UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





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


EXCHANGE
ACT OF 1934





For the
quarterly period ended January 31, 2009





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


EXCHANGE
ACT OF 1934





For
the transition period from _________________ to ________________





COMMISSION
FILE NUMBER: 0-25169





GENEREX BIOTECHNOLOGY
CORPORATION


(Exact
name of registrant as specified in its charter)




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




33 HARBOUR SQUARE, SUITE 202


TORONTO, ONTARIO


CANADA M5J
2G2


(Address
of principal executive offices)





416/364-2551


(Registrant's
telephone number, including area code)




Not
applicable


(Former
name, former address and former fiscal year


if
changed since last report)





Indicate
by check mark whether the registrant: (1) has filed all reports required by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. x 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 135,534,178 as of March 9, 2009.









GENEREX
BIOTECHNOLOGY CORPORATION





INDEX




PART
      I. FINANCIAL INFORMATIONItem
      1.     Financial Statements.(Unaudited)Consolidated
      Balance Sheets -January
      31, 2009 and July 31, 2008
            1Consolidated
      Statements of Operations — For the three and six monthperiods
      ended January 31, 2009 and 2008, and cumulative fromNovember
      2, 1995 to January 31, 2009
            2Consolidated
      Statements of Cash Flows — For the six monthperiods
      ended January 31, 2009 and 2008, and cumulative fromNovember
      2, 1995 to January 31, 2009
            3Notes
      to Consolidated Financial Statements
            4Item
      2. Management's Discussion and Analysis of Financial Condition and
      Results of Operations
            17Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk
            35Item
      4. Controls and Procedures
            36PART
      II: OTHER INFORMATIONItem
      1. Legal Proceedings
            36Item
      1A. Risk Factors
            36Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds
            39Item
      3. Defaults Upon Senior Securities
            40Item
      4. Submission of Matters to a Vote of Security
Holders
            40Item
      5. Other Information
            40Item
      6. Exhibits
            40Signatures
            40









PART
I. FINANCIAL INFORMATION





Item
1. Financial Statements




GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES


(A
DEVELOPMENT STAGE COMPANY)


CONSOLIDATED
BALANCE SHEETS






January
      31,
              
              
              July
      31,2009
              
              
              2008ASSETS
              
              (Unaudited)Current
      Assets:Cash
      and cash equivalents
              
              $
              7,679,832
              
              
              $
              17,237,510Short-term
      investments
              
              
              --
              
              
              
              8,852,214Accounts
      receivable
              
              
              497,255
              
              
              
              81,784Inventory
              
              
              1,187,516
              
              
              
              1,465,222Other
      current assets
              
              
              1,193,510
              
              
              
              380,927Restricted
      cash
              
              
              466,667
              
              
              
              --Deferred
      debt issuance costs
              
              
              410,111
              
              
              
              506,608Total
      Current Assets
              
              
              11,434,891
              
              
              
              28,524,265Deferred
      Debt Issuance Costs
              
              
              --
              
              
              
              211,086Property
      and Equipment, Net
              
              
              1,446,276
              
              
              
              1,744,974Assets
      Held for Investment, Net
              
              
              3,033,770
              
              
              
              3,713,317Patents,
      Net
              
              
              3,793,177
              
              
              
              3,954,241TOTAL
      ASSETS
              
              $
              19,708,114
              
              
              $
              38,147,883LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable and accrued expenses
              
              $
              6,184,342
              
              
              $
              7,469,710Deferred
      revenue and rebate liability
              
              
              145,419
              
              
              
              125,598Current
      maturities of long-term debt
              
              
              1,345,161
              
              
              
              1,832,684Current
      maturities of obligations under capital lease
              
              
              40,469
              
              
              
              --Convertible
      debentures, net of debt discount of $7,472,474 and$15,931,480
      at January 31, 2009 and July 31, 2008, respectively
              
              
              3,540,859
              
              
              
              4,718,520Total
      Current Liabilities
              
              
              11,256,250
              
              
              
              14,146,512Obligations
      Under Capital Lease, Net
              
              
              30,229
              
              
              
              --Long-Term
      Debt, Net
              
              
              1,268,217
              
              
              
              1,354,564Commitments
      and ContingenciesStockholders’
      Equity:Special
      Voting Rights Preferred Stock, $.001 par value; authorized1,000
      shares at January 31, 2009 and July 31, 2008; -0- sharesissued
      and outstanding at January 31, 2009 and July 31, 2008
              
              
              --
              
              
              
              --Common
      stock, $.001 par value; authorized 500,000,000 shares atJanuary
      31, 2009 and July 31, 2008; 128,819,039 and 111,992,603
    sharesissued
      and outstanding at January 31, 2009 and July 31, 2008,
      respectively
              
              
              128,819
              
              
              
              111,992Additional
      paid-in capital
              
              
              278,483,819
              
              
              
              269,849,581Deficit
      accumulated during the development stage
              
              
              (271,964,885
              )
              
              
              (248,229,261
              )Accumulated
      other comprehensive income
              
              
              505,665
              
              
              
              914,495Total
      Stockholders’ Equity
              
              
              7,153,418
              
              
              
              22,646,807TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              19,708,114
              
              
              $
              38,147,883
  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 Six Months Ended
                  
                  
                  For
      the Three Months Ended
                  
                  
                  (Date
      of Inception)January
      31,
                  
                  
                  January
      31,
                  
                  
                  to
      January 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Revenues,
      net
                  
                  $
                  972,982
                  
                  
                  $
                  63,340
                  
                  
                  $
                  434,636
                  
                  
                  $
                  18,627
                  
                  
                  $
                  3,472,367Cost
      of Goods Sold
                  
                  
                  349,390
                  
                  
                  
                  25,585
                  
                  
                  
                  327,198
                  
                  
                  
                  5,654
                  
                  
                  
                  463,038Operating
      Expenses:Research
      and development
                  
                  
                  7,596,130
                  
                  
                  
                  7,317,427
                  
                  
                  
                  3,240,441
                  
                  
                  
                  3,469,624
                  
                  
                  
                  97,411,624Research
      and development -related
      party
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  220,218Selling
      and marketing
                  
                  
                  1,446,905
                  
                  
                  
                  651,918
                  
                  
                  
                  609,707
                  
                  
                  
                  284,498
                  
                  
                  
                  3,758,500General
      and administrative
                  
                  
                  4,912,435
                  
                  
                  
                  6,602,793
                  
                  
                  
                  2,064,522
                  
                  
                  
                  3,086,873
                  
                  
                  
                  110,548,901General
      and administrative -related
      party
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  314,328Total
      Operating Expenses
                  
                  
                  13,955,470
                  
                  
                  
                  14,572,138
                  
                  
                  
                  5,914,670
                  
                  
                  
                  6,840,995
                  
                  
                  
                  212,253,571Operating
      Loss
                  
                  
                  (13,331,878
                  )
                  
                  
                  (14,534,383
                  )
                  
                  
                  (5,807,232
                  )
                  
                  
                  (6,828,022
                  )
                  
                  
                  (209,244,242
                  )Other
      Income (Expense):Miscellaneous
      income (expense)
                  
                  
                  3
                  
                  
                  
                  --
                  
                  
                  
                  (2
                  )
                  
                  
                  --
                  
                  
                  
                  196,261Income
      from rental operations, net
                  
                  
                  167,739
                  
                  
                  
                  170,411
                  
                  
                  
                  79,359
                  
                  
                  
                  88,324
                  
                  
                  
                  1,419,200Interest
      income
                  
                  
                  221,097
                  
                  
                  
                  751,507
                  
                  
                  
                  52,632
                  
                  
                  
                  291,472
                  
                  
                  
                  7,729,994Interest
      expense
                  
                  
                  (10,792,585
                  )
                  
                  
                  (116,622
                  )
                  
                  
                  (6,363,197
                  )
                  
                  
                  (58,948
                  )
                  
                  
                  (58,675,158
                  )Loss
      on extinguishment of debt
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  (14,134,068
                  )Net
      Loss Before Undernoted
                  
                  
                  (23,735,624
                  )
                  
                  
                  (13,729,087
                  )
                  
                  
                  (12,038,440
                  )
                  
                  
                  (6,507,174
                  )
                  
                  
                  (272,708,013
                  )Minority
      Interest Share of Loss
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  3,038,185Net
      Loss
                  
                  
                  (23,735,624
                  )
                  
                  
                  (13,729,087
                  )
                  
                  
                  (12,038,440
                  )
                  
                  
                  (6,507,174
                  )
                  
                  
                  (269,669,828
                  )Preferred
      Stock Dividend
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  2,295,057Net
      Loss Available to CommonShareholders
                  
                  $
                  (23,735,624
                  )
                  
                  $
                  (13,729,087
                  )
                  
                  $
                  (12,038,440
                  )
                  
                  $
                  (6,507,174
                  )
                  
                  $
                  (271,964,885
                  )Basic
      and Diluted Net Loss PerCommon
      Share
                  
                  $
                  (.20
                  )
                  
                  $
                  (.12
                  )
                  
                  $
                  (.10
                  )
                  
                  $
                  (.06
                  )Weighted
      Average Number of Sharesof
      Common Stock Outstanding
                  
                  
                  121,454,322
                  
                  
                  
                  110,502,721
                  
                  
                  
                  124,799,620
                  
                  
                  
                  110,945,413








2




GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS


Cumulative
      FromNovember
      2, 1995For
      the Six Months Ended
              
              
              (Date
      of Inception)January
      31,
              
              
              to
      January 31,2009
              
              
              2008
              
              
              2009(Unaudited)
              
              
              (Unaudited)
              
              
              (Unaudited)Cash
      Flows From Operating Activities:Net
      loss
              
              $
              (23,735,624
              )
              
              $
              (13,729,087
              )
              
              $
              (269,669,828
              )Adjustments
      to reconcile net loss to net cash usedin
      operating activities:Depreciation
      and amortization
              
              
              413,793
              
              
              
              599,644
              
              
              
              7,380,658Minority
      interest share of loss
              
              
              --
              
              
              
              --
              
              
              
              (3,038,185
              )Reduction
      of notes receivable - common stock in exchangefor
      services rendered
              
              
              --
              
              
              
              --
              
              
              
              423,882Write-off
      of uncollectible notes receivable - common stock
              
              
              --
              
              
              
              --
              
              
              
              391,103Write-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
              
              
              --
              
              
              
              --
              
              
              
              14,134,069Common
      stock issued as employee compensation
              
              
              102,800
              
              
              
              1,002,699
              
              
              
              3,584,065Issuance
      of options and option modifications as employeecompensation
              
              
              19,360
              
              
              
              --
              
              
              
              91,938Common
      stock issued for services rendered
              
              
              124,166
              
              
              
              1,054,661
              
              
              
              8,650,364Amortization
      of prepaid services in conjunction with commonstock
      issuance
              
              
              --
              
              
              
              --
              
              
              
              138,375Non-cash
      compensation expense
              
              
              --
              
              
              
              --
              
              
              
              45,390Stock
      options and warrants issued for services rendered
              
              
              --
              
              
              
              --
              
              
              
              7,354,723Issuance
      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 loanorigination
      fees
              
              
              307,583
              
              
              
              --
              
              
              
              1,995,518Amortization
      of discount on convertible debentures
              
              
              8,459,007
              
              
              
              --
              
              
              
              30,873,118Common
      stock issued as interest payment on convertibledebentures
              
              
              252,083
              
              
              
              --
              
              
              
              536,542Interest
      on short-term advance
              
              
              --
              
              
              
              --
              
              
              
              22,190Founders’
      shares transferred for services rendered
              
              
              --
              
              
              
              --
              
              
              
              353,506Fees
      in connection with refinancing of debt
              
              
              --
              
              
              
              --
              
              
              
              113,274Warrant
      repricing costs
              
              
              1,589,988
              
              
              
              --
              
              
              
              1,589,988Changes
      in operating assets and liabilities (excluding theeffects
      of acquisition):Accounts
      receivable
              
              
              (428,276
              )
              
              
              (51,281
              )
              
              
              (515,657
              )Miscellaneous
      receivables
              
              
              --
              
              
              
              --
              
              
              
              43,812Inventory
              
              
              172,810
              
              
              
              (247,815
              )
              
              
              (1,290,631
              )Other
      current assets
              
              
              (824,627
              )
              
              
              16,200
              
              
              
              (899,653
              )Accounts
      payable and accrued expenses
              
              
              (1,204,834
              )
              
              
              (922,649
              )
              
              
              10,885,786Deferred
      revenue
              
              
              27,446
              
              
              
              69,384
              
              
              
              152,958Other,
      net
              
              
              --
              
              
              
              --
              
              
              
              110,317Net
      Cash Used in Operating Activities
              
              
              (14,724,325
              )
              
              
              (12,208,244
              )
              
              
              (160,922,066
              )Cash
      Flows From Investing Activities:Purchase
      of property and equipment
              
              
              (1,385
              )
              
              
              (2,499
              )
              
              
              (4,594,932
              )Costs
      incurred for patents
              
              
              (66,503
              )
              
              
              (118,277
              )
              
              
              (2,116,865
              )Change
      in restricted cash
              
              
              (466,667
              )
              
              
              --
              
              
              
              (420,795
              )Proceeds
      from maturity of short term investments
              
              
              8,852,214
              
              
              
              11,829,420
              
              
              
              195,242,918Purchases
      of short-term investments
              
              
              --
              
              
              
              (18,000,651
              )
              
