UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-Q





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


EXCHANGE ACT OF 1934





For the quarterly period ended April 30, 2011





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 or 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)





Indicate by check mark whether the registrant: (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes   ̈ No





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


 ̈Yes      ̈No





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer   ̈    Accelerated filer  x


Non-accelerated filer   ̈        Smaller reporting company   ̈





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





The number of outstanding shares of the registrant's common stock, par value $.001, was 295,705,060 as of June 2, 2011.








GENEREX BIOTECHNOLOGY CORPORATION





INDEX





PART I. FINANCIAL INFORMATIONItem 1.     Financial Statements (unaudited)Consolidated Balance Sheets -April 30, 2011 (unaudited) and July 31, 2010
1Consolidated Statements of Operations — For the three- and nine-monthperiods ended April 30, 2011 and 2010, and cumulative fromNovember 2, 1995 to April 30, 2011 (unaudited)
2Consolidated Statements of Cash Flows — For the three and nine-monthperiods ended April 30, 2011 and 2010, and cumulative fromNovember 2, 1995 to April 30, 2011 (unaudited)
3Notes to Consolidated Financial Statements (unaudited)
5Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
14Item 3. Quantitative and Qualitative Disclosures About Market Risk
27Item 4. Controls and Procedures
28PART II: OTHER INFORMATIONItem 1. Legal Proceedings
28Item 1A. Risk Factors
29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
30Item 3. Defaults Upon Senior Securities
31[Item 4. Removed and Reserved.]
-Item 5. Other Information
31Item 6. Exhibits
31Signatures
31


i


PART I. FINANCIAL INFORMATION





Item 1. Financial Statements


GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED BALANCE SHEETS
 
 April 30, 2011


July 31, 2010(Unaudited)ASSETSCurrent Assets:Cash and cash equivalents

$
3,565,484


$
13,880,870Accounts receivable, net


19,136



70,585Inventory (see Note 5)


1,473,657



1,911,883Other current assets


187,697



333,456Total Current Assets


5,245,974



16,196,794Property and Equipment, Net


1,350,177



1,341,408Assets Held for Investment, Net


3,693,156



3,503,110Patents, Net


3,405,106



3,533,688TOTAL ASSETS

$
13,694,413


$
24,575,000LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent Liabilities:Accounts payable and accrued expenses (see Note 6)

$
5,950,922


$
6,554,714Deferred revenue


378,241



396,195Current maturities of long-term debt


1,223,039



1,141,861Current maturities of obligations under capital lease


—



7,818Total Current Liabilities


7,552,202



8,100,588Long-Term Debt, Net


1,906,390



1,824,071Derivative Warrant Liability (see Note 11)


7,101,337



5,679,721Total Liabilities


16,559,929



15,604,380Commitments and Contingencies (see Notes 7 and 8)Stockholders’ (Deficit) Equity (see Note 10):Preferred Stock, $.001 par value; authorized 1,000,000 shares at April 30, 2011 and July 31, 2010; -0- shares issued and outstanding at April 30, 2011 and July 31, 2010


—



—Common stock, $.001 par value; authorized 750,000,000 shares at April 30, 2011 and July 31, 2010; 295,809,692 and 269,599,615 shares issued and outstanding at April 30, 2011 and July 31, 2010, respectively


295,810



269,600Additional paid-in capital


337,483,938



333,219,309Deficit accumulated during the development stage


(341,533,598
)


(325,302,472
)Accumulated other comprehensive income


888,334



784,183Total Stockholders’ (Deficit) Equity


(2,865,516
)


8,970,620TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
13,694,413


$
24,575,000
 
 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 Nine Months Ended


For the Three Months Ended


(Date of Inception)April 30,


April 30,


April 30,2011


2010


2011


2010


2011(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)Revenues, net

$
269,086


$
856,584


$
65,583


$
327,698


$
5,059,591Cost of Goods Sold


143,360



577,185



55,482



210,060



1,597,007Gross Profit


125,726



279,399



10,101



117,638



3,462,584Operating Expenses:Research and development


7,859,382



9,929,088



1,754,325



3,452,798



124,597,713Research and development - related party


—



—



—



—



220,218Selling and marketing


806,798



3,406,175



207,848



759,403



8,949,063General and administrative


10,262,883



9,825,947



3,109,887



3,266,725



139,782,940General and administrative - related party


—



—



—



—



314,328Total Operating Expenses


18,929,063



23,161,210



5,072,060



7,478,926



273,864,262Operating Loss


(18,803,337
)


(22,881,811
)


(5,061,959
)


(7,361,288
)


(270,401,678
)Other Income (Expense):Miscellaneous income (see Note 12)


488,959



750



—



—



685,970Income from rental operations, net


236,732



222,034



70,450



67,375



2,015,315Interest income


5,985



19,837



1,154



3,411



7,779,904Interest expense


(153,385
)


(158,756
)


(52,301
)


(53,326
)


(68,360,636
)Change in fair value of derivative warrant liability


1,993,920



3,793,793



925,703



2,776,278



138,467
(1)Loss on extinguishment of debt


—



—



—



—



(14,134,068
)Net Loss Before Undernoted


(16,231,126
)


(19,004,153
)


(4,116,953
)


(4,567,550
)


(342,276,726
)Minority Interest Share of Loss


—



—



—



—



3,038,185Net Loss


(16,231,126
)


(19,004,153
)


(4,116,953
)


(4,567,550
)


(339,238,541
)Preferred Stock Dividend


—



—



—



—



2,295,057Net Loss Available to Common Stockholders

$
(16,231,126
)

$
(19,004,153
)

$
(4,116,953
)

$
(4,567,550
)

$
(341,533,598
)Basic and Diluted Net Loss Per Common Share (see Note 9)

$
(.06
)

$
(.08
)

$
(.01
)

$
(.02
)Weighted Average Number of Shares of Common Stock Outstanding - basic and diluted (Note 9)


279,968,884



248,472,894



292,370,915



254,496,991
 
 (1)
Includes $5,981,403 as adjustment related to the adoption of FASB ASC Topic 815 in "Cumulative from November 2, 1995 (Date of Inception) to April 30, 2011" column.  See Note 11 - Derivative Warrant Liability.
 
 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 Nine Months


(Date of Inception)Ended April 30,


to April 30,2011


2010


2011(Unaudited)


(Unaudited)


(Unaudited)Cash Flows From Operating Activities:Net loss

$
(16,231,126
)

$
(19,004,153
)

$
(339,238,541
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


561,304



584,280



9,114,225Minority interest share of loss


—



—



(3,038,185
)Reduction of notes receivable - common stock in exchange for services rendered


—



—



423,882Write-off of uncollectible notes receivable - common stock


—



—



391,103Write-off of deferred offering costs


—



—



3,406,196Write-off of abandoned patents


—



—



913,196Loss on disposal of property and equipment


—



—



911Loss on extinguishment of debt


—



—



14,134,068Common stock issued as employee compensation


75,749



75,751



3,856,144Amortization of options and option modifications as employee compensation


885,475



1,439,809



2,757,852Common stock issued for services rendered


1,797,355



1,576,584



13,615,184Amortization of prepaid services in conjunction with common stock issuance


—



—



138,375Non-cash compensation expense


—



—



45,390Stock options and warrants issued for services rendered


—



591,000



7,956,723Issuance of warrants as additional exercise right inducement


—



—



21,437,909Preferred stock issued for services rendered


—



—



100Treasury stock redeemed for non-performance of services


—



—



(138,000
)Amortization of deferred debt issuance costs and loan origination fees


—



—



2,405,629Amortization of discount on convertible debentures


—



—



38,345,592Common stock issued as interest payment on convertible debentures


—



—



757,514Interest on short-term advance


—



—



22,190Founders’ shares transferred for services rendered


—



—



353,506Fees in connection with refinancing of debt


—



—



113,274Warrant repricing costs


—



—



3,198,604Change in fair value of derivative warrant liability


(1,993,920
)


(3,793,793
)


(138,467
) (1)Changes in operating assets and liabilities (excluding the effects of acquisition):Accounts receivable


51,926



3,825



(33,791
)Miscellaneous receivables


—



—



43,812Inventory


443,626



(610,003
)


(1,490,625
)Other current assets


153,278



455,621



(166,787
)Accounts payable and accrued expenses


336,322



3,204,109



14,767,759Deferred revenue


(19,854
)


258,128



371,025Other, net


—



—



110,317Net Cash Used in Operating Activities


(13,939,865
)


(15,218,842
)


(205,563,916
)Cash Flows From Investing Activities:Purchase of property and equipment


(52,160
)


(140,516
)


(4,806,800
)Costs incurred for patents


(179,503
)


(144,501
)


(2,610,790
)Change in restricted cash


—



—



512,539Proceeds from maturity of short term investments


—



—



195,242,918Purchases of short-term investments


—



—



(195,242,918
)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


—



—



(652,071
)Change in notes receivable - common stock


—



—



(91,103
)Change in due from related parties


—



—



(2,222,390
)Other, net


—



—



89,683Net Cash Used in Investing Activities


(231,663
)


(285,017
)


(10,856,857
)
 
 The Notes to Consolidated Financial Statements are an integral part of these statements.
  3
  GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Cumulative FromNovember 2, 1995For the Nine Months


(Date of Inception)Ended April 30,


to April 30,2011


2010


2011Cash Flows From Financing Activities:Proceeds from short-term advance


—



—



325,179Repayment of short-term advance


—



—



(347,369
)Proceeds from issuance of long-term debt


—



—



2,005,609Repayment of long-term debt


(86,016
)


(73,501
)


(2,210,572
)Repayment of obligations under capital lease


(7,818
)


(28,552
)


(83,002
)Change in due to related parties


—



—



154,541Proceeds from exercise of warrants


—



1,574,062



45,698,281Proceeds from exercise of stock options


577



—



5,002,493Proceeds from minority interest investment


—



—



3,038,185Proceeds from issuance of preferred stock


—



—



12,015,000Redemption of SVR preferred stock


—



—



(100
)Proceeds from issuance of convertible debentures, net


—



—



40,704,930Payment of costs associated with convertible debentures


—



—



(722,750
)Repayments of convertible debentures


—



—



(5,142,424
)Purchase of treasury stock


—



—



(483,869
)Proceeds from issuance of common stock, net


3,939,000



18,882,381



120,576,242Purchase and retirement of common stock


—



—



(497,522
)Net Cash Provided by Financing Activities


3,845,743



20,354,390



220,032,852Effect of Exchange Rates on Cash


10,399



58,618



(46,595
)Net (Decrease) Increase in Cash and Cash Equivalents


(10,315,386
)


4,909,149



3,565,484Cash and Cash Equivalents, Beginning of Period


13,880,870



14,197,048



—Cash and Cash Equivalents, End of Period

$
3,565,484


$
19,106,197


$
3,565,484(1)  Includes $5,981,403 as adjustment related to the adoption of FASB ASC Topic 815 in "Cumulative from November 2, 1995 (Date of Inception) to April 30, 2011" column.  See Note 11 - Derivative Warrant Liability.Supplemental Disclosure of Cash Flow Information:Cash paid during the period for:Interest

$
153,385


$
158,756Income taxes

$
—


$
—Disclosure of non-cash investing and financing activities:Issuance of common stock as satisfaction of accounts payable and accrued expenses

$
1,008,220


$
2,686,933Par value of common stock issued in conjunction with cashless exercise of warrants

$
998


$
7,635
 
 The Notes to Consolidated Financial Statements are an integral part of these statements.
 
 4


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 (“interim 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 consolidated financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K.  The results for the three and nine months ended April 30, 2011 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 fiscal year 2011.  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 Company is a development stage company, which has a limited history of operations and limited revenue to date.  The Company currently is recognizing revenue from the sale of three of its four commercially available products.  Additionally, the Company has several product candidates that are in various research or early stages of pre-clinical and clinical development.  There can be no assurance that the Company will be successful in obtaining regulatory clearance for the sale of existing or any future products or that any of the Company’s products will be commercially viable.
 
 Going Concern
 The accompanying interim 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 April 30, 2011 of approximately $342 million. The Company has funded its activities to date almost exclusively from debt and equity financings.
 
 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 support sales and marketing efforts, if the U.S. Food and Drug Administration (“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 placements of its common stock, preferred stock offerings and issuance 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, meet revenue projections and manage costs, there are no assurances that such additional funding will be achieved and that it will succeed in its future operations. The interim 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
 
 Recently Adopted Accounting Pronouncements
 In October 2009, the Financial Accounting Standards Board (“FASB”) issued guidance on multiple deliverable revenue arrangements which eliminates the residual method of allocation and requires the relative selling price method when allocating deliverables of a multiple-deliverable revenue arrangement. The determination of the selling price for each deliverable requires the use of a hierarchy designed to maximize the use of available objective evidence including, vendor specific objective evidence, third party evidence of selling price, or estimated selling price.  This guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, and must be adopted in the same period using the same transition method. If adoption is elected in a period other than the beginning of a fiscal year, the amendments in these standards must be applied retrospectively to the beginning of the fiscal year. This guidance was effective for the Company’s current fiscal year beginning August 1, 2010.  The adoption of this guidance did not have a significant impact on the Company’s interim statements.
 
 Recently Issued Accounting Pronouncements
 In January 2010, the FASB issued additional guidance on fair value measurements and disclosures which requires reporting entities to provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy established by the existing guidance.  The guidance is effective for any fiscal year that begins after December 15, 2010, and it should be used for quarterly and annual filings.  The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.
  5
  GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 In May 2011, the FASB issued further guidance on fair value measurements and disclosures which requires the categorization by level for items that are only required to be disclosed at fair value and information about transfers between Level 1 and Level 2. In addition, the update provides guidance on measuring the fair value of financial instruments managed within a portfolio and the application of premiums and discounts on fair value measurements. The guidance requires additional disclosure for Level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. The guidance is effective for interim and annual periods beginning after December 15, 2011. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.
 
 3.
Stock-Based Compensation
 As of April 30, 2011, the Company had three stockholder-approved stock incentive plans under which shares and 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”), a total of 12,000,000 shares of common stock are reserved for issuance under the 2001 Stock Option Plan (the “2001 Plan”) and 30,000,000 shares of common stock are reserved for issuance under the 2006 Stock Plan (the “2006 Plan”).  Restricted shares can only be issued under the 2006 Plan.  At April 30, 2011, there were 2,000,000, 3,569,194 and 15,490,603 shares of common stock reserved for future awards under the 2000 Plan, 2001 Plan and 2006 Plan, respectively.
 
