**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**





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


**EXCHANGE
      ACT OF 1934**





For
      the
      quarterly period ended October 31, 2005





**oTRANSITION
      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**
              
              **(IRS
                  Employer****incorporation
                  or organization)**
              
              **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
o
      No





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





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





**APPLICABLE
      ONLY TO CORPORATE ISSUERS**


The
      number of outstanding shares of the registrant's common stock, par value $.001,
      was 63,532,395 as of December 7, 2005.











**GENEREX
      BIOTECHNOLOGY CORPORATION**





**INDEX**




PART
                I. FINANCIAL INFORMATIONItem
                1.
            Financial
                Statements.(Unaudited)Consolidated Balance Sheets - October
                  31, 2005 and July 31, 2005
            3Consolidated
                Statements of Operations -- for the three month periods
                ended October 31, 2005 and 2004,
              and
                cumulative from November
                2, 1995 to October 31, 2005
            4Consolidated
                Statements of Cash Flows -- For the three month periods
                ended October 31, 2005 and 2004,
              and
                cumulative from November
                2, 1995 to October 31, 2005
            5Notes
                to Consolidated Financial Statements
            6Item
                2.
            Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations
            24Item
                3.
            Quantitative
                and Qualitative Disclosures About
                Market Risk
            53Item
                4.
            Controls
                and Procedures
            53PART
                II: OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            54Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            54Item
                3.
            Defaults
                Upon Senior Securities
            56Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            56Item
                5.
            Other
                Information
            56Item
                6.
            Exhibits
            56Signatures
            
            64






2





**PART
      I. FINANCIAL INFORMATION**





**Item
      1. Financial Statements**




**GENEREX
                  BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES****(A
                  DEVELOPMENT STAGE COMPANY)****CONSOLIDATED
                  BALANCE SHEETS**




UnauditedOctober
                  31,
              
              July
                  31,2005
              
              2005ASSETSCurrent
                  Assets:Cash
                  and cash equivalents
              
              $
              7,880,081
              
              $
              586,530Restricted
                  cash
              
              
              183,311
              
              
              204,734Other
                  current assets
              
              
              302,064
              
              
              165,586Deferred
                  debt issuance costs
              
              
              432,056
              
              
              337,798Total
                  Current Assets
              
              
              8,797,512
              
              
              1,294,648Property
                  and Equipment, Net
              
              
              2,825,911
              
              
              3,976,742Assets
                  Held for Investment, Net
              
              
              3,552,218
              
              
              2,371,749Patents,
                  Net
              
              
              5,373,573
              
              
              5,443,094Due
                  From Related Party
              
              
              394,702
              
              
              379,612TOTAL
                  ASSETS
              
              $
              20,943,916
              
              $
              13,465,845LIABILITIES
                  AND STOCKHOLDERS’ EQUITYCurrent
                  Liabilities:Accounts
                  payable and accrued expenses
              
              $
              2,525,405
              
              $
              2,410,846Short-term
                  advance
              
              
              340,503
              
              
              325,179Current
                  maturities of long-term debt
              
              
              2,571,530
              
              
              2,571,530Convertible
                  Debentures, Net of Debt Discount of $1,162,838 and$2,108,459
                  at October 31, 2005 and July 31, 2005, respectively
              
              
              293,023
              
              
              1,314,926Total
                  Current Liabilities
              
              
              5,730,461
              
              
              6,622,481Long-Term
                  Debt, Net
              
              
              799,993
              
              
              716,361Commitments
                  and ContingenciesStockholders’
                  Equity:Special
                  Voting Rights Preferred stock, $.001 par value;authorized,
                  issued and outstanding 1,000 shares atOctober
                  31, 2005 and July 31, 2005, respectively
              
              
              1
              
              
              1Common
                  stock, $.001 par value; authorized 150,000,000 shares atOctober
                  31, 2005 and July 31, 2005; 58,318,489 and 41,933,898shares
                  issued and outstanding, respectively
              
              
              58,319
              
              
              41,935Additional
                  paid-in capital
              
              
              143,728,962
              
              
              126,044,326Subscription
                  receivable
              
              
              (500,000
              )
              
              —Deficit
                  accumulated during the development stage
              
              
              (129,531,326
              )
              
              (120,528,108
              )Accumulated
                  other comprehensive income
              
              
              657,506
              
              
              568,849Total
                  Stockholders’ Equity
              
              
              14,413,462
              
              
              6,127,003TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              20,943,916
              
              $
              13,465,845




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





3





**GENEREX
                BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES****(A
                DEVELOPMENT STAGE COMPANY)****UNAUDITED
                CONSOLIDATED STATEMENTS OF
                OPERATIONS**


Cumulative
                  FromNovember
                  2, 1995For
                  the Three Months Ended
              
              (Date
                  of Inception)October
                  31,
              
              to
                  October 31,2005
              
              2004
              
              2005Revenues
              
              $
              43,750
              
              $
              142,750
              
              $
              2,063,046Operating
                  Expenses:Research
                  and development
              
              
              676,379
              
              
              3,395,130
              
              
              55,594,824Research
                  and development - related party
              
              
              —
              
              
              —
              
              
              220,218General
                  and administrative
              
              
              1,474,856
              
              
              3,422,238
              
              
              66,925,970General
                  and administrative - related party
              
              
              —
              
              
              —
              
              
              314,328Total
                  Operating Expenses
              
              
              2,151,235
              
              
              6,817,368
              
              
              123,055,340Operating
                  Loss
              
              
              (2,107,485
              )
              
              (6,674,618
              )
              
              (120,992,294
              )Other
                  Income (Expense):Miscellaneous
                  income (expense)
              
              
              —
              
              
              —
              
              
              195,693Income
                  from Rental Operations, net
              
              
              4,853
              
              
              47,066
              
              
              209,529Interest
                  income
              
              
              1,337
              
              
              15,438
              
              
              3,395,817Interest
                  expense
              
              
              (6,739,575
              )
              
              (45,914
              )
              
              (11,574,510
              )Loss
                  on extinguishment of debt
              
              
              (162,348
              )
              
              —
              
              
              (1,508,689
              )Net
                  Loss Before Undernoted
              
              
              (9,003,218
              )
              
              (6,658,028
              )
              
              (130,274,454
              )Minority
                  Interest Share of Loss
              
              
              —
              
              
              —
              
              
              3,038,185Net
                  Loss
              
              
              (9,003,218
              )
              
              (6,658,028
              )
              
              (127,236,269
              )Preferred
                  Stock Dividend
              
              
              —
              
              
              —
              
              
              2,295,057Net
                  Loss Available to Common Shareholders
              
              $
              (9,003,218
              )
              $
              (6,658,028
              )
              $
              (129,531,326
              )Basic
                  and Diluted Net Loss Per Common Share
              
              $
              (.20
              )
              $
              (.19
              )Weighted
                  Average Number of Shares ofCommon
                  Stock Outstanding
              
              
              45,798,108
              
              
              34,810,981




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




4




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




Cumulative
                  FromNovember
                  2, 1995For
                  the Three Months Ended
              
              (Date
                  of Inception)October
                  31,
              
              to
                  October 31,2005
              
              2004
              
              2005Cash
                  Flows From Operating Activities:Net
                  loss
              
              $
              (9,003,218
              )
              $
              (6,658,028
              )
              $
              (127,236,269
              )Adjustments
                  to reconcile net loss to net cash usedin
                  operating activities:Depreciation
                  and amortization
              
              
              279,984
              
              
              271,738
              
              
              3,861,164Minority
                  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
              
              
              1,278
              
              
              —
              
              
              77,364Loss
                  on extinguishment of debt
              
              
              162,348
              
              
              —
              
              
              1,508,689Common
                  stock issued for services rendered
              
              
              (27,211
              )
              
              675,800
              
              
              4,759,053Amortization
                  of prepaid services in conjunction with common
                stock
                  issuance
              
              
              46,125
              
              
              —
              
              
              46,125Non-cash
                  compensation expense
              
              
              —
              
              
              —
              
              
              45,390Stock
                  options and warrants issued for services rendered
              
              
              —
              
              
              490,600
              
              
              6,833,873Preferred
                  stock issued for services rendered
              
              
              —
              
              
              —
              
              
              100Treasury
                  stock redeemed for non-performance of services
              
              
              —
              
              
              (138,000
              )
              
              (138,000
              )Amortization
                  of deferred debt issuance costs and loan origination fees
              
              
              147,630
              
              
              —
              
              
              395,737Amortization
                  of discount on convertible debentures
              
              
              3,415,992
              
              
              —
              
              
              7,150,803Common
                  stock and warrants issued as interest payment
              
              
              3,151,489
              
              
              —
              
              
              3,228,485Interest
                  on short-term advance
              
              
              6,658
              
              
              —
              
              
              15,324Founders’
                  shares transferred for services rendered
              
              
              —
              
              
              —
              
              
              353,506Fees
                  in connection with short-term refinancing of long-term
                  debt
              
              
              —
              
              
              —
              
              
              105,300Changes
                  in operating assets and liabilities (excluding the effects
                of
                  acquisition):Miscellaneous
                  receivables
              
              
              —
              
              
              —
              
              
              43,812Other
                  current assets
              
              
              5,562
              
              
              604,905
              
              
              (106,679
              )Accounts
                  payable and accrued expenses
              
              
              173,525
              
              
              1,048,260
              
              
              6,039,276Other,
                  net
              
              
              —
              
              
              —
              
              
              110,317Net
                  Cash Used in Operating Activities
              
              
              (1,639,838
              )
              
              (3,704,725
              )
              
              (91,723,634
              )Cash
                  Flows From Investing Activities:Purchase
                  of property and equipment
              
              
              (13
              )
              
              (42,140
              )
              
              (4,292,729
              )Costs
                  incurred for patents
              
              
              (22,795
              )
              
              (58,983
              )
              
              (1,517,781
              )Change
                  in restricted cash
              
              
              29,295
              
              
              (2,476
              )
              
              (141,701
              )Proceeds
                  from maturity of short term investments
              
              
              —
              
              
              —
              
              
              126,687,046Purchases
                  of short-term investments
              
              
              —
              
              
              —
              
              
              (126,687,046
              )Cash
                  received in conjunction with merger
              
              
              —
              
              
              —
              
              
              82,232Advances
                  to Antigen Express, Inc.
              
              
              —
              
              
              —
              
              
              (32,000
              )Increase
                  in officers’ loans receivable
              
              
              —
              
              
              —
              
              
              (1,126,157
              )Change
                  in deposits
              
              
              —
              
              
              395,889
              
              
              (477,194
              )Change
                  in notes receivable - common stock
              
              
              —
              
              
              (6,300
              )
              
              (91,103
              )Change
                  in due from related parties
              
              
              —
              
              
              —
              
              
              (2,222,390
              )Other,
                  net
              
              
              —
              
              
              —
              
              
              89,683Net
                  Cash Provided by (Used in) Investing Activities
              
              
              6,487
              
              
              285,990
              
              
              (9,729,140
              )Cash
                  Flows From Financing Activities:Proceeds
                  from short-term advance
              
              
              —
              
              
              —
              
              
              325,179Proceeds
                  from issuance of long-term debt
              
              
              —
              
              
              —
              
              
              1,970,148Repayment
                  of long-term debt
              
              
              (52,693
              )
              
              (19,269
              )
              
              (1,259,631
              )Change
                  in due to related parties
              
              
              —
              
              
              —
              
              
              154,541Proceeds
                  from exercise of warrants
              
              
              6,391,999
              
              
              —
              
              
              10,944,983Proceeds
                  from exercise of stock options
              
              
              101,545
              
              
              —
              
              
              1,111,985Proceeds
                  from minority interest investment
              
              
              —
              
              
              —
              
              
              3,038,185Proceeds
                  from issuance of preferred stock
              
              
              —
              
              
              —
              
              
              12,015,000Proceeds
                  from issuance of convertible debentures, net
              
              
              2,485,000
              
              
              —
              
              
              8,784,930Repayments
                  of convertible debentures
              
              
              —
              
              
              —
              
              
              (461,358
              )Purchase
                  of treasury stock
              
              
              —
              
              
              —
              
              
              (483,869
              )Proceeds
                  from issuance of common stock, net
              
              
              —
              
              
              —
              
              
              73,283,715Purchase
                  and retirement of common stock
              
              
              —
              
              
              —
              
              
              (119,066
              )Net
                  Cash Provided by (Used in) Financing Activities
              
              
              8,925,851
              
              
              (19,269
              )
              
              109,304,742Effect
                  of Exchange Rates on Cash
              
              
              1,051
              
              
              16,091
              
              
              28,113Net
                  Increase (Decrease) in Cash and Cash Equivalents
              
              
              7,293,551
              
              
              (3,421,913
              )
              
              7,880,081Cash
                  and Cash Equivalents, Beginning of Period
              
              
              586,530
              
              
              4,950,419
              
              
              —Cash
                  and Cash Equivalents, End of Period
              
              $
              7,880,081
              
              $
              1,528,506
              
              $
              7,880,081




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




5


**GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **1.**
              **Basis
                  of Presentation**
 The
        accompanying unaudited interim consolidated financial statements have been
        prepared pursuant to the rules and regulations for reporting on Form 10-Q.
        Accordingly, certain information and disclosures required by generally accepted
        accounting principles for complete financial statements are not included
        herein.
        The interim statements should be read in conjunction with the financial
        statements and notes thereto included in the Company’s latest Annual Report on
        Form 10-K. The results for the three months may not be indicative of the
        results
        for the entire year.
 
 Interim
        statements are subject to possible adjustments in connection with the annual
        audit of the Company’s accounts for the fiscal year 2006. In the Company’s
        opinion all adjustments necessary for a fair presentation of these interim
        statements have been included and are of a normal and recurring
        nature.
 
 The
        accompanying financial statements have been prepared on a going concern basis,
        which contemplates the realization of assets and the satisfaction of liabilities
        and commitments in the normal course of business. The Company has experienced
        negative cash flows from operations since inception and had an accumulated
        deficit at October 31, 2005 of approximately $129 million. The Company has
        funded its activities to date almost exclusively from debt and equity
        financings.
 
 The
        Company is in the development stage and has realized minimal revenues to
        date.
        The Company will continue to require substantial funds to continue research
        and
        development, including preclinical studies and clinical trials of its product
        candidates, and to commence sales and marketing efforts if the FDA or other
        regulatory approvals are obtained. Management’s plans in order to meet its
        operating cash flow requirements include financing activities such as private
        placement of its common stock, preferred stock offerings and offerings of
        debt
        and convertible debt instruments. Management is also actively pursuing industry
        collaboration activities including product licensing and specific project
        financing.
 
 While
        the
        Company believes that it will be successful in obtaining the necessary financing
        to fund its operations, there are no assurances that such additional funding
        will be achieved and that it will succeed in its future operations. The
        financial statements do not include any adjustments relating to the
        recoverability and classification of recorded asset amounts or amounts of
        liabilities that might be necessary should the Company be unable to continue
        in
        existence.
 
 **2.**
              **Effects
                  of Recent Accounting
                  Pronouncements**
 In
        December 2004, the FASB issued Statement of Financial Accounting Standards
        No.
        123(R), “Share-Based Payment” (“SFAS 123(R)”), which requires all companies to
        measure compensation cost for all share-based payments (including employee
        stock
        options) at fair value and to recognize cost over the vesting period. In
        March
        2005, the SEC released SEC Staff Accounting Bulletin No. 107, “Share-Based
        Payment” (“SAB 107”). SAB 107 provides the SEC staff position regarding the
        application of SFAS 123(R), including interpretive guidance related to the
        interaction between SFAS 123(R) and certain SEC rules and regulations, and
        provides the staff's views regarding the valuation of share-based payment
        arrangements for public companies. SAB 107 highlights the importance of
        disclosures made related to the accounting for share-based payment transactions.
        In April 2005, the SEC announced that companies may implement SFAS 123(R)
        at the
        beginning of their next fiscal year beginning after June 15, 2005, or December
        15, 2005 for small business issuers. The Company implemented the provisions
        of
        SFAS 123(R) and SAB 107 in the first quarter of fiscal 2006 using the
        modified-prospective method, and it did not have a material impact on our
        financial position or cash flows. See Note 3 - "Stock Based Compensation"
        for
        further information and the required disclosures under SFAS 123(R) and SAB
        107,
        including the impact of the implementation on our results of operations.
  6
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **2.**
              **Effects
                  of Recent Accounting Pronouncements
                  (Continued)**
 In
        December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary
        Assets - an amendment of APB Opinion No. 29.” The statement addresses
        the measurement of exchanges of nonmonetary assets and eliminates the exception
        from fair value measurement for nonmonetary exchanges of similar productive
        assets and replaces it with an exception for exchanges that do not have
        commercial substance. SFAS No. 153 is effective for nonmonetary asset
        exchanges occurring in fiscal periods beginning after June 15, 2005.
        This
        adoption of this statement did not have a significant impact on the consolidated
        results of operations or financial position of the Company.
 
 In
        May
        2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.”
        This statement replaces APB No. 20 and SFAS No. 3 and changes the requirements
        for the accounting and reporting of a change in accounting principle. APB
        No. 20
        previously required that most voluntary changes in accounting principle be
        recognized by including in net income of the period of the change the cumulative
        effect of changing to the accounting principle. SFAS No. 154 requires
        retrospective application to prior periods’ financial statements of voluntary
        changes in accounting principle. SFAS No. 154 is effective for accounting
        changes and corrections of errors made in fiscal years beginning after December
        15, 2005. The Company does not expect that the adoption of SFAS No. 154 will
        have a significant impact on the consolidated results of operations or financial
        position of the Company.
 
 **3.**
              **Stock-Based
                  Compensation**
 As
        of
        October 31, 2005, the Company had two stockholder-approved stock incentive
        plans
        under which options exercisable for shares of common stock have been or may
        be
        granted to employees, directors, consultants and advisors. A total of 2,000,000
        shares of common stock are reserved for issuance under the 2000 Stock Option
        Plan (the 2000 Plan) and a total of 12,000,000 shares of common stock are
        reserved for issuance under the 2001 Stock Option Plan (the 2001 Plan). There
        were 1,795,000 and 632,731 shares of common stock reserved for future awards
        under the 2000 Plan and 2001 Plan, respectively, as of October 31,
        2005.
 
 The
        2000
        and 2001 Plans (the Plans) are administered by the Compensation Committee
        (the
        Committee). The Committee is authorized to select from among eligible employees,
        directors, advisors and consultants those individuals to whom options are
        to be
        granted and to determine the number of shares to be subject to, and the terms
        and conditions of the options. The Committee is also authorized to prescribe,
        amend and rescind terms relating to options granted under the Plans. Generally,
        the interpretation and construction of any provision of the Plans or any
        options
        granted hereunder is within the discretion of the Committee.
 
 The
        Plans
        provide that options may or may not be Incentive Stock Options (ISOs) within
        the
        meaning of Section 422 of the Internal Revenue Code. Only employees of the
        Company are eligible to receive ISOs, while employees and non-employee
        directors, advisors and consultants are eligible to receive options which
        are
        not ISOs, i.e. “Non-Qualified Options.” The options granted by the Board in
        connection with its adoption of the Plans are Non-Qualified
        Options.
 
  7
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **3.**
              **Stock-Based
                  Compensation (Continued)**
 Prior
        to
        August 1, 2005, the Company accounted for the share-based compensation granted
        under its stock incentive plans under the recognition and measurement provisions
        of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
        Employees,” and related interpretations (“APB 25”). In accordance with APB 25,
        the Company used the intrinsic-value method of accounting for stock option
        awards to employees and accordingly did not recognize compensation expense
        for
        its stock option awards to employees in its Consolidated Statement of Operations
        prior to August 1, 2005, as all option exercise prices were equal to the
        fair
        market value of the Company stock on the date the options were granted.
        Effective August 1, 2005, the Company implemented the fair value recognition
        provisions of Financial Accounting Standards Board (FASB) Statement No. 123
        (revised 2004) (“SFAS 123 (R)”), “Share Based Payment,” which is a revision of
        SFAS No. 123, “Accounting for Stock Based Compensation,” and SAB 107 for all
        share-based compensation that was not vested as of July 31, 2005.
 
 For
        the
        three months ended October 31, 2005, no compensation expense was recorded
        for
        options outstanding as of August 1, 2005. There were no options granted during
        the three months ended October 31, 2005.
 
 The
        following table illustrates the pro forma effect on net income and earnings
        per
        share for the first quarter of fiscal 2005, assuming the Company had applied
        the
        fair value recognition provisions of SFAS 123(R) to all previously granted
        share-based awards after giving consideration to potential forfeitures during
        such quarter. The fair value of each option grant is estimated at the grant
        date
        using the Black-Scholes option-pricing model based on the assumptions listed
        below. The estimated fair value of options granted is expensed at the date
        of
        grant. Share-based employee compensation, in the current period of $-0- (net
        of
        related tax), is included in the October 31, 2005 net loss of $9,003,218.
        The
        following table represents the impact had the treatment been adopted at August
        1, 2004.
  Three
                    MonthsEndedOctober
                    31,2004Net
                    Loss Available to Common Stockholders, as Reported
                
                $
                (6,658,028
                )Add:
                    Total Stock-Based Employee Compensation Includedin
                    Reported Net Loss
                
                
                —Deduct:
                    Total Stock-Based Employee Compensation IncomeDetermined
                    Under Fair Value Based Method, Net ofRelated
                    Tax Effect
                
                
                1,430,640Pro
                    Forma Net Loss Available to Common Stockholders
                
                $
                (8,088,668
                )Loss
                    Per Share:Basic
                    and diluted, as reported
                
                $
                (0.19
                )Basic
                    and diluted, pro forma
                
                $
                (0.23
                )
 
 The
        implementation of the provisions of SFAS 123(R) and SAB 107 during the first
        quarter of fiscal 2006 did not have a material impact on the Company’s cash flow
        from operations or cash flow from financing activities during the first quarter
        of fiscal 2006.
  8
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **3.**
              **Stock-Based
                  Compensation (Continued)**
 The
        following information relates to stock options that have been granted under
        the
        Company’s stockholder-approved incentive plans. The stock option exercise price
        is typically granted at 100 percent of the fair market value on the date
        the
        options are granted. Options may be exercised for a period of five years
        commencing on the date of grant and vesting over two years from the date
        of
        grant.
 
 The
        fair
        value of each option award is estimated on the date of grant using the
        Black-Scholes option pricing model. No options were granted to employees
        during
        the fiscal quarter ended October 31, 2005.
 
 The
        summary of the stock option activity during the fiscal quarter ended October
        31,
        2005 is as follows:
  Weighted
                
                WeightedAverage
                
                AverageExercise
                
                RemainingPrice
                
                ContractualShares
                
                Share
                
                Term
                    (Years)Outstanding,
                    August 1, 2005
                
                
                11,607,269
                
                $
                1.51
                
                
                3.66Granted
                
                
                —
                
                $
                —
                
                
                —Cancelled
                
                
                (35,000
                )
                $
                7.56
                
                
                —Exercised
                
                
                (141,500
                )
                $
                0.72
                
                
                —Outstanding,
                    October 31, 2005
                
                
                11,430,769
                
                $
                1.50
                
                
                3.44
 The
          summary of the status of the Company’s non-vested as of October 31, 2005, as
          changes during the fiscal quarter then ended is as follows:
  WeightedAverageGrant
                      DateShares
                  
                  Fair
                      ValueNon-vested
                      Stock Options, August 1, 2005
                  
                  
                  628,000
                  
                  $
                  0.72Granted
                  
                  
                  —
                  
                  $
                  —Cancelled
                  
                  
                  —
                  
                  $
                  —Vested
                  
                  
                  (628,000
                  )
                  $
                  0.72Exercised
                  
                  
                  
                  
                  $
                  —Non-vested
                      Stock Options, October 31, 2005
                  
                  
                  —
                  
                  $
                  —
  As
        of
        October 31, 2005, there was no unrecognized compensation related to non-vested
        stock options granted under the Company’s stock option plans.
 
 **4.**
              **Comprehensive
                  Income/(Loss)**
 Comprehensive
        loss, which includes net loss and the change in the foreign currency translation
        account during the period, for the three months ended October 31, 2005 and
        2004,
        was $8,914,561 and $6,339,104, respectively.
  9
  **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:
 October
                    31,
                
                July
                    31,2005
                
                2005Accounts
                    Payable
                
                $
                1,031,205
                
                $
                999,726Accounting
                    and Auditing
                
                
                293,846
                
                
                274,627Accrued
                    Legal Fees and Settlement
                
                
                511,908
                
                
                599,461Termination
                    Agreements and Severance Pay
                
                
                276,283
                
                
                265,720Executive
                    Compensation and Directors Fees
                
                
                412,163
                
                
                271,312Total
                
                $
                2,525,405
                
                $
                2,410,846
  
 **6.**
              **Convertible
                  Debentures**
  **$4
        Million Convertible Debenture**
 On
        November 8, 2004, the Company entered into four definitive agreements with
        four
        accredited investors, pursuant to which the Company would issue four $1,000,000
        convertible promissory notes (“convertible debentures”) for aggregate gross
        proceeds of $4,000,000. The notes carry a 6% coupon and a 15-month term and
        amortize in 13 equal monthly installments commencing in the third month of
        the
        term. The convertible debentures are convertible into registered common stock
        of
        the Company at $0.82 per share. The principal and interest payments are payable
        in cash or, at the Company's option, the lesser of registered stock valued
        at a
        10% discount to the average of the 20-day VWAP as of the payment date or
        $0.82,
        subject to certain restrictions. The transaction terms include 100% five-year
        warrant coverage at a per share exercise price equal to a 10% premium to
        the
        10-day VWAP on the closing date and a 100% additional investment right
        exercisable for up to twelve months following the effective date of the
        registration statement in respect of the transaction.
 
 During
        December 2004, the Company issued the aforementioned convertible debentures.
        Proceeds related to the issuance, net of issuance costs of $389,970, amounted
        to
        $3,699,930. Included in the issuance costs were warrants issued to a third
        party
        to purchase 145,000 shares of common stock at $0.91 per share. The fair value
        of
        the warrant was determined to be $89,900 using the Black Scholes pricing
        model
        assuming a risk-free rate of 1.79 percent, an expected volatility of 1.0463
        and
        a five year life. The fair value of the warrant, which has been allocated
        to
        additional paid in capital, and together with the $300,070 of issuance costs
        is
        being amortized over the life of the debt as a deferred debt issuance cost.
        During the three months ended October 31, 2005 $77,994 has been amortized
        as
        interest expense and the remaining unamortized balance of $77,994 is included
        in
        deferred debt issuance costs.
 