              
              (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
              
              
              --
              
              
              
              30,795
              
              
              
              (652,071
              )Change
      in notes receivable - common stock
              
              
              --
              
              
              
              --
              
              
              
              (91,103
              )Change
      in due from related parties
              
              
              --
              
              
              
              --
              
              
              
              (2,222,390
              )Other,
      net
              
              
              --
              
              
              
              --
              
              
              
              89,683Net
      Cash Provided by (Used in) Investing Activities
              
              
              8,317,659
              
              
              
              (6,261,212
              )
              
              
              (11,084,398
              )Cash
      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
              
              
              (41,095
              )
              
              
              (44,056
              )
              
              
              (1,982,939
              )Repayment
      of obligations under capital lease
              
              
              (12,304
              )
              
              
              --
              
              
              
              (12,304
              )Change
      in due to related parties
              
              
              --
              
              
              
              --
              
              
              
              154,541Proceeds
      from exercise of warrants
              
              
              --
              
              
              
              --
              
              
              
              44,015,049Proceeds
      from exercise of stock options
              
              
              56,000
              
              
              
              49,290
              
              
              
              5,001,916Proceeds
      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
              
              
              (3,130,000
              )
              
              
              --
              
              
              
              (3,765,757
              )Purchase
      of treasury stock
              
              
              --
              
              
              
              --
              
              
              
              (483,869
              )Proceeds
      from issuance of common stock, net
              
              
              --
              
              
              
              --
              
              
              
              80,283,719Purchase
      and retirement of common stock
              
              
              --
              
              
              
              --
              
              
              
              (497,522
              )Net
      Cash Provided by Financing Activities
              
              
              (3,127,399
              )
              
              
              5,234
              
              
              
              179,731,518Effect
      of Exchange Rates on Cash
              
              
              (23,613
              )
              
              
              (41,858
              )
              
              
              (45,222
              )Net
      Increase (Decrease) in Cash and Cash Equivalents
              
              
              (9,557,678
              )
              
              
              (18,506,080
              )
              
              
              7,679,832Cash
      and Cash Equivalents, Beginning of Period
              
              
              17,237,510
              
              
              
              21,026,067
              
              
              
              --Cash
      and Cash Equivalents, End of Period
              
              $
              7,679,832
              
              
              $
              2,519,987
              
              
              $
              7,679,832






3




GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 1.
              Basis
      of Presentation
 The
accompanying unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations for reporting on Form
10-Q.  Accordingly, certain information and disclosures required by
generally accepted accounting principles for complete financial statements are
not included herein.  The interim statements should be read in
conjunction with the financial statements and notes thereto included in the
Company’s latest Annual Report on Form 10-K.  The results for the six
and three months ended may not be indicative of the results for the entire
year.
 
 Interim
statements are subject to possible adjustments in connection with the annual
audit of the Company’s accounts for the fiscal year 2009.  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.  The Company’s revenue includes $1 million received in
conjunction with the execution of a development agreement, grant revenue from
government agencies related to Antigen’s operations, $550,000 in conjunction
with the execution of a licensing agreements and revenue recognized 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 financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The Company has experienced
negative cash flows from operations since inception and had an accumulated
deficit at January 31, 2009 of approximately $272 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 commence sales and marketing efforts, if the FDA or other
regulatory approvals are obtained.  Management’s plans in order to meet its
operating cash flow requirements include financing activities such as private
placements of its common stock, preferred stock offerings and issuances 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 financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts of liabilities that might be necessary should the Company be
unable to continue in existence.
  4
 
 GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 2.
              Effects
      of Recent Accounting Pronouncements
 
 In
September 2006, the FASB issued SFAS No. 157, ”Fair Value Measurements”
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
fair value in accordance with accounting principles generally accepted in the
United States, and expands disclosures about fair value measurements. SFAS 157
was effective for financial statements issued for fiscal years beginning after
November 15, 2007, with earlier application encouraged, but the issuance of
FASB Staff Position SFAS No. 157-2 has delayed the effective date to fiscal
years beginning after November 15, 2008 as it relates to non-financial
assets and non-financial liabilities. Any amounts recognized upon adoption as a
cumulative-effect adjustment will be recorded to the opening balance of retained
earnings in the year of adoption. The adoption of SFAS 157 did not have a
material effect on the Company’s financial condition or results of
operations.
 
 In
February 2007, the FASB issued SFAS No. 159, “Establishing the Fair Value
Option for Financial Assets and Liabilities” (“SFAS 159”) to permit all entities
to choose to elect to measure eligible financial instruments and certain other
items at fair value. The decision whether to elect the fair value option
may occur for each eligible item either on a specified election date or
according to a preexisting policy for specified types of eligible items.
However, that decision must also take place on a date on which criteria under
SFAS 159 occurs. Finally, the decision to elect the fair value option shall
be made on an instrument-by-instrument basis, except in certain circumstances.
An entity shall report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting date.
SFAS 159 applies to fiscal years beginning after November 15, 2007, with
early adoption permitted for an entity that has also elected to apply the
provisions of SFAS 157. The adoption of SFAS 159 did not have a material effect
on the Company’s financial condition or results of operations.
 
 In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”
(“SFAS 141(R)”). This Statement replaces SFAS No. 141, “Business
Combinations” (“SFAS 141”). This Statement retains the fundamental requirements
in SFAS 141 that the acquisition method of accounting (which SFAS 141 called the
purchase method) be used for all business combinations and for an acquirer to be
identified for each business combination. This Statement also establishes
principles and requirements for how the acquirer: a) recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree; b) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase and c) determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial effects of the
business combination. SFAS 141(R) will apply prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. An entity
may not apply it before that date. The Company is currently evaluating the
impact of this statement on its results of operations and financial
position.
 
 In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements” (“SFAS 160”). This Statement amends ARB 51 to
establish accounting and reporting standards for the non-controlling (minority)
interest in a subsidiary and for the deconsolidation of a subsidiary. It
clarifies that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. SFAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008.  Earlier adoption is prohibited.  The Company is currently
evaluating the impact of this statement on its results of operations and
financial position.
  5
 
 
 GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities,” and Amendment of FASB Statement No.
133.  SFAS 161 amends SFAS 133, “Accounting for Derivative Instruments
and Hedging Activities,” to amend and expand the disclosure requirements of SFAS
133 to provide greater transparency about (i) how and why an entity uses
derivative instruments, (ii) how derivative instruments and related hedge items
are accounted for under SFAS 133 and its related interpretations, and (iii) how
derivative instruments and related hedged items affect an entity’s financial
position, results of operations and cash flows. To meet those objectives, SFAS
161 requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of gains and
losses on derivative instruments and disclosures about credit-risk-related
contingent features in derivative agreements. SFAS 161 is effective for fiscal
years and interim periods beginning after November 15, 2008.  Earlier
adoption is encouraged.  The Company does not expect SFAS 161 to have
a material effect on its consolidated financial statements.
 
 In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS 162"). SFAS 162 is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. GAAP for nongovernmental entities. SFAS 162
became effective November 15, 2008. The Company does not expect SFAS 162 to have
a material effect on its consolidated financial statements.
 
 In May
2008, the FASB issued Staff Position (“FSP”) APB 14-1, “Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlements).”  This FSP requires a portion of
this type of convertible debt to be recorded as equity and to record interest
expense on the debt portion at a rate that would have been charged on
nonconvertible debt with the same terms. This FSP takes effect in the first
quarter of fiscal years beginning after December 15, 2008 and will be applied
retrospectively for all periods presented. It will be effective for the Company
on August 1, 2009.  This FSP will apply to the Company’s convertible
debentures.  The Company is currently evaluating how it may affect the
consolidated financial statements.
 
 In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating
Securities.”  Securities participating in dividends with common stock
according to a formula are participating securities. This FSP determined that
unvested shares of restricted stock and stock units with nonforfeitable rights
to dividends are participating securities. Participating securities require the
“two-class” method to be used to calculate basic earnings per share. This method
lowers basic earnings per common share. This FSP takes effect in
the first quarter of fiscal years beginning after December 15, 2008 and will be
applied retrospectively for all periods presented.  It will be
effective for the Company on August 1, 2009.  The Company does not
expect FSP EITF 03-6-1 to have a material effect on its consolidated
financial statements.
  6
  GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 3.
              Stock-Based
      Compensation
 As of
January 31, 2009, 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 10,000,000 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 January 31, 2009, there were 2,000,000, 3,678,490 and 7,837,000 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.
 
 The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option pricing model.  In the case of restricted stock
grants under the 2006 Plan, fair market value of the shares is the market
price.
 
 The
following is a summary of the common stock options granted, forfeited or expired
and exercised under the Plan for the six months ended January 31,
2009:
  Weighted
                
                
                WeightedAverage
                
                
                AverageExercise
                
                
                Remaining
                
                
                AggregatePrice
                
                
                Contractual
                
                
                IntrinsicShares
                
                
                Share
                
                
                Term
      (Years)
                
                
                ValueOutstanding,
      August 1, 2008
                
                
                6,246,638
                
                
                $
                0.66Granted
                
                
                --
                
                
                $
                --Forfeited
      or expired
                
                
                (1,066,000
                )
                
                $
                1.69Exercised
                
                
                (100,000
                )
                
                $
                0.56Outstanding,
      January 31, 2009
                
                
                5,080,638
                
                
                $
                0.45
                
                
                
                1.12
                
                
                $
                770,426Exercisable,
      January 31, 2009
                
                
                4,993,138
                
                
                
                
                
                
                
                
                
                
                $
                770,426Grant
      Date Fair Value of Forfeited or Expired Options
                
                
                
                
                
                
                
                
                
                
                $
                1.29Total
      Intrinsic Value of Options Exercised
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                15,111
  7
 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, 2008
                
                
                87,500
                
                
                $
                0.59Granted
                
                
                --
                
                
                $
                --Vested
                
                
                --
                
                
                $
                --Forfeited
                
                
                --
                
                
                $
                --Outstanding,
      January 31, 2009
                
                
                87,500
                
                
                $
                0.59
 As of
January 31, 2009, the Company had $25,813 of total unrecognized compensation
cost related to non-vested share-based compensation arrangements granted under
the Plan.  That cost is expected to be recognized over a
weighted-average period of 1 years.
 
 In August
2007, the Company issued 550,000 shares of common stock under the 2006 Plan in
the form of restricted stock awards to officers.  The fair value of
these shares was based on the quoted market price of the Company’s common stock
on the dates of the issuance is $830,500. These shares were issued as an
incentive to retain key employees and officers.  A portion of these
shares vested immediately while the remaining portion will vest over two years
from the date of the grant.  The following table summarizes the
Company’s non-vested restricted stock activity for the six months ended January
31, 2009:
  WeightedAverageGrant
      DateNumber
      of
                
                
                FairShares
                
                
                ValueNon-vested
      stock, August 1, 2008
                
                
                103,906
                
                
                $
                1.51Granted
                
                
                --
                
                
                
                --Vested
                
                
                (59,375
                )
                
                
                1.51Forfeited
                
                
                --
                
                
                
                --Non-vested
      stock, January 31, 2009
                
                
                44,531
                
                
                $
                1.51
 As of
January 31, 2009, $48,564 of total unrecognized compensation costs related to
unvested shares is expected to be recognized over the remaining service period
of 0.5 years.
 
 4.
              Comprehensive
      Income/(Loss)
 
 Comprehensive
loss, which includes net loss and the change in the foreign currency translation
account, for the six months ended January 31, 2009 and 2008 was $24,144,454 and
$13,627,179, respectively, and for the three months ended January 31, 2009 and
2008 was $12,080,656 and $6,639,645, respectively.
  8
  GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 5.
              Accounts
      Payable and Accrued Expenses
 Accounts
payable and accrued expenses consist of the following:
  January
      31,
                
                
                July
      31,2009
                
                
                2008Accounts
      Payable
                
                $
                1,450,709
                
                
                $
                2,613,789Research
      and Development
                
                
                1,877,013
                
                
                
                2,048,101Executive
      Compensation
                
                
                2,493,716
                
                
                
                2,469,026Financial
      Services
                
                
                362,904
                
                
                
                338,794Total
                
                $
                6,184,342
                
                
                $
                7,469,710
 
 6.
              Secured
      Convertible Debentures
 The
Company is contractually obligated under various convertible promissory notes
(“convertible debentures”) with accredited investors.  The convertible
debentures are convertible into shares of the Company's common stock at a price
as stipulated in each debenture as amended.
 