 The 2000, 2001 and 2006 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.
 
 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 were Non-Qualified Options. In addition, the 2006 Plan also provides for restricted stock grants.
 
 The fair value of each option granted is estimated on the grant date using the Black-Scholes option pricing model which takes into account as of the grant date the exercise price and expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock and the risk-free interest rate for the term of the option.
 
 In the case of restricted stock grants under the 2006 Plan, fair market value of the shares is established as the market price on the date of the stock grant.
 
 The following is a summary of the common stock options granted, forfeited or expired and exercised under the Plans for the nine months ended April 30, 2011:
 
 WeightedAverageExercise


AggregatePrice


IntrinsicOptions


Share


ValueOutstanding, August 1, 2010


7,465,638


$
0.49Granted


3,300,000



0.28Forfeited or expired


(2,695,704
)


0.39Exercised


(576,752
)


0.001


$
166,681Outstanding, April 30, 2011


7,493,182


$
0.47


$
120,900Exercisable, April 30, 2011


6,568,596


$
0.45


$
120,900
 
 The 7,493,182 outstanding options at April 30, 2011 had a weighted average remaining contractual term of 4.73 years.
 
 Grant Date Fair Value of Options Granted

$
0.21Grant Date Fair Value of Options Forfeited or Expired

$
0.56Total Intrinsic Value of Options Exercised

$
166,681
  6
  GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 The following is a summary of the non-vested common stock options granted, vested and forfeited under the Plan:
 
 Weighted AverageGrant DateOptions


Fair ValueOutstanding, August 1, 2010


2,021,669


$
0.53Granted


3,300,000



0.21Vested


(4,097,082
)


0.28Forfeited


(300,001
)


0.58Outstanding, April 30, 2011


924,586


$
0.50
 
 As of April 30, 2011, the Company had $324,118 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plans.  That cost is expected to be recognized over a weighted-average period of 2.1 years.
 
 4.
Comprehensive Loss
 Comprehensive loss, which includes net loss and the change in the foreign currency translation account, for the three months ended April 30, 2011 and 2010, was $4,041,033 and $4,447,496, respectively.  Comprehensive loss for the nine months ended April 30, 2011 and 2010 was $16,126,975 and $18,827,354, respectively.
 
 5.
Inventory
 Inventory consists of the following:
 
 April 30, 2011


July 31, 2010Raw materials

$
955,921


$
962,035Finished goods


517,736



949,848Total

$
1,473,657


$
1,911,883
 
 At April 30, 2011 and July 31, 2010, approximately 71% and 60%, respectively, of the inventory related to the Company’s Oral-lynTM product, while the remainder in each period related to the Company’s over-the-counter confectionary products.
 
 6.
Accounts Payable and Accrued Expenses
 Accounts payable and accrued expenses consist of the following:
 
 April 30, 2011


July 31, 2010Accounts Payable & Accruals – General and Administrative

$
3,635,240


$
3,480,340Accounts Payable & Accruals – Research and Development


1,913,112



2,621,514Accounts Payable & Accruals – Selling and Marketing


402,570



415,166Executive Compensation


—



37,694Total

$
5,950,922


$
6,554,714
  7
  GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 7.
Pending Litigation
 In February 2001, a former business associate of the former Vice President of Research and Development (“VP”) of the Company and an entity known as 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 CTI. The three patents are entitled Liquid Formulations for Proteinic Pharmaceuticals, Vaccine Delivery System for Immunization, Using Biodegradable Polymer Microspheres, and Controlled Releases of Drugs or Hormones in Biodegradable Polymer Microspheres.  It is the Company’s position that the buccal drug delivery technologies which are the subject matter of the Company’s research, development, and commercialization efforts, including Generex Oral-lynTM and the RapidMistTM Diabetes Management System, do not make use of, are not derivative of, do not infringe upon, and are entirely different from the intellectual property identified in the plaintiffs’ statement of claim. 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.
 
 On April 6, 2010, the Company commenced legal proceedings against TheStreet.com, Inc. and Adam Feuerstein in the Supreme Court of the State of New York (New York, NY) seeking $250,000,000 in damages for business defamation, product disparagement, and injurious falsehood.  The claims arise out of articles authored by Mr. Feuerstein and published on TheStreet.com website on March 19 and March 26, 2010.  In the complaint, the Company contends that the articles disseminate numerous defamatory statements about the Company, its management, and its flagship product, Generex Oral-lynTM, and that the articles put forward several ostensible statements of fact that are, in truth, misleading or outright misstatements made with malicious intent or with a reckless disregard for the truth.  Defendants have filed an answer denying the claims in the complaint and have served discovery requests on the Company.  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 damages that may be recovered, if any, from this legal proceeding.
 
 See Note 13 – Subsequent Events below for a description of legal proceedings commenced against the Company after the end of the Company’s third fiscal quarter ended April 30, 2011.
 
 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 consolidated 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.
 
 8.
Commitments
 On December 7, 2009, the Company entered into a long-term agreement with sanofi-aventis Deutschland GmbH (“sanofi-aventis”).  Under this agreement, sanofi-aventis will manufacture and supply recombinant human insulin to the Company in the territories specified in the agreement.  Through this agreement, the Company will procure recombinant human insulin crystals for use in the production of Generex Oral-lynTM.  The terms of the supply agreement require the Company to make certain minimum purchases of insulin from sanofi-aventis through the period ending December 31, 2011.To date, the Company has not met the minimum purchase commitments under this agreement.  After December 31, 2011, sanofi-aventis may terminate the agreement due to the Company’s failure to meet such purchase commitments.  Upon termination, the Company would be obligated to pay sanofi-aventis for all materials and components that it has acquired or ordered to manufacture insulin based on the Company’s forecasts or minimum purchase commitments, all related work-in-progress (at cost) and all finished insulin in inventory.
 
 On October 8, 2010, the Company entered into a purchase agreement with Global Medical Direct, LLC, a Kansas limited liability company (“GMD”), and all of the members of GMD, pursuant to which Generex will acquire fifty-one percent (51%) of the issued and outstanding equity interests of GMD.  Pursuant to the terms of the purchase agreement, Generex has agreed to pay to the members of GMD an aggregate amount of (i) $20,000,000 in cash and (ii) $5,000,000 payable in shares of restricted common stock of Generex, subject to the terms and conditions of the purchase agreement.   The closing is subject to the satisfaction or waiver of certain conditions, including Generex having secured the acquisition financing, the parties agreeing upon the amended terms of an operating agreement for GMD, the parties entering into a registration rights agreement with respect to the registration of the shares of Generex common stock issued as consideration and other customary closing conditions.  The purchase agreement contains certain termination rights of the parties, including the right of any party to terminate the purchase agreement if the parties cannot reach agreement on employment and consulting agreements and the amendment of the operating agreement of GMD and if the closing has not occurred by January 31, 2011 or such later date as the parties may agree upon.  On December 21, 2010, the parties agreed to extend the closing date until June 1, 2011.  In the event that the closing does not occur by June 1, 2011, the Company will be obligated to issue to the members of GMD an aggregate number of shares of the Company’s common stock having a value of $250,000 based on the average closing price per share of the common stock for the 20 trading days immediately preceding June 1, 2011.
  8
  GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 9.
Net Loss Per Share
 Basic earnings per share (“EPS”) and Diluted EPS for the three- and nine-month periods ended April 30, 2011 and 2010 have been computed by dividing the net loss available to common stockholders for each respective period by the weighted average shares outstanding during that period.  All outstanding stock options, non-vested restricted stock and warrants, representing approximately 65,084,765 and 44,778,883 incremental shares, have been excluded from the April 30, 2011 and 2010 computations of Diluted EPS as they are anti-dilutive, due to the losses generated during the respective periods.
 
 10.
Stockholders’ Equity
 
 Common Stock
 On January 25, 2011, the Company issued 12,720,000 shares of common stock and 12,000,000 warrants to purchase shares of common stock at exercise prices of $0.25 pursuant to a registered direct offering, in exchange for net cash proceeds after expenses of $2,925,000. The shares were priced at $0.25 per share based on a 15% discount to the quoted market price of the Company’s common stock on the date prior to the issuances.  Under the same securities purchase agreement, the investors had the option to purchase up to an additional $3,000,000 of shares of our common stock and warrants to purchase shares of common stock at the same price per share during the 60 days following the closing.  This option was extended twice and will expire on June 3, 2011.  During the period from March 25 to April 8, 2011, the investors purchased an additional 4,056,000 shares together with 4,056,000 warrants under this option for gross proceeds of $1,014,000.
 
 During the nine months ended April 30, 2011, the Company issued 4,552,085 shares of common stock to various consultants for services rendered in the amount of $1,797,355.  The shares were valued at $0.21 to $0.45 per share based on the quoted market price of the Company’s common stock on the dates of the issuances.
 
 During the nine months ended April 30, 2011, the Company issued 3,052,642 shares of common stock to various vendors as satisfaction of accounts payable and accrued expenses in the amount of $1,008,219.  The shares were valued at $0.29 to $0.49 per share based on the quoted market price of the Company’s common stock on the dates of the issuances.
 
 During the nine months ended April 30, 2011, the Company issued 254,480 shares of common stock valued at $75,749 as employee compensation.  The shares were valued at $0.22 to $0.50 per share based on the quoted market price of the Company’s common stock on the dates of the issuances.
 
 During the three months ended April 30, 2011, the Company granted 3,300,000 options to executives, directors and management employees, as compensation.  The total fair value of the options amounted to $692,010.  The options vested immediately and a charge of $692,010 was recorded at the date of grant.  The fair value of each option granted was estimated on the grant date using the Black-Scholes option pricing model, taking into account the grant date exercise price and current price of the underlying stock of $0.282, an expected life of the option of 5 years, an expected volatility of 101.3%, expected dividends on the stock of $0 and the risk-free interest rate for the term of the option of 0.13%.
 
 Stock option expense related to employee options granted in October 2009, resulting in a charge to operations during the nine-month period ended April 30, 2011 of $73,491.  Stock option expense related to executive options granted in March 2010 resulted in a charge to operations during the nine-month period ended April 30, 2011 of $119,974, in addition to the charge above of $692,010 related to the March 2011 option grants.
 
 During the nine months ended April 30, 2011, the Company issued 998,118 shares of common stock in conjunction with cashless exercises of 1,000,000 warrants.
  9
  GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 During the nine months ended April 30, 2011, the Company issued 576,752 shares of common stock in conjunction with an option exercise for total cash proceeds of $577.
 
 The stockholders’ equity transactions as described above are summarized below:
 
 Additional


TotalCommon Stock


Paid-In


Stockholders’Shares


Amount


Capital


EquityIssuance of common stock in private placement*


16,776,000


$
16,776


$
506,688


$
523,464Issuance of common stock for services


4,552,085



4,552



1,792,803



1,797,355Issuance of common stock as employee compensation


254,480



254



75,495



75,749Stock-based executive compensation


—



—



811,984



811,984Issuance of common stock as satisfaction of accounts payable and accrued expenses


3,052,642



3,053



1,005,167



1,008,220Issuance of common stock in conjunction with cashless exercise of warrants


998,118



998



(998
)


—Amortization of stock options as employee compensation


—



—



73,491



73,491Options exercised for cash


576,752



577



—



577Total


26,210,077


$
26,210


$
4,264,630


$
4,290,840
 
 * Total net proceeds were $3,939,000, of which $3,415,536 related to the fair value of the associated warrants issued in conjunction with the common stock which was reclassified to “Derivative Warrant Liability”.  See Note 11 - Derivative Warrant Liability.
 
 Warrants
 The following is a summary of warrants issued, forfeited or expired and exercised for the nine months ended April 30, 2011:
 
 WarrantsOutstanding, August 1, 2010


37,426,745Issued (see Note 11)


21,337,070Forfeited or expired


(172,232
)Exercised


(1,000,000
)Outstanding, April 30, 2011


57,591,583
 
 The outstanding warrants at April 30, 2011 have a weighted average exercise price of $0.46 per share.
 
 Certain of the warrants above have been reclassified from equity to liability in accordance with FASB Accounting Standards Codification (“ASC”) 815 and are not included in stockholders’ equity.  The Company has 37,840,410 warrants with a current exercise price of $0.25 and expiry dates which range from January 25, 2016 to September 30, 2016 which have price protection provisions that allow for the reduction in the current exercise price upon the occurrence of certain events, including the Company’s issuance of common stock or securities convertible into or exercisable for common stock, such as options and warrants, at a price per share less than the exercise price then in effect.  For instance, if the Company issues shares of its common stock or options exercisable for or securities convertible into common stock at an effective price per share of common stock less than the exercise price then in effect, the exercise price will be reduced to the effective price of the new issuance.  Simultaneously with any reduction to the exercise price, the number of shares of common stock that may be purchased upon exercise of each of these warrants shall be increased proportionately, so that after such adjustment the aggregate exercise price payable for the adjusted number of warrants shall be the same as the aggregate exercise price in effect immediately prior to such adjustment.
 
 The Company’s issuance of the following securities will not trigger the price protection provisions of the warrants described above that were issued in connection with the March 2008 private placement.  (a) shares of common stock or standard options to the Company’s directors, officers, employees or consultants pursuant to a board-approved equity compensation program or other contract or arrangement (up to an aggregate amount of 5,608,926, representing 5% of the common stock issued and outstanding immediately prior to March 31, 2008); (b) shares of common stock issued upon the conversion or exercise of any security, right or other instrument convertible or exchangeable into common stock (or securities exchangeable into common stock) issued prior to March 31, 2008; (c) the shares of common stock issued upon exercise of the warrants issued in March 2008; and (d) shares of common stock and warrants in connection with strategic alliances, acquisitions, mergers, and strategic partnerships, the primary purpose of which is not to raise capital, and which are approved in good faith by the Company’s board of directors (up to an aggregate number of 11,217,852, representing 10% of the shares of common stock issued and outstanding immediately prior to March 31, 2008). On January 25, 2011, the Company’s issuance of common stock triggered the price protection features of the warrants that were issued in March 2008 resulting in a decrease of the exercise price from $0.33 to $0.25 per share and an increase in the number of warrants from 16,503,340 to 21,784,410.
  10
  GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 The Company’s issuance of the following securities will not trigger the price protection provisions of the warrants issued on January 25, 2011 and in March and April 2011:   (I) (a) shares of common stock or options to employees, officers, or directors of the Company pursuant to plans approved by a majority of the non-employee directors of the Company or pursuant to independent contractors pursuant to other agreements or arrangements in existence as of January 24, 2011, (b) securities issued upon the exercise or exchange of or conversion of any securities issued under the Securities Purchase Agreement dated January 24, 2011 and/or other securities exercisable or exchangeable for or convertible into shares of common stock issued and outstanding on January 24, 2011, provided that such securities have not been amended since their issue date through the date of conversion, exercise or exchange to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (except certain adjustments to warrants expiring in March 2016 and September 2016 are not prohibited), and (c) shares of common stock or warrants to trade vendors of the Company approved by a majority of the non-employee members of the Board of Directors; provided that (II) (i) the shares issued under paragraphs I(a) and I(c) shall not, in the aggregate exceed 1,500,000 shares in each 30-day period during the first 90 days after January 24, 2011, (ii) there is a reasonable relationship between the value of the common stock or options issued pursuant to paragraphs I(a) and I(c) and the value of services rendered or goods provided and (iii) the Company does not rely in whole or in part on the exemptions provided in Sections 3(a)(9) or 3(a)(10) of the Securities Act.
 
