**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**





**x QUARTERLY
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**





For
      the
      quarterly period ended January 31, 2006





**o
      TRANSITION REPORTS
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**





**For
      the transition period from_________________ to
      ________________**





**COMMISSION
      FILE NUMBER: 0-25169**





**GENEREX
      BIOTECHNOLOGY CORPORATION**





**(Exact
      name of registrant as specified in its charter)**




**Delaware**
            
            **98-0178636****(State
                of other jurisdiction of
                incorporation or organization)**
            
            **(IRS
                Employer Identification
                No.)**




**33
      HARBOUR SQUARE, SUITE 202**


**TORONTO,
      ONTARIO**


**CANADA
      M5J 2G2**





**(Address
      of principal executive offices)**





**416/364-2551**





**(Registrant's
      telephone number, including area code)**




**Not
      applicable**





**(Former
      name, former address and former fiscal year**


**if
      changed since last report)**





Indicate
      by check mark whether the registrant: (1) has filed all reports required by
      Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
      12 months (or for such shorter period that the registrant was required to file
      such reports), and (2) has been subject to such filing requirements for the
      past
      90 days. xYes  oNo





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act). o Yes
x
      No





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). o Yes
x
      No





**APPLICABLE
      ONLY TO CORPORATE ISSUERS**


The
      number of outstanding shares of the registrant's common stock, par value $.001,
      was 88,974,933 as of March 6, 2006.












**GENEREX
      BIOTECHNOLOGY CORPORATION**





**INDEX**





PART
                I. FINANCIAL INFORMATIONItem
                1.Financial
                Statements.
            1(Unaudited)Consolidated
                Balance Sheets -January
                31, 2006
                and July 31, 2005
            1Consolidated
                Statements of Operations -- for the three and six monthperiods
                ended
                January 31, 2006 and 2005, and cumulative fromNovember
                2, 1995 to
                January 31, 2006
            2Consolidated
                Statements of Cash Flows -- For the six monthperiods
                ended
                January 31, 2006 and 2005, and cumulative fromNovember
                2, 1995 to
                January 31, 2006
            3Notes
                to
                Consolidated Financial Statements
            4Item
                2.Management's
                Discussion and Analysis of FinancialCondition and Results of Operations
            24Item
                3.Quantitative
                and Qualitative DisclosuresAbout
                Market
                Risk
            53Item
                4.Controls
                and Procedures
            54PART
                II: OTHER INFORMATIONItem
                1.Legal
                Proceedings
            55Item
                2.Unregistered
                Sales of Equity Securities and Use of Proceeds
            55Item
                3.Defaults
                Upon Senior Securities
            55Item
                4.Submission
                of
                Matters to a Vote of Security Holders
            55Item
                5.Other
                Information
            55Item
                6.Exhibits
            56Signatures
            63












**PART
      I. FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





**GENEREX
                  BIOTECHNOLOGY CORPORATION AND
                  SUBSIDIARIES****(A
                  DEVELOPMENT STAGE COMPANY)****CONSOLIDATED
                  BALANCE SHEETS**January
                  31,
              
              July
                  31,2006
              
              2005ASSETSCurrent
                  Assets:Cash
                  and cash equivalents
              
              
              
              
              $
              15,552,084
              
              $
              586,530Restricted
                  cash
              
              
              
              
              
              156,434
              
              
              204,734Short-term
                  investments
              
              
              
              
              
              6,000,000
              
              
              --Other
                  current assets
              
              
              
              
              
              214,142
              
              
              165,586Deferred
                  debt issuance costs
              
              
              
              
              
              448,375
              
              
              337,798Total
                  Current Assets
              
              
              
              
              
              22,371,035
              
              
              1,294,648Property
                  and Equipment, Net
              
              
              
              
              
              2,793,161
              
              
              3,976,742Assets
                  Held for Investment, Net
              
              
              
              
              
              3,610,875
              
              
              2,371,749Patents,
                  Net
              
              
              
              
              
              5,272,863
              
              
              5,443,094Due
                  From Related Party
              
              
              
              
              
              404,545
              
              
              379,612TOTAL
                  ASSETS
              
              
              
              
              $
              34,452,479
              
              $
              13,465,845LIABILITIES
                  AND STOCKHOLDERS’ EQUITYCurrent
                  Liabilities:Accounts
                  payable and accrued expenses
              
              
              
              
              $
              4,436,926
              
              $
              2,410,846Short-term
                  advance
              
              
              
              
              
              347,369
              
              
              325,179Current
                  maturities of long-term debt
              
              
              
              
              
              3,041,719
              
              
              2,571,530Convertible
                  Debentures, Net of Debt Discount of $4,252,277 and$2,108,459
                  at January 31, 2006 and July 31, 2005, respectively
              
              
              
              
              
              1,132,338
              
              
              1,314,926Total
                  Current Liabilities
              
              
              
              
              
              8,958,352
              
              
              6,622,481Long-Term
                  Debt, Net
              
              
              
              
              
              365,476
              
              
              716,361Commitments
                  and ContingenciesStockholders’
                  Equity:Special
                  Voting Rights Preferred stock, $.001 par value;authorized,
                  issued and outstanding 1,000 shares atJanuary
                  31, 2006 and July 31, 2005, respectively
              
              
              
              
              
              1
              
              
              1Common
                  stock, $.001 par value; authorized 150,000,000 shares atJanuary
                  31, 2006 and July 31, 2005; 73,881,774 and 41,933,898shares
                  issued and outstanding, respectively
              
              
              
              
              
              73,883
              
              
              41,935Additional
                  paid-in capital
              
              
              
              
              
              168,269,852
              
              
              126,044,326Deficit
                  accumulated during the development stage
              
              
              
              
              
              (143,931,923
              )
              
              (120,528,108
              )Accumulated
                  other comprehensive income
              
              
              
              
              
              716,838
              
              
              568,849Total
                  Stockholders’ Equity
              
              
              
              
              
              25,128,651
              
              
              6,127,003TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              
              
              
              $
              34,452,479
              
              $
              13,465,845




The
      Notes
      to Consolidated Financial Statements are an integral part of these
      statements.






1




**GENEREX
                  BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES****(A
                  DEVELOPMENT STAGE COMPANY)****CONSOLIDATED
                  STATEMENTS OF OPERATIONS**Cumulative
                  FromNovember
                  2, 1995For
                  the Three Months Ended
              
              For
                  the Six Months Ended
              
              (Date
                    of Inception)January
                  31,
              
              January
                  31,
              
              to
                  January 31,2006
              
              2005
              
              2006
              
              2005
              
              2006Revenues
              
              $
              43,750
              
              $
              76,750
              
              $
              87,500
              
              $
              219,500
              
              $
              2,106,796Operating
                  Expenses:Research
                  and development
              
              
              1,317,115
              
              
              2,181,835
              
              
              1,993,494
              
              
              5,576,965
              
              
              56,911,939Research
                  and development -related
                  party
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              220,218General
                  and administrative
              
              
              3,910,887
              
              
              3,450,556
              
              
              5,385,743
              
              
              6,872,791
              
              
              70,836,857General
                  and administrative -related
                  party
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              314,328Total
                  Operating Expenses
              
              
              5,228,002
              
              
              5,632,391
              
              
              7,379,237
              
              
              12,449,756
              
              
              128,283,342Operating
                  Loss
              
              
              (5,184,252
              )
              
              (5,555,641
              )
              
              (7,291,737
              )
              
              (12,230,256
              )
              
              (126,176,546
              )Other
                  Income (Expense):Miscellaneous
                  income (expense)
              
              
              500
              
              
              --
              
              
              500
              
              
              --
              
              
              196,193Income
                  from Rental Operations, net
              
              
              30,987
              
              
              27,723
              
              
              35,840
              
              
              74,789
              
              
              240,516Interest
                  income
              
              
              14,759
              
              
              338
              
              
              16,096
              
              
              18,776
              
              
              3,410,576Interest
                  expense
              
              
              (8,490,956
              )
              
              (773,602
              )
              
              (15,230,531
              )
              
              (819,516
              )
              
              (20,065,466
              )Loss
                  on extinguishment of debt
              
              
              (771,635
              )
              
              --
              
              
              (933,983
              )
              
              --
              
              
              (2,280,324
              )Net
                  Loss Before Undernoted
              
              
              (14,400,597
              )
              
              (6,301,182
              )
              
              (23,403,815
              )
              
              (12,956,207
              )
              
              (144,675,051
              )Minority
                  Interest Share of Loss
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              3,038,185Net
                  Loss
              
              
              (14,400,597
              )
              
              (6,301,182
              )
              
              (23,403,815
              )
              
              (12,956,207
              )
              
              (141,636,866
              )Preferred
                  Stock Dividend
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              2,295,057Net
                  Loss Available to CommonShareholders
              
              $
              (14,400,597
              )
              $
              (6,301,182
              )
              $
              (23,403,815
              )
              $
              (12,956,207
              )
              $
              (143,931,923
              )Basic
                  and Diluted Net Loss PerCommon
                  Share
              
              $
              (.23
              )
              $
              (.18
              )
              $
              (.43
              )
              $
              (.37
              )Weighted
                  Average Number of Sharesof
                  Common Stock Outstanding
              
              
              63,906,552
              
              
              35,108,460
              
              
              54,852,364
              
              
              34,958,009




The Notes to Consolidated Financial Statements are an integral
      part of these statements.






2




**GENEREX
                  BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES****(A
                  DEVELOPMENT STAGE COMPANY)****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS**Cumulative
                  FromNovember
                  2, 1995For
                  the Six Months Ended
              
              (Date
                  of Inception)January
                  31,
              
              to
                  January 31,2006
              
              2005
              
              2005Cash
                  Flows From Operating Activities:Net
                  loss
              
              $
              (23,403,815
              )
              $
              (12,956,210
              )
              $
              (141,636,866
              )Adjustments
                  to reconcile net loss to net cash usedin
                  operating activities:Depreciation
                  and amortization
              
              
              566,445
              
              
              550,521
              
              
              4,147,625Minority
                  interest share of loss
              
              
              --
              
              
              --
              
              
              (3,038,185
              )Reduction
                  of notes receivable - common stock in exchangefor
                  services rendered
              
              
              --
              
              
              --
              
              
              423,882Write-off
                  of uncollectible notes receivable - common stock
              
              
              --
              
              
              391,103
              
              
              391,103Write-off
                  of deferred offering costs
              
              
              --
              
              
              --
              
              
              3,406,196Write-off
                  of abandoned patents
              
              
              1,278
              
              
              --
              
              
              77,364Loss
                  on extinguishment of debt
              
              
              933,983
              
              
              --
              
              
              2,280,324Common
                  stock issued for services rendered
              
              
              54,071
              
              
              755,180
              
              
              4,840,335Amortization
                  of prepaid services in conjunction with common stock
                  issuance
              
              
              92,250
              
              
              --
              
              
              92,250Non-cash
                  compensation expense
              
              
              --
              
              
              --
              
              
              45,390Stock
                  options and warrants issued for services rendered
              
              
              7,300,145
              
              
              490,600
              
              
              14,134,018Preferred
                  stock issued for services rendered
              
              
              --
              
              
              --
              
              
              100Treasury
                  stock redeemed for non-performance of services
              
              
              --
              
              
              (138,000
              )
              
              (138,000
              )Amortization
                  of deferred debt issuance costs and loan origination fees
              
              
              777,967
              
              
              77,994
              
              
              1,026,074Amortization
                  of discount on convertible debentures
              
              
              6,943,339
              
              
              687,890
              
              
              10,678,150Common
                  stock issued as interest payment on convertible debentures
              
              
              112,688
              
              
              --
              
              
              189,684Interest
                  on short-term advance
              
              
              13,524
              
              
              --
              
              
              22,190Founders’
                  shares transferred for services rendered
              
              
              --
              
              
              --
              
              
              353,506Fees
                  in connection with short-term refinancing of long-term
                  debt
              
              
              --
              
              
              --
              
              
              105,300Changes
                  in operating assets and liabilities (excluding the effects of
                  acquisition):Miscellaneous
                  receivables
              
              
              --
              
              
              --
              
              
              43,812Other
                  current assets
              
              
              49,118
              
              
              704,564
              
              
              (63,123
              )Accounts
                  payable and accrued expenses
              
              
              2,097,117
              
              
              2,620,395
              
              
              7,962,868Other,
                  net
              
              
              --
              
              
              --
              
              
              110,317Net
                  Cash Used in Operating Activities
              
              
              (4,461,890
              )
              
              (6,815,963
              )
              
              (94,545,686
              )Cash
                  Flows From Investing Activities:Purchase
                  of property and equipment
              
              
              (76,665
              )
              
              (61,939
              )
              
              (4,369,381
              )Costs
                  incurred for patents
              
              
              (16,959
              )
              
              (139,039
              )
              
              (1,511,945
              )Change
                  in restricted cash
              
              
              60,721
              
              
              (4,885
              )
              
              (110,275
              )Proceeds
                  from maturity of short term investments
              
              
              --
              
              
              --
              
              
              126,687,046Purchases
                  of short-term investments
              
              
              (6,000,000
              )
              
              --
              
              
              (132,687,046
              )Cash
                  received in conjunction with merger
              
              
              --
              
              
              --
              
              
              82,232Advances
                  to Antigen Express, Inc.
              
              
              --
              
              
              --
              
              
              (32,000
              )Increase
                  in officers’ loans receivable
              
              
              --
              
              
              --
              
              
              (1,126,157
              )Change
                  in deposits
              
              
              --
              
              
              395,889
              
              
              (477,194
              )Change
                  in notes receivable - common stock
              
              
              --
              
              
              (6,300
              )
              
              (91,103
              )Change
                  in due from related parties
              
              
              --
              
              
              --
              
              
              (2,222,390
              )Other,
                  net
              
              
              --
              
              
              --
              
              
              89,683Net
                  Cash Provided by (Used in) Investing Activities
              
              
              (6,032,903
              )
              
              183,726
              
              
              (15,768,530
              )Cash
                  Flows From Financing Activities:Proceeds
                  from short-term advance
              
              
              --
              
              
              --
              
              
              325,179Proceeds
                  from issuance of long-term debt
              
              
              --
              
              
              --
              
              
              1,970,148Repayment
                  of long-term debt
              
              
              (107,352
              )
              
              (39,770
              )
              
              (1,314,290
              )Change
                  in due to related parties
              
              
              --
              
              
              --
              
              
              154,541Proceeds
                  from exercise of warrants
              
              
              15,399,998
              
              
              --
              
              
              19,952,982Proceeds
                  from exercise of stock options
              
              
              202,790
              
              
              --
              
              
              1,213,230Proceeds
                  from minority interest investment
              
              
              --
              
              
              --
              
              
              3,038,185Proceeds
                  from issuance of preferred stock
              
              
              --
              
              
              --
              
              
              12,015,000Proceeds
                  from issuance of convertible debentures, net
              
              
              9,955,000
              
              
              3,699,930
              
              
              16,254,930Repayments
                  of convertible debentures
              
              
              --
              
              
              --
              
              
              (461,358
              )Purchase
                  of treasury stock
              
              
              --
              
              
              --
              
              
              (483,869
              )Proceeds
                  from issuance of common stock, net
              
              
              --
              
              
              --
              
              
              73,283,715Purchase
                  and retirement of common stock
              
              
              --
              
              
              --
              
              
              (119,066
              )Net
                  Cash Provided by (Used in) Financing Activities
              
              
              25,450,436
              
              
              3,660,160
              
              
              125,829,327Effect
                  of Exchange Rates on Cash
              
              
              9,911
              
              
              13,826
              
              
              36,973Net
                  Increase (Decrease) in Cash and Cash Equivalents
              
              
              14,965,554
              
              
              (2,958,251
              )
              
              15,552,084Cash
                  and Cash Equivalents, Beginning of Period
              
              
              586,530
              
              
              4,950,419
              
              
              --Cash
                  and Cash Equivalents, End of Period
              
              $
              15,552,084
              
              $
              1,992,168
              
              $
              15,552,084




The Notes to Consolidated Financial Statements are an integral
      part of these statements.






3







**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**1.**
            **Basis
                of Presentation**


The
      accompanying unaudited interim consolidated financial statements have been
      prepared pursuant to the rules and regulations for reporting on Form 10-Q.
      Accordingly, certain information and disclosures required by generally accepted
      accounting principles for complete financial statements are not included herein.
      The interim statements should be read in conjunction with the financial
      statements and notes thereto included in the Company’s latest Annual Report on
      Form 10-K. The results for the three and six months may not be indicative of
      the
      results for the entire year.





Interim
      statements are subject to possible adjustments in connection with the annual
      audit of the Company’s accounts for the fiscal year 2006. In the Company’s
      opinion all adjustments necessary for a fair presentation of these interim
      statements have been included and are of a normal and recurring
      nature.





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the satisfaction of liabilities
      and commitments in the normal course of business. The Company has experienced
      negative cash flows from operations since inception and had an accumulated
      deficit at January 31, 2006 of approximately $144 million. The Company has
      funded its activities to date almost exclusively from debt and equity
      financings.





The
      Company is in the development stage and has realized minimal revenues to date.
      The Company will continue to require substantial funds to continue research
      and
      development, including preclinical studies and clinical trials of its product
      candidates, and to commence sales and marketing efforts if the FDA or other
      regulatory approvals are obtained. Management’s plans in order to meet its
      operating cash flow requirements include financing activities such as private
      placement of its common stock, preferred stock offerings and offerings of debt
      and convertible debt instruments. Management is also actively pursuing industry
      collaboration activities including product licensing and specific project
      financing.





While
      the
      Company believes that it will be successful in obtaining the necessary financing
      to fund its operations, there are no assurances that such additional funding
      will be achieved and that it will succeed in its future operations. The
      financial statements do not include any adjustments relating to the
      recoverability and classification of recorded asset amounts or amounts of
      liabilities that might be necessary should the Company be unable to continue
      in
      existence.





**2.**
            **Effects
                of Recent Accounting
                Pronouncements**


In
      December 2004, the FASB issued Statement of Financial Accounting Standards
      No.
      123(R), "Share-Based Payment" ("SFAS 123(R)"), which requires all companies
      to
      measure compensation cost for all share-based payments (including employee
      stock
      options) at fair value and to recognize cost over the vesting period. In March
      2005, the SEC released SEC Staff Accounting Bulletin No. 107, "Share-Based
      Payment" ("SAB 107"). SAB 107 provides the SEC staff position regarding the
      application of SFAS 123(R), including interpretive guidance related to the
      interaction between SFAS 123(R) and certain SEC rules and regulations, and
      provides the staff's views regarding the valuation of share-based payment
      arrangements for public companies. SAB 107 highlights the importance of
      disclosures made related to the accounting for share-based payment transactions.
      In April 2005, the SEC announced that companies may implement SFAS 123(R) at
      the
      beginning of their next fiscal year beginning after June 15, 2005, or December
      15, 2005 for small business issuers. The Company implemented the provisions
      of
      SFAS 123(R) and SAB 107 in the first quarter of fiscal 2006 using the
      modified-prospective method, and it did not have a material impact on our
      financial position or cash flows. See Note 3 - "Stock Based Compensation" for
      further information and the required disclosures under SFAS 123(R) and SAB
      107,
      including the impact of the implementation on our results of operations.




4






**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**2.**
            **Effects
                of Recent Accounting Pronouncements
                (Continued)**


In
      December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
      Assets - an amendment of APB Opinion No. 29." The statement addresses
      the measurement of exchanges of nonmonetary assets and eliminates the exception
      from fair value measurement for nonmonetary exchanges of similar productive
      assets and replaces it with an exception for exchanges that do not have
      commercial substance. SFAS No. 153 is effective for nonmonetary asset
      exchanges occurring in fiscal periods beginning after June 15, 2005. This
      adoption of this statement did not have a significant impact on the consolidated
      results of operations or financial position of the Company.





In
      May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
      Corrections.” This statement replaces APB No. 20 and SFAS No. 3 and changes the
      requirements for the accounting and reporting of a change in accounting
      principle. APB No. 20 previously required that most voluntary changes in
      accounting principle be recognized by including in net income of the period
      of
      the change the cumulative effect of changing to the accounting principle. SFAS
      No. 154 requires retrospective application to prior periods’ financial
      statements of voluntary changes in accounting principle. SFAS No. 154 is
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005. The Company does not expect that the adoption
      of SFAS No. 154 will have a significant impact on the consolidated results
      of
      operations or financial position of the Company.





In
      February 2006, the FASB issued SFAS No. 155,”Accounting for Certain Hybrid
      Financial Instruments - an amendment of FASB Statements No. 133 and 140,” to
      simplify and make more consistent the accounting for certain financial
      instruments. Specifically, SFAS No. 155 amends SFAS No. 133, Accounting for
      Derivative Instruments and Hedging Activities, to permit fair value
      remeasurement for any hybrid financial instrument with an embedded derivative
      that otherwise would require bifurcation, provided that the whole instrument
      is
      accounted for on a fair value basis. SFAS No. 155 amends SFAS No. 140,
      Accounting for the Impairment or Disposal of Long-Lived Assets, to allow a
      qualifying special-purpose entity (SPE) to hold a derivative financial
      instrument that pertains to a beneficial interest other than another derivative
      financial instrument. SFAS No. 155 applies to all financial instruments acquired
      or issued after the beginning of an entity’s first fiscal year that begins after
      September 15, 2006, with earlier application allowed. The
      Company does not expect that the adoption of SFAS No. 155 will have a
      significant impact on the consolidated results of operations or financial
      position of the Company.





**3.**
            **Stock-Based
                Compensation**


As
      of
      January 31, 2006, the Company had two stockholder-approved stock incentive
      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 2,000,000
      shares of common stock are reserved for issuance under the 2000 Stock Option
      Plan (the 2000 Plan) and a total of 12,000,000 shares of common stock are
      reserved for issuance under the 2001 Stock Option Plan (the 2001 Plan). There
      were 1,690,000 and 457,981 shares of common stock reserved for future awards
      under the 2000 Plan and 2001 Plan, respectively, as of January 31,
      2006.





The
      2000
      and 2001 Plans (the Plans) are administered by the Board of Directors (the
      Board). The Board 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 Board 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 Board.





5






**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**3.**
            **Stock-Based
                Compensation (Continued)**


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.





Prior
      to
      August 1, 2005, the Company accounted for the share-based compensation granted
      under its stock incentive plans under the recognition and measurement provisions
      of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
      to
      Employees," and related interpretations ("APB 25"). In accordance with APB
      25,
      the Company used the intrinsic-value method of accounting for stock option
      awards to employees and accordingly did not recognize compensation expense
      for
      its stock option awards to employees in its Consolidated Statement of Operations
      prior to August 1, 2005, as all option exercise prices were equal to the fair
      market value of the Company stock on the date the options were granted.
      Effective August 1, 2005, the Company implemented the fair value recognition
      provisions of Financial Accounting Standards Board (FASB) Statement No. 123
      (revised 2004) ("SFAS 123 (R)"), "Share Based Payment," which is a revision
      of
      SFAS No. 123, "Accounting for Stock Based Compensation," and SAB 107 for all
      share-based compensation that was not vested as of July 31, 2005.





For
      the
      three and six months ended January 31, 2006, no compensation expense was
      recorded for options outstanding as of August 1, 2005. There were no options
      granted during the three and six months ended January 31, 2006.




The
      following table illustrates the pro forma effect
      on net income and earnings per share for the three and six months ended January
      31, 2005, assuming the Company had applied the fair value recognition provisions
      of SFAS 123(R) to all previously granted share-based awards after giving
      consideration to potential forfeitures during such periods. The fair value
      of
      each option grant is estimated at the grant date using the Black-Scholes
      option-pricing model based on the assumptions listed below. The estimated fair
      value of options granted is expensed at the date of grant. Share-based employee
      compensation for the three and six months ended January 31, 2006 in the amount
      of $-0- (net of related tax), is included in the net loss of $14,091,721 and
      $23,094,939, respectively. The following table represents the impact had the
      treatment been adopted at August 1, 2004.




Six
                Months
            
            Three
                MonthsEnded
            
            EndedJanuary
                31,
            
            January
                31,2005
            
            2005Net
                Loss Available to Common Stockholders,as
                Reported
            
            $
            (12,956,210
            )
            $
            (6,298,182
            )Add:
                Total Stock-Based Employee CompensationIncluded
                in Reported Net Loss
            
            
            --
            
            
            --Deduct:
                Total Stock-Based Employee CompensationIncome
                Determined Under Fair Value Based Method,Net
                of Related Tax Effect
            
            
            1,430,640
            
            
            --Pro
                Forma Net Loss Available to Common Stockholders
            
            $
            (14,386,850
            )
            $
            (6,298,182
            )






6






**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**3.**
            **Stock-Based
                Compensation (Continued)**




Six
                Months
            
            Three
                MonthsEnded
            
            EndedJanuary
                31,
            
            January
                31,2005
            
            2005Loss
                Per Share:Basic
                and diluted, as reported
            
            $
            (0.37
            )
            $
            (0.18
            )Basic
                and diluted, pro forma
            
            $
            (0.41
            )
            $
            (0.18
            )




The
        implementation of the provisions of SFAS 123(R) and SAB 107 during the three
        and
        six months ended January 31, 2006 did not have a material impact on the
        Company’s cash flow from operations or cash flow from financing
        activities.
 
 The
        following information relates to stock options that have been granted under
        the
        Company’s stockholder-approved incentive plans. The stock option exercise price
        is typically granted at 100 percent of the fair market value on the date
        the
        options are granted. Options may be exercised for a period of five years
        commencing on the date of grant and vesting over two years from the date
        of
        grant.
 
 The
        fair
        value of each option award is estimated on the date of grant using the
        Black-Scholes option pricing model. No options were granted to employees
        during
        the three and six months ended January 31, 2006.
 
 The
        summary of the stock option activity for the six months ended January 31,
        2006
        is as follows:







Weighted
            
            WeightedAverage
            
            AverageExercise
            
            RemainingPrice
            
            ContractualShares
            
            Share
            
            Term
                (Years)Outstanding,
              August 1, 2005
            
            
            11,607,269
            
            $
            1.51
            
            
            3.65Granted
            
            
            --
            
            $
            --
            
            
            --Cancelled
            
            
            (140,000
            )
            $
            8.41
            
            
            --Exercised
            
            
            (253,000
            )
            $
            0.80
            
            
            --Outstanding,
              January 31, 2006
            
            
            11,214,269
            
            $
            1.43
            
            
            3.41





The
      summary of the status of the Company’s non-vested as of January 31, 2006, as
      changes during the six months then ended is as follows:




WeightedAverageGrant
                DateShares
            
            Fair
                ValueNon-vested
              Stock Options, August 1,
              2005
            
            
            628,000
            
            $
            0.72Granted
            
            
            --
            
            $
            --Cancelled
            
            
            --
            
            $
            --Vested
            
            
            (620,500
            )
            $
            0.72Exercised
            
            
            (7,500
            )
            $
            0.72Non-vested
              Stock Options, January 31,
              2006
            
            
            --
            
            $
            --






7





**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**3.**
            **Stock-Based
                Compensation (Continued)**


As
      of
      January 31, 2006, there was no unrecognized compensation related to non-vested
      stock options granted under the Company’s stock option plans.