 The
convertible debentures are accounted for in accordance with EITF 98-5 and
00-27.  The following summarizes the significant terms and accounting
for each convertible debenture entered into by the Company.
  Notes/Debenture$
                20,650,000Date
      Issued
                
                
                3/2008Promissory
      Note Amount
                
                $
                (A
                )#
      of Promissory Notes
                
                
                6Terms
                
                (B
                )Conversion
      Price
                
                $
                1.21Gross
      Proceeds
                
                $
                20,650,000Net
      Cash Proceeds
                
                $
                20,450,000Warrants
      (“Series”) Issued to Investors (C)
                
                
                42,665,274Warrant
      (“Series”) Exercise Price (C)
                
                $
                0.50Existing
      Warrants (“Pre-Extant”) Re-priced (D)
                
                
                12,697,024Re-priced
      Warrant (“Pre-Extant”) Exercise Price (D)
                
                
                0.50Warrant
      Fair Value (WFV) (includes value of re-priced warrants
      (“Pre-Extant”))
                
                $
                21,976,130Warrant
      Relative Fair Value (WRFV)
                
                $
                10,646,218Black-Scholes
      Model Assumptions
                
                (E
                )Beneficial
      Conversion Feature (BCF)
                
                $
                8,768,946Costs
      associated with issuance classified as deferreddebt issuance
      costs
                
                $
                722,750Amortization
      of WFV and BCF asNon-cash Interest
      Expense
                
                $
                11,942,691Principal
      and Interest Converted
                
                $
                --Shares
      Issued Upon Conversion
                
                
                --Principal
      and Interest Repaymentsin Shares of Common
      Stock
                
                $
                6,758,748Shares
      Issued for Principal andInterest
      Repayments
                
                
                16,311,994Principal
      and Interest Repaymentsin Cash
                
                $
                4,004,030


9
  GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 (A)
              $7,000,000;
      $5,000,000; $3,650,000; (2) $2,000,000;
  $1,000,000
 
 (B)
              The
      debentures carry an 8% coupon and the initial maturity date was September
      30, 2009, provided, however, the maturity date may be extended at the
      option of the holder.  Initially, the debentures carried an
      18-month term and amortized in 15 installments commencing in the fifth
      month of the term.  The principal and interest payments are
      payable in cash or, at the Company's option, the lower of (i) the then
      applicable conversion price and (ii) the price which initially was
      computed as 90% of the arithmetic average of the VWAP of the common stock
      on each of the twenty (20) consecutive trading days immediately preceding
      the applicable installment date, subject to certain conditions. Each
      installment payment elected by the Company to be repaid in shares requires
      the Company to deliver the number of shares estimated to satisfy the
      installment payment 20 trading days preceding the installment due date.
      The difference in the value of these shares and the installment payment on
      the installment date is required to be delivered to the holders by issuing
      additional shares. In addition, each debenture lists certain “Events of
      Default”, which include, without limitation, any default in the payment of
      principal or interest in respect of the debentures as when they become due
      and payable, the Company’s failure to observe or perform any other
      covenant, agreement or warranty contained in the agreements relating to
      the debentures.  Upon the occurrence of the “Event of Default”,
      the holder may require us to redeem all or any portion of the debentures
      upon written notice.  Other conditions in the debentures impede
      the Company’s ability to make its monthly installment payments in shares
      of its common stock.  Two of such conditions – the effectiveness
      of the registration statement for at least 30 days prior to installment
      notice and listing maintenance minimum bid price requirement of The NASDAQ
      Stock Market, were not met requiring the Company to procure waivers from
      the debenture holders in respect to these
  conditions.
 
 (C)
              The
      warrants issued to the holders of the debentures are comprised of the
      following: Series A warrants 5,257,729; Series A-1 warrants 7,541,857;
      Series B warrants 17,066,108; Series C warrants
      12,799,580.  During the six months ended January 31, 2009, the
      Company revised the terms of these warrants to reduce the exercise price.
      Additionally, the expiration date of the Series A, A-1 and C warrants were
      extended.
 
 a.
              The
      Series C warrants are issuable contingent upon exercise of Series B
      warrants.  The relative fair value associated with the Series C
      warrants at the commitment date amounted to $1,234,836.  At such
      time the contingency is met, the Company would include the relative fair
      value as a charge to interest expense.  The Company has
      accounted for this contingency in accordance with EITF 98-5 and
      00-27.  At January 31, 2009, Series B warrants have not been
      exercised and therefore the contingency has not been
  met.
 
 (D)
              The
      Company re-priced 12,697,024 existing warrants
      (“Pre-Extant”).  The value associated with the “Pre-Extant”
      warrants amounted to $5,399,160 and was valued using the Black-Scholes
      pricing model.  The value of the “Pre-Extant” warrants has been
      added to the value of the new warrants issued (see (B) above) and
      accounted for in accordance with EITF 98-5 and 00-27.  During
      the six months ended January 31, 2009, the Company revised the terms of
      the “Pre-Extant” warrants to reduce the exercise price and extend the
      expiration date.
 
 (E)
              Black-Scholes
      pricing model assumptions used in valuing the “Pre-Extant” warrants were:
      risk free interest (2.70 percent); expected volatility (.8611); life of 1
      1⁄2 years, 7 years and 7 1⁄2 years.
  10
  GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Event
of Default
 During
the six months ended January 31, 2009, one of the Equity Conditions within the
debentures was not satisfied in that the Company received notice from The NASDAQ
Stock Market of the Company’s failure to comply with the minimum bid price
requirement of Marketplace Rule 4310(c)(4) (the “Listing Maintenance Equity
Condition”), which constitutes a “Breach of Condition” under each of the
debentures.
 
 In
addition, during the six months ended January 31, 2009 the Company was not in
compliance with the Net Cash Balance Test, which constitutes an “Event of
Default” under each of the debentures (the “Net Cash Balance Test
Default”).
 
 The
Company and each of the holders of the debentures entered into each of the
separate agreements to address the defaults caused by non-compliance with the
Listing Maintenance Equity Condition and the Net Cash Balance Test
Default.  Significant provisions of these agreements include the
following:
 
 ·
              Each
      holder agreed to waive (a) the Event of Default under Section 4(a)(xv) of
      the debentures with respect to the Company’s failure to meet Net Cash
      Balance Test in respect of any and all periods prior to December 22, 2008
      (the “Effective Date”), and (b) compliance by the Company with the Net
      Cash Balance Test  for the period commencing on the Effective
      Date and ending on January 30,
2009.
 
 ·
              The
      exercise price of each of the Series Warrants was reduced from $1.21 to
      $0.50.
 
 ·
              The
      exercise price of each of the Pre-Extant Warrants was reduced from $1.10
      to $0.50.
 
 ·
              The
      Company shall have a one-time right to require each of the holders to
      exercise all of their then outstanding Series Warrants and Pre-Extant
      Warrants if the arithmetic average of the volume weighted average price of
      the Common Stock on the Principal Market for a twenty-one (21) consecutive
      Trading Day period is equal to or greater than $1.00.  The
      Company agreed to issue each holder a seven-year warrant to acquire up to
      that number of shares of Common Stock that is equal to the number of
      shares of Common Stock acquired by such holder in connection with such
      holder’s exercise of its Series Warrants and its Pre-Extant Warrants
      pursuant to the exercise of such call option by the Company, at an
      exercise price of $1.00 per share.
 
 ·
              The
      expiration date of each Series A Warrant and each Series A-1 Warrant was
      extended to March 31, 2016.
 
 ·
              The
      expiration date of each Series C Warrant was extended to September
      30, 2016.
 
 ·
              The
      expiration date of each Pre-Extant Warrant was extended to March 31,
      2016.
 
 ·
              The
      Company has agreed to honor the notices it delivered to each of the
      holders on December 1, 2008 in respect of the January 1, 2009 Installment
      Date pursuant to which the Company confirmed its intention to redeem 100%
      of the January 1, 2009 Installment Amounts pursuant to a Company
      Redemption, and the Company shall promptly pay the applicable Company
      Redemption Amount when due.
  11
  GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 As a
result of the event of default, the Company evaluated the debt modification
under the guidance of EITF 96-19 and EITF 06-6. Based on conclusions drawn
during the evaluation, the Company recorded a non-cash charge to the statement
of operations of approximately $1,590,000 which represents the incremental fair
value resulting from the modification of the warrants utilizing the
Black-Scholes pricing model.
 
 As of
January 31, 2009, the $3,540,859 net outstanding balance of convertible
debentures is comprised of $11,013,333 of debt net of unamortized debt discount
of $7,472,474.  As of July 31, 2008, the $4,718,520 net outstanding
balance of convertible debentures was comprised of $20,650,000 of debt net of
unamortized debt discount of $15,931,480.
 
 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.
  12
  GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 The
Company is involved in certain other legal proceedings in addition to those
specifically described herein. Subject to the uncertainty inherent in all
litigation, the Company does not believe at the present time that the resolution
of any of these legal proceedings is likely to have a material adverse effect on
the Company’s financial position, operations or cash flows.
 
 With
respect to all litigation, as additional information concerning the estimates
used by the Company becomes known, the Company reassesses its position both with
respect to accrued liabilities and other potential exposures.
 
 8.
              Net
      Loss Per Share
 Basic
earnings per shares (EPS) and Diluted EPS for the six and three months ended
January 31, 2009 and 2008 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 options, warrants,
non-vested restricted stock and shares to be issued upon conversion of the
outstanding convertible debentures, representing approximately 70,990,472 and
20,758,296 incremental shares, have been excluded from the January 31, 2009 and
2008 computations of Diluted EPS as they are anti-dilutive due to the losses
generated.
 
 9.
              Supplemental
      Disclosure of Cash Flow Information
  For
      the Six Months EndedJanuary
      31,2009
                
                
                2008Cash
      paid during the period for:Interest
                
                $
                976,706
                
                
                $
                116,666Income
    taxes
                
                $
                --
                
                
                $
                --Disclosure
      of non-cash investing and financing activities:Issuance of common stock as
      satisfaction of accruedexecutive
      compensation
                
                $
                --
                
                
                $
                471,875Issuance of common stock as
      repayment of convertibledebentures
                
                $
                6,506,668
                
                
                $
                --Purchase of property and
      equipment through the issuanceof obligations under capital
      lease
                
                $
                83,002
                
                
                $
                --
  10.
              Stockholders’
      Equity
 During
the six months ended January 31, 2009, the Company issued 289,619 shares of
common stock to various consultants for services rendered in the amount of
$124,167.  The shares were valued at $0.32 to $0.80 per share based on
the quoted market price of the Company’s common stock on the dates of the
issuances.
 
 During
the six months ended January 31, 2009, the Company issued 124,823 shares of
common stock valued at $50,501 as employee compensation.  The shares
were valued at $0.31 to $0.72 per share based on the quoted market price of the
Company’s common stock on the dates of the issuances.
 
 During
the six months ended January 31, 2009, the Company received aggregate cash
proceeds of $56,000 from exercises of stock options.  The Company
issued 100,000 shares of common stock as a result of these
transactions.
 
 During
the six months ended January 31, 2009, the Company issued 16,311,994 shares of
common stock valued at $6,758,748 as repayment of convertible debentures and
accrued interest (see Note 6).  The shares were valued at $0.29 to
$0.65 per share based on the quoted market price of the Company’s common stock
on the dates of the issuances.
  13
  GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 During
the six months January 31, 2009, the Company modified the terms of outstanding
warrants associated with convertible debentures and resulted in a charge to
operations in the amount of $1,589,988 (see Note 6).
 
 The
stockholders’ equity transactions as described above are summarized as
follow:
  Additional
                
                
                TotalCommon
      Stock
                
                
                Paid-In
                
                
                Stockholders’Shares
                
                
                Amount
                
                
                Capital
                
                
                EquityIssuance
      of common stock for services
                
                
                289,619
                
                
                $
                290
                
                
                $
                123,877
                
                
                $
                124,167Issuance
      of common stock as employeecompensation
                
                
                124,823
                
                
                
                125
                
                
                
                50,376
                
                
                
                50,501Stock-based
      executive compensation
                
                
                --
                
                
                
                --
                
                
                
                71,658
                
                
                
                71,658Stocks
      options exercised for cash
                
                
                100,000
                
                
                
                100
                
                
                
                55,900
                
                
                
                56,000Issuance
      of common stock as repaymentof
      convertible debentures, accruedinterest
      and prepayment
                
                
                16,311,994
                
                
                
                16,312
                
                
                
                6,742,436
                
                
                
                6,758,748Warrant
      re-pricing costs
                
                
                --
                
                
                
                --
                
                
                
                1,589,988
                
                
                
                1,589,988Total
                
                
                16,826,436
                
                
                $
                16,827
                
                
                $
                8,634,235
                
                
                $
                8,651,062
  11.
              Subsequent
      Events
 On
February 27, 2009 (“Effective Date”), the Company and each of the holders of the
Company’s 8% convertible debentures entered into a separate Forbearance and
Amendment Agreement (the “Forbearance Agreement”) pursuant to which the holders
agreed for a 21-day period ending March 20, 2009 (the “Standstill Period”) to
temporarily forbear from exercising certain rights and remedies under the
convertible debentures.   Significant provisions of these
agreements include:
 
 The
Company acknowledged the existence of certain Events of Default, including,
among others, the Company’s failure to procure the Control Agreements required
by the Company’s December 22, 2008 agreements with the holders, to satisfy
the Net Cash Balance Test under Section 13(f) of the debentures, and to deliver
Event of Default Notices to each holder with respect to the foregoing Events of
Default (“Existing Events of Default”).
 
 During
the Standstill Period, each holder agreed not to exercise any of its rights or
remedies solely with respect to any of the Existing Events of Default. Upon the
expiration of the Standstill Period or upon the occurrence of any Event of
Default occurring after the Effective Date (each such event a “Standstill
Termination”), each holder will have the right to immediately exercise all of
its rights and remedies under the debentures and the related Security
Agreement.
 
 Pursuant
to the Forbearance Agreement, the Company and each holder agreed to amend the
terms of each debenture as follows:
 
 (a)
              The
      Maturity Date is accelerated from August 30, 2009 to July 1, 2009, subject
      to extension by the holder.
 
