UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2005

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

EXCHANGE ACT OF 1934

For the transition period from_________________ to ________________

COMMISSION FILE NUMBER: 0-25169

GENEREX BIOTECHNOLOGY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		98-0178636
(State of other jurisdiction of		(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 INFORMATION

Item 1.	Financial Statements.

	(Unaudited) Consolidated Balance Sheets - October 31, 2005 and July 31, 2005	3

	Consolidated Statements of Operations -- for the three month periods ended October 31, 2005 and 2004, and cumulative from November 2, 1995 to October 31, 2005	4

	Consolidated 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	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24


Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53

Item 4.	Controls and Procedures	53

PART II: OTHER INFORMATION

Item 1.	Legal Proceedings	54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 3.	Defaults Upon Senior Securities	56

Item 4.	Submission of Matters to a Vote of Security Holders	56

Item 5.	Other Information	56

Item 6.	Exhibits	56

Signatures		64

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

	Unaudited
	October 31,			July 31,
	2005			2005
ASSETS
Current Assets:
Cash and cash equivalents	$	7,880,081		$	586,530
Restricted cash		183,311			204,734
Other current assets		302,064			165,586
Deferred debt issuance costs		432,056			337,798
Total Current Assets		8,797,512			1,294,648


Property and Equipment, Net		2,825,911			3,976,742
Assets Held for Investment, Net		3,552,218			2,371,749
Patents, Net		5,373,573			5,443,094
Due From Related Party		394,702			379,612

TOTAL ASSETS	$	20,943,916		$	13,465,845


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable and accrued expenses	$	2,525,405		$	2,410,846
Short-term advance		340,503			325,179
Current maturities of long-term debt		2,571,530			2,571,530
Convertible Debentures, Net of Debt Discount of $1,162,838 and
$2,108,459 at October 31, 2005 and July 31, 2005, respectively		293,023			1,314,926
Total Current Liabilities		5,730,461			6,622,481

Long-Term Debt, Net		799,993			716,361

Commitments and Contingencies

Stockholders’ Equity:
Special Voting Rights Preferred stock, $.001 par value;
authorized, issued and outstanding 1,000 shares at
October 31, 2005 and July 31, 2005, respectively		1			1
Common stock, $.001 par value; authorized 150,000,000 shares at
October 31, 2005 and July 31, 2005; 58,318,489 and 41,933,898
shares issued and outstanding, respectively		58,319			41,935
Additional paid-in capital		143,728,962			126,044,326
Subscription receivable		(500,000	)		—
Deficit accumulated during the development stage		(129,531,326	)		(120,528,108	)
Accumulated other comprehensive income		657,506			568,849
Total Stockholders’ Equity		14,413,462			6,127,003

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	20,943,916		$	13,465,845

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

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

							Cumulative From
							November 2, 1995
	For the Three Months Ended						(Date of Inception)
	October 31,						to October 31,
	2005			2004			2005

Revenues	$	43,750		$	142,750		$	2,063,046

Operating Expenses:
Research and development		676,379			3,395,130			55,594,824
Research and development - related party		—			—			220,218
General and administrative		1,474,856			3,422,238			66,925,970
General and administrative - related party		—			—			314,328
Total Operating Expenses		2,151,235			6,817,368			123,055,340

Operating Loss		(2,107,485	)		(6,674,618	)		(120,992,294	)

Other Income (Expense):
Miscellaneous income (expense)		—			—			195,693
Income from Rental Operations, net		4,853			47,066			209,529
Interest income		1,337			15,438			3,395,817
Interest 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		—			—			3,038,185

Net Loss		(9,003,218	)		(6,658,028	)		(127,236,269	)

Preferred Stock Dividend		—			—			2,295,057

Net 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 of
Common Stock Outstanding		45,798,108			34,810,981

