000 -- -- 3,118 3
Exercise of warrants for cash, November-- December
2000, $6.00 -- -- 22,913 23
Exercise of warrants for cash, December 2000, $7.00 -- -- 8,823 9
Issuance of common stock as employee
compensation, December 2000 -- -- 8,650 8
Exercise of warrants for cash, January 2001, $6.00 -- -- 3,000 3
Issuance of common stock for cash pursuant to
private placement, January 2001, $14.53 -- -- 344,116 344
Financing costs associated with private placement,
January 2001 -- -- -- --
Issuance of common stock pursuant to litigation
settlement, January 2001 -- -- 2,832 2
Granting of stock options in exchange for services
rendered, January 2001 -- -- -- --
Granting of stock options in exchange for services
rendered, February 2001 -- -- -- --
Exercise of stock options for cash,
February 2001, $5.00 -- -- 50,000 50
Exercise of warrants for cash, March 2001, $6.00 -- -- 500 1
Exercise of stock options in exchange for note
receivable, March 2001 -- -- 50,000 50
Issuance of common stock in exchange for services
rendered, March 2001, $5.50 -- -- 8,000 8
Granting of stock options in exchange for services
rendered, May 2001 -- -- -- --
Exercise of stock options for cash, June 2001, $5.00 -- -- 75,000 75
Exercise of stock options for cash, June 2001, $5.50 -- -- 12,500 12
Exercise of warrants for cash, June 2001, $6.00 -- -- 4,000 4
Exercise of stock options for cash, July 2001, $5.00 -- -- 7,500 8
Exercise of stock options for cash, July 2001, $5.50 -- -- 2,500 3
Exercise of warrants for cash, July 2001, $6.00 -- -- 2,000 2
Issuance of common stock for cash pursuant to
private placement, July 2001, $9.25 -- -- 1,254,053 1,254
Financing costs associated with private placement,
July 2001 -- -- -- --
Shares issued in exchange for services rendered,
July 2001, $9.25 -- -- 23,784 24
Shares issued for Anti-Dilution Provisions, July 2001 -- -- 5,779 6
Issuance of warrants in exchange for services rendered,
July 2001 -- -- -- --
Accrued interest on note receivable -- -- -- --
Comprehensive Income (Loss):
Net Loss -- -- -- --
Other comprehensive income (loss):
Currency translation adjustment -- -- -- --
------------- --------------- ------------ ---------------
Total Comprehensive Income (Loss)
Balance at July 31, 2001 1,000 $ 1 20,681,526 $ 20,681
============= =============== ============ ===============
Treasury Notes
Stock Additional Receivable -
----- Paid-In Common
Shares Amount Capital Stock
---------------- --------------- ------------------ ---------------
Balance, August 1, 2000 -- $ -- $ 30,435,066 $ (54,118)
Exercise of warrants for cash, August 2000, $6.00 -- -- 11,998 --
Issuance of common stock for services rendered
August 2000 -- -- 411,215 --
Issuance of warrants in exchange for equity line
agreement, August 2000 -- -- 3,406,196 --
Exercise of warrants for cash, August 2000, $7.50 -- -- 227,220 --
Exercise of warrants for cash, August 2000, $8.6625 -- -- 259,845 --
Cashless exercise of warrants, August 2000 -- -- (9) --
Exercise of warrants for cash, August 2000, $10.00 -- -- 99,990 --
Exercise of warrants for cash, September 2000, $8.6625 -- -- 548,576 --
Exercise of warrants for cash, September 2000, $5.50 -- -- 88,986 --
Exercise of warrants for cash, September 2000, $6.00 -- -- 318,470 --
Exercise of warrants for cash, September 2000, $10.00 -- -- 95,830 --
Exercise of warrants for cash, September 2000, $7.50 -- -- 243,088 --
Issuance of common stock for cash pursuant to
private placement, October 2000, $11.00 -- -- 23,659,872 --
Exercise of warrants for cash, Oct. 2000, $6.00 -- -- 5,999 --
Financing costs associated with private placement,
October 2000 -- -- (1,956,340) --
Exercise of warrants for cash, November-- December
2000, $4.25 -- -- 99,971 --
Cashless exercise of warrants, December 2000 -- -- (3) --
Exercise of warrants for cash, November-- December
2000, $6.00 -- -- 137,455 --
Exercise of warrants for cash, December 2000, $7.00 -- -- 61,752 --
Issuance of common stock as employee
compensation, December 2000 -- -- 100,548 --
Exercise of warrants for cash, January 2001, $6.00 -- -- 17,997 --
Issuance of common stock for cash pursuant to
private placement, January 2001, $14.53 -- -- 4,999,656 --
Financing costs associated with private placement,
January 2001 -- -- (200,000) --
Issuance of common stock pursuant to litigation
settlement, January 2001 -- -- 21,096 --
Granting of stock options in exchange for services
rendered, January 2001 -- -- 745,000 --
Granting of stock options in exchange for services
rendered, February 2001 -- -- 129,600 --
Exercise of stock options for cash,
February 2001, $5.00 -- -- 249,950 --
Exercise of warrants for cash, March 2001, $6.00 -- -- 2,999 --
Exercise of stock options in exchange for note
receivable, March 2001 -- -- 249,950 (250,000)
Issuance of common stock in exchange for services
rendered, March 2001, $5.50 -- -- 43,992 --
Granting of stock options in exchange for services
rendered, May 2001 -- -- 592,300 --
Exercise of stock options for cash, June 2001, $5.00 -- -- 374,925 --
Exercise of stock options for cash, June 2001, $5.50 -- -- 68,738 --
Exercise of warrants for cash, June 2001, $6.00 -- -- 23,996 --
Exercise of stock options for cash, July 2001, $5.00 -- -- 37,492 --
Exercise of stock options for cash, July 2001, $5.50 -- -- 13,747 --
Exercise of warrants for cash, July 2001, $6.00 -- -- 11,998 --
Issuance of common stock for cash pursuant to
private placement, July 2001, $9.25 -- -- 11,598,736 --
Financing costs associated with private placement,
July 2001 -- -- (768,599) --
Shares issued in exchange for services rendered,
July 2001, $9.25 -- -- 219,978 --
Shares issued for Anti-Dilution Provisions, July 2001 -- -- 53,450 --
Issuance of warrants in exchange for services rendered,
July 2001 -- -- 19,134 --
Accrued interest on note receivable -- -- -- (10,182)
Comprehensive Income (Loss):
Net Loss -- -- -- --
Other comprehensive income (loss):
Currency translation adjustment -- -- -- --
------------- ------------- --------------- -------------
Total Comprehensive Income (Loss)
Balance at July 31, 2001 -- $ -- $ 76,761,860 $ (314,300)
============= ============= =============== =============
Deficit
Accumulated Accumulated
During the Other Total
Development Comprehensive Stockholders'
Stage Income (Loss) Equity
------------------- ----------------- -------------------
Balance, August 1, 2000 $ (21,816,725) $ (165,526) $ 8,415,025
Exercise of warrants for cash, August 2000, $6.00 -- -- 12,000
Issuance of common stock for services rendered
August 2000 -- -- 411,250
Issuance of warrants in exchange for equity line
agreement, August 2000 -- -- 3,406,196
Exercise of warrants for cash, August 2000, $7.50 -- -- 227,250
Exercise of warrants for cash, August 2000, $8.6625 -- -- 259,875
Cashless exercise of warrants, August 2000 -- -- --
Exercise of warrants for cash, August 2000, $10.00 -- -- 100,000
Exercise of warrants for cash, September 2000, $8.6625 -- -- 548,639
Exercise of warrants for cash, September 2000, $5.50 -- -- 89,002
Exercise of warrants for cash, September 2000, $6.00 -- -- 318,523
Exercise of warrants for cash, September 2000, $10.00 -- -- 95,840
Exercise of warrants for cash, September 2000, $7.50 -- -- 243,120
Issuance of common stock for cash pursuant to
private placement, October 2000, $11.00 -- -- 23,662,023
Exercise of warrants for cash, Oct. 2000, $6.00 -- -- 6,000
Financing costs associated with private placement,
October 2000 -- -- (1,956,340)
Exercise of warrants for cash, November-- December
2000, $4.25 -- -- 99,994
Cashless exercise of warrants, December 2000 -- -- --
Exercise of warrants for cash, November-- December
2000, $6.00 -- -- 137,478
Exercise of warrants for cash, December 2000, $7.00 -- -- 61,761
Issuance of common stock as employee
compensation, December 2000 -- -- 100,556
Exercise of warrants for cash, January 2001, $6.00 -- -- 18,000
Issuance of common stock for cash pursuant to
private placement, January 2001, $14.53 -- -- 5,000,000
Financing costs associated with private placement,
January 2001 -- -- (200,000)
Issuance of common stock pursuant to litigation
settlement, January 2001 -- -- 21,098
Granting of stock options in exchange for services
rendered, January 2001 -- -- 745,000
Granting of stock options in exchange for services
rendered, February 2001 -- -- 129,600
Exercise of stock options for cash,
February 2001, $5.00 -- -- 250,000
Exercise of warrants for cash, March 2001, $6.00 -- -- 3,000
Exercise of stock options in exchange for note
receivable, March 2001 -- -- --
Issuance of common stock in exchange for services
rendered, March 2001, $5.50 -- -- 44,000
Granting of stock options in exchange for services
rendered, May 2001 -- -- 592,300
Exercise of stock options for cash, June 2001, $5.00 -- -- 375,000
Exercise of stock options for cash, June 2001, $5.50 -- -- 68,750
Exercise of warrants for cash, June 2001, $6.00 -- -- 24,000
Exercise of stock options for cash, July 2001, $5.00 -- -- 37,500
Exercise of stock options for cash, July 2001, $5.50 -- -- 13,750
Exercise of warrants for cash, July 2001, $6.00 -- -- 12,000
Issuance of common stock for cash pursuant to
private placement, July 2001, $9.25 -- -- 11,599,990
Financing costs associated with private placement,
July 2001 -- -- (768,599)
Shares issued in exchange for services rendered,
July 2001, $9.25 -- -- 220,002
Shares issued for Anti-Dilution Provisions, July 2001 -- -- 53,456
Issuance of warrants in exchange for services rendered,
July 2001 -- -- 19,134
Accrued interest on note receivable -- -- (10,182)
Comprehensive Income (Loss):
Net Loss (27,097,210) -- (27,097,210)
Other comprehensive income (loss):
Currency translation adjustment -- (81,341) (81,341)
---------------- ----------------- ----------------
Total Comprehensive Income (Loss) (27,097,210) (81,341) (27,178,551)
---------------- ----------------- ----------------
Balance at July 31, 2001 $ (48,913,935) $ (246,867) $ 27,307,440
================ ================= ================
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-10
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 2004
SVR
Preferred Common
Stock Stock
----- ------
Shares Amount Shares Amount
---------------- ---------------- ---------------- ----------------
Balance, August 1, 2001 1,000 $ 1 20,681,526 $ 20,681
Exercise of stock options for cash,
August 2001, $5.50 -- -- 5,000 5
Purchase of Treasury Stock for cash
October 2001, $3.915 -- -- -- --
Issuance of stock options in exchange for
services rendered, December 2001 -- -- -- --
Issuance of common stock as employee
compensation, January 2002 -- -- 10,800 11
Preferred stock dividend paid January 2002 -- -- -- --
Purchase of Treasury Stock for cash
February 2002, $4.693 -- -- -- --
Issuance of warrants in exchange for services
rendered, March 2002 -- -- -- --
Purchase of Treasury Stock for cash
March 2002, $4.911 -- -- -- --
Purchase of Treasury Stock for cash
April 2002, $4.025 -- -- -- --
Issuance of stock options in exchange for
services rendered, June 2002 -- -- -- --
Purchase of Treasury Stock for cash
July 2002, $4.025 -- -- -- --
Accrued interest on note receivable -- -- -- --
Comprehensive Income (Loss):
Net Loss -- -- -- --
Other comprehensive income (loss):
Currency translation adjustment -- -- -- --
---------- ---------- ---------- ----------
Total Comprehensive Income (Loss)
Balance at July 31, 2002 1,000 $ 1 20,697,326 $ 20,697
========== ========== ========== ==========
Treasury Notes
Stock Additional Receivable -
----- Paid-In Common
Shares Amount Capital Stock
---------------- ----------------- ------------------ ----------------
Balance, August 1, 2001 -- $ -- $76,761,860 $ (314,300)
Exercise of stock options for cash,
August 2001, $5.50 -- -- 27,495 --
Purchase of Treasury Stock for cash
October 2001, $3.915 (10,000) (39,150) -- --
Issuance of stock options in exchange for
services rendered, December 2001 -- -- 25,000 --
Issuance of common stock as employee
compensation, January 2002 -- -- 71,161 --
Preferred stock dividend paid January 2002 -- -- -- --
Purchase of Treasury Stock for cash
February 2002, $4.693 (31,400) (147,346) -- --
Issuance of warrants in exchange for services
rendered, March 2002 -- -- 202,328 --
Purchase of Treasury Stock for cash
March 2002, $4.911 (7,700) (37,816) -- --
Purchase of Treasury Stock for cash
April 2002, $4.025 (12,800) (54,516) -- --
Issuance of stock options in exchange for
services rendered, June 2002 -- -- 132,387 --
Purchase of Treasury Stock for cash
July 2002, $4.025 (34,600) (116,703) -- --
Accrued interest on note receivable -- -- -- (22,585)
Comprehensive Income (Loss):
Net Loss -- -- -- --
Other comprehensive income (loss):
Currency translation adjustment -- -- -- --
---------- ------------ ------------ -----------
Total Comprehensive Income (Loss)
Balance at July 31, 2002 (96,500) $ (395,531) $77,220,231 $ (336,885)
========== ============ ============ ===========
Deficit
Accumulated Accumulated
During the Other Total
Development Comprehensive Stockholders'
Stage Income (Loss) Equity
------------------- ----------------- -------------------
Balance, August 1, 2001 $ (48,913,935) $ (246,867) $ 27,307,440
Exercise of stock options for cash,
August 2001, $5.50 -- -- 27,500
Purchase of Treasury Stock for cash
October 2001, $3.915 -- -- (39,150)
Issuance of stock options in exchange for
services rendered, December 2001 -- -- 25,000
Issuance of common stock as employee
compensation, January 2002 -- -- 71,172
Preferred stock dividend paid January 2002 (720,900) -- (720,900)
Purchase of Treasury Stock for cash
February 2002, $4.693 -- -- (147,346)
Issuance of warrants in exchange for services
rendered, March 2002 -- -- 202,328
Purchase of Treasury Stock for cash
March 2002, $4.911 -- -- (37,816)
Purchase of Treasury Stock for cash
April 2002, $4.025 -- -- (54,516)
Issuance of stock options in exchange for
services rendered, June 2002 -- -- 132,387
Purchase of Treasury Stock for cash --
July 2002, $4.025 -- -- (116,703)
Accrued interest on note receivable -- -- (22,585)
Comprehensive Income (Loss):
Net Loss (13,693,034) -- (13,693,034)
Other comprehensive income (loss):
Currency translation adjustment -- (71,185) (71,185)
-------------- ------------ -------------
Total Comprehensive Income (Loss) (13,693,034) (71,185) (13,764,219)
============== ============ =============
Balance at July 31, 2002 $ (63,327,869) $ (318,052) $ 12,862,592
============== ============ =============
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-11
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 2004
SVR
Preferred Common
Stock Stock
----- ------
Shares Amount Shares Amount
---------------- ---------------- ---------------- ---------------- -
Balance, August 1, 2002 1,000 $ 1 20,697,326 $ 20,697
Receipt of restricted shares of common stock as
settlement for executive loan, September 2002,
$1.90 - - - -
Purchase of Treasury Stock for cash
October 2002, $1.5574 - - - -
Issuance of warrants in exchange for the services
rendered, November 2002, $2.50 - - - -
Issuance of stock options in exchange for services
receivable, November 2002, $2.10 - - - -
Issuance of common stock in exchange for services
rendered, November 2002, $2.10 - - 30,000 30