 The
        holders of the convertible debentures also received warrants to purchase
        4,878,048 of common stock at $0.91 per share. In accordance with Emerging
        Issues
        Task Force Issue 00-27, Application of Issue No. 98-5 to Certain Convertible
        Instruments ("EITF 00-27"), the Company recognized the value attributable
        to the
        warrants in the amount of $1,722,222 to additional paid-in capital and a
        discount against the convertible debenture. The Company valued the warrants
        in
        accordance with EITF 00-27 using the Black-Scholes pricing model assuming
        a
        risk-free rate of 1.79 percent, an expected volatility of 1.0463 and a five
        year
        life. The debt discount attributed to the value of the warrants issued is
        amortized over the convertible debenture’s maturity period as interest expense
        using the effective yield method.
 
 10
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **6.**
              **Convertible
                  Debentures (Continued)**
  **$4
        Million Convertible Debenture (Continued)**
 In
        accordance with Emerging Issues Task Force Issue 98-5, Accounting for
        Convertible Securities with a Beneficial Conversion Features or Contingently
        Adjustable Conversion Ratios ("EITF 98-5"), the Company recognized the value
        attributable to the beneficial conversion feature, valued at $1,722,222,
        to
        additional paid-in capital and a discount against the convertible debenture.
        The
        debt discount attributed to the beneficial conversion feature is amortized
        over
        the convertible debenture's maturity period as interest expense using the
        effective yield method.
 
 The
        Company amortized the convertible debenture debt discount attributed to the
        beneficial conversion feature and the value of the warrants and recorded
        non-cash interest expense of $312,158 during the three months ended October
        31,
        2005. During the three months ended October 31, 2005, the Company has issued
        364,113 shares of common stock to the holders of the convertible debentures
        upon
        receipt of the holders’ notice of conversion of principal and interest totaling
        $298,573. In conjunction with the conversions, the Company recognized $179,162
        of the unamortized debt discount attributed to the beneficial conversion
        feature
        and the value of the warrants as interest expense.
 
 The
        Company has repaid the note holders $605,109 of the principal and interest
        in
        1,061,607 shares of common stock during the three months ended October 31,
        2005.
        This repayment resulted in a charge of $109,655 to loss on extinguishment
        of
        debt that represents the difference between quoted market price of the Company’s
        common stock and 10 percent discount to the average of the 20-day
        VWAP.
 
 **$500,000
        Convertible Debenture**
 On
        March
        28, 2005, the Company entered into a definitive agreement pursuant to which
        the
        Company would issue a convertible promissory note for aggregate gross proceeds
        of $500,000. The note bore interest at 10 percent per annum payable in common
        stock at the holders option and was due on May 15, 2005. The note was
        convertible into registered common stock of the Company at a per share price
        equal $0.82.
 
 The
        holder of the convertible debenture also received warrants to purchase 1,219,512
        of common stock at $0.82 per share. In accordance with EITF 00-27 the Company
        recognized the value attributable to the warrants, in the amount of $245,521,
        to
        additional paid-in capital and a discount against the convertible debenture.
        The
        Company valued the warrants in accordance with EITF 00-27 using the
        Black-Scholes pricing model assuming a risk-free rate of 2.78 percent, an
        expected volatility of 1.0054 and a five year life. The debt discount attributed
        to the value of the warrants issued is amortized over the convertible note’s
        maturity period as interest expense using the effective yield
        method.
 
 In
        accordance with EITF 98-5, the Company recognized the value attributable
        to the
        beneficial conversion feature valued at $86,984, to additional paid-in capital
        and a discount against the convertible note. The debt discount attributed
        to the
        beneficial conversion feature is amortized over the convertible note's maturity
        period as interest expense using the effective yield method.
 
 The
        Company fully amortized the convertible note debt discount attributed to
        the
        beneficial conversion feature and the value of the warrants and recorded
        non-cash interest expense of $332,505 during the year ended July 31, 2005.
  11
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **6.**
              **Convertible
                  Debentures (Continued)**
 
 **$500,000
        Convertible Debenture (Continued)**
 On
        June
        7, 2005 the Company entered into an agreement with the note holder to extend
        the
        maturity date of the convertible note to July 22, 2005. In consideration
        for the
        holder’s agreement to amend the original convertible note the Company granted a
        warrant to purchase 1,219,512 shares of common stock at $0.82 per share with
        an
        expiration of June 10, 2010. In accordance with EITF 98-5 the fair value
        of the
        warrants, $597,561, was determined to be the reacquisition price on the debt
        on
        the extinguishment date and was recorded as a loss on extinguishment of the
        debt. It was then determined that the new debt did not have a beneficial
        conversion feature.
 
 On
        July
        22, 2005 the Company entered into an agreement with the note holder to extend
        the maturity date of the convertible note to September 20, 2005. In
        consideration for the holder’s agreement to amend the original convertible note
        the Company granted a warrant to purchase 1,219,512 shares of common stock
        at
        $0.82 per share with an expiration of July 22, 2010. In accordance with EITF
        98-5 the fair value of the warrants, $524,390, was recorded as a loss on
        extinguishment of the debt. It was then determined that the new debt did
        not
        have a beneficial conversion feature.
 
 During
        the three months ended October 31, 2005, the Company issued 644,003 shares
        of
        common stock to the holder of the convertible note upon receipt of the holder’s
        notice of conversion of principal and interest totaling $528,082.
 
 **$100,000
        Convertible Debenture**
 On
        April
        4, 2005, the Company entered into a definitive agreement pursuant to which
        the
        Company would issue a convertible promissory note for aggregate gross proceeds
        of $100,000. The note bore interest at 10 percent per annum payable in common
        stock at the holders option and was due on May 15, 2005. The note was
        convertible into registered common stock of the Company at a per share price
        equal $0.82.
 
 The
        holder of the convertible note also received warrants to purchase 243,902
        of
        common stock at $0.82 per share. In accordance with EITF 00-27, the Company
        recognized the value attributable to the warrants in the amount of $49,104
        to
        additional paid-in capital and a discount against the convertible note. The
        Company valued the warrants in accordance with EITF 00-27 using the
        Black-Scholes pricing model assuming a risk-free rate of 2.78 percent, an
        expected volatility of 1.0054 and a five year life. The debt discount attributed
        to the value of the warrants issued is amortized over the convertible note’s
        maturity period as interest expense using the effective yield
        method.
 
 In
        accordance with EITF 98-5, the Company recognized the value attributable
        to the
        beneficial conversion feature valued at $17,397, to additional paid-in capital
        and a discount against the convertible note. The debt discount attributed
        to the
        beneficial conversion feature is amortized over the convertible note's maturity
        period as interest expense using the effective yield method.
 
 The
        Company fully amortized the convertible note debt discount attributed to
        the
        beneficial conversion feature and the value of the warrants and recorded
        non-cash interest expense of $66,501 during the year ended July 31, 2005.
  12
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **6.**
              **Convertible
                  Debentures (Continued)**
 
 **$100,000
        Convertible Debenture (Continued)**
 On
        June
        7, 2005 the Company entered into an agreement with the note holder to extend
        the
        maturity date of the convertible note to July 22, 2005. In consideration
        for the
        holder’s agreement to amend the original convertible note the Company granted a
        warrant to purchase 243,902 shares of common stock at $0.82 per share with
        an
        expiration of June 10, 2010. In accordance with EITF 98-5 the fair value
        of the
        warrants, $119,512 was determined to be the reacquisition price on the debt
        on
        the extinguishment date and was recorded as a loss on extinguishment of the
        debt. It was then determined that the new debt did not have a beneficial
        conversion feature.
 
 On
        July
        22, 2005 the Company entered into an agreement with the note holder to extend
        the maturity date of the convertible note to September 20, 2005. In
        consideration for the holder’s agreement to amend the original convertible note
        the Company granted a warrant to purchase 243,902 shares of common stock
        at
        $0.82 per share with an expiration of July 22, 2010. In accordance with EITF
        98-5 the fair value of the warrants, $104,878, was recorded as a loss on
        extinguishment of the debt. It was then determined that the new debt did
        not
        have a beneficial conversion feature.
 
 During
        the three months ended October 31, 2005, the Company issued 128,834 shares
        of
        common stock to the holders of the convertible note upon receipt of the holder’s
        notice of conversion of principal and interest totaling $105,644.
 
 **$2
        Million Convertible Debenture**
 On
        June
        17, 2005, the holders of the $4 million convertible debenture exercised 50
        percent of their additional investment right “AIR Exercise” resulting in four
        $500,000 convertible promissory notes (“convertible debentures’) for an
        aggregate proceeds of $2,000,000. The notes carry a 6% coupon and a 15-month
        term and amortize in 13 equal monthly installments commencing in the third
        month
        of the term. The convertible debentures are convertible into registered common
        stock of the Company at $0.82 per share. The principal and interest payments
        are
        payable in cash or, at the Company's option, the lesser of registered stock
        valued at a 10% discount to the average of the 20-day VWAP as of the payment
        date or $0.82, subject to certain restrictions. The transaction terms include
        100% five-year warrant coverage at a per share exercise price equal to a
        10%
        premium to the 10-day VWAP on the closing date and a 100% additional investment
        right exercisable for up to twelve months following the effective date of
        the
        registration statement in respect of the transaction. In consideration of
        the
        AIR Exercise the Company reduced the conversion price of the convertible
        debentures issuable upon the AIR Exercise from $0.82 to $0.60 per share.
 
 Proceeds
        related to the AIR Exercise, net of issuance costs of $160,300, amounted
        to
        $1,839,700. Included in the issuance costs were warrants to purchase 35,000
        shares of common stock at $0.82 per share and 170,732 shares of common stock
        valued at $0.82 per share issued to a third party. The fair value of the
        warrant
        was determined to be $20,300 using the Black Scholes pricing model assuming
        a
        risk-free rate of 3.02 percent, an expected volatility of 0.9775 and a five
        year
        life. The fair value of the warrant, which has been allocated to additional
        paid
        in capital, together with the $140,000 of issuance costs is being amortized
        over
        the life of the debt as a deferred debt issuance cost. During the three months
        ended October 31, 2005, $31,026 has been amortized as interest expense and
        the
        remaining unamortized balance of $124,103 is included in deferred debt issuance
        costs.
  13
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **6.**
              **Convertible
                  Debentures (Continued)**
 
 **$2
        Million Convertible Debenture (Continued)**
 The
        holders of the convertible debentures also received warrants to purchase
        2,439,024 shares of common stock at $0.82 per share. In accordance with EITF
        00-27, the Company recognized the value attributable to the warrants in the
        amount of $828,571 to additional paid-in capital and a discount against the
        convertible debenture. The Company valued the warrants in accordance with
        EITF
        00-27 using the Black-Scholes pricing model assuming a risk-free rate of
        3.02
        percent, an expected volatility of 0.9775 and a five year life. The debt
        discount attributed to the value of the warrants issued is amortized over
        the
        convertible debenture’s maturity period as interest expense using the effective
        yield method.
 
 In
        accordance with EITF 98-5 the Company recognized the value attributable to
        the
        beneficial conversion feature valued at $1,171,429, to additional paid-in
        capital and a discount against the convertible debenture. The debt discount
        attributed to the beneficial conversion feature is amortized over the
        convertible debenture's maturity period as interest expense using the effective
        yield method.
 
 The
        Company amortized the convertible debenture debt discount attributed to the
        beneficial conversion feature and the value of the warrants and recorded
        non-cash interest expense of $53,181 for the three months ended October 31,
        2005. During the three months ended October 31, 2005, the Company has issued
        2,363,352 shares of common stock to the holders of the convertible debentures
        upon receipt of the holders’ notice of conversions of principal and interest
        totaling $1,418,012. In conjunction with the conversions, the Company recognized
        $1,415,692 of the unamortized debt discount attributed to the beneficial
        conversion feature and the value of the warrants as interest expense. ****
 
 The
        Company has repaid the note holders $215,270 of the principal and interest
        in
        390,322 shares of common stock during the three months ended October 31,
        2005.
        This repayment resulted in a charge of $52,693 to loss on extinguishment
        of debt
        that represents the difference between quoted market price of the Company’s
        common stock and 10 percent discount to the average of the 20-day
        VWAP.
  **Second
        $2 Million Convertible Debenture**
 On
        September 8, 2005, the holders of the $2 million convertible debenture exercised
        their additional investment right “AIR Exercise” resulting in four $500,000
        convertible promissory notes (“convertible debentures’) for an aggregate
        proceeds of $2,000,000. The notes carry a 6% coupon and a 15-month term and
        amortize in 13 equal monthly installments commencing in the third month of
        the
        term. The convertible debentures are convertible into registered common stock
        of
        the Company at $0.82 per share. The principal and interest payments are payable
        in cash or, at the Company's option, the lesser of registered stock valued
        at a
        10% discount to the average of the 20-day VWAP as of the payment date or
        $0.82,
        subject to certain restrictions. The transaction terms include 100% five-year
        warrant coverage at a per share exercise price equal to a 10% premium to
        the
        10-day VWAP on the closing date and a 100% additional investment right
        exercisable for up to twelve months following the effective date of the
        registration statement in respect of the transaction. In consideration of
        the
        AIR Exercise the Company reduced the conversion price of the convertible
        debentures issuable upon the AIR Exercise from $0.82 to $0.60 per share.
  14
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **6.**
              **Convertible
                  Debentures (Continued)**
 
 **Second
        $2 Million Convertible Debenture (Continued)**
 Proceeds
        related to the AIR Exercise, net of issuance costs of $185,600, amounted
        to
        $1,814,400. Included in the issuance costs were warrants to purchase 60,000
        shares of common stock at $0.82 per share and 170,732 shares of common stock
        valued at $0.82 per share issued to a third party. The fair value of the
        warrant
        was determined to be $30,600 using the Black Scholes pricing model assuming
        a
        risk-free rate of 3.76 percent, an expected volatility of 0.9232 and a five
        year
        life. The fair value of the warrant, which has been allocated to additional
        paid
        in capital, together with the $140,000 of issuance costs associated with
        the
        shares of common stock issued and $15,000 of legal costs are being amortized
        over the life of the debt as a deferred debt issuance cost. During the three
        months ended October 31, 2005, $23,948 has been amortized as interest expense
        and the remaining unamortized balance of $161,652 is included in deferred
        debt
        issuance costs.
 
 The
        holders of the convertible debentures also received warrants to purchase
        2,439,024 shares of common stock at $0.82 per share. In accordance with EITF
        00-27, the Company recognized the value attributable to the warrants in the
        amount of $785,185 to additional paid-in capital and a discount against the
        convertible debenture. The Company valued the warrants in accordance with
        EITF
        00-27 using the Black-Scholes pricing model assuming a risk-free rate of
        3.76
        percent, an expected volatility of 0.9232 and a five year life. The debt
        discount attributed to the value of the warrants issued is amortized over
        the
        convertible debenture’s maturity period as interest expense using the effective
        yield method.
 
 In
        accordance with EITF 98-5 the Company recognized the value attributable to
        the
        beneficial conversion feature valued at $1,185,185, to additional paid-in
        capital and a discount against the convertible debenture. The debt discount
        attributed to the beneficial conversion feature is amortized over the
        convertible debenture's maturity period as interest expense using the effective
        yield method.
 
 The
        Company amortized the convertible debenture debt discount attributed to the
        beneficial conversion feature and the value of the warrants and recorded
        non-cash interest expense of $209,768 for the three months ended October
        31,
        2005. During the three months ended October 31, 2005, the Company has issued
        2,286,390 shares of common stock to the holders of the convertible debentures
        upon receipt of the holders’ notice of conversions of principal and interest
        totaling $1,373,788. In conjunction with the conversions, the Company recognized
        $1,246,030 of the unamortized debt discount attributed to the beneficial
        conversion feature and the value of the warrants as interest
        expense.
 
 **$500,000
        Convertible Debenture**
 On
        October 27, 2005, one of the debenture holders exercised its additional
        investment right “AIR Exercise” resulting in a $500,000 convertible promissory
        note (“convertible debenture’) for an aggregate proceeds of $500,000. The
        convertible debenture carries a 6% coupon and a 15-month term and amortize
        in 13
        equal monthly installments commencing in the third month of the term. The
        convertible debenture is convertible into registered common stock of the
        Company
        at $0.82 per share. The principal and interest payments are payable in cash
        or,
        at the Company's option, the lesser of registered stock valued at a 10% discount
        to the average of the 20-day VWAP as of the payment date or $0.82, subject
        to
        certain restrictions. The transaction terms include 100% five-year warrant
        coverage at a per share exercise price equal to a 10% premium to the 10-day
        VWAP
        on the closing date and a 100% additional investment right exercisable for
        up to
        twelve months following the effective date of the registration statement
        in
        respect of the transaction.
 
  15
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **6.**
              **Convertible
                  Debentures (Continued)**
 
 **$500,000
        Convertible Debenture (Continued)**
 Proceeds
        related to the AIR Exercise, net of issuance costs of $49,250, amounted to
        $450,750. Included in the issuance costs were warrants to purchase 15,000
        shares
        of common stock at $0.95 per share and commissions of $35,000 issued to a
        third
        party. The fair value of the warrant was determined to be $14,250 using the
        Black Scholes pricing model assuming a risk-free rate of 3.76 percent, an
        expected volatility of 0.9322 and a five year life. The fair value of the
        warrant, which has been allocated to additional paid in capital, together
        with
        the $35,000 of issuance costs associated with the shares of common stock
        issued
        are being amortized over the life of the debt as a deferred debt issuance
        cost.
        During the three months ended October 31, 2005, $318 has been amortized as
        interest expense and the remaining unamortized balance of $48,932 is included
        in
        deferred debt issuance costs.
 
 The
        holder of the convertible debenture also received warrants to purchase 609,756
        shares of common stock at $0.82 per share. In accordance with EITF 00-27,
        the
        Company recognized the value attributable to the warrants in the amount of
        $270,950 to additional paid-in capital and a discount against the convertible
        debenture. The Company valued the warrants in accordance with EITF 00-27
        using
        the Black-Scholes pricing model assuming a risk-free rate of 3.76 percent,
        an
        expected volatility of 0.9232 and a five year life. The debt discount attributed
        to the value of the warrants issued is amortized over the convertible
        debenture’s maturity period as interest expense using the effective yield
        method.
 
 In
        accordance with EITF 98-5 the Company recognized the value attributable to
        the
        beneficial conversion feature valued at $229,050, to additional paid-in capital
        and a discount against the convertible debenture. The debt discount attributed
        to the beneficial conversion feature is amortized over the convertible
        debenture's maturity period as interest expense using the effective yield
        method.
 
 The
        Company amortized the convertible debenture debt discount attributed to the
        beneficial conversion feature and the value of the warrants and recorded
        non-cash interest expense of $-0- for the three months ended October 31,
        2005.
        During the three months ended October 31, 2005, the Company has not issued
        any
        shares of common stock to the holders of the convertible debenture as the
        Company has received no notice of conversion.
 
 **7.**
              **Short-term
                  Advance**
 On
        March
        30, 2005, the Company entered into an agreement with an affiliated party
        to
        provide the Company with approximately $325,200 in funding. The funds were
        designated to assist the Company in satisfying its obligations under the
        terms
        of the $4,000,000 convertible debenture agreements. The Company is obligated
        to
        repay the advance, without interest, in three equal installments on October
        1,
        2005, November 1, 2005 and December 1, 2005. Upon failure to repay any
        installment when due, all amounts become payable on demand and interest on
        such
        unpaid amounts will accrue interest at the rate of 8 percent per annum. The
        Company did not make the first required installment, therefore, has accrued
        interest in the amount of $15,324, $6,658 of which is included in the
        consolidated statement of operations for the three months ended October 31,
        2005.
  16
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **8.**
              **Pending
                  Litigation**
 On
        October 2, 1998, Sands Brothers & Co. Ltd., a New York City-based investment
        banking and brokerage firm, initiated an arbitration against the Company
        under
        New York Stock Exchange rules. Sands alleged that it had the right to receive,
        for nominal consideration, approximately 1.5 million shares of the Company’s
        common stock. Sands based its claim upon an October 1997 letter agreement
        that
        was purported by Sands to confirm an agreement appointing Sands as the exclusive
        financial advisor to Generex Pharmaceuticals, Inc., a subsidiary of the Company
        that was acquired in late 1997. In exchange, the letter agreement purported
        to
        grant Sands the right to acquire 17 percent of Generex Pharmaceuticals’ common
        stock for nominal consideration. Sands claimed that its right to receive
        shares
        of Generex Pharmaceuticals’ common stock applies to the Company’s common stock
        since outstanding shares of Generex Pharmaceuticals’ common stock were converted
        into shares of the Company’s common stock in the acquisition. Sands' claims also
        included additional shares allegedly due as a fee related to that acquisition,
        and $144,000 in monthly fees allegedly due under the terms of the purported
        agreement.
 
 On
        October 29, 2002, the Appellate Division issued a decision and order unanimously
        modifying the lower court's order by remanding the issue of damages to a
        new
        panel of arbitrators and otherwise affirming the lower court's order. The
        Appellate Division's decision and order limits the issue of damages before
        the
        new panel of arbitrators to reliance damages which is not to include an award
        of
        lost profits. Reliance damages are out-of-pocket damages incurred by Sands.
        The
        Appellate Division stated that the lower court properly determined that the
        arbitration award, which had granted Sands warrants for 1,530,020 shares
        of the
        registrant's stock, was incorrect.
 
 On
        March
        18, 2003, the Appellate Division of the Supreme Court of New York denied
        a
        motion by Sands for re-argument of the October 29, 2002 decision, or, in
        the
        alternative, for leave to appeal to the Court of Appeals. A new arbitration
        took
        place in early June 2004.
 
 17
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **8.**
              **Pending
                  Litigation (Continued)**
 Pursuant
        to an arbitration award dated September 22, 1999, the arbitration panel that
        heard this case awarded Sands $14,070 and issued a declaratory judgment
        requiring the Company to issue to Sands a warrant to purchase 1,530,020 shares
        of the Company’s common stock pursuant to and in accordance with the terms of
        the purported October 1997 letter agreement. On October 13, 1999, Sands
        commenced a special proceeding to confirm the arbitration award in the Supreme
        Court of the State of New York, County of New York (the “New York Supreme
        Court”). On November 10, 1999, the Company moved to vacate the arbitration
        award. On March 20, 2000, the New York Supreme Court granted Sands’ petition to
        confirm the award and denied the Company’s motion to vacate the award. The
        Company appealed and on January 23, 2001, the New York State Appellate Division,
        First Department (the “Appellate Division”), modified the judgment of the New
        York Supreme Court that had confirmed the arbitration award against the Company.
        The Appellate Division affirmed the portion of the New York Supreme Court
        judgment that had confirmed the granting of monetary relief of $14,070 to
        Sands
        but modified the judgment to vacate the portion of the arbitration award
        directing the issuance to Sands of a warrant to purchase 1,530,020 shares
        of the
        Company’s common stock. The Appellate Division held that the portion of the
        award directing the Company to issue warrants to Sands is too indefinite
        to be
        enforceable and remanded the matter to the arbitration panel for a final
        and
        definite award with respect to such relief or its equivalent (including possibly
        an award of monetary damages). The arbitration panel commenced hearings on
        the
        matters remanded by the Appellate Division in June 2001. On November 7, 2001,
        the arbitration panel issued an award again requiring the Company to issue
        to
        Sands a warrant to purchase 1,530,020 shares of the Company’s common stock
        purportedly pursuant to and in accordance with the terms of the October 1997
        letter agreement. Thereafter, Sands submitted a motion to the New York Supreme
        Court to modify and confirm the arbitration panel’s award while the Company
        filed a motion with the court to vacate the arbitration award. On February
        25,
        2002, the New York Supreme Court vacated the arbitration panel’s award. The
        Supreme Court concluded that the arbitration panel had “disregarded the plain
        meaning” of the directive given by the Appellate Division in the Appellate
        Division’s January 23, 2001 decision that remanded the matter of the warrant for
        reconsideration by the panel. The Supreme Court found that the arbitration
        panel’s award “lacks a rational basis”. The Supreme Court also remanded the
        matter to the New York Stock Exchange on the issue of whether the arbitration
        panel should be disqualified. Sands has appealed the February 25, 2002 order
        of
        the Supreme Court to the Appellate Division. The Company filed **** a
        cross-appeal on issues relating to the disqualification of the arbitration
        panel.
 
 On
        August
        17, 2004, the Arbitration Panel of the New York Stock Exchange issued a final
        award in the case of Sands vs. the Company, awarding Sands $150,000 in reliance
        damages.  A motion to confirm this award has been filed by Sands and
        was
        granted on February 1, 2005.  In September 2005 Sands filed a motion
        seeking leave from the New York Court of Appeals to appeal to the prior orders
        of the Appellate Division vacating the prior Arbitration Panel’s warrant award.
        As such, the award may be subject to further legal proceedings. The Company
        has
        accrued $150,000 and it is included in the balance sheet under the caption
        accounts payable and accrued expenses.
  18
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **8.**
              **Pending
                  Litigation (Continued)**
 In
        February 2001, a former business associate of the former Vice President of
        Research and Development (VP), and an entity called Centrum Technologies
        Inc.
        (“CTI”) commenced an action in the Ontario Superior Court of Justice against the
        Company and the VP seeking, among other things, damages for alleged breaches
        of
        contract and tortious acts related to a business relationship between this
        former associate and the VP that ceased in July 1996. The plaintiffs’ statement
        of claim also seeks to enjoin the use, if any, by the Company of three patents
        allegedly owned by the company called CTI. On July 20, 2001, the Company
        filed a
        preliminary motion to dismiss the action of CTI as a nonexistent entity or,
        alternatively, to stay such action on the grounds of want of authority of
        such
        entity to commence the action. The plaintiffs brought a cross motion to amend
        the statement of claim to substitute Centrum Biotechnologies, Inc. (“CBI”) for
        CTI. CBI is a corporation of which 50 percent of the shares are owned by
        the
        former business associate and the remaining 50 percent are owned by the Company.
        Consequently, the shareholders of CBI are in a deadlock. The court granted
        the
        Company’s motion to dismiss the action of CTI and denied the plaintiffs’ cross
        motion without prejudice to the former business associate to seek leave to
        bring
        a derivative action in the name of or on behalf of CBI. The former business
        associate subsequently filed an application with the Ontario Superior Court
        of
        Justice for an order granting him leave to file an action in the name of
        and on
        behalf of CBI against the VP and the Company. The Company opposed the
        application. In September 2003, the Ontario Superior Court of Justice granted
        the request and issued an order giving the former business associate leave
        to
        file an action in the name of and on behalf of CBI against the VP and the
        Company. A statement of claim was served in July 2004. The Company is not
        able
        to predict the ultimate outcome of this legal proceeding at the present time
        or
        to estimate an amount or range of potential loss, if any, from this legal
        proceeding.
 