 (b)
              The
      term “Installment Date” is amended to mean each of the following dates:
      (i) August 1, 2008, (ii) September 1, 2008, (iii) October 1, 2008, (iv)
      November 1, 2008, (v) December 1, 2008, (vi) January 1, 2009, (vii)
      February 1, 2009, (viii) March 1, 2009, (ix) April 1, 2009, (x) May 1,
      2009, (xi) June 1, 2009 and (xii) the Maturity
  Date.
  14
 
 GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 
 (c)
              The
      term “Installment Amount” is amended to mean, with respect to any
      Installment Date occurring on or after March 1, 2009, the lesser of (A)
      the product of (i) $1,927,333.32, multiplied by (ii) Holder Pro Rata
      Amount and (B) the Principal amount under the debenture as of such
      Installment Date, together with any accrued and unpaid Interest as of such
      Installment Date and accrued and unpaid Late Charges, if any, as of such
      Installment Date.
 
 (d)
              Section
      4(a)(iii) of the debenture is amended to permit the Common Stock to be
      quoted on the OTC Bulletin Board if it is suspended from trading or
      delisted from the NASDAQ Capital
Market.
 
 (e)
              The
      monthly expenditure of cash by the Company together with its subsidiaries
      in excess of $900,000 in the aggregate in March, April or May 2009 will
      constitute an “Event of Default,” provided that all cash used to effect
      Company Redemptions under the debentures as permitted thereunder will not
      be deemed to be cash expended solely for purposes of this
      determination.
 
 (f)
              An
      “Event of Default” includes any breach by the Company of Section 8 of the
      Registration Rights Agreement (including, without limitation, any failure
      by the Company to (i) file with the SEC any required reports under Section
      13 or 15(d) of the 1934 Act such that it is not in compliance with Rule
      144(c)(1), or (ii) meet any of the requirements under rule
      144(i)(2)).
 
 (g)
              As
      of the Effective Date, the Company may only effect a Company Redemption
      with respect to the payment of an Installment Amount by using net proceeds
      received by the Company from any subsequent private placements, revenues
      from sales of products by the Company or licensing fees received by the
      Company.
 
 (h)
              The
      Company must provide a monthly certification executed by the Company’s
      Chief Financial Officer stating whether an Event of Default occurred with
      respect to the Company’s and its subsidiaries’ cash expenditures in excess
      of $900,000 in the calendar month immediately preceding the date of such
      certification, and the Company must publicly disclose any such Event of
      Default on the date of such
certification.
 
 The
Company must enter into a Control Agreement with each holder and a financial
institution to act as depositary with respect to a non-operating deposit account
and deposit $3,000,000 into such account, which account and Control Agreement
will be subject to the terms of the Security Agreement.  .In addition,
the Company must use commercially reasonable efforts to obtain, by the
expiration of the Standstill Period, a clean, unconditional and irrevocable
letter of credit that will remain “evergreen” until each debenture is repaid in
full in the aggregate amount of $3,000,000 for the ratable benefit of each
holder, which letter of credit will be subject to the terms of the Forbearance
Agreement.
 
 Prior to
the expiration of the Standstill Period, the Company must issue and deliver
irrevocable instructions to the Company’s transfer agent to issue certificates
to each holder for shares of the Common Stock, or credit shares to the holder’s
balance account at DTC, at the holder’s written request to provide each holder’s
pro rata portion of Pre-Installment Conversion Shares  for the payment
of Installment Amounts under the debenture or upon the occurrence of an Event of
Default after the Effective Date.
  15
 
 
 GENEREX
BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 With
respect to the April 1, 2009 Installment Date, the following terms shall
apply:
 
 ·
              March
      9, 2009 will constitute the Installment Notice Due
  Date.
 
 ·
              The
      Pre-Installment Conversion Price will be equal to the price which shall be
      computed as 90% of the arithmetic average of the VWAP of the Common Stock
      on each of the 14 consecutive Trading Days immediately preceding March 9,
      2009 (to be appropriately adjusted for any stock split, stock dividend,
      stock combination or other similar transaction during such measuring
      period).
 
 ·
              The
      Company Conversion Price will be equal to the price which shall be
      computed as 90% of the arithmetic average of the VWAP of the Common Stock
      on each of the 17 consecutive Trading Days immediately preceding such
      Installment Date (to be appropriately adjusted for any stock split, stock
      dividend, stock combination or other similar transaction during such
      measuring period).
 
 ·
              The
      Company will deliver the Pre-Installment Conversion Shares (which will be
      equal the number of shares of Common Stock equal to the quotient of (i)
      the Installment Amount due on such Installment Date divided by (ii) the
      Pre-Installment Conversion Price) to the holder no later than two Trading
      Days after March 9, 2009.
 
 ·
              The
      number of shares of Common Stock to be delivered pursuant to a Company
      Conversion on April 1, 2009 with respect to the Installment Amount due on
      that date will be reduced by the above-mentioned number of the
      Pre-Installment Conversion Shares previously
  delivered.
 
 Each
holder agreed to waive satisfaction of the following:
 
 ·
              the
      Listing Maintenance Equity Condition solely with respect to the
      Installment Dates of  March 1, 2009, April 1, 2009, May 1, 2009,
      June 1, 2009 and the Maturity Date, if, (i) other Equity Conditions and
      all other conditions relating to a Company Conversion are satisfied and
      (ii) the shares of Common Stock continue to be listed or designated for
      quotation on, and trade on, the NASDAQ Capital Market, another national
      stock exchange or are quoted on the OTC Bulletin
  Board;
 
 ·
              the
      Net Cash Balance Test, but only until a Standstill Termination occurs;
      and
 
 ·
              all
      Existing Events of Default, the Net Cash Balance Test and accrual of
      Interest at the default Interest Rate, but only to the extent that the
      Company complies with all terms of the Forbearance Agreement and no other
      Event of Default occurs after the Effective
  Date.
 
 The
Company agreed to reimburse each holder for the transactions costs relating to
the Forbearance Agreement and defaults that occurred before the Effective Date,
which amounts were paid in the form of shares of Common Stock determined
pursuant to the formula specified in the Forbearance
Agreement.




16




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 six-month
periods ended January 31, 2009 and 2008. 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, as amended, for the year ended July 31, 2008 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
January 31, 2009.





Forward-Looking
Statements





We have
made statements in this Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in this Quarterly Report on Form 10-Q of Generex
Biotechnology Corporation for the fiscal quarter ended January 31, 2009 that may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Act"). The Act limits our
liability in any lawsuit based on forward-looking statements that we have made.
All statements, other than statements of historical facts, included in this
Quarterly Report that address activities, events or developments that we expect
or anticipate will or may occur in the future, including such matters as our
projections, future capital expenditures, business strategy, competitive
strengths, goals, expansion, market and industry developments and the growth of
our businesses and operations, are forward-looking statements. These statements
can be identified by introductory words such as "expects," “anticipates,”
"plans," "intends," "believes," "will," "estimates," "projects" or words of
similar meaning, and by the fact that they do not relate strictly to historical
or current facts. Our forward-looking statements address, among other
things:




·
            our
      expectations concerning product candidates for our
      technologies;·
            our
      expectations concerning existing or potential development and license
      agreements for third-party collaborations 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;




17




·
            the
      inherent uncertainties associated with commercialization of products that
      have received regulatory approval;·
            the
      volatility of, and recent decline in, our stock price and the impact on
      our ability to pay installments due on our outstanding senior secured
      notes in stock rather than cash; and·
            our
      ability to obtain the necessary financing to fund our
      operations.





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, as amended, for the year ended July 31, 2008
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.




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, we have expanded our focus to include
immunomedicines incorporating proprietary vaccine formulations.





We
believe that our buccal delivery technology is a platform technology that has
application to many large molecule drugs and provides a convenient,
non-invasive, accurate and cost-effective way to administer such drugs. We have
identified several large molecule drugs as possible candidates for development,
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. To date, we have
received regulatory approval in Ecuador and India for the commercial marketing
and sale of Generex Oral-lynTM. 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. The patient screening at other
participating clinical sites in the U.S. and Canada is ongoing. Currently over
314 patients have been enrolled in 74 clinical sites around the world, including
sites in the United States, Canada, Bulgaria, Poland, Romania, Russia and
Ukraine.





In
November 2008 we, together with our marketing partner Shreya Life Sciences Pvt.
Ltd. officially launched Generex Oral-lynTM in India under marketing name of Oral
Recosulin.  Each package of Oral Recosulin contains two canisters of
our product along with one actuator.  Product was available for sale
since January 2009 and over 50 dialectologists are currently prescribing Oral
Recosulin in India.





In
December 2008 we, together with our marketing partner Banta SA., received an
approval to market Generex Oral-lynTM in Lebanon.  Benta is currently
working on reimbursement policy for Generex Oral-lynTM.  Official
product launch is scheduled in June 2009.





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.




18





Using our
buccal delivery technology, we also have launched a line of over-the-counter
glucose and energy sprays , including Glucose RapidSprayTM, GlucoBreakTM, and
BaBOOM!TM Energy Spray. We believe these products will complement Generex
Oral-lynTM and may provide us with an additional revenue stream prior to the
commercialization of Generex Oral-lynTM in other major
jurisdictions.





In early
November 2008, we submitted our product dossier to the Ministry of Health in
Damascus, Syria through Generex MENA, our branch office in Dubai.  The
dossier includes Generex Oral-lynTM.  We also submitted a file to
register our proprietary over-the-counter products, including Glucose
RapidSprayTM, 7-Day Diet Aid SprayTM (marketed as Crave-NxTM in the United States
and Canada) and BaBOOM!TM Energy Spray.  The Syrian Ministry of Health
will review the dossier and inform us of any additional requests for information
that it may have. There have been no immediate queries, and we anticipate
registration before the end of calendar year 2009. It is estimated that among
Syria's population of 20 million, between 3 million and 3.5 million people have
diabetes.





In
December 2008, we submitted Generex Oral-lynTM dossier to the Ministry of Health
in Iraq (North) through Generex MENA, our branch office in Dubai and expect to
receive an approval to market the product in spring of 2009.





In
October 2008, we announced the enrollment of subjects in our bioequivalence
clinical trial of MetControlTM, our proprietary Metformin medicinal chewing gum
product.  The protocol for the study is 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, will allow us to proceed with additional
research and development initiatives and consider regulatory agency registration
applications.





Our
subsidiary, Antigen, 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 stop attacking benign elements
(i.e., self proteins and allergens). Our immunomedicine products are based on
two platform technologies and are in the early stages of development. We
continue clinical development of Antigen’s synthetic peptide vaccines designed
to stimulate a potent and specific immune response against tumors expressing the
HER-2/neu oncogene for patients with HER-2/neu positive breast cancer in a Phase
II clinical trial and patients with prostate cancer and against avian influenza
in two Phase I trials. Development efforts also are 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.





We face
competition from other providers of alternate forms of insulin. Some of our most
significant competitors, Pfizer, Eli Lilly, and Novo Nordisk, recently announced
that they will discontinue development and/or sale of their inhalable forms of
insulin. 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.





We are a
development stage company. From inception through the end of the year ended July
31, 2008, we have received only limited revenues from operations. In the fiscal
year ended July 31, 2008, we received approximately $128,039 in revenues from
sales of Glucose RapidSprayTM.  In the fiscal quarter ended January 31,
2009, we received approximately $435,078 in revenues from sales of Glucose
RapidSprayTM.  These numbers do not reflect deferred sales to the
customers during the respective period 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.




19





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.





During
the last fiscal quarter, 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. 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.





Generex
Oral-lynTM was approved for commercial sale by drug regulatory authorities in
Ecuador in May 2005. PharmaBrand handled the commercial launch of Generex
Oral-lynTM in Ecuador in June 2006. While we anticipate generating revenue from
sales of Generex Oral-lynTM in Ecuador, we do not expect that such revenues will
be sufficient to sustain our research and development and regulatory
activities.





Generex
Oral-lynTM was approved for importation and commercial sale in India in November
2007. We have entered into a licensing and distribution agreement with Shreya
Life Sciences Pvt. Ltd. and since January 2009 Generex Oral-lynTM is available in
India under marketing name of Oral Recosulin.




Although
we initiated regulatory approval process for our morphine and fentanyl buccal
products, we did not expend resources to further this product during our last
fiscal year.





During
the last fiscal quarter, we expended resources on research and development
relating to Antigen’s peptide immunotherapeutic vaccines and related
technologies. One Antigen vaccine is currently in Phase II clinical trials in
the United States involving patients with HER-2/neu positive breast cancer, and
an Antigen vaccine for H5N1 avian influenza is in Phase I clinical trials
conducted at the Lebanese-Canadian Hospital in Beirut. Antigen’s prostate cancer
vaccine based on AE37 is currently in Phase I clinical trials 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 buccal morphine
products 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 six months ended January 31, 2009, approximately 85%
of our $7,596,130 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 six months
ended January 31, 2008, approximately 82% of our $7,317,427 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.




20





Approximately
15%, or $1,153,536, of our research and development expenses for the six months
ended January 31, 2009 was related to Antigen's immunomedicine
products compared to approximately 18%, or $1,310,155 of our research and
development expenses for the six months ended
January 31, 2008.  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. It requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.





We
consider certain accounting policies related to impairment of long-lived assets,
intangible assets and accrued liabilities to be critical to our business
operations and the understanding of our results of operations:





Going
Concern.  As shown in the accompanying 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
accompanying 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 Glucose RapidSprayTM, BaBOOM!TM Energy Spray and GlucoBreakTM are
generally recognized in the period in which the products are delivered. Delivery
of the products generally completes the criteria for revenue recognition for the
Company. In the event where the customers have the right of return, sales are
deferred until the right of return lapses or the product is resold.