Issuance of common stock as employee compensation,
January 2003, $2.10 - - 9,750 10
Purchase of Treasury Stock for cash December 2002,
$2.0034 - - - -
Preferred stock dividend paid January 2003 - - - -
Issuance of common stock in exchange for services
rendered, March 2003, $1.00 - - 70,000 70
Issuance of common stock for cash pursuant to
private placement, May 2003, $1.15 - - 2,926,301 2,926
Financing costs associated with private placement,
May 2003 - - - -
Exercise of warrants for cash, May 2003, $1.50 - - 35,000 35
Issuance of common stock for cash pursuant to
private placement, June 2003, $1.50 - - 666,667 667
Issuance of common stock as employee compensation,
June 2003, $2.00 - - 100 -
Exercise of warrants for cash, June 2003, $1.50 - - 1,496,001 1,496
Cashless exercise of warrants, June 2003 - - 16,379 16
Exercise of stock options for cash, June 2003, $1.59 - - 70,000 70
Accrued interest on note receivable - - - -
Comprehensive Income (Loss):
Net Loss - - - -
Other comprehensive income (loss)
Currency translation adjustment - - - -
---------- -------- ---------- --------
Total Comprehensive Income (Loss)
Balance at July 31, 2003 1,000 $ 1 26,017,524 $ 26,017
========== ======== ========== ========
Treasury Notes
Stock Additional Receivable -
----- Paid-In Common
Shares Amount Capital Stock
---------------- ----------------- ------------------ ----------------
Balance, August 1, 2002 (96,500) $ (395,531) $ 77,220,231 $ (336,885)
Receipt of restricted shares of common stock as
settlement for executive loan, September 2002,
$1.90 (592,716) (1,126,157) - -
Purchase of Treasury Stock for cash
October 2002, $1.5574 (40,000) (62,294) - -
Issuance of warrants in exchange for the services
rendered, November 2002, $2.50 - - 988,550 -
Issuance of stock options in exchange for services
receivable, November 2002, $2.10 - - 171,360 -
Issuance of common stock in exchange for services
rendered, November 2002, $2.10 - - 62,970 -
Issuance of common stock as employee compensation,
January 2003, $2.10 - - 20,465 -
Purchase of Treasury Stock for cash December 2002,
$2.0034 (13,000) (26,044) - -
Preferred stock dividend paid January 2003 - - - -
Issuance of common stock in exchange for services
rendered, March 2003, $1.00 - - 69,930 -
Issuance of common stock for cash pursuant to
private placement, May 2003, $1.15 - - 3,362,324 -
Financing costs associated with private placement,
May 2003 - - (235,568) -
Exercise of warrants for cash, May 2003, $1.50 - - 52,465 -
Issuance of common stock for cash pursuant to
private placement, June 2003, $1.50 - - 999,333 -
Issuance of common stock as employee compensation,
June 2003, $2.00 - - 200 -
Exercise of warrants for cash, June 2003, $1.50 - - 2,242,506 -
Cashless exercise of warrants, June 2003 - - (16) -
Exercise of stock options for cash, June 2003, $1.59 - - 111,230 -
Accrued interest on note receivable - - - (23,113)
Comprehensive Income (Loss):
Net Loss - - - -
Other comprehensive income (loss)
Currency translation adjustment - - - -
-------- ------------ ------------ ---------
Total Comprehensive Income (Loss)
Balance at July 31, 2003 (742,216) $ (1,610,026) $ 85,065,980 $(359,998)
======== ============ ============ =========
Deficit
Accumulated Accumulated
During the Other Total
Development Comprehensive Stockholders'
Stage Income (Loss) Equity
------------------- ----------------- -------------------
Balance, August 1, 2002 $ (63,327,869) $ (318,052) $ 12,862,592
Receipt of restricted shares of common stock as
settlement for executive loan, September 2002,
$1.90 = = (1,126,157)
Purchase of Treasury Stock for cash
October 2002, $1.5574 = - (62,294)
Issuance of warrants in exchange for the services
rendered, November 2002, $2.50 - - 988,550
Issuance of stock options in exchange for services
receivable, November 2002, $2.10 - - 171,360
Issuance of common stock in exchange for services
rendered, November 2002, $2.10 - - 63,000
Issuance of common stock as employee compensation,
January 2003, $2.10 - - 20,475
Purchase of Treasury Stock for cash December 2002,
$2.0034 - - (26,044)
Preferred stock dividend paid January 2003 (764,154) - (764,154)
Issuance of common stock in exchange for services
rendered, March 2003, $1.00 - - 70,000
Issuance of common stock for cash pursuant to
private placement, May 2003, $1.15 - - 3,365,250
Financing costs associated with private placement,
May 2003 - - (235,568)
Exercise of warrants for cash, May 2003, $1.50 - - 52,500
Issuance of common stock for cash pursuant to
private placement, June 2003, $1.50 - - 1,000,000
Issuance of common stock as employee compensation,
June 2003, $2.00 - - 200
Exercise of warrants for cash, June 2003, $1.50 - - 2,244,002
Cashless exercise of warrants, June 2003 - - -
Exercise of stock options for cash, June 2003, $1.59 - - 111,300
Accrued interest on note receivable - - (23,113)
Comprehensive Income (Loss):
Net Loss (13,261,764) - (13,261,764)
Other comprehensive income (loss)
Currency translation adjustment - 406,830 406,830
------------- ---------- ------------
Total Comprehensive Income (Loss) (13,261,764) 406,830 (12,854,934)
------------- ---------- ------------
Balance at July 31, 2003 $ (77,353,787) $ 88,778 $ 5,856,965
------------- ---------- ------------
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-12
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 2, 1995 (DATE OF INCEPTION) TO JULY 31, 2004
Deficit
SVR
Preferred Common
Stock Stock
------ -------
Shares Amount Shares Amount
-------------- ----------------- ----------------- ----------------- -
Balance, August 1, 2003 1,000 $ 1 26,017,524 $ 26,017
Shares issued pursuant to acquisition of Antigen
Express Inc., August 2003 -- -- 2,779,974 2,780
Cost of stock options to be assumed in conjunction
with merger -- -- -- --
Exercise of stock options for cash, September 2003,
$1.59 -- -- 10,000 10
Exercise of stock options for cash, October 2003, $2.10 -- -- 14,900 15
Exercise of stock options for cash, October 2003, $1.59 -- -- 10,000 10
Exercise of stock options for cash, October 2003, $0.30 -- -- 65,000 65
Exercise of stock options for cash, October 2003, $0.55 -- -- 40,000 40
Issuance of common stock In exchange for services
rendered, October 2003, $1.98 -- -- 150,000 150
Issuance of common stock In exchange for services
rendered, October 2003, $1.84 -- -- 337,500 338
Issuance of warrants in exchange for the services
rendered October 2003 (at $1.35) -- -- -- --
Exercise of stock options for cash, November 2003,
$2.10 -- -- 10,500 10
Redemption of Treasury Stock, November 2003, $2.17 -- -- (742,216) (742)
Granting of stock options in exchange for services,
November 2003 (at $1.71) -- -- -- --
Issuance of common stock for cash pursuant to
private placement, Jan 2004, $1.47 -- -- 1,700,680 1,701
Issuance of common stock for cash pursuant to
private placement, Jan 2004, $1.80 -- -- 55,556 56
Issuance of common stock for cash pursuant to
private placement, Jan 2004, $1.75 -- -- 228,572 229
Financing costs associated with private placement,
January 2004 -- -- -- --
Preferred Stock Dividend paid in January -- -- -- --
Issuance of common stock for cash pursuant to
private placement, Feb 2004, $1.60 -- -- 93,750 94
Issuance of common stock for cash pursuant to
private placement, Feb 2004, $1.66 -- -- 68,675 69
Issuance of common stock for cash pursuant to
private placement, Feb 2004, $1.50 -- -- 666,667 667
Issuance of common stock as employee
compensation, Feb 2004, $1.48 -- -- 8,850 8
Issuance of common stock In exchange for services
rendered, Feb 2004, $1.48 -- -- 175,000 175
Issuance of common stock In exchange for services
rendered, Feb 2004, $1.51 -- -- 112,500 113
Issuance of common stock for cash pursuant to
private placement, July 2004, $1.22 -- -- 2,459,016 2,459
Financing costs associated with private placement,
July 2004 -- -- -- --
Variable accounting non-cash compensation expense -- -- -- --
Accrued interest on note receivable -- -- -- --
Comprehensive Income (Loss):
Net Loss -- -- -- --
Other comprehensive income (loss)
Currency translation adjustment -- -- -- --
----------- -------------- ---------- --------------
Total Comprehensive Income (Loss)
Balance at July 31, 2004 1,000 $ 1 34,262,448 $ 34,264
=========== ============== ========== ==============
Treasury Notes
Stock Additional Receivable--
------ Paid-In Common
Shares Amount Capital Stock
-------------- ------------------ ------------------- ----------------
Balance, August 1, 2003 (742,216) $ (1,610,026) $ 85,065,980 $ (359,998)
Shares issued pursuant to acquisition of Antigen
Express Inc., August 2003 -- -- 4,639,777 --
Cost of stock options to be assumed in conjunction
with merger -- -- 154,852 --
Exercise of stock options for cash, September 2003,
$1.59 -- -- 15,890 --
Exercise of stock options for cash, October 2003, $2.10 -- -- 31,275 --
Exercise of stock options for cash, October 2003, $1.59 -- -- 15,890 --
Exercise of stock options for cash, October 2003, $0.30 -- -- 19,435 --
Exercise of stock options for cash, October 2003, $0.55 -- -- 21,960 --
Issuance of common stock In exchange for services
rendered, October 2003, $1.98 -- -- 296,850 --
Issuance of common stock In exchange for services
rendered, October 2003, $1.84 -- -- 620,662 --
Issuance of warrants in exchange for the services
rendered October 2003 (at $1.35) -- -- 27,000 --
Exercise of stock options for cash, November 2003,
$2.10 -- -- 22,040 --
Redemption of Treasury Stock, November 2003, $2.17) 742,216 1,610,026 (1,609,284) --
Granting of stock options in exchange for services,
November 2003 (at $1.71) -- -- 151,433 --
Issuance of common stock for cash pursuant to
private placement, Jan 2004, $1.47 -- -- 2,498,299 --
Issuance of common stock for cash pursuant to
private placement, Jan 2004, $1.80 -- -- 99,944 --
Issuance of common stock for cash pursuant to
private placement, Jan 2004, $1.75 -- -- 399,771 --
Financing costs associated with private placement,
January 2004 -- -- (68,012) --
Preferred Stock Dividend paid in January -- -- -- --
Issuance of common stock for cash pursuant to
private placement, Feb 2004, $1.60 -- -- 149,906 --
Issuance of common stock for cash pursuant to
private placement, Feb 2004, $1.66 -- -- 113,932 --
Issuance of common stock for cash pursuant to
private placement, Feb 2004, $1.50 -- -- 999,334 --
Issuance of common stock as employee
compensation, Feb 2004, $1.48 -- -- 13,089 --
Issuance of common stock In exchange for services
rendered, Feb 2004, $1.48 -- -- 258,825 --
Issuance of common stock In exchange for services
rendered, Feb 2004, $1.51 -- -- 169,762 --
Issuance of common stock for cash pursuant to
private placement, July 2004, $1.22 -- -- 2,997,541 --
Financing costs associated with private placement,
July 2004 -- -- (41,250) --
Variable accounting non-cash compensation expense -- -- 45,390 --
Accrued interest on note receivable -- -- -- (24,805)
Comprehensive Income (Loss):
Net Loss -- -- -- --
Other comprehensive income (loss)
Currency translation adjustment -- -- -- --
---------- -------------- -------------- -------------
Total Comprehensive Income (Loss)
Balance at July 31, 2004 -- $ -- $ 97,110,291 $ (384,803)
========== ============== ============== =============
Deficit
Accumulated Accumulated
During the Other Total
Development Comprehensive Stockholders'
Stage Income (Loss) Equity
-------------------- ------------------ --------------------
Balance, August 1, 2003 $ (77,353,787) $ 88,778 $ 5,856,965
Shares issued pursuant to acquisition of Antigen
Express Inc., August 2003 -- -- 4,642,557
Cost of stock options to be assumed in conjunction
with merger -- -- 154,852
Exercise of stock options for cash, September 2003,
$1.59 -- -- 15,900
Exercise of stock options for cash, October 2003, $2.10 -- -- 31,290
Exercise of stock options for cash, October 2003, $1.59 -- -- 15,900
Exercise of stock options for cash, October 2003, $0.30 -- -- 19,500
Exercise of stock options for cash, October 2003, $0.55 -- -- 22,000
Issuance of common stock In exchange for services
rendered, October 2003, $1.98 -- -- 297,000
Issuance of common stock In exchange for services
rendered, October 2003, $1.84 -- -- 621,000
Issuance of warrants in exchange for the services
rendered October 2003 (at $1.35) -- -- 27,000
Exercise of stock options for cash, November 2003,
$2.10 -- -- 22,050
Redemption of Treasury Stock, November 2003, $2.17) -- -- --
Granting of stock options in exchange for services,
November 2003 (at $1.71) -- -- 151,433
Issuance of common stock for cash pursuant to
private placement, Jan 2004, $1.47 -- -- 2,500,000
Issuance of common stock for cash pursuant to
private placement, Jan 2004, $1.80 -- -- 100,000
Issuance of common stock for cash pursuant to
private placement, Jan 2004, $1.75 -- -- 400,000
Financing costs associated with private placement,
January 2004 -- -- (68,012)
Preferred Stock Dividend paid in January (810,003) -- (810,003)
Issuance of common stock for cash pursuant to
private placement, Feb 2004, $1.60 -- -- 150,000
Issuance of common stock for cash pursuant to
private placement, Feb 2004, $1.66 -- -- 114,001
Issuance of common stock for cash pursuant to
private placement, Feb 2004, $1.50 -- -- 1,000,001
Issuance of common stock as employee
compensation, Feb 2004, $1.48 -- -- 13,097
Issuance of common stock In exchange for services
rendered, Feb 2004, $1.48 -- -- 259,000
Issuance of common stock In exchange for services
rendered, Feb 2004, $1.51 -- -- 169,875
Issuance of common stock for cash pursuant to
private placement, July 2004, $1.22 -- -- 3,000,000
Financing costs associated with private placement,
July 2004 -- -- (41,250)
Variable accounting non-cash compensation expense -- -- 45,390
Accrued interest on note receivable -- -- (24,805)
Comprehensive Income (Loss):
Net Loss (18,362,583) -- (18,362,583)
Other comprehensive income (loss)
Currency translation adjustment -- 207,593 207,593
---------------- --------------- ----------------
Total Comprehensive Income (Loss) (18,362,583) 207,593 (18,154,990)
---------------- --------------- ----------------
Balance at July 31, 2004 $ (96,526,373) $ 296,371 $ 529,751
================ =============== ================
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-13
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative From
For the Years Ended November 2, 1995
July 31, (Date of Inception)
-------------------------------------------- to July 31,
2004 2003 2002 2004
---------------- ------------- ------------- ------------------
Cash Flows From Operating Activities:
Net loss $ (18,362,583) $ (13,261,764) $ (13,693,034) $ (94,231,316)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 1,014,572 589,836 431,547 2,477,232
Minority interest share of loss -- (625) (52,560) (3,038,185)
Reduction of notes receivable - common stock in exchange
for services rendered -- -- -- 423,882
Write-off of deferred offering costs -- -- -- 3,406,196
Write-off of abandoned patents -- 9,134 -- 9,134
Common stock issued for services rendered 1,359,973 153,675 71,172 3,654,812
Non-cash compensation expense 45,390 -- -- 45,390
Stock options and warrants issued for services rendered 178,433 1,159,910 359,715 6,286,118
Preferred stock issued for services rendered -- -- -- 100