**4.**
            **Comprehensive
                Income/(Loss)**


Comprehensive
      loss, which includes net loss and the change in the foreign currency translation
      account during the period, for the three months ended January 31, 2006 and
      2005,
      was $14,341,265 and $6,363,814, respectively and for the six months ended
      January 31, 2006 and 2005 was $23,255,826 and $12,702,918,
      respectively.





**5.**
            **Accounts
                Payable and Accrued
                Expenses**


Accounts
      payable and accrued expenses consist of the following:




January
                31,
            
            July
                31,2006
            
            2005Accounts
              Payable
            
            $
            1,346,246
            
            $
            999,726Accounting
              and Auditing
            
            
            250,187
            
            
            274,627Accrued
              Legal Fees and Settlement
            
            
            517,320
            
            
            599,461Termination
              Agreements and Severance
              Pay
            
            
            283,173
            
            
            265,720Executive
              Compensation and Directors
              Fees
            
            
            2,040,000
            
            
            271,312Total
            
            $
            4,436,926
            
            $
            2,410,846





**6.**
            **Convertible
                Debentures**





**$4
      Million Convertible Debenture**


On
      November 8, 2004, the Company entered into four definitive agreements with
      four
      accredited investors, pursuant to which the Company would issue four $1,000,000
      convertible promissory notes (“convertible debentures”) 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 convertible debentures are convertible into registered common stock
      of
      the Company at $0.82 per share. The principal and interest payments are payable
      in cash or, at the Company's option, the lesser of registered stock valued
      at a
      10% discount to the average of the 20-day VWAP as of the payment date or $0.82,
      subject to certain restrictions. 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.





During
      December 2004, the Company issued the aforementioned convertible debentures.
      Proceeds related to the issuance, net of issuance costs of $389,970, amounted
      to
      $3,699,930. Included in the issuance costs were warrants issued to a third
      party
      to purchase 145,000 shares of common stock at $0.91 per share. The fair value
      of
      the warrant was determined to be $89,900 using the Black Scholes pricing model
      assuming a risk-free rate of 1.79 percent, an expected volatility of 1.0463
      and
      a five year life. The fair value of the warrant, which has been allocated to
      additional paid in capital, and together with the $300,070 of issuance costs
      is
      being amortized over the life of the debt as a deferred debt issuance cost.
      During the six months ended January 31, 2006, $155,988 has been amortized as
      interest expense and the remaining unamortized balance of $-0- is included
      in
      deferred debt issuance costs.








8







**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**6.**
            **Convertible
                Debentures (Continued)**





**$4
      Million Convertible Debenture (Continued)**


The
      holders of the convertible debentures also received warrants to purchase
      4,878,048 of common stock at $0.91 per share. In accordance with Emerging Issues
      Task Force Issue 00-27, Application of Issue No. 98-5 to Certain Convertible
      Instruments ("EITF 00-27"), the Company recognized the value attributable to
      the
      warrants in the amount of $1,722,222 to additional paid-in capital and a
      discount against the convertible debenture. The Company valued the warrants
      in
      accordance with EITF 00-27 using the Black-Scholes pricing model assuming a
      risk-free rate of 1.79 percent, an expected volatility of 1.0463 and a five
      year
      life. The debt discount attributed to the value of the warrants issued is
      amortized over the convertible debenture’s maturity period as interest expense
      using the effective yield method.





In
      accordance with Emerging Issues Task Force Issue 98-5, Accounting for
      Convertible Securities with a Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios ("EITF 98-5"), the Company recognized the value
      attributable to the beneficial conversion feature, valued at $1,722,222, to
      additional paid-in capital and a discount against the convertible debenture.
      The
      debt discount attributed to the beneficial conversion feature is amortized
      over
      the convertible debenture's maturity period as interest expense using the
      effective yield method.





The
      Company amortized the convertible debenture debt discount attributed to the
      beneficial conversion feature and the value of the warrants and recorded
      non-cash interest expense of $630,451 during the six months ended January 31,
      2006. During the six months ended January 31, 2006, the Company has issued
      646,834 shares of common stock to the holders of the convertible debentures
      upon
      receipt of the holders’ notice of conversion of principal and interest totaling
      $530,403. This conversion resulted in a charge of $42,409 to loss on
      extinguishment of debt that represents the difference between quoted market
      price of the Company’s common stock and 10 percent discount to the average of
      the 20-day VWAP.





The
      Company has repaid the note holders $693,671 of the principal and interest
      in
      1,169,613 shares of common stock during the six months ended January 31, 2006.
      This repayment resulted in a charge of $147,457 to loss on extinguishment of
      debt that represents the difference between quoted market price of the Company’s
      common stock and 10 percent discount to the average of the 20-day
      VWAP.





**$500,000
      Convertible Debenture**


On
      March
      28, 2005, the Company entered into a definitive agreement pursuant to which
      the
      Company would issue a convertible promissory note for aggregate gross proceeds
      of $500,000. The note bore interest at 10 percent per annum payable in common
      stock at the holders option and was due on May 15, 2005. The note was
      convertible into registered common stock of the Company at a per share price
      equal $0.82.





The
      holder of the convertible debenture also received warrants to purchase 1,219,512
      of common stock at $0.82 per share. In accordance with EITF 00-27 the Company
      recognized the value attributable to the warrants, in the amount of $245,521,
      to
      additional paid-in capital and a discount against the convertible debenture.
      The
      Company valued the warrants in accordance with EITF 00-27 using the
      Black-Scholes pricing model assuming a risk-free rate of 2.78 percent, an
      expected volatility of 1.0054 and a five year life. The debt discount attributed
      to the value of the warrants issued is amortized over the convertible note’s
      maturity period as interest expense using the effective yield
      method.







9






**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**6.**
            **Convertible
                Debentures (Continued)**





**$500,000
      Convertible Debenture (Continued)**


In
      accordance with EITF 98-5, the Company recognized the value attributable to
      the
      beneficial conversion feature valued at $86,984, to additional paid-in capital
      and a discount against the convertible note. The debt discount attributed to
      the
      beneficial conversion feature is amortized over the convertible note's maturity
      period as interest expense using the effective yield method.





The
      Company fully amortized the convertible note debt discount attributed to the
      beneficial conversion feature and the value of the warrants and recorded
      non-cash interest expense of $332,505 during the year ended July 31, 2005.





On
      June
      7, 2005 the Company entered into an agreement with the note holder to extend
      the
      maturity date of the convertible note to July 22, 2005. In consideration for
      the
      holder’s agreement to amend the original convertible note the Company granted a
      warrant to purchase 1,219,512 shares of common stock at $0.82 per share with
      an
      expiration of June 10, 2010. In accordance with EITF 98-5 the fair value of
      the
      warrants, $597,561, was determined to be the reacquisition price on the debt
      on
      the extinguishment date and was recorded as a loss on extinguishment of the
      debt. It was then determined that the new debt did not have a beneficial
      conversion feature.





On
      July
      22, 2005 the Company entered into an agreement with the note holder to extend
      the maturity date of the convertible note to September 20, 2005. In
      consideration for the holder’s agreement to amend the original convertible note
      the Company granted a warrant to purchase 1,219,512 shares of common stock
      at
      $0.82 per share with an expiration of July 22, 2010. In accordance with EITF
      98-5 the fair value of the warrants, $524,390, was determined to be the
      reacquisition price on the debt on the extinguishment date and was recorded
      as a
      loss on extinguishment of the debt. It was then determined that the new debt
      did
      not have a beneficial conversion feature.





During
      the six months ended January 31, 2006, the Company issued 644,003 shares of
      common stock to the holder of the convertible note upon receipt of the holder’s
      notice of conversion of principal and interest totaling $528,082.





**$100,000
      Convertible Debenture**


On
      April
      4, 2005, the Company entered into a definitive agreement pursuant to which
      the
      Company would issue a convertible promissory note for aggregate gross proceeds
      of $100,000. The note bore interest at 10 percent per annum payable in common
      stock at the holders option and was due on May 15, 2005. The note was
      convertible into registered common stock of the Company at a per share price
      equal $0.82.





The
      holder of the convertible note also received warrants to purchase 243,902 of
      common stock at $0.82 per share. In accordance with EITF 00-27, the Company
      recognized the value attributable to the warrants in the amount of $49,104
      to
      additional paid-in capital and a discount against the convertible note. The
      Company valued the warrants in accordance with EITF 00-27 using the
      Black-Scholes pricing model assuming a risk-free rate of 2.78 percent, an
      expected volatility of 1.0054 and a five year life. The debt discount attributed
      to the value of the warrants issued is amortized over the convertible note’s
      maturity period as interest expense using the effective yield
      method.






10






**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**6.**
            **Convertible
                Debentures (Continued)**





**$100,000
      Convertible Debenture (Continued)**


In
      accordance with EITF 98-5, the Company recognized the value attributable to
      the
      beneficial conversion feature valued at $17,397, to additional paid-in capital
      and a discount against the convertible note. The debt discount attributed to
      the
      beneficial conversion feature is amortized over the convertible note's maturity
      period as interest expense using the effective yield method.





The
      Company fully amortized the convertible note debt discount attributed to the
      beneficial conversion feature and the value of the warrants and recorded
      non-cash interest expense of $66,501 during the year ended July 31, 2005.





On
      June
      7, 2005 the Company entered into an agreement with the note holder to extend
      the
      maturity date of the convertible note to July 22, 2005. In consideration for
      the
      holder’s agreement to amend the original convertible note the Company granted a
      warrant to purchase 243,902 shares of common stock at $0.82 per share with
      an
      expiration of June 10, 2010. In accordance with EITF 98-5 the fair value of
      the
      warrants, $119,512 was determined to be the reacquisition price on the debt
      on
      the extinguishment date and was recorded as a loss on extinguishment of the
      debt. It was then determined that the new debt did not have a beneficial
      conversion feature.





On
      July
      22, 2005 the Company entered into an agreement with the note holder to extend
      the maturity date of the convertible note to September 20, 2005. In
      consideration for the holder’s agreement to amend the original convertible note
      the Company granted a warrant to purchase 243,902 shares of common stock at
      $0.82 per share with an expiration of July 22, 2010. In accordance with EITF
      98-5 the fair value of the warrants, $104,878 was determined to be the
      reacquisition price on the debt on the extinguishment date and was recorded
      as a
      loss on extinguishment of the debt. It was then determined that the new debt
      did
      not have a beneficial conversion feature.





During
      the six months ended January 31, 2006, the Company issued 128,834 shares of
      common stock to the holders of the convertible note upon receipt of the holder’s
      notice of conversion of principal and interest totaling $105,644.





**$2
      Million Convertible Debenture**


On
      June
      17, 2005, the holders of the $4 million convertible debenture exercised 50
      percent of their additional investment right “AIR Exercise” resulting in four
      $500,000 convertible promissory notes (“convertible debentures’) for an
      aggregate proceeds of $2,000,000. 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 convertible debentures are convertible into registered common
      stock of the Company at $0.82 per share. The principal and interest payments
      are
      payable in cash or, at the Company's option, the lesser of registered stock
      valued at a 10% discount to the average of the 20-day VWAP as of the payment
      date or $0.82, subject to certain restrictions. 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. In consideration of the
      AIR Exercise the Company reduced the conversion price of the convertible
      debentures issuable upon the AIR Exercise from $0.82 to $0.60 per share.






11






**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**6.**
            **Convertible
                Debentures (Continued)**





**$2
      Million Convertible Debenture (Continued)**


Proceeds
      related to the AIR Exercise, net of issuance costs of $160,300, amounted to
      $1,839,700. Included in the issuance costs were warrants to purchase 35,000
      shares of common stock at $0.82 per share and 170,732 shares of common stock
      valued at $0.82 per share issued to a third party. The fair value of the warrant
      was determined to be $20,300 using the Black Scholes pricing model assuming
      a
      risk-free rate of 3.02 percent, an expected volatility of 0.9775 and a five
      year
      life. The fair value of the warrant, which has been allocated to additional
      paid
      in capital, together with the $140,000 of issuance costs is being amortized
      over
      the life of the debt as a deferred debt issuance cost. During the six months
      ended January 31, 3006, the Company has amortized the remaining balance of
      deferred debt issuance costs in the amount of $124,103 as non-cash interest
      expense resulting from the convertible debenture being fully repaid.




The
      holders of the convertible debentures also received warrants to purchase
      2,439,024 shares of common stock at $0.82 per share. In accordance with EITF
      00-27, the Company recognized the value attributable to the warrants in the
      amount of $828,571 to additional paid-in capital and a discount against the
      convertible debenture. The Company valued the warrants in accordance with EITF
      00-27 using the Black-Scholes pricing model assuming a risk-free rate of 3.02
      percent, an expected volatility of 0.9775 and a five year life. The debt
      discount attributed to the value of the warrants issued is amortized over the
      convertible debenture’s maturity period as interest expense using the effective
      yield method.





In
      accordance with EITF 98-5 the Company recognized the value attributable to
      the
      beneficial conversion feature valued at $1,171,429, to additional paid-in
      capital and a discount against the convertible debenture. The debt discount
      attributed to the beneficial conversion feature is amortized over the
      convertible debenture's maturity period as interest expense using the effective
      yield method.





The
      Company amortized the convertible debenture debt discount attributed to the
      beneficial conversion feature and the value of the warrants and recorded
      non-cash interest expense of $62,316 for the six months ended January 31, 2006.
      During the six months ended January 31, 2006, the Company has issued 2,363,352
      shares of common stock to the holders of the convertible debentures upon receipt
      of the holders’ notice of conversions of principal and interest totaling
      $1,418,011.





The
      Company has repaid the note holders $225,322 of the principal and interest
      in
      407,075 shares of common stock during the six months ended January 31, 2006.
      This repayment resulted in a charge of $62,242 to loss on extinguishment of
      debt
      that represents the difference between quoted market price of the Company’s
      common stock and 10 percent discount to the average of the 20-day
      VWAP.






12





**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**6.**
            **Convertible
                Debentures (Continued)**





**Second
      $2 Million Convertible Debenture**


On
      September 8, 2005, the holders of the $2 million convertible debenture exercised
      their additional investment right “AIR Exercise” resulting in four $500,000
      convertible promissory notes (“convertible debentures’) for an aggregate
      proceeds of $2,000,000. 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 convertible debentures are convertible into registered common stock
      of
      the Company at $0.82 per share. The principal and interest payments are payable
      in cash or, at the Company's option, the lesser of registered stock valued
      at a
      10% discount to the average of the 20-day VWAP as of the payment date or $0.82,
      subject to certain restrictions. 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. In consideration of the
      AIR Exercise the Company reduced the conversion price of the convertible
      debentures issuable upon the AIR Exercise from $0.82 to $0.60 per share.





Proceeds
      related to the AIR Exercise, net of issuance costs of $185,600, amounted to
      $1,814,400. Included in the issuance costs were warrants to purchase 60,000
      shares of common stock at $0.82 per share and 170,732 shares of common stock
      valued at $0.82 per share issued to a third party. The fair value of the warrant
      was determined to be $30,600 using the Black Scholes pricing model assuming
      a
      risk-free rate of 3.76 percent, an expected volatility of 0.9232 and a five
      year
      life. The fair value of the warrant, which has been allocated to additional
      paid
      in capital, together with the $140,000 of issuance costs associated with the
      shares of common stock issued and $15,000 of legal costs are being amortized
      over the life of the debt as a deferred debt issuance cost. During the six
      months ended January 31, 2006, $172,130 has been amortized as interest expense
      and the remaining unamortized balance of $13,470 is included in deferred debt
      issuance costs.





The
      holders of the convertible debentures also received warrants to purchase
      2,439,024 shares of common stock at $0.82 per share. In accordance with EITF
      00-27, the Company recognized the value attributable to the warrants in the
      amount of $785,185 to additional paid-in capital and a discount against the
      convertible debenture. The Company valued the warrants in accordance with EITF
      00-27 using the Black-Scholes pricing model assuming a risk-free rate of 3.76
      percent, an expected volatility of 0.9232 and a five year life. The debt
      discount attributed to the value of the warrants issued is amortized over the
      convertible debenture’s maturity period as interest expense using the effective
      yield method.





In
      accordance with EITF 98-5 the Company recognized the value attributable to
      the
      beneficial conversion feature valued at $1,185,185, to additional paid-in
      capital and a discount against the convertible debenture. The debt discount
      attributed to the beneficial conversion feature is amortized over the
      convertible debenture's maturity period as interest expense using the effective
      yield method.





The
      Company amortized the convertible debenture debt discount attributed to the
      beneficial conversion feature and the value of the warrants and recorded
      non-cash interest expense of $1,634,884 for the six months ended January 31,
      2006. During the six months ended January 31, 2006, the Company has issued
      2,365,490 shares of common stock to the holders of the convertible debentures
      upon receipt of the holders’ notice of conversions of principal and interest
      totaling $1,421,249. This conversion resulted in a charge of $47,157 to loss
      on
      extinguishment of debt that represents the difference between quoted market
      price of the Company’s common stock and 10 percent discount to the average of
      the 20-day VWAP.






13





**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**6.**
            **Convertible
                Debentures (Continued)**





**Second
      $2 Million Convertible Debenture (Continued)**


The
      Company has repaid the note holders $172,739 of the principal and interest
      in
      287,899 shares of common stock during the six months ended January 31, 2006.
      This repayment resulted in a charge of $96,627 to loss on extinguishment of
      debt
      that represents the difference between quoted market price of the Company’s
      common stock and 10 percent discount to the average of the 20-day
      VWAP.





**Second
      $500,000 Convertible Debenture**


On
      October 27, 2005, one of the debenture holders exercised its additional
      investment right “AIR Exercise” resulting in a $500,000 convertible promissory
      note (“convertible debenture’) for an aggregate proceeds of $500,000. The
      convertible debenture carries a 6% coupon and a 15-month term and amortize
      in 13
      equal monthly installments commencing in the third month of the term. The
      convertible debenture is convertible into registered common stock of the Company
      at $0.82 per share. The principal and interest payments are payable in cash
      or,
      at the Company's option, the lesser of registered stock valued at a 10% discount
      to the average of the 20-day VWAP as of the payment date or $0.82, subject
      to
      certain restrictions. 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.





Proceeds
      related to the AIR Exercise, net of issuance costs of $49,250, amounted to
      $450,750. Included in the issuance costs were warrants to purchase 15,000 shares
      of common stock at $0.95 per share and commissions of $35,000 issued to a third
      party. The fair value of the warrant was determined to be $14,250 using the
      Black Scholes pricing model assuming a risk-free rate of 3.76 percent, an
      expected volatility of 0.9322 and a five year life. The fair value of the
      warrant, which has been allocated to additional paid in capital, together with
      the $35,000 of issuance costs associated with the shares of common stock issued
      are being amortized over the life of the debt as a deferred debt issuance cost.
      During the six months ended January 31, 2006, $9,849 has been amortized as
      interest expense and the remaining unamortized balance of $39,401 is included
      in
      deferred debt issuance costs.





The
      holder of the convertible debenture also received warrants to purchase 609,756
      shares of common stock at $0.82 per share. In accordance with EITF 00-27, the
      Company recognized the value attributable to the warrants in the amount of
      $270,950 to additional paid-in capital and a discount against the convertible
      debenture. The Company valued the warrants in accordance with EITF 00-27 using
      the Black-Scholes pricing model assuming a risk-free rate of 3.76 percent,
      an
      expected volatility of 0.9232 and a five year life. The debt discount attributed
      to the value of the warrants issued is amortized over the convertible
      debenture’s maturity period as interest expense using the effective yield
      method.





In
      accordance with EITF 98-5 the Company recognized the value attributable to
      the
      beneficial conversion feature valued at $229,050, to additional paid-in capital
      and a discount against the convertible debenture. The debt discount attributed
      to the beneficial conversion feature is amortized over the convertible
      debenture's maturity period as interest expense using the effective yield
      method.







14





**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**6.**
            **Convertible
                Debentures (Continued)**





**Second
      $500,000 Convertible Debenture (Continued)**


The
      Company amortized the convertible debenture debt discount attributed to the
      beneficial conversion feature and the value of the warrants and recorded
      non-cash interest expense of $119,364 for the six months ended January 31,
      2006.
      During the six months ended January 31, 2006, the Company has not received
      any
      notice of conversions of principal and interest.





The
      Company has repaid the note holders $43,962 of the principal and interest in
      53,612 shares of common stock during the six months ended January 31, 2006.
      This
      repayment resulted in a gain of ($536) to loss on extinguishment of debt that
      represents the difference between quoted market price of the Company’s common
      stock and 10 percent discount to the average of the 20-day VWAP.





**$3,500,000
      Convertible Debenture**


On
      December 4, 2005, the Company and each of the holders of the $4 million
      convertible debenture entered into an Amendment No. 2 to Securities Purchase
      Agreement and Registration Rights Agreement pursuant to which (i) all but one
      of
      the Investors agreed to exercise an aggregate of $1,500,000 in principal amount
      (“$3.5 Million Convertible Debenture”) of the Additional AIRs granted to such
      Investors in connection with the First AIR Exercise resulting in a $3,500,000
      convertible promissory note (“convertible debenture’) for an aggregate proceeds
      of $3,500,000. The convertible debenture carries a 6% coupon and a 15-month
      term
      and amortize in 13 equal monthly installments commencing in the third month
      of
      the term. The convertible debenture is convertible into registered common stock
      of the Company at $0.82 per share. The principal and interest payments are
      payable in cash or, at the Company's option, the lesser of registered stock
      valued at a 10% discount to the average of the 20-day VWAP as of the payment
      date or $0.82, subject to certain restrictions. 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.





Proceeds
      related to the AIR Exercise, net of issuance costs of $15,000, amounted to
      $3,485,000. Included in the issuance costs were warrants to purchase 105,000
      shares of common stock at $0.82 per share and 224,000 shares of common stock
      valued at $0.95 per share issued to a third party. The fair value of the warrant
      was determined to be $76,650 using the Black Scholes pricing model assuming
      a
      risk-free rate of 4.02 percent, an expected volatility of 0.9288 and a five
      year
      life. The fair value of the warrant, which has been allocated to additional
      paid
      in capital, together with the $212,800 of issuance costs associated with the
      shares of common stock issued and $15,000 of legal costs are being amortized
      over the life of the debt as a deferred debt issuance cost. During the six
      months ended January 31, 2006, $237,457 has been amortized as interest expense
      and the remaining unamortized balance of $33,743 is included in deferred debt
      issuance costs.





The
      holder of the convertible debenture also received warrants to purchase 4,268,292
      shares of common stock at $0.82 per share. In accordance with EITF 00-27, the
      Company recognized the value attributable to the warrants in the amount of
      $1,648,387 to additional paid-in capital and a discount against the convertible
      debenture. The Company valued the warrants in accordance with EITF 00-27 using
      the Black-Scholes pricing model assuming a risk-free rate of 4.02 percent,
      an
      expected volatility of 0.9288 and a five year life. The debt discount attributed
      to the value of the warrants issued is amortized over the convertible
      debenture’s maturity period as interest expense using the effective yield
      method.






15





**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**6.**
            **Convertible
                Debentures (Continued)**





**$3,500,000
      Convertible Debenture (Continued)**


In
      accordance with EITF 98-5 the Company recognized the value attributable to
      the
      beneficial conversion feature valued at $1,851,613, to additional paid-in
      capital and a discount against the convertible debenture. The debt discount
      attributed to the beneficial conversion feature is amortized over the
      convertible debenture's maturity period as interest expense using the effective
      yield method.





The
      Company amortized the convertible debenture debt discount attributed to the
      beneficial conversion feature and the value of the warrants and recorded
      non-cash interest expense of $3,080,631 for the six months ended January 31,
      2006. During the six months ended January 31, 2006, the Company has issued
      3,673,632 shares of common stock to the holders of the convertible debentures
      upon receipt of the holders’ notice of conversions of principal and interest
      totaling $3,012,376. This conversion resulted in a charge of $538,629 to loss
      on
      extinguishment of debt that represents the difference between quoted market
      price of the Company’s common stock and 10 percent discount to the average of
      the 20-day VWAP.





During
      the six months ended January 31, 2006, the Company has not repaid monthly
      principal and interest through the issuance of shares of common
      stock.





**Second
      $4,000,000 Convertible Debenture**


On
      January 20, 2006, the Company and each of the holders of the $4 million
      convertible debenture entered into an Amendment No. 2 to Securities Purchase
      Agreement and Registration Rights Agreement pursuant to which the investors
      agreed to exercise an additional $4,000,000 in principal amount of Additional
      Investment Rights (AIR) (“Second $4 Million Convertible Debenture”) of the
      Additional AIRs granted to such Investors in connection with the First AIR
      Exercise resulting in a $4,000,000 convertible promissory note (“convertible
      debenture’) for an aggregate proceeds of $4,000,000. The convertible debenture
      carries a 6% coupon and a 15-month term and amortize in 13 equal monthly
      installments commencing in the third month of the term. The convertible
      debenture is convertible into registered common stock of the Company at $1.05
      per share. The principal and interest payments are payable in cash or, at the
      Company's option, the lesser of registered stock valued at a 10% discount to
      the
      average of the 20-day VWAP as of the payment date or $0.82, subject to certain
      restrictions. 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.





Proceeds
      related to the AIR Exercise, net of issuance costs of $15,000, amounted to
      $3,985,000. Included in the issuance costs were warrants to purchase 120,000
      shares of common stock at $1.05 per share and 266,667 shares of common stock
      valued at $1.00 per share issued to a third party. The fair value of the warrant
      was determined to be $88,800 using the Black Scholes pricing model assuming
      a
      risk-free rate of 4.23 percent, an expected volatility of 0.9210 and a five
      year
      life. The fair value of the warrant, which has been allocated to additional
      paid
      in capital, together with the $266,667 of issuance costs associated with the
      shares of common stock issued and $15,000 of legal costs are being amortized
      over the life of the debt as a deferred debt issuance cost. During the six
      months ended January 31, 2006, $7,887 has been amortized as interest expense
      and
      the remaining unamortized balance of $362,580 is included in deferred debt
      issuance costs.