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 Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." If it is determined that an impairment loss has occurred based upon
expected future cash flows, the loss is recognized in the Statement of
Operations.





Intangible Assets. We
have intangible assets related to patents. The determination of the related
estimated useful lives and whether or not these assets are impaired involves
significant judgments. In assessing the recoverability of these intangible
assets, we use an estimate of undiscounted operating income and related cash
flows over the remaining useful life, market conditions and other factors to
determine the recoverability of the asset. If these estimates or their related
assumptions change in the future, we may be required to record impairment
charges against these assets.





Estimating accrued
liabilities, specifically litigation accruals. Management's current
estimated range of liabilities related to pending litigation is based on
management's best estimate of future costs. While the final resolution of the
litigation could result in amounts different than current accruals, and
therefore have an impact on our consolidated financial results in a future
reporting period, management believes the ultimate outcome will not have a
significant effect on our consolidated results of operations, financial position
or cash flows.




21





Share-based
compensation. Management determines value of stock-based compensation in
accordance with Statement of Financial Accounting Standards No. 123(R)
“Share-Based Payment” which revises SFAS No. 123 “Accounting for Stock-Based
Compensation” for stock and options grants to employees.  We also
follow the guidance of Emerging Issues Task Force 96-18 “Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services” for equity instruments issued to
consultants.





Results
of Operations


Three
Months Ended January 31, 2009 Compared to Three Months Ended January 31,
2008





Our net
loss for the quarter ended January 31, 2009 was $12,038,440 versus $6,507,174 in
the corresponding quarter of the prior fiscal year. The increase in net loss in
this fiscal quarter versus the corresponding quarter of the prior fiscal year is
primarily due to the interest expense recorded in connection with our
convertible debentures, repricing costs of warrants costs also issued in
connection with our convertible debentures and an increase in selling
expenses.  The increase in net loss was partially offset by the
decrease in our general and administrative expenses and research and development
expenses.  Our operating loss for the quarter ended January 31, 2009
decreased to $5,807,232 compared to $6,828,022 in the second fiscal quarter of
2008.  The decrease in operating loss resulted from a decrease in
general and administrative expenses (to $2,064,522 from $3,086,873) and a slight
decrease in research and development expenses (to $3,240,441 from
$3,469,624).  The decrease was partially offset by the increase in
selling expense (to $609,707 from $284,498). Our revenues in the second quarter
ended January 31, 2009 increased to $434,636 from $18,627 for the quarter ended
January 31, 2008 primarily due to one large order from the Middle
East.





The small
decrease in research and development expenses in the last fiscal quarter
reflects timing differences of the overall increased levels of research and
development of our oral insulin product and platform technology in connection
with global Phase III clinical trials.  The decrease in general and
administrative expenses reflects the decrease in expenses for consulting and
accounting services in the current fiscal quarter compared to last year, a
modest reduction in travel and legal expenses, despite an  increase in
the expense for financial services.  The selling expenses are
associated with the commercial sales of our over-the-counter products that began
in fiscal 2007.





Our
interest expense in the second quarter of fiscal 2009 increased to $6,363,197
compared to interest expense of $58,948 in the second quarter of fiscal 2008 due
to interest expense and costs of the repriced warrant recognized on the secured
convertible notes issued in March 2008 in connection with a private
placement.   Our interest income decreased to $52,632 in the second
quarter of fiscal 2009 compared to $291,472 in the same quarter for the last
year primarily due to lower market interest rates and lower cash
balances.  We received a slightly lower income from rental operations
(net of expense) of $79,359 in the second quarter of fiscal 2009 compared to
$88,324 in the same quarter for the last year.





Results
of Operations


Six
Months Ended January 31, 2009 Compared to Six Months Ended January 31,
2008





Our net
loss for the six months ended January 31, 2009 was $23,735,624 versus
$13,729,087 in the corresponding six-month period of the prior fiscal
year.  The increase in net loss in this six-month period versus the
corresponding six-month period of the prior fiscal year is primarily due to the
increase in interest expense recorded in connection with our convertible
debentures, costs of repricing warrants issued in connection with our
convertible debentures, an increase in research and development expenses in
connection with preparations for global Phase III clinical trials of Generex
Oral-lynTM at sites in the United States, Canada, and Europe, and an increase in
selling expenses.  Our operating loss for the six months ended January
31, 2009 decreased to $13,331,878 compared to $14,534,383 in the corresponding
six-month period ended January 31, 2008.  The decrease resulted from a
decrease in general and administrative expenses (to $4,912,435 from $6,602,793)
and an increase in net revenues to $972,982 in the six months ended January 31,
2009 from $63,340 in the six months ended January 31, 2008.  The
increase in net revenue is attributable to a licensing fee received from South
Korea and large order of our over-the-counter drugs from the Middle
East.  The decrease in operating loss was partially offset by increase
in research and development expenses (to $7,596,130 from $7,317,427) and
increases in and selling expenses (to $1,446,905 from $651,918).




22





The
decrease in general and administrative expenses reflects the decrease in
consulting, accounting, legal and travel expenses and a decrease in executive
compensation and directors fees. The decrease was offset by the increase in the
expenses for financial services.  The increase in research and
development expenses for the six-month period ended January 31, 2009 reflects an
increased level of research and development of our oral insulin product and
platform technology and additional clinical trials. The selling expenses are
associated with the commercial sales of Glucose RapidSprayTM and other
over-the-counter products that began in fiscal 2007.





Our
interest expense in the six-month period ended January 31, 2009 increased to
$10,792,585 compared to interest expense of $116,622 in the six-month period
ended January 31, 2008 to interest expense and costs of the repriced warrant
recognized on the secured convertible notes issued in March 2008 in connection
with a private placement.  Our interest income decreased to $221,097
in the six-month period ended January 31, 2009 compared to $751,507 in the
six-month period ended January 31, 2008 primarily due to lower market interest
rates and lower cash balances.  We received a slightly lower income
from rental operations (net of expense) of $167,739 in the six months ended
January 31, 2009 compared to $170,411 in the six months ended January 31, 2008
that is due primary to exchange rate differences between the
periods.




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.  In the past, we made significant short –term investments in
high-grade auction rate securities all of which we liquidated as of December
2008.  In March 2008, we issued secured convertible notes and related
warrants for gross proceeds of approximately $20,650,000.  Currently,
we are in default with respect to certain conditions and covenants under the
secured convertible notes and are in negotiations with the noteholders to modify
the terms of the notes.





As of
January 31, 2009, we believed that our anticipated cash position was sufficient
to meet our working capital needs for the next twelve months based on the pace
of our planned activities and assuming that we are able to reach an agreement
with the noteholders to modify the terms of the secured convertible
notes.  Beyond that, we anticipate that we will require additional
funds to support our working capital requirements or for other
purposes.




While we
have generally been able to raise equity capital as required, our cash balances
were very low during portions of fiscal 2005 and have decreased in the first
half of fiscal 2009.  Unforeseen problems with our clinical program,
manufacturing and commercialization plans in Ecuador and India 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, curtail some of our commercialization
efforts or prevent our satisfaction of obligations under the secured convertible
notes.





Management
may seek to meet all or some of our operating cash flow requirements through
financing activities, such as private placement of our common stock, preferred
stock offerings and offerings of debt and convertible debt instruments as well
as through merger or acquisition opportunities.  We filed a shelf
registration statement with the Securities and Exchange Commission (“SEC”) to
register an indeterminate number of shares of common stock and preferred stock
and an indeterminate number of warrants and units, the aggregate initial
offering price of which is not to exceed $150,000,000, but we have not offered
any shares pursuant to this registration statement to date. Management is
actively pursuing industry collaboration activities, including product licensing
and specific project financing. We are also examining options for the
procurement of a reliable long-term insulin supply for our future commercial
needs.




23





We
believe that the commencement of Phase III clinical trial trials for Oral-lynTM
in the United States and Canada represents a significant milestone event. We
also anticipate that the commercial launch of Oral-lynTM in India, may provide us
with revenue in fiscal 2009.  We believe that the
successful commercial launch of Oral-lynTM in India 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.





Auction
Rate Securities





In
December 2008, we had short-term investments of approximately $8.1
million.    All of our short-term investments represented
investment in high-grade auction rate securities.  As of December 23,
2008, 100% of our auction rate securities were redeemed at par in Phase II of
the Citi Auction Security Settlement.





Financing
– 8% Secured Convertible Notes and Warrants





On March
31, 2008, we entered into a Securities Purchase Agreement and related documents
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.





The Notes
have an 18-month maturity and amortize over fifteen months in fifteen equal
monthly installments beginning on August 1, 2008. Interest on the principal
amount outstanding under the Notes will accrue at a rate of eight percent (8%)
per
annum.  We may pay installments of principal and accrued
interest in cash or, at our option, in shares of our common stock subject to the
satisfaction of certain conditions. If we elect to pay principal and interest in
shares of our common stock, the value of each share of common stock will be
equal to the lower of (a) the conversion price, and (b) 90% of the average of
the volume weighted average prices of the common stock on each of the twenty
(20) consecutive trading days immediately preceding the applicable payment
date.





At the
option of each Noteholder, the principal amount outstanding under each Note is
convertible at any time into shares of our common stock at the initial
conversion price of $1.21, which represents 110% of the closing bid price of our
common stock on the NASDAQ Capital Market on the closing date,
March 31, 2008.





We are
prohibited from issuing any variable priced equity or variable priced
equity-linked securities as long as any Note is outstanding. We also are
prohibited from issuing any equity or equity-linked securities until 90 days
after the effective date of a registration statement covering the resale of the
shares of our common stock issuable pursuant to the Notes and Warrants, with
limited exceptions.  In addition, until the later of (i) 12 months
after the effective date of such a registration statement and (ii) the date the
Notes have been repaid or converted in full, the Noteholders will have the right
to participate in any capital raising transactions that we
undertake.





The
Series Warrants issued in connection with the March 2008 Securities Purchase
Agreement include:





(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 beginning October 1,
      2008;




24




(ii)
            Series
      B Warrants, which are exercisable beginning 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 remaining exercisable for a period
      of 18 months after a registration statement covering the shares of common
      stock issuable upon conversion or exercise of the Notes and Warrants is
      declared effective by the SEC; and(iii)
            Series
      C Warrants, which are exercisable for a period of 7 years beginning
      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. As described below, the
exercise price of the Series Warrants has been reduced to $0.50.





In
connection with the issuance of the Notes and Series Warrants, we also (a)
reduced the strike price of our outstanding common stock purchase warrants that
are held by the investors in the March 2008 private placement and certain other
warrant holders and that have strike prices ranging from $1.25 to $3.00 (the
“Pre-Extant Warrants”), to $1.10, which equals the closing bid price of the
common stock on the NASDAQ Capital Market on the closing date, March 31, 2008,
and (b) extended the expiration date of the Pre-Extant Warrants to
March 31, 2015. The holders of the Pre-Extant Warrants will waive all
anti-dilution entitlements they have in respect of any of our previously issued
securities with respect to the issuance or conversion of the Notes, the payment
of the installments or interest in shares of the common stock, or the issuance
or exercise of the Series Warrants.





Subsequent
Agreements with Noteholders





As
disclosed in our Quarterly Report on Form 10-Q for the quarter ended October 31,
2008, we entered into waiver and consent agreements with the Noteholders to
allow us to convert some or all of the installment amounts due on the Notes on
the August 1st,
September 1st and
October 1st
installment dates into shares of our common stock, subject to certain
conditions.  We sought waivers from the Noteholders due to our failure
to meet certain conditions precedent to the conversion of installment amounts
under the Notes as of the August 1st
installment notice date, including:





·
            the
      registration statement for the resale of all of the shares of common stock
      underlying the Notes and the Warrants was not effective at least thirty
      days prior to the installment notice date of August 1, 2008;
      and





·
            we
      failed to comply with the minimum bid price requirement of Marketplace
      Rule 4310(c)(4) of The NASDAQ Stock
Market.





We
subsequently obtained similar waivers from all Noteholders in respect to our
November 1, 2008 installment amount.  Based on the decline in our
stock price, we paid the principal and interest amounts due on December 1,
2008 in cash.





In
December 2008, we failed to comply with the covenant to maintain Net Cash
Balance in excess of an amount equal to 75% of the aggregate principal amount
outstanding under all of the Notes.  Under the Notes, “Net Cash
Balance” means, at any date, (i) an amount equal to the aggregate amount of
cash, cash equivalents (but not including any restricted cash) and marketable
securities, consisting of corporate bonds, commercial paper and medium-term
notes, as shown or reflected in the notes to our consolidated balance sheet as
at such date minus (ii) all indebtedness of the company and our subsidiaries,
including, trade payables but excluding, indebtedness under the
Notes.




25





On
December 22, 2008, we entered into separate agreements with each of the
Noteholders to address the default caused by non-compliance with the Net Cash
Balance covenant and our failure to comply with the minimum bid price
requirement of Marketplace Rule 4310(c)(4) of The NASDAQ Stock Market,
LLC.  Pursuant to each agreements, we and each Noteholder agreed to
the following:





•           Each
Noteholder agreed to waive (a) the event of default with respect to our failure
to meet Net Cash Balance test in respect of any and all periods prior to
December 22, 2008, and (b) compliance by us with the Net Cash Balance test for
the period commencing on December 22, 2008 and ending on January 30,
2009.