 In
        February 2005, a consultant commenced an action in the Ontario Superior Court
        of
        Justice against the Company seeking approximately $600,000 in damages for
        alleged contract breaches in respect of unpaid remuneration and other
        compensation allegedly owed to him. The Company is of the view that the claims
        are wholly without merit and intends to defend this action vigorously. The
        Company is not able to predict the ultimate outcome of this legal proceeding
        at
        the present time or estimate an amount or range of potential loss, if any,
        from
        this legal proceeding.
 
 The
        Company is involved in certain other legal proceedings in addition to those
        specifically described herein. Subject to the uncertainty inherent in all
        litigation, the Company does not believe at the present time that the resolution
        of any of these legal proceedings is likely to have a material adverse effect
        on
        the Company’s financial position, operations or cash flows.
 
 With
        respect to all litigation, as additional information concerning the estimates
        used by the Company becomes known, the Company reassesses its position both
        with
        respect to accrued liabilities and other potential exposures.
 
 **9.**
              **Net
                  Loss Per Share**
 Basic
        EPS
        and Diluted EPS for the three months ended October 31, 2005 have been computed
        by dividing the net loss for each respective period by the weighted average
        number of shares outstanding during that period. All outstanding warrants
        and
        options, approximately 29,821,353 and 17,650,348 incremental shares at October
        31, 2005 and 2004, respectively, have been excluded from the computation
        of
        Diluted EPS as they are anti-dilutive.
  19
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **10.**
              **Supplemental
                  Disclosure of Cash Flow
                  Information**
  For
                      the Three Months EndedOctober
                      31,2005
                  
                  2004Cash
                      paid during the period for:Interest
                  
                  $
                  56,427
                  
                  $
                  45,914Income
                      taxes
                  
                  $
                  —
                  
                  $
                  —Disclosure
                      of non-cash investing and financing activities:Value
                      of common stock issued in conjunction with capitalizedservices
                      upon issuance of convertible debentures
                  
                  $
                  140,000
                  
                  $
                  —Value
                      of warrants issued in conjunction with capitalizedservices
                      upon issuance of convertible debentures
                  
                  $
                  44,850
                  
                  $
                  —Increase
                      in deferred debt issuance costs included inaccounts
                      payable and accrued expenses in conjunctionwith
                      capitalized services upon issuance of convertibledebentures
                  
                  $
                  35,000
                  
                  $
                  —Costs
                      paid from proceeds in conjunction with capitalizedservices
                      upon issuance of convertible debentures
                  
                  $
                  15,000
                  
                  $
                  —Value
                      of warrants issued in conjunction with issuance ofconvertible
                      debentures and related beneficial conversionfeature
                  
                  $
                  2,470,370
                  
                  $
                  —Satisfaction
                      of accounts payable through the issuance ofcommon
                      stock
                  
                  $
                  133,605
                  
                  $
                  —Principal
                      repayment of convertible debentures through theissuance
                      of common stock
                  
                  $
                  782,308
                  
                  $
                  —Issuance
                      of common stock in conjunction with convertibledebenture
                      conversion
                  
                  $
                  3,685,217
                  
                  $
                  —Increase
                      in subscription receivable as a result of warrantexercises
                  
                  $
                  500,000
                  
                  $
                  —Increase
                      in other current assets for the prepayment of servicesthrough
                      the issuance of common stock
                  
                  $
                  184,500
                  
                  $
                  —
  **11.**
              **Transactions
                  with Related Party**
 The
        Company’s change in “Due from Related Party” for the three months ended October
        31, 2005 represents only the effect of change in quarter end exchange rate
        versus that in effect at July 31, 2005.
 
 **12.**
              **Stockholders’
                  Equity**
 In
        August
        2005, the Company issued 265,929 shares of common stock to various consultants
        for services rendered in the amount of $157,289. The shares were valued at
        $0.59
        to $0.61 per share based on the quoted market price of the Company’s common
        stock on the dates of the issuances.
 
 In
        September 2005, the Company issued 162,933 shares of common stock to various
        vendors for the satisfaction of $113,605 of accounts payable and accrued
        liabilities. The shares were valued at $0.81 per share based on the quoted
        market price of the Company’s common stock on the dates of the
        issuances.
 
 During
        the three months ended October 2005, the Company issued an aggregate of
        1,061,607 shares of common stock as monthly principal and interest payments
        totaling $714,761 of the $4,000,000 convertible debenture (see Note
        6).
  20
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **12.**
              **Stockholders’
                  Equity (Continued)**
 In
        October 2005, the Company issued an aggregate of 364,113 shares of common
        stock
        resulting from the conversion of $298,573 of principal and accrued interest
        of
        the $4,000,000 convertible debenture (see Note 6).
 
 During
        September and October 2005, the Company issued an aggregate of 390,322 shares
        of
        common stock as monthly principal and interest payments totaling $267,963
        of the
        $2,000,000 convertible debenture (see Note 6).
 
 During
        September and October 2005, the Company issued an aggregate of 2,363,352
        shares of common stock resulting from the conversion of $1,418,012 of principal
        and accrued interest of the $2,000,000 convertible debenture (see Note
        6).
 
 In
        September 2005, the Company and each of the holders of the $4 million
        convertible debenture entered into an Amendment No. 2 to Securities Purchase
        Agreement and Registration Rights Agreement pursuant to which the investors
        agreed to exercise an additional $2,000,000 in principal amount of Additional
        Investment Rights (AIR) (“Second $2 Million Convertible Debenture”). In
        connection with this investment, the Company agreed to issue warrants to
        purchase an aggregate of 2,439,024 shares of the Company’s common stock at the
        exercise price of $0.82 per share exercisable for five years commencing six
        months following the issuance thereof and to grant each investor further
        AIR. In
        addition, in connection with the transaction contemplated by Amendment No.
        2,
        the Company issued a placement agent (i) 170,732 shares of common stock in
        lieu
        of a cash fee equal to 7 percent of the gross proceeds received by the Company
        and (ii) warrants exercisable into approximately 60,000 shares of common
        stock
        at the same exercise price as the AIR warrants (see Note 6).
 
 During
        the September and October 2005, the Company issued an aggregate of 2,286,390
        shares of common stock resulting from the conversion of $1,373,788 of principal
        and accrued interest of the Second $2,000,000 Convertible Debenture (see
        Note
        6).
 
 In
        October 2005 one of the debenture holders exercised its additional investment
        right “AIR Exercise” resulting in a $500,000 convertible promissory note
        (“$500,000 Convertible Debenture’) for an aggregate proceeds of $500,000. In
        connection with this investment, the Company agreed to issue warrants to
        purchase an aggregate of 609,756 shares of the Company’s common stock at the
        exercise price of $0.82 per share exercisable for five years commencing six
        months following the issuance thereof. In addition, in connection with the
        transaction, the Company issued a placement agent warrants to purchase 15,000
        shares of common stock (see Note 6).
 
 In
        October 2005, the holder of a $500,000 promissory note exercised its right
        to
        convert the principal and accrued interest amount of $528,082 as of the date
        of
        conversion into 644,003 shares of common stock at $0.82 per share (see Note
        6).
 
 In
        October 2005, the holder of a $100,000 promissory note exercised its right
        to
        covert the principal and accrued interest amount of $105,644 as of the date
        of
        conversion into 128,834 shares of common stock at $0.82 per share (see Note
        6).
 
 In
        October 2005, the Company issued an aggregate of 909,756 warrants to certain
        debenture holders as an incentive to exercise their existing warrants. All
        warrants have a five year term, an exercise price of $1.20 per share and
        were
        valued at $0.63. The warrants, which were valued using the Black-Scholes
        pricing
        model with expected volatility of 93.22 percent and risk free interest of
        3.76
        percent, resulted in charges to the interest expense of $573,146.
  21
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **12.**
              **Stockholders’
                  Equity (Continued)**
 In
        October 2005, the Company issued an aggregate of 2,748,780 to certain debenture
        holders as an incentive to exercise their existing warrants. All warrants
        have a
        five year term, an exercise price of $1.25 per share and were valued at $0.91.
        The warrants, which were valued using the Black-Scholes pricing model with
        expected volatility of 93.22 percent and risk free interest of 3.76 percent,
        resulted in charges to the interest expense of $2,501,390.
 
 In
        October 2005, the Company received aggregate cash proceeds of approximately
        $6.4
        million and a subscription receivable of $500,000 from exercises of existing
        warrants. The Company issued 8,404,876 shares of common stock as a result
        of
        these transactions. The subscription receivable of $500,000 was received
        subsequent to the period end.
 
 In
        October 2005, the Company received aggregate cash proceeds of $101,545 from
        exercises of stock options. The Company issued 141,500 shares of common stock
        as
        a result of these transactions.
 
 The
        issuances of common stock as described above are summarized as
        follow:
  Additional
                
                TotalCommon
                    Stock
                
                Paid-In
                
                Stockholders’Shares
                
                Amount
                
                Capital
                
                EquityConvertible
                    Debenture Conversions
                
                
                5,786,692
                
                $
                5,787
                
                $
                3,718,313
                
                $
                3,724,100Convertible
                    Debenture MonthlyRepayments
                
                
                1,451,929
                
                
                1,452
                
                
                981,272
                
                
                982,724Warrants
                    and Stock Options Exercisedfor
                    Cash
                
                
                8,546,376
                
                
                8,546
                
                
                6,984,997
                
                
                6,993,543Issuance
                    for Services and AccountsPayable
                
                
                599,594
                
                
                600
                
                
                410,294
                
                
                410,894Total
                
                
                16,384,591
                
                $
                16,385
                
                $
                12,094,876
                
                $
                12,111,261
 **13.**
              **Subsequent
                  Events**
 In
        December 2005, the Company and each of the holders of the $4 million convertible
        debenture entered into an Amendment No. 3 to Securities Purchase Agreement
        and
        Registration Rights Agreement (the “Amendment No. 3”), pursuant to which (i) all
        but one of the Investors agreed to exercise an aggregate of $1,500,000 in
        principal amount of the Additional AIRs granted to such Investors in connection
        with the First AIR Exercise and (ii) all of the Investors agreed to exercise
        an
        aggregate of $2,000,000 in principal amount of the Additional AIRs granted
        to
        the Investors in connection with the Second AIR Exercise. In connection with
        this investment, the Company agreed to issue warrants to purchase an aggregate
        of 4,268,292 shares of the Company’s common stock at the exercise price of $0.82
        per share exercisable for five years commencing six months following the
        issuance thereof and to grant each investor a further AIR. In addition, in
        connection with the transaction contemplated by Amendment No. 3, the Company
        is
        required to pay a placement agent (i) $245,000 of a cash fee equal to 7 percent
        of the gross proceeds received by the Company and (ii) warrants exercisable
        into
        105,000 shares of common stock at $0.82 per share.
 
 During
        December 2005, the Company issued an aggregate of 1,281,830 shares of common
        stock resulting from the conversion of $1,051,100 of principal and accrued
        interest of the December 2005 Convertible Debentures.
  22
  **GENEREX
        BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 **13.**
              **Subsequent
                  Events (Continued)**
 In
        December 2005, the Company issued an aggregate of 193,115 shares of common
        stock
        to certain employees. The shares were valued at $0.90 per share based on
        the
        quoted market price of the Company’s common stock on the date of the
        issuances.
 
 In
        December 2005, the Company issued a warrant for 1,829,268 shares to one
        debenture holder as an incentive to exercise its existing warrants. All warrants
        have a five year term, an exercise price of $1.25 per share and were valued
        at
        $0.61. The warrant, which were valued using the Black-Scholes pricing model
        with
        expected volatility of 92.54% and risk free interest of 4.02%, resulted in
        charges to the interest expense of $1,115,854


23


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





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





**Forward-Looking
      Statements**





We
      have
      made statements in this *Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations* and
      elsewhere in this Quarterly Report on Form 10-Q of Generex Biotechnology
      Corporation for the fiscal quarter ended October 31, 2005 that may constitute
      “forward-looking statements” within the meaning of the Private Securities
      Litigation Reform Act of 1995 (the “Act”). The Act limits our liability in any
      lawsuit based on forward-looking statements that we have made. All statements,
      other than statements of historical facts, included in this Quarterly Report
      that address activities, events or developments that we expect or anticipate
      will or may occur in the future, including such matters as our projections,
      future capital expenditures, business strategy, competitive strengths, goals,
      expansion, market and industry developments and the growth of our businesses
      and
      operations, are forward-looking statements. These statements can be identified
      by introductory words such as “expects,”  “plans,”  “intends,” 
“believes,”  “will,”  “estimates,”  “forecasts,”  “projects”
      or words of similar meaning, and by the fact that they do not relate strictly
      to
      historical or current facts. Our forward-looking statements address, among
      other
      things:




Ÿ
            our
                expectations concerning product candidates for our
                technologies;




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




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




Ÿ
            our
                expectations of when regulatory submissions may be filed or when
                regulatory approvals may be
                received.




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




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




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




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




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




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




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




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





24





**Corporate
      History**




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




In
      January 1998, we participated in a “reverse acquisition” with Green Mt. P. S.,
      Inc., a previously inactive Idaho corporation formed in 1983. As a result of
      this transaction, our shareholders (the former shareholders of Generex
      Pharmaceuticals) acquired a majority (approximately 90%) of the outstanding
      capital stock of Green Mt., we became a wholly-owned subsidiary of Green Mt.,
      Green Mt. changed its corporate name to Generex Biotechnology Corporation
      (“Generex Idaho”), and we changed our corporate name to GB Delaware, Inc.
      Because the reverse acquisition resulted in our shareholders becoming the
      majority holders of Generex Idaho, we were treated as the acquiring corporation
      in the transaction for accounting purposes. Thus, our historical financial
      statements, which essentially represented the historical financial statements
      of
      Generex Pharmaceuticals, were deemed to be the historical financial statements
      of Generex Idaho.




In
      April
      1999, we completed a reorganization in which we merged with Generex Idaho.
      In
      this transaction, all outstanding shares of Generex Idaho were converted into
      our shares, Generex Idaho ceased to exist as a separate entity, and we changed
      our corporate name back to “Generex Biotechnology Corporation.” This
      reorganization did not result in any material change in our historical financial
      statements or current financial reporting.




In
      August
      2003, we acquired Antigen Express, Inc. Antigen is engaged in the research
      and
      development of technologies and immunomedicines for the treatment of malignant,
      infectious, autoimmune and allergic diseases.




**Business
      History**




We
      are
      engaged primarily in the research and development of drug delivery technologies.
      Our primary focus at the present time is our proprietary technology for the
      administration of formulations of large molecule drugs to the oral (buccal)
      cavity using a hand-held aerosol applicator.




Our
      first
      product is an insulin formulation that is administered as a fine spray into
      the
      oral cavity using a hand-held aerosol spray applicator. Between January 1999
      and
      September 2000, we conducted limited clinical trials on this product in the
      United States, Canada and Europe. In September 2000, we entered into an
      agreement (the “Development and License Agreement”) to develop this product with
      Eli Lilly and Company (“Lilly”). To date, over 1,100 patients with diabetes have
      been dosed with our oral insulin product at approved facilities in seven
      countries. We conducted several clinical trials with insulin supplied by Lilly
      under our Development and License Agreement. Lilly did not, however, authorize
      or conduct any clinical trials or provide financial support for those trials.
      We
      did receive a $1,000,000 upfront payment from Lilly. On May 23, 2003, we
      announced that we had agreed with Lilly to end the Development and License
      Agreement for the development and commercialization of buccal delivery of
      insulin. On November 5, 2003, we entered into a termination agreement with
      Lilly
      terminating the Development and License Agreement, effective as of June 2,
      2003.
      In accordance with the termination agreement, we retained all of the
      intellectual property and commercialization rights with respect to buccal spray
      drug delivery technology, and we have the continuing right to develop and
      commercialize the product. We also entered into a Bulk Supply Agreement (the
      “Bulk Supply Agreement”) for the sale of human insulin crystals by Lilly to us
      over a three-year period.




In
      January 2001, we established a joint venture with Elan International Services,
      Ltd. (“EIS”), a wholly-owned subsidiary of Elan Corporation, plc (EIS and Elan
      Corporation, plc being collectively referred to as “Elan”), to pursue the
      application of certain of our and Elan's drug delivery technologies, including
      our platform technology for the buccal delivery of pharmaceutical products,
      for
      the treatment of prostate cancer, endometriosis and/or the suppression of
      testosterone and estrogen. In January 2002, we and Elan agreed to expand the
      joint venture to encompass the buccal delivery of morphine for the treatment
      of
      pain and agreed to pursue buccal morphine as the initial pharmaceutical product
      for development under Generex (Bermuda) Ltd., the entity through which the
      joint
      venture was being conducted. This expansion of the joint venture occurred after
      we successfully completed a proof of concept clinical study of morphine delivery
      using our proprietary buccal delivery technology.




25


In
      connection with the joint venture, EIS purchased 1,000 shares of our Series
      A
      Preferred Stock for $12,015,000, which EIS transferred, shortly thereafter,
      to
      Elan Pharmaceuticals Investment III, an affiliate of Elan (“EPIL III”). We
      applied the proceeds from the sale of the Series A Preferred Stock to subscribe
      for an 80.1% equity ownership interest in Generex (Bermuda), Ltd. EIS paid
      in
      capital of $2,985,000 to subscribe for a 19.9% equity ownership interest in
      the
      joint venture entity. In accordance with the terms of the Series A Preferred
      Stock, if any shares of Series A Preferred Stock were to be outstanding on
      January 16, 2007, we would have been required to redeem the shares of Series
      A
      Preferred Stock at a redemption price equal to the aggregate Series A Preferred
      Stock liquidation preference, either in cash, or in shares of common stock
      with
      a fair market value equal to the redemption price. Alternatively, the Series
      A
      Preferred Stock could have been converted, under certain conditions, into shares
      of our common stock. EIS also purchased 344,116 shares of our common stock
      for
      $5,000,000. We were permitted to use the proceeds of this sale for any corporate
      purpose.




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




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




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




26




In
      August
      2003, we acquired Antigen Express, Inc. Antigen is engaged in the research
      and
      development of technologies and immunomedicines for the treatment of malignant,
      infectious, autoimmune and allergic diseases.




Our
      immunomedicine products work by stimulating the immune system to either attack
      offending agents (i.e., cancer cells, bacteria, and viruses) or to stop
      attacking benign elements (i.e., self proteins and allergens). Our
      immunomedicine products are based on two platform technologies that were
      discovered by an executive officer of Antigen, the Ii-Key hybrid peptides and
      Ii-Suppression. The immunomedicine products are in the pre-clinical stage of
      development, and trials in human patients are not expected for at least six
      months. Development efforts are underway in melanoma, breast cancer, prostate
      cancer, HIV, influenza virus, smallpox, SARS and Type I diabetes mellitus.
      We
      are establishing collaborations with clinical investigators at academic centers
      to advance the technology, with the ultimate goal of conducting human clinical
      testing.




With
      the
      anticipated launch of commercial sales of our oral insulin product in Ecuador
      in
      2005, we expect to receive revenues from product sales in the fiscal year ending
      July 31, 2006. We do not expect this revenue to be sufficient for all of our
      cash needs during the year. In the past we were able to fund Antigen expenses
      with some revenue from research grants for Antigen's immunomedicine products.
      During the fiscal quarter ended October 31, 2005, we received a total of $43,750
      in such research grants, and we have received a total of $1,063,046 in such
      research grants. We do not expect to receive such grants on the going forward
      basis. We expect to satisfy the majority of our cash needs during the current
      year from capital raised through equity financings.




**Disclosure
      Regarding Research and Development Projects**




Our
      major
      research and development projects are the refinement of our basic buccal
      delivery technology, our buccal insulin project and our buccal morphine product.




Both
      our
      insulin product and our morphine product are in clinical trials. During the
      last
      fiscal year, we did not expend resources to further our buccal morphine product.
      In Canada, we are in the process of finalizing submission to Canadian HPB to
      start Phase III trials for our insulin. In order to obtain FDA and Canadian
      HPB
      approval for any of our product candidates, we will be required to complete
      “Phase III” trials which involve testing our product with a large number of
      patients over a significant period of time. The conduct of Phase III trials
      will
      require significantly greater funds than we either have on hand or have
      experience in raising in any year or two years' time. We will therefore need
      to
      receive funding from a corporate collaborator, or engage in fundraising on
      a
      scale with which we have no experience.




Our
      insulin product, Oral-lynTM, was approved for commercial sale by drug regulatory
      authorities in Ecuador in early May 2005. It is our intention that our South
      American joint venture partner, PharmaBrand S.A., will handle the commercial
      launch of Oral-lynTM in Ecuador, subject to obtaining financing needed for launch
      and a suitable production facility. We will require substantial amounts in
      additional funding to successfully launch Oral-lynTM on a commercial basis in
      Ecuador.




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




Most
      of
      our buccal delivery research and development activities to date have involved
      developing our platform technology for use with insulin and morphine.
      Insubstantial amounts have been expended on projects with other drugs, and
      those
      projects involved a substantial amount of platform technology development.
      Therefore, in the past, we have not made significant distinctions in the
      accounting for research and development expenses among products, as a
      significant portion of all research has involved improvements to the platform
      technology in connection with insulin, which may benefit all of our potential
      products. During the fiscal quarter ended October 31, 2005, approximately 64%
      of
      our $676,379 in research expenses was attributable to insulin and platform
      technology development, and did not spend any money on morphine and fentanyl
      projects. In the same period of fiscal 2004, approximately 90% of our $3,395,130
      of research and development was expended for insulin and platform technology,
      and approximately 1% for morphine and fentanyl.




27


Approximately
      36% or $246,358 of our research and development expenses for the fiscal quarter
      ended October 31, 2005 were related to Antigen's immunomedicine products
      compared to approximately 9% or $291,078 for the fiscal quarter ended October
      31, 2004. Because these products are in a very early, pre-clinical stage of
      development, all of the expenses were accounted for as basic research and no
      distinctions were made as to particular products. Because of the early stage
      of
      development, we cannot predict the timing of completion of any products arising
      from this technology, or when products from this technology might begin
      producing revenues.




Developments
      in Fiscal Quarter Ended October 31, 2005




On
      September 8, 2005, we and four accredited investors entered into a transaction
      related to (i) the Securities Purchase Agreement, dated November 10, 2004 (the
      “Securities Purchase Agreement”), and Registration Rights Agreement, dated
      November 10, 2004 (the “Registration Rights Agreement”), pursuant to which the
      four accredited investors purchased our 6% Secured Convertible Debentures (the
      “Debentures”) and related warrants for an aggregate purchase price of $4,000,000
      and (ii) Amendment No. 1 to the Securities Purchase Agreement and the
      Registration Rights Agreement, dated June 16, 2005 (“Amendment No. 1”), pursuant
      to which the four accredited investors agreed to exercise 50% of their
      Additional Investment Rights acquired in connection with the Securities Purchase
      Agreement in the aggregate amount of $2,000,000 (the “First AIR Exercise”) and
      received Debentures in the aggregate amount of $2,000,000 (the “AIR
      Debentures”), warrants to purchase an aggregate of 2,439,024 shares of our
      common stock at the exercise price of $0.82 per share (the “AIR Warrants”), and
      further Additional Investment Rights (the “Additional AIRs”). The Securities
      Purchase Agreement is discussed in, and filed as an exhibit to, our Current
      Report on Form 8-K, filed on November 12, 2004. Amendment No. 1 is discussed
      in,
      and filed as an exhibit to, our Current Report on Form 8-K filed on June 17,
      2005.




In
      the
      September 8, 2005 transaction, we and the four accredited investors entered
      into
      Amendment No. 2 to the Securities Purchase Agreement, as amended, and the
      Registration Rights Agreement, as amended (“Amendment No. 2”), pursuant to which
      the investors agreed to exercise an additional $2,000,000 in principal amount
      of
      their Additional Investment Rights (the “Second AIR Exercise”) acquired pursuant
      to the Securities Purchase Agreement. In connection with this investment:




Ÿ
            we
                  issued the investors Debentures in the aggregate amount of $2,000,000
                  (the
                  “Second
                  AIR Debentures”) and reduced the conversion price of the Second AIR
                  Debentures from $0.82 as originally agreed to $0.60; but such reduction
                  in
                  the conversion price of the Second AIR Debentures did not trigger
                  any
                  anti-dilution adjustments to the outstanding Debentures and related
                  warrants;




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




Ÿ
            we
                granted each investor a further Additional Investment Right (each
                a
                “Second Additional AIR” and collectively, the “Second Additional AIRs”),
                pursuant to which each investor will have the right to purchase detachable
                units consisting of (i) additional AIR Debentures in principal amount
                equal to the principal amount of Second AIR Debentures issuable to
                each
                investor upon the Second AIR Exercise with a conversion price of
                $0.82
                (the “Additional AIR Debentures”) and (ii) additional AIR Warrants
                entitling the holder thereof to purchase a number of shares of our
                common
                stock equal to 100% of the shares of common stock issuable upon the
                conversion in full at a $0.82 conversion price (subject to adjustment
                as
                set forth therein) (without regard to any restrictions on conversion
                therein contained) of the Additional AIR Debentures contemplated
                in clause
                (i) above, at an exercise price equal to the “AIR Warrant Exercise Price”
                (as such term is defined in the Second Additional AIRs), being $0.82
                (the
                “Additional AIR Warrants”).






28


Under
      the
      terms of Amendment No. 2, we agreed to register for resale the securities
      issuable upon conversion/exercise of the Additional AIR Debentures and the
      Additional AIR Warrants, as well as additional shares issuable upon conversion
      of the Second AIR Debentures due to the decrease in conversion price, consistent
      with the investors’ existing registration rights under the Registration Rights
      Agreement with the exception that we would have 45 days to file the registration
      statement rather than 30 days. On September 15, 2005, we filed a Registration
      Statement on Form S-3 (File No. 333-128328) in connection with this transaction.
      The Registration Statement became effective on November 3, 2005.




The
      Second AIR Debentures issued in connection with Amendment No. 2 are identical
      to
      the AIR Debentures issued in connection with Amendment No. 1. The terms of
      the
      Second AIR Debentures issued in connection with Amendment No. 2 are described
      below under the caption *Financial
      Condition, Liquidity and Resources* of this *Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations* .
      The
      occurrence of an Event of Default with respect to a Second AIR Debenture issued
      in connection with Amendment No. 2 will have the same effect as an Event Default
      with respect to an AIR Debenture issued in connection with Amendment No. 1
      and
      is discussed below under the caption *Financial
      Condition, Liquidity and Resources* of this *Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations* .