 The Company accounts for the warrants with price protection provisions in accordance with FASB ASC Topic 815 as described in Note 11 - Derivative Warrant Liability below. As of April 30, 2011, there were a total of 37,840,410 warrants with an estimated fair value of $7,101,337, which are identified on the balance sheet under the caption “Derivative Warrant Liability”.
 
 11.
Derivative Warrant Liability
 The Company has warrants outstanding with price protection provisions that allow for the reduction in the exercise price of the warrants in the event the Company subsequently issues stock or securities convertible into stock at a price lower than the exercise price of the warrants.  Simultaneously with any reduction to the exercise price, the number of shares of common stock that may be purchased upon exercise of each of these warrants shall be increased proportionately, so that after such adjustment the aggregate exercise price payable for the adjusted number of warrants shall be the same as the aggregate exercise price in effect immediately prior to such adjustment.  As of August 1, 2009, the Company accounted for its warrants with price protection in accordance with FASB ASC Topic 815.
 
 Accounting for Derivative Warrant Liability
 The Company’s derivative warrant instruments have been measured at fair value at April 30, 2011, January 31, 2011, October 31, 2010 and July 31, 2010 using the binomial lattice model.  The Company recognizes all of its warrants with price protection in its consolidated balance sheets as liabilities.  The liability is revalued at each reporting period and changes in fair value are recognized currently in the consolidated statements of operations.  The initial recognition and subsequent changes in fair value of the derivative warrant liability have no effect on the Company’s consolidated cash flows.
 
 The derivative warrants outstanding at April 30, 2011 are all currently exercisable with a weighted-average remaining life of 4.89 years.
 
 The revaluation of the warrants at each reporting period resulted in the recognition of income of $1,993,920 and $3,793,793 for the nine months ended April 30, 2011 and 2010, respectively and resulted in income of $925,703 and $2,776,278 for the three months ended April 30, 2011 and 2010, respectively.  The respective gains and losses are reported under the caption “Change in fair value of derivative warrant liability” within the Company’s consolidated statements of operations.  The fair values of the warrants at April 30, 2011 and July 31, 2010 were $7,101,337 and $5,679,721, respectively, which are reported on the consolidated balance sheet under the caption “Derivative Warrant Liability”.  The following summarizes the changes in the fair value of the derivative warrant liability and number of warrants subject to classification as derivatives for the nine-month period ended April 30, 2011:
 
 Value


No. of WarrantsBalance at July 31, 2010 – Derivative warrant liability

$
5,679,721



16,503,340Additional warrants issued in January to April 2011 financings


3,415,536



16,056,000Additional warrants from price protection features of existing warrants


1,117,941



5,281,070Decrease in fair value of derivative warrant liability


(3,111,861
)


n/aBalance at April 30, 2011 – Derivative warrant liability

$
7,101,337



37,840,410
  11
  GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Fair Value Assumptions Used in Accounting for Derivative Warrant Liability
 The Company has determined its derivative warrant liability to be a Level 2 fair value measurement and uses the binomial lattice pricing model to calculate the fair value at the end of each fiscal period.
 
 The binomial lattice model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate.  Because the warrants contain the price protection feature, the probability that the exercise price of the warrants would decrease as the stock price decreased was incorporated into the valuation calculations.  The key inputs used in the July 31, 2010, October 31, 2010, January 31, 2011 and April 30, 2011 fair value calculations were as follows:
 
 April 30,


January 31,


October 31,


July 31,2011


2011


2010


2010Current exercise price

$
0.25


$
0.25


$
0.33


$
0.33Time to expiration (years)


4.89



5.15



5.49



5.75Risk-free interest rate


1.93
%


2.01
%


1.35
%


1.87
%Estimated volatility


104
%


105
%


105
%


104
%Dividend yield


-0-



-0-



-0-



-0-Current stock price

$
0.22


$
0.25


$
0.344


$
0.40
 
 12.
Qualifying Therapeutic Discovery Project Program
 In the Company’s second fiscal quarter ended January 31, 2011, the Company’s wholly-owned subsidiary Antigen Express, Inc. received notification that it had been awarded a total cash grant of $488,959 under the Qualifying Therapeutic Discovery Project program administered under Section 48D of the Internal Revenue Code, all of which relates to qualifying expenses that had previously been incurred.  The Company recognized the full amount of the grant in the quarter the grant was received, as the Company has already incurred all of the qualifying expenses and the amount has been fully received.  Since this program is non-recurring in nature, the Company elected to classify this payment as other income in the consolidated statements of operations for the nine-month period ended April 30, 2011 and it is reported in the “Miscellaneous Income” line item.
 
 13.
Subsequent Events
  Developments – Pending Legal Proceedings
 
 In May 2011, Rose C. Perri, the Company’s former Chief Operating Officer and Chief Financial Officer, commenced two proceedings against the Company.  On May 11, 2011, Ms. Perri filed a notice of application in the Ontario Superior Court of Justice against the Company, two of its affiliates (1097346 Ontario, Inc. and Generex Pharmaceuticals Inc.), the Company’s directors (John P. Barratt, Nola Masterson and Brian T. McGee), the President and Chief Executive Officer (Mark A. Fletcher), the Chief Operating Officer (David Brusegard) and the Acting Chief Financial Officer (Stephen Fellows).  In the notice of application, Ms. Perri sought, among other things, a declaration that respondents’ actions, including the termination of Ms. Perri’s employment with the Company, have prejudiced her interest as a shareholder, officer and director of the Company, an order for the production of certain financial records, and the appointment of an interim receiver for our two affiliates.  A scheduling hearing to set a timetable for this proceeding will likely be held in the latter part of June.  The Company intends to vigorously defend this action and 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.
 
 On May 20, 2011, Ms. Perri filed a statement of claim in the Ontario Superior Court of Justice, naming as defendants the Company, Mr. Barratt, Ms. Masterson, Mr. McGee, Mr. Fletcher and Joseph Moscato, the principal of Seahawk Capital Partners, Inc., a financial advisor to the Company.  In this action, Ms, Perri has alleged that defendants engaged in discrimination, harassment, bad faith and infliction of mental distress in connection with the termination of her employment with the Company.  Ms. Perri is seeking damages in this action in excess of US $6,000,000 for, among other things, breach of contract, breach of fiduciary duty, violations of the Ontario Human Rights Code and aggravated and punitive damages.  The Company intends to respond to this statement of claim and to defend this action vigorously and 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.
  12
  GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Amarantus - Letter of Agreement
 
 On May 30, 2011, the Company entered into a binding letter agreement with Amarantus Biosciences, Inc. (“Amarantus”), relating to an arrangement for intellectual property licensing and collaboration.  Pursuant to the letter agreement, definitive agreements will be delivered on July 15, 2011.  Under the letter agreement, the Company will grant an exclusive, worldwide license to its buccal drug delivery technologies to Amarantus for use with certain of Amarantus’ proprietary technologies in exchange for a non-refundable license fee of $10 million.   Amarantus will bear all costs associated with such use, but the Company will retain ownership of any improvements to its buccal drug delivery technologies.  The license fee will be payable in whole or in part in shares of Amarantus common stock.  The number of shares of Amarantus common stock to be issued to the Company on the closing date in payment of the license fee may not exceed 9.99% of Amarantus’ issued and outstanding shares of common stock.  To the extent the license fee is not paid by Amarantus common stock, the remaining balance will be paid pursuant to a Promissory Note to be issued to the Company for the balance of the license fee.  The Company will have the option to terminate the letter agreement if, on the closing date, either: (1) the number of shares of Amarantus common stock issued in part payment of the license fee is less than 7,125,000 shares, or (2) the amount of the Promissory Note issued in payment of the remainder of the license fee is more than $5,000,000.
 
 In addition, the parties will collaborate in the research and development of certain of Amarantus’ proprietary technologies for application in the treatment of diabetes.  The Company will fund direct expenditures incurred in the collaborative research and development in accord with a budget to be agreed upon, up to a maximum of $5,000,000 over a period of three years.  The Company will have the option to acquire licenses to certain Amarantus technologies in connection with collaborative developments in the treatment of diabetes.
 
 The letter agreement provides that Amarantus will pay the Company a 10% royalty on future gross sales of products which use the Company’s technologies, in addition to milestone payments upon achieving certain levels of gross sales and royalties representing a portion of any licensing or sublicensing arrangements that Amarantus enters into for the commercialization of products which use the Company’s technologies.
  The Company has evaluated subsequent events occurring after the balance sheet date through the date the consolidated financial statements were issued.
  13


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. The following discussion and analysis by management provides information with respect to our financial condition and results of operations for the three- and nine-month periods ended April 30, 2011 and 2010. This discussion should be read in conjunction with the information contained in Part I, Item 1A - Risk Factors and Part II, Item 8 - Financial Statements and Supplementary Data in our Annual Report on Form 10-K for the year ended July 31, 2010, as amended, and the information contained in Part I, Item 1 - Financial Statements and Part II, Item 1A- Risk Factorsin this Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2011.





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 April 30, 2011 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 “may,” "expects," “anticipates,” "plans," "intends," "believes," "will," "estimates"  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:





·
our expectations concerning product candidates for our technologies;





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





·
our expectations of when different phases of clinical activity may commence and conclude;





·
our expectations of when regulatory submissions may be filed or when regulatory approvals may be received; and





·
our expectations of when commercial sales of our products may commence and when actual revenue from the product sales may be received.





Any or all of our forward-looking statements may turn out to be wrong. They may be affected by inaccurate assumptions that we might make or by known or unknown risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in our forward-looking statements. Among the factors that could affect future results are:





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





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





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





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





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





·
the volatility of, and recent decline in, our stock price;





·
the delisting from NASDAQ for failure to satisfy the minimum bid price requirement; and





·
our ability to obtain the necessary financing to fund our operations and effect our strategic development plan.





Additional factors that could affect future results are set forth in Part I, Item 1A Risk Factors of our Annual Report on Form 10-K for the year ended July 31, 2010, as amended, and in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q. 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 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.


14




Executive Summary





Overview of Business





We are engaged primarily in the research, development and commercialization of drug delivery systems and 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. Through our wholly-owned subsidiary, Antigen Express, Inc., we have expanded our focus to include immunomedicines incorporating proprietary vaccine formulations which are focused on oncology and infectious diseases.





We believe that our buccal delivery technology is a platform technology that has application to many large molecule drugs and provides a convenient, non-invasive and accurate way to administer such drugs. We have identified several large molecule drugs as possible candidates for development, including estrogen, heparin, monoclonal antibodies, human growth hormone and fertility hormone, but to date have focused our development efforts primarily on one pharmaceutical product, Generex Oral-lynTM, an insulin formulation administered as a fine spray into the oral cavity using our proprietary hand-held aerosol spray applicator known as RapidMistTM.





Our subsidiary, Antigen Express, concentrates on developing proprietary vaccine formulations that work by stimulating the immune system to either attack offending agents (i.e., cancer cells, bacteria, and viruses) or to suppress the immune system from attacking self proteins (i.e., autoimmune diseases).  Our immunomedicine products are based on two platform technologies, Ii-Key hybrid peptides and Ii-Suppression, that were discovered by Antigen’s founder and which are both in the early stages of development.  We are currently conducting a Phase II clinical trial of one of Antigen’s synthetic peptides; an immunotherapeutic vaccine designed to stimulate a potent and specific immune response against tumors expressing the HER-2/neu oncogene in patients with HER-2/neu positive breast cancer.  In addition, two Phase I trials have been completed; one in patients with Her-2/neu positive prostate cancer and one designed to protect against avian influenza.  An additional Phase I trial has been initiated in patients with either Her-2/neu positive breast or ovarian cancer.  We believe that synthetic vaccine technology has particular advantages for pandemic or potentially pandemic viruses, such as the H5N1 avian and H1N1 swine flu, in that it can be used to quickly and inexpensively synthesize a vaccine against new pandemic strains as they emerge.  In addition to pandemic influenza viruses, development efforts are also underway for seasonal influenza virus, HIV, HPV, melanoma, ovarian cancer, allergy and Type I diabetes mellitus.  We have established collaborations with clinical investigators at academic centers to advance these technologies.





On March 30, 2011, our realigned management team announced its strategic development plan for Generex’s future growth. The plan includes the spin-out of Antigen Express, a reverse stock split for Generex and a rights offering to Generex stockholders. As proposed, we would spin out Antigen Express as a separate DTC-eligible company, register its shares with the Securities and Exchange Commission (the “SEC”), and seek to list its shares on a national securities exchange. Management believes that the spin-out would increase value for stockholders and provide Antigen Express with ready access to capital markets to finance its on-going clinical and regulatory initiatives. Management further believes that the spin-out would benefit Generex, by allowing Generex to hold a controlling interest in a publicly-traded company while continuing to focus on maximizing opportunities for its buccal drug delivery platform. The spin-out would be accomplished by the issuance of one or more dividends of Antigen Express stock to Generex stockholders. The record dates in respect of such dividends have not yet been determined. Subject to market conditions and the satisfaction of regulatory requirements, it is expected that the Antigen Express spin-out would occur sometime after Generex’s annual meeting of stockholders, scheduled for June 8, 2011.