16






**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**6.**
            **Convertible
                Debentures (Continued)**





**Second
      $4,000,000 Convertible Debenture (Continued)**


The
      holder of the convertible debenture also received warrants to purchase 3,809,524
      shares of common stock at $1.05 per share. In accordance with EITF 00-27, the
      Company recognized the value attributable to the warrants in the amount of
      $1,653,631 to additional paid-in capital and a discount against the convertible
      debenture. The Company valued the warrants in accordance with EITF 00-27 using
      the Black-Scholes pricing model assuming a risk-free rate of 4.23 percent,
      an
      expected volatility of 0.9210 and a five year life. The debt discount attributed
      to the value of the warrants issued is amortized over the convertible
      debenture’s maturity period as interest expense using the effective yield
      method.





In
      accordance with EITF 98-5 the Company recognized the value attributable to
      the
      beneficial conversion feature valued at $1,463,155, to additional paid-in
      capital and a discount against the convertible debenture. The debt discount
      attributed to the beneficial conversion feature is amortized over the
      convertible debenture's maturity period as interest expense using the effective
      yield method.





During
      the six months ended January 31, 2006, the Company has not received any notice
      of conversions of principal and interest.





During
      the six months ended January 31, 2006, the Company has not repaid monthly
      principal and interest through the issuance of shares of common
      stock.





**7.**
            **Short-term
                Advance**


On
      March
      30, 2005, the Company entered into an agreement with an affiliated party to
      provide the Company with approximately $325,200 in funding. The funds were
      designated to assist the Company in satisfying its obligations under the terms
      of the first $4,000,000 convertible debenture agreements. The Company is
      obligated to repay the advance, without interest, in three equal installments
      on
      October 1, 2005, November 1, 2005 and December 1, 2005. Upon failure to repay
      any installment when due, all amounts become payable on demand and interest
      on
      such unpaid amounts will accrue interest at the rate of 8 percent per annum.
      The
      Company did not make the required installments, therefore, has accrued interest
      in the amount of $22,190, $6,658 and $13,732 of which is included in the
      consolidated statements of operations for the three and six months ended January
      31, 2006, respectively, and $-0- for the three and six months ended January
      31,
      2005.





**8.**
            **Pending
                Litigation**


On
      October 2, 1998, Sands Brothers & Co. Ltd. (“Sands”), a New York City-based
      investment banking and brokerage firm, initiated an arbitration proceeding
      against the Company under the rules of the New York Stock Exchange in respect
      of
      an alleged contractual relationship between Sands and the Company.





On
      August
      17, 2004, following various arbitration and court proceedings in the case,
      the
      Arbitration Panel of the New York Stock Exchange issued a final award in the
      case, awarding Sands $150,000 in damages.  A motion to confirm this award
      was granted on February 1, 2005.  In September 2005 Sands filed a motion
      seeking leave from the New York Court of Appeals to appeal certain prior orders
      of the Appellate Division in the case. On January 10, 2006 the New York Court
      of
      Appeals denied the motion.. In March, 2006 the Company paid $150,000 plus
      $10,541 in interest to Sands in satisfaction of the judgment.






17





**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**8.**
            **Pending
                Litigation (Continued)**


In
      February 2001, a former business associate of the former 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 opposed the
      application. 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 the VP 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.





In
      February 2005, a consultant commenced an action in the Ontario Superior Court
      of
      Justice against the Company seeking approximately $600,000 in damages for
      alleged contract breaches in respect of unpaid remuneration and other
      compensation allegedly owed to him. The Company is of the view that the claims
      are wholly without merit and intends to defend this action vigorously. The
      Company is not able to predict the ultimate outcome of this legal proceeding
      at
      the present time or estimate an amount or range of potential loss, if any,
      from
      this legal proceeding.





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.





**9.**
            **Net
                Loss Per Share**


Basic
      EPS
      and Diluted EPS for the three months and six months ended January 31, 2006
      and
      2005 have been computed by dividing the net loss for each respective period
      by
      the weighted average number of shares outstanding during that period. All
      outstanding warrants and options, approximately 37,791,029 and 22,095,502
      incremental shares at January 31, 2006 and 2005, respectively, have been
      excluded from the computation of Diluted EPS as they are
      anti-dilutive.






18





**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**








**10.**
            **Supplemental
                Disclosure of Cash Flow
                Information**




For
                the Six Months EndedJanuary
                31,2006
            
            2005Cash
              paid during the period for:Interest
            
            $
            56,427
            
            $
            $76,220Income
                taxes
            
            $
            --
            
            $
            --Disclosure
              of non-cash investing and
              financing activities:Value
              of common stock issued in conjunction
              with capitalizedservices
                upon issuance of convertible debentures
            
            $
            619,467
            
            $
            --Value
              of warrants issued in conjunction
              with capitalizedservices
                upon issuance of convertible debentures
            
            $
            210,300
            
            $
            89,900Costs
              paid from proceeds in conjunction
              with capitalizedservices
                upon issuance of convertible debentures
            
            $
            45,000
            
            $
            --Value
              of warrants issued in conjunction
              with issuance ofconvertible
                debentures and related beneficial
                conversionfeature
            
            $
            9,087,156
            
            $
            3,444,444Satisfaction
              of accounts payable through
              the issuance ofcommon
                stock
            
            $
            133,605
            
            $
            --Principal
              repayment of convertible
              debentures through theissuance
                of common stock
            
            $
            1,075,764
            
            $
            --Issuance
              of common stock in conjunction
              with convertibledebenture
                conversion
            
            $
            6,963,007
            
            $
            --Sale
              of Series A Preferred Stock and
              mandatorily convertedto
                common shares
            
            $
            --
            
            $
            14,310,057




**11.**
            **Transactions
                with Related Party**


The
      Company’s change in “Due from Related Party” for the six months ended January
      31, 2006 represents only the effect of change in exchange rate for the six
      months ended versus that in effect at July 31, 2005.





**12.**
            **Stockholders’
                Equity**


In
      August
      2005, the Company issued 265,929 shares of common stock to various consultants
      for services rendered in the amount of $157,289. The shares were valued at
      $0.59
      to $0.61 per share based on the quoted market price of the Company’s common
      stock on the dates of the issuances.





In
      September 2005, the Company issued 162,933 shares of common stock to various
      vendors for the satisfaction of $113,605 of accounts payable and accrued
      liabilities. The shares were valued at $0.81 per share based on the quoted
      market price of the Company’s common stock on the dates of the
      issuances.





19






**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**12.**
            **Stockholders’
                Equity (Continued)**


In
      September 2005, the Company and each of the holders of the $4 million
      convertible debenture entered into an Amendment No. 2 to Securities Purchase
      Agreement and Registration Rights Agreement pursuant to which the investors
      agreed to exercise an additional $2,000,000 in principal amount of Additional
      Investment Rights (AIR) (“Second $2 Million Convertible Debenture”). In
      connection with this investment, the Company agreed to issue warrants to
      purchase an aggregate of 2,439,024 shares of the Company’s common stock at the
      exercise price of $0.82 per share exercisable for five years commencing six
      months following the issuance thereof and to grant each investor further AIR.
      In
      addition, in connection with the transaction contemplated by Amendment No.
      2,
      the Company issued a placement agent (i) 170,732 shares of common stock in
      lieu
      of a cash fee equal to 7 percent of the gross proceeds received by the Company
      and (ii) warrants exercisable into approximately 60,000 shares of common stock
      at the same exercise price as the AIR warrants (see Note 6).





In
      October 2005 one of the debenture holders exercised its additional investment
      right “AIR Exercise” resulting in a $500,000 convertible promissory note
      (“$500,000 Convertible Debenture’) for an aggregate proceeds of $500,000. In
      connection with this investment, the Company agreed to issue warrants to
      purchase an aggregate of 609,756 shares of the Company’s common stock at the
      exercise price of $0.82 per share exercisable for five years commencing six
      months following the issuance thereof. In addition, in connection with the
      transaction, the Company issued a placement agent warrants to purchase 15,000
      shares of common stock (see Note 6).





In
      October 2005, the Company issued an aggregate of 909,756 warrants to certain
      debenture holders as an incentive to exercise their existing warrants. All
      warrants have a five year term, an exercise price of $1.20 per share and were
      valued at $0.63. The warrants, which were valued using the Black-Scholes pricing
      model with expected volatility of 93.22 percent and risk free interest of 3.76
      percent, resulted in charges to the interest expense of $573,146.





In
      October 2005, the Company issued an aggregate of 2,748,780 warrants to certain
      debenture holders as an incentive to exercise their existing warrants. All
      warrants have a five year term, an exercise price of $1.25 per share and were
      valued at $0.91. The warrants, which were valued using the Black-Scholes pricing
      model with expected volatility of 93.22 percent and risk free interest of 3.76
      percent, resulted in charges to the interest expense of $2,501,390.





In
      October 2005, the Company received aggregate cash proceeds of approximately
      $6,891,998. The Company issued 8,404,876 shares of common stock as a result
      of
      these transactions.





In
      October 2005, the Company received aggregate cash proceeds of $101,545 from
      exercises of stock options. The Company issued 141,500 shares of common stock
      as
      a result of these transactions.





In
      November 2005, the Company received aggregate cash proceeds of $94,945 from
      exercises of stock options. The Company issued 101,500 shares of common stock
      as
      a result of these transactions.





In
      November 2005, the Company received aggregate cash proceeds of $2,508,000 from
      exercises of stock warrants. The Company issued 3,058,536 shares of common
      stock
      as a result of these transactions.







20






**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**12.**
            **Stockholders’
                Equity (Continued)**


In
      November 2005, the Company issued 83,787 shares of common stock to consultants
      for services rendered in the amount of $81,274. The shares were valued at $0.97
      per share based on the quoted market price of the Company’s common stock on the
      dates of the issuances.





In
      December 2005, the Company and each of the holders of the $4 million convertible
      debenture entered into an Amendment No. 2 to Securities Purchase Agreement
      and
      Registration Rights Agreement pursuant to which (i) all but one of the Investors
      agreed to exercise an aggregate of $1,500,000 in principal amount of the
      Additional AIRs granted to such Investors in connection with the First AIR
      Exercise and (ii) all of the Investors agreed to exercise an aggregate of
      $2,000,000 in principal amount of the Additional AIRs granted to the Investors
      in connection with the Second AIR Exercise (“$3.5 Million Convertible
      Debenture”). In connection with the $3.5 Million Convertible Debenture, the
      Company agreed to issue warrants to purchase an aggregate of 4,268,292 shares
      of
      the Company’s common stock at the exercise price of $0.82 per share exercisable
      for five years commencing six months following the issuance thereof and to
      grant
      each investor further AIR. In addition, in connection with the transaction
      contemplated by Amendment No. 2, the Company issued a placement agent (i)
      224,000 shares of common stock in lieu of a cash comission and (ii) warrants
      exercisable into approximately 105,000 shares of common stock at the same
      exercise price as the AIR warrants (see Note 6).





In
      December 2005, the Company issued an aggregate of 1,829,268 warrants to certain
      debenture holders as an incentive to exercise their existing warrants. All
      warrants have a five year term, an exercise price of $1.25 per share and were
      valued at $0.61. The warrants, which were valued using the Black-Scholes pricing
      model with expected volatility of 0.9254 percent and risk free interest of
      4.02
      percent, resulted in charges to the interest expense of $1,115,853.





In
      January 2006, the Company and each of the holders of the $4 million convertible
      debenture entered into an Amendment No. 4 to Securities Purchase Agreement
      and
      Registration Rights Agreement pursuant to which the investors agreed to exercise
      an additional $4,000,000 in principal amount of Additional Investment Rights
      (AIR) (“Second $4 Million Convertible Debenture”). In connection with this
      investment, the Company agreed to issue warrants to purchase an aggregate of
      3,809,524 shares of the Company’s common stock at the exercise price of $1.05
      per share exercisable for five years commencing six months following the
      issuance thereof and to grant each investor further AIR. In addition, in
      connection with the transaction contemplated by Amendment No. 2, the Company
      issued a placement agent (i) 266,667 shares of common stock in lieu of a cash
      fee equal to 7 percent of the gross proceeds received by the Company and (ii)
      warrants exercisable into approximately 120,000 shares of common stock at the
      same exercise price as the AIR warrants (see Note 6).





In
      January 2006, the Company received aggregate cash proceeds of $6,300 from
      exercises of stock options. The Company issued 10,000 shares of common stock
      as
      a result of these transactions.





In
      January 2006, the Company received aggregate cash proceeds of $5,999,999 from
      exercises of stock warrants. The Company issued 7,317,072 shares of common
      stock
      as a result of these transactions.






21






**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**12.**
            **Stockholders’
                Equity (Continued)**


In
      January 2006, the Company issued an aggregate of 3,658,536 warrants to certain
      debenture holders as an incentive to exercise their existing warrants. All
      warrants have a five year term, an exercise price of $1.60 per share and were
      valued at $0.85. The warrants, which were valued using the Black-Scholes pricing
      model with expected volatility of 0.9210 percent and risk free interest of
      4.23
      percent, resulted in charges to the interest expense of $3,109,756.





During
      the six months ended January 31, 2006, the Company issued an aggregate of
      1,918,199 shares of common stock as monthly principal and interest payments
      totaling $1,442,484 of convertible debentures (see Note 6).





During
      the six months ended January 31, 2006, the Company issued an aggregate of
      9,822,145 shares of common stock resulting from the conversion of $7,643,960
      of
      principal and accrued interest of convertible debentures (see Note
      6).





The
      issuances of common stock as described above are summarized as
      follow:




Additional
            
            TotalCommon
                Stock
            
            Paid-In
            
            Stockholders’Shares
            
            Amount
            
            Capital
            
            EquityConvertible
              Debenture
              Conversions
            
            
            9,822,145
            
            $
            9,822
            
            $
            7,634,140
            
            $
            7,643,962Convertible
              Debenture MonthlyRepayments
            
            
            1,918,199
            
            
            1,918
            
            
            1,439,565
            
            
            1,441,483Warrants
              and Stock Options
              Exercisedfor
                Cash
            
            
            19,033,484
            
            
            19,033
            
            
            15,583,754
            
            
            15,602,787Issuance
              for Services and
              AccountsPayable
            
            
            1,174,048
            
            
            1,174
            
            
            970,460
            
            
            971,634Total
            
            
            31,947,876
            
            $
            31,947
            
            $
            25,627,919
            
            $
            25,659,866




**13.**
            **Subsequent
                Events**


During
      February 2006, the Company secured a commercial mortgage in the amount of
      $1,300,000, interest at 6.07 percent per annum and maturing March 2009. The
      proceeds from the mortgage were used to pay off existing debt as well as fees
      associated with obtaining the mortgage.





During
      February 2006, the Company received an aggregate of $11 million as a result
      of
      the exercise by existing Company investors of previously issued
      warrants.





During
      February 2006, the Company issued an aggregate of 4,770,617 warrants to certain
      debenture holders as an incentive to exercise their existing warrants. All
      warrants have a five year term, an exercise price of $3.00 per share and were
      valued at $1.74. The warrants, which were valued using the Black-Scholes pricing
      model with expected volatility of 0.9380 percent and risk free interest of
      4.49
      percent, resulted in charges to the interest expense of $8,294,141.





On
      February 28, 2006, each of the holders of additional investment rights (“AIR”)
      received in connection with Second 4 million Convertible Debenture exercised
      100% of the AIRs (for aggregate gross proceeds to the Company of $4,000,000)
      in
      exchange for the acceleration of the exercise periods from July 20, 2006 to
      February 28, 2006.






22






**GENEREX
      BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**13.**
            **Subsequent
                Events (Continued)**


On
      March
      6, 2006, the Company and the holders of the convertible debentures amended
      the
      terms of outstanding warrants received in conjunction with the transaction
      dated
      February 28, 2006 to purchase common stock to accelerate their exercise date
      to
      March 6, 2006. These warrants consist of warrants for 1,600,000 shares issued
      on
      February 28, 2006, and initially exercisable on August 31, 2006. The Investors
      agreed to immediately exercise the full amount of these warrants (for aggregate
      gross proceeds to the Company of $2,000,000) in exchange for (a) the
      acceleration of the exercise period, and (b) the issuance of additional warrants
      equal to 50% of the exercised Warrants (an aggregate of at least 800,000
      shares). The new warrants will have an exercise price of $3.00 per share and
      will be exercisable for five years from September 6, 2006. The warrants were
      valued at $1.62 using the Black-Scholes pricing model with expected volatility
      of 0.9377 percent and risk free interest of 4.49 percent, resulting in charges
      to the interest expense of $1,293,953.








In
      February and March 2006, the Company issued an aggregate of 2,390,111 shares
      of
      common stock resulting from the conversion of $2,509,540 of the principal and
      accrued interest of the Second $4,000,000 Convertible Debenture (See Note
      6).





In
      March
      2006, the Company issued an aggregate of 2,280,592 shares of common stock
      resulting from the conversion of $2,850,740 of the principal and accrued
      interest of convertible debenture entered pursuant to the exercise of AIRs
      on
      February 28, 2006.





In
      February and March 2006, the Company issued an aggregate of 1,503,454 shares
      of
      common stock resulting from the exercise of outstanding warrants and stock
      options for cash. The Company received an aggregate amount of approximately
      $2,270,804 in proceeds as a result of these transactions.





23







**Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations**





As
      used
      herein, the terms the “Company,” “Generex,” “we,” “us,” or “our” refer to
      Generex Biotechnology Corporation, a Delaware corporation.





**Forward-Looking
      Statements**





We
      have
      made statements in this *Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations* and
      elsewhere in this Quarterly Report on Form 10-Q of Generex Biotechnology
      Corporation for the fiscal quarter ended January 31, 2006 that may constitute
      "forward-looking statements" within the meaning of the Private Securities
      Litigation Reform Act of 1995 (the "Act"). The Act limits our liability in
      any
      lawsuit based on forward-looking statements that we have made. All statements,
      other than statements of historical facts, included in this Quarterly 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:





Ÿ
            our
                expectations concerning product candidates for our
                technologies;


Ÿ
            our
                expectations concerning existing or potential development and license
                agreements for third-party collaborations and joint
                ventures;


Ÿ
              our
                  expectations of when different phases of clinical activity may
                  commence or
                  be completed;
 Ÿ
              our
                  expectations of when regulatory submissions may be filed or when
                  regulatory approvals may be received;
                  and
 Ÿ
              our
                  expectations in respect of the timing and results of commercialization
                  activities.




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:





Ÿ
            the
                inherent uncertainties of product development based on our new and
                as yet
                not fully proven technologies;


Ÿ
            the
                risks and uncertainties regarding the actual effect on humans of
                seemingly
                safe and efficacious formulations and treatments when tested
                clinically;


Ÿ
            the
                inherent uncertainties associated with clinical trials of product
                candidates;


Ÿ
            the
                inherent uncertainties associated with the process of obtaining regulatory
                approval to market product
                candidates;


Ÿ
            the
                inherent uncertainties associated with commercialization of products
                that
                have received regulatory approval;
                and


Ÿ
            our
                ability to obtain the necessary financing to fund our
                operations.





Additional
      factors that could affect future results are set forth below under the caption *Risk
      Factors* .
      We
      caution investors that the forward-looking statements contained in this
      Quarterly Report must be interpreted and understood in light of conditions
      and
      circumstances that exist as of the date of this Quarterly Report. We expressly
      disclaim any obligation or undertaking to update or revise forward-looking
      statements made in this Quarterly Report to reflect any changes in management's
      expectations resulting from future events or changes in the conditions or
      circumstances upon which such expectations are based.







24





**Corporate
      History**





We
      were
      incorporated in Delaware in September 1997 for the purpose of acquiring Generex
      Pharmaceuticals, Inc., a Canadian corporation formed in November 1995 to engage
      in pharmaceutical and biotechnological research and other activities. Our
      acquisition of Generex Pharmaceuticals was completed in October 1997 in a
      transaction in which the holders of all outstanding shares of Generex
      Pharmaceuticals exchanged their shares for shares of our common stock.





In
      January 1998, we participated in a "reverse acquisition" with Green Mt. P.
      S.,
      Inc., a previously inactive Idaho corporation formed in 1983. As a result of
      this transaction, our shareholders (the former shareholders of Generex
      Pharmaceuticals) acquired a majority (approximately 90%) of the outstanding
      capital stock of Green Mt., we became a wholly-owned subsidiary of Green Mt.,
      Green Mt. changed its corporate name to Generex Biotechnology Corporation
      ("Generex Idaho"), and we changed our corporate name to GB 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, 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.





**Business
      History**





We
      are
      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.





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 1,100 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 upfront 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 retained 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.





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 was 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.






25





In
      connection with the joint venture, EIS purchased 1,000 shares of our Series
      A
      Preferred Stock for $12,015,000, which EIS transferred, shortly thereafter,
      to
      Elan Pharmaceuticals Investment III, an affiliate of Elan ("EPIL III"). 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. In accordance with the terms of the Series A Preferred
      Stock, if any shares of Series A Preferred Stock were to be outstanding on
      January 16, 2007, we would have been required to redeem the shares of Series
      A
      Preferred Stock at a redemption price equal to the aggregate Series A Preferred
      Stock liquidation preference, either in cash, or in shares of common stock
      with
      a fair market value equal to the redemption price. Alternatively, the Series
      A
      Preferred Stock could have been converted, under certain conditions, into shares
      of our common 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.





On
      December 27, 2004, we entered into an agreement (the "Termination Agreement")
      with Elan, whereby we and Elan agreed to terminate the joint venture through
      Generex (Bermuda) Ltd. Pursuant to the terms of the Termination Agreement,
      (i)
      except for a common stock purchase warrant that was issued by us to Elan, which
      was amended to permit Elan or any other holder thereof to transfer the warrant
      without our consent, the parties agreed to terminate all agreements entered
      into
      in connection with the joint venture, and (ii) Elan agreed to transfer all
      shares of capital stock of Generex (Bermuda) owned by it to us. Accordingly,
      all
      rights granted by each party to the other terminated, including, without
      limitation, Elan's right to appoint a member to our Board of Directors, all
      other rights granted under the terms of the joint venture terminated, each
      party
      retained its intellectual property rights, we obtained full ownership of Generex
      (Bermuda), and all representatives of Elan who were officers and/or directors
      of
      Generex (Bermuda) resigned.





In
      connection with negotiating the Termination Agreement, EPIL III approached
      us
      for consent to transfer the Series A Preferred Stock by way of an auction
      process. Although we provided our consent to the transfer, it was contingent
      upon EPIL III agreeing to satisfy the following conditions: (i) the auction
      process could conclude no later than December 15, 2004 and EPIL III's
      disposition of the shares could conclude no later than December 31, 2004 (the
      "Closing Date"), (ii) the buyer had to immediately convert the Series A
      Preferred Stock at the voluntary conversion price of $25.77 (calculated pursuant
      to the terms of the certificate of designation for the Series A Preferred Stock
      resulting in the issuance of 534,085 shares of common stock), (iii) EPIL III's
      registration rights could not be transferred, and (iv) for a period of two
      (2)
      years after the Closing Date, the purchaser of the Series A Preferred Stock
      could not transfer the shares of common stock issuable upon conversion thereof
      and we would have the right to redeem the shares of common stock at a per share
      price of 150% of the average closing price of the common stock on The Nasdaq
      Capital Market for the twenty (20) days immediately preceding the Closing Date.
      On or about December 15, 2004, EPIL III conducted the auction and received
      an
      offer to buy the shares of Series A Preferred Stock. On or about December 31,
      2004, EPIL III sold the shares of Series A Preferred Stock, and the purchaser
      thereof immediately converted the Series A Preferred Stock into shares of our
      common stock.





The
      conversion of the Series A Preferred Stock was particularly critical because
      the
      mandatory redemption feature required us to classify the Series A Preferred
      Stock as approximately $14,300,000 of mezzanine equity. Upon conversion of
      the
      Series A Preferred Stock, however, we were able to reclassify the approximately
      $14,300,000 of mezzanine equity as common equity on our balance sheet. This,
      in
      turn, allowed us to regain compliance with NASDAQ's Marketplace Rule
      4310(c)(2)(B), which requires us to have a minimum of $2,500,000 in
      stockholders' equity or $35,000,000 market value of listed securities or
      $500,000 of net income from continuing operations for the most recently
      completed fiscal year or two of the three most recently completed fiscal
      years.






26





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 a former executive officer of Antigen, the Ii-Key hybrid peptides
      and Ii-Suppression. Phase 1 clinical testing in humans has commenced at The
      Walter Reed Army Medical Center in respect of a vaccine designed to stimulate
      an
      immune response against the tumor-causing gene HER-2/ *neu* ,
      which
      occurs in a significant percentage of patients with breast cancer as well as
      other cancers. The other immunomedicine products, including a vaccine for avian
      influenza, are in the pre-clinical stage of development, and trials in human
      patients are not expected for at least six months. Development efforts are
      underway in melanoma, breast cancer, prostate cancer, HIV, the avian 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.





With
      the
      anticipated commencement of commercial sales of our oral insulin product,
      Generex Oral-lynTM, in Ecuador in the fourth quarter of our fiscal 2006, we
      expect to receive revenues from product sales in the fiscal year ending July
      31,
      2006. We do not expect this revenue to be sufficient for all of our cash needs
      during the year. In the past we were able to fund Antigen expenses with some
      revenue from research grants for Antigen's immunomedicine products. During
      the
      fiscal quarter ended January 31, 2006, we received a total of $43,750 in such
      research grants, and we have received a total of $87,500 in such grants in
      fiscal 2006. We do not expect to receive such grants on a going forward basis.
      We expect to satisfy the majority of our cash needs during the current year
      from
      capital raised through debt and equity financings.





**Disclosure
      Regarding Research and Development Projects**





Our
      major
      research and development projects (in addition to the Antigen Express projects
      referenced above) are the refinement of our platform buccal delivery technology,
      our buccal insulin project (Generex Oral-lynTM),our buccal morphine product, our
      buccal glucose project (Glucose RapidSprayTM, an over-the-counter confectionary),
      and our buccal metoformin project (metformin gum).





Our
      insulin product is in clinical trials. During the last fiscal year, we did
      not
      expend resources to further our buccal morphine product. In Canada, we are
      in
      the process of finalizing work for a New Drug Submission (NDS) to the Biologics
      and Genetic Therapeutics Directorate of Health Canada for approval for the
      marketing and sale of Generex Oral-lynTM in Canada. We expect that the NDS will
      be a blueprint for similar applications to the United States Food and Drug
      Administration (FDA) and the European Agency for the Evaluation of Medicinal
      Products (EMEA) however we cannot predict at this time when such applications
      will be made, what additional work will be required by us before such
      applications are granted, how long such work will take, or how much funding
      will
      be required to complete such work.





Our
      insulin product, Generex Oral-lynTM, was approved for commercial sale by drug
      regulatory authorities in Ecuador in early May 2005 for the treatment of
      patients with either Type-1 or Type-2 diabetes mellitus.. It is our intention
      that our South American joint venture partner, PharmaBrand S.A., will handle
      the
      commercial production and sale of Generex Oral-lynTM in Ecuador. We expect that
      commercial sales of Generex Oral-lynTM will commence in Ecuador before the end of
      current calendar year.