•           The
exercise price of each of the Warrants was reduced from $1.21 to
$0.50.





•           The
exercise price of each of the Pre-Extant Warrants was reduced from $1.10 to
$0.50.





•           We
had a one time right to require each of the Noteholders to exercise all of their
then outstanding Series Warrants and Pre-Extant Warrants if the arithmetic
average of the volume weighted average price of our common stock on the
principal trading market for a twenty-one (21) consecutive trading day period is
equal to or greater than $1.00.  We agreed to issue each Noteholder a
seven-year warrant to acquire up to the number of shares of our common stock
acquired by such Noteholder in connection with the Noteholder’s exercise of its
Series Warrants and its Pre-Extant Warrants pursuant to the exercise of our call
option, at an exercise price of $1.00 per share.





•           The
expiration date of each Series A Warrant and each Series A-1 Warrant was
extended to March 31, 2016.





•           The
expiration date of each Series C Warrant was extended to September 30,
2016.





•           The
expiration date of each Pre-Extant Warrant was extended to March 31,
2016.





•           We
agreed to honor the notices we delivered to each of the Noteholders on December
1, 2008 in respect of the January 1, 2009 installment date in which we confirmed
our intention to redeem 100% of the January 1, 2009 installment amounts in cash
pursuant to a “Company Redemption” under the Notes.





•           We
agreed to repay the Noteholders on January 12, 2009 an additional portion of the
outstanding principal amount of the Notes equal to an aggregate of
$1,376,666.66, which amount was converted in whole into shares of our common
stock.





•           Each
Noteholder agreed to waive satisfaction of only the condition that our common
stock remain listed on The NASDAQ Capital Market or other eligible market solely
with respect to (a) our additional repayment due on January 12, 2009, and (b)
the February 1, 2009 installment date.  Therefore, we are entitled to
deliver an installment notice in respect of the February 1st installment date
confirming that the applicable installment amount due in respect of the February
1st installment date will be converted in whole into shares of our common stock
if all other Equity Conditions (as defined in the Notes) are satisfied in
accordance with the terms of the Notes.





•           We
also agreed to procure and deliver to the Noteholders an authenticated Control
Agreement in respect of each deposit account of each grantor, and we agreed that
such failure to procure the Control Agreements as required would be deemed a
breach under the Notes which is not curable.




26





On
February 27, 2009 (“Effective Date”), we and each of the Noteholders entered
into a separate Forbearance and Amendment Agreement (the “Forbearance
Agreement”) pursuant to which the Noteholders agreed for a 21-day period ending
March 20, 2009 (the “Standstill Period”) to temporarily forbear from exercising
certain rights and remedies under the Notes.  A copy of the form of
the Forbearance Agreement was filed as Exhibit 10.1 to our Current Report on
Form 8-K filed with the SEC on March 2, 2009.  Pursuant to the
Forbearance Agreement, we and each Noteholder agreed as follows.




During
the Standstill Period, each Noteholder agreed not to exercise any of its rights
or remedies solely with respect to any of the existing Events of Default. Upon
the expiration of the Standstill Period or upon the occurrence of any Event of
Default occurring after the Effective Date (each such event a “Standstill
Termination”), each Noteholder will have the right to immediately exercise all
of its rights and remedies under the Notes and the related Security
Agreement.





We agreed
to amend the terms of each Note as follows:





(a)
            The
      Maturity Date is accelerated from August 30, 2009 to July 1, 2009, subject
      to extension by the Noteholder.





(b)
            The
      term “Installment Date” in the Note is amended to mean each of the
      following dates: (i) August 1, 2008, (ii) September 1, 2008, (iii) October
      1, 2008, (iv) November 1, 2008, (v) December 1, 2008, (vi) January 1,
      2009, (vii) February 1, 2009, (viii) March 1, 2009, (ix) April 1, 2009,
      (x) May 1, 2009, (xi) June 1, 2009 and (xii) the Maturity
      Date.





(c)
            The
      term “Installment Amount” is amended to mean, with respect to any
      Installment Date occurring on or after March 1, 2009, the lesser of (A)
      the product of (i) $1,927,333.32, multiplied by (ii) Holder Pro Rata
      Amount and (B) the Principal amount under the Note as of such Installment
      Date, together with any accrued and unpaid Interest as of such Installment
      Date and accrued and unpaid Late Charges, if any, as of such Installment
      Date.





(d)
            Section
      4(a)(iii) of the Note is amended to permit our common stock to be quoted
      on the OTC Bulletin Board if it is suspended from trading or delisted from
      the NASDAQ Capital Market.





(e)
            The
      monthly expenditure of cash by Generex together with its subsidiaries in
      excess of $900,000 in the aggregate in March, April or May 2009 will
      constitute an “Event of Default,” provided that all cash used to effect
      Company Redemptions under the Notes as permitted thereunder will not be
      deemed to be cash expended solely for purposes of this
      determination.





(f)
            An
      “Event of Default” includes any breach by Generex of Section 8 of the
      Registration Rights Agreement (including, without limitation, any failure
      by Generex to (i) file with the SEC any required reports under Section 13
      or 15(d) of the 1934 Act such that it is not in compliance with Rule
      144(c)(1), or (ii) meet any of the requirements under rule
      144(i)(2)).





(g)
            As
      of the Effective Date, we may only effect a Company Redemption with
      respect to the payment of an Installment Amount in cash by using net
      proceeds received by us from any subsequent private placements, revenues
      from sales of our products or licensing fees received by
    us.





(h)
            We
      must provide a monthly certification executed by our Chief Financial
      Officer stating whether an Event of Default occurred with respect to our
      cash expenditures in excess of $900,000 in the calendar month immediately
      preceding the date of such certification, and we must publicly disclose
      any such Event of Default on the date of such
    certification.





We must
enter into a Control Agreement with each Noteholder and a financial institution
to act as depositary with respect to a non-operating deposit account and deposit
$3,000,000 into such account, which account and Control Agreement will be
subject to the terms of the Security Agreement.  In addition, we must
use commercially reasonable efforts to obtain, by the expiration of the
Standstill Period, a clean, unconditional and irrevocable letter of credit that
will remain “evergreen” until each Note is repaid in full in the aggregate
amount of $3,000,000 for the ratable benefit of each Noteholder, which letter of
credit will be subject to the terms of the Forbearance Agreement.




27





Prior to
the expiration of the Standstill Period, we must issue and deliver irrevocable
instructions to our transfer agent to issue certificates to each Noteholder for
shares of our common stock, or credit shares to the Noteholder’s balance account
at DTC, at the Noteholder’s written request to provide each Noteholder’s pro rata portion of
Pre-Installment Conversion Shares  for the payment of Installment
Amounts under the Note or upon the occurrence of an Event of Default after the
Effective Date.





With
respect to the April 1, 2009 Installment Date, the following terms shall
apply:





•
            March
      9, 2009 will constitute the Installment Notice Due
  Date.





•
            The
      Pre-Installment Conversion Price will be equal to the price which shall be
      computed as 90% of the arithmetic average of the VWAP of our common stock
      on each of the 14 consecutive trading days immediately preceding March 9,
      2009 (to be appropriately adjusted for any stock split, stock dividend,
      stock combination or other similar transaction during such measuring
      period).





•
            The
      Company Conversion Price will be equal to the price which shall be
      computed as 90% of the arithmetic average of the VWAP of our common stock
      on each of the 17 consecutive trading days immediately preceding such
      Installment Date (to be appropriately adjusted for any stock split, stock
      dividend, stock combination or other similar transaction during such
      measuring period).





•
            We
      will deliver the Pre-Installment Conversion Shares (which will be equal
      the number of shares of common stock equal to the quotient of (i) the
      Installment Amount due on such Installment Date divided by (ii) the
      Pre-Installment Conversion Price) to the Noteholder no later than two
      trading days after March 9, 2009.





·
            The
      number of shares of common stock to be delivered pursuant to a Company
      Conversion on April 1, 2009 with respect to the Installment Amount due on
      that date will be reduced by the above-mentioned number of the
      Pre-Installment Conversion Shares previously
  delivered.





Each
Noteholder agreed to waive satisfaction of the following:





•
            the
      Listing Maintenance Equity Condition solely with respect to the
      Installment Dates of  March 1, 2009, April 1, 2009, May 1, 2009,
      June 1, 2009 and the Maturity Date, if, (i) other Equity Conditions and
      all other conditions relating to a Company Conversion are satisfied and
      (ii) the shares of our common stock continue to be listed or designated
      for quotation on, and trade on, the NASDAQ Capital Market, another
      national stock exchange or are quoted on the OTC Bulletin
      Board;





•
            the
      Net Cash Balance Test, but only until a Standstill Termination occurs;
      and





•
            all
      Existing Events of Default, the Net Cash Balance Test and accrual of
      Interest at the default Interest Rate, but only to the extent that we
      comply with all terms of the Forbearance Agreement and no other Event of
      Default occurs after the Effective
Date.





Under the
Forbearance Agreement, each Noteholder further agreed not to exercise its
anti-dilution rights under the warrants issued in connection with the Securities
Purchase Agreement and other warrants owned by the Noteholder as result of a
subsequent private placement if we consummates a subsequent private placement on
or before July 1, 2009 and the terms satisfy the following
conditions:





·
            We
      issue only shares of our common
stock;




28




·
            The
      purchase price for each share is equal or greater than
    $0.25;





·
            The
      aggregate gross proceeds to us are no more $5,000,000;
  and





·
            Rodman
      & Renshaw, LLC acts as the sole placement
  agent.





We agreed
to reimburse each Noteholder for the transactions costs relating to the
Forbearance Agreement and defaults that occurred before the Effective Date,
which amounts were paid in the form of shares of our common stock determined
pursuant to the formula specified in the Forbearance Agreement.





Payments
on the Notes





As of
January 31, 2009, we incurred interest expense of $4,724,199 related to the
Notes that includes non cash accounting expense of $4,449,172 relating to debt
discount and incurred $1,589,988 in costs in relation to warrant
repricing.





As of
March 9, 2009, we have issued 27,799,099 shares of common stock and paid
$5,380,697 in cash to repay Note principal and accrued interest in the aggregate
amount of $12,940,667.





We may
receive additional proceeds from the exercise of Series Warrants, although the
Series Warrants include a cashless exercise feature.  As of October 1,
2008, all of the Series Warrants issued in March 2008 became
exercisable.  At January 31, 2009, outstanding Series Warrants issued
in connection with the March 2008 Securities Purchase Agreement and the
Pre-Extant Warrants described above were as follows:




Date Issued
            
            Aggregate No. of
              Shares Unexercised
            
            
            Exercise
              Price*
            
            Expiration DateMarch
      31, 2008
            
            17,066,117
            
            $
            0.50
            
            October
      1, 2009March
      31, 2008
            
            25,496,610
            
            $
            0.50
            
            March
      31, 2016March
      31, 2008
            
            12,799,580
            
            $
            0.50
            
            September
      30, 2016


*Subject
to anti-dilution adjustments upon issuance of securities at a price per share of
common stock less than the then applicable exercise price or the market price of
our common stock at that time, whichever is lower.





Current
Default under Notes





Currently,
we are in default under the Notes due to our non-compliance with the Net Cash
Balance covenant.  As of January 31, 2009, our Net Cash Balance was
$(35,559), which was $8,295,559 less than the required reserve amount equal 75%
of the aggregate principal amount outstanding under all of the Notes
($11,013,333).





In
addition, our failure to procure Control Agreements as required under the
December 22, 2008 agreements with the Noteholders constitutes a breach under the
Notes which is not curable.  Unless we enter into such Control
Agreements and make the requisite deposit with respect thereto before the
expiration of the Standstill Period as provided in the Forbearance Agreements,
each Noteholder may upon written notice require us to redeem all or any portion
of its Note at a default redemption price as calculated pursuant to certain
formulas set forth in the Note. Until the default redemption price (together
with any interest thereon) is paid in full, the amount of any Note submitted for
redemption (together with any interest thereon) may be converted, in whole or in
part, by the Noteholder into shares of our common stock.  As of the
date hereof, all requisite payments of principal and interest on the Notes have
been paid.





In
addition, except as provided under the Forbearance Agreements, without the
consent of the Noteholders, we cannot issue shares of our common stock in
payment of installment amounts due under the Notes because we are not in
compliance with the minimum bid price requirement of Marketplace Rule 4310(c)(4)
of The NASDAQ Stock Market, LLC.




29





Under the
terms of the Notes, we cannot pay any Noteholder without offering equivalent
treatment to the other Noteholders.  At this time, we do not have the
funds available to pay all Noteholders.  Each of the Noteholders also
has a security interest in all of our assets.





We are
actively engaged in restructuring discussions with the Noteholders and will
continue to seek waivers and forbearance from them.  As of the date
hereof, there is no outstanding redemption demand from any
Noteholder.  We continue to seek other sources of financing and other
liquidity initiatives.  There can be no assurance that our efforts
will be successful or that the Noteholders will not pursue their rights and
remedies under the Notes.





Because
of the decrease in our stock price since the filing of the registration
statement required under the Notes, we believe that the registration statement
does not likely include a sufficient number of shares to allow us to make all of
the remaining principal and interest payments in shares rather than in
cash.  We believe that we will be able to negotiate relief from the
requirement that an additional registration statement be filed in the near
future to comply with the condition precedent under the Notes because all of the
shares we would issue in the absence of a registration statement would be
eligible for resale by the Noteholders pursuant to Rule 144.  (To the
extent that the holders exercise the Series Warrants pursuant to the cashless
exercise feature contained therein, the holders will have satisfied the holding
period mandated by the SEC under Rule 144.)  As of the filing of this
Quarterly Report on Form 10-Q, however, we have not negotiated such arrangements
except as provided in the Forbearance Agreements.