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

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

							Cumulative From
							November 2, 1995
	For the Three Months Ended						(Date of Inception)
	October 31,						to October 31,
	2005			2004			2005
Cash Flows From Operating Activities:
Net loss	$	(9,003,218	)	$	(6,658,028	)	$	(127,236,269	)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization		279,984			271,738			3,861,164
Minority interest share of loss		—			—			(3,038,185	)
Reduction of notes receivable - common stock in exchange
for services rendered		—			—			423,882
Write-off of uncollectible notes receivable - common stock		—			—			391,103
Write-off of deferred offering costs		—			—			3,406,196
Write-off of abandoned patents		1,278			—			77,364
Loss on extinguishment of debt		162,348			—			1,508,689
Common stock issued for services rendered		(27,211	)		675,800			4,759,053
Amortization of prepaid services in conjunction with common stock issuance		46,125			—			46,125
Non-cash compensation expense		—			—			45,390
Stock options and warrants issued for services rendered		—			490,600			6,833,873
Preferred stock issued for services rendered		—			—			100
Treasury stock redeemed for non-performance of services		—			(138,000	)		(138,000	)
Amortization of deferred debt issuance costs and loan origination fees		147,630			—			395,737
Amortization of discount on convertible debentures		3,415,992			—			7,150,803
Common stock and warrants issued as interest payment		3,151,489			—			3,228,485
Interest on short-term advance		6,658			—			15,324
Founders’ shares transferred for services rendered		—			—			353,506
Fees in connection with short-term refinancing of long-term debt		—			—			105,300
Changes in operating assets and liabilities (excluding the effects of acquisition):
Miscellaneous receivables		—			—			43,812
Other current assets		5,562			604,905			(106,679	)
Accounts payable and accrued expenses		173,525			1,048,260			6,039,276
Other, net		—			—			110,317
Net 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		—			—			126,687,046
Purchases of short-term investments		—			—			(126,687,046	)
Cash received in conjunction with merger		—			—			82,232
Advances 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		—			—			89,683
Net Cash Provided by (Used in) Investing Activities		6,487			285,990			(9,729,140	)

Cash Flows From Financing Activities:
Proceeds from short-term advance		—			—			325,179
Proceeds from issuance of long-term debt		—			—			1,970,148
Repayment of long-term debt		(52,693	)		(19,269	)		(1,259,631	)
Change in due to related parties		—			—			154,541
Proceeds from exercise of warrants		6,391,999			—			10,944,983
Proceeds from exercise of stock options		101,545			—			1,111,985
Proceeds from minority interest investment		—			—			3,038,185
Proceeds from issuance of preferred stock		—			—			12,015,000
Proceeds from issuance of convertible debentures, net		2,485,000			—			8,784,930
Repayments of convertible debentures		—			—			(461,358	)
Purchase of treasury stock		—			—			(483,869	)
Proceeds from issuance of common stock, net		—			—			73,283,715
Purchase and retirement of common stock		—			—			(119,066	)
Net Cash Provided by (Used in) Financing Activities		8,925,851			(19,269	)		109,304,742

Effect of Exchange Rates on Cash		1,051			16,091			28,113

Net Increase (Decrease) in Cash and Cash Equivalents		7,293,551			(3,421,913	)		7,880,081

Cash 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.

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.

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.

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 Months
	Ended
	October 31,
	2004

Net Loss Available to Common Stockholders, as Reported	$	(6,658,028	)

Add: Total Stock-Based Employee Compensation Included in Reported Net Loss		—

Deduct: Total Stock-Based Employee Compensation Income
Determined Under Fair Value Based Method, Net of
Related Tax Effect		1,430,640

Pro 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.

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		Weighted
				Average		Average
				Exercise		Remaining
				Price		Contractual
	Shares			Share		Term (Years)

Outstanding, August 1, 2005		11,607,269		$	1.51		3.66
Granted		—		$	—		—
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:

				Weighted
				Average
				Grant Date
	Shares			Fair Value

Non-vested Stock Options, August 1, 2005		628,000		$	0.72
Granted		—		$	—
Cancelled		—		$	—
Vested		(628,000	)	$	0.72
Exercised				$	—
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.

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		2005

Accounts Payable	$	1,031,205	$	999,726
Accounting and Auditing		293,846		274,627
Accrued Legal Fees and Settlement		511,908		599,461
Termination Agreements and Severance Pay		276,283		265,720
Executive Compensation and Directors Fees		412,163		271,312
Total	$	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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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 Ended
	October 31,
	2005		2004
Cash paid during the period for:
Interest	$	56,427	$	45,914
Income taxes	$	—	$	—

Disclosure of non-cash investing and financing activities:

Value of common stock issued in conjunction with capitalized
services upon issuance of convertible debentures	$	140,000	$	—
Value of warrants issued in conjunction with capitalized
services upon issuance of convertible debentures	$	44,850	$	—
Increase in deferred debt issuance costs included in
accounts payable and accrued expenses in conjunction
with capitalized services upon issuance of convertible
debentures	$	35,000	$	—
Costs paid from proceeds in conjunction with capitalized
services upon issuance of convertible debentures	$	15,000	$	—
Value of warrants issued in conjunction with issuance of
convertible debentures and related beneficial conversion
feature	$	2,470,370	$	—
Satisfaction of accounts payable through the issuance of
common stock	$	133,605	$	—
Principal repayment of convertible debentures through the
issuance of common stock	$	782,308	$	—
Issuance of common stock in conjunction with convertible
debenture conversion	$	3,685,217	$	—
Increase in subscription receivable as a result of warrant
exercises	$	500,000	$	—
Increase in other current assets for the prepayment of services
through 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).