Because
      of various uncertainties, we cannot predict the timing of completion and
      commercialization of our buccal insulin product or the other products presently
      under development. These uncertainties include the success of current studies,
      our ability to obtain the required financing, the time required to obtain
      regulatory approval even if our research and development efforts are completed
      and successful, and the availability of and our access to production facilities
      and distribution channels. For the same reasons, we cannot predict when any
      products may begin to produce net cash inflows.






27





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 is expected to benefit all of
      our
      potential products. During the six month ended January 31, 2006, approximately
      74% of our $1,993,494 in research expenses was attributable to insulin and
      platform technology development, and did not spend any money on morphine and
      fentanyl projects. In the comparable period ended January 31, 2005,
      approximately 87% of our $5,576,965 of research and development was expended
      for
      insulin and platform technology, and approximately 1% for morphine and fentanyl.





Approximately
      26% or $512,446 of our research and development expenses for the six months
      ended January 31, 2006 were related to Antigen's immunomedicine products
      compared to approximately 12% or $690,718 for the same period last year. Because
      these products are in a very early, pre-clinical stage of development (other
      than the breast cancer vaccine which is in Phase 1 trials), 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 the Antigen
      Express is technology, or when products from this technology might begin
      producing revenues.





Developments
      in Fiscal Quarter Ended January 31, 2006





On
      November 14, 2005, we received written confirmation from the Staff of The Nasdaq
      Stock Market that we had achieved compliance with the continued listing
      requirements in accordance with Marketplace Rule 4310(c)(4), which requires
      us
      to have a minimum closing bid price per share of at least $1.00 for 30
      consecutive trading days. Although we have regained compliance with the minimum
      closing bid price requirement, there is no guarantee that the closing bid price
      of our common stock will remain at or above $1.00 per share. In the event that
      the closing bid price of our common stock falls below $1.00 per share for thirty
      (30) consecutive trading days, we would likely receive a notice from The Nasdaq
      Stock Market informing us of our noncompliance with Marketplace Rule 4310(c)(4)
      and giving us 180 calendar days, subject to extension, to regain compliance
      with
      the Rule. In the event that we could not demonstrate compliance with Marketplace
      Rule 4310(c)(4) by the specified deadline and were not eligible for an
      additional compliance period, the Staff would notify us that our stock would
      be
      delisted, at which time we could appeal the Staff’s determination to a Listing
      Qualifications Panel. Pending the decision of the Listing Qualification Panel,
      our common stock would continue to trade on the Nasdaq Capital Market. If we
      were not successful in such an appeal, our stock would likely trade on NASDAQ’s
      over-the-counter bulletin board, assuming we meet the requisite
      criteria.





On
      December 4, 2005, the Company and four accredited investors entered into
      Amendment No. 3 (“Amendment No. 3”) to the November 10, 2004 Securities Purchase
      Agreement (the “Securities Purchase Agreement”) and the November 10, 2004
      Registration Rights Agreement (the “Registration Rights Agreement”) pursuant to
      which (i) the all of the investors except Omicron Master Trust (“Omicron”)
      agreed to exercise an aggregate of $1,500,000 in principal amount of the
      Additional Investment Rights (the “June AIRs”) granted to them in connection
      with their investment and exercise of previous Additional Investment Rights
      in
      June 2005 (Omicron had previously exercised its companion Additional Investment
      Right) and (ii) all of the investors, including Omicron, agreed to exercise
      an
      aggregate of $2,000,000 in principal amount of a second Additional Investment
      Right (the “Sept AIRs”) granted to them in connection with their investment and
      exercise of previous Additional Investment Rights in September 2005. Amendment
      No. 3, and the prior transactions under the Securities Purchase Agreement and
      Amendment No. 1 thereto and Amendment No. 2 thereto are described in full in
      our
      Current Report on Form 8-K filed with the SEC on December 5, 2005, and in our
      Quarterly Report on Form 10-Q in respect of our second fiscal quartered ended
      October 31, 2005 under *Item
      2- Management’s Discussion and Analysis of Financial Condition and results of
      Operation - Developments Subsequent to the Quarter Ended October 31,
      2005* .





Pursuant
      to Amendment No. 3, we and the investors, excluding Omicron, amended the June
      AIRs (the “June AIR Amendment”) to accelerate the initial exercise date in
      respect thereof (the 181st day following the date of issuance) in consideration
      of the full and immediate exercise by such investors of their June AIRs and
      the
      delivery to us of Notices of Exercise in respect thereof on or before the close
      of business on December 5, 2005. In addition, we and all four of the investors
      amended the Sept AIRs (the “Sept AIR Amendment”) to accelerate the initial
      exercise date in respect thereof (the 181st day following the date of issuance)
      in consideration of the full and immediate exercise by the investors of their
      Sept AIRs and the delivery to us of Notices of Exercise in respect thereof
      on or
      before the close of business on December 5, 2005.






28





The
      investors timely delivered Notices of Exercise, satisfying the conditions
      specified in the June AIR Amendments and/or Sept AIR Amendments, as applicable.
      In connection with the exercise of the June AIRs and the Sept AIRs on December
      5, 2005, each investor purchased a $1,000,000 principal amount AIR Debenture
      (except for Omicron which purchased a $500,000 principal amount AIR Debenture
      (previously, on October 27, 2005, Omicron had purchased an additional $500,000
      principal amount AIR Debenture)) with a conversion price of $0.82 (collectively,
      the “December AIR Debentures”) and AIR Warrants entitling the investors to
      purchase a number of shares of our common stock equal to 100% of the shares
      of
      common stock issuable upon the conversion of the December AIR Debentures in
      full
      at a $0.82 conversion price (subject to adjustment as set forth therein)
      (without regard to any restrictions on conversion therein contained) at an
      exercise price of $0.82 per share (the “December AIR Warrants”). Accordingly, we
      issued to the investors December AIR Debentures in the aggregate principal
      amount of $3,500,000 and December AIR Warrants to purchase an aggregate of
      4,268,292 shares of our common stock, exercisable for five years commencing
      six
      months following the issuance thereof. We received proceeds of approximately
      $3,500,000 in connection with the investors’ exercise of their June AIRs and
      their Sept AIRs.





The
      terms
      of the December AIR Debentures granted in connection with Amendment No. 3 are
      identical to those of the debentures previously issued under the auspices of
      the
      Securities Purchase Agreement. The terms of the December AIR Debentures are
      described below under the caption *Financial
      Condition, Liquidity and Resources* of this *Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations* .





The
      December AIR Warrants issued to the investors on December 5, 2005 were initially
      exercisable into an aggregate of 4,268,292 shares of our common stock, and
      the
      initial exercise price of each December AIR Warrant was equal to
      $0.82.





In
      addition, in consideration of each investor’s exercise of its June AIRs and its
      Sept AIRs, including Omicron’s October 2005 exercise of its June AIR, we granted
      to each investor a further Additional Investment Right (each an “Amendment No. 3
      AIR” and collectively, the “Amendment No. 3 AIRs”), pursuant to which each
      investor had the right to purchase detachable units consisting of (a) additional
      debentures in the principal amount of $1,000,000 each with a conversion price
      of
      $1.25 per share (the “Additional AIR Debentures”) and (b) additional warrants
      entitling the holder thereof to purchase a number of shares of the Company’s
      common stock equal to 100% of the shares of common stock issuable upon the
      conversion in full at a $1.25 per share conversion price (subject to adjustment
      as set forth therein) (without regard to any restrictions on conversion therein
      contained) of the Additional AIR Debentures contemplated in clause (a) above,
      at
      an exercise price equal to $1.25 per share (the “Additional AIR
      Warrants”).





Each
      investor was entitled to exercise its Amendment No. 3 AIR at any time on or
      after the 181st day after closing and on or prior to the earlier of (i) the
      close of business on the one-year anniversary after the registration statement
      for the shares of common stock underlying Amendment No. 3 went effective and
      (ii) the two year anniversary of the closing of the transactions contemplated
      by
      Amendment No. 3.





Under
      the
      terms of Amendment No. 3, we also agreed to register for resale the securities
      issuable upon conversion/exercise of the Additional AIR Debentures and the
      Additional AIR Warrants, consistent with the investors’ existing registration
      rights under the Registration Rights Agreement. On February 1, 2006, we filed
      with the SEC a Registration Statement on Form S-3 (File No. 333-131430) in
      connection with Amendment No. 3. The Registration Statement became effective
      on
      February 24, 2006.






29





In
      addition, in connection with the transactions contemplated by Amendment No.
      3
      and Omicron’s October 2005 exercise of its June AIR, we were required to pay to
      a placement agent (i) $245,000 in cash (7% of the gross proceeds received by
      us), which amount was actually converted into stock at $1.25 per share, and
      (ii)
      warrants exercisable into 105,000 shares of common stock at the same exercise
      price as the December AIR Warrants. These shares were also registered for resale
      in the Registration Statement.





On
      December 9, 2005, in consideration for the exercise of certain outstanding
      warrants previously issued to Cranshire Capital, L.P. (“Cranshire”) (otherwise
      than in connection with the Securities Purchase Agreement), one of the investors
      under the Securities Purchase Agreement, and in connection with the extension
      of
      the maturity date of its $500,000 Promissory Note and Agreement, we issued
      to
      Cranshire a five-year warrant to purchase an aggregate of 1,829,268 shares
      of
      our common stock at $1.25 per share. We received aggregate proceeds of
      approximately $3,000,000 in connection with the exercise of Cranshire’s
      outstanding warrants to purchase shares of our common stock. The rights of
      Cranshire under this warrant are described below under the caption *Financial
      Condition, Liquidity and Resources* of this *Part
      I -*  *Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations* .





*Exercise
      of Amendment No. 3 AIR Pursuant to Amendment No. 4*





On
      January 19, 2006, we and each of the investors entered into Amendment No. 4
      to
      the Securities Purchase Agreement and Registration Rights Agreement (the
“ Amendment
      No. 4 ”)
      pursuant to which the investors agreed to exercise the full amount of its
      Amendment No. 3 AIR to acquire an aggregate of $4,000,000 in principal amount
      of
      Additional AIR Debentures. Pursuant to each such Amendment No. 3 AIR granted
      in
      connection with Amendment No. 3, each investor had the right to purchase
      detachable units consisting of (a) Additional AIR Debentures in the principal
      amount of $1,000,000 with a conversion price of $1.25 per share and (b)
      Additional AIR Warrants entitling the holder thereof to purchase a number of
      shares of the Company’s common stock equal to 100% of the shares of common stock
      issuable upon the conversion in full at a $1.25 conversion price of the
      Additional AIR Debentures (subject to adjustment as set forth therein) (without
      regard to any restrictions on conversion therein contained) at an exercise
      price
      of $1.25 per share.





Pursuant
      to Amendment No. 4, we amended the terms of the Amendment No. 3 AIRs to
      accelerate the initial exercise dates thereof to January 19, 2006 in
      consideration of their full and immediate exercise by the
      investors.





In
      connection with the exercise of each Amendment No. 3 AIR, each investor
      purchased a $1,000,000 principal amount Additional AIR Debenture with a
      conversion price of $1.05 (reduced from $1.25) and Additional AIR Warrants
      entitling the investor to purchase a number of shares of our common stock equal
      to 100% of the shares of common stock issuable upon the conversion in full
      of
      the Additional AIR Debenture at a reduced conversion price of $1.05 (subject
      to
      adjustment as set forth therein) (without regard to any restrictions on
      conversion therein contained) at an exercise price of $1.05 per share (reduced
      from $1.25). Accordingly, we issued to the investors Additional AIR Debentures
      in the aggregate amount of $4,000,000 and Additional AIR Warrants to purchase
      an
      aggregate of 3,809,524 shares of our common stock, exercisable for five years
      commencing six months following the issuance thereof. Under the terms of
      Amendment No. 4, the reduction in the conversion price of the Additional AIR
      Debentures and the exercise price of the Additional AIR Warrants did not trigger
      any anti-dilution adjustments to any outstanding securities held by the
      investors.





We
      received proceeds of approximately $4,000,000 in connection with the investors’
exercise of their Amendment No. 3 AIRs.





The
      Additional AIR Debentures have a term of fifteen months and amortize over
      thirteen months in thirteen equal monthly installments beginning on the first
      day of the third month following their issuance. Interest on the principal
      amount outstanding accrues at a rate of 6% per annum. We may pay principal
      and
      accrued interest in cash or, at our option, in shares of our common stock.
      If
      the we elect to pay principal and/or interest in shares of our common stock,
      the
      value of each share of common stock is equal to the lesser of (i) $1.05 and
      (ii)
      ninety percent (90%) of the average of the daily volume weighted average price
      for the common stock over the twenty trading day period immediately preceding
      the date of payment. At the option of the holder of each Additional AIR
      Debenture, the principal amount outstanding under each Additional AIR Debenture
      is initially convertible at any time after the closing of Amendment No. 4 into
      shares of the our common stock at a conversion price of $1.05.






30





Upon
      the
      occurrence of an “Event of Default,” including a default in payment of principal
      or interest (including late fees) which is not cured within three trading days,
      the full principal amount of each Additional AIR Debenture, together with
      interest and other amounts owing in respect thereof, to the date of acceleration
      will become, at the holder’s election, due and payable in cash. The aggregate
      amount payable upon an Event of Default will be equal to the “Mandatory
      Prepayment Amount.” The Mandatory Prepayment Amount for any Additional AIR
      Debentures will be equal to the sum of (i) the greater of: (A) 130% of the
      principal amount of Additional AIR Debentures to be prepaid, plus all accrued
      and unpaid interest thereon, and (B) the principal amount of Additional AIR
      Debentures to be prepaid, plus all other accrued and unpaid interest thereon,
      divided by the conversion price on (x) the date the Mandatory Prepayment Amount
      is demanded or otherwise due or (y) the date the Mandatory Prepayment Amount
      is
      paid in full, whichever is less, multiplied by the daily volume weighted average
      price of the common stock on (x) the date the Mandatory Prepayment Amount is
      demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is
      paid in full, whichever is greater, and (ii) all other amounts, costs, expenses
      and liquidated damages due in respect of such Additional AIR Debentures. The
      interest rate on the Additional AIR Debentures will accrue at the rate of 18%
      per annum, or such lower maximum amount of interest permitted to be charged
      under applicable law, beginning five days after the occurrence of any Event
      of
      Default that results in the acceleration of the Additional AIR Debentures.
      A
      late fee of 18% per annum, or such lower maximum amount of interest permitted
      to
      be charged under applicable law, will accrue on a daily basis on all overdue
      accrued and unpaid interest under the Additional AIR Debentures from the due
      date to the date of payment.





The
      Additional AIR Warrants issued to the Investors on January 19, 2006 are
      initially exercisable into an aggregate of 3,809,524 shares of the Company’s
      common stock, and the initial exercise price of each Additional AIR Warrant
      is
      equal to $1.05 per share. The conversion price of the Additional AIR Debentures
      and the exercise price of the Additional AIR Warrants are each subject to an
      anti-dilution adjustment upon the issuance by us of securities at a price per
      share less than the then conversion price or exercise price, as
      applicable.





In
      addition, in consideration of each investor’s exercise of its Amendment No. 3
      AIR, we granted to each investor further additional investment rights (each
      an
“ Amendment
      No. 4 AIR ”
and
      collectively, the “ Amendment
      No. 4 AIRs ”)
      pursuant to which each investor has the right to purchase detachable units
      consisting of (a) additional debentures in the principal amount of $1,000,000
      with a conversion price of $1.25 per share (the “ A4
      Additional AIR Debentures ”)
      and
      (b) additional warrants entitling the holder thereof to purchase a number of
      shares of our common stock equal to 100% of the shares of common stock issuable
      upon the conversion in full of the A4 Additional AIR Debentures at a $1.25
      conversion price (subject to adjustment as set forth therein) (without regard
      to
      any restrictions on conversion therein contained) at an exercise price of $1.25
      per share (the “ A4
      Additional AIR Warrants ”).





Under
      the
      terms of Amendment No. 4, we also agreed to register for resale the securities
      issuable upon conversion/exercise of the A4 Additional AIR Debentures and the
      A4
      Additional AIR Warrants, consistent with the investors’ existing registration
      rights under the Registration Rights Agreement. We agreed to include such
      securities in the Registration Statement contemplated by Amendment No 3 which
      became effective on February 24, 2006.





Each
      investor was entitled exercise its A4 Additional AIR at any time on or after
      the
      181st day after closing and on or prior to the earlier of (i) the close of
      business on the one-year anniversary after the registration statement for the
      shares of common stock underlying the A4 Additional AIR Debentures and A4
      Additional AIR Warrants went effective and (ii) the two year anniversary of
      the
      closing of the transactions contemplated by Amendment No. 4.





In
      addition, in connection with the transactions contemplated by Amendment No.
      4,
      the Company issued to a placement agent (i) 266,667 shares of common stock
      in
      lieu of a cash fee equal to 7% of the gross proceeds received by the Company,
      and (ii) warrants exercisable into approximately 120,000 shares of common stock
      at the same exercise price as the Additional AIR Warrants. These shares were
      also registered for resale in the registration statement which became effective
      on February 24, 2006.






31





On
      January 23, 2006, we
      agreed
      with the four investors holding Additional AIR Warrants to amend the terms thereof, together
      with the terms of certain other warrants held by the investors in connection
      with the Securities Purchase Agreement (such other warrants and the Additional
      AIR Warrants are hereinafter collectively called the “Exercised Warrants”) to
      accelerate their exercise dates to January 23, 2006 in consideration of the
      full
      and immediate exercise thereof. These Exercised Warrants consisted of warrants
      for an aggregate of 2,439,024 **** shares
      issued in connection with Amendment No. 2 to the Securities Purchase Agreement
      (initially exercisable on March 8, 2006) and warrants for an aggregate of
      4,878,048 shares issued in connection with Amendment No. 3 (initially
      exercisable beginning June 5, 2006). The investors agreed to immediately
      exercise 100% of these warrants (for aggregate gross proceeds to the Company
      of
      $6,000,000) in exchange for (a) the acceleration of the exercise period , and
      (b) the issuance of additional warrants equal to 50% of the Exercised Warrants
      (an aggregate of 3,658,536 shares) (the “January Inducement Warrants”). The
      January Inducement Warrants have an exercise price of $1.60 per share and will
      be exercisable for five years commencing on July 23, 2006. The exercise price
      is
      subject to an anti-dilution adjustment upon the issuance by us of securities
      at
      a price per share less than the then exercise price. If, at any time after
      the
      first anniversary of the date of issuance of the January Inducement Warrants,
      there is no effective registration statement registering for resale the shares
      of common stock into which the January Inducement Warrants are exercisable,
      each
      holder may exercise its January Inducement Warrant through a cashless exercise.
      The number of shares to be issued upon a cashless exercise will be equal to
      the
      quotient resulting from the following calculation: [(the volume weighted average
      price (VWAP) of our common stock on the trading day immediately preceding the
      date of such election less the exercise price, as adjusted) multiplied by the
      number of shares issuable upon exercise of the warrant by means of a cash
      exercise] divided by the VWAP on the trading day immediately preceding the
      date
      of such election. Each holder has agreed that it will not exercise its January
      Inducement Warrant if such exercise would cause the holder, together with its
      respective affiliates, to beneficially own more than 4.99% of our common stock
      then outstanding. The January Inducement Warrants and the shares of our common
      issuable upon the exercise thereof are included in the Registration Statement
      declared effected February 24, 2006.





Developments
      Subsequent to Fiscal Quarter Ended January 31, 2006





On
      February 27, 2006 the we and the fours investors under the Securities Purchase
      Agreement, Iroquois Capital LP (“Iroquois”), Cranshire, Smithfield Fiduciary LLC
      (“Smithfield”) and Omicron amended the terms of certain outstanding warrants to
      purchase common stock issued in connection with the Securities Purchase
      Agreements (the “February Exercised Warrants”) to accelerate their exercise date
      to February 27, 2006 in consideration of the full and immediate exercise
      thereof. These February Exercised Warrants consisted of warrants issued (i)
      to
      Omicron on July 22, 2005 for 243,902 shares of the Company’s common stock at
      $0.82 per share and then currently exercisable; (ii) to Cranshire on October
      20,
      2005 for 300,000 shares of the Company’s common stock at $1.20 per share
      (originally exercisable on April 20, 2006); (iii) to Iroquois on October 20,
      2005 for 609,756 shares of the Company’s common stock at $1.20 per share
      (originally exercisable on April 20, 2006); (iv) to Cranshire on October 27,
      2005 for 309,756 shares of the Company’s common stock at $1.25 per share
      (originally exercisable on April 27, 2006); (v) to Omicron and Smithfield on
      October 27, 2006 for 609,756 shares each of the Company’s common stock at $1.25
      per share (originally exercisable on April 27, 2006); (vi) to each of the
      investors on October 27, 2005 for 304,878 shares each of the Company’s common
      stock at $1.25 per share (originally exercisable on April 27, 2006); (vii)
      to
      Cranshire on December 9, 2005 for 1,829,268 shares of the Company’s common stock
      at $1.25 per share (originally exercisable on June 9, 2006); and (viii) to
      each
      of the investors on January 20, 2006 for 952,381 shares each of the Company’s
      common stock at $1.05 per share (originally exercisable on July 20, 2006).





The
      investors agreed to immediately exercise 100% of the February Exercised Warrants
      (for aggregate gross proceeds to the Company of $11,014,267) in exchange for
      (a)
      the acceleration of the exercise periods and (b) the issuance of additional
      warrants equal to 50% of the February Exercised Warrants (an aggregate of
      4,770,617 shares) (the “February Inducement Warrants”). The February Inducement
      Warrants have an exercise price of $3.00 per share and will be exercisable
      for
      five years commencing on August 27, 2006.






32





*Exercise
      of A4 Additional AIR*





On
      February 28, 2006, we amended the terms of the A4 Additional AIRs previously
      granted to the investors in connection with Amendment No. 4 to accelerate the
      initial exercise date thereof to February 28, 2006 in consideration of the
      full
      and immediate exercise thereof by the investors.





In
      connection with the exercise of each A4Additional AIR, each investor purchased
      a
      $1,000,000 principal amount debenture with a conversion price of $1.25 (the
“A4
      AIR Debentures”) and warrants (the “A4 AIR Warrants”) entitling the investor to
      purchase a number of shares of the our common stock equal to 100% of the shares
      of common stock issuable upon the conversion in full of the A4 AIR Debenture
      at
      a conversion price of $1.25 (subject to adjustment as set forth therein)
      (without regard to any restrictions on conversion therein contained) at an
      exercise price of $1.25. Accordingly, we issued to the investors A4 AIR
      Debentures in the aggregate amount of $4,000,000 and A4 AIR Warrants to purchase
      an aggregate of 3,200,000 shares of our common stock, exercisable for five
      years
      commencing six months following the issuance thereof.





We
      received proceeds of approximately $4,000,000 in connection with the investors’
exercise of their A4 Additional AIRs.





The
      A4
      AIR Debentures have a term of fifteen months and amortize over thirteen months
      in thirteen equal monthly installments beginning on the first day of the third
      month following their issuance. Interest on the principal amount outstanding
      accrues at a rate of 6% per annum. We may pay principal and accrued interest
      in
      cash or, at our option, in shares of our common stock. If the we elect to pay
      principal and interest in shares of our common stock, the value of each share
      of
      common stock will be equal to the lesser of (i) $1.25 and (ii) ninety percent
      (90%) of the average of the daily volume weighted average price for the common
      stock over the twenty trading day period immediately preceding the date of
      payment. At the option of the holder of each A4 AIR Debenture, the principal
      amount outstanding under each A4 AIR Debenture is initially convertible at
      any
      time after the closing of Amendment No 4 into shares of our common stock at
      a
      conversion price of $1.25.





Upon
      the
      occurrence of an “Event of Default,” including a default in payment of principal
      or interest (including late fees) which is not cured within three trading days,
      the full principal amount of each A4 AIR Debenture, together with interest
      and
      other amounts owing in respect thereof, to the date of acceleration will become,
      at the holder’s election, due and payable in cash. The aggregate amount payable
      upon an Event of Default will be equal to the “Mandatory Prepayment Amount.” The
      Mandatory Prepayment Amount for any A4 AIR Debentures will equal the sum of
      (i)
      the greater of: (A) 130% of the principal amount of A4 AIR Debentures to be
      prepaid, plus all accrued and unpaid interest thereon, or (B) the principal
      amount of A4 AIR Debentures to be prepaid, plus all other accrued and unpaid
      interest thereof, divided by the conversion price on (x) the date the Mandatory
      Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory
      Prepayment Amount is paid in full, whichever is less, multiplied by the daily
      volume weighted average price of the common stock on (x) the date the Mandatory
      Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory
      Prepayment Amount is paid in full, whichever is greater, and (ii) all other
      amounts, costs, expenses and liquidated damages due in respect of such A4 AIR
      Debentures. The interest rate on the A4 AIR Debentures will accrue at the rate
      of 18% per annum, or such lower maximum amount of interest permitted to be
      charged under applicable law, beginning five days after the occurrence of any
      Event of Default that results in the acceleration of the A4 AIR Debentures.
      A
      late fee of 18% per annum, or such lower maximum amount of interest permitted
      to
      be charged under applicable law, will accrue on a daily basis on all overdue
      accrued and unpaid interest under the A4 AIR Debentures from the due date to
      the
      date of payment.





The
      A4
      AIR Warrants issued to the investors on February 28, 2006 are initially
      exercisable into an aggregate of 3,200,000 shares of the Company’s common stock,
      and the initial exercise price of each A4 AIR Warrant is equal to $1.25. The
      conversion price of the A4 AIR Debentures and the exercise price of the A4
      AIR
      Warrants are each subject to an anti-dilution adjustment upon the issuance
      by us
      of securities at a price per share less than the then conversion price or
      exercise price, as applicable.






33





In
      addition, in connection with the transactions contemplated by Amendment No.
      4,
      the Company will pay a placement agent fee equal to 7% of the gross proceeds
      received by the Company ($280,000) and issue warrants exercisable into
      approximately 120,000 shares of common stock at the same exercise price as
      the
      A4 AIR Warrants.





On
      March
      6, 2006, we
      agreed
      with the investors to amend
      the terms of A4 AIR Warrants to accelerate the exercise dates thereunder in
      respect of fifty percent (50%) of the shares of our common stock issuable
      thereunder (an aggregate of 1,600,000 shares) to March 6, 2006. The A4 AIR
      Warrants were initially exercisable on August 31, 2006. The investors agreed
      to
      immediately exercise fifty percent (50%) of the A4 AIR Warrants (for aggregate
      gross proceeds to the Company of $2,000,000) in exchange for (a) the
      acceleration of the exercise period (insofar as it applied to fifty percent
      (50%) of the stock issuable thereunder, and (b) the issuance of additional
      warrants equal to 50% of the exercised A4 AIR Warrants (an aggregate of 800,000
      shares). The new warrants have an exercise price of $3.00 per share and will
      be
      exercisable for five years from September 6, 2006.