Founders' shares transferred for services rendered -- -- -- 353,506
Changes in operating assets and liabilities
(excluding the effects of acquisition):
Miscellaneous receivables -- 13,192 -- 43,812
Other current assets (538,795) (78,886) (108,610) (843,897)
Accounts payable and accrued expenses 421,052 (553,606) (740,319) 2,619,248
Other, net -- -- -- 110,317
------------- ------------- ------------- -------------
Net Cash Used in Operating Activities (15,881,958) (11,969,134) (13,732,089) (78,683,651)
Cash Flows From Investing Activities:
Purchase of property and equipment (646,383) (506,108) (779,519) (4,228,981)
Costs incurred for patents (285,350) (108,576) (440,698) (1,301,557)
Change in restricted cash (7,246) (177,488) -- (190,329)
Proceeds from maturity of short term investments 7,000,854 20,570,283 59,309,515 126,687,046
Purchases of short-term investments (4,638,783) (10,069,597) (45,279,543) (126,687,046)
Cash received in conjunction with merger 82,232 -- -- 82,232
Advances to Antigen Express, Inc. (32,000) -- -- (32,000)
Increase in officers' loans receivable -- (12,073) (90,341) (1,126,157)
Change in deposits (395,889) 107,755 (614,464) (873,083)
Change in notes receivable - common stock (24,805) (23,113) (22,585) (84,803)
Change in due from related parties 32,807 -- -- (2,222,390)
Other, net -- -- -- 89,683
------------- ------------- ------------- -------------
Net Cash Provided by (Used in) Investing Activities 1,085,437 9,781,083 12,082,365 (9,887,385)
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 161,167 -- -- 1,154,316
Repayment of long-term debt (73,140) (60,004) (9,363) (1,108,491)
Change in due to related parties -- -- -- 154,541
Proceeds from exercise of warrants -- 2,296,502 -- 4,552,984
Proceeds from exercise of stock options 126,640 111,300 27,500 1,010,440
Proceeds from minority interest investment -- 625 52,560 3,038,185
Proceeds from issuance of preferred stock -- -- -- 12,015,000
Purchase of treasury stock -- (88,338) (395,531) (483,869)
Proceeds from issuance of common stock, net 7,154,739 4,129,682 -- 73,283,715
Purchase and retirement of common stock -- -- -- (119,066)
------------- ------------- ------------- -------------
Net Cash Provided by (Used in) Financing Activities 7,369,406 6,389,767 (324,834) 93,497,755
Effect of Exchange Rates on Cash 20,956 23,399 (3,538) 23,700
------------- ------------- ------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents (7,406,159) 4,225,115 (1,978,096) 4,950,419
Cash and Cash Equivalents, Beginning of Period 12,356,578 8,131,463 10,109,559 --
------------- ------------- ------------- -------------
Cash and Cash Equivalents, End of Period $ 4,950,419 $ 12,356,578 $ 8,131,463 $ 4,950,419
============= ============= ============= =============
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-14
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS:
Generex Biotechnology Corporation (the Company) is engaged in the
research and development of drug delivery systems and technology.
Since its inception, the Company has devoted its efforts and
resources to the development of a platform technology for the oral
administration of large molecule drugs, including proteins,
peptides, monoclonal antibodies, hormones and vaccines, which
historically have been administered by injection, either
subcutaneously or intravenously.
The Company's new subsidiary, Antigen Express, Inc. (Antigen), is
engaged in research and development of technologies and
immunomedicines for the treatment of malignant, infectious,
autoimmune and allergic diseases. The Company's immunomedicine
products work by stimulating the immune system to either attack
offending agents (i.e., cancer cells, bacteria, and viruses) or to
stop attacking benign elements (i.e., self proteins and allergens).
The immunomedicine products are based on two platform technologies
that were discovered by an executive officer of Antigen, the Ii-Key
hybrid peptides and Ii-Suppression. These technologies are expected
to greatly boost immune cell responses which diagnose and treat the
ailments and conditions.
The Company is a development stage company, which has a limited
history of operations and has not generated any revenues from
operations prior to the acquisition of Antigen (see Note 3) with
the exception of the $1 million received in conjunction with the
execution of a development agreement. Subsequent to the acquisition
of Antigen, the Company has grant revenue from government agencies
related to Antigen's operations. The Company has no products
approved for commercial sale at the present time. There can be no
assurance that the Company will be successful in obtaining
regulatory clearance for the sale of existing or any future
products or that any of the Company's products will be commercially
viable.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all of its subsidiaries in which a controlling interest
is maintained. For those consolidated subsidiaries where the
Company ownership is less than 100 percent, the outside
stockholders' interests are shown as minority interests. All
significant intercompany transactions and balances have been
eliminated.
DEVELOPMENT STAGE CORPORATION
The accompanying consolidated financial statements have been
prepared in accordance with the provisions of Statement of
Financial Accounting Standard (SFAS) No. 7, "Accounting and
Reporting by Development Stage Enterprises."
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
a maturity of three months or less to be cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments consisted primarily of short-term notes of
U.S. corporations and Canadian government savings bonds with
original maturities of between three to twelve months and one to
five years at July 31, 2003. These short-term notes are classified
as held to maturity and are valued at amortized cost. At July 31,
2003, the cost of the investments approximated market value. There
are no short-term investments as of July 31, 2004.
F-15
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated
depreciation. Depreciation is provided on the straight-line method
over the estimated useful lives of the assets, which range from
three to thirty years. Gains and losses on depreciable assets
retired or sold are recognized in the statement of operations in
the year of disposal. Repairs and maintenance expenditures are
expensed as incurred.
PROPERTY HELD FOR INVESTMENT
Property held for investment is recorded at cost less accumulated
depreciation. Depreciation is provided on the straight-line method
over the estimated useful lives of the assets of thirty years.
Gains and losses on depreciable assets retired or sold are
recognized in the statement of operations in the year of disposal.
Repairs and maintenance expenditures are expensed as incurred.
PATENTS
Legal costs incurred to establish patents are capitalized.
Capitalized costs are amortized on the straight-line method over
the related patent term. As patents are abandoned, the net book
value of the patent is written off.
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
The Company assesses the impairment of patents under SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets"
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. A determination of
impairment (if any) is made based on estimates of future cash
flows.
REVENUE RECOGNITION
Revenue is derived principally from grants from government
agencies. The Company recognizes revenue from restricted grants in
the period which the Company has incurred the expenditures in
compliance with the specific restrictions.
RESEARCH AND DEVELOPMENT COSTS
Expenditures for research and development are expensed as incurred
and include, among other costs, those related to the production of
experimental drugs, including payroll costs, and amounts incurred
for conducting clinical trials. Amounts expected to be received
from governments under research and development tax credit
arrangements are offset against current income tax expense.
INCOME TAXES
Income taxes are accounted for under the asset and liability method
prescribed by SFAS No. 109, "Accounting for Income Taxes." Deferred
income taxes are recorded for temporary differences between
financial statement carrying amounts and the tax basis of assets
and liabilities. Deferred tax assets and liabilities reflect the
tax rates expected to be in effect for the years in which the
differences are expected to reverse. A valuation allowance is
provided if it is more likely than not that some or all of the
deferred tax asset will not be realized.
F-16
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
STOCK-BASED COMPENSATION
The Company has elected to continue to account for its stock
compensation plans under the recognition and measurement principles
of Accounting Principles Board Opinion (APB) No. 25, "Accounting
for Stock Issued to Employees" and related interpretations. Under
APB 25, no compensation cost is generally recognized for fixed
stock options in which the exercise price is greater than or equal
to the market price on the grant date. In connection with the
termination of certain employees, the company repriced 1,240,000
options. The repriced options are accounted for under variable
accounting and compensation cost is recognized for the difference
between the exercise price and the market price of the common
shares until such options are exercised, expired or forfeited.
During the years ended July 31, 2004 and 2003, the Company
recognized $45,390 and $-0- of compensation expense in connection
with these options, respectively. Under APB No. 25, no stock-based
employee compensation cost related to stock options is reflected in
the Company's Statements of Operations, as all options granted
under the plan had an exercise price more than or equal to the
market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net loss and loss per
share as if the Company had applied the fair value recognition
provisions of SFAS No. 123.
For the Years Ended July 31,
---------------------------------------------------------
2004 2003 2002
-------------- -------------- --------------
Net Loss Available to Common
Stockholders, as Reported $ (19,172,586) $ (14,025,918) $ (14,413,934)
Add: Total Stock-Based Employee
Compensation Expense Included
In Reported Net Loss (45,930) -- --
Deduct: Total Stock-Based Employee
Compensation Expense Determined
Under Fair Value Based Method 1,786,920 3,335,731 2,777,400
--------------- --------------- ---------------
Pro Forma Net Loss Available
to Common Stockholders $ (20,913,576) $ (17,361,649) $ (17,191,334)
=============== =============== ===============
Loss Per Share:
Basic and diluted, as reported $ (.64) $ (0.67) $ (0.70)
========= ========= ========
Basic and diluted, pro forma $ (.69) $ (0.83) $ (0.83)
========= ========= ========
NET LOSS PER COMMON SHARE
Basic EPS is computed by dividing income (loss) available to common
stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period. The
computation of Diluted EPS does not assume conversion, exercise or
contingent exercise of securities that would have an anti-dilutive
effect on earnings. Refer to Note 15 for methodology for
determining net loss per share.
COMPREHENSIVE LOSS
Other comprehensive income (loss), which includes only foreign
currency translation adjustments, is shown in the Statement of
Changes in Stockholders' Equity.
F-17
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
CONCENTRATION OF CREDIT RISK
The Company maintains cash balances, at times, with financial
institutions in the amount which are more than amounts insured by
the Canada Deposit Insurance Corporation and the Federal Deposit
Insurance Corporation. Management monitors the soundness of these
institutions and considers the Company's risk negligible.
The Company places its short-term investments in short-term debt
instruments of high quality U.S. corporations and government
instruments. The Company does not believe there is a significant
credit risk relating to these investments.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
Foreign denominated assets and liabilities of the Company are
translated into U.S. dollars at the prevailing exchange rates in
effect at the end of the reporting period. Income statement
accounts are translated at a weighted average of exchange rates
which were in effect during the period. Translation adjustments
that arise from translating the foreign subsidiary's financial
statements from local currency to U.S. currency are recorded in the
other comprehensive loss component of stockholders' equity.
FINANCIAL INSTRUMENTS
The carrying values of miscellaneous receivables, accounts payable
and accrued expenses approximate their fair values due to their
short-term nature. Due from related party approximates its fair
value as it is due on demand and long-term debt approximates its
fair value based upon the borrowing rates available for the nature
of the underlying debt.
The Company follows the provisions of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement
requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting.
F-18
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities". The primary
objectives of this interpretation are to provide guidance on the
identification of entities for which control is achieved through
means other than through voting rights ("variable interest
entities") and how to determine when and which business enterprise
(the "primary beneficiary") should consolidate the variable
interest entity. This new model for consolidation applies to an
entity in which either (i) the equity investors (if any) do not
have a controlling financial interest; or (ii) the equity
investment at risk is insufficient to finance that entity's
activities without receiving additional subordinated financial
support from other parties. In addition, FIN 46 requires that the
primary beneficiary, as well as all other enterprises with a
significant variable interest entity, make additional disclosures.
Certain disclosure requirements of FIN 46 were effective for
financial statements issued after January 31, 2003. In December
2003, the FASB issued FIN 46 (revised December 2003),
"Consolidation of Variable Interest Entities" ("FIN 46-R") to
address certain FIN 46 implementation issues. The effective dates
and impact of FIN 46 and FIN 46-R are as follows: (i)
Special-purpose entities ("SPEs") created prior to February 1,
2003. The Company must apply either the provisions of FIN 46 or
early adopt the provisions of FIN 46-R at the end of the first
interim or annual reporting period ending after December 15, 2003.
(ii) Non-SPEs created prior to February 1, 2003. The Company is
required to adopt FIN 46-R at the end of the first interim or
annual reporting period ending after March 15, 2004. (iii) All
entities, regardless of whether an SPE, that were created
subsequent to January 31, 2003. The provisions of FIN 46 were
applicable for variable interests in entities obtained after
January 31, 2003. The Company does not have any arrangements with
variable interest entities that will require consolidation of their
financial information in the financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities."