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.

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		Total
	Common Stock				Paid-In		Stockholders’
	Shares		Amount		Capital		Equity
Convertible Debenture Conversions		5,786,692	$	5,787	$	3,718,313	$	3,724,100
Convertible Debenture Monthly
Repayments		1,451,929		1,452		981,272		982,724
Warrants and Stock Options Exercised
for Cash		8,546,376		8,546		6,984,997		6,993,543
Issuance for Services and Accounts
Payable		599,594		600		410,294		410,894

Total		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.

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

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:

our expectations concerning product candidates for our technologies;

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

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

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:

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

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

the inherent uncertainties associated with clinical trials of product candidates;

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

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

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.

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.

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.

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-lyn™, 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-lyn™ 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-lyn™ 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.

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:

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;

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

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”).

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.

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.

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.

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.

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.

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.

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:

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”);

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

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.

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:

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;

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

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.

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.

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.

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.

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.

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.

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.

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.

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	0
Capital Lease Obligations	0	0	0	0	0
Operating Lease Obligations	70,802	31,650	30,202	8,950	0
Purchase Obligations	0	0	0	0	0
Other Long-Term Liabilities Reflected on the Registrant's Balance Sheet under GAAP	0	0	0	0	0
Total	$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.

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.

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:

to proceed with the development of our buccal insulin product;

to develop other buccal and immunomedicine products;

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

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

to establish and expand our manufacturing capabilities;

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

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

to otherwise carry on business.

In the past, we have funded most of our development and other costs through equity financing. We anticipate that our existing capital resources will enable us to maintain currently planned operations through the next 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.

Risks Related to Our Technologies

With the exception of Oral-lyn™, 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-lyn™, 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.

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:

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

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

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

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

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

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

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.

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.

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:

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

changes in market valuation of companies in our industry generally;

variations in operating results;

changes in governmental regulations;

developments in patent and other proprietary rights;

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

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

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

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

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

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 Rate per 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.

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.

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.

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)

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)

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)

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)

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)

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 into April 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)

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 to Cranshire 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 to Iroquois 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)

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 4.36
4.38		Additional AIR Warrant issued by Generex Biotechnology Corporation to Omicron Master Trust on October 27, 2005 issued in connection with Exhibit 4.36
4.39		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, 2005
9		Form of Voting Agreement entered into in connection with Exhibit 4.18.1 (incorporated by reference to Exhibit 4.7 to Generex Biotechnology Corporation’s Report on Form 8-K filed on November 12, 2004)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

SIGNATURES

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

	GENEREX BIOTECHNOLOGY CORPORATION (Registrant)


Date: December 15, 2005	By:	/s/ Anna E. Gluskin
		Anna E. Gluskin Chairman, President and Chief Executive Officer

Date: December 15, 2005	By:	/s/ Rose C. Perri
		Rose C. Perri Chief Operating Officer, Chief Financial Officer, Treasurer and Secretary

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)

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)

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)

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)

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)

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 into April 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)

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 to Cranshire 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 to Iroquois 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)

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 4.36
4.38		Additional AIR Warrant issued by Generex Biotechnology Corporation to Omicron Master Trust on October 27, 2005 issued in connection with Exhibit 4.36
4.39		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, 2005
9		Form of Voting Agreement entered into in connection with Exhibit 4.18.1 (incorporated by reference to Exhibit 4.7 to Generex Biotechnology Corporation’s Report on Form 8-K filed on November 12, 2004)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		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.

Exhibit 4.37

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: October 27, 2005

Original Conversion Price (subject to adjustment herein): $0.82

$500,000

6% SECURED CONVERTIBLE DEBENTURE

DUE JANUARY 27, 2007

THIS DEBENTURE of Generex Biotechnology Company, a Delaware corporation, having a principal place of business at 33 Harbour Square, Suite 202, Toronto, Ontario Canada M5J2G2 (the “Company”), is designated as its 6% Convertible Debenture, due January 27, 2007 (the “Debenture”).