**Results
      of Operations**


**Three
      and Six Months Ended January 31, 2006 Compared to Three and Six Months Ended
      January 31, 2005**





Our
      net
      loss for the quarter ended January 31, 2006 was $14,400,597 versus $6,301,182
      in
      the corresponding quarter of the prior fiscal year. The increase in net loss
      in
      this fiscal quarter versus the corresponding quarter of the prior fiscal year
      is
      primarily due to an increase in interest expense incurred in connection with
      convertible debentures. Our operating loss for the quarter decreased to $
      5,184,252 compared to $5,555,641 in the second fiscal quarter of 2005. The
      decrease is a result of the lower research and development expenses ($1,317,115
      versus $2,181,835 last year) despite a moderate increase in our general and
      administrative expenses (to $3,910,887 from $3,450,556) and lower revenue
      received this quarter ($43,750) versus the same quarter of last year
      ($76,750).





The
      decrease in research and development expenses for the fiscal quarter ending
      January 31, 2006 reflects a decreased level of research and development
      activities in respect of our buccal delivery technologies and Antigen Express
      research and development activities. Expenses in the second fiscal quarter
      of
      2005 also reflected increased activities of regulatory consultants that were
      much lower this quarter.





The
      increase in general and administrative expenses for the second fiscal quarter
      of
      2006 is primarily attributable to a $2,000,000 bonus payment to company
      executives as compensation despite a significant decrease in financial and
      consulting services, lower legal costs and a reduction in travel expenses.





Our
      interest expense in the second fiscal quarter of 2006 increased to $8,490,956
      compared to interest expense of $773,602 in the second fiscal quarter of 2005
      due to interest paid in connection with convertible debentures entered during
      last fiscal year and current quarter and interest expense associated with the
      value of warrants issued to convertible debenture holders as an incentive to
      exercise their existing warrants. Our interest and income from rental operations
      increased to $45,746 in the second fiscal quarter of 2006 compared to $28,061
      in
      the same quarter last year due to the reallocation of certain properties to
      rental operations and higher interest earned on short term investments. In
      addition, this fiscal quarter we incurred $771,635 in losses on extinguishment
      of debt in connection with monthly amortization payments due on convertible
      debentures which amount represents the difference between the quoted market
      price of our stock and a 10%
      discount to the average of the 20-day VWAP that was used to determine the number
      of shares issued .








**Financial
      Condition, Liquidity and Resources**





To
      date
      we have financed our development stage activities primarily through private
      placements of our common stock and securities convertible into our common stock.






34





During
      the six months ended January 31, 2006, we engaged in several capital-raising
      transactions with certain of our stockholders as described below and above
      under
      the caption *Developments
      in Fiscal Quarter Ended January 31, 2006* in this *Part
      I -*  *Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations,* and as
      described in our Quarterly Report on Form 10-Q for the fiscal quarter ended
      October 31, 2005. At January 31, 2006, we had cash and short-term investments
      of
      approximately $21.6 million, an increase of approximately 21 million from the
      balance as of the end of the prior fiscal year. The increase is attributable
      to
      the proceeds received in connection with warrant and additional investment
      right
      exercises during the first two quarters of our fiscal 2006. At January 31,
      2006,
      we believed that our anticipated cash position was sufficient to meet our
      working capital needs for the next 12 months based on the pace of our planned
      activities. Beyond that, we will likely require additional funds to support
      our
      working capital requirements or for other purposes. From time to time as deemed
      appropriate by management, we may seek to raise funds through private or public
      equity financing or from other sources. If we are 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 affect our prospects
      materially and adversely.





At
      January 31, 2006, we had 6% Secured Convertible Debentures (the “Debentures”)
      outstanding in the aggregate principal amount of $5,384,615, which were issued
      in connection with the Securities Purchase Agreement and the amendments thereto.
      At such date, we had issued an aggregate of 9,822,145 shares of common stock
      resulting from the conversion of an aggregate of $7,643,960 of Debenture
      principal and accrued interest issued under the auspices of the Securities
      Purchase Agreement, as amended.





At
      January 31, 2006, we had additional investment rights granted in connection
      with
      Amendment No. 4 outstanding pursuant to which the holders of the Debentures
      had
      the right to purchase additional Debentures in the aggregate principal amount
      of
      $4,000,000 and related warrants to purchase an aggregate of 3,200,000 shares
      of
      our common stock (which additional investment rights were subsequently fully
      exercised).





*Securities
      Purchase Agreement*





We
      entered into the Securities Purchase Agreement on November 10, 2004 and closed
      the transaction on November 12, 2004. Pursuant to the Securities Purchase
      Agreement, we issued Debentures and related warrants and for an aggregate
      purchase price of $4,000,000, which Debentures have since been fully repaid
      in
      cash or by conversion into shares of our common stock. The warrants issued
      in
      connection with the Securities Purchase Agreement were initially exercisable
      into the same number of shares of the common stock initially issuable upon
      conversion of the Debentures. The initial exercise price of each warrant was
      equal to 110% of the conversion price of the Debentures, or $0.91. The
      conversion price of the Debentures and the exercise price of the warrants were
      each subject to an anti-dilution adjustment upon the issuance by us of
      securities at a price per share less than the then conversion price or exercise
      price, as applicable. The warrants issued in connection with the Securities
      Purchase Agreement were fully exercised in late October 2005 as described below
      under the caption *Exercise
      of Outstanding Warrants Issued Pursuant to Securities Purchase
      Agreement* at a
      reduced exercise price $0.82 per share as a consequence of an anti-dilution
      adjustment.





In
      connection with the Securities Purchase Agreement, we granted an Additional
      Investment Right to holders of the Debentures. Pursuant to the terms of each
      Additional Investment Right, each holder had the right at any time prior to
      January 24, 2006 to purchase on the same terms and conditions as the private
      placement up to the same number of Debentures and warrants purchased by such
      holder at the closing of the private placement.





In
      connection with the Securities Purchase Agreement, we also issued to a placement
      agent a warrant exercisable into approximately 145,000 shares of common stock
      at
      the same exercise price as the warrants issued to the holders of the Debentures.





The
      aggregate number of shares of common stock issuable upon conversion or exercise
      of the Debentures and related warrants issuable pursuant to the Securities
      Purchase Agreement exceeded 19.99% of the outstanding shares of our common
      stock
      prior to such issuance. Because the rules and regulations of The Nasdaq Stock
      Market prohibit, under certain circumstances, the issuance, without prior
      stockholder approval, of shares of common stock in excess of 19.99% of an
      issuer's outstanding common stock prior to such issuance, certain insiders
      entered into a voting agreement with the holders of the Debentures whereby
      such
      insiders agreed to vote at the next meeting of our stockholders all shares
      of
      common stock held by them in favor of authorizing the issuance of an amount
      of
      shares of common stock in excess of 19.99% of the outstanding common stock
      prior
      to consummating the private placement. The issuance of such shares was approved
      by our stockholders at the Annual Meeting of Stockholders held on April 5,
      2005.






35





*AIR
      Exercise Pursuant to Amendment No. 1*





On
      June
      16, 2005, we and each of the four accredited investor parties to the Securities
      Purchase Agreement entered into Amendment No. 1 to the Securities Purchase
      Agreement and the Registration Rights Agreement (“Amendment No. 1”), pursuant to
      which the investors agreed to exercise of 50% of their additional investment
      rights in the aggregate amount of $2,000,000. This transaction closed on June
      17, 2005. In consideration for the investors’ exercise of their additional
      investment rights (the “A1 Air Exercise”), we issued the investors:





Ÿ
            Debentures
                in the aggregate amount of $2,000,000, with a reduced conversion
                price
                ($0.60) (which reduced conversion price did not trigger any anti-dilution
                adjustments to the outstanding Debentures and related warrants) (the
“A1
                AIR Debentures”);





Ÿ
            warrants
                to purchase an aggregate of 2,439,024 shares of our common stock
                at an
                exercise price of $0.82 per share, which were exercisable for five
                years
                commencing six months following the issuance thereof (the “A1 AIR
                Warrants”); and





Ÿ
            further
                additional investment rights (“A1 Additional AIRs”), pursuant to which
                each investor had the right to purchase detachable units consisting
                of (i)
                Debentures in principal amount equal to the principal amount of A1
                AIR
                Debentures issuable to each investor upon the A1 AIR Exercise with
                a
                conversion price of $0.82 (the “A1 Additional AIR Debentures”) and (ii)
                additional warrants entitling the holder thereof to purchase a number
                of
                shares of our common stock equal to 100% of the shares of common
                stock
                issuable upon the conversion in full of the A1 Additional AIR Debentures
                at an $0.82 conversion price (subject to adjustment as set forth
                therein)
                (without regard to any restrictions on conversion therein contained)
                at an
                exercise price of $0.82 (the “A1 Additional AIR
                Warrants”).





The
      A1
      AIR Debentures have since been fully converted into shares of our common stock.
      The A1 AIR Warrants were amended (to abridge the exercise periods) and exercised
      in full in late October 2005 as described below under the caption *Exercise
      of Outstanding AIR Warrants* .
      The AI
      Additional AIRs were amended (to abridge the exercise periods) and exercised
      in
      full in December 2005 as described below under *Omicron’s
      Exercise of Additional AIR* and *Third AIR Exercise Pursuant to Amendment No. 3.*





In
      addition, in connection with the transactions contemplated by Amendment No.
      1,
      we issued to a placement agent (i) 170,732 shares of common stock in lieu of
      a
      cash fee equal to 7% of the gross proceeds received by us and (ii) warrants
      exercisable into approximately 60,000 shares of our common stock at the same
      exercise price as the A1 AIR Warrants.


As
      we
      obtained shareholder approval at our April 5, 2005 Annual Meeting of
      Stockholders for the issuance of up to an aggregate of 10,000,000 shares of
      common stock or securities convertible into common stock for a price of not
      less
      than 70% of the market price at the time of issuance and for aggregate
      consideration not to exceed $50,000,000, in excess of the number of shares
      that
      NASDAQ’s Marketplace Rules 4350(i)(1)(c) and (D) permit us to issue without
      prior stockholder approval, no further stockholder approval was necessary in
      connection with the transactions contemplated by
      Amendment No. 1.






36





*Second
      AIR Exercise Pursuant to Amendment No. 2*





On
      September 8, 2005, we and the investor parties to the Securities Purchase
      Agreement entered into Amendment No. 2 pursuant to which the investors agreed
      to
      exercise the remaining $2,000,000 in principal amount of their original
      additional investment rights acquired pursuant to the Securities Purchase
      Agreement on November 12, 2004 (the “A2 AIR Exercise”). In connection with the
      A2 AIR Exercise, we issued the investors:





Ÿ
            Debentures
                in the aggregate amount of $2,000,000, with a reduced conversion
                price
                ($0.60) (which reduced conversion price did not trigger any anti-dilution
                adjustments to the outstanding Debentures and related warrants) (the
“A2
                AIR Debentures”);





Ÿ
            warrants
                to purchase an aggregate of 2,439,024 shares of our common stock
                at the
                exercise price of $0.82 per share, which were exercisable for five
                years
                commencing six months following the issuance thereof (the “A2 AIR
                Warrants”); and





Ÿ
            additional
                investment rights (the “A2 Additional AIRs”), pursuant to which each
                investor had the right to purchase detachable units consisting of
                (i)
                Debentures in principal amount equal to the principal amount of A2
                AIR
                Debentures issuable to each investor upon the A2 AIR Exercise with
                a
                conversion price of $0.82 (the “A2 Additional AIR Debentures”) and (ii)
                additional warrants entitling the holder thereof to purchase a number
                of
                shares of our common stock equal to 100% of the shares of common
                stock
                issuable upon the conversion in full of the A2 Additional AIR Debentures
                at an $0.82 conversion price (subject to adjustment as set forth
                therein)
                (without regard to any restrictions on conversion therein contained)
                at an
                exercise price of $0.82.





With
      the
      exception of A2 AIR Debenture held by Omicron, the A2 AIR Debentures have since
      been fully converted into shares of our common stock. The A2 AIR Debentures
      have
      a term of fifteen months and amortize over thirteen months in thirteen equal
      monthly installments beginning on the first day of the third month following
      their issuance. Interest on the principal amount outstanding accrues at a rate
      of 6% per annum. We may pay principal and accrued interest in cash or, at our
      option, in shares of our common stock. If we elect to pay principal and interest
      in shares of our common stock, the value of each share of common stock will
      be
      equal to the lesser of (i) the conversion price ($0.60) and (ii) ninety percent
      (90%) of the average of the daily volume weighted average price for the common
      stock for the twenty trading day period immediately preceding the date of
      payment. At the option of the holder of each A2 AIR Debenture, the principal
      amount outstanding under each A2 AIR Debenture is convertible at any time into
      shares of our common stock at a conversion price of $0.60.





Upon
      the
      occurrence of an “Event of Default,” including a default in payment of principal
      or interest (including late fees) which is not cured within three trading days,
      the full principal amount of each A2 AIR Debenture, together with interest
      and
      other amounts owing in respect thereof, to the date of acceleration will become,
      at the holder’s election, due and payable in cash. The aggregate amount payable
      upon an Event of Default shall be equal to the “Mandatory Prepayment Amount.”
The Mandatory Prepayment Amount for any A2 AIR Debentures shall equal the sum
      of
      (i) the greater of: (A) 130% of the principal amount of A2 AIR Debentures to
      be
      prepaid, plus all accrued and unpaid interest thereon, or (B) the principal
      amount of A2 AIR Debentures to be prepaid, plus all other accrued and unpaid
      interest thereof, divided by the conversion price on (x) the date the Mandatory
      Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory
      Prepayment Amount is paid in full, whichever is less, multiplied by the daily
      volume weighted average price of the common stock on (x) the date the Mandatory
      Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory
      Prepayment Amount is paid in full, whichever is greater, and (ii) all other
      amounts, costs, expenses and liquidated damages due in respect of such Second
      AIR Debentures. The interest rate on the A2 AIR Debentures will accrue at the
      rate of 18% per annum, or such lower maximum amount of interest permitted to
      be
      charged under applicable law, beginning five days after the occurrence of any
      Event of Default that results in the acceleration of the A2 AIR Debentures.
      A
      late fee of 18% per annum, or such lower maximum amount of interest permitted
      to
      be charged under applicable law, will accrue on a daily basis on all overdue
      accrued and unpaid interest under the A2 AIR Debentures from the due date to
      the
      date of payment.






37





The
      A2
      AIR Warrants were amended (to abridge the exercise periods) and exercised in
      full in late October 2005 as described below under the caption *Exercise
      of Outstanding AIR Warrants* .
      The A2
      Additional AIRs were amended (to abridge the exercise periods) and exercised
      in
      full in December 2005 as described below under *Omicron’s
      Exercise of Additional AIR* and *Third AIR Exercise Pursuant to Amendment No. 3.*








In
      addition, in connection with the transactions contemplated Amendment No. 2,
      we
      issued to a placement agent (i) 170,732 shares of our common stock in lieu
      of a
      cash fee equal to 7% of the gross proceeds received by us and (ii) warrants
      exercisable into approximately 60,000 shares of our common stock at the same
      exercise price as the Second AIR Warrants.





*Cranshire
      and Omicron Notes and Related Warrants*





We
      entered into a Promissory Note and Agreement with Cranshire on March 28, 2005
      and entered into a Promissory Note and Agreement with Omicron on April 6, 2005
      pursuant to which Cranshire and Omicron loaned us the principal amounts of
      $500,000 and $100,000, respectively (the "Notes"). The outstanding principal
      balances under the Notes and any accrued but unpaid interest thereon was due
      and
      payable on May 15, 2005 to the extent that Cranshire and Omicron had not
      exercised their respective conversion rights under the Notes as described below.
      The Notes were subordinate to our obligations under the Debentures. We were
      obligated to use a portion of the proceeds received from Cranshire to pay two
      of
      the holders (not including Cranshire or Omicron) of the Debentures the full
      amount of the March 1, 2005 monthly amortization payments due under the
      Debentures.





On
      April
      28, 2005, as additional consideration for the loans from Cranshire and Omicron,
      we issued Cranshire a warrant to purchase an aggregate of 1,219,512 shares
      of
      our common stock at a per share price of $0.82 and issued Omicron a warrant
      to
      purchase an aggregate of 243,902 shares of our common stock at a per share
      price
      of $0.82. At the holders’ option, the outstanding principal balance under the
      Notes, together with any accrued but unpaid interest thereon, were convertible
      into shares of our common stock at the conversion/exercise price of $0.82 per
      share.





We
      did
      not pay the outstanding principal balances originally due on May 15, 2005 under
      the Notes. Interest on the outstanding principal balances under the Notes began
      accruing before the maturity date at the rate of 10% per annum. On June 7,
      2005,
      Cranshire and Omicron agreed to extend the interest payment date and the
      maturity date of each of the Notes from May 15, 2005 to July 22, 2005. In
      consideration for the foregoing extension, we contemporaneously issued Cranshire
      a warrant to purchase an aggregate of 1,219,512 shares of our common stock
      at a
      per share price of $0.82 and issued Omicron a warrant to purchase an aggregate
      of 243,902 shares of our common stock at a per share price of $0.82





On
      July
      22, 2005, Cranshire and Omicron agreed to extend the interest payment date
      and
      the maturity date under the Notes from July 22, 2005 to September 20, 2005.
      As
      consideration for the extensions from Cranshire and Omicron, we
      contemporaneously issued on a warrant to Cranshire to purchase an aggregate
      of
      1,219,512 shares of our common stock at a per share price of $0.82 and a warrant
      to Omicron to purchase an aggregate of 243,902 shares of our common stock at
      a
      per share price of $0.82.





On
      September 20, 2005, we did not pay the outstanding principal balances under
      the
      Notes. On October 19, 2005 Cranshire converted outstanding principal and accrued
      interest on its Note ($528,082 in total) into 644,003 shares of our common
      stock. On October 27, 2005 Omicron converted outstanding principal and accrued
      interest on its Note ($105,644 in total) into 128,834 shares of common stock.





In
      October and November 2005, Cranshire exercised the outstanding warrants
      previously issued to it in connection with its Note in respect of which we
      received aggregate proceeds of approximately $3,000,000. On December 9, 2005,
      in
      consideration of such exercises, we issued to Cranshire a five-year warrant
      to
      purchase an aggregate of 1,829,268 shares of our common stock at $1.25 per
      share. On February 28, 2006, Omicron exercised one of its warrants previously
      issued to it in connection with its Note pursuant to which it purchased an
      aggregate of 243,902 shares of our common stock for $200,000. In consideration
      of such exercise, we issued to Omicron a five-year warrant to purchase an
      aggregate of 121,951 shares of our common stock at $3 per share. Prior thereto,
      Omicron has voluntarily exercised all of its other warrants previously issued
      to
      it in connection with its Note for no additional consideration.






38





*Assistance
      Agreement with Eckert Seamans*





On
      March
      30, 2005, we entered into an Assistance Agreement with Eckert Seamans, pursuant
      to which Eckert Seamans advanced us funds in the amount of $325,179 for the
      sole
      purpose of making the interest payment and the monthly redemption payment due
      on
      March 31, 2005 and April 1, 2005, respectively, under the Debentures. Under
      the
      terms of the Assistance Agreement, we agreed to repay such advance without
      interest in three equal installments due on October 1, 2005, November 1, 2005
      and December 1, 2005. We have not paid any of the installments due under the
      Assistance Agreement. Because we did not make the first installment payment
      on
      October 1, 2005 as of that date, all amounts owed to Eckert Seamans became
      payable on demand, and interest on such unpaid amounts began accruing at the
      rate of 8% per annum. Attached financial statements reflect interest accrual
      on
      this advance as of January 31, 2006. We are currently in negotiations with
      Eckert Seamans and are seeking to extend the payment dates or to pay the
      outstanding balance with shares of our common stock. The total interest
      arrearage to date under the Assistance Agreement is approximately
      $22,190.





*Exercise
      of Outstanding Warrants Issued Pursuant to Securities Purchase
      Agreement*





On
      October 20, 2005, in consideration for the exercise of certain outstanding
      warrants previously issued to each of Cranshire and Iroquois in connection
      with
      their purchase of our Debentures pursuant to the Securities Purchase Agreement,
      we issued a five-year warrant to purchase 300,000 shares of our common stock
      to
      Cranshire and a five-year warrant to purchase 609,756 shares of our common
      stock
      to Iroquois, in each case with an exercise price of $1.20 per share. We received
      aggregate proceeds of $1,492,000 in connection with Cranshire’s partial exercise
      of its outstanding warrant to purchase 1,219,512 shares of our common stock
      and
      Iroquois’ full exercise of its outstanding warrant to purchase 1,219,512 shares
      of our common stock.





On
      October 27, 2005, in consideration for the exercise of certain outstanding
      warrants previously issued pursuant to the Securities Purchase Agreement, we
      issued to Cranshire, Omicron and Smithfield five-year warrants to purchase
      an
      aggregate of 1,529,268 shares of our common stock at $1.25 per share. We
      received aggregate proceeds of approximately $2,508,000 in connection with
      their
      exercise of outstanding warrants to purchase shares of our common stock.





*Exercise
      of Outstanding AIR Warrants*





On
      October 26, 2005, we and the holders of the A1 AIR Warrants amended the A1
      AIR
      Warrants pursuant to which we agreed to accelerate the initial exercise dates
      thereof (the 181st day following the date of issuance) in consideration of
      the
      full and immediate exercise by each of the investors of its A1 AIR Warrant
      and
      the delivery to us of a Notice of Exercise in respect thereof on or before
      the
      close of business on October 27, 2005. Each of the investors timely delivered
      the aforementioned Notice of Exercise, satisfying the conditions specified
      in
      each of the A1 AIR Warrant amendments. We received aggregate proceeds of
      approximately $2,000,000 in connection with the investors’ exercise of the A1
      AIR Warrants. In consideration of the investors’ exercise of the A1 AIR
      Warrants, we issued each of the investors a five-year warrant to purchase
      304,878 shares of our common stock at $1.25 per share.





*Omicron’s
      Exercise of Additional AIR*





On
      October 27, 2005, we and Omicron amended the A1 Additional AIR granted to
      Omicron to accelerate the initial exercise date (defined as the 181st day
      following the date of issuance) in consideration of the full and immediate
      exercise by Omicron of its A1 Additional AIR and the delivery to us of a Notice
      of Exercise in respect thereof on or before the close of business on October
      27,
      2005. Omicron timely delivered its Notice of Exercise, satisfying the conditions
      specified in the A1 AIR amendment. In connection with Omicron’s exercise of the
      A1 Additional AIR, we received aggregate proceeds of $500,000. Through its
      exercise of its A1 Additional AIR, Omicron purchased (i) a $500,000 principal
      amount A1 Additional AIR Debenture with a conversion price of $0.82 and (ii)
      A1
      Additional AIR Warrants entitling Omicron to purchase a number of shares of
      our
      common stock equal to 100% of the shares of common stock issuable upon the
      conversion in full of the A1 Additional AIR Debenture at a $0.82 conversion
      price (subject to adjustment as set forth therein) (without regard to any
      restrictions on conversion therein contained) at an exercise price of
      $0.82






39





*Third
      AIR Exercise Pursuant to Amendment No. 3*





On
      December 4, 2005, we and the four accredited investor parties to the Securities
      Purchase Agreement entered into Amendment No. 3 pursuant to which (i) the all
      of
      the investors except Omicron agreed to exercise an aggregate of $1,500,000
      in
      principal amount of the A1 Additional AIRs (Omicron had previously exercised
      its
      A1 Additional AIR as described above), and (ii) all of the investors, including
      Omicron, agreed to exercise an aggregate of $2,000,000 in principal amount
      of
      the A2 Additional AIRs granted to them in connection with Amendment No.
      2.





In
      connection with Amendment No. 3, we and the investors, excluding Omicron, agreed
      to accelerate the initial exercise date of the A1 Additional AIRs (the 181st
      day
      following the date of issuance) in consideration of the full and immediate
      exercise by such investors of their A1 Additional AIRs and the delivery to
      us of
      Notices of Exercise in respect thereof on or before the close of business on
      December 5, 2005. In addition, we and all four of the investors agreed to
      accelerate the initial exercise dates of the A2 Additional AIRs (the 181st
      day
      following the date of issuance) in consideration of the full and immediate
      exercise by the investors of their A2 Additional AIRs and the delivery to us
      of
      Notices of Exercise in respect thereof on or before the close of business on
      December 5, 2005.





Each
      investor timely delivered its Notices of Exercise In connection with the
      exercise of each A1 Additional AIR and each A2 Additional AIR on December 5,
      2005, each investor purchased a $500,000 principal amount Debenture with a
      conversion price of $0.82 (the A1 Additional Debentures and the A2 Additional
      Debentures) and a Warrant entitling the investor to purchase a number of shares
      of our common stock equal to 100% of the shares of common stock issuable upon
      the conversion in full of the A1 Additional AIR Debenture and the A2 Additional
      AIR Debenture (together, the “A1/A2 Additional AIR Debentures”) at a $0.82
      conversion price (subject to adjustment as set forth therein) (without regard
      to
      any restrictions on conversion therein contained) at an exercise price of $0.82
      per share (the A1 Additional AIR Warrants and the A2 Additional AIR Warrants
      (together, the “A1/A2 Additional AIR Warrants”)). Accordingly, we issued to the
      investors A1/A2 Additional AIR Debentures in the aggregate principal amount
      of
      $3,500,000 and A1/A2 Additional AIR Warrants to purchase an aggregate of
      4,268,292 shares of our common stock, exercisable for five years commencing
      six
      months following the issuance thereof. We received proceeds of approximately
      $3,500,000 in connection with the investors’ exercise of their A1 Additional
      AIRs and their A2 Additional AIRS.





With
      the
      exception of the A1/Ad Additional AIR Debenture held by Omicron, the A1/A2
      Additional AIR Debentures have since been fully converted into shares of our
      common stock. The A1/A2 Additional AIR Debentures have a term of fifteen months
      and amortize over thirteen months in thirteen equal monthly installments
      beginning on the first day of the third month following their issuance. Interest
      on the principal amount outstanding accrues at a rate of 6% per annum. We may
      pay principal and accrued interest in cash or, at our option, in shares of
      our
      common stock. If we elect to pay principal and interest in shares of our common
      stock, the value of each share of common stock will be equal to the lesser
      of
      (i) $0.82 and (ii) ninety percent (90%) of the average of the daily volume
      weighted average price for the common stock over the twenty trading day period
      immediately preceding the date of payment. At the option of the holder of each
      A1/A2 Additional AIR Debenture, the principal amount outstanding under each
      A1/A2 Additional AIR Debenture is convertible at any time into shares of our
      common stock at a conversion price of $0.82.