As part of its strategic development plan, management is also seeking shareholder approval of a reverse stock split proposal at the June 8, 2011 annual meeting of stockholders.  If stockholders approve the proposal, our Board of Directors would only seek to implement a reverse stock split in conjunction with an effort to list our common stock on a national stock exchange.  In addition, any such reverse stock split would include a proportionate reduction in our authorized capital.  While management has had preliminary discussions with an exchange, there are other significant conditions, in addition to the minimum share price, which must be met before we can be considered for listing.  Management and the Board of Directors believe that if a listing of the common stock can be achieved, we would have better and more flexible access to the funding required to achieve commercialization of our buccal drug delivery platform technologies.  This Form 10-Q is not a substitute for the definitive proxy statement that Generex filed with the SEC on April 15, 2011 or any other document that Generex may file with the SEC or may send to its stockholders in connection with the proposed action.  INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT AND ALL OTHER RELEVANT DOCUMENTS THAT MAY BE FILED WITH THE SEC OR SENT TO SHAREHOLDERS AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED REVERSE STOCK SPLIT.  All documents, when filed by Generex, will be available free of charge at the SEC’s website (www.sec.gov).  In addition, Generex and its respective directors and executive officers may be deemed under the rules of the SEC to be participants in the solicitation of proxies from the stockholders of Generex.  A list of the names of those directors and executive officers and descriptions of their interests in Generex are contained in the definitive proxy statement filed by Generex with the SEC.  Stockholders may obtain additional information about the interests of the directors and executive officers in the proposed action by reading the definitive proxy statement.


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Management also previously announced that its strategic development plan contemplates a rights offering of common stock and warrants to our stockholders in the event that we receive approval for a reverse stock split at the annual meeting of stockholders and our common stock is listed for trading on a national stock exchange.  The amount of the offering has not been determined and will be subject to prevailing market conditions. Certain warrant holders will also have the right to participate in the offering.  We would file a registration statement with the SEC in connection with such a rights offering following stockholder approval of a reverse stock split and listing of our common stock on a national stock exchange.  We expect that the offering and the distribution of rights would commence promptly following effectiveness of the registration statement.  We plan to use the proceeds from the rights offering primarily to fund on-going research and development and product commercialization initiatives.  The record date for the distribution of the rights and the dates for both the subscription period and the expiration of the rights offering would be included in the final prospectus.  Under the proposed terms of the rights offering, we would distribute one right to each holder of record of every share of our common stock that is held on the record date.  Each transferable right would entitle the stockholder to purchase one unit at a subscription price to be determined prior to the effective date of the registration statement.  Each unit would consist of one share of common stock and two warrants to purchase additional shares of common stock.  This quarterly report on Form 10-Q does not constitute an offer of any securities for sale or a solicitation of an offer to buy any securities.





Generex Oral-lynTM





Regulatory Approvals and Clinical Trials





To date, we have received regulatory approval in Ecuador, India, Lebanon and Algeria for the commercial marketing and sale of Generex Oral-lynTM, although as per the terms and conditions of the regulatory approval in India, a local clinical study must be conducted before the product can be offered for commercial sale in that country.





In March 2008, we initiated Phase III clinical trials for this product in the U.S. with the first patient screening for such trials at a clinical study site in Texas. To date, over 450 subjects have been enrolled in 65 clinical sites around the world, including sites in the United States, Canada, Ecuador, Bulgaria, Poland, Romania, Russia and Ukraine. The final subjects are expected to complete the trial in the third calendar quarter of 2011 and results from the trial should be finalized by the end of the 2011 calendar year.





We have submitted regulatory dossiers for Generex Oral-lynTM in a number of other countries including Syria, Bangladesh, Kenya, Yemen, Iran, Sudan, Jordan and Armenia.  While we believe these countries will ultimately approve our product for commercial sale, it could be some time before these approvals are received and as such we do not anticipate recognizing any revenues for these jurisdictions in the current calendar year.





Special Access Programs





In October 2009, we received approval from the U.S. Food and Drug Administration (the “FDA”) to charge to recover costs for the treatment use of Generex Oral-lynTM in patients with Type 1 or Type 2 diabetes mellitus in the FDA’s Treatment Investigational New Drug program that provides for early access to investigational treatments for life-threatening or otherwise serious conditions.





We received a Special Access Program (“SAP”) authorization from Health Canada for a patient-specific, physician-supervised treatment of Type-1 diabetes with Generex Oral-lynTM in April 2008. SAP provides access to non-marketed drugs for practitioners treating patients with serious or life-threatening conditions when conventional therapies have failed, are not available or unsuitable. We received a similar authorization from health authorities in Netherlands in September 2008.  We will continue to expand our SAP participation in additional countries around the world.





Marketing





We have entered into licensing and distribution agreements with a number of multinational distributors to assist us with the process of gaining regulatory approval for the registration, marketing, distribution, and sale of Generex Oral-lynTM in countries throughout the world, including:





·
Shreya Life Sciences Pvt. Ltd. for India, Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka, and Myanmar;


·
Adcock Ingram Limited and Adcock Ingram Healthcare (Pty) Ltd. for South Africa, Lesotho, Swaziland, Botswana, Namibia, Mozambique and Zimbabwe;


·
E&V Alca Distribution Corp. for Albania, Montenegro, and Kosovo;


·
Medrey S.A.L. (formerly MedGen Corp.) and Benta S.A.L. for Lebanon;


·
SciGen, Ltd. for China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam;


·
Pharmaris Perus S.A.C. for Peru;


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·
MediPharma SA for Argentina


·
PMG S.A. for Chile; and


·
Dong Sung Pharm. Co. Ltd. for South Korea.





In August 2008, we entered into a product licensing and distribution agreement with Dong Sung Pharm Co. Ltd. for the importation, marketing, distribution and sale of Generex Oral-lynTM in South Korea.  Under the seven-year agreement, Dong-Sung will have an exclusive license.  Per the terms of the agreement, they paid us a USD $500,000 non-refundable license fee upon execution and will pay us a USD $500,000 non-refundable license fee at such time as governmental approval for the importation, marketing, distribution and sale of the product in South Korea is obtained.  Under this agreement, we are responsible for procuring such governmental approval.  In addition, when it places its first purchase order, Dong-Sung will make a pre-payment to us in the amount of USD $500,000, which will be applied against product purchase orders.





Our Generex MENA office, located in Dubai Healthcare City, has filed submissions of the Generex Oral-LynTM dossier with regulatory agencies throughout the Middle East and North Africa and has established a distribution network in over 20 countries.  This distribution network is responsible for following up with dossiers submitted in their specific regions and has been distributing the company’s confectionary line of products.





In India, a marketing plan has already been submitted by Shreya Life Sciences Pvt. Ltd., to Generex on the marketing strategy for the distribution of Oral RecosulinTM, which is the trademark under which Shreya will market Generex Oral-lynTM within India.  Per the requirements of the regulatory approval in India, an in-country clinical study must be completed in India with Oral RecosulinTM before commercial sales can commence.  The study is currently under way and when concluded the outcomes will be submitted to the Indian regulatory agency for approval.  Completion of the study and regulatory agency approval is not currently expected until the second quarter of 2012, after which time commercial sales can commence.





Cancer and Immunotherapeutic Vaccine Platforms





Our wholly-owned subsidiary Antigen Express is developing proprietary vaccine formulations based upon two platforms, Ii-Key hybrid peptides and Ii-Suppression, that were discovered by its founder. These technologies are applicable for either antigen-specific immune stimulation or suppression, depending upon the dosing and formulation of its products. Using active stimulation, we are focusing on major diseases such as breast, prostate and ovarian cancer, melanoma, influenza (including H5N1 avian and H1N1 swine flu) and HIV. Autoimmune disease such as diabetes and multiple sclerosis are the focus of our antigen-specific immune suppression work.





Antigen’s immunotherapeutic vaccine AE37 is currently in Phase II clinical trials for patients with HER-2/neu positive breast cancer.  The trial is being conducted with the United States Military Cancer Institute's (USMCI) Clinical Trials Group and will examine the rate of relapse in patients with node-positive or high-risk node-negative breast cancer after two years.  The study is randomized and will compare patients treated with AE37 plus the adjuvant GM-CSF versus GM-CSF alone.  The Phase II trial follows a Phase I trial that demonstrated safety, tolerability, and immune stimulation of the AE37 vaccine in breast cancer patients.





Based on positive results in trials of the AE37 vaccine in breast cancer patients, we entered into an agreement in August 2006 with the Euroclinic, a private center in Athens, Greece, to commence clinical trials with the same compound as an immunotherapeutic vaccine for prostate cancer. A Phase I trial involving 29 patients was completed in August 2009, which similarly showed safety, tolerability and induction of a specific immune response.  Agreements are in place for initiation of a Phase II clinical trial.





The same technology used to enhance immunogenicity is being applied in the development of a synthetic peptide vaccine for H5N1 avian influenza and the 2009 H1N1 swine flu.  In April 2007, a Phase I clinical trial of Antigen’s proprietary peptides derived from the hemagglutinin protein of the H5N1 avian influenza virus was initiated in healthy volunteers in the Lebanese-Canadian Hospital in Beirut, Lebanon.  We have completed the first portion of the Phase I trial.  Modified peptide vaccines for avian influenza offer several advantages over traditional egg-based or cell-culture based vaccines.  Modified peptide vaccines can be manufactured by an entirely synthetic process which reduces cost and increases both the speed and quantity of vaccine relative to egg- or cell-culture based vaccines.  Another advantage is that the peptides are derived from regions of the virus that are similar enough in all H5N1 virus strains such that they would not have to be newly designed for the specific strain to emerge in a pandemic.





We have filed a Physician’s Investigational New Drug application for the Phase I and Phase II trials in patients with stage II HER-2/neu positive breast cancer with the FDA.  The Phase I trial was completed at the Walter Reed Army Medical Center in Washington, D.C., and the Phase II trial is taking place at 13 sites, including 11 in the U.S., one in Germany and one in Greece.  A Physician’s Investigational New Drug application for a Phase I trial in patients with breast or ovarian cancer has been filed with the FDA, and this Phase I trial is being conducted in Dallas, Texas at the Mary Crowley Cancer Center.  Applications were filed and approvals obtained for a Phase I prostate cancer trial using AE37 in Athens, Greece from the Hellenic Organization of Drugs, and this Phase I trial was completed in August 2009.  The Ministry of Health in Lebanon gave approval for Phase I trial of our experimental H5N1 prophylactic vaccine in Beirut, Lebanon following submission of an application.  All other immunomedicine products are in the pre-clinical stage of development.


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Over-The-Counter Glucose Product Line





Using our buccal delivery technology, we have launched an over-the-counter glucose spray, Glucose RapidSprayTM. In addition, we have entered into a marketing and distribution agreement with Merck, S.A. de C.V. in Mexico for the distribution of, Glucose RapidSprayTM brand formulated glucose spray product.  Merck will market and distribute the product in Mexico as Diabion® GlucoShot®. To date, we have received modest revenues from sales of these products which are available in retail stores and independent pharmacies in the United States and Canada.





Other Product Candidates





In October 2008, we announced the enrollment of subjects in our bioequivalence clinical trial of MetControlTM, our proprietary Metformin medicinal chewing gum product, conducted in the United States.  Fertin Pharma A/S, a leading Danish manufacturer of medicinal chewing gum, produced clinical materials for the trial.  The protocol for the study was an open-label, two-treatment, two-period, randomized, crossover study comparing MetControlTM and immediate release MetforminTM tablets in healthy volunteers. The study results that we received and analyzed in December 2008 demonstrated bioequivalence and will allow us to proceed with additional research and developmental initiatives and to consider regulatory agency registration applications.  We have not expended resources to further this product during our last fiscal year or during the first three quarters of this fiscal year.





Competition





We face competition from other providers of alternate forms of insulin. Some of our most significant competitors, Pfizer, Eli Lilly, and Novo Nordisk, have previously announced that they will discontinue development and/or sale of their inhalable forms of insulin.  In May 2009, Mannkind  Corporation submitted an NDA to the FDA requesting approval to market AFREZZA(R) (insulin human [rDNA origin]) Inhalation Powder, for the treatment of adult patients with Type 1 and Type 2 diabetes for the control of hyperglycemia, and the NDA is still currently under review by the FDA.  Generex Oral-lynTM is not an inhaled insulin; rather, it is a buccally absorbed formulation with no residual pulmonary deposition. We believe that our buccal delivery technology offers several advantages over inhaled insulin, including the avoidance of pulmonary inhalation, which requires frequent physician monitoring, ease of use and portability. In addition to other delivery systems for insulin, there are numerous products, such as sulfonylureas (Amaryl®and Glynase®), biguanides (branded and generic metformin products), thiazolidinediones (Avandia®and Actos®), glucagon-like peptide 1 (Byetta®and Victoza®), and dipeptidyl peptidase IV inhibitors (Januvia® and OnglyzaTM), which have been approved for use in the treatment of Type 2 diabetics in substitution of, or in addition to, insulin therapy. These products may also be considered competitive with insulin products.





Large pharmaceutical companies such as Merck & Co., Inc., GlaxoSmithKline PLC, Novartis, Inc., MedImmune Inc. (a subsidiary of Astra-Zeneca, Inc.) and others, also compete in the oncology, immunomedicine and vaccine markets.  These companies have greater experience and expertise in securing government contracts and grants to support research and development efforts, conducting testing and clinical trials, obtaining regulatory approvals to market products, as well as manufacturing and marketing approved products.   As such, they are also considered significant competitors in these fields of medicines.  There are also many smaller companies which are pursuing similar technologies in these fields and are competitors of Generex.





Brief Company Background





We are a development stage company. From inception through the end of the fiscal quarter ended April 30, 2011, we have received only limited revenues from operations. In the first three quarters of fiscal 2011 and cumulatively since inception in November 1995, we have earned $269,086 and $5,059,591, respectively in revenue. This revenue has been comprised mainly of the sale of our confectionary products, although we have recognized $600,000 relating to upfront license fees for the signing of license and distribution agreements for Generex Oral-lynTM. These numbers do not reflect deferred sales to customers during the respective periods with the right of return.





We operate in only one segment: the research, development and commercialization of drug delivery systems and technologies for metabolic and immunological diseases.





We were incorporated in the State of Delaware in 1997. Our principal executive offices are located at 33 Harbour Square, Suite 202, Toronto, Canada, and our telephone number at that address is (416) 364-2551. We maintain an Internet website at www.generex.com.  We make available free of charge on or through our website our filings with the SEC.





Accounting for Research and Development Projects





Our major research and development projects are the refinement of our platform buccal delivery technology, our buccal insulin project (Generex Oral-lynTM), our buccal morphine product and Antigen’s peptide immunotherapeutic vaccines.


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During the first three quarters of the current fiscal year and during the last fiscal year, we expended resources on the clinical testing and commercialization, of our buccal insulin product, Generex Oral-lynTM. In July 2007, we received no objection from the FDA to proceed with our long-term multi-center Phase III study protocol for Generex Oral-lynTM, which study is ongoing. Late-stage trials involve testing our product with a large number of patients over a significant period of time. The completion of late-stage trials in Canada and eventually the United States may require significantly greater funds than we currently have on hand.