SFAS No. 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." The changes are intended to improve financial
reporting by requiring that contracts with comparable
characteristics be accounted for similarly. Additionally, those
changes are expected to result in more consistent reporting of
contracts as either derivatives or hybrid instruments. SFAS No. 149
is effective for contracts and hedging relationships entered into
or modified after June 30, 2003, and for provisions that relate to
SFAS No. 133 implementation issues that have been effective for
fiscal quarters that began prior to June 15, 2003, apply in
accordance with their respective effective dates. The adoption of
this statement did not have a significant effect on the Company's
consolidated financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liability and
Equity." SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liability and equity. It also requires that
an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. SFAS No. 150 is
effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003, except for
mandatorily redeemable noncontrolling interests. The adoption of
this statement did not have a significant effect on the Company's
consolidated financial position or results of operations.
F-19
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACQUISITIONS:
On August 8, 2003, the Company acquired all of the outstanding
capital stock of Antigen Express, Inc. pursuant to an Agreement and
Plan of Merger ("Merger Agreement") and Antigen became a
wholly-owned subsidiary of the Company.
Antigen's facilities and headquarters are located in Worcester,
Massachusetts. Antigen is engaged in research and development
efforts focused on the development of immunomedicines for the
treatment of malignant, infectious, autoimmune and allergic
diseases.
The acquisition of Antigen brings two additional platform
technologies to the Company. The immunomedicines based on these
technologies allow for specific modulation of the immune system to
allow for activation and re-activation against cancer and
infectious agents and de-activation in the case of if allergy and
autoimmune disease. The delivery technologies currently possessed
by the Company, when used with Antigen's active immunotherapies may
provide for breakthrough therapeutics.
The Merger Agreement provides that each holder of Antigen common
stock and each holder of each of the four outstanding series of
Antigen preferred stock will receive shares of the Company's common
stock, par value $0.001 per share, for each share of Antigen common
stock or preferred stock held by such holder. The Merger Agreement
establishes exchange rates for the conversion of Antigen common and
the various series of preferred stock into the Company's common
stock. Assuming that no Antigen stockholder exercises appraisal
rights, an aggregate of 2,779,974 shares of the Company's common
stock will be issued to the former Antigen stockholders in
connection with the Merger. These shares have been valued based
upon the average trading price as quoted on the NASDAQ for the five
days prior and subsequent to the announcement of the acquisition
for a total of $4,645,059 or $1.6709 per share. In addition,
pursuant to the Merger Agreement, the Company assumed Antigen
common stock purchase options. If these options are fully
exercised, the option holders will receive 112,400 shares of the
Company's common stock.
In conjunction with this acquisition, the Company recorded
approximately $4,878,012 of intangible assets, consisting of
granted patents and pending patent applications, which are being
amortized on a straight-line basis over their estimated useful
lives which range from ten to twenty years. The following table
summarizes the fair value of the assets acquired and liabilities
assumed in the acquisition:
Current assets $ 100,558
Property and equipment 10,026
Patents 4,878,012
-------------------
Total assets acquired $ 4,988,596
Current liabilities 191,187
-------------------
Net assets acquired $ 4,797,409
===================
The results of operations of Antigen have been included in the
consolidated financial statements since the date of acquisition.
F-20
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACQUISITIONS (CONTINUED):
The following unaudited pro forma financial information assumes
that the acquisition consummated in 2003 had occurred as of the
beginning of each period:
July 31,
------------------------------------------
2004 2003
----------------- -----------------
Total Revenue $ 627,184 $ 584,475
Net Loss Available to Common Stockholders $ 18,286,298 $ 14,286,258
Basic and Diluted Net Loss per Common Share $ (.61) $ (.60)
NOTE 4 - PROPERTY AND EQUIPMENT:
The costs and accumulated depreciation of property and equipment
are summarized as follows:
July 31,
------------------------------------------
2004 2003
----------------- -----------------
Land $ 338,129 $ 320,869
Buildings and Improvements 2,140,055 2,030,819
Furniture and Fixtures 83,957 81,214
Office Equipment 125,289 108,076
Lab Equipment 3,576,570 3,026,529
----------------- -----------------
Total Property and Equipment 6,264,000 5,567,507
Less Accumulated Depreciation 1,972,378 1,348,675
----------------- -----------------
Property and Equipment, Net $ 4,291,622 $ 4,218,832
================= =================
Depreciation expense amounted to $575,709, $474,764 and $393,655
for the years ended July 31, 2004, 2003 and 2002, respectively.
NOTE 5 - PROPERTY HELD FOR INVESTMENT, NET:
The costs and accumulated depreciation of assets held for
investment are summarized as follows:
July 31,
------------------------------------------
2004 2003
----------------- -----------------
Assets Held For Investment $ 2,375,507 $ 1,967,933
Less: Accumulated Depreciation 125,001 61,621
----------------- -----------------
Assets Held For Investment, Net $ 2,250,506 $ 1,906,312
================= =================
Depreciation expense amounted to $59,715, $57,877 and $-0- for the
years ended July 31, 2004, 2003 and 2002, respectively.
The Company's intent is to hold this property for investment
purposes and collect rental income. Included in income from rental
operations, net is $237,040 of rental income and $163,480 of rental
expenses, including interest charges of $49,693, for the year ended
July 31, 2004.
F-21
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - PATENTS:
The costs and accumulated amortization of patents are summarized as
follows:
July 31,
------------------------------------------
2004 2003
----------------- -----------------
Patents $ 6,199,402 $ 1,020,805
Less: Accumulated Amortization 502,497 121,929
----------------- -----------------
Patents, Net $ 5,696,905 $ 898,876
================= =================
Weighted Average Life 16.4 years 17 years
Amortization expense amounted to $377,719, $57,195 and $37,892 for
the years ended July 31, 2004, 2003 and 2002, respectively.
Amortization expense is expected to be approximately $397,000 per
year for the years ended July 31, 2005, 2006, 2007, 2008 and 2009.
NOTE 7 - INCOME TAXES:
The Company has incurred losses since inception, which have
generated net operating loss carryforwards. The net operating loss
carryforwards arise from both United States and Canadian sources.
Pretax losses arising from domestic operations (United States) was
$15,357,321 and from foreign operations (Canada and Bermuda) was
$3,815,265 for the year ended July 31, 2004. As of July 31, 2004,
the Company has net operating loss carryforwards in Generex
Biotechnology Corporation of approximately $55,293,175, which
expire in 2013 through 2024, and in Generex Pharmaceuticals Inc. of
approximately $23,859,031, which expire in 2006 through 2011. These
loss carryforwards are subject to limitation in future years should
certain ownership changes occur.
For the years ended July 31, 2004, 2002 and 2002, the Company's
effective tax rate differs from the federal statutory rate
principally due to net operating losses and other temporary
differences for which no benefit was recorded.
Deferred income taxes consist of the following:
July 31,
--------------------------------------------
2004 2003
----------------- ------------------
Deferred Tax Assets:
Net operating loss carryforwards $ 27,417,561 $ 18,160,666
Other timing difference 1,769,094 1,744,159
------------------- ------------------
Total Deferred Tax Assets 29,186,655 19,904,825
Valuation Allowance (27,443,257) (19,755,648)
Deferred Tax Liabilities (1,743,398) (149,177)
------------------- ------------------
Net Deferred Income Taxes $ -- $ --
=================== ===================
F-22
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES (CONTINUED):
A reconciliation of the United States Federal Statutory rate to the
Company's effective tax rate for the years ended July 31, 2004,
2003 and 2002 is as follows:
2004 2003 2002
----- ---- ------
Federal statutory rate (34.0)% (34.0)% (34.0)%
Increase (decrease) in income taxes resulting from:
Loss incurred in Bermuda for which no benefit is
recognized -- -- 2.9
Losses for which the tax benefit was not previously recognized (9.5) -- --
Imputed interest income on intercompany receivables
from foreign subsidiaries 1.6 1.4 1.4
Foreign taxes booked at different rates -- .7 .7
Nondeductible items 1.8 1.9 1.8
Other -- .7 .1
Change in valuation allowance 40.1 29.3 27.1
--------- ------- --------
Effective tax rate -- % -- % -- %
========= ======= ========
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
July 31,
---------------------------------------
2004 2003
----------------- -----------------
Accounts Payable $ 1,283,410 $ 1,094,129
Accrued Legal and Settlements 252,537 292,085
Termination Agreements and Severance Pay 411,452 --
----------------- -----------------
Total $ 1,947,399 $ 1,386,214
================= =================
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES:
CONSULTING SERVICES
The Company's Consulting Agreement with its Vice President of
Research and Development (the V.P.), as amended and supplemented,
continues through July 31, 2010, subject to termination without
cause by the V.P. or the Company at any time after January 31, 2003
upon 12 months prior written notice. The Consulting Agreement
provides for an annual base compensation of $250,000 per year
(starting August 1, 2000), subject to annual increases. In
addition, the Consulting Agreement provides for certain bonus
compensation to be paid to the V.P. for achievement of certain
milestones under the Company's development agreements with
pharmaceutical companies. During the 2001 fiscal year, the Company
paid the V.P. $300,000 for his involvement in securing a
development agreement for a specific product with a pharmaceutical
company. The Consulting Agreement also provides for the V.P. to be
granted options to purchase 150,000 shares of common stock in each
of the next 10 fiscal years, starting with the 2001 fiscal year.
The options must be granted under option plans approved by the
Company's stockholders.
In connection with amending and supplementing the Consulting
Agreement in January 1998, the Company issued 1,000 shares of
Special Voting Rights Preferred Stock to the V.P. See Note 12 for
description of Special Voting Rights Preferred Stock.
Subsequent to July 31, 2004, the V.P. provided advanced
notification of termination of this consulting agreement (see Note
20).
F-23
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED):
LEASES
The Company has entered into various operating lease agreements for
the use of vehicles and office equipment.
Aggregate minimum annual lease commitments of the Company under
non-cancelable operating leases as of July 31, 2004 are as follows:
Year Amount
---- ------
2005 $ 37,345
2006 37,345
2007 19,939
2008 6,789
2009 6,789
Thereafter --
-------------
Total Minimum Lease Payments $ 108,207
=============
Lease expense amounted to $12,432, $23,712 and $13,766 for the
years ended July 31, 2004, 2003 and 2002, respectively.
The preceding data reflects existing leases and does not include
replacements upon their expiration. In the normal course of
business, operating leases are generally renewed or replaced by
other leases.
RENTAL OPERATIONS
The Company leases a portion of the floor that it owns in an office
building located in Toronto, Canada, as well as two commercial
buildings. The following represents the approximate minimum amount
of sublease income under current lease agreements to be received in
years ending after July 31, 2004:
Year Amount
2005 $ 186,458
2006 133,266
2007 123,253
2008 78,941
2009 32,356
Thereafter --
--------------
Total $ 554,274
==============
F-24
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED):
PROPERTY HELD FOR INVESTMENT
The Company leases units of property that it owns located in
Toronto, Canada. The following represents the approximate minimum
amount in lease income under current lease agreements to be
received in years ending after July 31, 2004:
Year Amount
2005 $ 192,611
2006 179,640
2007 166,393
2008 114,762
2009 36,043
Thereafter --
------------
Total $ 689,449
============
SUPPLY AGREEMENTS
The Company has a supply agreement with Valois, S.A. and Valois of
America, Inc. (collectively Valois), to supply the Company with
certain products developed and manufactured by Valois. Pursuant to
the agreement, the Company shall pay milestone payments to Valois
within 30 days of July 19 beginning in fiscal 2001 for the next
five years. These milestone payments are based on exceeding certain
specified levels of product purchases. If the milestone obligations
are not met after a five-year period, the Company may elect to pay
Valois an annual payment of $50,000 until the milestone obligation
is met in order to maintain exclusive rights under the agreement.
In the event the Company chooses to end the agreement after the
fifth anniversary, the Company shall pay Valois a one-time payment
of $350,000. There were no milestone payments required by the
agreement in the years ended July 31, 2003, 2002 and 2001.
The Company has a supply agreement with Presspart Manufacturing
Limited, whereby the Company will purchase its entire requirements
for products to use in the administration of insulin through the
buccal mucosa and shall not purchase the products or any metal
containers competitive to the products from any other person in
exchange for an exclusive non-transferable royalty-free irrevocable
license to use the products. The contract shall continue for a
minimum period of four contract years from the end of the first
contract year in which the quantity of products purchased by the
Company from Presspart exceeds 10,000,000 units, and thereafter,
shall continue until terminated by either party by giving twelve
months written notice.
CONCENTRATIONS IN DEVELOPMENT ARRANGEMENTS
On November 5, 2003, the Company entered into a Bulk Supply
Agreement with a pharmaceutical company for the sale of human
insulin crystals to the Company over a three year period. The Bulk
Supply Agreement establishes purchase prices, minimum purchase
requirements, maximum amounts which may be purchased in each year
and a non-refundable prepayment of $1,500,000 to be applied against
amounts due for purchases. The prepayment is being expensed as
purchases are made. The current and long-term portions have been
determined based upon the purchase requirements as established in
the agreement less amounts purchased. As of July 31, 2004, $495,000
is included in other current assets, which represents the remaining
balance of the prepayment. Additionally, pursuant to this
agreement, we have additional minimum purchase commitment of $5.7
million. The Company may reduce or eliminate this commitment by
providing a written notice to the supplier prior to June 1, 2005.
F-25
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED):
PENDING LITIGATION
On October 2, 1998, Sands Brothers & Co. Ltd., a New York
City-based investment banking and brokerage firm, initiated an
arbitration against the Company under New York Stock Exchange
rules. Sands alleged that it had the right to receive, for nominal
consideration, approximately 1.5 million shares of the Company's
common stock. Sands based its claim upon an October 1997 letter
agreement that was purported by Sands to confirm an agreement
appointing Sands as the exclusive financial advisor to Generex
Pharmaceuticals, Inc., a subsidiary of the Company that was
acquired in late 1997. In exchange, the letter agreement purported
to grant Sands the right to acquire 17 percent of Generex
Pharmaceuticals' common stock for nominal consideration. Sands
claimed that its right to receive shares of Generex
Pharmaceuticals' common stock applies to the Company's common stock
since outstanding shares of Generex Pharmaceuticals' common stock
were converted into shares of the Company's common stock in the
acquisition. Sands' claims also included additional shares
allegedly due as a fee related to that acquisition, and $144,000 in
monthly fees allegedly due under the terms of the purported
agreement.