Upon
      the
      occurrence of an “Event of Default,” including a default in payment of principal
      or interest (including late fees) which is not cured within three trading days,
      the full principal amount of each A1/A2 Additional AIR Debenture, together
      with
      interest and other amounts owing in respect thereof, to the date of acceleration
      will become, at the holder’s election, due and payable in cash. The aggregate
      amount payable upon an Event of Default shall be equal to the “Mandatory
      Prepayment Amount.” The Mandatory Prepayment Amount for any A1/A2 Additional AIR
      Debentures shall equal the sum of (i) the greater of: (A) 130% of the principal
      amount of A1/A2 Additional AIR Debentures to be prepaid, plus all accrued and
      unpaid interest thereon, or (B) the principal amount of A1/A2 Additional AIR
      Debentures to be prepaid, plus all other accrued and unpaid interest thereof,
      divided by the conversion price on (x) the date the Mandatory Prepayment Amount
      is demanded or otherwise due or (y) the date the Mandatory Prepayment Amount
      is
      paid in full, whichever is less, multiplied by the daily volume weighted average
      price of the common stock on (x) the date the Mandatory Prepayment Amount is
      demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is
      paid in full, whichever is greater, and (ii) all other amounts, costs, expenses
      and liquidated damages due in respect of such A1/A2 Additional AIR Debentures.
      The interest rate on the A1/A2 Additional AIR Debentures will accrue at the
      rate
      of 18% per annum, or such lower maximum amount of interest permitted to be
      charged under applicable law, beginning five days after the occurrence of any
      Event of Default that results in the acceleration of the A1/A2 Additional AIR
      Debentures. A late fee of 18% per annum, or such lower maximum amount of
      interest permitted to be charged under applicable law, will accrue on a daily
      basis on all overdue accrued and unpaid interest under the A1/A2 Additional
      AIR
      Debentures from the due date to the date of payment.







40







In
      addition, in consideration of each investor’s exercise of its A1 Additional AIRs
      and its A2 Additional AIRs, including Omicron’s October 2005 exercise of its A1
      Additional AIR, we granted to each investor an additional investment right
      (the
“A3 Additional AIRs”) pursuant to which each investor had the right to purchase
      detachable units consisting of (a) Debentures in principal amount of $1,000,000
      with a conversion price of $1.25 per share (the “A3 Additional AIR Debentures”)
      and (b) warrants entitling the holder thereof to purchase a number of shares
      of
      our common stock equal to 100% of the shares of common stock issuable upon
      the
      conversion in full of the A3 Additional AIR Debentures at a $1.25 conversion
      price (subject to adjustment as set forth therein) (without regard to any
      restrictions on conversion therein contained) at an exercise price of $1.25
      per
      share.





In
      addition, in connection with the transactions contemplated by Amendment No.
      3
      and Omicron’s October 2005 exercise of its A1 Additional AIR, we paid to a
      placement agent (i) 224,000 shares of our common stock in lieu of a $280,000
      cash fee (7% of the gross proceeds received by us) and (ii) warrants exercisable
      into 105,000 shares of common stock at the same exercise price as the A1/A2
      Additional AIR Warrants. These shares were also registered for
      resale.





The
      A1/A2
      Additional AIR Warrants were amended (to abridge the exercise periods) and
      exercised in full in late December 2005 as described below under the caption *January
      2006 Acceleration and Exercise of AIR Warrants* .
      The A3
      Additional AIRs were amended (to abridge the exercise periods) and exercised
      in
      full in December 2005 as described below under *Fourth
      AIR Exercise Pursuant to Amendment No. 4.*





*Exercise
      of Warrants in December 2005.*





On
      December 9, 2005, in consideration for the exercise of certain outstanding
      warrants previously issued in connection with its Note, we issued to Cranshire
      five-year warrants to purchase an aggregate of 1,829,268 shares of our common
      stock at $1.25 per share. We received aggregate proceeds of approximately
      $3,000,000 in connection with the warrant exercise





*Fourth
      AIR Exercise Pursuant to Amendment No. 4*





On
      January 19, 2006, we and each of the investors entered into Amendment No. 4
      to
      the Securities Purchase Agreement and Registration Rights Agreement (“Amendment
      No. 4”), pursuant to which the investors agreed to exercise an aggregate of
      $4,000,000 in principal amount of the A3 Additional AIRs (being the full amount
      thereof). Pursuant to each such A3 Additional AIR, each Investor had the right
      to purchase detachable units consisting of (a) an A3 Additional AIR Debenture
      in
      principal amount of $1,000,000 with a conversion price of $1.25 and (b) an
      A3
      Additional AIR Warrant entitling the holder thereof to purchase a number of
      shares of the Company’s common stock equal to 100% of the shares of common stock
      issuable upon the conversion in full of the A3 additional AIR Debenture at
      a
      $1.25 conversion price (subject to adjustment as set forth therein) (without
      regard to any restrictions on conversion therein contained) at an exercise
      price
      of $1.25 per share.






41





Pursuant
      to Amendment No. 4, we amended the terms of the A3 Additional AIRs to accelerate
      the initial exercise dates thereof to January 19, 2006 and to reduce the
      conversion price from $1.25 to $1.05 in consideration of their full and
      immediate exercise by the investors.





Accordingly,
      we issued to the investors A3 Additional AIR Debentures in the aggregate amount
      of $4,000,000 and A3 Additional AIR Warrants to purchase an aggregate of
      3,809,524 shares of our common stock, exercisable for five years commencing
      six
      months following the issuance thereof. Under the terms of Amendment No. 4,
      the
      reduction in the conversion price of the A3 Additional AIR Debentures and the
      exercise price of the A3 Additional AIR Warrants did not trigger any
      anti-dilution adjustments to any outstanding securities held by the investors.





We
      received proceeds of approximately $4,000,000 in connection with the investors’
exercise of their A3 Additional AIRs.





With
      the
      exception of of the A3 Additional AIR Debenture held by Omicron, the A3
      Additional AIR Debentures have since been fully converted into shares of our
      common stock. The A3 Additional AIR Debentures have a term of fifteen months
      and
      amortize over thirteen months in thirteen equal monthly installments beginning
      on the first day of the third month following their issuance. Interest on the
      principal amount outstanding accrues at a rate of 6% per annum. We may pay
      principal and accrued interest in cash or, at our option, in shares of our
      common stock. If the we elect to pay principal and interest in shares of our
      common stock, the value of each share of common stock will be equal to the
      lesser of (i) $1.05 and (ii) ninety percent (90%) of the average of the daily
      volume weighted average price for the common stock over the twenty trading
      day
      period immediately preceding the date of payment. At the option of the holder
      of
      each A3 Additional AIR Debenture, the principal amount outstanding under each
      A3
      AdditionalAIR Debenture is convertible at any time into shares of the our common
      stock at a conversion price of $1.05.





Upon
      the
      occurrence of an “Event of Default,” including a default in payment of principal
      or interest (including late fees) which is not cured within three trading days,
      the full principal amount of each A3 Additional AIR Debenture, together with
      interest and other amounts owing in respect thereof, to the date of acceleration
      will become, at the holder’s election, due and payable in cash. The aggregate
      amount payable upon an Event of Default shall be equal to the “Mandatory
      Prepayment Amount.” The Mandatory Prepayment Amount for any A3 Additional AIR
      Debentures shall equal the sum of (i) the greater of: (A) 130% of the principal
      amount of A3 Additional AIR Debentures to be prepaid, plus all accrued and
      unpaid interest thereon, or (B) the principal amount of A3 Additional AIR
      Debentures to be prepaid, plus all other accrued and unpaid interest thereof,
      divided by the conversion price on (x) the date the Mandatory Prepayment Amount
      is demanded or otherwise due or (y) the date the Mandatory Prepayment Amount
      is
      paid in full, whichever is less, multiplied by the daily volume weighted average
      price of the common stock on (x) the date the Mandatory Prepayment Amount is
      demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is
      paid in full, whichever is greater, and (ii) all other amounts, costs, expenses
      and liquidated damages due in respect of such A3 Additional AIR Debentures.
      The
      interest rate on the A3 Additional AIR Debentures will accrue at the rate of
      18%
      per annum, or such lower maximum amount of interest permitted to be charged
      under applicable law, beginning five days after the occurrence of any Event
      of
      Default that results in the acceleration of the A3 Additional AIR Debentures.
      A
      late fee of 18% per annum, or such lower maximum amount of interest permitted
      to
      be charged under applicable law, will accrue on a daily basis on all overdue
      accrued and unpaid interest under the A3 Additional AIR Debentures from the
      due
      date to the date of payment. The conversion price of the A3 Additional AIR
      Debentures is subject to an anti-dilution adjustment upon the issuance by us
      of
      securities at a price per share less than the then conversion
      price.





In
      addition, in consideration of each investor’s exercise of its A3 Additional AIR,
      we granted to each investor a further additional investment right (the “A4
      Additional AIR”) pursuant to which each investor had the right to purchase
      detachable units consisting of (a) a Debenture in principal amount of $1,000,000
      with a conversion price of $1.25 (the “A4 Additional AIR Debenture” and (b) a
      warrant entitling the holder thereof to purchase a number of shares of our
      common stock equal to 100% of the shares of common stock issuable upon the
      conversion in full of the A4 Additional AIR Debenture at a $1.25 conversion
      price (subject to adjustment as set forth therein) (without regard to any
      restrictions on conversion therein contained) at an exercise price of $1.25
      per
      share (the “A4 Additional AIR Warrants”).






42





Under
      the
      terms of Amendment No. 4, we also agreed to register for resale the securities
      issuable upon conversion/exercise of the A4 Additional AIR Debentures and the
      A4
      Additional AIR Warrants, consistent with the investors’ existing registration
      rights under the Registration Rights Agreement. We agreed to register such
      securities on the Registration Statement contemplated by Amendment No. 3. The
      Registration Statement became effective on February 24, 2006.





In
      addition, in connection with the transactions contemplated by Amendment No.
      4,
      the Company issued to a placement agent (i) 266,667 shares of common stock
      in
      lieu of a cash fee equal to 7% of the gross proceeds received by the Company
      and
      (ii) warrants exercisable into approximately 120,000 shares of common stock
      at
      the same exercise price as the AIR Warrants. These shares were registered for
      resale in the registration statement which became effective on February 24,
      2006.





*January
      2006 Acceleration and Exercise of AIR Warrants*





On
      January 23, 2006, we agreed with the investors to amend the terms of certain
      outstanding warrants to purchase common stock (“January Exercise Warrants”) to
      accelerate their exercise dates to January 23, 2006. The January Exercise
      Warrants consisted of warrants for an aggregate of 2,439,024 **** shares
      issued in connection with Amendment No. 2 (initially exercisable on March 8,
      2006) and warrants for an aggregate of 4,878,048 shares issued in connection
      with Amendment No. 3 (initially exercisable beginning June 5, 2006). The
      investors agreed to immediately exercise 100% of these warrants (for aggregate
      gross proceeds to the Company of $6,000,000) in exchange for (a) the
      acceleration of the exercise period , and (b) the issuance of additional
      warrants equal to 50% of the shares issuable upon exercise of the January
      Exercise Warrants (an aggregate of 3,658,536 shares) (the “January Inducement
      Warrants”). The January Inducement Warrants have an exercise price of $1.60 per
      share and will be exercisable for a period of five years commencing six months
      from the date of issuance. The exercise price is subject to an anti-dilution
      adjustment upon the issuance by us of securities at a price per share less
      than
      the then exercise price. If, at any time after the first anniversary of the
      date
      of issuance of the January Inducement Warrants, there is no effective
      registration statement registering for resale the shares of common stock into
      which the warrants are exercisable, each holder may exercise its warrant through
      a cashless exercise. The January Inducement Warrants are included in a
      Registration Statement declared effective February 24, 2006. The number of
      shares to be issued upon a cashless exercise will be equal to the quotient
      resulting from the following calculation: [(the VWAP on the trading day
      immediately preceding the date of such election less the exercise price, as
      adjusted) multiplied by the number of shares issuable upon exercise of the
      warrant by means of a cash exercise] divided by the VWAP on the trading day
      immediately preceding the date of such election. Each holder has agreed that
      it
      will not exercise its warrant if such exercise would cause the holder, together
      with its respective affiliates, to beneficially own more than 4.99% of our
      common stock then outstanding.





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.





**Going
      Concern Uncertainty**





In
      their
      audit opinion issued in connection with our consolidated balance sheet as of
      July 31, 2005 and our consolidated statements of operation, stockholders’ equity
      and cash flows for the year then ended and for the period from November 2,
      1995
      (date of inception) to July 31, 2005, our auditors expressed substantial doubt
      about our ability to continue as a going concern given our recurring net losses,
      negative cash flows from operations and working capital deficiency.






43





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the satisfaction of liabilities
      and commitments in the normal course of business. We have experienced negative
      cash flows from operations since inception and had an accumulated deficit at
      January 31, 2006 of approximately $143,931,923. We have funded our activities
      to
      date almost exclusively from debt and equity financings.





We
      are in
      the development stage and have realized minimal revenues to date. We will
      continue to require substantial funds to continue research and development,
      including preclinical studies and clinical trials of our product candidates,
      and
      to commence sales and marketing efforts, if the FDA or other regulatory
      approvals are obtained. Management’s plans in order to meet our operating cash
      flow requirements include financing activities such as private placements of
      our
      common stock, preferred stock offerings, debt and convertible debt instruments.
      Management is also actively pursuing industry collaboration activities,
      including product licensing and specific project financing.





While
      we
      believe that we will be successful in obtaining the necessary financing to
      fund
      our operations, there are no assurances that such additional funding will be
      achieved and that we will succeed in our future operations. The financial
      statements do not include any adjustments relating to the recoverability and
      classification of recorded asset amounts or amounts of liabilities that might
      be
      necessary should we be unable to continue in existence.





**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.





**Off-Balance
      Sheet Arrangements**





We
      have
      no off-balance sheet arrangements that have or are reasonably likely to have
      a
      current or future effect on the Company’s financial condition, changes in
      financial condition, revenue or expenses, results of operations, liquidity
      capital expenditures or capital resources that is material to investors, and
      the
      Company does not have any non-consolidated special purpose
      entities.






44





**Contractual
      Obligations**





**Payments
                Due by Period****Contractual
                Obligations**
            **Total**
            **Less
                than 1**
              **year**
            **1-3
                years**
            **3-5
                years**
            **More
                than**
              **5
                years**Long-Term
                Debt Obligations
            9,515,722
            8,921,973
            593,749
            0
            0Capital
                Lease Obligations
            0
            0
            0
            0
            0Operating
                Lease Obligations
            61,755
            21,626
            30,956
            9,173
            0Purchase
                Obligations
            0
            0
            0
            0
            0Other
                Long-Term Liabilities Reflected on the
              Registrant's
                Balance Sheet under GAAP
            0
            0
            0
            0
            0Total
            $9,577,477
            $8,943,599
            $624,705
            $9,173
            $0





**Related
      Party Transactions**





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. With the exception of our
      arrangement with our management company described below, we do not foresee
      a
      need for, and therefore do not anticipate, any related party transactions in
      the
      current fiscal year.





We
      utilize a management company to manage all of our real properties. The property
      management company is owned by Anna Gluskin, Rose Perri, our Chief Operating
      Officer, Chief Financial Officer, Treasurer and Secretary, and the estate of
      Mark Perri, our former Chairman of the Board. In the fiscal quarters ended
      January 31, 2006 and 2005, we paid the management company approximately $11,000
      and $8,600, respectively, in management fees.





**New
      Accounting Pronouncements**





In
      December 2004, the FASB issued Statement of Financial Accounting Standards
      No.
      123(R), "Share-Based Payment" ("SFAS 123(R)"), which requires all companies
      to
      measure compensation cost for all share-based payments (including employee
      stock
      options) at fair value and to recognize cost over the vesting period. In March
      2005, the SEC released SEC Staff Accounting Bulletin No. 107, "Share-Based
      Payment" ("SAB 107"). SAB 107 provides the SEC staff position regarding the
      application of SFAS 123(R), including interpretive guidance related to the
      interaction between SFAS 123(R) and certain SEC rules and regulations, and
      provides the staff's views regarding the valuation of share-based payment
      arrangements for public companies. SAB 107 highlights the importance of
      disclosures made related to the accounting for share-based payment transactions.
      In April 2005, the SEC announced that companies may implement SFAS 123(R) at
      the
      beginning of their next fiscal year beginning after June 15, 2005, or December
      15, 2005 for small business issuers. The Company implemented the provisions
      of
      SFAS 123(R) and SAB 107 in the first quarter of fiscal 2006 using the
      modified-prospective method, and it did not have a material impact on our
      financial position or cash flows. See Note 3 - "Stock Based Compensation" for
      further information and the required disclosures under SFAS 123(R) and SAB
      107,
      including the impact of the implementation on our results of
      operations.





In
      December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
      -
      an amendment of APB Opinion No. 29." The statement addresses the measurement
      of
      exchanges of nonmonetary assets and eliminates the exception from fair value
      measurement for nonmonetary exchanges of similar productive assets and replaces
      it with an exception for exchanges that do not have commercial substance. SFAS
      No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods
      beginning after June 15, 2005. This adoption of this statement did not have
      a
      significant impact on our consolidated results of operations or our financial
      position.






45





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.”
This statement replaces APB No. 20 and SFAS No. 3 and changes the requirements
      for the accounting for and reporting of a change in accounting principle. APB
      No. 20 previously required that most voluntary changes in accounting principle
      be recognized by including in net income of the period of the change the
      cumulative effect of changing to the accounting principle. SFAS No. 154 requires
      retrospective application to prior periods’ financial statements of voluntary
      changes in accounting principle. SFAS No. 154 is effective for accounting
      changes and corrections of errors made in fiscal years beginning after December
      15, 2005. We are currently evaluating the impact of adopting this
      statement.





In
      February 2006, the FASB issued SFAS No. 155,”Accounting for Certain Hybrid
      Financial Instruments - an amendment of FASB Statements No. 133 and 140,” to
      simplify and make more consistent the accounting for certain financial
      instruments. Specifically, SFAS No. 155 amends SFAS No. 133, Accounting for
      Derivative Instruments and Hedging Activities, to permit fair value
      remeasurement for any hybrid financial instrument with an embedded derivative
      that otherwise would require bifurcation, provided that the whole instrument
      is
      accounted for on a fair value basis. SFAS No. 155 amends SFAS No. 140,
      Accounting for the Impairment or Disposal of Long-Lived Assets, to allow a
      qualifying special-purpose entity (SPE) to hold a derivative financial
      instrument that pertains to a beneficial interest other than another derivative
      financial instrument. SFAS No. 155 applies to all financial instruments acquired
      or issued after the beginning of an entity’s first fiscal year that begins after
      September 15, 2006, with earlier application allowed. The
      Company does not expect that the adoption of SFAS No. 155 will have a
      significant impact on the consolidated results of operations or financial
      position of the Company.








**Risk
      Factors**





In
      addition to historical facts or statements of current condition, this Quarterly
      Report on Form 10-Q 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
      Quarterly Report on Form 10-Q.





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 sufficient revenues to support our operation in the immediately
      foreseeable future. We do expect to receive some revenue from the sale of our
      oral insulin product in Ecuador in fiscal 2006. To date, we have not been
      profitable and our accumulated net loss was $143,931,923 at January 31, 2006.
      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.





With
      the
      exception of our oral insulin formulation which was approved for commercial
      sale
      in Ecuador in early May 2005, 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.






46





*We
      need additional capital.*





To
      progress in product development, production, marketing, and distribution 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:





Ÿ
            to
                proceed with the development of our buccal insulin product;





Ÿ
            to
                develop other buccal and immunomedicine products;





Ÿ
            to
                develop new products based on our buccal delivery and immunomedicine
                technologies, including clinical testing relating to new products;





Ÿ
            to
                develop or acquire other technologies or other lines of business;





Ÿ
            to
                establish and expand our manufacturing capabilities;





Ÿ
            to
                finance general and administrative and research activities that are
                not
                related to specific products under development;





Ÿ
            to
                finance the research and development activities of our subsidiary
                Antigen;
                and





Ÿ
            to
                otherwise carry on business.





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 12 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 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.





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.





*Our
      independent auditors have expressed substantial doubt about our ability to
      continue as a going concern.*





In
      their
      audit opinion issued in connection with our consolidated balance sheet as of
      July 31, 2005 and our consolidated statements of operations, stockholders’
equity and cash flows for the year then ended and for the period from November
      2, 1995 (date of inception) to July 31, 2005, our auditors have expressed a
      substantial doubt about our ability to continue as a going concern given our
      recurring net losses, negative cash flows from operations and working capital
      deficiency.





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the satisfaction of liabilities
      and commitments in the normal course of business. The financial statements
      do
      not include any adjustments relating to the recoverability and classification
      of
      recorded asset amounts or amounts of liabilities that might be necessary should
      we be unable to continue in existence.






47





*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 may 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





*With
      the exceptions of Generex Oral-lynTM and Glucose RapidSprayTM, our technologies
      and products are at an early stage of development and we cannot expect revenues
      in respect thereof in the foreseeable future.*





With
      the
      exception of Generex Oral-lynTM, our proprietary oral insulin spray formulation
      which has been approved for commercial marketing and sale in Ecuador for the
      treatment of Type-1 and Type-2 diabetes, and Glucose RapidSprayTM, an
      over-the-counter confectionary, we have no products approved for commercial
      sale
      at the present time. To be profitable, we must not only successfully research,
      develop and obtain regulatory approval for our products under development,
      but
      also manufacture, introduce, market and distribute them once development is
      completed. We may not be successful in one or more of these stages of the
      development or commercialization of our products, and/or any of the products
      we
      develop may not be commercially viable.





While
      over 1,100 patients with diabetes have been dosed with our oral insulin
      formulation at approved facilities in seven countries, our insulin product
      has
      only recently been approved for marketing in Ecuador. Until we can manufacture,
      market and distribute our oral insulin product in Ecuador and can establish
      that
      it is a commercially viable product, we will not receive revenues from ongoing
      operations.





*Until
      we receive regulatory approval to sell our products in one or more countries
      other than Ecuador, our ability to generate revenues from operations may be
      limited and those revenues may be insufficient to sustain operations. Many
      factors impact our ability to obtain approvals for commercially viable
      products.*





Only
      one
      of our products has been approved for commercial sale by drug regulatory
      authorities, and that approval was obtained in Ecuador. We have begun the
      regulatory approval process for our oral insulin formulation, buccal morphine
      product in other countries. Our immunomedicine products are in the pre-clinical
      stage of development, with the exception of our Phase 1 trial in human patients
      with stage II HER-2/neu positive breast cancer.






48





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 in any country other than Ecuador.





In
      addition, we cannot be sure when or if we will be permitted by regulatory
      agencies to undertake additional clinical trials or to commence any particular
      phase of clinical trials. Because of this, statements in this Quarterly Report
      on Form 10-Q regarding the expected timing of clinical trials cannot be regarded
      as actual predictions of when we will obtain regulatory approval for any "phase"
      of clinical trials.





Delays
      in
      obtaining United States or other 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 in any country other than Ecuador, 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 the Company 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.





Risks
      Related to Marketing of Our Potential Products





*We
      may not become, or stay, profitable even if our products are approved for
      sale.*






49





Even
      if
      we obtain regulatory approval to market our oral insulin product or any other
      product candidate in another country other than Ecuador, many factors may
      prevent the product from ever being sold in commercial quantities. Some of
      these
      factors are beyond our control, such as:





Ÿ
            acceptance
                of the formulation or treatment by health care professionals and
                diabetic
                patients;





Ÿ
            the
                availability, effectiveness and relative cost of alternative diabetes
                or
                immunomedicine treatments that may be developed by competitors; and





Ÿ
            the
                availability of third-party (i.e., insurer and governmental agency)
                reimbursements.





We
      will
      not receive revenues from our oral insulin formulation in Ecuador or any of
      our
      other products that may receive regulatory approval until we can successfully
      manufacture, market and distribute them in the relevant market.





We
      will
      have to depend upon others for marketing and distribution of our products,
      including Generex Oral-lynTM in Ecuador, 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.





*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.





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. Some 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.





In
      January, 2006, the FDA approved Pfizer, Inc.’s inhalable form of insulin, the
      first non-injected insulin to be approved by the FDA. Pfizer’s product in
      inhaled through the mouth and absorbed in the lungs. While we believe that
      absorption though the buccal cavity offers several advantages over absorption
      through the lungs, Pfizer’s early approval could allow it to capture a large
      portion of the market.





*If
      government programs and insurance companies do not agree to pay for or reimburse
      patients for our products, our success will be impacted.*





Sales
      of
      our oral insulin formulation in Ecuador and our potential products in other
      markets depend in part on the availability of reimbursement by third-party
      payers such as government health administration authorities, private health
      insurers and other organizations. Third-party payers often challenge the price
      and cost-effectiveness of medical products and services. Governmental approval
      of health care products does not guarantee that these third-party payers will
      pay for the products. Even if third-party payers 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.






50





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.








Risks
      Related to the Market for Our Common Stock





*Our
      common stock could be delisted from The Nasdaq Capital Market.*





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 Capital Market. The Nasdaq
      Capital 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. As a result, on November 19, 2004, we received notice
      from
      The Nasdaq Stock Market informing us that we do not comply with Marketplace
      Rule
      4310(c)(2)(B), which requires us to have a minimum of $2,500,000 in
      stockholders' equity or $35,000,000 market value of listed securities or
      $500,000 of net income from continuing operations for the most recently
      completed fiscal year or two of the three most recently completed fiscal years.
      On December 22, 2004, all outstanding shares of our Series A Convertible
      Preferred Stock were converted to common stock, resulting in the elimination
      of
      approximately $14,300,000 of mezzanine equity and an equal amount was added
      to
      additional paid-in capital attributable to the common stock, increasing
      stockholders' equity by that amount. Based on this, the delisting proceeding
      relating to failure to meet stockholders’ equity standards was terminated.
      Because we are still in the development stage, there is no guarantee that we
      will sustain compliance with this standard. In the event we cannot sustain
      compliance, our shares of common stock may be delisted from The Nasdaq Capital
      Market and begin trading on the over-the-counter bulletin board.





In
      addition, for continued listing on both The Nasdaq National Market and Capital
      Market, our stock price must be at least $1.00. From October of 2004 until
      October 2005, our stock price traded below this minimum per share requirement
      for thirty (30) or more consecutive business days. As a result, on November
      24,
      2004, we received notice from The Nasdaq Stock Market informing us that we
      did
      not comply with Market Rule 4310(c)(4), which requires us to have a minimum
      bid
      price per share of at least $1.00 for thirty (30) consecutive business days.
      We
      had 180 calendar days, or until May 23, 2005, subject to extension by The Nasdaq
      Stock Market under certain circumstances, to regain compliance with the
      Rule.