FOR VALUE RECEIVED, the Company promises to pay to Omicron Master Trust or its registered assigns (the “Holder”), the principal sum of $500,000 on January 27, 2007 or such earlier date as the Debentures are required or permitted to be repaid as provided hereunder (the “Maturity Date”), and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined herein have the meanings given to such terms in the Purchase Agreement Amendment, or if not found therein, the Purchase Agreement and (b) the following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(d).

“Base Conversion Price” shall have the meaning set forth in Section 5(b).

“Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.

“Buy-In” shall have the meaning set forth in Section 4(d)(v).

“Change of Control Transaction” means the occurrence after the date hereof of any of (i) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 33% of the voting securities of the Company, or (ii) a replacement at one time or within a three year period of more than one-half of the members of the Company’s board of directors which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof), or (iii) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (i) or (ii).

“Common Stock” means the common stock, par value $0.001 per share, of the Company and stock of any other class into which such shares may hereafter have been reclassified or changed.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Price” shall have the meaning set forth in Section 4(b).

“Conversion Shares” means the shares of Common Stock issuable upon conversion of Debentures or as payment of interest in accordance with the terms.

“Debenture Register” shall have the meaning set forth in Section 2(c).

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

“Effectiveness Period” shall have the meaning given to such term in the Registration Rights Agreement and the Purchase Agreement Amendment.

“Equity Conditions” shall mean, during the period in question, (i) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notice of Conversions, if any, (ii) all liquidated damages and other amounts owing in respect of the Debentures shall have been paid; (iii) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future), (iv) the Common Stock is trading on the Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed for trading on a Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (v) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (vi) there is then existing no Event of Default or event which, with the passage of time or the giving of notice, would constitute an Event of Default, (vii) all of the shares issued or issuable pursuant to the transaction proposed would not violate the limitations set forth in Section 4(c), (viii) no public announcement of a pending or proposed Fundamental Transaction, Change of Control Transaction or acquisition transaction has occurred that has not been consummated, and (ix) the Holder is not then in possession of what could be deemed material, non-public information, in the reasonable determination of the Holder.

“Event of Default” shall have the meaning set forth in Section 8.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Fundamental Transaction” shall have the meaning set forth in Section 5(d).

“Interest Conversion Rate” means the lesser of (a) the Conversion Price and (b) 90% of the average of the 20 VWAPs immediately prior to the applicable Interest Payment Date.

“Interest Payment Date” shall have the meaning set forth in Section 2(a).

“Late Fees” shall have the meaning set forth in Section 2(d).

“Mandatory Prepayment Amount” for any Debentures shall equal the sum of (i) the greater of: (A) 130% of the principal amount of Debentures to be prepaid, plus all accrued and unpaid interest thereon, or (B) the principal amount of Debentures to be prepaid, plus all other accrued and unpaid interest hereon, 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 VWAP 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 Debentures.

“Monthly Redemption” shall mean the redemption of this Debenture pursuant to Section 6(a) hereof.

“Monthly Redemption Amount” shall mean, as to a Monthly Redemption, $38,461.54¹, or such lesser principal amount of this Debenture then outstanding.

“Monthly Redemption Date” means the first Trading Day of every month, commencing on January 1, 2006 and ending on the date when there is no principal amount of this Debenture outstanding.

__________________

¹ the original principal amount of this Debenture divided by 13.

“New York Courts” shall have the meaning set forth in Section 9(d).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“Original Issue Date” shall mean October 27, 2005 regardless of the number of transfers of the Debenture and regardless of the number of instruments which may be issued to evidence the Debenture.

“Person” means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency.

“Purchase Agreement” means the Securities Purchase Agreement, dated as of November 10, 2004, to which the Company and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms.

“Purchase Agreement Amendment” means Amendment No. 1 to Securities Purchase Agreement and Registration Rights Agreement dated June 17, 2005, to which the Company and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms.

“Registration Rights Agreement” means the Registration Rights Agreement, dated as of the date of the Purchase Agreement, to which the Company and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms.

“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement, covering among other things the resale of the Conversion Shares and naming the Holder as a “selling stockholder” thereunder.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Subsidiary” shall have the meaning given to such term in the Purchase Agreement.

“Trading Day” means a day on which the Common Stock is traded on a Trading Market.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock Exchange or the Nasdaq National Market.

“Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then listed or quoted on a Trading Market and if prices for the Common Stock are then quoted on the OTC Bulletin Board, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by the National Quotation Bureau Incorporated (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (c) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders and reasonably acceptable to the Company.

Section 2. Interest.

a) Payment of Interest in Cash or Kind. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture at the rate of 6% per annum, payable quarterly on March 31, June 30, September 30 and December 31, beginning on the first such date after the Original Issue Date and on each Conversion Date (as to that principal amount then being converted) and on the Maturity Date (except that, if any such date is not a Business Day, then such payment shall be due on the next succeeding Business Day) (each such date, an “Interest Payment Date”), in cash or shares of Common Stock in an amount equal to the amount of interest then due and owing divided by the Interest Conversion Rate, or a combination thereof; provided, however, payment in shares of Common Stock may only occur if during the 20 Trading Days immediately prior to the applicable Interest Payment Date all of the Equity Conditions have been met and the Company shall have given the Holder notice in accordance with the notice requirements set forth below.

b) Company’s Election to Pay Interest in Kind. Subject to the terms and conditions herein, the decision whether to pay interest hereunder in shares of Common Stock or cash shall be at the discretion of the Company. Not less than 20 Trading Days prior to each Interest Payment Date, the Company shall provide the Holder with written notice of its election to pay interest hereunder either in cash or shares of Common Stock (the Company may indicate in such notice that the election contained in such notice shall continue for later periods until revised). Within 20 Trading Days prior to an Interest Payment Date, the Company’s election (whether specific to an Interest Payment Date or continuous) shall be irrevocable as to such Interest Payment Date. Subject to the aforementioned conditions, failure to timely provide such written notice shall be deemed an election by the Company to pay the interest on such Interest Payment Date in cash.

c) Interest Calculations. Interest shall be calculated on the basis of a 360-day year and shall accrue daily commencing on the Original Issue Date until payment in full of the principal sum, together with all accrued and unpaid interest and other amounts which may become due hereunder, has been made. Payment of interest in shares of Common Stock shall otherwise occur pursuant to Section 4(d)(ii) and only for purposes of the payment of interest in shares, the Interest Payment Date shall be deemed the Conversion Date. Interest shall cease to accrue with respect to any principal amount converted, provided that the Company in fact delivers the Conversion Shares within the time period required by Section 4(d)(ii). Interest hereunder will be paid to the Person in whose name this Debenture is registered on the records of the Company regarding registration and transfers of Debentures (the “Debenture Register”). Except as otherwise provided herein, if at any time the Company pays interest partially in cash and partially in shares of Common Stock, then such payment shall be distributed ratably among the Holders based upon the principal amount of Debentures held by each Holder.

d) Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at the rate of 18% per annum (or such lower maximum amount of interest permitted to be charged under applicable law) (“Late Fees”) which will accrue daily, from the date such interest is due hereunder through and including the date of payment. Notwithstanding anything to the contrary contained herein, if on any Interest Payment Date the Company has elected to pay interest in Common Stock and is not able to pay accrued interest in the form of Common Stock because it does not then satisfy the conditions for payment in the form of Common Stock set forth above, then, at the option of the Holder, the Company, in lieu of delivering either shares of Common Stock pursuant to this Section 2 or paying the regularly scheduled cash interest payment, shall deliver, within three Trading Days of each applicable Interest Payment Date, an amount in cash equal to the product of the number of shares of Common Stock otherwise deliverable to the Holder in connection with the payment of interest due on such Interest Payment Date and the highest VWAP during the period commencing on the Interest Payment Date and ending on the Trading Day prior to the date such payment is made.

e) Prepayment. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

Section 3. Registration of Transfers and Exchanges.

a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration of transfer or exchange.

b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

c) Reliance on Debenture Register. Prior to due presentment to the Company for transfer of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4. Conversion.

a) Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible into shares of Common Stock at the option of the Holder, in whole or in part at any time and from time to time (subject to the limitations on conversion set forth in Section 4(c) hereof). The Holder shall effect conversions by delivering to the Company the form of Notice of Conversion attached hereto as Annex A (a “Notice of Conversion”), specifying therein the principal amount of Debentures to be converted and the date on which such conversion is to be effected (a “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is provided hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender Debentures to the Company unless the entire principal amount of this Debenture plus all accrued and unpaid interest thereon has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount converted and the date of such conversions. The Company shall deliver any objection to any Notice of Conversion within 2 Business Days of receipt of such notice. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $0.82 (subject to adjustment herein) (the “Conversion Price”).