With
respect to our noncompliance with Marketplace Rule 4310(c)(4), which requires us
to have a minimum bid price per share of at least $1.00 for 30 consecutive
business days, our initial cure period of 180 calendar days to regain compliance
with the Rule has now been extended to July 27, 2009 pursuant to NASDAQ’s
temporary suspension of the enforcement of Marketplace Rule
4310(c)(4).  If, at anytime prior to July 27,  2009, the bid
price of our common stock closes at $1.00 per share or more for a minimum period
of ten consecutive business days, we will regain compliance with the
Rule.  In addition, assuming that we meet the initial listing
criteria, we may seek an additional 180 calendar day period to regain compliance
after July 27, 2009.  We believe that as our late-stage clinical
trials of Generex Oral-lynTM progress in the United States, Canada, Europe and
certain countries in Eastern Europe, investor confidence in Generex will
increase, which would have a positive effect on our stock price and enable us to
meet the minimum bid price requirement under Marketplace Rule
4310(c)(4).  To the extent that we do not achieve compliance with this
rule on future installment notice dates, we will seek further waivers from the
Noteholders with respect to this condition if required.





Cash
Flows for the Six Months Ended January 31, 2009





For the
six months ended January 31, 2009, we used $14,724,325 in cash to fund our
operating activities. The use for operating activities included a net loss of
$23,735,624, a $428,276 increase in accounts receivable, a decrease of
$1,204,834 in accounts payable and accrued expenses, an increase of $824,627 in
other current assets, offset by an increase of $27,446 in deferred revenue and a
net decrease in inventory and inventory deposits of $172,810.





The use
of cash was offset by non-cash increases of approximately $413,793 related to
depreciation and amortization, $124,160 in stock-based compensation to
employees, $124,166 in stock-based compensation for services to consultants, as
well as $1,589,998 in warrant repricing costs, $307,583 in amortization of the
loan origination fee and deferred debt issuance cost, $8,459,007 of amortization
of debt discount and $252,083 in stock issued for interest related to the March
2008 convertible note transaction.





We had
net cash flows provided by investing activities of $8,317,659 in the six months
ended January 31, 2009, primarily representing the  proceeds
from maturity of short-term investments of $8,852,214.  The proceeds
were partially offset by $466,667 in changes to restricted cash, payments for
property and equipment of $1,385 and cost incurred for patents of
$66,503.




30





We had
net cash flows used in financing activities of $3,127,399 in the six months
ended January 31, 2009.  Proceeds from the exercise of stock
options were $56,000.  We made payments on our notes payable and
long-term debt of $3,183,399.





Our net
working capital at January 31, 2009 decreased from July 31, 2008 by $14,199,112
to $178,641, which was attributed largely to our net loss for the last six
months.





Funding
Requirements





In
addition to meeting our obligations under the Notes, 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 in India,
Lebanon and Ecuador.  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.  In
addition, we will expend resources on further clinical development of our
immunotherapeutic vaccines. Our future funding requirements 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 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;
    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.




31








Contractual
Obligations





The
following table of contractual obligations as of January 31, 2009 includes
interest obligations.





Payments Due by PeriodContractual Obligations
            
            Total
            
            
            Less than 1
              Year
            
            
            1-3 years
            
            
            3-5 years
            
            
            More than
              5 yearsLong-Term
      Debt Obligations
            
            
            2,892,139
            
            
            
            1,467,272
            
            
            
            1,224,891
            
            
            
            51,058
            
            
            
            148,918Convertible
      Debt Obligations
            
            
            11,348,628
            
            
            
            11,348,628Capital
      Lease Obligations
            
            
            79,532
            
            
            
            47,720
            
            
            
            31,812Operating
      Lease Obligations
            
            
            378,081
            
            
            
            129,635
            
            
            
            197,105
            
            
            
            51,341Purchase
      ObligationsOther
      Long-Term Liabilities Reflected on the Registrant's Balance Sheet under
      GAAPTotal
            
            $
            14,698,380
            
            
            $
            12,993,255
            
            
            $
            1,453,808
            
            
            $
            102,399
            
            
            $
            148,918





Convertible
debt obligations represent scheduled principal and interest payments on our 8%
secured convertible notes. In the table above, we calculated remaining principal
of $11,013,333 as payable in monthly installments, through September 2009. As
discussed above under the heading Financial Condition, Liquidity and
Resources - Current Default under Notes, the maturity date of the
convertible notes is currently July 1, 2009.  Principal may be paid,
at our option, in cash or shares of our common stock, subject to the
satisfaction of certain equity conditions delineated in the
notes.  Because the noteholders may convert principal into common
stock, at any time, at their option, the timing of principal and interest
payments may accelerate relative to this schedule.





Certain
Relationships and Related Transactions




Related
Transactions





Prior to
January 1, 1999, a portion of our general and administrative expenses resulted
from transactions with affiliated persons, and a number of capital transactions
also involved affiliated persons. Although these transactions were not the
result of "arms-length" negotiations, we do not believe that this fact had a
material impact on our results of operations or financial position. Prior to
December 31, 1998, we classified certain payments to executive officers for
compensation and expense reimbursements as "Research and Development - related
party" and "General and Administrative - related party" because the executive
officers received such payments through personal services corporations rather
than directly. After December 31, 1998, these payments have been and will
continue to be accounted for as though the payments were made directly to the
officers, and not as a related party transaction. With the exception of our
arrangement with our management company described below, we do not foresee a
need for, and therefore do not anticipate, any related party transactions in the
current fiscal year.





On May 3,
2001, we advanced $334,300 to each of three senior officers, who are also our
stockholders, in exchange for promissory notes. These notes bore interest at
8.5% per annum and were payable in full on May 1, 2002. These notes were
guaranteed by a related company owned by these officers and secured by a pledge
of 2,500,000 shares of our common stock owned by this related company. On June
3, 2002, our Board of Directors extended the maturity date of the loans to
October 1, 2002. The other terms and conditions of the loans and guaranty
remained unchanged and in full force and effect. As of July 31, 2002, the
balance outstanding on these notes, including accrued interest, was $1,114,084.
Pursuant to a decision made by the Compensation Committee as of August 30, 2002,
these loans were satisfied through the application of 592,716 shares of pledged
stock, at a value of $1.90 per share, which represented the lowest closing price
during the sixty days prior to August 30, 2002.




32





On
December 9, 2005, our Board of Directors approved a one-time recompense payment
in the aggregate amount of $1,000,000 for each of Ms. Gluskin, our Chairwoman,
Chief Executive Officer and President, and Ms. Rose Perri, our Chief Operating
Officer, Chief Financial Officer, Treasurer and Secretary, in recognition of the
company’s failure to remunerate each of Ms. Gluskin and Ms. Perri in each of the
fiscal years ended July 31, 1998, 1999, 2000 and 2001 in a fair and reasonable
manner commensurate with comparable industry standards and Ms. Gluskin’s and Ms.
Perri’s duties, responsibilities and performance during such years. The payment
of such amount to each of Ms. Gluskin and Ms. Perri will be made (a) in cash at
such time or times and in such amounts as determined solely by Ms. Gluskin or
Ms. Perri, as applicable, and/or (b) in shares of our common stock at such time
or times as determined by Ms. Gluskin or Ms. Perri, as applicable, provided that
the conversion price for any such shares shall be equal to the average closing
price of our common stock on the NASDAQ Capital Market for the 20 successive
trading days immediately preceding, but not including, December 9, 2005. The
amounts were not paid as of January 31, 2009 with the exception of
$415,828 that was used by Ms. Perri to repay Note Receivable, Due from Related
Party. The amount was due from EBI, Inc., a shareholder of the Company that is
controlled by the estate of the Company’s former Chairman of the Board, Mark
Perri. The note was not interest bearing, unsecured and did not have any fixed
terms of repayment. The note was extended to EBI, Inc. in May 1997.





Real Estate Transactions: On
August 7, 2002, we purchased real estate with an aggregate purchase price of
approximately $1.6 million from an unaffiliated party. In connection with that
transaction, Angara Enterprises, Inc., a licensed real estate broker that is an
affiliate of Ms. Gluskin received a commission from the proceeds of the sale to
the seller in the amount of 3% of the purchase price, or $45,714. We believe
that this is less than the aggregate commission which would have been payable if
a commission had been negotiated with an unaffiliated broker on an arm's length
basis.




On
December 9, 2005, our Board of Directors approved the grant to Ms. Perri of a
right of first refusal in respect of any sale, transfer, assignment or other
disposition of either or both real properties municipally known as 1740 Sismet
Road, Mississauga, Ontario and 98 Stafford Drive, Brampton, Ontario
(collectively, the “Properties”). We granted Ms. Perri this right in recognition
of the fair market value transfer to us during the fiscal year ended July 31,
1998 by Ms. Perri (or parties related to her) of the Properties.





We
utilize a management company to manage all of our real properties. The property
management company is owned by Ms. Perri, Ms. Gluskin and the estate of Mark
Perri, our former Chairman of the Board. In the fiscal quarter ended January 31,
2009 and 2008, we paid the management company approximately $11,415 and $13,141,
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.





Legal Fees. David Wires, a
former director, is a partner of the firm Wires Jolley LLP. Wires Jolley
represents us in various matters. During fiscal 2008, we paid approximately
$44,000 in fees to Wires Jolley. We continue to use Wires Jolley and expect to
pay legal fees in similar amounts to the firm in fiscal 2009.





Private Placement of Notes and
Warrants. One of the institutional investors in the March 2008 private
placement of the Notes and Warrants was Cranshire Capital,
L.P.  Cranshire purchased Notes in the aggregate principal amount of
$5,000,000 and received Series A Warrants initially exercisable for 1,273,058
shares of common stock, Series A-1 Warrants initially exercisable for 1,826,115
shares, Series B Warrants initially exercisable for 4,132,231 and Series C
Warrants initially exercisable for 3,099,173. On February 11, 2009, Cranshire
jointly filed an amendment to Schedule 13G with Downsview Capital, Inc. and
Mitchell P. Kopin reporting beneficial ownership of more 9.99% of our
outstanding shares of common stock.





New
Accounting Pronouncements





In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS
157"). SFAS 157 defines fair value, establishes a framework for measuring fair
value in accordance with accounting principles generally accepted in the United
States, and expands disclosures about fair value measurements. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, with earlier application encouraged. Any amounts recognized
upon adoption as a cumulative effect adjustment will be recorded to the opening
balance of retained earnings in the year of adoption. On November 15, 2007, the
FASB granted a one year deferral for non-financial assets and liabilities to
comply with SFAS No. 157, however, the effective date for financial assets
remains intact. We are currently evaluating the impact of this statement on our
results of operations or financial position.




33





In
February 2007, the FASB issued SFAS No. 159, “Establishing the Fair Value Option
for Financial Assets and Liabilities” (“SFAS 159”) to permit all entities to
choose to elect to measure eligible financial instruments at fair value. The
decision whether to elect the fair value option may occur for each eligible item
either on a specified election date or according to a preexisting policy for
specified types of eligible items. However, that decision must also take place
on a date on which criteria under SFAS 159 occurs. Finally, the decision to
elect the fair value option shall be made on an instrument-by-instrument basis,
except in certain circumstances. An entity shall report unrealized gains and
losses on items for which the fair value option has been elected in earnings at
each subsequent reporting date. SFAS 159 applies to fiscal years beginning after
November 15, 2007, with early adoption permitted for an entity that has also
elected to apply the provisions of SFAS 157. We are currently evaluating the
impact of this statement on our results of operations or financial
position.





In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”
(“SFAS 141(R)”). This Statement replaces SFAS No. 141, “Business
Combinations” (“SFAS 141”). This Statement retains the fundamental requirements
in SFAS 141 that the acquisition method of accounting (which SFAS 141 called the
purchase method) be used for all business combinations and for an acquirer to be
identified for each business combination. This Statement also establishes
principles and requirements for how the acquirer: a) recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree; b) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase and c) determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial effects of the
business combination. SFAS 141(R) will apply prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. An entity
may not apply it before that date. We are currently evaluating the impact of
this statement on our results of operations or financial position.





In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements” (“SFAS 160”). This Statement amends ARB 51 to
establish accounting and reporting standards for the non-controlling (minority)
interest in a subsidiary and for the deconsolidation of a subsidiary. It
clarifies that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. SFAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008.  Earlier adoption is prohibited. We are currently evaluating the
impact of this statement on our results of operations or financial
position.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities,” and Amendment of FASB Statement No. 133. SFAS 161
amends SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,”
to amend and expand the disclosure requirements of SFAS 133 to provide greater
transparency about (i) how and why an entity uses derivative instruments, (ii)
how derivative instruments and related hedge items are accounted for under SFAS
133 and its related interpretations, and (iii) how derivative instruments and
related hedged items affect an entity’s financial position, results of
operations and cash flows. To meet those objectives, SFAS 161 requires
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of gains and losses on
derivative instruments and disclosures about credit-risk-related contingent
features in derivative agreements. SFAS 161 is effective for fiscal years and
interim periods beginning after November 15, 2008.  Earlier adoption is
encouraged. We are currently evaluating the impact of this statement on our
results of operations or financial position.