On
      May
      25, 2005, we received notice from the Staff of The Nasdaq Stock Market informing
      us that, during the 180 calendar day period ending May 23, 2005, we had not
      regained compliance with Marketplace Rule 4310(c)(4); however, the Staff noted
      that on May 23, 2005, we met all initial inclusion criteria for the Capital
      Market set forth in Marketplace Rule 4310(c), except for bid price. Therefore,
      in accordance with Marketplace Rule 4310(c)(8)(D), we had an additional 180
      calendar days to regain compliance with Rule 4310(c)(4).






51





On
      November 14, 2005, we received written confirmation from The Nasdaq Stock Market
      that we achieved compliance with the continued listing requirements in
      accordance with the minimum bid price requirement under Nasdaq Marketplace
      Rule
      4310(c)(4).





Although
      we have regained compliance with the minimum bid price requirement, there is
      no
      guarantee that the bid price of our common stock will remain at or above $1.00
      per share. In the event that the price of our common stock falls below $1.00
      per
      share for thirty (30) consecutive business days, we would likely receive a
      notice from The Nasdaq Stock Market informing us of our noncompliance with
      Market Rule 4310(c)(4) and giving us 180 calendar days, subject to extension,
      to
      regain compliance with the Rule. In the event that we could not demonstrate
      compliance with Marketplace Rule 4310(c)(4) by the specified deadline and were
      not eligible for an additional compliance period, the Staff would notify us
      that
      our stock would be delisted, at which time we could appeal the Staff’s
      determination to a Listing Qualifications Panel. Pending the decision of the
      Listing Qualification Panel, our common stock would continue to trade on the
      Capital Market. If we were not successful in such an appeal, our stock would
      likely trade on NASDAQ’s over-the-counter bulletin board, assuming we meet the
      requisite criteria.





*If
      we
      fail to maintain compliance with applicable Nasdaq Marketplace Rules and our
      stock is delisted from the NASDAQ Capital Market, it may become subject to
      Penny
      Stock Regulations and 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.





*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:





Ÿ
            announcements
                of research activities and technology innovations or new products
                by us or
                our competitors;





Ÿ
            changes
                in market valuation of companies in our industry generally;





Ÿ
            variations
                in operating results;





Ÿ
            changes
                in governmental regulations;





Ÿ
            developments
                in patent and other proprietary rights;





Ÿ
            public
                concern as to the safety of drugs or treatments developed by us or
                others;





Ÿ
            results
                of clinical trials of our products or our competitors' products;
                and





Ÿ
            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.






52





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, a former officer and director of
      Generex, 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.





**Item
      3. 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
      January 31, 2005, we have fixed rate debt totaling $3,415,426. This amount
      consists of the following:








Loan
                Amount
            Interest
                Rate per Annum$807,393
            5.8%$428,021
            4.913%$265,379
            4.924%$644,779
            6.85%$348,520
            8.5%$206,868
            10%$435,650
            11.5%$278,816
            16.5%$3,415,426
            *Total*





These
      debt instruments mature from February 2006 through November 2008 As our fixed
      rate debt instruments mature, we will likely refinance such debt at the existing
      market interest rates which may be more or less than interest rates on the
      maturing debt. Since 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
      neither issued nor 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.





**Item
      4. Controls and Procedures.**






53





*Evaluation
      of disclosure 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 Quarterly Report on Form 10-Q, our chief executive officer and chief
      financial officer have concluded that our disclosure controls and procedures
      (as
      defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities
      Exchange Act of 1934, as amended (the "Exchange Act")) are effective to ensure
      that information required to be disclosed by us in the reports that we file
      or
      submit under the Exchange Act is recorded, processed, summarized and reported
      within the time periods specified in the SEC’s rules and forms.





*Changes
      in internal control over financial reporting*





There
      was
      no change in our internal control over financial reporting (as defined in Rules
      13a-15(f) and 15(d)-15(f) under the Exchange Act) during the period covered
      by
      this Quarterly Report on Form 10-Q that has materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting.






54





**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings.**





None.





**Item
      1A. Risk Factors**








**Item.
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.**





*Unregistered
      Sales of Equity Securities*





In
      the
      fiscal quarter ended January 31, 2006, we sold common stock, warrants,
      convertible debentures and additional investment rights in the amounts and
      to
      the purchasers described above in this Quarterly Report under *Part
      I -*  *Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations- Financial Condition, Liquidity and Resources* .
      We
      undertook the offer and sale of these securities in reliance upon Rule 506
      of
      Regulation D and Section 18(b)(4)(D) of the Securities Act of 1933, as amended.





*Issuer
      Purchases of Equity Securities*





Neither
      we nor any affiliated purchaser (as defined in Section 240.10 b-18(a)(3) of
      the
      Exchange Act) purchased any of our equity securities during the fiscal quarter
      ended October 31, 2005.





**Item
      3. Defaults Upon Senior Securities.**





On
      September 20, 2005, we did not pay the outstanding principal balances under
      the
      $500,000 convertible promissory note entered into with Cranshire on March 28,
      2005 and the $100,000 convertible promissory note entered into with Omicron
      on
      April 6, 2005. On October 19, 2005 Cranshire converted outstanding principal
      and
      accrued interest on its note ($528,082 in total) into 644,003 shares of our
      common stock. On October 27, 2005 Omicron converted outstanding principal and
      accrued interest on its note ($105,644 in total) into 128,834 shares of common
      stock. Terms and conditions of the notes are described in this Quarterly Report
      on Form 10-Q above under the caption *Financial
      Condition, Liquidity and Resources* of *Part
      I - Item 2. Management’s Discussion and Analysis of Financial Condition and
      Results of Operations* .





Under
      the
      terms of an Assistance Agreement with Eckert Seamans Cherin & Mellott, LLC,
      , we agreed to repay an advance of $325,179 without interest in three equal
      installments due on October 1, 2005, November 1, 2005 and December 1, 2005.
      We
      have not paid any of the installments due under the Assistance Agreement.
      Because we did not make the first installment payment on October 1, 2005 as
      of
      that date, all amounts owed to Eckert Seamans became payable on demand, and
      interest on such unpaid amounts began accruing at the rate of 8% per annum.
      The
      attached financial statements reflect interest accrual on this advance as of
      January 31, 2006. We are currently in negotiations with Eckert Seamans and
      are
      seeking to extend the payment dates or to pay the outstanding balance with
      shares of our common stock. The total interest arrearage to date under the
      Assistance Agreement is approximately $22,190.The terms and conditions of the
      Assistance Agreement with Eckert Seamans, are described in this Quarterly Report
      on Form 10-Q above under the caption *Financial
      Condition, Liquidity and Resources* of *Part
      I - Item 2. Management’s Discussion and Analysis of Financial Condition and
      Results of Operations* .





**Item
      4. Submission of Matters to a Vote of Security Holders.**





None.





**Item
      5. Other Information.**






55





The
      disclosures set forth under *Part
      II - Item 2. Unregistered Sales of Equity Securities and Use of
      Proceeds* and *Part
      II - Item 3. Defaults Upon Senior Securities* are
      incorporated herein by reference.





**Item
      6. Exhibits.**




**Exhibit****Number**
              **________**
            
            **Description
                  of Exhibit****(1)**
                **_____________________**2
            
            Agreement
                and Plan of Merger among Generex Biotechnology Corporation, Antigen
                Express, Inc. and AGEXP Acquisition Inc. (incorporated by reference
                to
                Exhibit 2.1 to Generex Biotechnology Corporation’s Current Report on Form
                8-K filed on August 15, 2003)3(I)
            
            Restated
                Certificate of Incorporation of Generex Biotechnology Corporation,
                as
                amended (incorporated by reference to Exhibit 3.1 to Generex Biotechnology
                Corporation’s Report on Form 10-Q filed on March 15,
                2004)3(II)
            
            Bylaws
                of Generex Biotechnology Corporation (incorporated by reference to
                Exhibit
                3.2 to Generex Biotechnology Corporation’s Registration Statement on Form
                S-1 (File No. 333-82667) filed on July 12, 1999)4.1
            
            Form
                of common stock certificate (incorporated by reference to Exhibit
                4.1 to
                Generex Biotechnology Corporation’s Registration Statement on Form S-1
                (File No. 333-82667) filed on July 12, 1999)4.2
            
            Certificate
                of Designations, Preferences and Rights of Series A Preferred Stock
                (incorporated by reference to Exhibit 4.4 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on January 23,
                2001)4.3
            
            Form
                of Warrant issued to Ladenburg Thalmann & Co., Inc. dated July 6, 2001
                (incorporated by reference to Exhibit 4.15 to Generex Biotechnology
                Corporation’s Registration Statement on Form S-3 (File No. 333-67118)
                filed on August 8, 2001)4.4
            
            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 (incorporated by reference to Exhibit
                3 to
                Generex Biotechnology Corporation’s Report on Form 8-K filed on July 17,
                2001)4.5
            
            Warrant
                granted to Capital Ventures International, dated July 3, 2001
                (incorporated by reference to Exhibit 6 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on July 17,
                2001)4.6
            
            Warrant
                issued to Elliott International, L.P. and Elliott Associates, L.P.,
                dated
                July 5, 2001 (incorporated by reference to Exhibit 9 to Generex
                Biotechnology Corporation’s Report on Form 8-K filed on July 17,
                2001)4.7
            
            Form
                of Warrant issued to certain parties to October 2000 Private Placement
                (incorporated by reference to Exhibit 4 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on October 16,
                2000)4.8
            
            Form
                of Warrant (GCR Series) held by Robert P. Carter, Harvey Kaye, Fittube,
                Inc., Edward Maskaly and Gulfstream Capital Group, L.C. (incorporated
                by
                reference to Exhibit 4.4.2 to Generex Biotechnology Corporation’s
                Registration Statement on Form 10 filed on December 14, 1998, as
                amended
                February 24, 1999)4.9
            
            Letter
                Agreement and Warrant with M. H. Meyerson & Co., Inc. dated November
                17, 1998 (incorporated by reference to Exhibit 4.4.4 to Generex
                Biotechnology Corporation’s Registration Statement on Form 10 filed on
                December 14, 1998, as amended February 24,
                1999)






56


**Exhibit****Number**
                **________**
              
              **Description
                    of Exhibit****(1)**
                  **_____________________**


4.10.1
            
            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 (incorporated
                by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 10-Q/A for the quarter ended April 30, 2003 filed on August
                13,
                2003)4.10.2
            
            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 (incorporated
                by
                reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                Form 10-Q/A for the quarter ended April 30, 2003 filed on August
                13,
                2003)4.10.3
            
            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 (incorporated by reference to Exhibit 4.3 to Generex
                Biotechnology Corporation’s Report on Form 10-Q/A for the quarter ended
                April 30, 2003 filed on August 13, 2003)4.10.4
            
            Form
                of Securities Purchase Agreement entered into with Cranshire Capital,
                L.P.
                dated June 6, 2003 (incorporated by reference to Exhibit 4.4 to Generex
                Biotechnology Corporation’s Report on Form 10-Q/A for the quarter ended
                April 30, 2003 filed on August 13, 2003)4.10.5
            
            Form
                of Registration Rights Agreement entered into with Cranshire Capital,
                L.P.
                dated June 6, 2003 (incorporated by reference to Exhibit 4.5 to Generex
                Biotechnology Corporation’s Report on Form 10-Q/A for the quarter ended
                April 30, 2003 filed on August 13, 2003)4.10.6
            
            Form
                of Warrant granted to Cranshire Capital, L.P. dated June 6, 2003
                (incorporated by reference to Exhibit 4.6 to Generex Biotechnology
                Corporation’s Report on Form 10-Q/A for the quarter ended April 30, 2003
                filed on August 13, 2003)4.10.7
            
            Form
                of replacement Warrant issued to warrant holders exercising at reduced
                exercise price in May and June 2003 (incorporated by reference to
                Exhibit
                4.13.7 to Generex Biotechnology Corporation’s Report on Form 10-K for the
                period ended July 31, 2003 filed on October 29, 2003)4.11.1
            
            Securities
                Purchase Agreement, dated December 19, 2003, by and among Generex
                Biotechnology Corporation and the investors named therein (incorporated
                by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K/A filed on March 24, 2004)4.11.2
            
            Registration
                Rights Agreement, dated December 19, 2003, by and among Generex
                Biotechnology Corporation and the investors named therein (incorporated
                by
                reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                Form 8-K/A filed on March 24, 2004)4.11.3
            
            Form
                of Warrant issued in connection with Exhibit 4.11.1 (incorporated
                by
                reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                Form 8-K/A filed on March 24, 2004)4.11.4
            
            Form
                of Additional Investment Right issued in connection with Exhibit
                4.11.1
                (incorporated by reference to Exhibit 4.4 to Generex Biotechnology
                Corporation’s Report on Form 8-K/A filed on March 24,
                2004)






57


**Exhibit****Number**
                **________**
              
              **Description
                    of Exhibit****(1)**
                  **_____________________**


4.12.1
            
            Securities
                Purchase Agreement, dated January 7, 2004, by and between Generex
                Biotechnology Corporation and ICN Capital Limited (incorporated by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.12.2
            
            Registration
                Rights Agreement, dated January 7, 2004, by and between Generex
                Biotechnology Corporation and ICN Capital Limited (incorporated by
                reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.12.3
            
            Warrant
                issued in connection with Exhibit 4.12.1 (incorporated by reference
                to
                Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on March 1, 2004)4.12.4
            
            Additional
                Investment Right issued in connection with Exhibit 4.12.1 (incorporated
                by
                reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.13.1
            
            Securities
                Purchase Agreement, dated January 9, 2004, by and between Generex
                Biotechnology Corporation and Vertical Ventures, LLC (incorporated
                by
                reference to Exhibit 4.5 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.13.2
            
            Registration
                Rights Agreement, dated January 9, 2004, by and between Generex
                Biotechnology Corporation and Vertical Ventures, LLC (incorporated
                by
                reference to Exhibit 4.6 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.13.3
            
            Warrant
                issued in connection with Exhibit 4.13.1 (incorporated by reference
                to
                Exhibit 4.7 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on March 1, 2004)4.13.4
            
            Additional
                Investment Right issued in connection with Exhibit 4.13.1 (incorporated
                by
                reference to Exhibit 4.8 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.14.1
            
            Securities
                Purchase Agreement, dated February 6, 2004, by and between Generex
                Biotechnology Corporation and Alexandra Global Master Fund, Ltd.
                (incorporated by reference to Exhibit 4.9 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on March 1,
                2004)4.14.2
            
            Registration
                Rights Agreement, dated February 6, 2004, by and between Generex
                Biotechnology Corporation and Alexandra Global Master Fund, Ltd.
                (incorporated by reference to Exhibit 4.10 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on March 1,
                2004)4.14.3
            
            Warrant
                issued in connection with Exhibit 4.14.1 (incorporated by reference
                to
                Exhibit 4.11 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on March 1, 2004)4.14.4
            
            Additional
                Investment Right issued in connection with Exhibit 4.14.1 (incorporated
                by
                reference to Exhibit 4.12 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.14.5
            
            Escrow
                Agreement, dated February 26, 2004, by and among Generex Biotechnology
                Corporation, Eckert Seamans Cherin & Mellott, LLC and Alexandra Global
                Master Fund, Ltd. (incorporated by reference to Exhibit 4.13 to Generex
                Biotechnology Corporation’s Report on Form 8-K filed on March 1,
                2004)4.15.1
            
            Securities
                Purchase Agreement, dated February 11, 2004, by and between Generex
                Biotechnology Corporation and Michael Sourlis (incorporated by reference
                to Exhibit 4.14 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on March 1, 2004)4.15.2
            
            Registration
                Rights Agreement, dated February 11, 2004, by and between Generex
                Biotechnology Corporation and Michael Sourlis (incorporated by reference
                to Exhibit 4.15 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on March 1, 2004)






58


**Exhibit****Number**
                  **________**
                
                **Description
                      of Exhibit****(1)**
                    **_____________________**


4.15.3
            
            Warrant
                issued in connection with Exhibit 4.15.1 (incorporated by reference
                to
                Exhibit 4.16 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on March 1, 2004)4.15.4
            
            Additional
                Investment Right issued in connection with Exhibit 4.15.1 (incorporated
                by
                reference to Exhibit 4.17 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.16.1
            
            Securities
                Purchase Agreement, dated February 13, 2004, by and between Generex
                Biotechnology Corporation and Zapfe Holdings, Inc. (incorporated
                by
                reference to Exhibit 4.18 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.16.2
            
            Registration
                Rights Agreement, dated February 13, 2004, by and between Generex
                Biotechnology Corporation and Zapfe Holdings, Inc. (incorporated
                by
                reference to Exhibit 4.19 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.16.3
            
            Warrant
                issued in connection with Exhibit 4.16.1 (incorporated by reference
                to
                Exhibit 4.20 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on March 1, 2004)4.16.4
            
            Additional
                Investment Right issued in connection with Exhibit 4.16.1 (incorporated
                by
                reference to Exhibit 4.21 Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.17.1
            
            Securities
                Purchase Agreement, dated June 23, 2004, by and among Generex
                Biotechnology Corporation and the investors named therein (incorporated
                by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on July 14, 2004)4.17.2
            
            Registration
                Rights Agreement, dated June 23, 2004, by and among Generex Biotechnology
                Corporation and the investors (incorporated by reference to Exhibit
                4.2 to
                Generex Biotechnology Corporation’s Report on Form 8-K filed on July 14,
                2004)4.17.3
            
            Form
                of Warrant issued in connection with Exhibit 4.17.1 (incorporated
                by
                reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on July 14, 2004)4.17.4
            
            Form
                of Additional Investment Right issued in connection Exhibit 4.17.1
                (incorporated by reference to Exhibit 4.4 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on July 14,
                2004)4.18.1
            
            Securities
                Purchase Agreement, dated November 10, 2004, by and among Generex
                Biotechnology Corporation and the investors named therein (incorporated
                by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on November 12, 2004)4.18.2
            
            Form
                of 6% Secured Convertible Debenture issued in connection with Exhibit
                4.21.1 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on November 12,
                2004)4.18.3
            
            Registration
                Rights Agreement, dated November 10, 2004, by and among Generex
                Biotechnology Corporation and the investors named therein (incorporated
                by
                reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on November 12, 2004)4.18.4
            
            Form
                of Warrant issued in connection with Exhibit 4.18.1 (incorporated
                by
                reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on November 12,
                2004)






59




**Exhibit****Number**
                **________**
              
              **Description
                    of Exhibit****(1)**
                  **_____________________**


4.18.5
            
            Form
                of Additional Investment Right issued in connection with Exhibit
                4.18.1
                (incorporated by reference to Exhibit 4.5 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on November 12,
                2004)4.18.6
            
            Custodial
                and Security Agreement, dated November 10, 2004, by and among Generex
                Biotechnology Corporation, Feldman Weinstein LLP, as custodian, and
                the
                investors named therein (incorporated by reference to Exhibit 4.6
                to
                Generex Biotechnology Corporation’s Report on Form 8-K filed on November
                12, 2004)4.18.7
            
            Form
                of Voting Agreement entered into in connection with Exhibit 4.18.1
                (incorporated by reference to Exhibit 4.7 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on November 12,
                2004)4.19
            
            Termination
                Agreement, dated December 17, 2004, by and among Generex Biotechnology
                Corporation and Elan Corporation plc and Elan International Services,
                Ltd.
                (incorporated by reference to Exhibit 4.19 to Generex Biotechnology
                Corporation’s Quarterly Report on Form 10-Q filed on June 14,
                2005)4.20
            
            Warrant
                issued to The Aethena Group, LLC on April 28, 2005 (incorporated
                by
                reference to Exhibit 4.20 to Generex Biotechnology Corporation’s Quarterly
                Report on Form 10-Q filed on June 14, 2005)4.21.1
            
            Promissory
                Note and Agreement, dated March 28, 2005 by and between Generex
                Biotechnology Corporation and Cranshire Capital, L.P. (incorporated
                by
                reference to Exhibit 4 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on April 1, 2005)4.21.2
            
            Warrant
                issued to Cranshire Capital, L.P. entered into in connection with
                Exhibit
                4.21.1 (incorporated by reference to Exhibit 4.21.2 to Generex
                Biotechnology Corporation’s Quarterly Report on Form 10-Q filed on June
                14, 2005)4.22.1
            
            Promissory
                Note and Agreement,
                entered intoApril
                6, 2005 by and between Generex Biotechnology Corporation and Omicron
                Master Trust (incorporated by reference to Exhibit 4.22.1 to Generex
                Biotechnology Corporation’s Quarterly Report on Form 10-Q filed on June
                14, 2005)4.22.2
            
            Warrant
                issued to Omicron Master Trust entered into in connection with Exhibit
                4.22.1 (incorporated by reference to Exhibit 4.22.2 to Generex
                Biotechnology Corporation’s Quarterly Report on Form 10-Q filed on June
                14, 2005)4.23.1
            
            June
                7, 2005 Amendment to Promissory Note and Agreement, dated March 28,
                2005
                by and between Generex Biotechnology Corporation and Cranshire Capital,
                L.P. (incorporated by reference to Exhibit 4.1 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on June 10,
                2005)4.23.2
            
            Warrant
                issued by Generex Biotechnology Corporation to Cranshire Capital,
                L.P. on
                June 7, 2005 in connection with Exhibit 4.23.1 (incorporated by reference
                to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on June 10, 2005)4.24.1
            
            June
                7, 2005 Amendment to Promissory Note and Agreement, entered into
                April 6,
                2005 by and between Generex Biotechnology Corporation and Omicron
                Master
                Trust(incorporated
                by reference to Exhibit 4.24.1 to Generex Biotechnology Corporation’s
                Quarterly Report on Form 10-Q filed on June 14, 2005)4.24.2
            
            Warrant
                issued by Generex Biotechnology Corporation to Omicron Master Trust
                on
                June 7, 2005 in connection with Exhibit 4.24.1 (incorporated by reference
                to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on June 10, 2005)






60


**Exhibit****Number**
                  **________**
                
                **Description
                      of Exhibit****(1)**
                    **_____________________**


4.25.1
            
            Amendment
                No. 1 to Securities Purchase Agreement and Registration Rights Agreement
                entered into by and between Generex Biotechnology Corporation and
                the
                Purchasers listed on the signature pages thereto (incorporated by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on June 17, 2005)4.25.2
            
            Form
                of AIR Debenture issued in connection with Exhibit 4.25.1 (incorporated
                by
                reference to Exhibit 4.25.2 to Generex Biotechnology Corporation’s Report
                on Form 10-K filed on October 31, 2005)4.25.3
            
            Form
                of AIR Warrant issued in connection with Exhibit 4.25.1(incorporated
                by
                reference to Exhibit 4.25.3 to Generex Biotechnology Corporation’s Report
                on Form 10-K filed on October 31, 2005)4.25.4
            
            Form
                of Additional AIR issued in connection with Exhibit 4.25.1 (incorporated
                by reference to Exhibit 4.25.4 to Generex Biotechnology Corporation’s
                Report on Form 10-K filed on October 31, 2005)4.26.1
            
            Amendment
                No. 2 to Securities Purchase Agreement and Registration Rights Agreement
                entered into by and between Generex Biotechnology Corporation and
                the
                Purchasers listed on the signature pages thereto (incorporated by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on September 9, 2005)4.26.2
            
            Form
                of Air Debenture issued in connection with Exhibit 4.26.1 (incorporated
                by
                reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on September 9, 2005)4.26.3
            
            Form
                of AIR Warrant issued in connection with Exhibit 4.26.1 (incorporated
                by
                reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on September 9, 2005)4.26.4
            
            Form
                of Additional AIR issued in connection with Exhibit 4.26.1 (incorporated
                by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report
                on Form 8-K filed on September 9, 2005)4.27.1
            
            July
                22, 2005 Amendment to Promissory Note and Agreement, entered into
                March
                28, 2005 by and between Generex Biotechnology Corporation and Cranshire
                Capital, L.P. (incorporated by reference to Exhibit 4.27.1 to Generex
                Biotechnology Corporation’s Report on Form 10-K filed on October 31,
                2005)4.27.2
            
            Warrant
                issued by Generex Biotechnology Corporation to Cranshire Capital,
                L.P. on
                July 22, 2005 in connection with Exhibit 4.27.1 (incorporated by
                reference
                to Exhibit 4.27.2 to Generex Biotechnology Corporation’s Report on Form
                10-K filed on October 31, 2005)4.28.1
            
            June
                22, 2005 Amendment to Promissory Note and Agreement, entered into
                April 6,
                2005 by and between Generex Biotechnology Corporation and Omicron
                Master
                Trust (incorporated by reference to Exhibit 4.28.1 to Generex
                Biotechnology Corporation’s Report on Form 10-K filed on October 31,
                2005)4.28.2
            
            Warrant
                issued by Generex Biotechnology Corporation to Omicron Master Trust
                on
                July 22, 2005 in connection with Exhibit 4.28.1 (incorporated by
                reference
                to Exhibit 4.28.2 to Generex Biotechnology Corporation’s Report on Form
                10-K filed on October 31, 2005)4.29
            
            Warrant
                issued by Generex Biotechnology Corporation toCranshire
                Capital, L.P.on
                October 20, 2005(incorporated
                by reference to Exhibit 4.29 to Generex Biotechnology Corporation’s Report
                on Form 10-K filed on October 31,
                2005)






61




**Exhibit****Number**
                **________**
              
              **Description
                    of Exhibit****(1)**
                  **_____________________**


4.30
            
            Warrant
                issued by Generex Biotechnology Corporation toIroquois
                Capital, L.P.on
                October 20, 2005(incorporated
                by reference to Exhibit 4.30 to Generex Biotechnology Corporation’s Report
                on Form 10-K filed on October 31, 2005)4.31
            
            Form
                of Warrant issued by Generex Biotechnology Corporation on October
                27, 2005(incorporated
                by reference to Exhibit 4.31 to Generex Biotechnology Corporation’s Report
                on Form 10-K filed on October 31, 2005)4.32
            
            Amendment
                to the Common Stock Purchase Warrant issued by Generex Biotechnology
                Corporation to Omicron Master Trust on June 17, 2005 (incorporated
                by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on October 31, 2005)4.33
            
            Amendment
                to the Common Stock Purchase Warrant issued by Generex Biotechnology
                Corporation to Smithfield Fiduciary LLC on June 17, 2005 (incorporated
                by
                reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on October 31, 2005)4.34
            
            Amendment
                to the Common Stock Purchase Warrant issued by Generex Biotechnology
                Corporation to Cranshire Capital, L.P. on June 17, 2005 (incorporated
                by
                reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on October 31, 2005)4.35
            
            Amendment
                to the Common Stock Purchase Warrant issued by Generex Biotechnology
                to
                Iroquois Capital LP on June 17, 2005 (incorporated by reference to
                Exhibit
                4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on
                October 31, 2005)4.36
            
            Amendment
                to the Additional Investment Right issued by Generex Biotechnology
                Corporation to Omicron Master Trust on June 17, 2005 (incorporated
                by
                reference to Exhibit 4.6 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on October 31, 2005)4.37
            
            Additional
                AIR Debenture issued by Generex Biotechnology Corporation to Omicron
                Master Trust on October 27, 2005 issued in connection with Exhibit
                4.364.38
            
            Additional
                AIR Warrant issued by Generex Biotechnology Corporation to Omicron
                Master
                Trust on October 27, 2005 issued in connection with Exhibit
                4.364.39
            
            Amendment
                No. 3 to Securities Purchase Agreement and Registration Rights Agreement
                entered into by and among Generex Biotechnology Corporation and the
                Purchasers listed on the signature pages thereto (incorporated by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on December 5, 2005)4.40
            
            Form
                of AIR Debentures issued in connection with Exhibit 4.39 (incorporated
                by
                reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on December 5, 2005)4.41
            
            Form
                of AIR Warrants issued in connection with Exhibit 4.39 (incorporated
                by
                reference to Exhibit 4.5 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on December 5, 2005)4.42
            
            Form
                of Additional AIRs issued in connection with Exhibit 4.39 (incorporated
                by
                reference to Exhibit 4.6 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on December 5, 2005)






62




**Exhibit****Number**
                **________**
              
              **Description
                    of Exhibit****(1)**
                  **_____________________**


4.43
            
            Form
                of Amendment to the Additional Investment Right issued by Generex
                Biotechnology Corporation on June 17, 2005 in connection with the
                First
                AIR Exercise (incorporated by reference to Exhibit 4.2 to Generex
                Biotechnology Corporation’s Report on Form 8-K filed on December 5,
                2005)4.44
            
            Form
                of Amendment to the Additional Investment Right issued by Generex
                Biotechnology Corporation on September 8, 2005 in connection with
                the
                Second AIR Exercise (incorporated by reference to Exhibit 4.3 to
                Generex
                Biotechnology Corporation’s Report on Form 8-K filed on December 5,
                2005)4.45
            
            Warrant
                issued by Generex Biotechnology Corporation to Cranshire Capital,
                L.P. on
                December 9, 20054.46
            
            Form
                of Warrant issued by Generex Biotechnology Corporation on January
                23, 2006(incorporated
                by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report
                on Form 8-K filed on January 24, 2006)4.47
            
            Form
                of Warrant issued by Generex Biotechnology Corporation on March 6,
                2006(incorporated
                by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report
                on Form 8-K filed on March 7, 2006)9
            
            Form
                of Voting Agreement entered into in connection with Exhibit 4.18.1
                (incorporated by reference to Exhibit 4.7 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on November 12,
                2004)31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200231.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200232
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act of 2002(1)In
                the case of incorporation by reference to documents filed by the
                Registrant under the Exchange Act, the Registrant’s file number under the
                Exchange Act is 000-25169.