c) Holder’s Restriction on Conversion. The Company shall not effect any conversion of this Debenture, and the Holder shall not have the right to convert any portion of this Debenture, pursuant to Section 4(a) or otherwise, to the extent that after giving effect to such conversion, the Holder (together with the Holder’s affiliates), as set forth on the applicable Notice of Conversion, would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted portion of this Debenture beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Debentures or the Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. To the extent that the limitation contained in this section applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder) and of which a portion of this Debenture is convertible shall be in the sole discretion of such Holder. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. For purposes of this Section 4(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company’s Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of the Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.

d)	Mechanics of Conversion

i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of shares of Common Stock issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

ii. Delivery of Certificate Upon Conversion. Not later than three Trading Days after any Conversion Date, the Company will deliver to the Holder (A) a certificate or certificates representing the Conversion Shares which shall be free of restrictive legends and trading restrictions (other than those required by the Purchase Agreement) representing the number of shares of Common Stock being acquired upon the conversion of Debentures (including, if so timely elected by the Company, shares of Common Stock representing the payment of accrued interest) and (B) a bank check in the amount of accrued and unpaid interest (if the Company is required to pay accrued interest in cash). The Company shall, if available and if allowed under applicable securities laws, use its commercially reasonable efforts to deliver any certificate or certificates required to be delivered by the Company under this Section electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions.

iii. Failure to Deliver Certificates. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after a Conversion Date, the Holder shall be entitled by written notice to the Company at any time on or before its receipt of such certificate or certificates thereafter, to rescind such conversion, in which event the Company shall immediately return the certificates representing the principal amount of Debentures tendered for conversion; provided that if as a result of the limitations set forth in Section 4(c) hereof, such failure by the Company is for a portion of the Securities for which a Notice of Conversion has been delivered, the Holder shall be permitted to rescind solely that portion not so converted.

iv. Obligation Absolute; Partial Liquidated Damages. Subject to the limitations set forth in Section 4(c) hereof, if the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the third Trading Day after the Conversion Date, the Company shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $1000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day after 5 Trading Days after such damages begin to accrue) for each Trading Day after such third Trading Day until such certificates are delivered. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event a Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or any one associated or affiliated with the Holder of has been engaged in any violation of law, agreement or for any other reason, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the principal amount of this Debenture outstanding, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of an injunction precluding the same, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 herein for the Company’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holders from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason, other than as a result of the limitations set forth in Section 4(c) hereof, to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the third Trading Day after the Conversion Date, and if after such third Trading Day the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder anticipated receiving from the conversion at issue multiplied by (2) the actual sale price of the Common Stock at the time of the sale (including brokerage commissions, if any) giving rise to such purchase obligation and (B) at the option of the Holder, either reissue Debentures in principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of Debentures with respect to which the actual sale price of the Conversion Shares at the time of the sale (including brokerage commissions, if any) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In. Notwithstanding anything contained herein to the contrary, if a Holder requires the Company to make payment in respect of a Buy-In for the failure to timely deliver certificates hereunder and the Company timely pays in full such payment, the Company shall not be required to pay such Holder liquidated damages under Section 4(d)(iv) in respect of the certificates resulting in such Buy-In.

vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock solely for the purpose of issuance upon conversion of the Debentures and payment of interest on the Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holders, not less than such number of shares of the Common Stock as shall (subject to any additional requirements of the Company as to reservation of such shares set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of the Debentures and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly authorized, issued and fully paid, nonassessable and, if the Registration Statement is then effective under the Securities Act, registered for public sale in accordance with such Registration Statement.

vii. Fractional Shares. Upon a conversion hereunder the Company shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the VWAP at such time. If the Company elects not, or is unable, to make such a cash payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock.

viii. Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of the Debentures shall be made without charge to the Holders thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of such Debentures so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

Section 5. Certain Adjustments.