Pursuant to an arbitration award dated September 22, 1999, the
arbitration panel that heard this case awarded Sands $14,070 and
issued a declaratory judgment requiring the Company to issue to
Sands a warrant to purchase 1,530,020 shares of the Company's
common stock pursuant to and in accordance with the terms of the
purported October 1997 letter agreement. On October 13, 1999, Sands
commenced a special proceeding to confirm the arbitration award in
the Supreme Court of the State of New York, County of New York (the
"New York Supreme Court"). On November 10, 1999, the Company moved
to vacate the arbitration award. On March 20, 2000, the New York
Supreme Court granted Sands' petition to confirm the award and
denied the Company's motion to vacate the award. The Company
appealed and on January 23, 2001, the New York State Appellate
Division, First Department (the "Appellate Division"), modified the
judgment of the New York Supreme Court that had confirmed the
arbitration award against the Company. The Appellate Division
affirmed the portion of the New York Supreme Court judgment that
had confirmed the granting of monetary relief of $14,070 to Sands
but modified the judgment to vacate the portion of the arbitration
award directing the issuance to Sands of a warrant to purchase
1,530,020 shares of the Company's common stock. The Appellate
Division held that the portion of the award directing the Company
to issue warrants to Sands is too indefinite to be enforceable and
remanded the matter to the arbitration panel for a final and
definite award with respect to such relief or its equivalent
(including possibly an award of monetary damages). The arbitration
panel commenced hearings on the matters remanded by the Appellate
Division in June 2001. On November 7, 2001, the arbitration panel
issued an award again requiring the Company to issue to Sands a
warrant to purchase 1,530,020 shares of the Company's common stock
purportedly pursuant to and in accordance with the terms of the
October 1997 letter agreement. Thereafter, Sands submitted a motion
to the New York Supreme Court to modify and confirm the arbitration
panel's award while the Company filed a motion with the court to
vacate the arbitration award. On February 25, 2002, the New York
Supreme Court vacated the arbitration panel's award. The Supreme
Court concluded that the arbitration panel had "disregarded the
plain meaning" of the directive given by the Appellate Division in
the Appellate Division's January 23, 2001 decision that remanded
the matter of the warrant for reconsideration by the panel. The
Supreme Court found that the arbitration panel's award "lacks a
rational basis". The Supreme Court also remanded the matter to the
New York Stock Exchange on the issue of whether the arbitration
panel should be disqualified. Sands has appealed the February 25,
2002 order of the Supreme Court to the Appellate Division. The
Company filed a cross-appeal on issues relating to the
disqualification of the arbitration panel.
F-26
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED):
PENDING LITIGATION (CONTINUED)
On October 29, 2002, the Appellate Division issued a decision and
order unanimously modifying the lower court's order by remanding
the issue of damages to a new panel of arbitrators and otherwise
affirming the lower court's order. The Appellate Division's
decision and order limits the issue of damages before the new panel
of arbitrators to reliance damages which is not to include an award
of lost profits. Reliance damages are out-of-pocket damages
incurred by Sands. The Appellate Division stated that the lower
court properly determined that the arbitration award, which had
granted Sands warrants for 1,530,020 shares of the registrant's
stock, was incorrect.
On March 18, 2003, the Appellate Division of the Supreme Court of
New York denied a motion by Sands for re-argument of the October
29, 2002 decision, or, in the alternative, for leave to appeal to
the Court of Appeals. A new arbitration took place in early June
2004.
On August 17, 2004, the Arbitration Panel of the New York Stock
Exchange issued a final award in the case of Sands vs. the Company,
awarding Sands $150,000 in reliance damages. No motion to confirm
this award has been filed by Sands as of the date of this report.
Sands has not sought leave to appeal the vacaturs of the prior
panel's warrant award to the New York Court of Appeals. As such,
the award is subject to further legal proceedings.
At the present time, the Company is not able to predict the
ultimate outcome of this legal proceeding or to estimate a range of
possible loss from this legal proceeding. Therefore, no provision
has been recorded in the accompanying financial statements.
In February 2001, a former business associate of the Vice President
of Research and Development (VP), and an entity called Centrum
Technologies Inc. ("CTI") commenced an action in the Ontario
Superior Court of Justice against the Company and the VP seeking,
among other things, damages for alleged breaches of contract and
tortious acts related to a business relationship between this
former associate and the VP that ceased in July 1996. The
plaintiffs' statement of claim also seeks to enjoin the use, if
any, by the Company of three patents allegedly owned by the company
called CTI. On July 20, 2001, the Company filed a preliminary
motion to dismiss the action of CTI as a nonexistent entity or,
alternatively, to stay such action on the grounds of want of
authority of such entity to commence the action. The plaintiffs
brought a cross motion to amend the statement of claim to
substitute Centrum Biotechnologies, Inc. ("CBI") for CTI. CBI is a
corporation of which 50 percent of the shares are owned by the
former business associate and the remaining 50 percent are owned by
the Company. Consequently, the shareholders of CBI are in a
deadlock. The court granted the Company's motion to dismiss the
action of CTI and denied the plaintiffs' cross motion without
prejudice to the former business associate to seek leave to bring a
derivative action in the name of or on behalf of CBI. The former
business associate subsequently filed an application with the
Ontario Superior Court of Justice for an order granting him leave
to file an action in the name of and on behalf of CBI against the
VP and the Company. The Company has opposed the application which
is now pending before the Court. In September 2003, the Ontario
Superior Court of Justice granted the request and issued an order
giving the former business associate leave to file an action in the
name of and on behalf of CBI against Modi and the Company. A
statement of claim was served in July 2004. The Company is not able
to predict the ultimate outcome of this legal proceeding at the
present time or to estimate an amount or range of potential loss,
if any, from this legal proceeding.
F-27
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED):
PENDING LITIGATION (CONTINUED)
In February 1997, an individual alleging to be a former employee of
Generex Pharmaceuticals, Inc., commenced an action in the Ontario
Superior Court of Justice for wrongful dismissal. The Ontario
Superior Court of Justice rendered judgment in favor of the
plaintiff for approximately $127,000 plus interest in November 1999
and further awarded costs to the plaintiff in March 2000. An appeal
of the judgment was filed with the Court of Appeal for Ontario in
April 2000. The appeal was heard on February 26, 2003, and on
February 28, 2003, the Court of Appeals dismissed the appeal with
costs. Generex Pharmaceuticals, Inc., has sought leave to appeal
the Courts of Appeal's decision to the Supreme Court of Canada. The
appeal was dismissed. The parties have signed Minutes of Settlement
in April 2004, pursuant to which the Company is required to pay the
plaintiff a total of $280,000 Canadian (approximately $211,000 US)
in monthly installments. The installments consist of $20,000 CND on
May 1, 2004, $20,000 CND on June 1, 2004, $50,000 CND on July 1,
2004 and 7 monthly payments of $27,142.86 CND each from August 1,
2004 to February 1, 2005.
The Company is involved in certain other legal proceedings in
addition to those specifically described herein. Subject to the
uncertainty inherent in all litigation, the Company does not
believe at the present time that the resolution of any of these
legal proceedings is likely to have a material adverse effect on
the Company's financial position, operations or cash flows.
With respect to all litigation, as additional information
concerning the estimates used by the Company becomes known, the
Company reassesses its position both with respect to accrued
liabilities and other potential exposures.
EMPLOYMENT AGREEMENTS
On March 17, 2003, the Company entered into an employment agreement
for an initial term of five years, whereby the Company is required
to pay an annual base salary and bonus of $130,000 to the employee.
In the event the agreement is terminated within the initial
five-year term, by reason other than cause, death, voluntary
retirement or disability, the Company is required to pay the
employee in one lump sum twelve months base salary and the average
annual bonus.
On August 6, 2003, in conjunction with the Antigen acquisition,
(see Note 3) the Company entered into at will employment agreements
with five Antigen employees requiring the Company to pay an annual
aggregate salary of $621,500 to the five employees. In the event
any agreement is terminated by reason other than death, disability,
a voluntary termination not for good reason (as defined in the
agreement) or a termination for cause, the Company is required to
pay the employee severance in accordance with the terms of the
individual employment agreement. On November 19, 2003, the Company
terminated an employment agreement with one of these individuals.
SETTLEMENT AGREEMENTS
In April 2004 the Company entered into a settlement agreement with
an individual requiring payments of totaling approximately $211,000
($280,000 Canadian dollars) commencing May 2004 (see Pending
Litigation). As of July 31, 2004, $109,000 is included in accounts
payable.
F-28
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED):
TERMINATION AGREEMENTS
On November 19, 2003, the Company terminated its employment
agreement with an employee of its wholly owned subsidiary Antigen.
In accordance with the terms of the agreement, the terminated
employee will receive severance salary in the amount of $175,000,
payable in twelve monthly installments of $14,583 each, less
withholdings mandated by applicable law. In addition, the
terminated employee's benefits package will remain in effect for a
period of one year from the date of termination. The remaining
installments totaling $72,917 are included in accounts payable and
accrued expenses.
On March 9, 2004, the Company entered into a Memorandum of
Agreement as a result of the termination of one of its employees
whereby the Company has committed to pay approximately $432,000
($575,000 Canadian dollars), the unpaid portion of $338,535
($450,000 Canadian dollars) is included in accounts payable and
accrued expenses at July 31, 2004, and issue options to purchase
450,000 shares of common stock at an exercise price of $1.47.
NOTE 10 - RELATED PARTY TRANSACTIONS:
The amount due from a related party at July 31, exclusive of the
officers' loans receivable, is as follows:
EBI, Inc.
-----------
Beginning Balance, August 1, 2002 $ 322,685
Effect of Foreign Currency Translation Adjustments 40,094
-----------
Ending Balance, July 31, 2003 362,779
Payment Made During 2004 (32,807)
Effect of Foreign Currency Translation Adjustments 19,322
-----------
Ending Balance, July 31, 2004 $ 349,294
===========
This amount, which is due from EBI, Inc., is non-interest bearing,
unsecured and has no fixed terms of repayment. EBI, Inc. is a
shareholder of the Company and is controlled by the estate of the
Company's former Chairman of the Board.
The Company estimates the following additional amounts would have
been recorded if such transaction was consummated under arms-length
agreements:
For the Years Ended July 31,
---------------------------------------------------------------------
2004 2003 2002
--------------------- ------------------- -------------------
Interest Income $ 19,012 $ 12,207 $ 31,250
The interest income amounts were computed at estimated prevailing
rates based on the average receivable balance outstanding during
the periods reflected.
During the years ended July 31, 2004, the Company's three senior
officers, and during the years ended July 31, 2003 and 2002, the
Company's four senior officers, who are also shareholders of the
Company, were compensated indirectly by the Company through
management services contracts between the Company and management
firms of which they are owners. The amounts paid to these
management firms amounted to $927,523, $1,319,238 and $1,075,847
for the years ended July 31, 2004, 2003 and 2002, respectively.
See Note 9 for a discussion of the consulting agreement with the
Company's Vice President of Research and Development.
F-29
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - RELATED PARTY TRANSACTIONS (CONTINUED):
On May 3, 2001, three of the Company's senior officers, who are
also shareholders of the Company, were given loans of $334,300
each, in exchange for promissory notes. These notes bear interest
at 8.5 percent per annum and were originally payable in full on May
1, 2002. The notes were extended until October 1, 2002, at terms
comparable to the original notes. These notes are guaranteed by a
related company owned by these officers and secured by 2,500,000
pledged shares of the Company's common stock currently owned by
this related company. In September 2002, the notes were redeemed
pursuant to the Stock Pledge Agreement. The outstanding balance of
$1,126,157 was repaid with 592,716 shares of common stock, as
determined by the Compensation Committee. These shares effectively
became treasury stock.
On August 7, 2002 the Company purchased real estate with an
aggregate purchase price of approximately $1.6 million from an
unaffiliated party. In connection with that transaction, Angara
Enterprises, Inc., a licensed real estate broker that is an
affiliate of a senior officer of the Company, received a commission
from the proceeds of the sale to the seller in the amount of 3% of
the purchase price. Management believes that this is less than the
aggregate commission which would have been payable if an
unaffiliated broker had been used.
The Company utilizes a management company to manage all of its real
properties. The property management company is owned by two of the
Company's senior officers and the estate of the Company's former
Chairman of the Board. For the years ended July 31, 2004, 2003 and
2002, the Company has paid the management company $40,180, $33,237
and $37,535, respectively, in management fees.
F-30
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - LONG-TERM DEBT:
Long-term debt consists of the following:
July 31,
-----------------------------------
2004 2003
----------------- ----------------
Mortgage payable - interest at 9.7 percent per annum, monthly
payments of principal and interest of $4,453, final payment due May
25, 2005, secured by first mortgage over real property located at
17 Carlaw Avenue and 33 Harbour
Square, Toronto, Canada $ 573,184 $ 551,859
Mortgage payable - interest at 10 percent per annum, monthly
payments of principal and interest of $1,662, final payment due
October 2005, secured by real property located
at 11 Carlaw Avenue, Toronto, Canada 187,127 182,341
Mortgage payable - interest at 8.5 percent per annum, monthly
payments of interest only of $2,833, principal payment due August
2006, secured by real property located
at 11 Carlaw Avenue, Toronto, Canada 300,920 --
Demand Term Loan payable - interest at 5.8 percent per annum,
monthly principal and interest payments of $5,016 plus interest,
final payment due July 2005, secured by real property located at 11
Carlaw Avenue, Toronto, Canada and
restricted cash of $188,967 787,402 804,325
Mortgage payable - interest at 11.5 percent per annum, monthly
interest payments only, principal due August 1, 2006, secured by
secondary rights to real property located
at 11 Carlaw Avenue, Toronto, Canada 376,150 356,950
----------------- ----------------
Total Debt 2,224,783 1,895,475
Less Current Maturities 1,366,122 426,767
----------------- ----------------
Long-Term Debt, Less Current Maturities $ 858,661 $ 1,468,708
================= ================
Aggregate maturities of long-term debt of the Company due within
the next five years ending July 31, are as follows:
Year Amount
2005 $ 1,366,122
2006 858,661
Thereafter --
----------------
Total $ 2,224,783
================
F-31
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SERIES A PREFERRED STOCK:
During 2001, the Company issued 1,000 shares of Series A Preferred
Stock (Series A) with a par value of $.001 per share. The holder
has the right at any time after January 16, 2004 to convert Series
A shares into shares of common stock of the Company; the number of
shares of common stock issuable upon conversion is variable based
on a formula which reflects the common stock price. The holder also
has the option to exchange the shares of the Company's Series A
Preferred stock for 3,612 shares of the Company's convertible
preferred shares of Generex (Bermuda), Ltd. which represents 30.1
percent of the Company's equity ownership in Generex (Bermuda) Ltd.
Upon exercise, the holder and the Company would each own 50 percent
of Generex (Bermuda) Ltd. (See Note 18 for discussions of Generex
(Bermuda), Ltd.) Holders of Series A shares are not entitled to
vote. In addition, the holders of Series A shares are entitled to
receive a dividend per share equal to the dividend declared and
paid on shares of the Company's common stock as and when dividends
are declared and paid on the Company's common stock, and are also
entitled to receive a mandatory annual dividend equal to 6 percent
per year on the original issue price of $12,015 per share. This
dividend is to be compounded each anniversary of the date of
issuance of the Series A shares and payable by issuance of
additional Series A shares valued at the original issue price. Any
Series A shares outstanding on January 16, 2007, are to be redeemed
for cash or shares of common stock.