While Generex Oral-lynTM has received regulatory approval in Ecuador, India (subject to the completion of an in-country study), Lebanon and Algeria, we have not recognized any revenue from sales of Generex Oral-lynTM in Ecuador, India or Algeria to date  and only modest revenues in Lebanon.  We do not expect that the near-term revenues from the sales of Generex Oral-lynTM in the countries where we currently have regulatory approval will be sufficient to sustain our research and development and regulatory activities.





Although we have initiated the regulatory approval process for our morphine and fentanyl buccal products, we did not expend resources to further this product during our last fiscal year or during the first three quarters of this fiscal year.





During the first three quarters of the current fiscal year and during the last fiscal year, we expended resources on research and development relating to Antigen’s peptide immunotherapeutic vaccines and related technologies. Antigen has one vaccine currently in Phase II clinical trials in the United States involving patients with HER-2/neu positive breast cancer and has completed a Phase I clinical trial for a vaccine for H5N1 avian influenza at the Lebanese-Canadian Hospital in Beirut. Antigen’s prostate cancer vaccine based on AE37 has been tested in a completed (August 2009) Phase I clinical trial in Greece. Preliminary pre-clinical work has commenced with respect to the experimental vaccine for patients with acute myeloid leukemia at Beijing Daopei Hospital in China.





Because of various uncertainties, we cannot predict the timing of completion and commercialization of our buccal insulin in all jurisdictions or Antigen’s peptide immunotherapeutic vaccines or related technologies. These uncertainties include the success of current studies, our ability to obtain the required financing and the time required to obtain regulatory approval even if our research and development efforts are completed and successful, our ability to enter into collaborative marketing and distribution agreements with third-parties, and the success of such marketing and distribution arrangements. For the same reasons, we cannot predict when any products may begin to produce net cash inflows.





Most of our buccal delivery research and development activities to date have involved developing our platform technology for use with insulin. Insubstantial amounts have been expended on projects with other drugs, including morphine and fentanyl, and those projects involved a substantial amount of platform technology development. As a result, we have not made significant distinctions in the accounting for research and development expenses among products, as a significant portion of all research has involved improvements to the platform technology in connection with insulin, which may benefit all of our potential buccal products. During the nine months ended April 30, 2011, approximately 75% of our total $7,859,382 in research expenses was attributable to insulin and platform technology development, and we did not have any research expenses related to morphine, fentanyl or other buccal projects.  During the nine months ended April 30, 2010, approximately 85% of our $9,929,088 in research expenses was attributable to insulin and platform technology development, and we did not have any research expenses related to morphine, fentanyl or other buccal projects.





Approximately 25%, or $1,943,155, of our research and development expenses for the nine months ended April 30, 2011 was related to Antigen's immunomedicine products compared to approximately 15%, or $1,492,800, of our research and development expenses for the nine months ended April 30, 2010.  Because these products are in initial phases of clinical trials or early, pre-clinical stage of development (with the exception of the Phase II clinical trials of Antigen HER-2/neu positive breast cancer vaccine that are underway), all of the expenses were accounted for as basic research and no distinctions were made as to particular products. Due to the early stage of development, we cannot predict the timing of completion of any products arising from this technology, or when products from this technology might begin producing revenues.





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.  These principles require 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:


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Going Concern.  As shown in the consolidated interim financial statements, we have not been profitable and have reported recurring losses from operations.  These factors raise substantial doubt about our ability to continue to operate in the normal course of business.  The consolidated interim financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.





Revenue Recognition. Net sales of our over-the-counter confectionary products are generally recognized in the period in which the products are delivered. Delivery of the products generally completes the criteria for revenue recognition for us. In the event where the customers have the right of return, sales are deferred until the right of return lapses, the product is sold to a third party or a provision for returns can be reasonably estimated based on historical experience.





Inventory. Inventories are stated at the lower of cost or market with cost determined using the first-in first-out method. Management considers such factors as the amount of inventory on hand and in the distribution channel, estimated time to sell such inventory, inventories shelf life and current market conditions when determining whether the lower cost or market is used. As appropriate, a provision is recorded to reduce inventories to their net realizable value.  Inventory also includes the cost of products sold to the customers with the rights of return.





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 accounting for the impairment 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.





Share-based compensation. Management determines value of stock-based compensation to employees in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718, Compensation – Stock Compensation.  Management determines value of stock-based compensation to non-employees and consultants in accordance with and ASC 505, Equity-Based Payments to Non-Employees.





Derivative warrant liability.  FASB ASC 815, Derivatives and Hedging, requires all derivatives to be recorded on the balance sheet at fair value for fiscal years beginning after December 15, 2008.  As a result, certain derivative warrant liabilities (namely those with a price protection feature) are now separately valued as of August 1, 2009 and accounted for on our balance sheet, with any changes in fair value recorded in earnings.  For our balance sheet as of July 31, 2010 and April 30, 2011, we used the binomial lattice model to estimate the fair value of these warrants.  Key assumptions of the binomial lattice option-pricing model include the market price of our stock, the exercise price of the warrants, applicable volatility rates, risk-free interest rates, expected dividends and the instrument’s remaining term.  These assumptions require significant management judgment.  In addition, changes in any of these variables during a period can result in material changes in the fair value (and resultant gains or losses) of this derivative instrument.  Prior to the adoption of the binomial lattice method, we used the Black-Scholes option-pricing model to estimate the fair value of these warrants.  The binomial lattice model was adopted as management determined that it may provide a better estimate of the fair value of these warrants.  The binomial lattice model was adopted for the July 31, 2010 valuation date and was applied on a prospective basis.





Results of Operations


Three Months Ended April 30, 2011 Compared to Three Months Ended April 30, 2010





Our net loss for the quarter ended April 30, 2011 was $4,116,953 versus $4,567,550 in the corresponding quarter of the prior fiscal year. The decrease in net loss in this fiscal quarter versus the corresponding quarter of the prior fiscal year is primarily due to a reduction in expenses in all major categories, as compared to the corresponding prior year quarter, offset by a lower gain on the change in fair value of the derivative warrant liability versus the prior year quarter.  Our operating loss for the quarter ended April 30, 2011 decreased to $5,061,959 compared to $7,361,288 in the third fiscal quarter of 2010.  The decrease in operating loss resulted from a decrease in selling expense (to $207,848 from $759,403), a decrease in research and development expenses (to $1,754,325 from $3,452,798), and a decrease in general and administrative expenses (to $3,109,887 from $3,266,725).  Our revenues in the quarter ended April 30, 2011 decreased to $65,583 from $327,698 for the quarter ended April 30, 2010 reflecting lower sales of our over-the-counter products.


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The decrease in research and development expenses in the current fiscal quarter versus the comparative quarter in the previous fiscal year, is primarily due to timing differences related to the clinical costs associated with the global Phase III clinical trials of our oral insulin product and platform technology, as well as the timing of earlier stage (pre-clinical, Phase I and Phase II) clinical trials related to the Antigen immunotherapy products versus the previous fiscal year’s quarter. Generally, costs relating to the Phase III oral insulin clinical studies have been decreasing as we progress closer to the conclusion of the current study, while costs relating to the Antigen Phase II breast cancer trials are increasing as we progress further in to the studies and enroll more patients. The decrease in general and administrative expenses is primarily related to a decrease in financial and consulting services expenses in the quarter ended April 30, 2011, as compared to the previous year quarter ended April 30, 2010. The decrease in selling expenses for the quarter ended April 30, 2011 versus the prior year comparative quarter is associated with decreased advertising and promotion relating to our over-the-counter products.





Our interest expense in the third quarter of fiscal 2011 decreased slightly to $52,301, compared to interest expense of $53,326 in the third quarter of fiscal 2010.   Our interest income decreased slightly to $1,154 in the third quarter of fiscal 2011, compared to $3,411 in the same quarter for the last year, due to lower average cash balances.  We recognized a slightly higher income from rental operations (net of expense) of $70,450 in the third quarter of fiscal 2011 compared to $67,375 in the same quarter of the previous fiscal year due to the strengthening of the Canadian dollar exchange rate against the U.S. dollar.  The change in fair value of the warrants carried as a derivative liability contributed a gain of $925,703 in the current quarter, compared to a gain of $2,776,278 in the comparable quarter last year.





Nine months ended April 30, 2011 Compared to Nine months ended April 30, 2010





Our net loss for the nine months ended April 30, 2011 was $16,231,126 versus $19,004,153 in the corresponding nine months of the prior fiscal year. The decrease in net loss in this fiscal period versus the corresponding period of the prior fiscal year is primarily due to a decrease in operating expenses in the current year’s period from $23,161,210 in the prior year period to $18,929,063 in the current year period, offset by a lower gain on the derivative warrants of $1,993,920 in the current year period versus a gain of $3,793,793 in the prior year period.  Our operating loss for the nine months ended April 30, 2011 decreased to $18,803,337 compared to $22,881,811 in the first fiscal nine months of 2010.  The decrease in operating loss resulted from a decrease in selling expense (to $806,798 from $3,406,175) and a decrease in research and development expenses (to $7,859,382 from $9,929,088), offset by an increase in general and administrative expenses (to $10,262,883 from $9,825,947).  Our revenues in the nine months ended April 30, 2011 decreased to $269,086 from $856,584 for the nine months ended April 30, 2010 reflecting primarily lower sales of our over-the-counter products.





Similar to the current fiscal quarter described above, the decrease in research and development expenses in the current fiscal period versus the comparative period in the previous fiscal year, is primarily due to timing differences related to the clinical costs associated with the global Phase III clinical trials of our oral insulin product and platform technology, as well as the timing of earlier stage (pre-clinical, Phase I and Phase II) clinical trials related to the Antigen immunotherapy products versus the previous fiscal year’s period.   The slight increase in general and administrative expenses is primarily related to an increase in financial services and consulting expenses in the nine months ended April 30, 2011, as compared to the previous year period ended April 30, 2010, offset by a decrease in cost related to the granting, modification and amortization of stock options versus the prior year.  The decrease in selling expenses for the nine months ended April 30, 2011 versus the prior year comparative period is associated with decreased advertising and promotion relating to our over-the-counter products.





Our interest expense in the first nine months of fiscal 2011 decreased to $153,385, compared to interest expense of $158,756 in the first nine months of fiscal 2010.   Our interest income decreased to $5,985 in the first nine months of fiscal 2011, compared to $19,837 in the same period last year, due to lower average cash balances.  We recognized a slightly higher income from rental operations (net of expense) of $236,732 in the first nine months of fiscal 2011 compared to $222,034 in the same period of the previous fiscal year due to the strengthening of the Canadian dollar exchange rate against the U.S. dollar.  The change in fair value of the warrants carried as a derivative liability contributed a gain of $1,993,920 in the current year period, compared to a gain of $3,793,793 in the comparable period last year.





Financial Condition, Liquidity and Resources





Sources of Liquidity





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





As of April 30, 2011, our current cash position will not be sufficient to meet our working capital needs for the next twelve months based on the pace of our planned activities. Therefore, we will require additional funds to support our working capital requirements and any expansion or other activities, or will need to significantly reduce our clinical trials and other planned activities.


21


While we raised proceeds of over $36 million during fiscal 2010 and the fourth quarter of fiscal 2009 combined and raised gross proceeds of just over $4,000,000  in January, March and April 2011, we will require further funding during the remainder of the current fiscal year to continue with our current clinical trials and other planned activities.  Unforeseen problems with our clinical program, manufacturing and commercialization plans in Ecuador and India, volatility or a significant decline in our stock price and the liquidity of our stock following our delisting from NASDAQ, or further 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.  Our inability to obtain required funding will have a material adverse effect on one or more of our research or development programs and curtail some of our commercialization efforts.





On March 30, 2011, management announced its strategic development plan for Generex’s future growth, including a proposed spin-out of Antigen Express, a proposed reverse stock split for Generex and a proposed rights offering to Generex stockholders.  We would use proceeds, if any, from the rights offering primarily to fund on-going research and development and product commercialization initiatives.  See the description of management’s strategic development plan under the heading Executive Summary – Overview of Businessin thisItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.  This quarterly report on Form 10-Q does not constitute an offer of any securities for sale or a solicitation of an offer to buy any securities.





Management may also seek to meet some of our operating cash flow requirements through financing activities, such as private placement of our common stock, at-market stock issuance programs, preferred stock offerings and offerings of debt and convertible debt instruments, as well as through merger or acquisition opportunities.  On January 29, 2010, we filed a shelf registration statement (File No. 333-164591) with the Securities and Exchange Commission (“SEC”) to renew and replace the prior shelf registration statement (File No. 333-139637), filed in December 2006, pursuant to which we registered an indeterminate number of shares of common stock and preferred stock and an indeterminate number of warrants and units with an aggregate initial offering price of up to $150,000,000.  The new shelf registration statement is intended to renew and replace the prior registration statement.  The new registration statement was declared effective on February 9, 2010 and covers offerings of shares of our common stock, preferred stock, warrants and/or units with a maximum aggregate offering price of $150,000,000, which includes the $116,110,920 of securities remaining unsold under the prior registration statement.  In May, June, August and September 2009, we conducted offerings pursuant to the prior registration statement and raised an aggregate of $32,335,164 in net proceeds.  In April, May and June 2010, we raised $4,499,618 in net proceeds pursuant to a common stock purchase agreement with takedowns from the new shelf registration statement.  In January, March and April 2011, we raised a further $3,939,000 in net proceeds pursuant to a common stock purchase agreement with takedowns from the new shelf registration statement.





In addition, management is actively pursuing industry collaboration activities, including product licensing, specific project financing, and potential strategic partners in the consumer market for diabetes-related products.





We believe that the successful commercial launch of Oral-lynTM in countries where we have approval would enhance our ability to access additional sources of funding.  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.





Financing – January to April 2011





On January 24, 2011, we and certain institutional investors entered into a securities purchase agreement relating to the offering and sale of up to $6 million of shares of our common stock and warrants to purchase shares of our common stock.  The initial closing occurred on January 25, 2011, at which time the investors purchased an aggregate of 12,000,000 shares of common stock together with warrants to purchase an aggregate of 12,000,000 shares of common stock for a total purchase price of $3,000,000.  The five-year warrants were immediately exercisable and have an exercise price of $0.25 per share.  The net proceeds to us from this offering, after deducting finders’ fees and our offering expenses, were approximately $2,925,000.