The
      Second AIR Warrants issued in connection with Amendment No. 2 are initially
      exercisable into an aggregate of 2,439,024 shares of our common stock, and
      the
      initial exercise price of each Second AIR Warrant is equal to $0.82. The
      conversion price of the Second AIR Debentures and the exercise price of the
      Second AIR Warrants are each subject to an anti-dilution adjustment upon the
      issuance by us of securities at a price per share less than the then conversion
      price or exercise price, as applicable.




Each
      investor may exercise its Second Additional AIR issued in connection with
      Amendment No. 2 at any time on or after the 181st day after closing and on
      or
      prior to the earlier of (i) the close of business on the one-year anniversary
      after the registration statement for the shares of common stock underlying
      the
      Second AIR Debentures and Second AIR Warrants has gone effective and (ii)
      September 8, 2007.




In
      addition, in connection with the transactions contemplated by Amendment No.
      2,
      we issued to a placement agent (i) 170,732 shares of our common stock in lieu
      of
      a cash fee equal to 7% of the gross proceeds received by us and (ii) warrants
      exercisable into approximately 60,000 shares of our common stock at the same
      exercise price as the Second AIR Warrants. We have registered these shares,
      along with the securities issuable upon conversion/exercise of the Additional
      AIR Debentures and the Additional AIR Warrants issued in connection with
      Amendment No. 2 and additional shares issuable upon conversion of the Second
      AIR
      Debentures due to the decrease in conversion price, for resale on a Registration
      Statement on Form S-3 (File No. 333-128328), which was filed with the Securities
      and Exchange Commission (the “SEC”) on September 15, 2005 and became effective
      on November 3, 2005.




In
      September and October 2005, we issued an aggregate of 5,013,855 shares of common
      stock resulting from the conversion of $3,090,374 of convertible debentures
      principal and interest.




On
      September 20, 2005, we did not pay the outstanding principal balances under
      the
      $500,000 convertible promissory note entered into with Cranshire Capital, L.P.
      (“Cranshire”) on March 28, 2005 and the $100,000 convertible promissory note
      entered into with Omicron Master Trust (“Omicron”) on April 6, 2005. On October
      19, 2005, Cranshire converted outstanding principal and accrued interest on
      its
      note ($528,082 in total) into 644,003 shares of our common stock. On October
      27,
      2005 Omicron converted outstanding principal and accrued interest on its note
      ($105,644 in total) into 128,834 shares of our common stock. The terms and
      conditions of the notes are described below under the caption *Financial
      Condition, Liquidity and Resources* of this *Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations* .




29




On
      October 1, 2005, we did not pay the first installment due under the Assistance
      Agreement, dated March 30, 2005 (the “Assistance Agreement”), which we entered
      into with Eckert Seamans Cherin & Mellott, LLC (“Eckert Seamans”) and
      pursuant to which we borrowed $325,179. We are currently in negotiations with
      Eckert Seamans and are seeking to extend the payment dates or to pay the
      outstanding balance with shares of our common stock. As of October 1, 2005,
      all
      amounts due thereunder became payable on demand, and interest began accruing
      at
      the rate of 8% per annum. The total arrearage to date under the Assistance
      Agreement, as well as the terms and conditions of the Assistance Agreement
      with
      Eckert Seamans, are described below under the caption *Financial
      Condition, Liquidity and Resources* of this *Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations* .
      The
      Assistance Agreement was filed as Exhibit 10 to our Current Report on Form
      8-K
      filed on April 1, 2005.




On
      October 20, 2005, in consideration for the exercise of certain outstanding
      warrants previously issued to each of Cranshire and Iroquois Capital L.P.
      (“Iroquois”) in connection with their purchase of the Debentures pursuant to the
      Securities Purchase Agreement, we issued a five-year warrant to purchase 300,000
      shares of our common stock at $1.20 per share to Cranshire and a five-year
      warrant to purchase 609,756 shares of our common stock at $1.20 per share to
      Iroquois. We received aggregate proceeds of $1,492,000 in connection with
      Cranshire’s partial exercise of its outstanding warrant to purchase 1,219,512
      shares of our common stock and Iroquois’ full exercise of its outstanding
      warrant to purchase 1,219,512 shares of our common stock. The rights of
      Cranshire and Iroquois under the warrants issued to them in connection with
      this
      transaction are described below under the caption *Financial
      Condition, Liquidity and Resources* of this *Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations* .




On
      October 26, 2005, we and the holders of the AIR Warrants issued pursuant to
      Amendment No. 1 amended the AIR Warrants (the “Warrant Amendments”), pursuant to
      which we agreed to accelerate the initial exercise date (defined as the 181st
      day following the date of issuance) in consideration of the exercise by each
      of
      the investors of not less than 100% of its AIR Warrant and the delivery to
      us of
      a Notice of Exercise in respect thereof on or before the close of business
      on
      October 27, 2005. Each of the investors timely delivered the aforementioned
      Notice of Exercise, satisfying the conditions specified in each of the Warrant
      Amendments, which are attached to this Quarterly Report as Exhibits 4.32, 4.33,
      4.34 and 4.35. We received aggregate proceeds of approximately $2,000,000 in
      connection with the investors’ exercise of the AIR Warrants. In consideration of
      each of the investor’s exercise of its AIR Warrant, we issued each investor a
      five-year warrant to purchase 304,878 shares of our common stock. The rights
      of
      the holders of these warrants are described below under the caption *Financial
      Condition, Liquidity and Resources* of this *Part
      I -*  *Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations* .




On
      October 27, 2005, in consideration for the exercise of certain outstanding
      warrants previously issued to the holders of the Debentures pursuant to the
      Securities Purchase Agreement, we issued to three of the Debenture holders
      five-year warrants to purchase an aggregate of 1,529,268 shares of our common
      stock at $1.25 per share. We received aggregate proceeds of approximately
      $2,508,000 in connection with the exercise of the holder’s outstanding warrants
      to purchase shares of our common stock. The rights of the holders of these
      warrants are described below under the caption *Financial
      Condition, Liquidity and Resources* of this *Part
      I -*  *Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations* .




On
      October 27, 2005, we and Omicron amended the Additional AIR granted to Omicron
      pursuant to Amendment No. 1 (the “AIR Amendment”) to accelerate the initial
      exercise date (defined as the 181st day following the date of issuance) in
      consideration of the exercise by Omicron of its Additional AIR and the delivery
      to us of a Notice of Exercise in respect thereof on or before the close of
      business on October 27, 2005. Omicron timely delivered its Notice of Exercise,
      satisfying the conditions specified in the AIR Amendment, which is attached
      to
      this Quarterly Report as Exhibit 4.36. In connection with Omicron’s exercise of
      the Additional AIR, we received aggregate proceeds of $500,000. Through its
      exercise of its Additional AIR, Omicron purchased a $500,000 principal amount
      AIR Debenture with a conversion price of $0.82 and AIR Warrants entitling
      Omicron to purchase a number of shares of the Company’s common stock equal to
      100% of the shares of common stock issuable upon the conversion in full at
      a
      $0.82 conversion price (subject to adjustment as set forth therein) (without
      regard to any restrictions on conversion therein contained) of the AIR Debenture
      at an exercise price equal to the “AIR Warrant Exercise Price” (as such term is
      defined in the Additional AIR). The terms, conversion/exercise features and
      acceleration provisions of the AIR Debenture and AIR Warrants received by
      Omicron are described below under the caption *Financial
      Condition, Liquidity and Resources* of this *Part
      I -*  *Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations* .
      In
      connection with this transaction, we issued to a placement agent warrants
      exercisable into approximately 15,000 shares of our common stock at the same
      exercise price as the AIR Warrants.




30


Developments
      Subsequent to Fiscal Quarter Ended October 31, 2005




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




On
      December 4, 2005, we and the four accredited investors party to Amendment No.
      2
      entered into Amendment No. 3 to Securities Purchase Agreement and Registration
      Rights Agreement (“Amendment No. 3”), pursuant to which (i) the all of the
      investors except Omicron agreed to exercise an aggregate of $1,500,000 in
      principal amount of the Additional AIRs granted to them in connection with
      the
      First AIR Exercise and (ii) all of the investors, including Omicron, agreed
      to
      exercise an aggregate of $2,000,000 in principal amount of the Second Additional
      AIRs granted to them in connection with the Second AIR Exercise.




In
      connection with Amendment No. 3, we and the investors, excluding Omicron,
      amended the Additional AIRs granted to such investors in connection with the
      First AIR Exercise (the “First AIR Amendment”) to accelerate the initial
      exercise date of the Additional AIRs (the 181st day following the date of
      issuance) in consideration of the exercise by such investors of their Additional
      AIRs and the delivery to us of a Notice of Exercise in respect thereof on or
      before the close of business on December 5, 2005. In addition, we and all four
      of the investors amended the Second Additional AIRs granted to the investors
      in
      connection with the Second AIR Exercise (the “Second AIR Amendment”) to
      accelerate the initial exercise date of the Second Additional AIRs (the 181st
      day following the date of issuance) in consideration of the exercise by the
      investors of their Second Additional AIRs and the delivery to us of a Notice
      of
      Exercise in respect thereof on or before the close of business on December
      5,
      2005.




Each
      investor timely delivered its Notice of Exercise, satisfying the conditions
      specified in the First AIR Amendments and/or Second AIR Amendments, as
      applicable. In connection with the exercise of each Additional AIR on December
      5, 2005, each investor purchased a $500,000 principal amount AIR Debenture
      with
      a conversion price of $0.82 (collectively, the “Third AIR Debentures”) and AIR
      Warrants entitling the investor to purchase a number of shares of our common
      stock equal to 100% of the shares of common stock issuable upon the conversion
      in full at a $0.82 conversion price (subject to adjustment as set forth therein)
      (without regard to any restrictions on conversion therein contained) of the
      Third AIR Debenture at an exercise price equal to the “AIR Warrant Exercise
      Price” (as such term is defined in the Additional AIR) (the “Third AIR
      Warrants”). Accordingly, we issued to the investors Third AIR Debentures in the
      aggregate principal amount of $3,500,000 and Third AIR Warrants to purchase
      an
      aggregate of 4,268,292 shares of our common stock, exercisable for five years
      commencing six months following the issuance thereof. We received proceeds
      of
      approximately $3,500,000 in connection with the investors’ exercise of their
      Additional AIRs pursuant to the First and Second AIR Amendments.




31


The
      terms
      of the Third AIR Debentures granted in connection with Amendment No. 3 are
      identical to those of the Second AIR Debentures. The terms of the Third AIR
      Debentures are described below under the caption *Financial
      Condition, Liquidity and Resources* of this *Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations* .




The
      Third
      AIR Warrants issued to the investors on December 5, 2005 are initially
      exercisable into an aggregate of 4,268,292 shares of our common stock, and
      the
      exercise price of each Third AIR Warrant is equal to $0.82. The conversion
      price
      of the Third AIR Debentures and the exercise price of the Third AIR Warrants
      are
      each subject to an anti-dilution adjustment upon the issuance by us of
      securities at a price per share less than the then conversion price or exercise
      price, as applicable.




In
      addition, in consideration of each investor’s exercise of its Additional AIR
      granted in connection with the First and Second AIR Exercises, including
      Omicron’s October 2005 exercise of its Additional AIR granted in connection with
      the First AIR Exercise, we granted to each investor a further Additional
      Investment Right (each a “Third Additional AIR” and collectively, the “Third
      Additional AIRs”), pursuant to which each investor will have the right to
      purchase detachable units consisting of (a) additional AIR Debentures in
      principal amount of $1,000,000 with a conversion price of $1.25 (the “Additional
      AIR Debentures”) and (b) additional AIR Warrants entitling the holder thereof to
      purchase a number of shares of the Company’s common stock equal to 100% of the
      shares of common stock issuable upon the conversion in full at a $1.25
      conversion price (subject to adjustment as set forth therein) (without regard
      to
      any restrictions on conversion therein contained) of the Additional AIR
      Debentures contemplated in clause (a) above, at an exercise price equal to
      $1.25
      (the “Additional AIR Warrants”).




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




Under
      the
      terms of Amendment No. 3, we also agreed to register for resale the securities
      issuable upon conversion/exercise of the Additional AIR Debentures and the
      Additional AIR Warrants, consistent with the investors’ existing registration
      rights under the Registration Rights Agreement




In
      addition, in connection with the transactions contemplated by Amendment No.
      3
      and Omicron’s October 2005 exercise of its Additional AIR granted in connection
      with the First AIR Exercise, we are required to pay to a placement agent (i)
      $280,000 in cash that represents 7% of the gross proceeds received by us (to
      be
      paid in 224,000 shares of the Company’s common stock) and (ii) warrants
      exercisable into 120,000 shares of common stock at the same exercise price
      as
      the Third AIR Warrants. These shares will also be registered for
      resale.




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




32





**Results
      of Operations**


**Three
      Months Ended October 31, 2005 Compared to Three Months Ended October 31,
      2004**




Our
      net
      loss for the quarter ended October 31, 2005 was $9,003,218 versus $6,658,028
      in
      the corresponding quarter of the prior fiscal year. The increase in net loss
      in
      this fiscal quarter versus the corresponding quarter of the prior fiscal year
      is
      primarily due to an increase in interest expense incurred in connection with
      convertible debentures. Our operating loss for the quarter decreased to
      $2,107,485 compared to $6,674,618 in the first fiscal quarter of 2005. The
      decrease is a result of the lower research and development expenses ($676,379
      versus $3,395,130 last year) and a decrease in our general and administrative
      expenses (to $1,474,856 from $3,422,238) and lower revenue received this quarter
      ($43,750) versus the same quarter of last year ($142,750).




The
      decrease in general and administrative expenses for the first fiscal quarter
      of
      2006 is primarily attributable to the non-cash expense incurred last year
      associated with the issuance of common stock for financial services and
      additional litigation accrual that were absent this year. A reduction in the
      activities of Antigen, lower legal, financial and consulting and travel expenses
      also contributed to a decrease in general and administrative expenses, despite
      a
      slight increase in audit and accounting expenses in this quarter, compared
      to
      the same quarter last year.




The
      substantial decrease in research and development expenses for the fiscal quarter
      ending October 31, 2005 reflects decreased level of research and development
      activities on the development of our buccal delivery technology and Antigen
      research and development activities. Expenses in the first fiscal quarter of
      2005 also reflected bulk insulin purchases that were absent this
      quarter.




Our
      interest expense in the first fiscal quarter of 2006 increased to $6,739,575
      compared to interest expense of $45,914 in the first fiscal quarter of 2005
      due
      to interest paid in connection with convertible debentures entered during last
      fiscal year and current quarter and interest expense associated with the value
      of warrants issued to convertible debenture holders as an incentive to exercise
      their existing warrants. Our interest and income from rental operations
      decreased to $6,190 in the first fiscal quarter of 2006 compared to $62,504
      in
      the same quarter last year due to the reallocation of certain properties to
      rental operations and higher mortgages on properties held for investments.
      In
      addition, this fiscal quarter we incurred $162,348 in losses on extinguishment
      of debt in connection with the repayment monthly amortization payments due
      on
      convertible debentures which amount represents the difference between quoted
      market price of our stock and 10%
      discount to the average of the 20-day VWAP that was used to determine the number
      of shares issued .




**Financial
      Condition, Liquidity and Resources**




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




During
      the fiscal quarter ended October 31, 2005, we engaged in several capital-raising
      transactions with certain of our stockholders as described below and above
      under
      the caption *Developments
      in Fiscal Quarter Ended October 31, 2005* in this *Part
      I -*  *Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations* .
      At
      October 31, 2005, we had cash and short-term investments of approximately
      $7,880,081, an increase of $7,293,551 from the balance as of the end of the
      prior fiscal year. The increase is attributable to the proceeds received in
      connection with warrants exercises during the first quarter of 2006. At October
      31, 2005, we believed that our anticipated cash position was sufficient to
      meet
      our working capital needs for the next 12 months based on the pace of our
      planned activities. Beyond that, we will likely require additional funds to
      support our working capital requirements or for other purposes. From time to
      time as deemed appropriate by management, we may seek to raise funds through
      private or public equity financing or from other sources. If we are unable
      to
      raise additional capital as needed, we could be required to “scale back” or
      otherwise revise our business plan. Any significant scale back of operations
      or
      modification of our business plan due to a lack of funding could be expected
      to
      affect our prospects materially and adversely.




33




At
      October 31, 2005, we had 6% Secured Convertible Debentures (the “Debentures”)
      outstanding in the aggregate principal amount of $1,455,861 which were issued
      in
      connection with Securities Purchase Agreement, Amendment No. 1, Amendment No.
      2
      and exercise of an Additional Investment Right received in connection with
      Amendment No. 1. At such date, we had issued an aggregate of 10,424,299 shares
      of common stock resulting from the conversion of an aggregate of $7,121,065
      of
      Debenture principal and approximately $164,207 of accrued interest.




At
      October 31, 2005, we had Additional Investment Rights granted in connection
      with
      Amendment No. 1 and Amendment No. 2 outstanding pursuant to which the holders
      of
      the Debentures have the right to purchase Debentures in the aggregate principal
      amount of $3,500,000 and related warrants to purchase an aggregate of 4,268,292
      shares of our common stock.




At
      October 31, 2005, we had outstanding warrants issued to the holders of the
      Debentures issued in connection with Amendment No. 2 to purchase an aggregate
      of
      3,048,780 shares of our common stock at the initial exercise price of $0.82
      per
      share. At such date, we also had outstanding warrants to purchase an aggregate
      of 3,658,536 shares of our common stock at various exercise prices that were
      issued in connection with the exercise of warrants and/or Additional Investment
      Rights granted in connection with the Securities Purchase Agreement, Amendment
      No. 1 and Amendment No. 2 as described below.




*Securities
      Purchase Agreement*




We
      entered into the Securities Purchase Agreement on November 10, 2004 and closed
      the transaction on November 12, 2004. Pursuant to the Securities Purchase
      Agreement, we issued Debentures and related warrants for an aggregate purchase
      price of $4,000,000. The Debentures have a term of fifteen months and amortize
      over thirteen months in thirteen equal monthly installments beginning on
      February 1, 2005. Interest on the principal amount outstanding will accrue
      at a
      rate of six percent per annum. We may pay principal and accrued interest in
      cash
      or, at our option, in shares of common stock. If we elect to pay principal
      and
      interest in shares of our common stock, the value of each share of common stock
      will be equal to the lesser of (i) the conversion price ($0.82) and (ii) ninety
      percent (90%) of the average of the twenty (20) trading day volume weighted
      average price for the common stock for the twenty (20) trading day period
      immediately preceding the date of payment. At the option of the holder of each
      Debenture, the principal amount outstanding under each Debenture is initially
      convertible at any time after the closing of the private placement into shares
      of our common stock at a conversion price of $0.82. The conversion price of
      each
      Debenture is based on the average of the ten trading day volume weighted average
      price for the common stock for the ten trading day period immediately preceding
      the date definitive agreements for purchase of the Debentures were signed.
      The
      warrants issued in connection with the Securities Purchase Agreement were
      initially exercisable into the same number of shares of the common stock
      initially issuable upon conversion of the Debentures. The initial exercise
      price
      of each warrant was equal to 110% of the conversion price of the Debentures,
      or
      $0.91. The conversion price of the Debentures and the exercise price of the
      warrants are each subject to an anti-dilution adjustment upon the issuance
      by us
      of securities at a price per share less than the then conversion price or
      exercise price, as applicable. The warrants
      issued in connection with the Securities Purchase Agreement were exercised
      in
      late October 2005 as described below under the caption *Exercise
      of Outstanding Warrants Issued Pursuant to Securities Purchase
      Agreement* at $0.82
      per share.




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




34




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




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




*AIR
      Exercise Pursuant to Amendment No. 1*




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




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




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




Ÿ
            further
                Additional Investment Rights (“Additional AIRs”), pursuant to which each
                investor will have the right to purchase detachable units consisting
                of
                (i) additional AIR Debentures in principal amount equal to the principal
                amount of AIR Debentures issuable to each investor upon the AIR Exercise
                with a conversion price of $0.82 (the “Additional AIR Debentures”) and
                (ii) additional AIR Warrants entitling the holder thereof to purchase
                a
                number of shares of our common stock equal to 100% of the shares
                of common
                stock issuable upon the conversion in full at a $0.82 conversion
                price
                (subject to adjustment as set forth therein) (without regard to any
                restrictions on conversion therein contained) of the AIR Debentures
                contemplated in clause (i) above, at an exercise price equal to the
“AIR
                Warrant Exercise Price” (as such term is defined in the Additional
                Investment Rights (the “Additional AIR
                Warrants”).




The
      AIR
      Debentures have a term of fifteen months and amortize over thirteen months
      in
      thirteen equal monthly installments beginning on the first day of the third
      month following their issuance. Interest on the principal amount outstanding
      will accrue at a rate of 6% per annum. We may pay principal and accrued interest
      in cash or, at our option, in shares of common stock. If we elect to pay
      principal and interest in shares of our common stock, the value of each share
      of
      common stock will be equal to the lesser of (i) the conversion price ($0.60)
      and
      (ii) ninety percent (90%) of the average of the twenty trading day volume
      weighted average price for the common stock for the twenty trading day period
      immediately preceding the date of payment. At the option of the holder of each
      AIR Debenture, the principal amount outstanding under each AIR Debenture will
      be
      initially convertible at any time after the closing of Amendment No. 1 into
      shares of our common stock at a conversion price of $0.60.




35




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




The
      AIR
      Warrants are initially exercisable into an aggregate of 2,439,024 shares of
      our
      common stock, and the initial exercise price of each AIR Warrant is equal to
      $0.82. The conversion price of the AIR Debentures and the exercise price of
      the
      AIR Warrants are subject to an anti-dilution adjustment upon the issuance by
      us
      of securities at a price per share less than the then conversion price or
      exercise price, as applicable. The AIR Warrants were amended and exercised
      in
      late October 2005 as described below under the caption *Exercise
      of Outstanding AIR Warrants* .




Each
      investor may exercise its Additional AIR at any time after the 181st day after
      closing and on or prior to the earlier of (i) the close of business on the
      one-year anniversary after the registration statement for the shares of common
      stock underlying the AIR Debentures and AIR Warrants has gone effective and
      (ii)
      June 17, 2007. As described below under the caption *Omicron’s
      Exercise of Additional AIR* ,
      we and
      one of the investors, Omicron, agreed to amend the terms of Omicron’s Additional
      AIR permitting Omicron to exercise its Additional AIR in late October
      2005.




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




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




*Second
      AIR Exercise Pursuant to Amendment No. 2*




On
      September 8, 2005, we and the investors party to the Securities Purchase
      Agreement and Amendment No. 1 entered into Amendment No. 2, pursuant to which
      the investors agreed to exercise an additional $2,000,000 in principal amount
      of
      their Additional Investment Rights acquired pursuant to the Securities Purchase
      Agreement. In connection with the Second AIR Exercise, we issued the investors:




36




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




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




Ÿ
            the
                Second Additional AIRs, pursuant to which each investor will have
                the
                right to purchase detachable units consisting of (i) Additional AIR
                Debentures in principal amount equal to the principal amount of Second
                AIR
                Debentures issuable to each investor upon the Second AIR Exercise
                with a
                conversion price of $0.82 and (ii) Additional AIR Warrants entitling
                the
                holder thereof to purchase a number of shares of our common stock
                equal to
                100% of the shares of common stock issuable upon the conversion in
                full at
                a $0.82 conversion price (subject to adjustment as set forth therein)
                (without regard to any restrictions on conversion therein contained)
                of
                the Additional AIR Debentures contemplated in clause (i) above, at
                an
                exercise price equal to the “AIR Warrant Exercise Price” (as such term is
                defined in the Second Additional AIRs), being $0.82
                .




The
      Second AIR Debentures have a term of fifteen months and amortize over thirteen
      months in thirteen equal monthly installments beginning on the first day of
      the
      third month following their issuance. Interest on the principal amount
      outstanding will accrue at a rate of 6% per annum. We may pay principal and
      accrued interest in cash or, at our option, in shares of common stock. If we
      elect to pay principal and interest in shares of our common stock, the value
      of
      each share of common stock will be equal to the lesser of (i) the conversion
      price ($0.60) and (ii) ninety percent (90%) of the average of the twenty trading
      day volume weighted average price for the common stock for the twenty trading
      day period immediately preceding the date of payment. At the option of the
      holder of each Second AIR Debenture, the principal amount outstanding under
      each
      Second AIR Debenture will be initially convertible at any time after the closing
      of Amendment No. 2 into shares of our common stock at a conversion price of
      $0.60.




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




The
      Second AIR Warrants issued in connection with Amendment No. 2 are initially
      exercisable into an aggregate of 2,439,024 shares of our common stock, and
      the
      initial exercise price of each Second AIR Warrant is equal to $0.82. The
      conversion price of the Second AIR Debentures and the exercise price of the
      Second AIR Warrants are each subject to an anti-dilution adjustment upon the
      issuance by us of securities at a price per share less than the then conversion
      price or exercise price, as applicable.




37


Each
      investor may exercise its Second Additional AIR issued in connection with
      Amendment No. 2 at any time on or after the 181st day after closing and on
      or
      prior to the earlier of (i) the close of business on the one-year anniversary
      after the registration statement for the shares of common stock underlying
      the
      Second AIR Debentures and Second AIR Warrants has gone effective and (ii)
      September 8, 2007.




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




*Cranshire
      and Omicron Notes and Related Warrants*




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




On
      April
      28, 2005, as additional consideration for the loans from Cranshire and Omicron,
      we issued Cranshire a warrant to purchase an aggregate of 1,219,512 shares
      of
      our common stock and issued Omicron a warrant to purchase an aggregate of
      243,902 shares of our common stock, both of which will expire on April 27,
      2010.
      At the holders’ option, the outstanding principal balance under the Notes,
      together with any accrued but unpaid interest thereon, and the April 28, 2005
      warrants are convertible or exercisable into shares of common stock at the
      conversion/exercise price of $0.82 per share. Cranshire and Omicron agreed
      that
      they would neither convert the Notes nor exercise the April 28, 2005 warrants
      if
      such conversion or exercise would cause Cranshire and Omicron, together with
      their respective affiliates, to beneficially own more than 9.99% of the shares
      of common stock then outstanding.




Cranshire's
      and Omicron’s right to convert the Notes was subject to certain participation
      rights of Iroquois and Smithfield Fiduciary, LLC (“Smithfield”), which, together
      with Cranshire and Omicron, are the holders of the Debentures issued pursuant
      to
      the Securities Purchase Agreement. The participation rights granted to the
      holders of the Debentures under the Securities Purchase Agreement provide that,
      upon any financing by us or any of our subsidiaries of common stock or debt
      or
      securities convertible or exercisable into common stock, each such holder will
      have the right to purchase up to 100% of such financing. To our knowledge,
      none
      of the other holders of Debentures elected to exercise their participation
      rights with respect to the Notes.