On January 15, 2002, the Company paid a 6 percent stock dividend on
the Company's Series A Preferred Stock. The dividend was paid in
shares of Series A Preferred Stock, and resulted in a charge to
accumulated deficit of $720,900, which was calculated based upon
the original issue price of the preferred shares.
On January 15, 2003, the Company paid a 6 percent stock dividend on
the Company's Series A Preferred Stock. The dividend was paid in
shares of Series A Preferred Stock, and resulted in a charge to
accumulated deficit of $764,154, which was calculated based upon
the original issue price of the preferred shares.
On January 15, 2004, the Company paid a 6 percent stock dividend on
the Company's Series A Preferred Stock. The dividend was paid in
shares of Series A Preferred Stock, and resulted in a charge to
accumulated deficit of $810,003, which was calculated based upon
the original issue price of the preferred shares.
At July 31, 2004 and 2003, the Series A had an aggregate
liquidation preference of $14,310,057 and $13,500,054,
respectively.
F-32
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - STOCKHOLDERS' EQUITY:
WARRANTS
As of July 31, 2004, the Company has the following warrants to
purchase common stock outstanding:
Number of Shares Warrant Exercise Warrant
To be Purchased Price Per Share Expiration Date
---------------- ---------------- ---------------
11,764 $ 4.25 January 7, 2005
691,667 $ 4.34 May 17, 2005
19,584 $ 5.00 May 17, 2005
256,667 $ 8.66 May 17, 2005
214,484 $ 6.50 September 29, 2005
114,055 $ 6.60 September 29, 2005
239,222 $ 11.13 September 29, 2005
226 $ 12.99 September 29, 2005
75,000 $ 25.15 January 16, 2006
666,667 $ 1.80 June 6, 2006
188,656 $ 5.09 July 6, 2006
124,859 $ 10.18 July 6, 2006
50,000 $ 12.99 March 18, 2007
1,269,519 $ 1.71 May 27, 2007
70,000 $ 1.25 November 29, 2007
60,000 $ 1.88 November 29, 2007
505,000 $ 2.50 November 29, 2007
30,000 $ 3.00 November 29, 2007
20,000 $ 2.50 October 30, 2008
425,170 $ 1.86 January 9, 2009
57,143 $ 2.20 January 9, 2009
13,889 $ 2.25 January 9, 2009
166,667 $ 1.89 February 13, 2009
23,438 $ 2.02 February 13, 2009
17,169 $ 2.10 February 13, 2009
1,967,213 $ 1.68 July 12, 2009
NOTES RECEIVABLE - COMMON STOCK
Notes receivable - common stock consist of two separate promissory
notes. The first promissory note was issued in conjunction with the
redemption of Series A Redeemable Common Stock Purchase Warrants in
June 1999, and was for $50,000. This note, which was originally due
on December 1, 1999, was initially extended until October 1, 2000,
and then extended until June 1, 2001. On July 31, 2001, the
uncollected balance on this note, including accrued interest at 7
percent per annum, was $57,720 and a new promissory note was
signed. Under the terms of the July 31, 2001 note, the principal of
$57,720, together with accrued interest at 7 percent per annum, was
due July 31, 2002. On July 31, 2002, the uncollected balance on
this note, including accrued interest, was $61,867 and a new
promissory note was signed. Under the terms of the July 31, 2002
note, the principal of $61,867, together with accrued interest at 7
percent per annum, was due July 31, 2003. On July 31, 2003, the
uncollected balance on this note, including accrued interest, was
$66,198 and a new promissory note was signed. Under the terms of
the July 31, 2003 note, the principal of $66,198, together with
accrued interest at 7 percent per annum, is due July 31, 2004. As
of July 31, 2004 and 2003, the outstanding balance on this note,
including accrued interest at 7 percent per annum, was $70,857 and
$66,198, respectively. As of July 31, 2004, this note has not been
extended.
F-33
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - STOCKHOLDERS' EQUITY (CONTINUED):
NOTES RECEIVABLE - COMMON STOCK (CONTINUED)
The second promissory note was issued in conjunction with the
exercise of 50,000 Common Stock Options in March 2001, and was for
$250,000. This note was originally due on March 15, 2002, when a
new promissory note was signed, effectively extending the due date
to March 15, 2003. On March 15, 2003 a new promissory note was
signed, effectively extending the due date to March 15, 2004. As of
July 31, 2004 and 2003, the outstanding balance on this note,
including accrued interest at 7 percent per annum, was $313,946 and
$293,800, respectively. As of July 31, 2004, this note has not been
extended. Subsequent to the year end, the Company initiated a legal
action to collect on this note.
PREFERRED STOCK
The Company has authorized 1,000,000 shares of preferred stock with
a par value of one-tenth of a cent ($.001) per share. The preferred
stock may be issued in various series and shall have preference as
to dividends and to liquidation of the Company. The Company's Board
of Directors is authorized to establish the specific rights,
preferences, voting privileges and restrictions of such preferred
stock, or any series thereof.
SPECIAL VOTING RIGHTS PREFERRED STOCK
In 1997, the Company issued 1,000 shares of Special Voting Rights
Preferred Stock (SVR Shares) with a par value of $.001. The Company
has the right at any time after December 31, 2000, upon written
notice to all holders of preferred shares, to redeem SVR Shares at
$.10 per share. Holders of SVR Shares are not entitled to vote,
except as specifically required by applicable law or in the event
of change in control, as defined. In addition, holders of SVR
Shares are entitled to receive a dividend per share equal to the
dividend declared and paid on shares of the Company's common stock
as and when dividends are declared and paid on the Company's common
stock.
TREASURY STOCK
In September 2001, the Board of Directors of the Company authorized
the repurchase of up to $1 million of the Company's common stock
from the open market. During the fiscal years ended July 31, 2004
and 2003, the Company purchased -0- and 53,000 shares of common
stock to be held in treasury at a cost of $-0- and $88,338,
respectively. Also included in treasury stock are 592,716 shares of
common stock valued at $1,126,157 received as repayment of officer
loans receivable (see Note 10). On November 25, 2003, the Company
cancelled all 742,216 shares held in Treasury Stock. The Company
originally purchased these shares for $1,610,026.
As of July 31, 2004 and 2003, there were -0- and 742,216 shares
held in treasury valued at $-0- and $1,610,026, respectively.
NOTE 14 - STOCK BASED COMPENSATION:
STOCK OPTION PLANS
The Company has three stock option plans under which options
exercisable for shares of common stock have been or may be granted
to employees, directors, consultants and advisors. A total of
1,500,000 shares of common stock are reserved for issuance under
the 1998 Stock Option Plan (the 1998 Plan), a total of 2,000,000
shares of common stock are reserved for issuance under the 2000
Stock Option Plan (the 2000 Plan) and a total of 8,000,000 shares
of common stock are reserved for issuance under the 2001 Stock
Option Plan (the 2001 Plan).
F-34
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK BASED COMPENSATION (CONTINUED):
STOCK OPTION PLANS (CONTINUED)
The 1998, 2000 and 2001 Plans (the Plans) are administered by the
Compensation Committee (the Committee). The Committee is authorized
to select from among eligible employees, directors, advisors and
consultants those individuals to whom options are to be granted and
to determine the number of shares to be subject to, and the terms
and conditions of, the options. The Committee is also authorized to
prescribe, amend and rescind terms relating to options granted
under the Plans. Generally, the interpretation and construction of
any provision of the Plans or any options granted hereunder is
within the discretion of the Committee.
The Plans provide that options may or may not be Incentive Stock
Options (ISOs) within the meaning of Section 422 of the Internal
Revenue Code. Only employees of the Company are eligible to receive
ISOs, while employees and non-employee directors, advisors and
consultants are eligible to receive options which are not ISOs,
i.e. "Non-Qualified Options." The options granted by the Board in
connection with its adoption of the Plans are Non-Qualified
Options.
The following is a summary of the common stock options granted,
canceled or exercised under the Plan:
Weighted Average
Exercise Price Per
Shares Share
--------------- -----------------------
Outstanding - August 1, 2001 4,187,000 $ 6.31
Granted 780,159 5.42
Canceled 80,000 5.65
Exercised 5,000 5.50
---------------
Outstanding - July 31, 2002 4,882,159 6.18
Granted 2,860,000 1.85
Canceled 1,077,000 5.95
Exercised 70,000 1.59
---------------
Outstanding - July 31, 2003 6,595,159 4.38
Granted 1,846,000 1.63
Canceled 1,181,600 5.61
Exercised 45,400 1.88
---------------
Outstanding - July 31, 2004 7,214,159 $ 3.49
===============
F-35
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK BASED COMPENSATION (CONTINUED):
STOCK OPTION PLANS (CONTINUED)
The following table summarizes information on stock options
outstanding at July 31, 2004:
Options Outstanding Options Exercisable
--------------------------------------------------------- -----------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Contractual Average Exercisable Average
Range of at Life Exercise at Exercise
Exercise Price July 31, 2004 (Years) Price July 31, 2004 Price
-------------- ------------------- ----------------- ------------- ------------- ----------
$1.00 - $2.19 4,576,000 3.54 $ 1.76 4,016,500 $ 1.78
$5.00 - $6.54 1,323,659 1.26 $ 5.11 1,323,659 $ 5.11
$7.50 - $8.70 1,214,500 1.20 $ 7.70 1,214,500 $ 7.70
$10.21 100,000 1.50 $ 10.21 100,000 $ 10.21
Options typically vest over a period of two years and have a
contractual life of five years.
Options exercisable at July 31, are as follows:
Number of Weighted Average
Year Options Exercise Price
---- ------- --------------
2002 4,685,659 $ 6.26
2003 5,858,659 $ 4.62
2004 6,654,659 $ 3.65
During the years ended July 31, 2004, 2003 and 2002, $45,390, $-0-
and $-0-, respectively, was charged to compensation expense with
respect to options granted to employees and directors of the
Company.
The fair value of each option granted is estimated on grant date
using the Black-Scholes option pricing model which takes into
account as of the grant date the exercise price and expected life
of the option, the current price of the underlying stock and its
expected volatility, expected dividends on the stock and the
risk-free interest rate for the term of the option. The following
is the average of the data used to calculate the fair value:
Risk-Free Expected Expected Expected
Interest Rate Life (Years) Volatility Dividends
------------- ------------ ---------- ---------
July 31, 2004 1.00% 5.01 1.0604 --
July 31, 2003 .90% 4.29 1.0219 --
July 31, 2002 1.74% 4.81 .9641 --
The weighted average fair value of the Company's stock options
calculated using the Black-Scholes option-pricing model for options
granted during the years ended July 31, 2004, 2003 and 2002 was
$1.24, $1.35 and $4.33 per share, respectively.
F-36
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCK BASED COMPENSATION (CONTINUED):
EQUITY INSTRUMENTS ISSUED FOR SERVICES RENDERED
During the years ended July 31, 2004, 2003 and 2002, the Company
issued stock options, warrants and shares of common stock in
exchange for services rendered to the Company. The fair value of
each stock option and warrant was valued using the Black Scholes
pricing model which takes into account as of the grant date the
exercise price and expected life of the stock option or warrant,
the current price of the underlying stock and its expected
volatility, expected dividends on the stock and the risk free
interest rate for the term of the stock option or warrant. Shares
of common stock are valued at the quoted market price on the date
of grant. The fair value of each grant was charged to the related
expense in the statement of operations for the services received.
NOTE 15 - NET LOSS PER SHARE:
Basic EPS and Diluted EPS for the years ended July 31, 2004, 2003
and 2002 have been computed by dividing the net loss available to
common stockholders for each respective period by the weighted
average shares outstanding during that period. All outstanding
warrants and options and shares to be issued upon conversion of
Series A Preferred stock, representing approximately 15,058,348
incremental shares, have been excluded from the 2004 computation of
Diluted EPS as they are antidilutive due to the losses generated.
NOTE 16 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
For the Years Ended July 31,
---------------------------------------------------------------------
2004 2003 2002
----------------- ----------------- -----------------
Cash paid during the year for:
Interest $ 166,166 $ 149,233 $ 64,310
Income taxes $ -- $ -- $ --
Disclosure of non-cash investing and financing activities:
Year Ended July 31, 2004
Issuance of Series A Preferred Stock as preferred stock dividend $ 810,003
Application of deposit to advances to Antigen Express, Inc. $ 25,000
Acquisition of Antigen Express, Inc through the issuance of common
stock and the assumption of stock options $ 4,797,409
Retirement of treasury stock $ 1,610,026
Purchase of assets held for investment in exchange for long-term debt $ 138,001
Year Ended July 31, 2003
Issuance of Series A Preferred Stock as preferred stock dividend $ 764,154
Settlement of officer loans receivable in exchange for shares of
common stock held in treasury $ 1,126,157
Assumption of long-term debt in conjunction with building purchase $ 1,080,486
Utilization of deposit in conjunction with building purchase $ 501,839
Year Ended July 31, 2002
Issuance of Series A Preferred stock as preferred stock dividend $ 720,900
F-37
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - SEGMENT INFORMATION:
The Company follows SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports.
SFAS No. 131 also establishes standards for related disclosures
about products and services, geographic areas, and major customers.
SFAS No. 131 uses a management approach for determining segments.
The management approach designates the internal organization that
is used by management for making operating decisions and assessing
performance as the source of the Company's reportable segments. The
Company's management reporting structure provides for only one
segment.
The regions in which the Company had identifiable assets and
revenues are presented in the following table. Identifiable assets
are those that can be directly associated with a geographic area.
2004 2003 2002
--------------------- ------------------ ------------------
Identifiable Assets
Canada $ 14,006,834 $ 22,638,708 $ 28,160,748
United States 5,005,156 -- --
--------------------- ------------------ ------------------
Total $ 19,011,990 $ 22,638,708 $ 28,160,748
===================== ================== ==================
Revenue
Canada $ -- $ -- $ --
United States 627,184 -- --
--------------------- ------------------ ------------------
Total $ 627,184 $ -- $ --
===================== ================== ==================
NOTE 18 - COLLABORATIVE AGREEMENTS:
The Company has a joint venture with Elan International Services,
Ltd. ("EIS"), a wholly owned subsidiary of Elan Corporation, plc
(EIS and Elan Corporation, plc being collectively referred to as
"Elan"). Through the joint venture, the parties agreed to pursue
the application of certain of the Company's and Elan's drug
delivery technologies, including the Company's platform technology
for the buccal delivery of large molecule drugs, to pharmaceutical
products for the treatment of prostate cancer, endometriosis and/or
the suppression of testosterone and estrogen. In January 2002, the
parties expanded the joint venture agreement to include buccal
morphine for the management of pain. The parties will conduct the
joint venture through Generex (Bermuda), Ltd. (Generex Bermuda), a
Bermuda limited liability company. The parties are free to develop
other products on their own outside the field of the joint venture.