Under the securities purchase agreement, the investors also had the option to purchase up to an additional $3,000,000 of shares of our common stock and warrants to purchase shares of common stock during the 60 days following the initial closing.  On March 25, 2011, we agreed to extend the option period through April 25, 2011 and entered into an amendment to the securities purchase agreement with the investors.  On April 13, 2011, we agreed to further extend the option period through June 3, 2011 and entered into the second amendment to the securities purchase agreement with the investors.  During the period from March 25 to April 8, 2011, the investors purchased an additional 4,056,000 shares of our common stock together with warrants to purchase 4,056,000 shares of our common stock pursuant to this option.  The purchase price per share was $0.25, and the exercise of price of such additional warrants will be $0.25 per share.  We received aggregate gross proceeds of $1,014,000 for the purchases from March 25 to April 8, 2011.  As of June 2, 2011, an additional $1,986,000 of shares of our common stock and warrants to purchase shares of our common stock remained available for purchase by the investors under the second amendment.


22


The exercise price of the warrants issued to the investors in the initial closing and pursuant to the option is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions.  The exercise price of the warrants is also subject to an adjustment upon the occurrence of certain events, including the issuance by us of securities at a price per share less than the exercise price then in effect. If we issue shares of common stock or options exercisable for or securities convertible into common stock at an effective price per share of common stock less than the exercise price then in effect, the exercise price will be reduced to the effective price of the new issuance.  Certain issuances of common stock, warrants or options are permitted without triggering the anti-dilution provisions.  These permitted issuances are described in Note 10 to the Notes to Consolidated Financial Statements.  In addition, with any reduction to the exercise price, the number of shares of common stock that may be purchased upon exercise of each warrant will be increased, so that after such adjustment the aggregate warrant exercise price payable for the adjusted number of shares issuable upon exercise will be the same as the aggregate warrant exercise price in effect immediately prior to such adjustment.  Due to the anti-dilution adjustment provision of these warrants, they have been reclassified on Generex’s balance sheet as a liability under the caption “Derivative Warrant Liability” with any changes in fair value at each reporting period recorded in earnings in accordance with ASC 815, as described in Note 11 to the Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report.




In addition, with very limited exceptions, the investors will have a pro rata right of first refusal in respect of participation in any private debt or equity financings undertaken by us during the 12 months following the initial closing.





In consideration for introducing us to the investors that entered into the January 24, 2011 securities purchase agreement, we paid Seahawk Capital Partners, Inc., a finders’ fee equal to 8% of the gross proceeds from the initial closing, consisting of 2% in cash ($60,000) and 6% in shares of common stock based on a per share price of $0.25 (720,000 shares).





The offering and sale, including the issuance of shares to Seahawk, was made pursuant to our shelf registration statement on Form S-3 (File No. 333-164591), which was declared effective by the SEC on February 9, 2010.





Proceeds from Warrant Exercises





We may receive additional proceeds from the exercise of warrants issued in the registered direct offerings conducted in June, August and September 2009, the sales to Seaside 88, LP in April, May and June 2010, and the warrants issued in connection with the January 2011 registered direct offering and option thereunder, although some of the warrants include a cashless exercise feature.





·
In the transaction that closed on June 15, 2009, we sold shares of common stock and warrants exercisable for up to 8,600,000 shares of our common stock to investors and issued Midtown Partners & Co., LLC, our exclusive placement agent for the transaction, a warrant to purchase up to 244,926 shares of our common stock.





·
In the August 6, 2009 registered direct offering, we sold shares of common stock and warrants exercisable for up to 2,995,305 shares of our common stock to investors and issued a warrant to purchase 577,666 shares of our common stock to Midtown, which acted as our exclusive placement agent for the August 2009 transaction.





·
In the transaction that closed on September 14, 2009, we sold an aggregate of 15,312,500 shares of our common stock and warrants exercisable for up to 5,053,125 shares of our common stock to investors and issued warrants to purchase up to 969,526 shares of our common stock to the two placement agents and a consultant in relation to the transaction.





·
In the closings under the common stock purchase agreement that occurred in April, May and June 2010, we sold Seaside 12,000,000 shares of our common stock and issued to Midtown, as placement agent, warrants to purchase an aggregate of 300,000 shares of our common stock.





·
In connection with the securities purchase agreement dated January 24, 2011 and option thereunder, we sold an aggregate of 16,056,000 shares of our common stock and issued warrants exercisable for up to 16,056,000 shares of our common stock to investors.





As of June 2, 2011, all of the warrants issued in the aforementioned registered direct offerings were exercisable.   At June 2, 2011, outstanding warrants issued in connection with the June, August and September 2009 registered direct offerings, the April, May and June 2010 sales to Seaside and the January 2011 registered direct offering were as follows:




23





Date Issued

Aggregate No. of

Shares Unexercised


Exercise

Price

Expiration DateJune 15, 2009


8,844,926



0.76

December 15, 2014August 6, 2009


3,572,971



0.79

February 4, 2015September 14, 2009


6,022,651



1.00

March 15, 2015April 8, 2010


50,000



0.47259

February 9, 2015April 21, 2010


50,000



0.4258

February 9, 2015April 30, 2010


50,000



0.415

February 9, 2015May 14, 2010


50,000



0.3496

February 9, 2015May 28, 2010


50,000



0.351

February 9, 2015June 11, 2010


50,000



0.3543

February 9, 2015January 25, 2011*


12,000,000



0.25

January 25, 2016March 25 – April 8, 2011*


4,056,000



0.25

March 25 – April 8, 2016


*Upon issuance of securities at a price per share of common stock less than the then applicable exercise price, the warrants are subject to anti-dilution adjustment of the exercise price and to the number of shares of common stock that may be purchased upon exercise of each warrant such that the aggregate exercise price payable upon exercise of the warrant will be the same as the aggregate exercise price in effect immediately prior to such adjustment. Due to the anti-dilution adjustment provision of these warrants, they have been reclassified on Generex’s balance sheet as a liability under the caption “Derivative Warrant Liability” with any changes in fair value at each reporting period recorded in earnings in accordance with ASC 815.





In addition, we may receive additional proceeds from the exercise of warrants issued in connection with the securities purchase agreement and related documents that we entered into on March 31, 2008 with existing institutional investors relating to a private placement of 8% secured convertible notes (the “Notes”) and warrants (the “Series Warrants”) for aggregate gross proceeds to us of $20,650,000.  As of June 1, 2009, the outstanding principal balance and accrued interest on the Notes were satisfied in full.





The Series Warrants issued in connection with the March 2008 securities purchase agreement included:





(i)
Series A and A-1 Warrants, which are exercisable for a period of 7 years into an aggregate of 75% of the number of shares of our common stock initially issuable upon conversion of the Notes, with the Series A Warrants being exercisable into 5,257,729 shares immediately upon issuance and the Series A-1 warrants being exercisable into 7,541,857 shares as of October 1, 2008;





(ii)
Series B Warrants, which became exercisable on October 1, 2008 into 100% of the shares of our common stock initially issuable upon conversion of the Notes (initially 17,066,166 shares) and remain exercisable for a period of 18 months after the registration statement covering the shares of common stock issuable upon conversion or exercise of the Notes and Warrants was declared effective by the SEC; and





(iii)
Series C Warrants, which are exercisable for a period of 7 years as of October 1, 2008, but only to the extent that the Series B Warrant are exercised and only in the same percentage that the Series B Warrants are exercised, up to a maximum percentage of 75% of the number of shares of our common stock initially issuable upon conversion of the Notes (initially a maximum of 12,799,580 shares).





The initial exercise price of each Series Warrant was $1.21.  The Series Warrants include a cashless exercise feature.  The exercise price of the Series Warrants was subsequently reduced initially to $0.50, then to $0.33 and currently to $0.25 as a result of a price protection provision triggered by our offering of stock in private placements in May 2009 and January 2011.  This price protection feature allows for the reduction in the exercise price of the Series Warrants in the event we subsequently issue common stock or securities convertible into or exercisable for common stock, such as options and warrants, at a price per share less than the Series Warrant exercise price then in effect.  In addition, with any reduction to the Series Warrant exercise price, the number of shares of common stock that may be purchased upon exercise of each Series Warrant will be increased or decreased proportionately, so that after such adjustment the aggregate Series Warrant exercise price payable for the adjusted number of shares issuable upon exercise will be the same as the aggregate Series Warrant exercise price in effect immediately prior to such adjustment.  We account for these warrants with price protection in accordance with ASC 815 as described in Note 11 to the Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report.





As of June 3, 2011, outstanding Series Warrants were as follows:


Date Issued

Aggregate No. of

Shares Unexercised


Exercise

Price*

Expiration DateMarch 31, 2008


18,388,957


$
0.25

March 31, 2016March 31, 2008


3,395,453


$
0.25

September 30, 2016


24


*Upon issuance of securities at a price per share of common stock less than the then applicable exercise price, the warrants are subject to anti-dilution adjustment of the exercise price and to the number of shares of common stock that may be purchased upon exercise of each warrant such that the aggregate exercise price payable upon exercise of the warrant will be the same as the aggregate exercise price in effect immediately prior to such adjustment. Due to the anti-dilution adjustment provision of these warrants, they have been reclassified on Generex’s balance sheet as a liability under the caption “Derivative Warrant Liability” with any changes in fair value at each reporting period recorded in earnings in accordance with ASC 815.




Cash Flows for the Nine months ended April 30, 2011





For the nine months ended April 30, 2011, we used $13,939,865 in cash to fund our operating activities. The use for operating activities included a net loss of $16,231,126 and a decrease of $19,854 in deferred revenue, offset by an increase of $336,322 related to accounts payable and accrued expenses, a decrease of $51,926 in accounts receivable, a decrease in other current assets of $153,278 and a decrease of $443,626 in inventory.





The use of cash was offset by non-cash expenses of $561,304 related to depreciation and amortization, $961,224 in stock-based compensation to employees and $1,797,355 in stock-based compensation issued in exchange for services rendered by consultants.  There was also a year-to-date non-cash gain of $1,993,920 related to the fair valuation of the derivative warrant liability at April 30, 2011.





We had net cash used in investing activities of $231,663 in the nine months ended April 30, 2011, representing payments for property and equipment of $52,160 and costs incurred for patents of $179,503.





We had cash provided by financing activities in the nine months ended April 30, 2011 of $3,845,743, which pertained to $3,939,000 net proceeds from the issuance of common stock and warrants, $577 in net proceeds from options exercises, less principal payments related to our capital leases in the amount of $7,818 and long-term debt in the amount of $86,016.  There were no cash inflows related to warrant exercises during the nine months ended April 30, 2011.





Our net working capital at April 30, 2011 decreased to negative $2,306,228 from $8,096,206 at July 31, 2010, which was attributed largely to our net loss for the nine-month period ended April 30, 2011, offset by the net proceeds from the issuance of common stock and warrants in January, March and April 2011.





Funding Requirements and Commitments





We expect to devote substantial resources to obtaining regulatory approval of Generex Oral-lynTM in the U.S., Canada and Europe and to commercializing Generex Oral-lynTM.  We also will devote resources to obtaining approval for the importation, marketing and commercialization of Generex Oral-lynTM in other countries where we have licensed distributors.





Under the long-term agreement that we signed with sanofi-aventis in December 2009, sanofi-aventis will manufacture and supply recombinant human insulin to us in the territories specified in the agreement.  Through this agreement, we will procure recombinant human insulin crystals for use in the production of Generex Oral-lynTM.  The terms of the supply agreement require us to make certain minimum purchases of insulin from sanofi-aventis through the period ended December 31, 2011. Sanofi-aventis will be our exclusive supplier in certain countries and a non-exclusive supplier in some other countries.  Sanofi-aventis may delete any territory from the agreement in which Generex Oral-lynTM has not been approved for commercial sale by December 31, 2011.  The prices under the supply agreement are subject to adjustment beginning after December 31, 2012.  To date, we have not met the minimum purchase commitments under this agreement.  After December 31, 2011, sanofi-aventis may terminate the agreement due to our failure to meet such purchase commitments.  Upon termination, we would be obligated to pay sanofi-aventis for all materials and components that it has acquired or ordered to manufacture insulin based on our forecasts or minimum purchase commitments, all related work-in-progress (at cost) and all finished insulin in inventory.





In addition to the resources that we will dedicate to regulatory approval and commercialization of Generex Oral-lynTM, we will expend resources on further clinical development of our immunotherapeutic vaccines.





We also will require funding to complete our acquisition of a majority interest in Global Medical Direct, LLC (“GMD”), durable medical equipment and pharmaceutical provider specializing in direct-to-consumer diabetes supplies and medications.  Pursuant to the Limited Liability Company Ownership Interest Purchase Agreement dated as of October 8, 2010 (the “Purchase Agreement”) that we entered into with GMD and all of the members of GMD, we agreed to pay to the members of GMD an aggregate amount of (i) $20,000,000 in cash and (ii) $5,000,000 payable in shares of restricted common stock, calculated based on the value weighted average closing prices per share of our common stock on the then principal trading market for each of the last 20 trading days prior to the closing date, subject to the terms and conditions of the Purchase Agreement.  The consummation of the transactions contemplated by the Purchase Agreement is subject to the satisfaction or waiver of closing conditions, including our having secured the acquisition financing, the parties agreeing upon the amended terms of the operating agreement for GMD, the parties entering into a registration rights agreement with respect to the registration of the shares of our common stock issued as consideration, and other customary closing conditions.  The Purchase Agreement contains certain termination rights of the parties, including the right of any party to terminate the Purchase Agreement if the parties cannot reach agreement on employment and consulting agreements and the amendment of the operating agreement of GMD and if the closing has not occurred by January 31, 2011 or such later date as the parties may agree upon.  On December 21, 2010, the parties agreed to extend the closing date until June 1, 2011.  In the event that the closing does not occur by June 1, 2011, we will be obligated to issue to the members of GMD an aggregate number of shares of our common stock having a value of $250,000 based on the average closing price of our common stock for the 20 trading days immediately preceding June 1, 2011.


25


On March 30, 2011, management announced its strategic development plan for Generex’s future growth, including a proposed spin-out of Antigen Express, a proposed reverse stock split for Generex and a proposed rights offering to Generex stockholders.  We would use proceeds, if any, from the rights offering primarily to fund on-going research and development and product commercialization initiatives.  See the description of management’s strategic development plan under the heading Executive Summary – Overview of Businessin thisItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.  This quarterly report on Form 10-Q does not constitute an offer of any securities for sale or a solicitation of an offer to buy any securities.