In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS 162"). SFAS 162 is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. GAAP for nongovernmental entities. SFAS 162 is
effective 60 days following the Securities and Exchange Commission's approval of
the Public Company Accounting Oversight Board auditing amendments to AU Section
411, "The Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles." We do not expect SFAS 162 to have a material effect on
our consolidated financial statements.




34





The FASB
issued Staff Position (“FSP”) EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,” in
June 2008. Securities participating in dividends with common stock according to
a formula are participating securities. This FSP determined unvested shares of
restricted stock and stock units with nonforfeitable rights to dividends are
participating securities. Participating securities require the “two-class”
method to be used to calculate basic earnings per share. This method lowers
basic earnings per common share. This FSP takes effect in the first quarter of
fiscal years beginning after December 15, 2008 and will be applied
retrospectively for all periods presented and will be effective for Generex on
August 1, 2009. We do not expect FSP EITF 03-6-1 to have a material effect on
our consolidated financial statements.





The FASB
issued FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlements),” in May
2008. This FSP requires a portion of this type of convertible debt to be
recorded as equity and to record interest expense on the debt portion at a rate
that would have been charged on nonconvertible debt with the same terms. This
FSP takes effect in the first quarter of fiscal years beginning after December
15, 2008 and will be applied retrospectively for all periods presented. It will
be effective for the Generex on August 1, 2009. This FSP will apply to our
convertible debentures.  We are currently evaluating how it may affect
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.





In
December 2008, we had short-term investments of approximately $8.1
million.    All of our short-term investments represented
investment in high-grade auction rate securities.  As of December 23,
2008, 100% of our auction rate securities were redeemed at par in Phase II of
the Citi Auction Security Settlement.





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. At the present time, with
the exception of professional fees and costs associated with the conduct of
clinical trials in the United States and Europe, substantially all of our
operating expense obligations are denominated in Canadian dollars. We do not
presently employ any hedging or similar strategy intended to mitigate against
losses that could be incurred as a result of fluctuations in the exchange rates
between U.S. and Canadian currencies.





As of
January 31, 2009, we had fixed rate debt totaling $2,613,378. This amount
consists of the following:




Loan Amount
            
            
            Interest Rate
              per Annum591,609
            
            
            6.82
            %554,336
            
            
            7.60
            %325,160
            
            
            8.50
            %170,026
            
            
            10
            %972,247
            
            
            6.07
            %2,613,378
            
            Total




35





These
debt instruments mature from March 2009 through October 2013. As our fixed rate
debt instruments mature, we will likely refinance such debt at the existing
market interest rates which may be more or less than interest rates on the
maturing debt. Since this debt is fixed rate debt, if interest rates were to
increase 100 basis points prior to maturity, there would be no impact on
earnings or cash flows.





We have
neither issued nor own any long-term debt instruments, or any other financial
instruments, for trading purposes and as to which we would be subject to
material market risks.





Item
4. Controls and Procedures.





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 our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of
our disclosure controls and procedures. Based on the evaluation our Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end
of the period covered by this Quarterly Report of Form 10-Q, the Company’s
disclosure controls and procedures were effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the SEC and is accumulated and communicated to the
Company’s management, as appropriate, to allow timely decisions regarding
required disclosures.





Changes
in internal control over financial reporting





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





PART
II - OTHER INFORMATION





Item
1. Legal Proceedings.





None.




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, as amended, for the year ended
July 31, 2008, 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 six months ended January 31, 2009, we
received modest revenues from sales of Glucose RapidSprayTM . We did not recognize any
revenue from the sale of our oral insulin product in Ecuador or India in fiscal
2008.  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 significant revenue from the initial
commercial launch of Generex Oral-lynTM in India sometime this fiscal
year.




36





To date,
we have not been profitable and our accumulated net loss available to
shareholders was $271,964,885 at January 31, 2009. 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 is currently available for sale in Ecuador
and has been approved for sale in India and our over-the-counter glucose and
energy spray products, Glucose RapidSprayTM, BaBOOM!TM Energy Spray and
GlucoBreakTM, 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 and India. We cannot be sure that we will obtain required
regulatory approvals, or successfully research, develop, commercialize,
manufacture and market any other product candidates. We expect that these
activities, together with future general and administrative activities, will
result in significant expenses for the foreseeable future.




We
will need additional capital.





To
progress in product development or marketing, we will need additional capital
which may not be available to us. This may delay our progress in product
development or market.





We will
require funds in excess of our existing cash resources:




·
            to
      proceed with the development of our buccal insulin
  product;·
            to
      finance the research and development of new products based on our buccal
      delivery and immunomedicine technologies, including clinical testing
      relating to new products;·
            to
      finance the research and development activities of our subsidiary Antigen
      with respect to other potential technologies;·
            to
      commercially launch and market developed products;·
            to
      develop or acquire other technologies or other lines of
      business;·
            to
      establish and expand our manufacturing capabilities;·
            to
      finance general and administrative activities that are not related to
      specific products under development;·
            to
      meet our obligations under the 8% secured convertible notes;
      and·
            to
      otherwise carry on business.





In the
past, we have funded most of our development and other costs through equity
financing. We anticipate that our existing capital resources will enable us to
maintain currently planned operations through the next twelve months. However,
this expectation is based on our current operating plan, which could change as a
result of many factors, including a further decline in the price of our stock,
and we may need additional funding sooner than anticipated. Because our
operating and capital resources are insufficient to meet future requirements, we
will have to raise additional funds in the near future to continue the
development and commercialization of our products. Unforeseen problems,
including materially negative developments in our clinical trials or in general
economic conditions, could interfere with our ability to raise additional equity
capital or materially adversely affect the terms upon which such funding is
available.




37





It is
possible that we will be unable to obtain additional funding as and when we need
it. If we were unable to obtain additional funding as and when needed, we could
be forced to delay the progress of certain development efforts. Such a scenario
poses risks. For example, our ability to bring a product to market and obtain
revenues could be delayed, our competitors could develop products ahead of us,
and/or we could be forced to relinquish rights to technologies, products or
potential products.





Risks
Related to the Market for Our Common Stock





Our
common stock could be delisted from The NASDAQ Capital Market.





On July
23, 2008, we received notice from The NASDAQ Stock Market that we were not
compliance with Marketplace Rule 4310(c)(4), which requires us to have a minimum
bid price per share of at least $1.00 for thirty (30) consecutive business
days.  In accordance with Marketplace Rule 4310(c)(8)(D), we had 180
calendar days, or until January 20, 2009, subject to extension, to regain
compliance with this Rule.





On
October 16, 2008, NASDAQ temporarily suspended enforcement of the minimum bid
price requirement until January 19, 2009.  On December 16, 2008,
NASDAQ extended the temporary suspension of enforcement of this requirement
until April 20, 2009.  With the suspension, we now have until July 27,
2009 to comply with the minimum bid price requirement.  Therefore, if,
at anytime prior to July 27, 2009, the bid price of our common stock
closes at $1.00 per share or more for a minimum period of ten (10) consecutive
business days, we will regain compliance with the Rule.





In the
event that we cannot demonstrate compliance with NASDAQ Rule 4310(c)(4) by the
specified deadline and are not eligible for an additional compliance period, the
staff will notify us that our stock would be delisted, at which time we can
appeal the staff’s determination to a Listing Qualifications Panel. Pending the
decision of the Listing Qualification Panel, our common stock will continue to
trade on the NASDAQ Capital Market. If we are not successful in such an appeal,
our stock would likely trade on NASDAQ’s over-the-counter bulletin board,
assuming we meet the requisite criteria.





The
price of our common stock may be volatile.





There may
be wide fluctuations in the price of our common stock. These fluctuations may be
caused by several factors including:





·
            announcements
      of research activities and technology innovations or new products by us or
      our competitors;·
            changes
      in market valuation of companies in our industry
  generally;·
            variations
      in operating results;·
            changes
      in governmental regulations;·
            developments
      in patent and other proprietary rights;·
            public
      concern as to the safety of drugs or treatments developed by us or
      others;




38




·
            results
      of clinical trials of our products or our competitors' products;
      and·
            regulatory
      action or inaction on our products or our competitors'
      products.




From time
to time, we may hire companies to assist us in pursuing investor relations
strategies to generate increased volumes of investment in our common stock. Such
activities may result, among other things, in causing the price of our common
stock to increase on a short-term basis.





Furthermore,
the stock market generally and the market for stocks of companies with lower
market capitalizations and small biopharmaceutical companies, like us, have from
time to time experienced, and likely will again experience significant price and
volume fluctuations that are unrelated to the operating performance of a
particular company.  During the third calendar quarter of 2008 and
continuing to date, we, like many other publicly traded companies, have
experienced a sharp decline in the price of our stock attributable to concerns
about the current global recession.  The widespread decline in stock
prices led The NASDAQ Stock Market to temporarily suspend its minimum bid price
requirement until mid April 2009.





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





In the
fiscal quarter ended January 31, 2009, we sold common stock and other securities
in transactions in reliance upon exemptions from the registration requirements
of the Securities Act.





We have
issued shares of our common stock to CEOcast, Inc., a consultant, pursuant to an
agreement to provide us with investor relation services until January 21,
2009.  During the three months ended January 31, 2009, we issued
33,335 shares of common stock to CEOcast 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 CEOcast, 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.





During
the three months ended January 31, 2009, we issued 12,000 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.





During
the three months ended January 31, 2009, we issued 37,500 shares of our
restricted common stock as partial consideration for the provision of services
by The Abajian Group, LLC under a consulting agreement with us. William Abajian,
a Business Development Consultant to Generex, is a principal of The Abajian
Group, LLC. The sale of such shares was exempt from registration under the
Securities Act in reliance upon Section 4(2) thereof. We believe that The
Abajian Group, LLC. 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.





We have
issued shares of our common stock to Corporate Profile, LLC, a consultant,
pursuant to an agreement to provide us with investor relation services until
August 31, 2009.  During the three months ended January 31, 2009, we
issued 25,000 shares of common stock to Corporate Profile 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 Corporate
Profile, LLC 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.




39





We have
issued shares of our common stock to Avalanche Strategic Communications, a
consultant, pursuant to an agreement to provide us with investor relation
services until August 31, 2009.  During the three months ended January
31, 2009, we issued 86,284 shares of common stock to Avalanche 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 Avalanche
Strategic Communications 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
we nor any affiliated purchaser (as defined in Section 240.10 b-18(a)(3) of the
Exchange Act) purchased any of our equity securities during the fiscal quarter
ended January 31, 2009.





Item
3. Defaults Upon Senior Securities.





Reference
is made to the disclosure set forth under Part I, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations
under the heading Financial
Condition, Liquidity and Resources - Current Default under Notesin this
Quarterly Report on Form 10-Q, which is incorporated by reference
herein.





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





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.





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 41 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: March
      11, 2009
            By:
            /s/ Anna E. GluskinAnna E. GluskinPresident and Chief Executive OfficerDate: March
      11, 2009
            By:
            /s/ Rose C. PerriRose C. PerriChief Financial Officer





40




EXHIBIT
INDEX




Exhibit
              Number
            
            Description
      of Exhibit(1)2
            
            Agreement
      and Plan of Merger among Generex Biotechnology Corporation, Antigen
      Express, Inc. and AGEXP Acquisition Inc. (incorporated by reference to
      Exhibit 2.1 to Generex Biotechnology Corporation’s Current Report on Form
      8-K filed on August 15, 2003)3(i)
            
            Restated
      Certificate of Incorporation of Generex Biotechnology Corporation
      (incorporated by reference to Exhibit 3(II) to Generex Biotechnology
      Corporation’s Report on Form 10-Q filed on June 19,
  2006)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 April 30, 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 April 30, 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
      April 30, 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)




41




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)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)




42


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)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)




43


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).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).




44


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)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)




45


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 April 30, 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 April 30, 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 April 30, 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 April 30, 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 April 30, 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)9
            
            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)10.1
            
            Form
      of separate Agreements entered into with each of Cranshire Capital, L.P.,
      Portside Growth and Opportunity Fund, Rockmore Investment Master Fund
      Ltd., Smithfield Fiduciary LLC and Iroquois Capital Opportunity Fund, LP
      on December 22, 2008 (incorporated by reference to Exhibit 10.1 to Generex
      Biotechnology Corporation’s Report on Form 8-K filed on December 23,
      2008)10.2
            
            Form
      of Agreement entered into with Iroquois Master Fund Ltd. on December 22,
      2008 (incorporated by reference to Exhibit 10.2 to Generex Biotechnology
      Corporation’s Report on Form 8-K filed on December 23,
    2008)10.3
            
            Form
      of Forbearance and Amendment Agreement dated as of February 27, 2009 and
      entered into by and between Generex Biotechnology Corporation and each of
      Cranshire Capital, L.P., Portside Growth and Opportunity Fund, Rockmore
      Investment Master Fund Ltd., Smithfield Fiduciary LLC, Iroquois Master
      Fund Ltd. and Iroquois Capital Opportunity Fund, LP. (incorporated by
      reference to Exhibit 10.1 to Generex Biotechnology Corporation’s Report on
      Form 8-K filed on March 2, 2009).31.1
            
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
            
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232
            
            Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002





(1)
            In
      the case of incorporation by reference to documents filed by the
      Registrant under the Exchange Act, the Registrant’s file number under the
      Exchange Act is 000-25169.





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