The Company applied the $12,015,000 that it received from EIS for
the shares of the Company's Series A Preferred Stock (see Note 12)
to form Generex Bermuda. The Company's interest in this company
consists of 6,000 shares of Generex Bermuda common stock and 3,612
shares of convertible preferred stock, representing an 80.1 percent
equity ownership interest in Generex Bermuda. At the same time, EIS
remitted $2,985,000 to purchase 2,388 shares of Generex Bermuda
convertible preferred stock, representing a 19.9 percent equity
ownership interest in Generex Bermuda. The Series A Preferred stock
has an exchange feature which allows EIS to acquire an additional
30.1 percent equity ownership interest in Generex Bermuda. As of
July 31, 2004, 2003 and 2002, the minority interest has been
reduced to $-0- due to their share of Generex Bermuda's net loss.
F-38
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - COLLABORATIVE AGREEMENTS (CONTINUED):
Generex Bermuda was granted rights to use the Company's buccal
delivery technology and certain Elan drug delivery technologies for
purposes of the joint venture. Using the funds from the initial
capitalization, Generex Bermuda paid a nonrefundable license fee of
$15,000,000 to Elan in consideration for being granted rights to
use the Elan drug delivery technologies during the year ended July
31, 2001. The Company expensed the entire cost of the license as a
research and development expense because of the uncertainties
surrounding the future realization of revenue from the use of the
license. During the years ended July 31, 2003 and 2002, Generex
Bermuda continued to incur research and development and operational
expenses in conjunction with the joint venture's operations. There
has been no activity for the year ended July 31, 2004.
NOTE 19 - QUARTERLY INFORMATION (UNAUDITED):
The following schedule sets forth certain unaudited financial
data for the preceding eight quarters ending July 31, 2004. In
our opinion, the unaudited information set forth below has been
prepared on the same basis as the audited information and
includes all adjustments necessary to present fairly the
information set forth herein. The operating results for the
quarter are not indicative of results for any future period.
Q1 Q2 Q3 Q4
-------------- --------------- -------------- --------------
Fiscal Year July 31, 2004:
Contract research revenue $ 68,061 $ 117,503 $ 235,129 $ 206,491
Operating loss $ (3,790,784) $ (4,746,528) $ (4,908,093) $ (5,119,936)
Net loss $ (3,612,270) $ (4,774,620) $ (4,900,075) $ (5,075,618)
Net loss available to common
stockholders $ (3,612,270) $ (5,584,623) $ (4,900,075) $ (5,075,618)
Net loss per share $ (.13) $ (.19) $ (.16) $ (.17)
Fiscal Year July 31, 2003:
Contract research revenue $ -- $ -- $ -- $ --
Operating loss $ (2,805,371) $ (4,700,645) $ (2,763,741) $ (3,578,933)
Net loss $ (2,668,662) $ (4,575,030) $ (2,607,871) $ (3,410,201)
Net loss available to common
stockholders $ (2,668,662) $ (5,331,975) $ (2,607,871) $ (3,417,410)
Net loss per share $ (0.13) $ (0.27) $ (0.13) $ (.14)
NOTE 20 - SUBSEQUENT EVENTS:
On August 10, 2004, the Company issued an aggregate 770,000
shares of common stock and 500,000 warrants to purchase common
stock to certain consultants in exchange for financial services.
On August 17, 2004, the Arbitration Panel of the New York Stock
Exchange issued a final award in the case of Sands vs. the
Company, awarding Sands $150,000 in reliance damages. No motion
to confirm this award has been filed by Sands as of the date of
this report. Sands has not sought leave to appeal the vacaturs of
the prior panel's warrant award to the New York Court of Appeals.
On August 26, 2004, the Vice President of Research and
Development resigned from his position as an officer of the
Company. The V.P. also gave notice to the Company that the
Consulting Agreement between the V.P. and the Company will
terminate effective August 25, 2005. The Company does not believe
that the V.P.'s resignation or the termination of his Consulting
Agreement will have a material adverse effect.
F-39
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - SUBSEQUENT EVENTS (CONTINUED):
On October 18, 2004, the Company entered into Securities Purchase
Agreement to sell 800,000 shares of common stock at $2.50 per
share for the gross proceeds of $2,000,000. The closing date for
this transaction is to be agreed upon, but in no event later than
December 10, 2004.
On November 10, 2004, the Company entered into definitive
agreements with four accredited investors, pursuant to which the
Company will issue convertible promissory notes for aggregate gross
proceeds of $4,000,000. The notes carry a 6% coupon and a 15 month
term and amortize in 13 equal monthly installments commencing in
the third month of the term. The notes are convertible into
registered common stock of the Company at a per share price equal
to the 10-day Volume Weighted Average Price (VWAP) on the closing
date. The coupon and amortization payments are payable in cash or,
at the Company's option, in registered stock valued at a 10%
discount to the 20-day VWAP at as the payment date. The transaction
terms include 100% five-year warrant coverage at a per share
exercise price equal to a 10% premium to the 10-day VWAP on the
closing date and a 100% additional investment right exercisable for
up to twelve months following the effective date of the
registration statement in respect of the transaction.
F-40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Effective July 1, 2003, we dismissed Deloitte & Touche, LLP ("Deloitte") and
engaged BDO Dunwoody, LLP ("BDO Dunwoody") to serve as the independent public
accountants to audit our financial statements for the fiscal year ending July
31, 2003. We have retained BDO Dunwoody to serve as the independent public
accountants to audit our financial statements for the fiscal year ending July
31, 2004 as well.
The dismissal of Deloitte and the appointment of BDO Dunwoody as independent
public accountants replacing Deloitte was approved by the audit committee of our
Board of Directors. Deloitte did not decline to stand for re-election.
During fiscal years ended July 31, 2004 and July 31, 2003, BDO Dunwoody's
reports on our financial statements did not contain an adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles. Deloitte's reports on our financial
statements for the fiscal year ended July 31, 2002, the last fiscal year during
which Deloitte served as our independent public accountants, did not contain an
adverse opinion or a disclaimer of opinion, and was not qualified or modified as
to uncertainty, audit scope or accounting principles.
During the two fiscal years during which Deloitte served as our independent
public accountants, and the subsequent interim period preceding Deloitte's
dismissal, we had no disagreements with Deloitte, as the term "disagreement" is
defined in Item 304(a)(1)(iv) of Regulation S-K, on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which disagreements, if not resolved to Deloitte's satisfaction, would
have caused Deloitte to make reference to the subject matter of the
disagreements in its reports. During the two fiscal years during which Deloitte
served as our independent public accountants, and the subsequent interim period
preceding Deloitte's dismissal, there were no "reportable events" as that term
is defined in Item 304 (a)(1)(v) of Regulation S-K.
Effective July 1, 2003, we engaged BDO Dunwoody as our independent public
accountants. During the past two fiscal years, we have had no consultations with
BDO Dunwoody concerning: (a) the application of accounting principles to a
specific transaction or the type of opinion that might be rendered on our
financial statements, as to which a written report was provided to us or as to
which we received oral advice from BDO Dunwoody, that BDO Dunwoody concluded was
an important factor in reaching a decision on any accounting, auditing or
financial reporting issue; or (b) any matter that was the subject of a
disagreement or a reportable event, as those terms are defined in Item
304(a)(1)(iv) and (v) of Regulation S-K.
50
ITEM 9A. CONTROLS AND PROCEDURES
Based on our management's evaluation (with the participation of our principal
executive officer and principal financial officer), as of the end of the period
covered by this Annual Report on Form 10-K, our principal executive officer and
principal financial officer have concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
There was no change in our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934)
during the period covered by this Annual Report on Form 10-K that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
51
ITEM 9B. OTHER INFORMATION
NOT APPLICABLE.
52
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference from the
Proxy Statement, or an amendment to this Annual Report on Form 10-K, to be filed
with the Commission not later than 120 days after the end of the fiscal year to
which this report relates.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
Proxy Statement, or an amendment to this Annual Report on Form 10-K, to be filed
with the Commission not later than 120 days after the end of the fiscal year to
which this report relates.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
Proxy Statement, or an amendment to this Annual Report on Form 10-K, to be filed
with the Commission not later than 120 days after the end of the fiscal year to
which this report relates.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
Proxy Statement, or an amendment to this Annual Report on Form 10-K, to be filed
with the Commission not later than 120 days after the end of the fiscal year to
which this report relates.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated by reference from the
Proxy Statement, or an amendment to this Annual Report on Form 10-K, to be filed
with the Commission not later than 120 days after the end of the fiscal year to
which this report relates.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
53
EXHIBITS
Exhibit No. Description
- ----------- -----------
2 Agreement and Plan of Merger among Generex Biotechnology
Corporation, Antigen Express, Inc. and AGEXP Acquisition
Inc. filed as Exhibit 2.1 to our Current Report on Form 8-K
filed with the Commission on August 15, 2003 is incorporated
herein by reference.
3.1 Restated Certificate of Incorporation of Generex
Biotechnology Corporation, as amended, filed as Exhibit 3.1
to our Quarterly Report on Form 10-Q for the quarter ended
January 31, 2004 filed with the Commission on March 15, 2004
is incorporated herein by reference.
3.2 Bylaws of the Company filed as Exhibit 3.2 to our
Registration Statement on Form S-1 (File No. 333-82667)
filed with the Commission on July 12, 1999 ("1999 S-1") is
incorporated herein by reference.
4.1.1 Form of common stock certificate filed as Exhibit 4.1 to our
1999 S-1 is incorporated herein by reference.
54
4.1.2 Certificate of Designations, Preferences and Rights of
Series A Preferred Stock filed as Exhibit 4.4 to our Report
on Form 8-K filed with the Commission on January 23, 2001
("January 2001 8-K") is incorporated herein by reference.
4.2.1 1998 Stock Option Plan filed as Exhibit 4.3 to our 1999 S-1
is incorporated herein by reference.
4.2.2 2000 Stock Option Plan filed as Exhibit 4.3.2 to our Form
10-K for the fiscal year ended July 31, 2000 filed with the
Commission on October 30, 2000 is incorporated herein by
reference.
4.2.3 2001 Stock Option Plan filed as Exhibit 4.2.3 to our Form
10-K for the fiscal year ended July 31, 2001 filed with the
Commission on October 29, 2001 ("2001 10-K").
4.2.4 Amended 2001 Stock Option Plan filed as Exhibit 4.1 to our
Quarterly Report on Form 10-Q for fiscal quarter ended
October 31, 2004 filed with the Commission on December 15,
2003 is incorporated hereby by reference.
4.3 Form of Warrant issued to Ladenburg Thalmann & Co., Inc.
dated July 6, 2001, filed as Exhibit 4.15 to our
Registration Statement on Form S-3 (File No. 333-67118)
filed with the Commission on August 8, 2001 is incorporated
herein by reference.
4.4.1 Form of Securities Purchase Agreement entered into with
Cranshire Capital, L.P.; RAM Trading Ltd.; Gryphon Master
Fund; Kodiak Opportunity, L.P.; Kodiak Opportunity 3C7,
L.P.; Kodiak Opportunity Offshore, Ltd.; Novelly Exempt
Trust; Langley Partners, L.P.; Montrose Investments, Ltd.;
WEC Asset Management, LLC; ZLP Master Technology Fund, Ltd.;
Alpha Capital Aktiengesellschaft; and The dotCOM Fund, LLC,
dated July 3, 2001, filed as Exhibit 1 to our Report on Form
8-K dated July 6, 2001 and filed with the Commission on July
17, 2001 ("July 2001 8-K") is incorporated herein by
reference.
4.4.2 Form of Registration Rights Agreement entered into with
Cranshire Capital, L.P.; RAM Trading Ltd.; Gryphon Master
Fund; Kodiak Opportunity, L.P.; Kodiak Opportunity 3C7,
L.P.; Kodiak Opportunity Offshore, Ltd.; Novelly Exempt
Trust; Langley Partners, L.P.; Montrose Investments, Ltd.;
WEC Asset Management, LLC; ZLP Master Technology Fund, Ltd.;
Alpha Capital Aktiengesellschaft; and The dotCOM Fund, LLC,
dated July 3, 2001, filed as Exhibit 2 to our July 2001 8-K
is incorporated herein by reference.
4.4.3 Form of Warrant granted to Cranshire Capital, L.P.; RAM
Trading Ltd.; Gryphon Master Fund; Kodiak Opportunity, L.P.;
Kodiak Opportunity 3C7, L.P.; Kodiak Opportunity Offshore,
Ltd.; Novelly Exempt Trust; Langley Partners, L.P.; Montrose
Investments, Ltd.; WEC Asset Management, LLC; ZLP Master
Technology Fund, Ltd.; Alpha Capital Aktiengesellschaft; and
The dotCOM Fund, LLC, dated July 6, 2001, filed as Exhibit 3
to our July 2001 8-K is incorporated herein by reference.
55
4.5.1 Securities Purchase Agreement entered into with Capital
Ventures International, dated July 3, 2001, filed as Exhibit
4 to our July 2001 8-K is incorporated herein by reference.
4.5.2 Registration Rights Agreement entered into with Capital
Ventures International, dated July 3, 2001, filed as Exhibit
5 to our July 2001 8-K is incorporated herein by reference.
4.5.3 Warrant granted to Capital Ventures International, dated
July 3, 2001, filed as Exhibit 6 to our July 2001 8-K is
incorporated herein by reference.
4.6.1 Form of Securities Purchase Agreement entered into with
Elliott International, L.P. and Elliott Associates, L.P.,
dated July 3, 2001, filed as Exhibit 7 to our July 2001 8-K
is incorporated herein by reference.
4.6.2 Form of Registration Rights Agreement entered into with
Elliott International, L.P. and Elliott Associates, L.P.,
dated July 3, 2001, filed as Exhibit 8 to our July 2001 8-K
is incorporated herein by reference.
4.6.3 Warrant issued to Elliott International, L.P. and Elliott
Associates, L.P., dated July 5, 2001, filed as Exhibit 9 to
our July 2001 8-K is incorporated herein by reference.
4.7.1 Securities Purchase Agreement between Generex Biotechnology
Corporation, Elan International Services, Ltd. and Elan
Corporation, plc., dated January 16, 2001, filed as Exhibit
4.1 to our Report on Form 8-K/A dated January 16, 2001 filed
with the Commission on February 1, 2001 is incorporated
herein by reference.
4.7.2 Registration Rights Agreement between Generex Biotechnology
Corporation and Elan International Services, Ltd. dated
January 16, 2001 filed as Exhibit 4.2 to our January 2001
8-K is incorporated herein by reference.