Our future funding requirements and commitments and our ability to raise additional capital will depend on factors that include:





·
the timing and amount of expense incurred to complete our clinical trials;





·
the costs and timing of the regulatory process as we seek approval of our products in development;





·
the advancement of our products in development;





·
our ability to generate new relationships with industry partners throughout the world that will provide us with regulatory assistance and long-term commercialization opportunities;





·
the timing, receipt and amount of sales, if any, from Generex Oral-lynTM in India, Lebanon, Algeria and Ecuador;





·
the timing, receipt and amount of sales, if any, from our over-the-counter products;





·
the cost of manufacturing (paid to third parties) of our licensed products, and the cost of marketing and sales activities of those products;





·
the costs of prosecuting, maintaining, and enforcing patent claims, if any claims are made;





·
our ability to maintain existing collaborative relationships and establish new relationships as we advance our products in development;





·
our ability to obtain the necessary financing to fund our operations and effect our strategic development plan; and





·
the receptivity of the financial market to biopharmaceutical companies.





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 we do not have any non-consolidated special purpose entities.





Certain Related Party Transactions





Through April 20, 2011, we used a management company to manage all of our real properties. The property management company is owned by Rose Perri, Anna Gluskin and the estate of Mark Perri.  Ms. Perri and Ms. Gluskin are former executive officers of Generex.  In the nine-month period ended April 30, 2011 and the fiscal year ended July 31, 2010, we paid the management company $40,778 and $55,691, respectively, in management fees. We believe that the amounts paid to the management company approximate the rates that would be charged by a non-affiliated property management company.  On April 20, 2011, we formally terminated the relationship and no further property management fees will be paid to this company.




See Part III, Item 13 – Certain Relationships and Related Transactions, and Directors Independence in our Annual Report on Form 10-K for the year ended July 31, 2010, as amended, for further descriptions of our transactions with related parties during the last fiscal year.


26


Recently Adopted Accounting Pronouncements





In October 2009, the FASB issued guidance related to revenue recognition with multiple deliverable revenue arrangements.  This guidance eliminates the residual method of allocation and requires the relative selling price method when allocating deliverables of a multiple-deliverable revenue arrangement. The determination of the selling price for each deliverable requires the use of a hierarchy designed to maximize the use of available objective evidence including, vendor specific objective evidence, third party evidence of selling price, or estimated selling price.  This guidance is effective on a prospective basis for revenue arrangements entered into or materially modified in our fiscal year beginning August 1, 2010. The adoption of this guidance did not have a significant impact on our consolidated financial statements.





Recently Issued Accounting Pronouncements





In January 2010, the FASB issued additional guidance on fair value measurements and disclosures which requires reporting entities to provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy established by the existing guidance.  The guidance is effective for any fiscal year that begins after December 15, 2010, and it should be used for quarterly and annual filings.  We are currently evaluating the impact of this new accounting guidance on our consolidated financial statements.





In May 2011, the FASB issued further guidance on fair value measurements and disclosures which requires the categorization by level for items that are only required to be disclosed at fair value and information about transfers between Level 1 and Level 2. In addition, the update provides guidance on measuring the fair value of financial instruments managed within a portfolio and the application of premiums and discounts on fair value measurements. The guidance requires additional disclosure for Level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. The guidance is effective for interim and annual periods beginning after December 15, 2011. We are currently evaluating the impact of this new accounting guidance on our consolidated financial statements.





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, and 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.  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 April 30, 2011, we had fixed rate debt totaling $3,001,260. This amount consists of the following:





Loan Amount


Interest Rate

per Annum$
1,156,230



5.91
%657,254



6.75
%703,700



6.82
%420,920



8.50
%191,325



10.00
%$
3,129,429


Total





These debt instruments mature from June 2011 through May 2015. 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 to which we would be subject to material market risks.


27




We have warrants outstanding with price protection provisions that allow for the reduction in the exercise price of the warrants in the event we subsequently issue common stock or securities convertible into or exercisable for common stock, such as options and warrants, at a price per share less than the warrant exercise price then in effect.  In addition, with any reduction to the warrant exercise price, the number of shares of common stock that may be purchased upon exercise of each warrant will be increased proportionately, so that after such adjustment the aggregate warrant exercise price payable for the adjusted number of shares issuable upon exercise will be the same as the aggregate warrant exercise price in effect immediately prior to such adjustment.  We account for the warrants with price protection in accordance with FASB ASC 815.  We recognize the warrants with price protection in our consolidated balance sheet as liabilities.  The warrant liability is revalued at each reporting period and changes in fair value are recognized currently in the consolidated statements of operations under the caption Change in fair value of derivative warrant liability.  While the change in fair value of the derivative warrant liability has no effect on our cash flows, the gains or losses can have a significant impact on non-operating income and expenses and thus the net income or loss. As of April 30, 2011, there were 37,840,410 warrants outstanding subject to price protection provisions with an estimated fair value of $7,101,337 or $0.188 per warrant.  If the estimated fair value of the warrants increases, there will be a corresponding non-operating expense equal to the change in the value of the liability.  Likewise, if the estimated fair value of the warrants decreases, there will be a corresponding non-operating gain equal to the change in the value of the liability. There is a directly proportional relationship between the fair value of the warrants and the market price of the stock; therefore increases or decreases in the market price will lead to corresponding increases or decreases in the value of the warrant liability and result in losses or gains, respectively, on our consolidated statements of operations.




Item 4. Controls and Procedures




Evaluation of Disclosure Controls and Procedures





Prior to the filing of this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision of and with the participation of Generex’s management, including the Chief Executive Officer (“CEO”) and acting Chief Financial Officer (“CFO”), of the effectiveness of Generex’s disclosure controls and procedures. Based on the evaluation, the CEO and CFO have concluded that, as of April 30, 2011, Generex’s disclosure controls and procedures are effective to ensure that information required to be disclosed by Generex in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to Generex’s management, as appropriate, to allow timely decisions regarding required disclosure.





Changes in Internal Control over Financial Reporting





During the fiscal quarter ended April 30, 2011, there were no changes in Generex’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, Generex’s internal control over financial reporting.





PART II - OTHER INFORMATION





Item 1. Legal Proceedings.





Dispute with Former Officer





In the third quarter of fiscal 2011, there was no new litigation commenced involving us.  In May 2011, Rose C. Perri, our former Chief Operating Officer and Chief Financial Officer, commenced two proceedings against us.  On May 11, 2011, Ms. Perri filed a notice of application in the Ontario Superior Court of Justice against Generex, two of our affiliates (1097346 Ontario, Inc. and Generex Pharmaceuticals Inc.), our directors (John P. Barratt, Nola Masterson and Brian T. McGee), our President and Chief Executive Officer (Mark A. Fletcher), our Chief Operating Officer (David Brusegard) and our Acting Chief Financial Officer (Stephen Fellows).  In the notice of application, Ms. Perri sought, among other things, a declaration that respondents’ actions, including the termination of Ms. Perri’s employment with Generex, have prejudiced her interest as a shareholder, officer and director of Generex, an order for the production of certain financial records, and the appointment of an interim receiver for our two affiliates.  A scheduling hearing to set a timetable for this proceeding will likely be held in the latter part of June.   We intend to vigorously defend this action. We are not able to predict the ultimate outcome of this legal proceeding at the present time.





On May 20, 2011, Ms. Perri filed a statement of claim in the Ontario Superior Court of Justice, naming the following as defendants:  Generex, Mr. Barratt, Ms. Masterson, Mr. McGee, Mr. Fletcher and Joseph Moscato, the principal of Seahawk Capital Partners, Inc., a financial advisor to Generex.  In this action, Ms, Perri has alleged that defendants engaged in discrimination, harassment, bad faith and infliction of mental distress in connection with the termination of her employment with Generex.  Ms. Perri is seeking damages in this action in excess of US $6,000,000 for, among other things, breach of contract, breach of fiduciary duty, violations of the Ontario Human Rights Code and aggravated and punitive damages.  We intend to respond to this statement of claim and to defend this action vigorously. We are not able to predict the ultimate outcome of this legal proceeding at the present time or to estimate an amount or range of potential loss, if any, from this legal proceeding.





In addition to the matters described above, see Note 7 – Pending Litigation of the Notes to the Consolidated Financial Statements set forth under Item 1 of Part I of this Quarterly Report for a description of legal proceedings in which we are currently involved.


28


We are involved in certain other legal proceedings in addition to those specifically described in this Quarterly Report. Subject to the uncertainty inherent in all litigation, we do not believe at the present time that the resolution of any of these legal proceedings is likely to have a material adverse effect on our financial position, operations or cash flows.





With respect to all litigation matters, as additional information concerning the estimates used by us becomes known, we reassess each matter’s position both with respect to accrued liabilities and other potential exposures.





Item 1A. Risk Factors.





In addition to the other information included in this Quarterly Report on Form 10-Q, you should carefully review and consider the factors discussed in Part I, Item 1A - Risk Factors of our Annual Report on Form 10-K for the year ended July 31, 2010, as amended, certain of which have been updated below. These factors materially affect our business, financial condition or future results of operations. The risks, uncertainties and other factors described in our Annual Report on Form 10-K and below are not the only ones facing our company. Additional risks, uncertainties and other factors not presently known to us or that we currently deem immaterial may also impair our business operations, financial condition or operating results. Any of the risks, uncertainties and other factors could cause the trading price of our common stock to decline substantially.





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.  In the nine months ended April 30, 2011, we earned revenues of $269,086 which were primarily from sales of our over-the-counter confectionary products.  In the fiscal year ended July 31, 2010, we received modest revenues of approximately $1,172,611 which were also primarily from sales of our over-the-counter confectionary products.  We have not recognized any revenue from the sale of our oral insulin product in Ecuador, Algeria or India to date, including during the first nine months of fiscal 2011, although we have recognized $600,000 in licensing fee revenue relating to the signing of licensing and distribution agreements for the sale of Generex Oral-lynTM. We do not expect to receive any revenues in Ecuador until we enter into a definitive manufacturing and distribution agreement with our business partner there. While we have entered into a licensing and distribution agreement with a leading Indian-based pharmaceutical company and insulin distributor, we do not anticipate recognizing revenue from sales of Generex Oral-lynTM in India in 2011, as we have to complete an in-country clinical study before the product can be offered for commercial sale in India.  We have entered in to a subdistribution agreement in Lebanon, but do not expect any significant revenue from the launch of the product in that country in 2011.





To date, we have not been profitable and our accumulated net loss available to shareholders was $341,533,598 at April 30, 2011. 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 Generex Oral-lynTM, which has received regulatory approval in Ecuador, India (subject to the completion of an in-country study), Lebanon and Algeria, and our over-the-counter glucose products, 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 must also complete further clinical trials and seek regulatory approvals for Generex Oral-lynTM in countries outside of Ecuador, India, Lebanon and Algeria. 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.





Risks Related to the Market for Our Common Stock





Our stock price is below $5.00 per share and is treated as a “penny stock”, which places restrictions on broker-dealers recommending the stock for purchase.





Our common stock is defined as “penny stock” under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, and the rules promulgated thereunder. The SEC has adopted regulations that define “penny stock” to include common stock that has a market price of less than $5.00 per share, subject to certain exceptions. These rules include the following requirements:





·
broker-dealers must deliver, prior to the transaction a disclosure schedule prepared by the SEC relating to the penny stock market;


·
broker-dealers must disclose the commissions payable to the broker-dealer and its registered representative;


29


·
broker-dealers must disclose current quotations for the securities;


·
if a broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealers presumed control over the market; and


·
a broker-dealer must furnish its customers with monthly statements disclosing recent price information for all penny stocks held in the customer’s account and information on the limited market in penny stocks.





Additional sales practice requirements are imposed on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and must have received the purchaser’s written consent to the transaction prior to sale. If our common stock remains subject to these penny stock rules these disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for our common stock. As a result, fewer broker-dealers may be willing to make a market in our stock, which could affect a shareholder’s ability to sell their shares.





The price of our common stock may be affected by a limited trading volume, may fluctuate significantly and may not reflect the actual value of our business.





There may be a limited public market for our common stock on the over the counter bulletin board market, and there can be no assurance that an active trading market will continue. An absence of an active trading market could adversely affect our stockholders’ ability to sell our common stock in short time periods, or at all.  Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations that could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors, such as possible quarterly fluctuations in our financial results, changes in the overall economy and the volatility of the financial markets, could cause the price of our common stock to fluctuate substantially.  Thus, the price at which shares of our common stock may trade from time to time may not reflect the actual value of our business or the actual value of our common stock.





Our recent equity financing will dilute current stockholders and could prevent the acquisition or sale of our business.





The equity financing transactions into which we have recently entered have and will dilute current stockholders. Currently approximately 57,591,583 shares of common stock are issuable upon exercise of the warrants that we issued in a private placement in March 2008, in the registered direct offerings conducted in June, August and September 2009, in connection with the sales to Seaside 88, LP in April, May and June 2010 and in the registered direct offering in January to April 2011, which represents approximately 19.5% of the shares of common stock currently outstanding.  Assuming the holders of the warrants convert and exercise all of the warrants into shares of common stock, the number of shares of issued and outstanding common stock will increase significantly, and current stockholders will own a smaller percentage of the outstanding common stock of Generex. The issuance of shares of common stock pursuant to the warrants will also have a dilutive effect on earnings per share and may adversely affect the market price of the common stock.





In addition, the issuance of shares of common stock upon exercise of the warrants issued in the March 2008 private placement, the registered direct offerings in June, August and September 2009 and in connection with the sales to Seaside in April, May and June 2010 and in the registered direct offering in January to April 2011could have an anti-takeover effect because such issuance will make it more difficult for, or discourage an attempt by, a party to obtain control of Generex by tender offer or other means. The issuance of common stock upon the exercise of the warrants will increase the number of shares entitled to vote, increase the number of votes required to approve a change of control of the company, and dilute the interest of a party attempting to obtain control of the company.





If we raise funds through one or more additional equity financings in the future, it will have a further 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.




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





In the fiscal quarter ended April 30, 2011, we sold common stock and other securities in transactions in reliance upon exemptions from the registration requirements of the Securities Act.





During the three months ended April 30, 2011, we issued 4,000 shares of common stock to American Capital Ventures, Inc. pursuant to an agreement with us for financial services. The sale of such shares was exempt from registration under the Securities Act in reliance upon Section 4(2) thereof.  We believe that American Capital Ventures, Inc. is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Securities Act. The certificates issued for the shares of common stock will include a legend to indicate that they are restricted. The sales of such securities did not involve the use of underwriters, and no commissions were paid in connection therewith.