We
      did
      not pay the outstanding principal balances originally due on May 15, 2005 under
      the Notes. Interest on the outstanding principal balances under the Notes began
      accruing before the maturity date at the rate of 10% per annum. On June 7,
      2005,
      Cranshire and Omicron agreed to extend the interest payment date and the
      maturity date of each of the Notes from May 15, 2005 to July 22, 2005. In
      consideration for the foregoing extension, we contemporaneously issued Cranshire
      a warrant to purchase an aggregate of 1,219,512 shares of our common stock
      and
      issued Omicron a warrant to purchase an aggregate of 243,902 shares of our
      common stock, both of which will expire on June 7, 2010. At the holder’s option,
      each of the June 7, 2005 warrants will be exercisable into shares of our common
      stock at the exercise price of $0.82 per share. Each of Cranshire and Omicron
      has agreed that it will not exercise its June 7, 2005 warrant if such exercise
      would cause it, together with its affiliates, to beneficially own more than
      9.99% of the shares of our common stock then outstanding.




38




On
      July
      22, 2005, Cranshire and Omicron agreed to extend the interest payment date
      and
      the maturity date under the Notes from July 22, 2005 to September 20, 2005.
      As
      consideration for the extensions from Cranshire and Omicron, we
      contemporaneously issued on a warrant to Cranshire to purchase an aggregate
      of
      1,219,512 shares of our common stock and a warrant to Omicron to purchase an
      aggregate of 243,902 shares of our common stock, both of which will expire
      on
      July 22, 2010. At the holder’s option, each of the July 22, 2005 warrants will
      be exercisable into shares of our common stock at the exercise price of $0.82
      per share. Each of Cranshire and Omicron has agreed that it will not exercise
      its July 22, 2005 warrant if such exercise would cause it, together with its
      affiliates, to beneficially own more than 9.99% of the shares of our common
      stock then outstanding.




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




In
      October and November 2005, Cranshire exercised the outstanding warrants
      previously issued to it in connection with its Note. We received aggregate
      proceeds of approximately $3,000,000 in connection with Cranshire’s exercise of
      its outstanding warrants to purchase shares of our common stock. On December
      9,
      2005, in consideration of such exercise, we issued to Cranshire a five-year
      warrant to purchase an aggregate of 1,829,268 shares of our common stock at
      $1.25 per share. At Cranshire’s option, this warrant is exercisable into shares
      of common stock at the exercise price of $1.25 per share. The exercise price
      is
      subject to an anti-dilution adjustment upon the issuance by us of securities
      at
      a price per share less than the then exercise price. If, at any time after
      the
      first anniversary of the date of issuance of this warrant, there is no effective
      registration statement registering for resale the shares of common stock into
      which the warrant is exercisable, Cranshire may exercise its warrant through
      a
      cashless exercise. The number of shares to be issued upon a cashless exercise
      will be equal to the quotient resulting from the following calculation: [(the
      VWAP on the trading day immediately preceding the date of such election less
      the
      exercise price, as adjusted) multiplied by the number of shares issuable upon
      exercise of the warrant by means of a cash exercise] divided by the VWAP on
      the
      trading day immediately preceding the date of such election. Cranshire has
      agreed that it will not exercise its warrant if such exercise would cause the
      holder, together with its respective affiliates, to beneficially own more than
      4.99% of our shares of common stock then outstanding.




*Assistance
      Agreement with Eckert Seamans*




On
      March
      30, 2005, we entered into an Assistance Agreement with Eckert Seamans, pursuant
      to which Eckert Seamans advanced us funds in the amount of $325,179 for the
      sole
      purpose of making the interest payment and the monthly redemption payment due
      on
      March 31, 2005 and April 1, 2005, respectively, under the Debentures. Under
      the
      terms of the Assistance Agreement, we agreed to repay such advance without
      interest in three equal installments due on October 1, 2005, November 1, 2005
      and December 1, 2005. On October 1, 2005, we did not pay the first installment
      of $108,393 due under the Assistance Agreement. As of such date, all amounts
      owed to Eckert Seamans became payable on demand, and interest on such unpaid
      amounts began accruing at the rate of 8% per annum. Attached financial
      statements reflect interest accrual on this advance as of October 31, 2005.
      We
      are currently in negotiations with Eckert Seamans and are seeking to extend
      the
      payment dates or to pay the outstanding balance with shares of our common stock.
      The total arrearage to date under the Assistance Agreement is approximately
      $15,324.




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




On
      October 20, 2005, in consideration for the exercise of certain outstanding
      warrants previously issued to each of Cranshire and Iroquois in connection
      with
      their purchase of our Debentures pursuant to the Securities Purchase Agreement,
      we issued a five-year warrant to purchase 300,000 shares of our common stock
      to
      Cranshire and a five-year warrant to purchase 609,756 shares of our common
      stock
      to Iroquois. We received aggregate proceeds of $1,492,000 in connection with
      Cranshire’s partial exercise of its outstanding warrant to purchase 1,219,512
      shares of our common stock and Iroquois’ full exercise of its outstanding
      warrant to purchase 1,219,512 shares of our common stock. At the holder’s
      option, each of the warrants granted to Cranshire and Iroquois in connection
      with this transaction is exercisable into shares of common stock at the exercise
      price of $1.20 per share. The exercise price is subject to an anti-dilution
      adjustment upon the issuance by us of securities at a price per share less
      than
      the then exercise price. If, at any time after the first anniversary of the
      date
      of issuance of these warrants, there is no effective registration statement
      registering for resale the shares of common stock into which the warrants are
      exercisable, each holder may exercise its warrant through a cashless exercise.
      The number of shares to be issued upon a cashless exercise will be equal to
      the
      quotient resulting from the following calculation: [(the VWAP on the trading
      day
      immediately preceding the date of such election less the exercise price, as
      adjusted) multiplied by the number of shares issuable upon exercise of the
      warrant by means of a cash exercise] divided by the VWAP on the trading day
      immediately preceding the date of such election. Each of Cranshire and Iroquois
      has agreed that it will not exercise the warrant issued to in connection with
      this transaction if such exercise would cause it, together with its respective
      affiliates, to beneficially own more than 4.99% of our shares of common stock
      then outstanding.




39




On
      October 27, 2005, in consideration for the exercise of certain outstanding
      warrants previously issued pursuant to the Securities Purchase Agreement, we
      issued to Cranshire, Omicron and Smithfield five-year warrants to purchase
      an
      aggregate of 1,529,268 shares of our common stock at $1.25 per share. We
      received aggregate proceeds of approximately $2,508,000 in connection with
      their
      exercise of outstanding warrants to purchase shares of our common stock. At
      the
      holder’s option, each warrant issued in connection with this transaction is
      exercisable into shares of common stock at the exercise price of $1.25 per
      share. The exercise price is subject to an anti-dilution adjustment upon the
      issuance by us of securities at a price per share less than the then exercise
      price. If, at any time after the first anniversary of the date of issuance
      of
      these warrants, there is no effective registration statement registering for
      resale the shares of common stock into which the warrants are exercisable,
      each
      holder may exercise its warrant through a cashless exercise. The number of
      shares to be issued upon a cashless exercise will be equal to the quotient
      resulting from the following calculation: [(the VWAP on the trading day
      immediately preceding the date of such election less the exercise price, as
      adjusted) multiplied by the number of shares issuable upon exercise of the
      warrant by means of a cash exercise] divided by the VWAP on the trading day
      immediately preceding the date of such election. Each holder has agreed that
      it
      will not exercise its warrant if such exercise would cause the holder, together
      with its respective affiliates, to beneficially own more than 4.99% of our
      shares of common stock then outstanding.




*Exercise
      of Outstanding AIR Warrants*




On
      October 26, 2005, we and the holders of the AIR Warrants issued pursuant to
      Amendment No. 1 amended the AIR Warrants, pursuant to which we agreed to
      accelerate the initial exercise date (the 181st day following the date of
      issuance) in consideration of the exercise by each of the investors of not
      less
      than 100% of its Air Warrant and the delivery to us of a Notice of Exercise
      in
      respect thereof on or before the close of business on October 27, 2005. Each
      of
      the investors timely delivered the aforementioned Notice of Exercise, satisfying
      the conditions specified in each of the Warrant Amendments. We received
      aggregate proceeds of approximately $2,000,000 in connection with the investors’
      exercise of the AIR Warrants. In consideration of the investors’ exercise of
      their AIR Warrants, we issued the investors five-year warrants. Each such
      warrant permits the holder to purchase 304,878 shares of our common stock.
      At
      the holder’s option, each warrant is exercisable into shares of common stock at
      the exercise price of $1.25 per share. The exercise price is subject to an
      anti-dilution adjustment upon the issuance by us of securities at a price per
      share less than the then exercise price. If, at any time after the first
      anniversary of the date of issuance of the warrants, there is no effective
      registration statement registering for resale the shares of common stock into
      which the warrants are exercisable, each holder may exercise its warrant through
      a cashless exercise. The number of shares to be issued upon a cashless exercise
      will be equal to the quotient resulting from the following calculation: [(the
      VWAP on the trading day immediately preceding the date of such election less
      the
      exercise price, as adjusted) multiplied by the number of shares issuable upon
      exercise of the warrant by means of a cash exercise] divided by the VWAP on
      the
      trading day immediately preceding the date of such election. Each holder has
      agreed that it will not exercise its warrant if such exercise would cause the
      holder, together with its respective affiliates, to beneficially own more than
      4.99% of our common stock then outstanding. The form of the warrants issued
      in
      connection with this transaction is attached to this Quarterly Report as Exhibit
      4.31.




40


*Omicron’s
      Exercise of Additional AIR*




On
      October 27, 2005, we and Omicron amended the Additional AIR granted to Omicron
      pursuant to Amendment No. 1 to accelerate the initial exercise date (defined
      as
      the 181st day following the date of issuance) in consideration of the exercise
      by Omicron of its Additional AIR and the delivery to us of a Notice of Exercise
      in respect thereof on or before the close of business on October 27, 2005.
      Omicron timely delivered its Notice of Exercise, satisfying the conditions
      specified in the AIR Amendment. In connection with Omicron’s exercise of the
      Additional AIR, we received aggregate proceeds of $500,000. Through its exercise
      of its Additional AIR, Omicron purchased (i) a $500,000 principal amount
      Additional AIR Debenture with a conversion price of $0.82 and (ii) Additional
      AIR Warrants entitling Omicron to purchase a number of shares of our common
      stock equal to 100% of the shares of common stock issuable upon the conversion
      in full at a $0.82 conversion price (subject to adjustment as set forth therein)
      (without regard to any restrictions on conversion therein contained) of the
      Additional AIR Debenture at an exercise price equal to the “AIR Warrant Exercise
      Price” (as such term is defined in the Additional AIR). The Additional AIR
      Debenture issued to Omicron is identical to the Second AIR Debentures issued
      in
      connection with Amendment No. 2, except that the principal amount outstanding
      under the Additional AIR Debenture, at the option of the holder, is initially
      convertible into shares of our common stock at a conversion price of $0.82
      per
      share. The terms of the Second AIR Debentures issued in connection with
      Amendment No. 2 are described above in under this caption *Financial
      Condition, Liquidity and Resources* .
      The
      occurrence of an Event of Default with respect to the Additional AIR Debenture
      issued to Omicron will have the same effect as an Event Default with respect
      to
      a Second AIR Debenture issued in connection with Amendment No. 2, which is
      discussed above under this caption *Financial
      Condition, Liquidity and Resources* .
      The
      Additional AIR Warrants received by Omicron are initially exercisable as of
      April 26, 2006 into an aggregate of 609,756 shares of our common stock, and
      the
      initial exercise price is equal to $0.82 per share. The conversion price of
      the
      Additional AIR Debenture and the exercise price of the Additional AIR Warrants
      are each subject to an anti-dilution adjustment upon the issuance by us of
      securities at a price per share less than the then conversion price or exercise
      price, as applicable. The Additional AIR Debenture and the Additional AIR
      Warrants issued to Omicron are attached to this Quarterly Report as Exhibits
      4.37 and 4.38, respectively.




*Third
      AIR Exercise Pursuant to Amendment No. 3*




On
      December 4, 2005, we and the four accredited investors party to Amendment No.
      2
      entered into Amendment No. 3, pursuant to which (i) the all of the investors
      except Omicron agreed to exercise an aggregate of $1,500,000 in principal amount
      of the Additional AIRs granted to them in connection with the First AIR Exercise
      and (ii) all of the investors, including Omicron, agreed to exercise an
      aggregate of $2,000,000 in principal amount of the Second Additional AIRs
      granted to them in connection with the Second AIR Exercise.




In
      connection with Amendment No. 3, we and the investors, excluding Omicron,
      entered into the First AIR Amendments to accelerate the initial exercise date
      of
      the Additional AIRs (the 181st day following the date of issuance) in
      consideration of the exercise by such investors of their Additional AIRs and
      the
      delivery to us of a Notice of Exercise in respect thereof on or before the
      close
      of business on December 5, 2005. In addition, we and all four of the investors
      entered into the Second AIR Amendments to accelerate the initial exercise date
      of the Second Additional AIRs (the 181st day following the date of issuance)
      in
      consideration of the exercise by the investors of their Second Additional AIRs
      and the delivery to us of a Notice of Exercise in respect thereof on or before
      the close of business on December 5, 2005.




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




41




The
      Third
      AIR Debentures have a term of fifteen months and amortize over thirteen months
      in thirteen equal monthly installments beginning on the first day of the third
      month following their issuance. Interest on the principal amount outstanding
      will accrue at a rate of 6% per annum. We may pay principal and accrued interest
      in cash or, at our option, in shares of common stock. If we elect to pay
      principal and interest in shares of our common stock, the value of each share
      of
      common stock will be equal to the lesser of (i) $0.82 and (ii) ninety percent
      (90%) of the average of the daily volume weighted average price for the common
      stock over the twenty trading day period immediately preceding the date of
      payment. At the option of the holder of each Third AIR Debenture, the principal
      amount outstanding under each Third AIR Debenture is initially convertible
      at
      any time after the closing of the Amendment No. 3 into shares of our common
      stock at a conversion price of $0.82.




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




The
      Third
      AIR Warrants issued to the investors on December 5, 2005 are initially
      exercisable into an aggregate of 4,268,292 shares of our common stock, and
      the
      exercise price of each Third AIR Warrant is equal to $0.82. The conversion
      price
      of the Third AIR Debentures and the exercise price of the Third AIR Warrants
      are
      each subject to an anti-dilution adjustment upon the issuance by us of
      securities at a price per share less than the then conversion price or exercise
      price, as applicable.




In
      addition, in consideration of each investor’s exercise of its Additional AIR
      granted in connection with the First and Second AIR Exercises, including
      Omicron’s October 2005 exercise of its Additional AIR granted in connection with
      the First AIR Exercise, we granted to each investor a Third Additional AIR,
      pursuant to which each investor will have the right to purchase detachable
      units
      consisting of (a) Additional AIR Debentures in principal amount of $1,000,000
      with a conversion price of $1.25 and (b) Additional AIR Warrants entitling
      the
      holder thereof to purchase a number of shares of our common stock equal to
      100%
      of the shares of common stock issuable upon the conversion in full at a $1.25
      conversion price (subject to adjustment as set forth therein) (without regard
      to
      any restrictions on conversion therein contained) of the Additional AIR
      Debentures contemplated in clause (a) above, at an exercise price equal to
      $1.25.




42


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




In
      addition, in connection with the transactions contemplated by Amendment No.
      3
      and Omicron’s October 2005 exercise of its Additional AIR granted in connection
      with the First AIR Exercise, we are required to pay to a placement agent (i)
      $280,000 in cash that represents 7% of the gross proceeds received by us (to
      be
      paid in 224,000 shares of the Company’s common stock) and (ii) warrants
      exercisable into 120,000 shares of common stock at the same exercise price
      as
      the Third AIR Warrants. These shares will also be registered for
      resale.




In
      the
      past, we have funded most of our development and other costs with equity
      financing. While we have been able to raise equity capital as required,
      unforeseen problems with our clinical program or materially negative
      developments in general economic conditions could interfere with our ability
      to
      raise additional equity capital as needed, or materially adversely affect the
      terms upon which such capital is available.




**Going
      Concern Uncertainty**




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




The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the satisfaction of liabilities
      and commitments in the normal course of business. We have experienced negative
      cash flows from operations since inception and had an accumulated deficit at
      October 31, 2005 of approximately $127,236,269. We have funded our activities
      to
      date almost exclusively from debt and equity financings.




We
      are in
      the development stage and have realized minimal revenues to date. We will
      continue to require substantial funds to continue research and development,
      including preclinical studies and clinical trials of 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 our operating cash
      flow requirements include financing activities such as private placement of
      our
      common stock, preferred stock offerings, debt and convertible debt instruments.
      Management is also actively pursuing industry collaboration activities,
      including product licensing and specific project financing.




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




**Critical
      Accounting Policies**




Our
      discussion and analysis of our financial condition and results of operations
      is
      based on our consolidated financial statements which have been prepared in
      conformity with accounting principles generally accepted in the United States
      of
      America. It requires management to make estimates and assumptions that affect
      the reported amounts of assets and liabilities and disclosure of contingent
      assets and liabilities at the date of the financial statements and the reported
      amounts of revenues and expenses during the reporting period. Actual results
      could differ from those estimates.




43




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




Impairment
      of Long-Lived Assets .
      Management reviews for impairment whenever events or changes in circumstances
      indicate that the carrying amount of property and equipment may not be
      recoverable under the provisions of Statement of Financial Accounting Standards
      No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
      If it
      is determined that an impairment loss has occurred based upon expected future
      cash flows, the loss is recognized in the Statement of Operations.




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




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




**Off-Balance
      Sheet Arrangements**




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




**Contractual
      Obligations**




**Payments
                Due by Period****Contractual
                Obligations**
            **Total**
            **Less
                than 1 year**
            **1-3
                years**
            **3-5
                years**
            **More
                than**
              **5
                years**Long-Term
                Debt Obligations
            5,318,156
            4,132,900
            1,185,256
            0
            0Capital
                Lease Obligations
            0
            0
            0
            0
            0Operating
                Lease Obligations
            70,802
            31,650
            30,202
            8,950
            0Purchase
                Obligations
            0
            0
            0
            0
            0Other
                Long-Term Liabilities Reflected on the Registrant's Balance Sheet
                under
                GAAP
            0
            0
            0
            0
            0Total
            $5,388,958
            $4,164,550
            $1,215,458
            $8,950
            $0





**Related
      Party Transactions**




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.




44





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




We
      utilize a management company to manage all of our real properties. The property
      management company is owned by Anna Gluskin, Rose Perri, our Chief Operating
      Officer, Chief Financial Officer, Treasurer and Secretary, and the estate of
      Mark Perri, our former Chairman of the Board. In the fiscal quarters ended
      October 31, 2005 and 2004, we paid the management company approximately $8,600
      and $10,702, respectively, in management fees.




**New
      Accounting Pronouncements**




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




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




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




45




**Risk
      Factors**




In
      addition to historical facts or statements of current condition, this Quarterly
      Report on Form 10-Q contains forward-looking statements. Forward-looking
      statements provide our current expectations or forecasts of future events.




The
      following discussion outlines certain factors that we think could cause our
      actual outcomes and results to differ materially from our forward-looking
      statements. These factors are in addition to those set forth elsewhere in this
      Quarterly Report on Form 10-Q.




Risks
      Related to Our Financial Condition




*We
      have a history of losses and will incur additional losses.*




We
      are a
      development stage company with a limited history of operations, and do not
      expect sufficient revenues to support our operation in the immediately
      foreseeable future. We do expect to receive some revenue from the sale of our
      oral insulin product in Ecuador in fiscal 2006. To date, we have not been
      profitable and our accumulated net loss before preferred stock dividend was
      $127,236,269 at October 31, 2005. Our losses have resulted principally from
      costs incurred in research and development, including clinical trials, and
      from
      general and administrative costs associated with our operations. While we seek
      to attain profitability, we cannot be sure that we will ever achieve product
      and
      other revenue sufficient for us to attain this objective.




With
      the
      exception of our oral insulin formulation which was approved for commercial
      sale
      in Ecuador in early May 2005, our product candidates are in research or early
      stages of pre-clinical and clinical development. We will need to conduct
      substantial additional research, development and clinical trials. We will also
      need to receive necessary regulatory clearances both in the United States and
      foreign countries and obtain meaningful patent protection for and establish
      freedom to commercialize each of our product candidates. We cannot be sure
      that
      we will obtain required regulatory approvals, or successfully research, develop,
      commercialize, manufacture and market any other product candidates. We expect
      that these activities, together with future general and administrative
      activities, will result in significant expenses for the foreseeable future.




*We
      need additional capital.*




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




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




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




Ÿ
            to
                develop other buccal and immunomedicine products;




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




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




Ÿ
              to
                  establish and expand our manufacturing capabilities;
  46




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




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




Ÿ
            to
                otherwise carry on business.




In
      the
      past, we have funded most of our development and other costs through equity
      financing. We anticipate that our existing capital resources will enable us
      to
      maintain currently planned operations through the next 12 months. However,
      this
      expectation is based on our current operating plan, which could change as a
      result of many factors, and we may need additional funding sooner than
      anticipated. Because our operating and capital resources are insufficient to
      meet future requirements, we will have to raise additional funds in the near
      future to continue the development and commercialization of our products.
      Unforeseen problems, including materially negative developments in our clinical
      trials or in general economic conditions, could interfere with our ability
      to
      raise additional equity capital or materially adversely affect the terms upon
      which such funding is available. Recent changes in the application of the rules
      of The Nasdaq Stock Market may also make it more difficult for us to raise
      private equity capital.




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




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




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




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




*New
      equity financing could dilute current stockholders.*




If
      we
      raise funds through equity financing to meet the needs discussed above, it
      will
      have a dilutive effect on existing holders of our shares by reducing their
      percentage ownership. The shares may be sold at a time when the market price
      is
      low because we need the funds. This will dilute existing holders more than
      if
      our stock price was higher. In addition, equity financings normally involve
      shares sold at a discount to the current market price.




*Our
      research and development and marketing efforts may be highly dependent on
      corporate collaborators and other third parties who may not devote sufficient
      time, resources and attention to our programs, which may limit our efforts
      to
      successfully develop and market potential products.*




Because
      we have limited resources, we have sought to enter into collaboration agreements
      with other pharmaceutical companies that will assist us in developing, testing,
      obtaining governmental approval for and commercializing products using our
      buccal delivery and immunomedicine technologies. Any collaborator with whom
      we
      may enter into such collaboration agreements may not support fully our research
      and commercial interests since our program may compete for time, attention
      and
      resources with such collaborator's internal programs. Therefore, these
      collaborators may not commit sufficient resources to our program to move it
      forward effectively, or that the program will advance as rapidly as it might
      if
      we had retained complete control of all research, development, regulatory and
      commercialization decisions.




47


Risks
      Related to Our Technologies




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




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




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




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




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




Pre-clinical
      and clinical trials of our products, and the manufacturing and marketing of
      our
      technologies, are subject to extensive, costly and rigorous regulation by
      governmental authorities in the United States, Canada and other countries.
      The
      process of obtaining required regulatory approvals from the FDA and other
      regulatory authorities often takes many years, is expensive and can vary
      significantly based on the type, complexity and novelty of the product
      candidates. For these reasons, it is possible we will never receive approval
      for
      one or more product candidates in any country other than Ecuador.




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




Delays
      in
      obtaining United States or other foreign approvals for our products could result
      in substantial additional costs to us, and, therefore, could adversely affect
      our ability to compete with other companies. If regulatory approval is
      ultimately granted in any country other than Ecuador, the approval may place
      limitations on the intended use of the product we wish to commercialize, and
      may
      restrict the way in which we are permitted to market the product.




*Due
      to legal and factual uncertainties regarding the scope and protection afforded
      by patents and other proprietary rights, we may not have meaningful protection
      from competition.*




48


Our
      long-term success will substantially depend upon our ability to protect our
      proprietary technologies from infringement, misappropriation, discovery and
      duplication and avoid infringing the proprietary rights of others. Our patent
      rights, and the patent rights of biotechnology and pharmaceutical companies
      in
      general, are highly uncertain and include complex legal and factual issues.
      Because of this, our pending patent applications may not be granted. These
      uncertainties also mean that any patents that we own or will obtain in the
      future could be subject to challenge, and even if not challenged, may not
      provide us with meaningful protection from competition. Due to our financial
      uncertainties, we may not possess the financial resources necessary to enforce
      our patents. Patents already issued to us or our pending applications may become
      subject to dispute, and any dispute could be resolved against us.




Because
      a
      substantial number of patents have been issued in the field of alternative
      drug
      delivery and because patent positions can be highly uncertain and frequently
      involve complex legal and factual questions, the breadth of claims obtained
      in
      any application or the enforceability of our patents cannot be predicted.
      Consequently, we do not know whether any of our pending or future patent
      applications will result in the issuance of patents or, to the extent patents
      have been issued or will be issued, whether these patents will be subject to
      further proceedings limiting their scope, will provide significant proprietary
      protection or competitive advantage, or will be circumvented or invalidated.




Also
      because of these legal and factual uncertainties, and because pending patent
      applications are held in secrecy for varying periods in the United States and
      other countries, even after reasonable investigation we may not know with
      certainty whether any products that we (or a licensee) may develop will infringe
      upon any patent or other intellectual property right of a third party. For
      example, we are aware of certain patents owned by third parties that such
      parties could attempt to use in the future in efforts to affect our freedom
      to
      practice some of the patents that we own or have applied for. Based upon the
      science and scope of these third-party patents, we believe that the patents
      that
      we own or have applied for do not infringe any such third-party patents;
      however, we cannot know for certain whether we could successfully defend our
      position, if challenged. We may incur substantial costs if we are required
      to
      defend the Company in patent suits brought by third parties. These legal actions
      could seek damages and seek to enjoin testing, manufacturing and marketing
      of
      the accused product or process. In addition to potential liability for
      significant damages, we could be required to obtain a license to continue to
      manufacture or market the accused product or process.




Risks
      Related to Marketing of Our Potential Products




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




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




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




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




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




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




We
      will
      have to depend upon others for marketing and distribution of our products,
      including Oral-lynTM in Ecuador, and we may be forced to enter into contracts
      limiting the benefits we may receive and the control we have over our products.
      We intend to rely on collaborative arrangements with one or more other companies
      that possess strong marketing and distribution resources to perform these
      functions for us. We may not be able to enter into beneficial contracts, and
      we
      may be forced to enter into contracts for the marketing and distribution of
      our
      products that substantially limit the potential benefits to us from
      commercializing these products. In addition, we will not have the same control
      over marketing and distribution that we would have if we conducted these
      functions ourselves.