4.7.3 Form of Warrant issued to Elan International Services, Ltd.
filed as Exhibit 4.3 to our January 2001 8-K is incorporated
herein by reference.
4.8.1 Form of Securities Purchase Agreement entered into with
certain parties to October 2000 Private Placement filed as
Exhibit 2 to our Report on Form 8-K dated October 4, 2000
and filed on October 16, 2000 ("October 2000 8-K") is
incorporated herein by reference.
4.8.2 Form of Registration Rights Agreement entered into with
certain parties to October 2000 Private Placement filed as
Exhibit 3 to our October 2000 8-K is incorporated herein by
reference.
4.8.3 Form of Warrant issued to certain parties to October 2000
Private Placement filed as Exhibit 4 to our October 2000 8-K
is incorporated herein by reference.
56
4.9 Securities Purchase Agreement entered into with Smallcap
World Fund, Inc. dated September 29, 2000 filed as Exhibit 1
to our October 2000 8-K is incorporated herein by reference.
4.10 Form of Warrant (GCR Series) held by Robert P. Carter,
Harvey Kaye, Fittube, Inc., Edward Maskaly and Gulfstream
Capital Group, L.C. filed as Exhibit 4.4.2 to our
Registration Statement on Form 10 filed with the Commission
December 14, 1998, as amended February 24, 1999 ("Form 10"),
is incorporated herein by reference.
4.11 Letter Agreement and Warrant with M. H. Meyerson & Co., Inc.
dated November 17, 1998 filed as Exhibit 4.4.4 to our Form
10 is incorporated herein by reference.
4.12 Option Agreement with Wolfe Axelrod Weinberger LLC dated
January 3, 2000, filed as Exhibit 4.5 to our Quarterly
Report on Form 10-Q for the quarter ended January 31, 2000
filed with the Commission on March 14, 2000 is incorporated
herein by reference.
4.13.1 Form of Securities Purchase Agreement entered into with
Cranshire Capital, L.P.; Gryphon Partners, L.P.; Langley
Partners, L.P.; Lakeshore Capital, Ltd.; LH Financial;
Omicron Capital; Photon Fund, Ltd.; Howard Todd Horberg and
Vertical Ventures, LLC dated May 29, 2003 filed as Exhibit
4.1 to our Quarterly Report on Form 10-Q/A for the quarter
ended April 30, 2003 ("3Q 2003 10-Q/A") filed with the
Commission on August 13, 2003 is incorporated herein by
reference.
4.13.2 Form of Registration Rights Agreement entered into with
Cranshire Capital, L.P.; Gryphon Partners, L.P.; Langley
Partners, L.P.; Lakeshore Capital, Ltd.; LH Financial;
Omicron Capital; Photon Fund, Ltd.; Howard Todd Horberg and
Vertical Ventures, LLC dated May 29, 2003 filed as Exhibit
4.2 to our 3Q 2003 10-Q/A is incorporated herein by
reference.
4.13.3 Form of Warrant granted to Cranshire Capital, L.P.; Gryphon
Partners, L.P.; Langley Partners, L.P.; Lakeshore Capital,
Ltd.; LH Financial; Omicron Capital; Photon Fund, Ltd.;
Howard Todd Horberg and Vertical Ventures, LLC dated May 29,
2003 filed as Exhibit 4.3 to our 3Q 2003 10-Q/A is
incorporated herein by reference.
4.13.4 Form of Securities Purchase Agreement entered into with
Cranshire Capital, L.P. dated June 6, 2003 filed as Exhibit
4.4 to our 3Q 2003 10-Q/A is incorporated herein by
reference.
4.13.5 Form of Registration Rights Agreement entered into with
Cranshire Capital, L.P. dated June 6, 2003 filed as Exhibit
4.5 to our 3Q 2003 10-Q/A is incorporated herein by
reference.
4.13.6 Form of Warrant granted to Cranshire Capital, L.P. dated
June 6, 2003 filed as Exhibit 4.6 to our 3Q 2003 10-Q/A is
incorporated herein by reference.
57
4.13.7 Form of replacement Warrant issued to warrant holders
exercising at reduced exercise price in May and June 2003.*
4.14.1 Securities Purchase Agreement, dated December 19, 2003, by
and among Generex Biotechnology Corporation and the
investors named therein filed as Exhibit 4.1 to our Report
on Form 8-K/A dated January 5, 2004 filed with the
Commission March 24, 2004 ("March 24, 2004 8-K") is
incorporated hereby by reference.
4.14.2 Registration Rights Agreement, dated December 19, 2003, by
and among Generex Biotechnology Corporation and the
investors named therein filed as Exhibit 4.2 to our March
24, 2004 8-K is incorporated herein by reference.
4.14.3 Form of Warrant issued in connection with 4.14.1 filed as
Exhibit 4.3 to our March 24, 2004 8-K is incorporated
herein by reference.
4.14.4 Form of Additional Investment Right issued in connection
with 4.14.1 filed as Exhibit 4.4 to our March 24, 2004 8-K
is incorporated herein by reference.
4.15.1 Securities Purchase Agreement, dated January 7, 2004, by and
between Generex Biotechnology Corporation and ICN Capital
Limited filed as Exhibit 4.1 to our Report on Form 8 dated
January 7, 2004 filed with the Commission March 1, 2004
("March 1, 2004 8-K") is incorporated herein by reference.
4.15.2 Registration Rights Agreement, dated January 7, 2004, by and
between Generex Biotechnology Corporation and ICN Capital
Limited filed as Exhibit 4.2 to our March 24, 2004 8-K is
incorporated herein by reference.
4.15.3 Warrant issued in connection with 4.15.1 filed as Exhibit
4.3 to our March 24, 2004 8-K is incorporated herein by
reference.
4.15.4 Additional Investment Right issued in connection with 4.15.1
filed as Exhibit 4.4 to our March 24, 2004 8-K is
incorporated herein by reference.
4.16.1 Securities Purchase Agreement, dated January 9, 2004, by and
between Generex Biotechnology Corporation and Vertical
Ventures, LLC filed as Exhibit 4.5 to our March 24, 2004 8-K
is incorporated herein by reference.
4.16.2 Registration Rights Agreement, dated January 9, 2004, by and
between Generex Biotechnology Corporation and Vertical
Ventures, LLC filed as Exhibit 4.6 to our March 24, 2004 8-K
is incorporated herein by reference.
4.16.3 Warrant issued in connection with 4.16.1 filed as Exhibit
4.7 to our March 24, 2004 8-K is incorporated herein by
reference.
4.16.4 Additional Investment Right issued in connection with 4.16.1
filed as Exhibit 4.8 to our March 24, 2004 8-K is
incorporated herein by reference.
58
4.17.1 Securities Purchase Agreement, dated February 6, 2004, by
and between Generex Biotechnology Corporation and Alexandra
Global Master Fund, Ltd. filed as Exhibit 4.9 to our March
24, 2004 8-K is incorporated herein by reference.
4.17.2 Registration Rights Agreement, dated February 6, 2004, by
and between Generex Biotechnology Corporation and Alexandra
Global Master Fund, Ltd. filed as Exhibit 4.10 to our March
24, 2004 8-K is incorporated herein by reference.
4.17.3 Warrant issued in connection with 4.17.1 filed as Exhibit
4.11 to our March 24, 2004 8-K is incorporated herein by
reference.
4.17.4 Additional Investment Right issued in connection with 4.17.1
filed as Exhibit 4.12 to our March 24, 2004 8-K is
incorporated herein by reference.
4.17.5 Escrow Agreement, dated February 26, 2004, by and among
Generex Biotechnology Corporation, Eckert Seamans Cherin &
Mellott, LLC and Alexandra Global Master Fund, Ltd. filed as
Exhibit 4.13 to our March 24, 2004 8-K is incorporated
herein by reference.
4.18.1 Securities Purchase Agreement, dated February 11, 2004, by
and between Generex Biotechnology Corporation and Michael
Sourlis filed as Exhibit 4.14 to our March 24, 2004 8-K is
incorporated herein by reference.
4.18.2 Registration Rights Agreement, dated February 11, 2004, by
and between Generex Biotechnology Corporation and Michael
Sourlis filed as Exhibit 4.15 to our March 24, 2004 8-K is
incorporated herein by reference.
4.18.3 Warrant issued in connection with 4.18.1 filed as Exhibit
4.16 to our March 24, 2004 8-K is incorporated herein by
reference.
4.18.4 Additional Investment Right issued in connection with 4.18.1
filed as Exhibit 4.17 to our March 24, 2004 8-K is
incorporated herein by reference.
4.19.1 Securities Purchase Agreement, dated February 13, 2004, by
and between Generex Biotechnology Corporation and Zapfe
Holdings, Inc. filed as Exhibit 4.18 to our March 24, 2004
8-K is incorporated herein by reference.
4.19.2 Registration Rights Agreement, dated February 13, 2004, by
and between Generex Biotechnology Corporation and Zapfe
Holdings, Inc. filed as Exhibit 4.19 to our March 24, 2004
8-K is incorporated herein by reference.
4.19.3 Warrant issued in connection with 4.19.1 filed as Exhibit
4.20 to our March 24, 2004 8-K is incorporated herein by
reference.
4.19.4 Additional Investment Right issued in connection with 4.19.1
filed as Exhibit 4.21 to our March 24, 2004 8-K is
incorporated herein by reference.
59
4.20.1 Securities Purchase Agreement, dated June 23, 2004, by and
among Generex Biotechnology Corporation and the investors
named therein filed as Exhibit 4.1 to our Report on Form 8-K
dated July 12, 2004 filed with the Commission on July 14,
2004 ("July 2004 8-K") is incorporated herein by reference.
4.20.2 Registration Rights Agreement, dated June 23, 2004, by and
among Generex Biotechnology Corporation and the investors
named therein filed as Exhibit 4.2 to July 2004 8-K is
incorporated herein by reference.
4.20.3 Form of Warrant issued in connection with 4.20.1 filed as
Exhibit 4.3 to July 2004 8-K is incorporated herein by
reference.
4.20.4 Form of Additional Investment Right issued in connection
with 4.20.1 filed as Exhibit 4.4 to July 2004 8-K is
incorporated herein by reference.
10.1.1 Memorandum of Agreement dated January 7, 1998 between
Generex Pharmaceuticals, Inc., GHI Inc., Generex
Biotechnology Corporation, Dr. Pankaj Modi and Galaxy
Technology, Canada and Consulting Agreement between Generex
Pharmaceuticals and Pankaj Modi dated October 1, 1996 filed
as Exhibit 10.1.1 to our Form 10 is incorporated herein by
reference.
10.1.2 Assignment and Assumption Agreement between Generex
Pharmaceuticals and Pankaj Modi dated October 1, 1996 filed
as Exhibit 10.1.2 to our Registration Statement on Form 10/A
filed with the Commission on February 24, 1999 is
incorporated herein by reference
10.1.3 Supplemental Agreement dated December 31, 2000 between
Generex Pharmaceuticals, Inc., Generex Biotechnology
Corporation and Dr. Pankaj Modi, filed as Exhibit 10.1.4 to
our 2001 10-K.
10.2.1 Development and License Agreement dated September 5, 2000
between Generex Biotechnology Corporation and Eli Lilly and
Company filed as Exhibit 10.1 to our Report on Form 8-K/A
dated September 5, 2000 and filed with the Commission on
January 24, 2001 is incorporated herein by reference.
10.3.1 Amended and Restated Subscription, Joint Development and
Operating Agreement dated January 15, 2002, between Elan
Corporation, plc, Elan International Services, Ltd. and
Generex Biotechnology Corporation and Generex (Bermuda),
Ltd. filed as Exhibit 10.1 to our Current Report on Form
8-K/A ("September 2003 8-K/A") filed with the Commission on
September 9, 2003 is incorporated herein by reference.
10.3.2 Amended and Restated License Agreement dated January 15,
2002, between Elan Corporation, plc and Generex (Bermuda),
Ltd. filed as Exhibit 10.2 to our September 2003 8-K/A is
incorporated herein by reference.
10.3.3 Amended and Restated License Agreement dated January 15,
2002, between Generex Biotechnology Corporation and Generex
(Bermuda), Ltd. filed as Exhibit 10.3 to our September 2003
8-K/A is incorporated herein by reference.
60
10.4 Stockholders Agreement among Generex Biotechnology
Corporation and the former holders of capital stock of
Antigen Express, Inc. filed as Exhibit 10.4 to our Form 10-K
for the fiscal year ended July 31, 2003 filed with the
Commission on October 29, 2003 is incorporated herein by
reference.
16. Letter from Deloitte & Touche, LLP regarding its concurrence
with the statements made by Generex in this Report regarding
its dismissal as principal accountant filed as Exhibit 16 to
our Current Report on Form 8-K/A filed with the Commission
on July 11, 2003 is incorporated herein by reference.
21 Subsidiaries of the Registrant.*
23.1 Consent of BDO Dunwoody, LLP, independent registered
chartered accountants.*
23.2 Consent of Deloitte & Touche LLP, independent registered
chartered accountants.*
24 Powers of Attorney, filed as Exhibit 24 to our 2001 10-K.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.*
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.*
32 Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
- -------------------------------------
* Filed herewith. All other exhibits are incorporated by reference, as
described.
REPORTS ON FORM 8-K
The following Reports on Form 8-K were filed during the last quarter of the
fiscal year ended July 31, 2004 and subsequent interim period ended October 27,
2004:
o Report on Form 8-K, filed with the Commission July 14, 2004, relating
to the private placement of unregistered common stock and warrants
under Item 5 - Other Events.
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 28th day of October
2004.
GENEREX BIOTECHNOLOGY CORPORATION
By: /s/ Anna E. Gluskin
----------------------------
Name: Anna E. Gluskin
Title: President
Date: November 10, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
NAME CAPACITY IN WHICH SIGNED DATE
/s/ Anna E. Gluskin President, Chief Executive Officer November 10, 2004
- --------------------------------- and Director
/s/ Rose C. Perri Chief Operating Officer, Treasurer, November 10, 2004
- --------------------------------- Acting CFO, Secretary and Director
Rose C. Perri
/s/ Mindy J. Allport-Settle Vice President, Research and November 10, 2004
- --------------------------------- Development and Director
Mindy J. Allport-Settle.
/s/ Gerald Bernstein, M.D. Vice President and Director November 10, 2004
- ---------------------------------
Gerald Bernstein, M.D.
/s/ J. Michael Rosen Director November 10, 2004
- ---------------------------------
J. Michael Rosen
/s/ Brian T. McGee Director November 10, 2004
- ---------------------------------
Brian T. McGee
/s/ John P. Barratt Director November 10, 2004
- ---------------------------------
John P. Barratt
/s/ Slava Jarnitskii Controller November 10, 2004
- ---------------------------------
Slava Jarnitskii
62