**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




**GENEREX
                  BIOTECHNOLOGY CORPORATION**
                (Registrant)Date:
                  March 15, 2006
              By:
              /s/ Anna
                E.
                GluskinAnna
                  E. Gluskin
                Chairman,
                  President and Chief Executive
                  Officer
 Date:
                  March 15, 2006
              By:
              /s/ Rose
                C.
                PerriRose
                  C. Perri
                Chief
                  Operating Officer, Chief Financial Officer, Treasurer and
                  Secretary


63




**Generex
      Biotechnology Corporation**


Form
      10-Q


January 31,
      2006


Exhibit
      Index





**Exhibit****Number**
                    **________**
                  
                  **Description
                        of Exhibit****(1)**
                      **_____________________**


2
            
            Agreement
                and Plan of Merger among Generex Biotechnology Corporation, Antigen
                Express, Inc. and AGEXP Acquisition Inc. (incorporated by reference
                to
                Exhibit 2.1 to Generex Biotechnology Corporation’s Current Report on Form
                8-K filed on August 15, 2003)3(I)
            
            Restated
                Certificate of Incorporation of Generex Biotechnology Corporation,
                as
                amended (incorporated by reference to Exhibit 3.1 to Generex Biotechnology
                Corporation’s Report on Form 10-Q filed on March 15,
                2004)3(II)
            
            Bylaws
                of Generex Biotechnology Corporation (incorporated by reference to
                Exhibit
                3.2 to Generex Biotechnology Corporation’s Registration Statement on Form
                S-1 (File No. 333-82667) filed on July 12, 1999)4.1
            
            Form
                of common stock certificate (incorporated by reference to Exhibit
                4.1 to
                Generex Biotechnology Corporation’s Registration Statement on Form S-1
                (File No. 333-82667) filed on July 12, 1999)4.2
            
            Certificate
                of Designations, Preferences and Rights of Series A Preferred Stock
                (incorporated by reference to Exhibit 4.4 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on January 23,
                2001)4.3
            
            Form
                of Warrant issued to Ladenburg Thalmann & Co., Inc. dated July 6, 2001
                (incorporated by reference to Exhibit 4.15 to Generex Biotechnology
                Corporation’s Registration Statement on Form S-3 (File No. 333-67118)
                filed on August 8, 2001)4.4
            
            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 (incorporated by reference to Exhibit
                3 to
                Generex Biotechnology Corporation’s Report on Form 8-K filed on July 17,
                2001)4.5
            
            Warrant
                granted to Capital Ventures International, dated July 3, 2001
                (incorporated by reference to Exhibit 6 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on July 17,
                2001)4.6
            
            Warrant
                issued to Elliott International, L.P. and Elliott Associates, L.P.,
                dated
                July 5, 2001 (incorporated by reference to Exhibit 9 to Generex
                Biotechnology Corporation’s Report on Form 8-K filed on July 17,
                2001)4.7
            
            Form
                of Warrant issued to certain parties to October 2000 Private Placement
                (incorporated by reference to Exhibit 4 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on October 16,
                2000)4.8
            
            Form
                of Warrant (GCR Series) held by Robert P. Carter, Harvey Kaye, Fittube,
                Inc., Edward Maskaly and Gulfstream Capital Group, L.C. (incorporated
                by
                reference to Exhibit 4.4.2 to Generex Biotechnology Corporation’s
                Registration Statement on Form 10 filed on December 14, 1998, as
                amended
                February 24, 1999)






64




**Exhibit****Number**
                  **________**
                
                **Description
                      of Exhibit****(1)**
                    **_____________________**


4.9
            
            Letter
                Agreement and Warrant with M. H. Meyerson & Co., Inc. dated November
                17, 1998 (incorporated by reference to Exhibit 4.4.4 to Generex
                Biotechnology Corporation’s Registration Statement on Form 10 filed on
                December 14, 1998, as amended February 24, 1999)4.10.1
            
            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 (incorporated
                by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 10-Q/A for the quarter ended April 30, 2003 filed on August
                13,
                2003)4.10.2
            
            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 (incorporated
                by
                reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                Form 10-Q/A for the quarter ended April 30, 2003 filed on August
                13,
                2003)4.10.3
            
            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 (incorporated by reference to Exhibit 4.3 to Generex
                Biotechnology Corporation’s Report on Form 10-Q/A for the quarter ended
                April 30, 2003 filed on August 13, 2003)4.10.4
            
            Form
                of Securities Purchase Agreement entered into with Cranshire Capital,
                L.P.
                dated June 6, 2003 (incorporated by reference to Exhibit 4.4 to Generex
                Biotechnology Corporation’s Report on Form 10-Q/A for the quarter ended
                April 30, 2003 filed on August 13, 2003)4.10.5
            
            Form
                of Registration Rights Agreement entered into with Cranshire Capital,
                L.P.
                dated June 6, 2003 (incorporated by reference to Exhibit 4.5 to Generex
                Biotechnology Corporation’s Report on Form 10-Q/A for the quarter ended
                April 30, 2003 filed on August 13, 2003)4.10.6
            
            Form
                of Warrant granted to Cranshire Capital, L.P. dated June 6, 2003
                (incorporated by reference to Exhibit 4.6 to Generex Biotechnology
                Corporation’s Report on Form 10-Q/A for the quarter ended April 30, 2003
                filed on August 13, 2003)4.10.7
            
            Form
                of replacement Warrant issued to warrant holders exercising at reduced
                exercise price in May and June 2003 (incorporated by reference to
                Exhibit
                4.13.7 to Generex Biotechnology Corporation’s Report on Form 10-K for the
                period ended July 31, 2003 filed on October 29, 2003)4.11.1
            
            Securities
                Purchase Agreement, dated December 19, 2003, by and among Generex
                Biotechnology Corporation and the investors named therein (incorporated
                by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K/A filed on March 24, 2004)4.11.2
            
            Registration
                Rights Agreement, dated December 19, 2003, by and among Generex
                Biotechnology Corporation and the investors named therein (incorporated
                by
                reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                Form 8-K/A filed on March 24, 2004)4.11.3
            
            Form
                of Warrant issued in connection with Exhibit 4.11.1 (incorporated
                by
                reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                Form 8-K/A filed on March 24, 2004)4.11.4
            
            Form
                of Additional Investment Right issued in connection with Exhibit
                4.11.1
                (incorporated by reference to Exhibit 4.4 to Generex Biotechnology
                Corporation’s Report on Form 8-K/A filed on March 24,
                2004)




65
 
 **Exhibit****Number**
                  **________**
                
                **Description
                      of Exhibit****(1)**
                    **_____________________**


4.12.1
            
            Securities
                Purchase Agreement, dated January 7, 2004, by and between Generex
                Biotechnology Corporation and ICN Capital Limited (incorporated by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.12.2
            
            Registration
                Rights Agreement, dated January 7, 2004, by and between Generex
                Biotechnology Corporation and ICN Capital Limited (incorporated by
                reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.12.3
            
            Warrant
                issued in connection with Exhibit 4.12.1 (incorporated by reference
                to
                Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on March 1, 2004)4.12.4
            
            Additional
                Investment Right issued in connection with Exhibit 4.12.1 (incorporated
                by
                reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.13.1
            
            Securities
                Purchase Agreement, dated January 9, 2004, by and between Generex
                Biotechnology Corporation and Vertical Ventures, LLC (incorporated
                by
                reference to Exhibit 4.5 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.13.2
            
            Registration
                Rights Agreement, dated January 9, 2004, by and between Generex
                Biotechnology Corporation and Vertical Ventures, LLC (incorporated
                by
                reference to Exhibit 4.6 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.13.3
            
            Warrant
                issued in connection with Exhibit 4.13.1 (incorporated by reference
                to
                Exhibit 4.7 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on March 1, 2004)4.13.4
            
            Additional
                Investment Right issued in connection with Exhibit 4.13.1 (incorporated
                by
                reference to Exhibit 4.8 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.14.1
            
            Securities
                Purchase Agreement, dated February 6, 2004, by and between Generex
                Biotechnology Corporation and Alexandra Global Master Fund, Ltd.
                (incorporated by reference to Exhibit 4.9 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on March 1,
                2004)4.14.2
            
            Registration
                Rights Agreement, dated February 6, 2004, by and between Generex
                Biotechnology Corporation and Alexandra Global Master Fund, Ltd.
                (incorporated by reference to Exhibit 4.10 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on March 1,
                2004)4.14.3
            
            Warrant
                issued in connection with Exhibit 4.14.1 (incorporated by reference
                to
                Exhibit 4.11 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on March 1, 2004)4.14.4
            
            Additional
                Investment Right issued in connection with Exhibit 4.14.1 (incorporated
                by
                reference to Exhibit 4.12 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.14.5
            
            Escrow
                Agreement, dated February 26, 2004, by and among Generex Biotechnology
                Corporation, Eckert Seamans Cherin & Mellott, LLC and Alexandra Global
                Master Fund, Ltd. (incorporated by reference to Exhibit 4.13 to Generex
                Biotechnology Corporation’s Report on Form 8-K filed on March 1,
                2004)4.15.1
            
            Securities
                Purchase Agreement, dated February 11, 2004, by and between Generex
                Biotechnology Corporation and Michael Sourlis (incorporated by reference
                to Exhibit 4.14 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on March 1, 2004)4.15.2
            
            Registration
                Rights Agreement, dated February 11, 2004, by and between Generex
                Biotechnology Corporation and Michael Sourlis (incorporated by reference
                to Exhibit 4.15 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on March 1, 2004)






66




**Exhibit****Number**
                  **________**
                
                **Description
                      of Exhibit****(1)**
                    **_____________________**


4.15.3
            
            Warrant
                issued in connection with Exhibit 4.15.1 (incorporated by reference
                to
                Exhibit 4.16 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on March 1, 2004)4.15.4
            
            Additional
                Investment Right issued in connection with Exhibit 4.15.1 (incorporated
                by
                reference to Exhibit 4.17 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.16.1
            
            Securities
                Purchase Agreement, dated February 13, 2004, by and between Generex
                Biotechnology Corporation and Zapfe Holdings, Inc. (incorporated
                by
                reference to Exhibit 4.18 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.16.2
            
            Registration
                Rights Agreement, dated February 13, 2004, by and between Generex
                Biotechnology Corporation and Zapfe Holdings, Inc. (incorporated
                by
                reference to Exhibit 4.19 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.16.3
            
            Warrant
                issued in connection with Exhibit 4.16.1 (incorporated by reference
                to
                Exhibit 4.20 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on March 1, 2004)4.16.4
            
            Additional
                Investment Right issued in connection with Exhibit 4.16.1 (incorporated
                by
                reference to Exhibit 4.21 Generex Biotechnology Corporation’s Report on
                Form 8-K filed on March 1, 2004)4.17.1
            
            Securities
                Purchase Agreement, dated June 23, 2004, by and among Generex
                Biotechnology Corporation and the investors named therein (incorporated
                by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on July 14, 2004)4.17.2
            
            Registration
                Rights Agreement, dated June 23, 2004, by and among Generex Biotechnology
                Corporation and the investors (incorporated by reference to Exhibit
                4.2 to
                Generex Biotechnology Corporation’s Report on Form 8-K filed on July 14,
                2004)4.17.3
            
            Form
                of Warrant issued in connection with Exhibit 4.17.1 (incorporated
                by
                reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on July 14, 2004)4.17.4
            
            Form
                of Additional Investment Right issued in connection Exhibit 4.17.1
                (incorporated by reference to Exhibit 4.4 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on July 14,
                2004)4.18.1
            
            Securities
                Purchase Agreement, dated November 10, 2004, by and among Generex
                Biotechnology Corporation and the investors named therein (incorporated
                by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on November 12, 2004)4.18.2
            
            Form
                of 6% Secured Convertible Debenture issued in connection with Exhibit
                4.21.1 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on November 12,
                2004)4.18.3
            
            Registration
                Rights Agreement, dated November 10, 2004, by and among Generex
                Biotechnology Corporation and the investors named therein (incorporated
                by
                reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on November 12, 2004)4.18.4
            
            Form
                of Warrant issued in connection with Exhibit 4.18.1 (incorporated
                by
                reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on November 12,
                2004)




67
 
 **Exhibit****Number**
                  **________**
                
                **Description
                      of Exhibit****(1)**
                    **_____________________**


4.18.5
            
            Form
                of Additional Investment Right issued in connection with Exhibit
                4.18.1
                (incorporated by reference to Exhibit 4.5 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on November 12,
                2004)4.18.6
            
            Custodial
                and Security Agreement, dated November 10, 2004, by and among Generex
                Biotechnology Corporation, Feldman Weinstein LLP, as custodian, and
                the
                investors named therein (incorporated by reference to Exhibit 4.6
                to
                Generex Biotechnology Corporation’s Report on Form 8-K filed on November
                12, 2004)4.18.7
            
            Form
                of Voting Agreement entered into in connection with Exhibit 4.18.1
                (incorporated by reference to Exhibit 4.7 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on November 12,
                2004)4.19
            
            Termination
                Agreement, dated December 17, 2004, by and among Generex Biotechnology
                Corporation and Elan Corporation plc and Elan International Services,
                Ltd.
                (incorporated by reference to Exhibit 4.19 to Generex Biotechnology
                Corporation’s Quarterly Report on Form 10-Q filed on June 14,
                2005)4.20
            
            Warrant
                issued to The Aethena Group, LLC on April 28, 2005 (incorporated
                by
                reference to Exhibit 4.20 to Generex Biotechnology Corporation’s Quarterly
                Report on Form 10-Q filed on June 14, 2005)4.21.1
            
            Promissory
                Note and Agreement, dated March 28, 2005 by and between Generex
                Biotechnology Corporation and Cranshire Capital, L.P. (incorporated
                by
                reference to Exhibit 4 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on April 1, 2005)4.21.2
            
            Warrant
                issued to Cranshire Capital, L.P. entered into in connection with
                Exhibit
                4.21.1 (incorporated by reference to Exhibit 4.21.2 to Generex
                Biotechnology Corporation’s Quarterly Report on Form 10-Q filed on June
                14, 2005)4.22.1
            
            Promissory
                Note and Agreement,
                entered intoApril
                6, 2005 by and between Generex Biotechnology Corporation and Omicron
                Master Trust (incorporated by reference to Exhibit 4.22.1 to Generex
                Biotechnology Corporation’s Quarterly Report on Form 10-Q filed on June
                14, 2005)4.22.2
            
            Warrant
                issued to Omicron Master Trust entered into in connection with Exhibit
                4.22.1 (incorporated by reference to Exhibit 4.22.2 to Generex
                Biotechnology Corporation’s Quarterly Report on Form 10-Q filed on June
                14, 2005)4.23.1
            
            June
                7, 2005 Amendment to Promissory Note and Agreement, dated March 28,
                2005
                by and between Generex Biotechnology Corporation and Cranshire Capital,
                L.P. (incorporated by reference to Exhibit 4.1 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on June 10,
                2005)4.23.2
            
            Warrant
                issued by Generex Biotechnology Corporation to Cranshire Capital,
                L.P. on
                June 7, 2005 in connection with Exhibit 4.23.1 (incorporated by reference
                to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on June 10, 2005)4.24.1
            
            June
                7, 2005 Amendment to Promissory Note and Agreement, entered into
                April 6,
                2005 by and between Generex Biotechnology Corporation and Omicron
                Master
                Trust(incorporated
                by reference to Exhibit 4.24.1 to Generex Biotechnology Corporation’s
                Quarterly Report on Form 10-Q filed on June 14, 2005)4.24.2
            
            Warrant
                issued by Generex Biotechnology Corporation to Omicron Master Trust
                on
                June 7, 2005 in connection with Exhibit 4.24.1 (incorporated by reference
                to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K
                filed on June 10, 2005)






68




**Exhibit****Number**
                  **________**
                
                **Description
                      of Exhibit****(1)**
                    **_____________________**


4.25.1
            
            Amendment
                No. 1 to Securities Purchase Agreement and Registration Rights Agreement
                entered into by and between Generex Biotechnology Corporation and
                the
                Purchasers listed on the signature pages thereto (incorporated by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on June 17, 2005)4.25.2
            
            Form
                of AIR Debenture issued in connection with Exhibit 4.25.1 (incorporated
                by
                reference to Exhibit 4.25.2 to Generex Biotechnology Corporation’s Report
                on Form 10-K filed on October 31, 2005)4.25.3
            
            Form
                of AIR Warrant issued in connection with Exhibit 4.25.1(incorporated
                by
                reference to Exhibit 4.25.3 to Generex Biotechnology Corporation’s Report
                on Form 10-K filed on October 31, 2005)4.25.4
            
            Form
                of Additional AIR issued in connection with Exhibit 4.25.1 (incorporated
                by reference to Exhibit 4.25.4 to Generex Biotechnology Corporation’s
                Report on Form 10-K filed on October 31, 2005)4.26.1
            
            Amendment
                No. 2 to Securities Purchase Agreement and Registration Rights Agreement
                entered into by and between Generex Biotechnology Corporation and
                the
                Purchasers listed on the signature pages thereto (incorporated by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on September 9, 2005)4.26.2
            
            Form
                of Air Debenture issued in connection with Exhibit 4.26.1 (incorporated
                by
                reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on September 9, 2005)4.26.3
            
            Form
                of AIR Warrant issued in connection with Exhibit 4.26.1 (incorporated
                by
                reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on September 9, 2005)4.26.4
            
            Form
                of Additional AIR issued in connection with Exhibit 4.26.1 (incorporated
                by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report
                on Form 8-K filed on September 9, 2005)4.27.1
            
            July
                22, 2005 Amendment to Promissory Note and Agreement, entered into
                March
                28, 2005 by and between Generex Biotechnology Corporation and Cranshire
                Capital, L.P. (incorporated by reference to Exhibit 4.27.1 to Generex
                Biotechnology Corporation’s Report on Form 10-K filed on October 31,
                2005)4.27.2
            
            Warrant
                issued by Generex Biotechnology Corporation to Cranshire Capital,
                L.P. on
                July 22, 2005 in connection with Exhibit 4.27.1 (incorporated by
                reference
                to Exhibit 4.27.2 to Generex Biotechnology Corporation’s Report on Form
                10-K filed on October 31, 2005)4.28.1
            
            June
                22, 2005 Amendment to Promissory Note and Agreement, entered into
                April 6,
                2005 by and between Generex Biotechnology Corporation and Omicron
                Master
                Trust (incorporated by reference to Exhibit 4.28.1 to Generex
                Biotechnology Corporation’s Report on Form 10-K filed on October 31,
                2005)4.28.2
            
            Warrant
                issued by Generex Biotechnology Corporation to Omicron Master Trust
                on
                July 22, 2005 in connection with Exhibit 4.28.1 (incorporated by
                reference
                to Exhibit 4.28.2 to Generex Biotechnology Corporation’s Report on Form
                10-K filed on October 31, 2005)






69




**Exhibit****Number**
                  **________**
                
                **Description
                      of Exhibit****(1)**
                    **_____________________**


4.29
            
            Warrant
                issued by Generex Biotechnology Corporation toCranshire
                Capital, L.P.on
                October 20, 2005(incorporated
                by reference to Exhibit 4.29 to Generex Biotechnology Corporation’s Report
                on Form 10-K filed on October 31, 2005)4.30
            
            Warrant
                issued by Generex Biotechnology Corporation toIroquois
                Capital, L.P.on
                October 20, 2005(incorporated
                by reference to Exhibit 4.30 to Generex Biotechnology Corporation’s Report
                on Form 10-K filed on October 31, 2005)4.31
            
            Form
                of Warrant issued by Generex Biotechnology Corporation on October
                27, 2005(incorporated
                by reference to Exhibit 4.31 to Generex Biotechnology Corporation’s Report
                on Form 10-K filed on October 31, 2005)4.32
            
            Amendment
                to the Common Stock Purchase Warrant issued by Generex Biotechnology
                Corporation to Omicron Master Trust on June 17, 2005 (incorporated
                by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on October 31, 2005)4.33
            
            Amendment
                to the Common Stock Purchase Warrant issued by Generex Biotechnology
                Corporation to Smithfield Fiduciary LLC on June 17, 2005 (incorporated
                by
                reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on October 31, 2005)4.34
            
            Amendment
                to the Common Stock Purchase Warrant issued by Generex Biotechnology
                Corporation to Cranshire Capital, L.P. on June 17, 2005 (incorporated
                by
                reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on October 31, 2005)4.35
            
            Amendment
                to the Common Stock Purchase Warrant issued by Generex Biotechnology
                to
                Iroquois Capital LP on June 17, 2005 (incorporated by reference to
                Exhibit
                4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on
                October 31, 2005)4.36
            
            Amendment
                to the Additional Investment Right issued by Generex Biotechnology
                Corporation to Omicron Master Trust on June 17, 2005 (incorporated
                by
                reference to Exhibit 4.6 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on October 31, 2005)4.37
            
            Additional
                AIR Debenture issued by Generex Biotechnology Corporation to Omicron
                Master Trust on October 27, 2005 issued in connection with Exhibit
                4.364.38
            
            Additional
                AIR Warrant issued by Generex Biotechnology Corporation to Omicron
                Master
                Trust on October 27, 2005 issued in connection with Exhibit
                4.364.39
            
            Amendment
                No. 3 to Securities Purchase Agreement and Registration Rights Agreement
                entered into by and among Generex Biotechnology Corporation and the
                Purchasers listed on the signature pages thereto (incorporated by
                reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on December 5, 2005)4.40
            
            Form
                of AIR Debentures issued in connection with Exhibit 4.39 (incorporated
                by
                reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on December 5, 2005)4.41
            
            Form
                of AIR Warrants issued in connection with Exhibit 4.39 (incorporated
                by
                reference to Exhibit 4.5 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on December 5, 2005)4.42
            
            Form
                of Additional AIRs issued in connection with Exhibit 4.39 (incorporated
                by
                reference to Exhibit 4.6 to Generex Biotechnology Corporation’s Report on
                Form 8-K filed on December 5, 2005)




70
 
 **Exhibit****Number**
                  **________**
                
                **Description
                      of Exhibit****(1)**
                    **_____________________**


4.43
            
            Form
                of Amendment to the Additional Investment Right issued by Generex
                Biotechnology Corporation on June 17, 2005 in connection with the
                First
                AIR Exercise (incorporated by reference to Exhibit 4.2 to Generex
                Biotechnology Corporation’s Report on Form 8-K filed on December 5,
                2005)4.44
            
            Form
                of Amendment to the Additional Investment Right issued by Generex
                Biotechnology Corporation on September 8, 2005 in connection with
                the
                Second AIR Exercise (incorporated by reference to Exhibit 4.3 to
                Generex
                Biotechnology Corporation’s Report on Form 8-K filed on December 5,
                2005)4.45
            
            Warrant
                issued by Generex Biotechnology Corporation to Cranshire Capital,
                L.P. on
                December 9, 20054.46
            
            Form
                of Warrant issued by Generex Biotechnology Corporation on January
                23, 2006(incorporated
                by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report
                on Form 8-K filed on January 24, 2006)4.47
            
            Form
                of Warrant issued by Generex Biotechnology Corporation on March 6,
                2006(incorporated
                by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report
                on Form 8-K filed on March 7, 2006)9
            
            Form
                of Voting Agreement entered into in connection with Exhibit 4.18.1
                (incorporated by reference to Exhibit 4.7 to Generex Biotechnology
                Corporation’s Report on Form 8-K filed on November 12,
                2004)31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200231.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200232
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act of 2002(1)In
                the case of incorporation by reference to documents filed by the
                Registrant under the Exchange Act, the Registrant’s file number under the
                Exchange Act is 000-25169.





71