49


*We
      may not be able to compete with treatments now being marketed and developed,
      or
      which may be developed and marketed in the future by other
      companies.*




Our
      products will compete with existing and new therapies and treatments. We are
      aware of a number of companies currently seeking to develop alternative means
      of
      delivering insulin, as well as new drugs intended to replace insulin therapy
      at
      least in part. We are also aware of a number of companies currently seeking
      to
      develop alternative means of enhancing and suppressing peptides. In the longer
      term, we also face competition from companies that seek to develop cures for
      diabetes and other malignant, infectious, autoimmune and allergic diseases
      through techniques for correcting the genetic deficiencies that underlie such
      diseases.




Numerous
      pharmaceutical, biotechnology and drug delivery companies, hospitals, research
      organizations, individual scientists and nonprofit organizations are engaged
      in
      the development of alternatives to our technologies. Some of these companies
      have greater research and development capabilities, experience, manufacturing,
      marketing, financial and managerial resources than we do. Accordingly, our
      competitors may succeed in developing competing technologies, obtaining FDA
      approval for products or gaining market acceptance more rapidly than we can.




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




Sales
      of
      our oral insulin formulation in Ecuador and our potential products in other
      markets depend in part on the availability of reimbursement by third-party
      payers such as government health administration authorities, private health
      insurers and other organizations. Third-party payers often challenge the price
      and cost-effectiveness of medical products and services. Governmental approval
      of health care products does not guarantee that these third-party payers will
      pay for the products. Even if third-party payers do accept our product, the
      amounts they pay may not be adequate to enable us to realize a profit.
      Legislation and regulations affecting the pricing of pharmaceuticals may change
      before our products are approved for marketing and any such changes could
      further limit reimbursement.




Risks
      Related to Potential Liabilities




*We
      face significant product liability risks, which may have a negative effect
      on
      our financial condition.*




The
      administration of drugs or treatments to humans, whether in clinical trials
      or
      commercially, can result in product liability claims whether or not the drugs
      or
      treatments are actually at fault for causing an injury. Furthermore, our
      products may cause, or may appear to have caused, serious adverse side effects
      (including death) or potentially dangerous drug interactions that we may not
      learn about or understand fully until the drug or treatment has been
      administered to patients for some time. Product liability claims can be
      expensive to defend and may result in large judgments or settlements against
      us,
      which could have a severe negative effect on our financial condition. We
      maintain product liability insurance in amounts we believe to be commercially
      reasonable for our current level of activity and exposure, but claims could
      exceed our coverage limits. Furthermore, due to factors in the insurance market
      generally and our own experience, we may not always be able to purchase
      sufficient insurance at an affordable price. Even if a product liability claim
      is not successful, the adverse publicity and time and expense of defending
      such
      a claim may interfere with our business.




*Outcome
      of an arbitration proceeding with Sands Brothers may have an adverse impact
      on
      us.*




On
      October 2, 1998, Sands Brothers & Co. Ltd., a New York City-based investment
      banking and brokerage firm, initiated an arbitration against us under New York
      Stock Exchange rules. Sands alleged that it had the right to receive, for
      nominal consideration, approximately 1.5 million shares of our common stock.
      Sands based its claim upon an October 1997 letter agreement that was purported
      by Sands to confirm an agreement appointing Sands as the exclusive financial
      advisor to Generex Pharmaceuticals, Inc., a subsidiary that we acquired in
      late
      1997. In exchange therefor, the letter agreement purported to grant Sands the
      right to acquire 17% of Generex Pharmaceuticals' common stock for nominal
      consideration. Sands claimed that its right to receive shares of Generex
      Pharmaceuticals' common stock applies to our common stock since outstanding
      shares of Generex Pharmaceuticals' common stock were converted into shares
      of
      our common stock in the acquisition. Sands' claims also included additional
      shares allegedly due as a fee related to that acquisition, and $144,000 in
      monthly fees allegedly due under the terms of the purported agreement.




50


After
      several arbitration and court proceedings, on October 29, 2002, the Appellate
      Division of the New York Supreme Court issued a decision remanding the issue
      of
      damages to a new panel of arbitrators and limiting the issue of damages before
      the new panel to reliance damages which is not to include an award of lost
      profits. Reliance damages are out-of-pocket damages incurred by Sands.




On
      August
      17, 2004, the Arbitration Panel of the New York Stock Exchange issued a final
      award in the case of Sands versus us, awarding Sands $150,000 in reliance
      damages. A motion to confirm this award has been awarded to Sands. In September
      2005, Sands filed a motion seeking leave from the New York Court of Appeals
      to
      appeal the prior orders of the Appellate Division vacating the prior Arbitration
      Panel's warrant awards. Accordingly, $150,000 has been recorded in the
      accompanying financial statements, but the case may be subject to further legal
      proceedings.




The
      case
      is still ongoing and our ultimate liability cannot yet be determined with
      certainty. Our financial condition would be materially adversely affected to
      the
      extent that Sands receives shares of our common stock for little or no
      consideration or substantial monetary damages as a result of this legal
      proceeding. Apart from $150,000 accrual, we are not able to estimate an amount
      or range of potential loss from this legal proceeding at the present time.




Risks
      Related to the Market for Our Common Stock




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




On
      June
      5, 2003, our common stock was delisted from The Nasdaq National Market because
      of our failure to maintain a minimum of $10,000,000 in stockholders' equity.
      On
      June 5, 2003, our stock began trading on The Nasdaq Capital Market. The Nasdaq
      Capital Market has its own standards for continued listing, including a minimum
      of $2.5 million stockholders' equity. As of July 31, 2004, our stockholders'
      equity was $529,751. As a result, on November 19, 2004, we received notice
      from
      The Nasdaq Stock Market informing us that we do not comply with Marketplace
      Rule
      4310(c)(2)(B), which requires us to have a minimum of $2,500,000 in
      stockholders' equity or $35,000,000 market value of listed securities or
      $500,000 of net income from continuing operations for the most recently
      completed fiscal year or two of the three most recently completed fiscal years.
      On December 22, 2004, all outstanding shares of our Series A Convertible
      Preferred Stock were converted to common stock, resulting in the elimination
      of
      approximately $14,300,000 of mezzanine equity and an equal amount was added
      to
      additional paid-in capital attributable to the common stock, increasing
      stockholders' equity by that amount. Based on this, the delisting proceeding
      relating to failure to meet stockholders’ equity standards was terminated.
      Because we are still in the development stage, there is no guarantee that we
      will sustain compliance with this standard. In the event we cannot sustain
      compliance, our shares of common stock may be delisted from The Nasdaq Capital
      Market and begin trading on the over-the-counter bulletin board.




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




51


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




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




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




*If
      we
      fail to maintain compliance with applicable Nasdaq Marketplace Rules and our
      stock is delisted from the Nasdaq Capital Market, it may become subject to
      Penny
      Stock Regulations and there will be less interest for our stock in the market.
      This may result in lower prices for our stock and make it more difficult for
      us
      to obtain financing.*




If
      our
      stock is not listed on NASDAQ and fails to maintain a price of $5.00 or more
      per
      share, our stock would become subject to the Securities and Exchange
      Commission's "Penny Stock" rules. These rules require a broker to deliver,
      prior
      to any transaction involving a Penny Stock, a disclosure schedule explaining
      the
      Penny Stock Market and its risks. Additionally, broker/dealers who recommend
      Penny Stocks to persons other than established customers and accredited
      investors must make a special written suitability determination and receive
      the
      purchaser's written agreement to a transaction prior to the sale. In the event
      our stock becomes subject to these rules, it will become more difficult for
      broker/dealers to sell our common stock. Therefore, it may be more difficult
      for
      us to obtain financing.




*The
      price of our common stock may be volatile.*




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




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




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




Ÿ
            variations
                in operating results;




Ÿ
            changes
                in governmental regulations;




Ÿ
            developments
                in patent and other proprietary rights;






52




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




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




Ÿ
            regulatory
                action or inaction on our products or our competitors' products.




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




Furthermore,
      the stock market generally and the market for stocks of companies with lower
      market capitalizations and small biopharmaceutical companies, like us, have
      from
      time to time experienced, and likely will again experience significant price
      and
      volume fluctuations that are unrelated to the operating performance of a
      particular company.




*Our
      outstanding Special Voting Rights Preferred Stock and provisions of our Restated
      Certificate of Incorporation could delay or prevent the acquisition or sale
      of
      our business.*




Holders
      of our Special Voting Rights Preferred Stock have the ability to prevent any
      change of control in us. Dr. Pankaj Modi, a former officer and director of
      Generex, owns all of our Special Voting Rights Preferred Stock. In addition,
      our
      Restated Certificate of Incorporation permits our Board of Directors to
      designate new series of preferred stock and issue those shares without any
      vote
      or action by our stockholders. Such newly authorized and issued shares of
      preferred stock could contain terms that grant special voting rights to the
      holders of such shares that make it more difficult to obtain stockholder
      approval for an acquisition of our business or increase the cost of any such
      acquisition.




**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk.**




We
      are
      exposed to market risks associated with changes in the exchange rates between
      U.S. and Canadian currencies and with changes in the interest rates related
      to
      our fixed rate debt. We do not believe that any of these risks will have a
      material impact on our financial condition, results of operations and cash
      flows.




At
      the
      present time, we maintain our cash in short-term government or government
      guaranteed instruments, short-term commercial paper, interest bearing bank
      deposits or demand bank deposits which do not earn interest. A substantial
      majority of these instruments and deposits are denominated in U.S. dollars,
      with
      the exception of funds denominated in Canadian dollars on deposit in Canadian
      banks to meet short-term operating needs in Canada. At the present time, with
      the exception of professional fees and costs associated with the conduct of
      clinical trials in the United States and Europe, substantially all of our
      operating expense obligations are denominated in Canadian dollars. We do not
      presently employ any hedging or similar strategy intended to mitigate against
      losses that could be incurred as a result of fluctuations in the exchange rates
      between U.S. and Canadian currencies.




As
      of
      October 31, 2005, we have fixed rate debt totaling $3,385,661. This amount
      consists of the following:





Loan
                Amount
            
            Interest
                Rateper
                Annum$804,751
            
            5.8%$420,822
            
            4.913%$260,913
            
            4.924%$633,013
            
            6.85%$340,040
            
            8.5%$203,537
            
            10%$425,050
            
            11.5%$297,535
            
            16.5%$3,385,661
            
            *Total*





These
      debt instruments mature from November 2005 through November 2008. As our fixed
      rate debt instruments mature, we will likely refinance such debt at the existing
      market interest rates which may be more or less than interest rates on the
      maturing debt. Since this debt is fixed rate debt, if interest rates were to
      increase 100 basis points prior to maturity, there would be no impact on
      earnings or cash flows.





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





**Item
      4. Controls and Procedures.**





*Evaluation
      of disclosure controls and procedures*





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





*Changes
      in internal control over financial reporting*





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





53





**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings.**





None.





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





*Unregistered
      Sales of Equity Securities*





In
      the
      fiscal quarter ended October 31, 2005, we sold common stock and other securities
      in transactions in reliance upon exemptions from the registration requirements
      of the Securities Act of 1933, as amended (the “Securities Act”), as we have
      reported on Current Reports on Form 8-K filed during the period covered by
      this
      Quarterly Report on Form 10-Q. In addition, during the fiscal quarter ended
      October 31, 2005, we sold common stock and other securities in
      transactions in reliance upon exemptions from the registration requirements
      of
      the Securities Act as follows:





In
      August
      2005, we agreed to issue 19,500 shares of our restricted common stock to Yes
      International for financial services. This issuance represents monthly payments
      in restricted common stock and is made pursuant to the letter agreement dated
      June 7, 2005. The sale of such shares is exempt from registration under the
      Securities Act in reliance upon Section 4(2) thereof. We believe that Yes
      International. 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 be legended 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.





In
      August
      2005, we entered into an agreement with CEOcast, Inc., a consultant, to provide
      investor relation services for a term of one year in exchange for 225,000 shares
      of our restricted common stock plus an additional 7,143 shares of our restricted
      common stock as monthly payments. The sale of such shares is 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 be legended 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.





On
      October 20, 2005, in consideration for the exercise of certain outstanding
      warrants previously issued to each of Cranshire and Iroquois in connection
      with
      their purchase of Debentures pursuant to the Securities Purchase Agreement,
      we
      issued a five-year warrant to purchase 300,000 shares of our common stock at
      $1.20 per share to Cranshire and a five-year warrant to purchase 609,756 shares
      of our common stock at $1.20 per share to Iroquois. We received aggregate
      proceeds of $1,492,000 in connection with Cranshire’s partial exercise of its
      outstanding warrant to purchase 1,219,512 shares of our common stock and
      Iroquois’ full exercise of its outstanding warrant to purchase 1,219,512 shares
      of our common stock. The rights of Cranshire and Iroquois under these warrants
      are described in this Quarterly Report on Form 10-Q under the caption *Financial
      Condition, Liquidity and Resources* of *Part
      I - Item 2. Management’s Discussion and Analysis of Financial Condition and
      Results of Operations* .
      The
      offer and sale of such warrants, including the shares of common stock into
      which
      such warrants are exercisable, are exempt from registration under the Securities
      Act in reliance upon Section 4(2) thereof. Each of Cranshire and Iroquois has
      previously represented and warranted to us that it is an “accredited investor”
      as that term is defined in Rule 501(a) of Regulation D promulgated under the
      Securities Act. The certificates representing such warrants and shares of common
      stock issued upon exercise of such warrants will be legended to indicate that
      they are restricted. The sale of such securities did not involve the use of
      underwriters, and no commissions were paid in connection therewith.





54


On
      October 27, 2005, in consideration for their exercise of certain outstanding
      warrants previously issued pursuant to the Securities Purchase Agreement, we
      issued to Cranshire, Omicron and Smithfield five-year warrants to purchase
      an
      aggregate of 1,529,268 shares of our common stock at $1.25 per share. We
      received aggregate proceeds of approximately $2,508,000 in connection with
      their
      exercise of outstanding warrants to purchase shares of our common stock. The
      rights of holders of these warrants are described in this Quarterly Report
      on
      Form 10-Q under the caption *Financial
      Condition, Liquidity and Resources* of *Part
      I - Item 2. Management’s Discussion and Analysis of Financial Condition and
      Results of Operations* .
      The
      offer and sale of such warrants, including the shares of common stock into
      which
      such warrants are exercisable, are exempt from registration under the Securities
      Act in reliance upon Section 4(2) thereof. Each of Cranshire, Omicron and
      Smithfield has previously represented and warranted to us that it is an
“accredited investor” as that term is defined in Rule 501(a) of Regulation D
      promulgated under the Securities Act. The certificates representing such
      warrants and shares of common stock issued upon exercise of such warrants will
      be legended to indicate that they are restricted. The sale of such securities
      did not involve the use of underwriters, and no commissions were paid in
      connection therewith.





On
      October 27, 2005, we and Omicron entered into the AIR Amendment to accelerate
      the initial exercise date of the Additional AIR granted in connection with
      Amendment No. 1 (defined as the 181st day following the date of issuance) in
      consideration of the exercise by Omicron of its Additional AIR and the delivery
      to us of a Notice of Exercise in respect thereof on or before the close of
      business on October 27, 2005. Omicron timely delivered its Notice of Exercise,
      satisfying the conditions specified in the AIR Amendment. In connection with
      Omicron’s exercise of the Additional AIR, we received aggregate proceeds of
      $500,000. Through its exercise of its Additional AIR, Omicron purchased a
      $500,000 principal amount AIR Debenture with a conversion price of $0.82 and
      AIR
      Warrants entitling Omicron to purchase a number of shares of our common stock
      equal to 100% of the shares of common stock issuable upon the conversion in
      full
      at a $0.82 conversion price (subject to adjustment as set forth therein)
      (without regard to any restrictions on conversion therein contained) of the
      AIR
      Debenture at an exercise price equal to the “AIR Warrant Exercise Price” (as
      such term is defined in the Additional AIR). The terms, conversion/exercise
      features and acceleration provisions of the AIR Debenture and AIR Warrants
      received by Omicron are described above under the caption *Financial
      Condition, Liquidity and Resources* of *Part
      I - Item 2. Management’s Discussion and Analysis of Financial Condition and
      Results of Operations* .
      In
      connection with this transaction, we agreed to pay a placement agent fee of
      $35,000 and issue warrants to a placement agent warrants exercisable into
      approximately 15,000 shares of our common stock at the same exercise price
      as
      the AIR Warrants. We undertook the offer and sale of the AIR Debenture and
      AIR
      Warrants to Omicron, as well as offer and sale of the warrants to the placement
      agent, including the shares of common stock into which such securities are
      exercisable, are exempt from registration under the Securities Act in reliance
      upon Section 4(2) thereof. Omicron has previously represented and warranted
      to
      us that it is an “accredited investor” as that term is defined in Rule 501(a) of
      Regulation D promulgated under the Securities Act, and the placement agent
      has
      represented and warranted to us that it is a registered broker-dealer. Any
      certificates representing the warrants and shares of common stock issued upon
      exercise thereof will be legended to indicate that they are restricted.





As
      previously reported on our Quarterly Report on Form 10-Q for the period ending
      April 30, 2005 and our Annual Report on Form 10-K for the period ending July
      31,
      2005, we have issued shares of restricted common stock to certain suppliers
      of
      goods and services in satisfaction of certain accounts payable owed by us.
      In
      the fiscal quarter ending October 31, 2005, we issued additional 162,933
      restricted shares in satisfaction of $133,605 in accounts payable. The number
      of
      shares awarded was calculated using a price per share of $0.82. The sales of
      the
      restricted stock were exempt from registration under the Securities Act in
      reliance upon Section 4(2) thereof. Each of the suppliers to which we have
      issued restricted shares of common stock has represented to us that he or it
      is
      an “accredited investor” as that term is defined in Rule 501(a) of Regulation D.
      The certificates issued for the shares of common stock issued to such suppliers
      were legended to indicate that they are restricted. The sales of such shares
      did
      not involve the use of underwriters, and no commissions were paid in connection
      with the issuance or sale, if any, thereof.





*Issuer
      Purchases of Equity Securities*





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





55


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





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





On
      October 1, 2005, we did not pay the first installment of $108,393 due under
      the
      Assistance Agreement with Eckert Seamans pursuant to which Eckert Seamans
      advanced us funds in the amount of $325,179 for the sole purpose of making
      the
      interest payment and the monthly redemption payment due on March 31, 2005 and
      April 1, 2005, respectively, under the Debentures. We are currently in
      negotiations with Eckert Seamans and are seeking to extend the payment dates
      or
      to pay the outstanding balance with shares of our common stock. As of October
      1,
      2005, all amounts due thereunder became payable on demand, and interest began
      accruing at the rate of 8% per annum. The total arrearage to date is
      approximately $15,324. The terms and conditions of the Assistance Agreement
      with
      Eckert Seamans, are described in this Quarterly Report on Form 10-Q above under
      the caption *Financial
      Condition, Liquidity and Resources* of *Part
      I - Item 2. Management’s Discussion and Analysis of Financial Condition and
      Results of Operations* .





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





None.





**Item
      5. Other Information.**





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





**Item
      6. Exhibits.**




**Exhibit**
                  **Number**
                
                **Description
                    of Exhibit****(1)**2
                
                Agreement
                    and Plan of Merger among Generex Biotechnology Corporation, Antigen
                    Express, Inc. and AGEXP Acquisition Inc. (incorporated by reference
                    to
                    Exhibit 2.1 to Generex Biotechnology Corporation’s Current Report on Form
                    8-K filed on August 15, 2003)3(I)
                
                Restated
                    Certificate of Incorporation of Generex Biotechnology Corporation,
                    as
                    amended (incorporated by reference to Exhibit 3.1 to Generex
                    Biotechnology
                    Corporation’s Report on Form 10-Q filed on March 15, 2004)3(II)
                
                Bylaws
                    of Generex Biotechnology Corporation (incorporated by reference
                    to Exhibit
                    3.2 to Generex Biotechnology Corporation’s Registration Statement on Form
                    S-1 (File No. 333-82667) filed on July 12, 1999)4.1
                
                Form
                    of common stock certificate (incorporated by reference to Exhibit
                    4.1 to
                    Generex Biotechnology Corporation’s Registration Statement on Form S-1
                    (File No. 333-82667) filed on July 12, 1999)
   56
  **Exhibit**
                    **Number**
                  
                  **Description of Exhibit(1)**4.2
                  
                  Certificate
                      of Designations, Preferences and Rights of Series A Preferred
                      Stock
                      (incorporated by reference to Exhibit 4.4 to Generex Biotechnology
                      Corporation’s Report on Form 8-K filed on January 23, 2001)4.3
                  
                  Form
                      of Warrant issued to Ladenburg Thalmann & Co., Inc. dated July 6, 2001
                      (incorporated by reference to Exhibit 4.15 to Generex Biotechnology
                      Corporation’s Registration Statement on Form S-3 (File No. 333-67118)
                      filed on August 8, 2001)4.4
                  
                  Form
                      of Warrant granted to Cranshire Capital, L.P.; RAM Trading
                      Ltd.; Gryphon
                      Master Fund; Kodiak Opportunity, L.P.; Kodiak Opportunity 3C7,
                      L.P.;
                      Kodiak Opportunity Offshore, Ltd.; Novelly Exempt Trust; Langley
                      Partners,
                      L.P.; Montrose Investments, Ltd.; WEC Asset Management, LLC;
                      ZLP Master
                      Technology Fund, Ltd.; Alpha Capital Aktiengesellschaft; and
                      The dotCOM
                      Fund, LLC, dated July 6, 2001 (incorporated by reference to
                      Exhibit 3 to
                      Generex Biotechnology Corporation’s Report on Form 8-K filed on July 17,
                      2001)4.5
                  
                  Warrant
                      granted to Capital Ventures International, dated July 3, 2001
                      (incorporated by reference to Exhibit 6 to Generex Biotechnology
                      Corporation’s Report on Form 8-K filed on July 17, 2001)4.6
                  
                  Warrant
                      issued to Elliott International, L.P. and Elliott Associates,
                      L.P., dated
                      July 5, 2001 (incorporated by reference to Exhibit 9 to Generex
                      Biotechnology Corporation’s Report on Form 8-K filed on July 17,
                      2001)4.7
                  
                  Form
                      of Warrant issued to certain parties to October 2000 Private
                      Placement
                      (incorporated by reference to Exhibit 4 to Generex Biotechnology
                      Corporation’s Report on Form 8-K filed on October 16, 2000)4.8
                  
                  Form
                      of Warrant (GCR Series) held by Robert P. Carter, Harvey Kaye,
                      Fittube,
                      Inc., Edward Maskaly and Gulfstream Capital Group, L.C. (incorporated
                      by
                      reference to Exhibit 4.4.2 to Generex Biotechnology Corporation’s
                      Registration Statement on Form 10 filed on December 14, 1998,
                      as amended
                      February 24, 1999)4.9
                  
                  Letter
                      Agreement and Warrant with M. H. Meyerson & Co., Inc. dated November
                      17, 1998 (incorporated by reference to Exhibit 4.4.4 to Generex
                      Biotechnology Corporation’s Registration Statement on Form 10 filed on
                      December 14, 1998, as amended February 24, 1999)4.10.1
                  
                  Form
                      of Securities Purchase Agreement entered into with Cranshire
                      Capital,
                      L.P.; Gryphon Partners, L.P.; Langley Partners, L.P.; Lakeshore
                      Capital,
                      Ltd.; LH Financial; Omicron Capital; Photon Fund, Ltd.; Howard
                      Todd
                      Horberg and Vertical Ventures, LLC dated May 29, 2003 (incorporated
                      by
                      reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                      Form 10-Q/A for the quarter ended April 30, 2003 filed on August
                      13,
                      2003)
   57
  Exhibit
                      Number
                    
                    **Description of Exhibit(1)**4.10.2
                    
                    Form
                        of Registration Rights Agreement entered into with Cranshire
                        Capital,
                        L.P.; Gryphon Partners, L.P.; Langley Partners, L.P.; Lakeshore
                        Capital,
                        Ltd.; LH Financial; Omicron Capital; Photon Fund, Ltd.; Howard
                        Todd
                        Horberg and Vertical Ventures, LLC dated May 29, 2003 (incorporated
                        by
                        reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                        Form 10-Q/A for the quarter ended April 30, 2003 filed on
                        August 13,
                        2003)4.10.3
                    
                    Form
                        of Warrant granted to Cranshire Capital, L.P.; Gryphon Partners,
                        L.P.;
                        Langley Partners, L.P.; Lakeshore Capital, Ltd.; LH Financial;
                        Omicron
                        Capital; Photon Fund, Ltd.; Howard Todd Horberg and Vertical
                        Ventures, LLC
                        dated May 29, 2003 (incorporated by reference to Exhibit
                        4.3 to Generex
                        Biotechnology Corporation’s Report on Form 10-Q/A for the quarter ended
                        April 30, 2003 filed on August 13, 2003)4.10.4
                    
                    Form
                        of Securities Purchase Agreement entered into with Cranshire
                        Capital, L.P.
                        dated June 6, 2003 (incorporated by reference to Exhibit
                        4.4 to Generex
                        Biotechnology Corporation’s Report on Form 10-Q/A for the quarter ended
                        April 30, 2003 filed on August 13, 2003)4.10.5
                    
                    Form
                        of Registration Rights Agreement entered into with Cranshire
                        Capital, L.P.
                        dated June 6, 2003 (incorporated by reference to Exhibit
                        4.5 to Generex
                        Biotechnology Corporation’s Report on Form 10-Q/A for the quarter ended
                        April 30, 2003 filed on August 13, 2003)4.10.6
                    
                    Form
                        of Warrant granted to Cranshire Capital, L.P. dated June
                        6, 2003
                        (incorporated by reference to Exhibit 4.6 to Generex Biotechnology
                        Corporation’s Report on Form 10-Q/A for the quarter ended April 30, 2003
                        filed on August 13, 2003)4.10.7
                    
                    Form
                        of replacement Warrant issued to warrant holders exercising
                        at reduced
                        exercise price in May and June 2003 (incorporated by reference
                        to Exhibit
                        4.13.7 to Generex Biotechnology Corporation’s Report on Form 10-K for the
                        period ended July 31, 2003 filed on October 29, 2003)4.11.1
                    