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We have issued shares of our common stock to Seahawk Capital Partners, Inc, a consultant, pursuant to an agreement to provide us with investor relation services through September 30, 2011.   During the three months ended April 30, 2011, we issued 450,000 shares of common stock to Seahawk Capital Partners pursuant to this agreement.  The sale of such shares was exempt from registration under the Securities Act in reliance upon Section 4(2) thereof. We believe that Seahawk Capital Partners is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Securities Act. The certificates issued for the shares of common stock included a legend to indicate that they are restricted. The sales of such securities did not involve the use of underwriters, and no commissions were paid in connection therewith.





We have issued shares of our common stock to Beckerman Public Relations, a consultant, pursuant to an agreement to provide us with investor relation services.  During the three months ended April 30, 2011, we issued 77,683 shares of common stock to Beckerman Public Relations. The sale of such shares was exempt from registration under the Securities Act in reliance upon Section 4(2) thereof. We believe that Beckerman Public Relations is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Securities Act. The certificates issued for the shares of common stock will include a legend to indicate that they are restricted. The sales of such securities did not involve the use of underwriters, and no commissions were paid in connection therewith.





Issuer Purchases of Equity Securities





Neither Generex nor any affiliated purchaser (as defined in Section 240.10 b-18(a)(3) of the Exchange Act) purchased any of its equity securities during the fiscal quarter ended April 30, 2011.





Item 3. Defaults Upon Senior Securities.





None.





Item 5. Other Information.





Reference is made to the disclosure set forth under Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds under the caption Unregistered Sales of Equity Securities in this Quarterly Report on Form 10-Q, which is incorporated by reference herein.





Reference is made to the disclosure set forth under Part II, Item 1 – Legal Proceedings under the caption Dispute with Former Officer in this Quarterly Report on Form 10-Q, which is incorporated by reference herein.





Item 6. Exhibits.





Exhibits are incorporated herein by reference or are filed with this quarterly report as set forth in the Exhibit Index beginning on page 31 hereof.





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: June 3, 2011
By:
/s/ Mark A. FletcherMark A. FletcherPresident and Chief Executive OfficerDate: June 3, 2011
By:
/s/ Stephen FellowsStephen FellowsActing Chief Financial Officer


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EXHIBIT INDEX





Exhibit

Number

Description of Exhibit(1)1

Amendment dated as of April 7, 2010 to Placement Agent Agreement Placement Agency Agreement, dated June 8, 2009, by and between Generex Biotechnology Corporation and Midtown Partners & Co., LLC and amendments dated August 5, August 18, and September 11, 2009 (incorporated by reference to Exhibit 1.2 to Generex Biotechnology Corporation’s Current Report on Form 8-K filed on April 8, 2010)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 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Post-Effective Amendment No. 1 to the Registration Statement on Form S-8 filed on October 26, 2009)3(ii)

Amended and Restated By-Laws of Generex Biotechnology Corporation (incorporated by reference to Exhibit 3.2(ii) to Generex Biotechnology Corporation’s Report on Form 8-K filed December 5, 2007)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)4.2.1

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 October 31, 2003 filed on August 13, 2003)4.2.2

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 October 31, 2003 filed on August 13, 2003)4.2.3

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 October 31, 2003 filed on August 13, 2003)4.3

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)4.4.1

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)4.4.2

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)4.4.3

Form of Warrant issued in connection with Exhibit 4.4.1 (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K/A filed on March 24, 2004)4.4.4

Form of Additional Investment Right issued in connection with Exhibit 4.4.1 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K/A filed on March 24, 2004)


32





4.5.1

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)4.5.2

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)4.5.3

Warrant issued in connection with Exhibit 4.5.1 (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)4.5.4

Additional Investment Right issued in connection with Exhibit 4.5.1 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)4.6.1

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)4.6.2

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)4.6.3

Warrant issued in connection with Exhibit 4.6.1 (incorporated by reference to Exhibit 4.7 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)4.6.4

Additional Investment Right issued in connection with Exhibit 4.6.1 (incorporated by reference to Exhibit 4.8 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)4.7.1

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)4.7.2

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)4.7.3

Warrant issued in connection with Exhibit 4.7.1 (incorporated by reference to Exhibit 4.11 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)4.7.4

Additional Investment Right issued in connection with Exhibit 4.7.1 (incorporated by reference to Exhibit 4.12 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)4.7.5

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)4.8.1

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)4.8.2

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)4.8.3

Additional Investment Right issued in connection with Exhibit 4.8.1 (incorporated by reference to Exhibit 4.17 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)4.9.1

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)


33





4.9.2

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)4.9.3

Warrant issued in connection with Exhibit 4.9.1 (incorporated by reference to Exhibit 4.20 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)4.9.4

Additional Investment Right issued in connection with Exhibit 4.9.1 (incorporated by reference to Exhibit 4.21 Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)4.10.1

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)4.10.2

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)4.10.3

Form of Warrant issued in connection with Exhibit 4.10.1 (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on July 14, 2004)4.10.4

Form of Additional Investment Right issued in connection Exhibit 4.10.1 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on July 14, 2004)4.11.1

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)4.11.2

Form of 6% Secured Convertible Debenture issued in connection with Exhibit 4.11.1 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on November 12, 2004)4.11.3

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)4.11.4

Form of Voting Agreement entered into in connection with Exhibit 4.11.1 (incorporated by reference to Exhibit 4.7 to Generex Biotechnology Corporation’s Report on Form 8-K filed on November 12, 2004)4.12

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)4.13.1

Amendment No. 4 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 on January 19, 2006 (incorporated by reference herein to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on January 20, 2006)4.13.2

Form of Additional AIRs issued in connection with Exhibit 4.13.1 (incorporated by reference herein to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on January 20, 2006)4.14

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)4.15.1

Agreement to Amend Warrants between Generex Biotechnology Corporation and Cranshire Capital L.P. dated February 27, 2006 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on February 28, 2006).4.15.2

Agreement to Amend Warrants between Generex Biotechnology Corporation and Omicron Master Trust dated February 27, 2006 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on February 28, 2006).


34





4.15.3

Agreement to Amend Warrants between Generex Biotechnology Corporation and Iroquois Capital L.P. dated February 27, 2006 (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on February 28, 2006).4.15.4

Agreement to Amend Warrants between Generex Biotechnology Corporation and Smithfield Fiduciary LLC dated February 27, 2006 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on February 28, 2006).4.15.5

Form of Warrant issued by Generex Biotechnology Corporation on February 27, 2006 (incorporated by reference to Exhibit 4.26 to Generex Biotechnology Corporation’s Report on Form 10-K filed on October 16, 2006)





4.16.1

Agreement to Amend Additional Investment Right between Generex Biotechnology Corporation and Cranshire Capital, L.P. dated February 28, 2006 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2006).4.16.2

Agreement to Amend Additional Investment Right between Generex Biotechnology Corporation and Omicron Master Trust dated February 28, 2006 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2006).4.16.3

Agreement to Amend Additional Investment Right between Generex Biotechnology Corporation and Iroquois Capital LP dated February 28, 2006 (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2006).4.16.4

Agreement to Amend Additional Investment Right between Generex Biotechnology Corporation and Smithfield Fiduciary LLC dated February 28, 2006 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2006).4.16.5

Form of Additional AIR Debenture issued by Generex Biotechnology Corporation on February 28, 2006 (incorporated by reference to Exhibit 4.31 to Generex Biotechnology Corporation’s Report on Form 10-K filed on October 16, 2006)4.16.6

Form of Additional AIR Warrant issued by Generex Biotechnology Corporation on February 28, 2006 (incorporated by reference to Exhibit 4.32 to Generex Biotechnology Corporation’s Report on Form 10-K filed on October 16, 2006)4.17.1

Form of Agreement to Amend Warrants between Generex Biotechnology Corporation and the Investors dated March 6, 2006 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 7, 2006).4.17.2

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)4.18

Warrant issued by Generex Biotechnology Corporation on April 17, 2006 to Zapfe Holdings, Inc. (incorporated by reference to Exhibit 4.33 to Generex Biotechnology Corporation’s Report on Form 10-Q filed on June 14, 2006)4.19

Form of Warrant issued by Generex Biotechnology Corporation on April 17, 2006 to certain employees (incorporated by reference to Exhibit 4.34 to Generex Biotechnology Corporation’s Report on Form 10-Q filed on June 14, 2006).4.20.1

Securities Purchase Agreement entered into by and between Generex Biotechnology Corporation and four Investors on June 1, 2006 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on June 2, 2006)4.20.2

Form of Warrant issued by Generex Biotechnology Corporation on June 1, 2006 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on June 2, 2006)


4.21.1

Form of Amendment to Outstanding Warrants (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on June 2, 2006)4.21.2

Form of Warrant issued by Generex Biotechnology Corporation on June 1, 2006 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 June 2, 2006)


35





4.22.1

Securities Purchase Agreement, dated as of March 31, 2008 among the Registrant and each of the purchasers named therein (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on April 2, 2008)4.22.2

Form of 8% Secured Convertible Note, as amended (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Registration Statement (333-150562) on Form S-3 filed on October 31, 2008)4.22.3

Form of Series A Warrant, as amended (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Registration Statement on Form S-3 (333-150562) filed on October 31, 2008)4.22.4

Form of Series A-1 Warrant, as amended (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Registration Statement on Form S-3 (333-150562) filed on October 31, 2008)4.22.5

Form of Series B Warrant, as amended (incorporated by reference to Exhibit 4.5 to Generex Biotechnology Corporation’s Registration Statement on Form S-3 (333-150562) filed on October 31, 2008)4.22.6

Form of Series C Warrant, as amended (incorporated by reference to Exhibit 4.6 to Generex Biotechnology Corporation’s Registration Statement on Form S-3 (333-150562) filed on October 31, 2008)4.22.7

Registration Rights Agreement, dated March 31, 2008, among Registrant and each of the purchasers under Securities Purchase Agreement (incorporated by reference to Exhibit 4.7 to Generex Biotechnology Corporation’s Report on Form 8-K filed on April 2, 2008)4.22.8

Security Agreement (incorporated by reference to Exhibit 4.8 to Generex Biotechnology Corporation’s Report on Form 8-K filed on April 2, 2008)4.22.9

Form of Guaranty (incorporated by reference to Exhibit 4.9 to Generex Biotechnology Corporation’s Report on Form 8-K filed on April 2, 2008)4.23.1

Form of Securities Purchase Agreement, dated May 15, 2009, entered into between Generex Biotechnology Corporation and each investor in the offering (incorporated by reference to Exhibit 1.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on May 18, 2009)4.24.1

Form of Securities Purchase Agreement, dated June 15, 2009, entered into between Generex Biotechnology Corporation and each investor in the offering (incorporated by reference to Exhibit 10.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on June 16, 2009)4.24.2

Form of Warrant issued in connection with Exhibit 4.24.1 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on June 16, 2009)4.24.3

Form of Warrant issued to Midtown Partners & Co., LLC in connection with Exhibit 4.24.1 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on June 16, 2009)4.25.1

Form of Securities Purchase Agreement, dated August 6, 2009, entered into between Generex Biotechnology Corporation and each investor in the offering (incorporated by reference to Exhibit 10.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on August 6, 2009)4.25.2

Form of Warrant issued in connection with Exhibit 4.25.1 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on August 6, 2009)4.25.3

Form of Warrant issued to Midtown Partners & Co., LLC in connection with Exhibit 4.25.1 (incorporated by reference to Exhibit 4.28 to Generex Biotechnology Corporation’s Report on Form 8-K filed on August 6, 2009)4.26.1

Form of Securities Purchase Agreement, dated September 11, 2009, entered into between Generex Biotechnology Corporation and each investor in the offering (incorporated by reference to Exhibit 10.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on September 15, 2009)4.26.2

Form of Warrant issued in connection with Exhibit 4.26.1 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on September 15, 2009)


36





4.26.3

Form of Warrant issued to Midtown Partners & Co., LLC 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 15, 2009)4.27.1

Common Stock Purchase Agreement dated April 7, 2010 by and between Generex Biotechnology Corporation and Seaside 88, LP. (incorporated by reference to Exhibit 10.1 to Generex Biotechnology Corporation’s Report on Form  8-K filed on April 8, 2010)4.27.2

First Amendment to Common Stock Purchase Agreement dated April 28, 2010 by and between Generex Biotechnology Corporation and Seaside 88, LP. (incorporated by reference to Exhibit 10.1 to Generex Biotechnology Corporation’s Report on Form  8-K filed on April 29, 2010)4.27.3

Form of Warrant issued to Midtown Partners & Co., LLC in connection with the Placement Agency Agreement and in connection with Exhibit 4.27.1 hereto (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on April 8, 2010)4.28.1

Form of Securities Purchase Agreement, dated January 24, 2011, entered into between Generex Biotechnology Corporation and each investor in the offering (incorporated by reference to Exhibit 10.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on January 25, 2011)4.28.2

Form of Warrant issued in connection with Exhibit 4.28.1 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on January 25, 2011)10.1

Summary of Compensation Arrangements with Executive Officers10.2

Amendment to Securities Purchase Agreement dated March 25, 2011 (incorporated by  reference to Exhibit 10.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 30, 2011)10.3

Second Amendment to Securities Purchase Agreement dated April 13, 2011 (incorporated by reference to Exhibit 10.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on April 14, 2011).10.4

Nonqualified Stock Option Grant Agreement dated March 25, 2011 by and between Generex Biotechnology Corporation and John P. Barratt10.5

Nonqualified Stock Option Grant Agreement dated March 25, 2011 by and between Generex Biotechnology Corporation and Mark A. Fletcher10.6

Nonqualified Stock Option Grant Agreement dated March 25, 2011 by and between Generex Biotechnology Corporation and John P. Barratt10.7

Nonqualified Stock Option Grant Agreement dated March 25, 2011 by and between Generex Biotechnology Corporation and David Brusegard10.8

Nonqualified Stock Option Grant Agreement dated March 25, 2011 by and between Generex Biotechnology Corporation and Stephen Fellows10.9

Nonqualified Stock Option Grant Agreement dated March 25, 2011 by and between Generex Biotechnology Corporation and Mark A. Fletcher10.10

Nonqualified Stock Option Grant Agreement dated March 25, 2011 by and between Generex Biotechnology Corporation and Nola E. Masterson10.11

Nonqualified Stock Option Grant Agreement dated March 25, 2011 by and between Generex Biotechnology Corporation and Brian T. McGee31.1

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.


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