                    Securities
                        Purchase Agreement, dated December 19, 2003, by and among
                        Generex
                        Biotechnology Corporation and the investors named therein
                        (incorporated by
                        reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                        Form 8-K/A filed on March 24, 2004)4.11.2
                    
                    Registration
                        Rights Agreement, dated December 19, 2003, by and among Generex
                        Biotechnology Corporation and the investors named therein
                        (incorporated by
                        reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                        Form 8-K/A filed on March 24, 2004)4.11.3
                    
                    Form
                        of Warrant issued in connection with Exhibit 4.11.1 (incorporated
                        by
                        reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                        Form 8-K/A filed on March 24, 2004)4.11.4
                    
                    Form
                        of Additional Investment Right issued in connection with
                        Exhibit 4.11.1
                        (incorporated by reference to Exhibit 4.4 to Generex Biotechnology
                        Corporation’s Report on Form 8-K/A filed on March 24, 2004)4.12.1
                    
                    Securities
                        Purchase Agreement, dated January 7, 2004, by and between
                        Generex
                        Biotechnology Corporation and ICN Capital Limited (incorporated
                        by
                        reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                        Form 8-K filed on March 1, 2004)4.12.2
                    
                    Registration
                        Rights Agreement, dated January 7, 2004, by and between Generex
                        Biotechnology Corporation and ICN Capital Limited (incorporated
                        by
                        reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                        Form 8-K filed on March 1, 2004)4.12.3
                    
                    Warrant
                        issued in connection with Exhibit 4.12.1 (incorporated by
                        reference to
                        Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K
                        filed on March 1, 2004)4.12.4
                    
                    Additional
                        Investment Right issued in connection with Exhibit 4.12.1
                        (incorporated by
                        reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on
                        Form 8-K filed on March 1, 2004)4.13.1
                    
                    Securities
                        Purchase Agreement, dated January 9, 2004, by and between
                        Generex
                        Biotechnology Corporation and Vertical Ventures, LLC (incorporated
                        by
                        reference to Exhibit 4.5 to Generex Biotechnology Corporation’s Report on
                        Form 8-K filed on March 1, 2004)
   58
  Exhibit
                        Number
                      
                      Description
                          of Exhibit(1)4.13.2
                      
                      Registration
                          Rights Agreement, dated January 9, 2004, by and between
                          Generex
                          Biotechnology Corporation and Vertical Ventures, LLC (incorporated
                          by
                          reference to Exhibit 4.6 to Generex Biotechnology Corporation’s Report on
                          Form 8-K filed on March 1, 2004)4.13.3
                      
                      Warrant
                          issued in connection with Exhibit 4.13.1 (incorporated
                          by reference to
                          Exhibit 4.7 to Generex Biotechnology Corporation’s Report on Form 8-K
                          filed on March 1, 2004)4.13.4
                      
                      Additional
                          Investment Right issued in connection with Exhibit 4.13.1
                          (incorporated by
                          reference to Exhibit 4.8 to Generex Biotechnology Corporation’s Report on
                          Form 8-K filed on March 1, 2004)4.14.1
                      
                      Securities
                          Purchase Agreement, dated February 6, 2004, by and between
                          Generex
                          Biotechnology Corporation and Alexandra Global Master Fund,
                          Ltd.
                          (incorporated by reference to Exhibit 4.9 to Generex Biotechnology
                          Corporation’s Report on Form 8-K filed on March 1, 2004)4.14.2
                      
                      Registration
                          Rights Agreement, dated February 6, 2004, by and between
                          Generex
                          Biotechnology Corporation and Alexandra Global Master Fund,
                          Ltd.
                          (incorporated by reference to Exhibit 4.10 to Generex Biotechnology
                          Corporation’s Report on Form 8-K filed on March 1, 2004)4.14.3
                      
                      Warrant
                          issued in connection with Exhibit 4.14.1 (incorporated
                          by reference to
                          Exhibit 4.11 to Generex Biotechnology Corporation’s Report on Form 8-K
                          filed on March 1, 2004)4.14.4
                      
                      Additional
                          Investment Right issued in connection with Exhibit 4.14.1
                          (incorporated by
                          reference to Exhibit 4.12 to Generex Biotechnology Corporation’s Report on
                          Form 8-K filed on March 1, 2004)4.14.5
                      
                      Escrow
                          Agreement, dated February 26, 2004, by and among Generex
                          Biotechnology
                          Corporation, Eckert Seamans Cherin & Mellott, LLC and Alexandra Global
                          Master Fund, Ltd. (incorporated by reference to Exhibit
                          4.13 to Generex
                          Biotechnology Corporation’s Report on Form 8-K filed on March 1,
                          2004)4.15.1
                      
                      Securities
                          Purchase Agreement, dated February 11, 2004, by and between
                          Generex
                          Biotechnology Corporation and Michael Sourlis (incorporated
                          by reference
                          to Exhibit 4.14 to Generex Biotechnology Corporation’s Report on Form 8-K
                          filed on March 1, 2004)4.15.2
                      
                      Registration
                          Rights Agreement, dated February 11, 2004, by and between
                          Generex
                          Biotechnology Corporation and Michael Sourlis (incorporated
                          by reference
                          to Exhibit 4.15 to Generex Biotechnology Corporation’s Report on Form 8-K
                          filed on March 1, 2004)4.15.3
                      
                      Warrant
                          issued in connection with Exhibit 4.15.1 (incorporated
                          by reference to
                          Exhibit 4.16 to Generex Biotechnology Corporation’s Report on Form 8-K
                          filed on March 1, 2004)4.15.4
                      
                      Additional
                          Investment Right issued in connection with Exhibit 4.15.1
                          (incorporated by
                          reference to Exhibit 4.17 to Generex Biotechnology Corporation’s Report on
                          Form 8-K filed on March 1, 2004)4.16.1
                      
                      Securities
                          Purchase Agreement, dated February 13, 2004, by and between
                          Generex
                          Biotechnology Corporation and Zapfe Holdings, Inc. (incorporated
                          by
                          reference to Exhibit 4.18 to Generex Biotechnology Corporation’s Report on
                          Form 8-K filed on March 1, 2004)
   59
  **Exhibit**
                          **Number**
                        
                        **Description
                            of Exhibit(1)**4.16.2
                        
                        Registration
                            Rights Agreement, dated February 13, 2004, by and between
                            Generex
                            Biotechnology Corporation and Zapfe Holdings, Inc. (incorporated
                            by
                            reference to Exhibit 4.19 to Generex Biotechnology Corporation’s Report on
                            Form 8-K filed on March 1, 2004)4.16.3
                        
                        Warrant
                            issued in connection with Exhibit 4.16.1 (incorporated
                            by reference to
                            Exhibit 4.20 to Generex Biotechnology Corporation’s Report on Form 8-K
                            filed on March 1, 2004)4.16.4
                        
                        Additional
                            Investment Right issued in connection with Exhibit 4.16.1
                            (incorporated by
                            reference to Exhibit 4.21 Generex Biotechnology Corporation’s Report on
                            Form 8-K filed on March 1, 2004)4.17.1
                        
                        Securities
                            Purchase Agreement, dated June 23, 2004, by and among
                            Generex
                            Biotechnology Corporation and the investors named therein
                            (incorporated by
                            reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                            Form 8-K filed on July 14, 2004)4.17.2
                        
                        Registration
                            Rights Agreement, dated June 23, 2004, by and among Generex
                            Biotechnology
                            Corporation and the investors (incorporated by reference
                            to Exhibit 4.2 to
                            Generex Biotechnology Corporation’s Report on Form 8-K filed on July 14,
                            2004)4.17.3
                        
                        Form
                            of Warrant issued in connection with Exhibit 4.17.1 (incorporated
                            by
                            reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                            Form 8-K filed on July 14, 2004)4.17.4
                        
                        Form
                            of Additional Investment Right issued in connection Exhibit
                            4.17.1
                            (incorporated by reference to Exhibit 4.4 to Generex
                            Biotechnology
                            Corporation’s Report on Form 8-K filed on July 14, 2004)4.18.1
                        
                        Securities
                            Purchase Agreement, dated November 10, 2004, by and among
                            Generex
                            Biotechnology Corporation and the investors named therein
                            (incorporated by
                            reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                            Form 8-K filed on November 12, 2004)4.18.2
                        
                        Form
                            of 6% Secured Convertible Debenture issued in connection
                            with Exhibit
                            4.21.1 (incorporated by reference to Exhibit 4.2 to Generex
                            Biotechnology
                            Corporation’s Report on Form 8-K filed on November 12, 2004)4.18.3
                        
                        Registration
                            Rights Agreement, dated November 10, 2004, by and among
                            Generex
                            Biotechnology Corporation and the investors named therein
                            (incorporated by
                            reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                            Form 8-K filed on November 12, 2004)4.18.4
                        
                        Form
                            of Warrant issued in connection with Exhibit 4.18.1 (incorporated
                            by
                            reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on
                            Form 8-K filed on November 12, 2004)4.18.5
                        
                        Form
                            of Additional Investment Right issued in connection with
                            Exhibit 4.18.1
                            (incorporated by reference to Exhibit 4.5 to Generex
                            Biotechnology
                            Corporation’s Report on Form 8-K filed on November 12, 2004)4.18.6
                        
                        Custodial
                            and Security Agreement, dated November 10, 2004, by and
                            among Generex
                            Biotechnology Corporation, Feldman Weinstein LLP, as
                            custodian, and the
                            investors named therein (incorporated by reference to
                            Exhibit 4.6 to
                            Generex Biotechnology Corporation’s Report on Form 8-K filed on November
                            12, 2004)4.18.7
                        
                        Form
                            of Voting Agreement entered into in connection with Exhibit
                            4.18.1
                            (incorporated by reference to Exhibit 4.7 to Generex
                            Biotechnology
                            Corporation’s Report on Form 8-K filed on November 12, 2004)
   60
  **Exhibit**
                            **Number**
                          
                          **Description
                              of Exhibit(1)**4.19
                          
                          Termination
                              Agreement, dated December 17, 2004, by and among Generex
                              Biotechnology
                              Corporation and Elan Corporation plc and Elan International
                              Services, Ltd.
                              (incorporated by reference to Exhibit 4.19 to Generex
                              Biotechnology
                              Corporation’s Quarterly Report on Form 10-Q filed on June 14,
                              2005)4.20
                          
                          Warrant
                              issued to The Aethena Group, LLC on April 28, 2005
                              (incorporated by
                              reference to Exhibit 4.20 to Generex Biotechnology
                              Corporation’s Quarterly
                              Report on Form 10-Q filed on June 14, 2005)4.21.1
                          
                          Promissory
                              Note and Agreement, dated March 28, 2005 by and between
                              Generex
                              Biotechnology Corporation and Cranshire Capital, L.P.
                              (incorporated by
                              reference to Exhibit 4 to Generex Biotechnology Corporation’s Report on
                              Form 8-K filed on April 1, 2005)4.21.2
                          
                          Warrant
                              issued to Cranshire Capital, L.P. entered into in connection
                              with Exhibit
                              4.21.1 (incorporated by reference to Exhibit 4.21.2
                              to Generex
                              Biotechnology Corporation’s Quarterly Report on Form 10-Q filed on June
                              14, 2005)4.22.1
                          
                          Promissory
                              Note and Agreement,
                              entered intoApril
                              6, 2005 by and between Generex Biotechnology Corporation
                              and Omicron
                              Master Trust (incorporated by reference to Exhibit
                              4.22.1 to Generex
                              Biotechnology Corporation’s Quarterly Report on Form 10-Q filed on June
                              14, 2005)4.22.2
                          
                          Warrant
                              issued to Omicron Master Trust entered into in connection
                              with Exhibit
                              4.22.1 (incorporated by reference to Exhibit 4.22.2
                              to Generex
                              Biotechnology Corporation’s Quarterly Report on Form 10-Q filed on June
                              14, 2005)4.23.1
                          
                          June
                              7, 2005 Amendment to Promissory Note and Agreement,
                              dated March 28, 2005
                              by and between Generex Biotechnology Corporation and
                              Cranshire Capital,
                              L.P. (incorporated by reference to Exhibit 4.1 to Generex
                              Biotechnology
                              Corporation’s Report on Form 8-K filed on June 10, 2005)4.23.2
                          
                          Warrant
                              issued by Generex Biotechnology Corporation to Cranshire
                              Capital, L.P. on
                              June 7, 2005 in connection with Exhibit 4.23.1 (incorporated
                              by reference
                              to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K
                              filed on June 10, 2005)4.24.1
                          
                          June
                              7, 2005 Amendment to Promissory Note and Agreement,
                              entered into April 6,
                              2005 by and between Generex Biotechnology Corporation
                              and Omicron Master
                              Trust(incorporated
                              by reference to Exhibit 4.24.1 to Generex Biotechnology
                              Corporation’s
                              Quarterly Report on Form 10-Q filed on June 14, 2005)4.24.2
                          
                          Warrant
                              issued by Generex Biotechnology Corporation to Omicron
                              Master Trust on
                              June 7, 2005 in connection with Exhibit 4.24.1 (incorporated
                              by reference
                              to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K
                              filed on June 10, 2005)4.25.1
                          
                          Amendment
                              No. 1 to Securities Purchase Agreement and Registration
                              Rights Agreement
                              entered into by and between Generex Biotechnology Corporation
                              and the
                              Purchasers listed on the signature pages thereto (incorporated
                              by
                              reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                              Form 8-K filed on June 17, 2005)4.25.2
                          
                          Form
                              of AIR Debenture issued in connection with Exhibit
                              4.25.1 (incorporated by
                              reference to Exhibit 4.25.2 to Generex Biotechnology
                              Corporation’s Report
                              on Form 10-K filed on October 31, 2005)4.25.3
                          
                          Form
                              of AIR Warrant issued in connection with Exhibit 4.25.1(incorporated
                              by
                              reference to Exhibit 4.25.3 to Generex Biotechnology
                              Corporation’s Report
                              on Form 10-K filed on October 31, 2005)
   61
  **Exhibit**
                              **Number**
                            
                            Description
                                of Exhibit(1)4.25.4
                            
                            Form
                                of Additional AIR issued in connection with Exhibit
                                4.25.1 (incorporated
                                by reference to Exhibit 4.25.4 to Generex Biotechnology
                                Corporation’s
                                Report on Form 10-K filed on October 31, 2005)4.26.1
                            
                            Amendment
                                No. 2 to Securities Purchase Agreement and Registration
                                Rights Agreement
                                entered into by and between Generex Biotechnology
                                Corporation and the
                                Purchasers listed on the signature pages thereto
                                (incorporated by
                                reference to Exhibit 4.1 to Generex Biotechnology
                                Corporation’s Report on
                                Form 8-K filed on September 9, 2005)4.26.2
                            
                            Form
                                of Air Debenture issued in connection with Exhibit
                                4.26.1 (incorporated by
                                reference to Exhibit 4.2 to Generex Biotechnology
                                Corporation’s Report on
                                Form 8-K filed on September 9, 2005)4.26.3
                            
                            Form
                                of AIR Warrant issued in connection with Exhibit
                                4.26.1 (incorporated by
                                reference to Exhibit 4.3 to Generex Biotechnology
                                Corporation’s Report on
                                Form 8-K filed on September 9, 2005)4.26.4
                            
                            Form
                                of Additional AIR issued in connection with Exhibit
                                4.26.1 (incorporated
                                by reference to Exhibit 4.4 to Generex Biotechnology
                                Corporation’s Report
                                on Form 8-K filed on September 9, 2005)4.27.1
                            
                            July
                                22, 2005 Amendment to Promissory Note and Agreement,
                                entered into March
                                28, 2005 by and between Generex Biotechnology Corporation
                                and Cranshire
                                Capital, L.P. (incorporated by reference to Exhibit
                                4.27.1 to Generex
                                Biotechnology Corporation’s Report on Form 10-K filed on October 31,
                                2005)4.27.2
                            
                            Warrant
                                issued by Generex Biotechnology Corporation to Cranshire
                                Capital, L.P. on
                                July 22, 2005 in connection with Exhibit 4.27.1 (incorporated
                                by reference
                                to Exhibit 4.27.2 to Generex Biotechnology Corporation’s Report on Form
                                10-K filed on October 31, 2005)4.28.1
                            
                            June
                                22, 2005 Amendment to Promissory Note and Agreement,
                                entered into April 6,
                                2005 by and between Generex Biotechnology Corporation
                                and Omicron Master
                                Trust (incorporated by reference to Exhibit 4.28.1
                                to Generex
                                Biotechnology Corporation’s Report on Form 10-K filed on October 31,
                                2005)4.28.2
                            
                            Warrant
                                issued by Generex Biotechnology Corporation to Omicron
                                Master Trust on
                                July 22, 2005 in connection with Exhibit 4.28.1 (incorporated
                                by reference
                                to Exhibit 4.28.2 to Generex Biotechnology Corporation’s Report on Form
                                10-K filed on October 31, 2005)4.29
                            
                            Warrant
                                issued by Generex Biotechnology Corporation toCranshire
                                Capital, L.P.on
                                October 20, 2005(incorporated
                                by reference to Exhibit 4.29 to Generex Biotechnology
                                Corporation’s Report
                                on Form 10-K filed on October 31, 2005)4.30
                            
                            Warrant
                                issued by Generex Biotechnology Corporation toIroquois
                                Capital, L.P.on
                                October 20, 2005(incorporated
                                by reference to Exhibit 4.30 to Generex Biotechnology
                                Corporation’s Report
                                on Form 10-K filed on October 31, 2005)4.31
                            
                            Form
                                of Warrant issued by Generex Biotechnology Corporation
                                on October 27, 2005(incorporated
                                by reference to Exhibit 4.31 to Generex Biotechnology
                                Corporation’s Report
                                on Form 10-K filed on October 31, 2005)4.32
                            
                            Amendment
                                to the Common Stock Purchase Warrant issued by Generex
                                Biotechnology
                                Corporation to Omicron Master Trust on June 17, 2005
                                (incorporated by
                                reference to Exhibit 4.1 to Generex Biotechnology
                                Corporation’s Report on
                                Form 8-K filed on October 31, 2005)
   62
  **Exhibit**
                              **Number**
                            
                            Description
                                of Exhibit(1)4.33
                            
                            Amendment
                                to the Common Stock Purchase Warrant issued by Generex
                                Biotechnology
                                Corporation to Smithfield Fiduciary LLC on June 17,
                                2005 (incorporated by
                                reference to Exhibit 4.2 to Generex Biotechnology
                                Corporation’s Report on
                                Form 8-K filed on October 31, 2005)4.34
                            
                            Amendment
                                to the Common Stock Purchase Warrant issued by Generex
                                Biotechnology
                                Corporation to Cranshire Capital, L.P. on June 17,
                                2005 (incorporated by
                                reference to Exhibit 4.3 to Generex Biotechnology
                                Corporation’s Report on
                                Form 8-K filed on October 31, 2005)4.35
                            
                            Amendment
                                to the Common Stock Purchase Warrant issued by Generex
                                Biotechnology to
                                Iroquois Capital LP on June 17, 2005 (incorporated
                                by reference to Exhibit
                                4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on
                                October 31, 2005)4.36
                            
                            Amendment
                                to the Additional Investment Right issued by Generex
                                Biotechnology
                                Corporation to Omicron Master Trust on June 17, 2005
                                (incorporated by
                                reference to Exhibit 4.6 to Generex Biotechnology
                                Corporation’s Report on
                                Form 8-K filed on October 31, 2005)4.37
                            
                            Additional
                                AIR Debenture issued by Generex Biotechnology Corporation
                                to Omicron
                                Master Trust on October 27, 2005 issued in connection
                                with Exhibit
                                4.364.38
                            
                            Additional
                                AIR Warrant issued by Generex Biotechnology Corporation
                                to Omicron Master
                                Trust on October 27, 2005 issued in connection with
                                Exhibit
                                4.364.39
                            
                            Amendment
                                No. 3 to Securities Purchase Agreement and Registration
                                Rights Agreement
                                entered into by and among Generex Biotechnology Corporation
                                and the
                                Purchasers listed on the signature pages thereto
                                (incorporated by
                                reference to Exhibit 4.1 to Generex Biotechnology
                                Corporation’s Report on
                                Form 8-K filed on December 5, 2005)4.40
                            
                            Form
                                of AIR Debentures issued in connection with Exhibit
                                4.39 (incorporated by
                                reference to Exhibit 4.4 to Generex Biotechnology
                                Corporation’s Report on
                                Form 8-K filed on December 5, 2005)4.41
                            
                            Form
                                of AIR Warrants issued in connection with Exhibit
                                4.39 (incorporated by
                                reference to Exhibit 4.5 to Generex Biotechnology
                                Corporation’s Report on
                                Form 8-K filed on December 5, 2005)4.42
                            
                            Form
                                of Additional AIRs issued in connection with Exhibit
                                4.39 (incorporated by
                                reference to Exhibit 4.6 to Generex Biotechnology
                                Corporation’s Report on
                                Form 8-K filed on December 5, 2005)4.43
                            
                            Form
                                of Amendment to the Additional Investment Right issued
                                by Generex
                                Biotechnology Corporation on June 17, 2005 in connection
                                with the First
                                AIR Exercise (incorporated by reference to Exhibit
                                4.2 to Generex
                                Biotechnology Corporation’s Report on Form 8-K filed on December 5,
                                2005)4.44
                            
                            Form
                                of Amendment to the Additional Investment Right issued
                                by Generex
                                Biotechnology Corporation on September 8, 2005 in
                                connection with the
                                Second AIR Exercise (incorporated by reference to
                                Exhibit 4.3 to Generex
                                Biotechnology Corporation’s Report on Form 8-K filed on December 5,
                                2005)4.45
                            
                            Form
                                of Warrant issued by Generex Biotechnology Corporation
                                to Cranshire
                                Capital, L.P. on December 9, 20059
                            
                            Form
                                of Voting Agreement entered into in connection with
                                Exhibit 4.18.1
                                (incorporated by reference to Exhibit 4.7 to Generex
                                Biotechnology
                                Corporation’s Report on Form 8-K filed on November 12, 2004)31.1
                            
                            Certification
                                of Chief Executive Officer pursuant to Section 302
                                of the Sarbanes-Oxley
                                Act of 200231.2
                            
                            Certification
                                of Chief Financial Officer pursuant to Section 302
                                of the Sarbanes-Oxley
                                Act of 200232
                            
                            Certification
                                of Chief Executive Officer and Chief Financial Officer
                                pursuant to Section
                                906 of the Sarbanes-Oxley Act of 2002


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






63





**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:
                  December15,
                  2005
            By:
            /s/
                Anna E. GluskinAnna
              E. Gluskin
              Chairman,
                President and Chief Executive OfficerDate:
                December15,
                2005
            By:
            /s/
              Rose C. PerriRose
                C. Perri
              Chief
                Operating Officer, Chief Financial Officer, Treasurer and
                Secretary








64





**Generex
      Biotechnology Corporation**


Form
      10-Q


October
      31, 2005


Exhibit
      Index




**Exhibit**
                    **Number**
                  
                  **Description
                      of Exhibit****(1)**2
                  
                  Agreement
                      and Plan of Merger among Generex Biotechnology Corporation,
                      Antigen
                      Express, Inc. and AGEXP Acquisition Inc. (incorporated by reference
                      to
                      Exhibit 2.1 to Generex Biotechnology Corporation’s Current Report on Form
                      8-K filed on August 15, 2003)3(I)
                  
                  Restated
                      Certificate of Incorporation of Generex Biotechnology Corporation,
                      as
                      amended (incorporated by reference to Exhibit 3.1 to Generex
                      Biotechnology
                      Corporation’s Report on Form 10-Q filed on March 15, 2004)3(II)
                  
                  Bylaws
                      of Generex Biotechnology Corporation (incorporated by reference
                      to Exhibit
                      3.2 to Generex Biotechnology Corporation’s Registration Statement on Form
                      S-1 (File No. 333-82667) filed on July 12, 1999)4.1
                  
                  Form
                      of common stock certificate (incorporated by reference to Exhibit
                      4.1 to
                      Generex Biotechnology Corporation’s Registration Statement on Form S-1
                      (File No. 333-82667) filed on July 12, 1999)
   65
  **Exhibit**
                      **Number**
                    
                    **Description of Exhibit(1)**4.2
                    
                    Certificate
                        of Designations, Preferences and Rights of Series A Preferred
                        Stock
                        (incorporated by reference to Exhibit 4.4 to Generex Biotechnology
                        Corporation’s Report on Form 8-K filed on January 23, 2001)4.3
                    
                    Form
                        of Warrant issued to Ladenburg Thalmann & Co., Inc. dated July 6, 2001
                        (incorporated by reference to Exhibit 4.15 to Generex Biotechnology
                        Corporation’s Registration Statement on Form S-3 (File No. 333-67118)
                        filed on August 8, 2001)4.4
                    
                    Form
                        of Warrant granted to Cranshire Capital, L.P.; RAM Trading
                        Ltd.; Gryphon
                        Master Fund; Kodiak Opportunity, L.P.; Kodiak Opportunity
                        3C7, L.P.;
                        Kodiak Opportunity Offshore, Ltd.; Novelly Exempt Trust;
                        Langley Partners,
                        L.P.; Montrose Investments, Ltd.; WEC Asset Management, LLC;
                        ZLP Master
                        Technology Fund, Ltd.; Alpha Capital Aktiengesellschaft;
                        and The dotCOM
                        Fund, LLC, dated July 6, 2001 (incorporated by reference
                        to Exhibit 3 to
                        Generex Biotechnology Corporation’s Report on Form 8-K filed on July 17,
                        2001)4.5
                    
                    Warrant
                        granted to Capital Ventures International, dated July 3,
                        2001
                        (incorporated by reference to Exhibit 6 to Generex Biotechnology
                        Corporation’s Report on Form 8-K filed on July 17, 2001)4.6
                    
                    Warrant
                        issued to Elliott International, L.P. and Elliott Associates,
                        L.P., dated
                        July 5, 2001 (incorporated by reference to Exhibit 9 to Generex
                        Biotechnology Corporation’s Report on Form 8-K filed on July 17,
                        2001)4.7
                    
                    Form
                        of Warrant issued to certain parties to October 2000 Private
                        Placement
                        (incorporated by reference to Exhibit 4 to Generex Biotechnology
                        Corporation’s Report on Form 8-K filed on October 16, 2000)4.8
                    
                    Form
                        of Warrant (GCR Series) held by Robert P. Carter, Harvey
                        Kaye, Fittube,
                        Inc., Edward Maskaly and Gulfstream Capital Group, L.C. (incorporated
                        by
                        reference to Exhibit 4.4.2 to Generex Biotechnology Corporation’s
                        Registration Statement on Form 10 filed on December 14, 1998,
                        as amended
                        February 24, 1999)4.9
                    
                    Letter
                        Agreement and Warrant with M. H. Meyerson & Co., Inc. dated November
                        17, 1998 (incorporated by reference to Exhibit 4.4.4 to Generex
                        Biotechnology Corporation’s Registration Statement on Form 10 filed on
                        December 14, 1998, as amended February 24, 1999)4.10.1
                    
                    Form
                        of Securities Purchase Agreement entered into with Cranshire
                        Capital,
                        L.P.; Gryphon Partners, L.P.; Langley Partners, L.P.; Lakeshore
                        Capital,
                        Ltd.; LH Financial; Omicron Capital; Photon Fund, Ltd.; Howard
                        Todd
                        Horberg and Vertical Ventures, LLC dated May 29, 2003 (incorporated
                        by
                        reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                        Form 10-Q/A for the quarter ended April 30, 2003 filed on
                        August 13,
                        2003)
   66
  Exhibit
                        Number
                      
                      **Description of Exhibit(1)**4.10.2
                      
                      Form
                          of Registration Rights Agreement entered into with Cranshire
                          Capital,
                          L.P.; Gryphon Partners, L.P.; Langley Partners, L.P.; Lakeshore
                          Capital,
                          Ltd.; LH Financial; Omicron Capital; Photon Fund, Ltd.;
                          Howard Todd
                          Horberg and Vertical Ventures, LLC dated May 29, 2003 (incorporated
                          by
                          reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                          Form 10-Q/A for the quarter ended April 30, 2003 filed
                          on August 13,
                          2003)4.10.3
                      
                      Form
                          of Warrant granted to Cranshire Capital, L.P.; Gryphon
                          Partners, L.P.;
                          Langley Partners, L.P.; Lakeshore Capital, Ltd.; LH Financial;
                          Omicron
                          Capital; Photon Fund, Ltd.; Howard Todd Horberg and Vertical
                          Ventures, LLC
                          dated May 29, 2003 (incorporated by reference to Exhibit
                          4.3 to Generex
                          Biotechnology Corporation’s Report on Form 10-Q/A for the quarter ended
                          April 30, 2003 filed on August 13, 2003)4.10.4
                      
                      Form
                          of Securities Purchase Agreement entered into with Cranshire
                          Capital, L.P.
                          dated June 6, 2003 (incorporated by reference to Exhibit
                          4.4 to Generex
                          Biotechnology Corporation’s Report on Form 10-Q/A for the quarter ended
                          April 30, 2003 filed on August 13, 2003)4.10.5
                      
                      Form
                          of Registration Rights Agreement entered into with Cranshire
                          Capital, L.P.
                          dated June 6, 2003 (incorporated by reference to Exhibit
                          4.5 to Generex
                          Biotechnology Corporation’s Report on Form 10-Q/A for the quarter ended
                          April 30, 2003 filed on August 13, 2003)4.10.6
                      
                      Form
                          of Warrant granted to Cranshire Capital, L.P. dated June
                          6, 2003
                          (incorporated by reference to Exhibit 4.6 to Generex Biotechnology
                          Corporation’s Report on Form 10-Q/A for the quarter ended April 30,
                          2003
                          filed on August 13, 2003)4.10.7
                      
                      Form
                          of replacement Warrant issued to warrant holders exercising
                          at reduced
                          exercise price in May and June 2003 (incorporated by reference
                          to Exhibit
                          4.13.7 to Generex Biotechnology Corporation’s Report on Form 10-K for the
                          period ended July 31, 2003 filed on October 29, 2003)4.11.1
                      
                      Securities
                          Purchase Agreement, dated December 19, 2003, by and among
                          Generex
                          Biotechnology Corporation and the investors named therein
                          (incorporated by
                          reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                          Form 8-K/A filed on March 24, 2004)4.11.2
                      
                      Registration
                          Rights Agreement, dated December 19, 2003, by and among
                          Generex
                          Biotechnology Corporation and the investors named therein
                          (incorporated by
                          reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                          Form 8-K/A filed on March 24, 2004)4.11.3
                      
                      Form
                          of Warrant issued in connection with Exhibit 4.11.1 (incorporated
                          by
                          reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                          Form 8-K/A filed on March 24, 2004)4.11.4
                      
                      Form
                          of Additional Investment Right issued in connection with
                          Exhibit 4.11.1
                          (incorporated by reference to Exhibit 4.4 to Generex Biotechnology
                          Corporation’s Report on Form 8-K/A filed on March 24, 2004)4.12.1
                      
                      Securities
                          Purchase Agreement, dated January 7, 2004, by and between
                          Generex
                          Biotechnology Corporation and ICN Capital Limited (incorporated
                          by
                          reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                          Form 8-K filed on March 1, 2004)4.12.2
                      
                      Registration
                          Rights Agreement, dated January 7, 2004, by and between
                          Generex
                          Biotechnology Corporation and ICN Capital Limited (incorporated
                          by
                          reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on
                          Form 8-K filed on March 1, 2004)4.12.3
                      
                      Warrant
                          issued in connection with Exhibit 4.12.1 (incorporated
                          by reference to
                          Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K
                          filed on March 1, 2004)4.12.4
                      
                      Additional
                          Investment Right issued in connection with Exhibit 4.12.1
                          (incorporated by
                          reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on
                          Form 8-K filed on March 1, 2004)4.13.1
                      
                      Securities
                          Purchase Agreement, dated January 9, 2004, by and between
                          Generex
                          Biotechnology Corporation and Vertical Ventures, LLC (incorporated
                          by
                          reference to Exhibit 4.5 to Generex Biotechnology Corporation’s Report on
                          Form 8-K filed on March 1, 2004)
   67
  Exhibit
                          Number
                        
                        Description
                            of Exhibit(1)4.13.2
                        
                        Registration
                            Rights Agreement, dated January 9, 2004, by and between
                            Generex
                            Biotechnology Corporation and Vertical Ventures, LLC
                            (incorporated by
                            reference to Exhibit 4.6 to Generex Biotechnology Corporation’s Report on
                            Form 8-K filed on March 1, 2004)4.13.3
                        
                        Warrant
                            issued in connection with Exhibit 4.13.1 (incorporated
                            by reference to
                            Exhibit 4.7 to Generex Biotechnology Corporation’s Report on Form 8-K
                            filed on March 1, 2004)4.13.4
                        
                        Additional
                            Investment Right issued in connection with Exhibit 4.13.1
                            (incorporated by
                            reference to Exhibit 4.8 to Generex Biotechnology Corporation’s Report on
                            Form 8-K filed on March 1, 2004)4.14.1
                        
                        Securities
                            Purchase Agreement, dated February 6, 2004, by and between
                            Generex
                            Biotechnology Corporation and Alexandra Global Master
                            Fund, Ltd.
                            (incorporated by reference to Exhibit 4.9 to Generex
                            Biotechnology
                            Corporation’s Report on Form 8-K filed on March 1, 2004)4.14.2
                        
                        Registration
                            Rights Agreement, dated February 6, 2004, by and between
                            Generex
                            Biotechnology Corporation and Alexandra Global Master
                            Fund, Ltd.
                            (incorporated by reference to Exhibit 4.10 to Generex
                            Biotechnology
                            Corporation’s Report on Form 8-K filed on March 1, 2004)4.14.3
                        
                        Warrant
                            issued in connection with Exhibit 4.14.1 (incorporated
                            by reference to
                            Exhibit 4.11 to Generex Biotechnology Corporation’s Report on Form 8-K
                            filed on March 1, 2004)4.14.4
                        
                        Additional
                            Investment Right issued in connection with Exhibit 4.14.1
                            (incorporated by
                            reference to Exhibit 4.12 to Generex Biotechnology Corporation’s Report on
                            Form 8-K filed on March 1, 2004)4.14.5
                        
                        Escrow
                            Agreement, dated February 26, 2004, by and among Generex
                            Biotechnology
                            Corporation, Eckert Seamans Cherin & Mellott, LLC and Alexandra Global
                            Master Fund, Ltd. (incorporated by reference to Exhibit
                            4.13 to Generex
                            Biotechnology Corporation’s Report on Form 8-K filed on March 1,
                            2004)4.15.1
                        
                        Securities
                            Purchase Agreement, dated February 11, 2004, by and between
                            Generex
                            Biotechnology Corporation and Michael Sourlis (incorporated
                            by reference
                            to Exhibit 4.14 to Generex Biotechnology Corporation’s Report on Form 8-K
                            filed on March 1, 2004)4.15.2
                        
                        Registration
                            Rights Agreement, dated February 11, 2004, by and between
                            Generex
                            Biotechnology Corporation and Michael Sourlis (incorporated
                            by reference
                            to Exhibit 4.15 to Generex Biotechnology Corporation’s Report on Form 8-K
                            filed on March 1, 2004)4.15.3
                        
                        Warrant
                            issued in connection with Exhibit 4.15.1 (incorporated
                            by reference to
                            Exhibit 4.16 to Generex Biotechnology Corporation’s Report on Form 8-K
                            filed on March 1, 2004)4.15.4
                        
                        Additional
                            Investment Right issued in connection with Exhibit 4.15.1
                            (incorporated by
                            reference to Exhibit 4.17 to Generex Biotechnology Corporation’s Report on
                            Form 8-K filed on March 1, 2004)4.16.1
                        
                        Securities
                            Purchase Agreement, dated February 13, 2004, by and between
                            Generex
                            Biotechnology Corporation and Zapfe Holdings, Inc. (incorporated
                            by
                            reference to Exhibit 4.18 to Generex Biotechnology Corporation’s Report on
                            Form 8-K filed on March 1, 2004)
   68
  **Exhibit**
                            **Number**
                          
                          **Description
                              of Exhibit(1)**4.16.2
                          
                          Registration
                              Rights Agreement, dated February 13, 2004, by and between
                              Generex
                              Biotechnology Corporation and Zapfe Holdings, Inc.
                              (incorporated by
                              reference to Exhibit 4.19 to Generex Biotechnology
                              Corporation’s Report on
                              Form 8-K filed on March 1, 2004)4.16.3
                          
                          Warrant
                              issued in connection with Exhibit 4.16.1 (incorporated
                              by reference to
                              Exhibit 4.20 to Generex Biotechnology Corporation’s Report on Form 8-K
                              filed on March 1, 2004)4.16.4
                          
                          Additional
                              Investment Right issued in connection with Exhibit
                              4.16.1 (incorporated by
                              reference to Exhibit 4.21 Generex Biotechnology Corporation’s Report on
                              Form 8-K filed on March 1, 2004)4.17.1
                          
                          Securities
                              Purchase Agreement, dated June 23, 2004, by and among
                              Generex
                              Biotechnology Corporation and the investors named therein
                              (incorporated by
                              reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                              Form 8-K filed on July 14, 2004)4.17.2
                          
                          Registration
                              Rights Agreement, dated June 23, 2004, by and among
                              Generex Biotechnology
                              Corporation and the investors (incorporated by reference
                              to Exhibit 4.2 to
                              Generex Biotechnology Corporation’s Report on Form 8-K filed on July 14,
                              2004)4.17.3
                          
                          Form
                              of Warrant issued in connection with Exhibit 4.17.1
                              (incorporated by
                              reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                              Form 8-K filed on July 14, 2004)4.17.4
                          
                          Form
                              of Additional Investment Right issued in connection
                              Exhibit 4.17.1
                              (incorporated by reference to Exhibit 4.4 to Generex
                              Biotechnology
                              Corporation’s Report on Form 8-K filed on July 14, 2004)4.18.1
                          
                          Securities
                              Purchase Agreement, dated November 10, 2004, by and
                              among Generex
                              Biotechnology Corporation and the investors named therein
                              (incorporated by
                              reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on
                              Form 8-K filed on November 12, 2004)4.18.2
                          
                          Form
                              of 6% Secured Convertible Debenture issued in connection
                              with Exhibit
                              4.21.1 (incorporated by reference to Exhibit 4.2 to
                              Generex Biotechnology
                              Corporation’s Report on Form 8-K filed on November 12, 2004)4.18.3
                          
                          Registration
                              Rights Agreement, dated November 10, 2004, by and among
                              Generex
                              Biotechnology Corporation and the investors named therein
                              (incorporated by
                              reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on
                              Form 8-K filed on November 12, 2004)4.18.4
                          
                          Form
                              of Warrant issued in connection with Exhibit 4.18.1
                              (incorporated by
                              reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on
                              Form 8-K filed on November 12, 2004)4.18.5
                          
                          Form
                              of Additional Investment Right issued in connection
                              with Exhibit 4.18.1
                              (incorporated by reference to Exhibit 4.5 to Generex
                              Biotechnology
                              Corporation’s Report on Form 8-K filed on November 12, 2004)4.18.6
                          
                          Custodial
                              and Security Agreement, dated November 10, 2004, by
                              and among Generex
                              Biotechnology Corporation, Feldman Weinstein LLP, as
                              custodian, and the
                              investors named therein (incorporated by reference
                              to Exhibit 4.6 to
                              Generex Biotechnology Corporation’s Report on Form 8-K filed on November
                              12, 2004)4.18.7
                          
                          Form
                              of Voting Agreement entered into in connection with
                              Exhibit 4.18.1
                              (incorporated by reference to Exhibit 4.7 to Generex
                              Biotechnology
                              Corporation’s Report on Form 8-K filed on November 12, 2004)
   69
  **Exhibit**
                              **Number**
                            
                            **Description
                                of Exhibit(1)**4.19
                            
                            Termination
                                Agreement, dated December 17, 2004, by and among
                                Generex Biotechnology
                                Corporation and Elan Corporation plc and Elan International
                                Services, Ltd.
                                (incorporated by reference to Exhibit 4.19 to Generex
                                Biotechnology
                                Corporation’s Quarterly Report on Form 10-Q filed on June 14,
                                2005)4.20
                            
                            Warrant
                                issued to The Aethena Group, LLC on April 28, 2005
                                (incorporated by
                                reference to Exhibit 4.20 to Generex Biotechnology
                                Corporation’s Quarterly
                                Report on Form 10-Q filed on June 14, 2005)4.21.1
                            
                            Promissory
                                Note and Agreement, dated March 28, 2005 by and between
                                Generex
                                Biotechnology Corporation and Cranshire Capital,
                                L.P. (incorporated by
                                reference to Exhibit 4 to Generex Biotechnology Corporation’s Report on
                                Form 8-K filed on April 1, 2005)4.21.2
                            
                            Warrant
                                issued to Cranshire Capital, L.P. entered into in
                                connection with Exhibit
                                4.21.1 (incorporated by reference to Exhibit 4.21.2
                                to Generex
                                Biotechnology Corporation’s Quarterly Report on Form 10-Q filed on June
                                14, 2005)4.22.1
                            
                            Promissory
                                Note and Agreement,
                                entered intoApril
                                6, 2005 by and between Generex Biotechnology Corporation
                                and Omicron
                                Master Trust (incorporated by reference to Exhibit
                                4.22.1 to Generex
                                Biotechnology Corporation’s Quarterly Report on Form 10-Q filed on June
                                14, 2005)4.22.2
                            
                            Warrant
                                issued to Omicron Master Trust entered into in connection
                                with Exhibit
                                4.22.1 (incorporated by reference to Exhibit 4.22.2
                                to Generex
                                Biotechnology Corporation’s Quarterly Report on Form 10-Q filed on June
                                14, 2005)4.23.1
                            
                            June
                                7, 2005 Amendment to Promissory Note and Agreement,
                                dated March 28, 2005
                                by and between Generex Biotechnology Corporation
                                and Cranshire Capital,
                                L.P. (incorporated by reference to Exhibit 4.1 to
                                Generex Biotechnology
                                Corporation’s Report on Form 8-K filed on June 10, 2005)4.23.2
                            
                            Warrant
                                issued by Generex Biotechnology Corporation to Cranshire
                                Capital, L.P. on
                                June 7, 2005 in connection with Exhibit 4.23.1 (incorporated
                                by reference
                                to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K
                                filed on June 10, 2005)4.24.1
                            
                            June
                                7, 2005 Amendment to Promissory Note and Agreement,
                                entered into April 6,
                                2005 by and between Generex Biotechnology Corporation
                                and Omicron Master
                                Trust(incorporated
                                by reference to Exhibit 4.24.1 to Generex Biotechnology
                                Corporation’s
                                Quarterly Report on Form 10-Q filed on June 14, 2005)4.24.2
                            
                            Warrant
                                issued by Generex Biotechnology Corporation to Omicron
                                Master Trust on
                                June 7, 2005 in connection with Exhibit 4.24.1 (incorporated
                                by reference
                                to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K
                                filed on June 10, 2005)4.25.1
                            
                            Amendment
                                No. 1 to Securities Purchase Agreement and Registration
                                Rights Agreement
                                entered into by and between Generex Biotechnology
                                Corporation and the
                                Purchasers listed on the signature pages thereto
                                (incorporated by
                                reference to Exhibit 4.1 to Generex Biotechnology
                                Corporation’s Report on
                                Form 8-K filed on June 17, 2005)4.25.2
                            
                            Form
                                of AIR Debenture issued in connection with Exhibit
                                4.25.1 (incorporated by
                                reference to Exhibit 4.25.2 to Generex Biotechnology
                                Corporation’s Report
                                on Form 10-K filed on October 31, 2005)4.25.3
                            
                            Form
                                of AIR Warrant issued in connection with Exhibit
                                4.25.1(incorporated by
                                reference to Exhibit 4.25.3 to Generex Biotechnology
                                Corporation’s Report
                                on Form 10-K filed on October 31, 2005)
   70
  **Exhibit**
                                **Number**
                              
                              Description
                                  of Exhibit(1)4.25.4
                              
                              Form
                                  of Additional AIR issued in connection with Exhibit
                                  4.25.1 (incorporated
                                  by reference to Exhibit 4.25.4 to Generex Biotechnology
                                  Corporation’s
                                  Report on Form 10-K filed on October 31, 2005)4.26.1
                              
                              Amendment
                                  No. 2 to Securities Purchase Agreement and Registration
                                  Rights Agreement
                                  entered into by and between Generex Biotechnology
                                  Corporation and the
                                  Purchasers listed on the signature pages thereto
                                  (incorporated by
                                  reference to Exhibit 4.1 to Generex Biotechnology
                                  Corporation’s Report on
                                  Form 8-K filed on September 9, 2005)4.26.2
                              
                              Form
                                  of Air Debenture issued in connection with Exhibit
                                  4.26.1 (incorporated by
                                  reference to Exhibit 4.2 to Generex Biotechnology
                                  Corporation’s Report on
                                  Form 8-K filed on September 9, 2005)4.26.3
                              
                              Form
                                  of AIR Warrant issued in connection with Exhibit
                                  4.26.1 (incorporated by
                                  reference to Exhibit 4.3 to Generex Biotechnology
                                  Corporation’s Report on
                                  Form 8-K filed on September 9, 2005)4.26.4
                              
                              Form
                                  of Additional AIR issued in connection with Exhibit
                                  4.26.1 (incorporated
                                  by reference to Exhibit 4.4 to Generex Biotechnology
                                  Corporation’s Report
                                  on Form 8-K filed on September 9, 2005)4.27.1
                              
                              July
                                  22, 2005 Amendment to Promissory Note and Agreement,
                                  entered into March
                                  28, 2005 by and between Generex Biotechnology Corporation
                                  and Cranshire
                                  Capital, L.P. (incorporated by reference to Exhibit
                                  4.27.1 to Generex
                                  Biotechnology Corporation’s Report on Form 10-K filed on October 31,
                                  2005)4.27.2
                              
                              Warrant
                                  issued by Generex Biotechnology Corporation to
                                  Cranshire Capital, L.P. on
                                  July 22, 2005 in connection with Exhibit 4.27.1
                                  (incorporated by reference
                                  to Exhibit 4.27.2 to Generex Biotechnology Corporation’s Report on Form
                                  10-K filed on October 31, 2005)4.28.1
                              
                              June
                                  22, 2005 Amendment to Promissory Note and Agreement,
                                  entered into April 6,
                                  2005 by and between Generex Biotechnology Corporation
                                  and Omicron Master
                                  Trust (incorporated by reference to Exhibit 4.28.1
                                  to Generex
                                  Biotechnology Corporation’s Report on Form 10-K filed on October 31,
                                  2005)4.28.2
                              
                              Warrant
                                  issued by Generex Biotechnology Corporation to
                                  Omicron Master Trust on
                                  July 22, 2005 in connection with Exhibit 4.28.1
                                  (incorporated by reference
                                  to Exhibit 4.28.2 to Generex Biotechnology Corporation’s Report on Form
                                  10-K filed on October 31, 2005)4.29
                              
                              Warrant
                                  issued by Generex Biotechnology Corporation toCranshire
                                  Capital, L.P.on
                                  October 20, 2005(incorporated
                                  by reference to Exhibit 4.29 to Generex Biotechnology
                                  Corporation’s Report
                                  on Form 10-K filed on October 31, 2005)4.30
                              
                              Warrant
                                  issued by Generex Biotechnology Corporation toIroquois
                                  Capital, L.P.on
                                  October 20, 2005(incorporated
                                  by reference to Exhibit 4.30 to Generex Biotechnology
                                  Corporation’s Report
                                  on Form 10-K filed on October 31, 2005)4.31
                              
                              Form
                                  of Warrant issued by Generex Biotechnology Corporation
                                  on October 27, 2005(incorporated
                                  by reference to Exhibit 4.31 to Generex Biotechnology
                                  Corporation’s Report
                                  on Form 10-K filed on October 31, 2005)4.32
                              
                              Amendment
                                  to the Common Stock Purchase Warrant issued by
                                  Generex Biotechnology
                                  Corporation to Omicron Master Trust on June 17,
                                  2005 (incorporated by
                                  reference to Exhibit 4.1 to Generex Biotechnology
                                  Corporation’s Report on
                                  Form 8-K filed on October 31, 2005)
   71
  **Exhibit**
                                **Number**
                              
                              Description
                                  of Exhibit(1)4.33
                              
                              Amendment
                                  to the Common Stock Purchase Warrant issued by
                                  Generex Biotechnology
                                  Corporation to Smithfield Fiduciary LLC on June
                                  17, 2005 (incorporated by
                                  reference to Exhibit 4.2 to Generex Biotechnology
                                  Corporation’s Report on
                                  Form 8-K filed on October 31, 2005)4.34
                              
                              Amendment
                                  to the Common Stock Purchase Warrant issued by
                                  Generex Biotechnology
                                  Corporation to Cranshire Capital, L.P. on June
                                  17, 2005 (incorporated by
                                  reference to Exhibit 4.3 to Generex Biotechnology
                                  Corporation’s Report on
                                  Form 8-K filed on October 31, 2005)4.35
                              
                              Amendment
                                  to the Common Stock Purchase Warrant issued by
                                  Generex Biotechnology to
                                  Iroquois Capital LP on June 17, 2005 (incorporated
                                  by reference to Exhibit
                                  4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on
                                  October 31, 2005)4.36
                              
                              Amendment
                                  to the Additional Investment Right issued by Generex
                                  Biotechnology
                                  Corporation to Omicron Master Trust on June 17,
                                  2005 (incorporated by
                                  reference to Exhibit 4.6 to Generex Biotechnology
                                  Corporation’s Report on
                                  Form 8-K filed on October 31, 2005)4.37
                              
                              Additional
                                  AIR Debenture issued by Generex Biotechnology Corporation
                                  to Omicron
                                  Master Trust on October 27, 2005 issued in connection
                                  with Exhibit
                                  4.364.38
                              
                              Additional
                                  AIR Warrant issued by Generex Biotechnology Corporation
                                  to Omicron Master
                                  Trust on October 27, 2005 issued in connection
                                  with Exhibit
                                  4.364.39
                              
                              Amendment
                                  No. 3 to Securities Purchase Agreement and Registration
                                  Rights Agreement
                                  entered into by and among Generex Biotechnology
                                  Corporation and the
                                  Purchasers listed on the signature pages thereto
                                  (incorporated by
                                  reference to Exhibit 4.1 to Generex Biotechnology
                                  Corporation’s Report on
                                  Form 8-K filed on December 5, 2005)4.40
                              
                              Form
                                  of AIR Debentures issued in connection with Exhibit
                                  4.39 (incorporated by
                                  reference to Exhibit 4.4 to Generex Biotechnology
                                  Corporation’s Report on
                                  Form 8-K filed on December 5, 2005)4.41
                              
                              Form
                                  of AIR Warrants issued in connection with Exhibit
                                  4.39 (incorporated by
                                  reference to Exhibit 4.5 to Generex Biotechnology
                                  Corporation’s Report on
                                  Form 8-K filed on December 5, 2005)4.42
                              
                              Form
                                  of Additional AIRs issued in connection with Exhibit
                                  4.39 (incorporated by
                                  reference to Exhibit 4.6 to Generex Biotechnology
                                  Corporation’s Report on
                                  Form 8-K filed on December 5, 2005)4.43
                              
                              Form
                                  of Amendment to the Additional Investment Right
                                  issued by Generex
                                  Biotechnology Corporation on June 17, 2005 in connection
                                  with the First
                                  AIR Exercise (incorporated by reference to Exhibit
                                  4.2 to Generex
                                  Biotechnology Corporation’s Report on Form 8-K filed on December 5,
                                  2005)4.44
                              
                              Form
                                  of Amendment to the Additional Investment Right
                                  issued by Generex
                                  Biotechnology Corporation on September 8, 2005
                                  in connection with the
                                  Second AIR Exercise (incorporated by reference
                                  to Exhibit 4.3 to Generex
                                  Biotechnology Corporation’s Report on Form 8-K filed on December 5,
                                  2005)4.45
                              
                              Form
                                  of Warrant issued by Generex Biotechnology Corporation
                                  to Cranshire
                                  Capital, L.P. on December 9, 20059
                              
                              Form
                                  of Voting Agreement entered into in connection
                                  with Exhibit 4.18.1
                                  (incorporated by reference to Exhibit 4.7 to Generex
                                  Biotechnology
                                  Corporation’s Report on Form 8-K filed on November 12, 2004)31.1
                              
                              Certification
                                  of Chief Executive Officer pursuant to Section
                                  302 of the Sarbanes-Oxley
                                  Act of 200231.2
                              
                              Certification
                                  of Chief Financial Officer pursuant to Section
                                  302 of the Sarbanes-Oxley
                                  Act of 200232
                              
                              Certification
                                  of Chief Executive Officer and Chief Financial
                                  Officer pursuant to Section
                                  906 of the Sarbanes-Oxley Act of 2002
 (1)
                In
                    the case of incorporation by reference to documents filed by
                    the
                    Registrant under the Exchange Act, the Registrant’s file number under the
                    Exchange Act is 000-25169.






72