a) Stock Dividends and Stock Splits. If the Company, at any time while the Debentures are outstanding: (A) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to this Debenture, including as interest thereon), (B) subdivide outstanding shares of Common Stock into a larger number of shares, (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of shares of the Common Stock any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while Debentures are outstanding, shall offer, sell, grant any option to purchase or offer, sell or grant any right to reprice its securities, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances collectively, a “Dilutive Issuance”), as adjusted hereunder (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which is issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. The Company shall notify the Holder in writing, no later than the Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this section, indicating therein the applicable issuance price, or of applicable reset price, exchange price, conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion. Notwithstanding the foregoing, no adjustment will be made hereunder in respect of (i) an Exempt Issuance other than an Exempt Issuance that involves an MFN Transaction or a Variable Rate Transaction for which the adjustment provisions of Section 5 shall be applicable, or (ii) issuances of up to, in the aggregate, the first 1,500,000 shares of Common Stock or Common Stock Equivalents (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement) to consultants of the Company in any 12 month period pursuant to any resolution duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose.

c) Pro Rata Distributions. If the Company, at any time while Debentures are outstanding, shall distribute to all holders of Common Stock (and not to Holders) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security, then in each such case the Conversion Price shall be determined by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holders of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

d) Fundamental Transaction. If, at any time while this Debenture is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

e) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. The number of shares of Common Stock outstanding at any given time shall not include shares of Common Stock owned or held by or for the account of the Company, and the description of any such shares of Common Stock shall be considered on issue or sale of Common Stock. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

f) Notice to Holders.

i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any of this Section 5, the Company shall promptly mail to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. If the Company issues a variable rate security, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised in the case of a Variable Rate Transaction (as defined in the Purchase Agreement), or the lowest possible adjustment price in the case of an MFN Transaction (as defined in the Purchase Agreement).

ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of the Debentures, and shall cause to be mailed to the Holders at their last addresses as they shall appear upon the stock books of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. Holders are entitled to convert Debentures during the 20-day period commencing the date of such notice to the effective date of the event triggering such notice.

Section 6. Monthly Redemptions.

a) Monthly Redemption. On each Monthly Redemption Date, the Company shall redeem the Monthly Redemption Amount plus accrued but unpaid interest, the sum of all liquidated damages and any other amounts then owing to the Holder in respect of this Debenture. The Monthly Redemption Amount due on each Monthly Redemption Date shall, except as provided in this Section, be paid in cash. As to any Monthly Redemption and upon 20 Trading Days’ prior written irrevocable notice, in lieu of a cash redemption payment the Company may elect to pay 100% of a Monthly Redemption in Conversion Shares based on a conversion price equal to the lesser of (i) 90% of the average of the 20 VWAPs immediately prior to the applicable Monthly Redemption Date (subject to adjustment for any stock dividend, stock split, stock combination or other similar event affecting the Common Stock during such 20 Trading Day period), and (ii) the Conversion Price. The Holders may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Monthly Redemption at any time prior to the date that the Monthly Redemption Amount and all amounts owing thereon are due and paid in full. Unless otherwise directed by the Holder in the applicable Notice of Conversion, any portion of this Debenture converted during any 20 day period until the date the Monthly Redemption Amount is paid shall be first applied to the principal amount of Debenture subject to the Monthly Redemption and such Holder’s cash payment of the Monthly Redemption Amount on such Monthly Redemption Date shall be reduced accordingly. The Company covenants and agrees that it will honor all Notice of Conversions tendered up until such amounts are paid in full.

b) Redemption Procedure. The payment of cash and/or issuance of Common Stock, as the case may be, pursuant to a Monthly Redemption shall be made on the Monthly Redemption Date. If any portion of the cash payment for a Monthly Redemption shall not be paid by the Company by the respective due date, interest shall accrue thereon at the rate of 18% per annum (or the maximum rate permitted by applicable law, whichever is less) until the payment of the Monthly Redemption Amount plus all amounts owing thereon is paid in full. Alternatively, if any portion of the Monthly Redemption Amount remains unpaid after such date, the Holders subject to such redemption may elect, by written notice to the Company given at any time thereafter, to invalidate ab initio such redemption, notwithstanding anything herein contained to the contrary. Notwithstanding anything to the contrary in this Section 6, the Company’s determination to redeem in cash or shares of Common Stock shall be applied ratably among the Holders of Debentures based upon the principal amount of Debentures initially purchased by each Holder, adjusted upward ratably in the event all of the principal amount of any Holder are no longer outstanding. The Holder may elect to convert the outstanding principal amount of this Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by fax delivery of a Notice of Conversion to the Company.

Section 7. Negative Covenants. So long as any portion of this Debenture is outstanding, the Company will not and will not permit any of its Subsidiaries to directly or indirectly:

a) enter into, create, incur, assume or suffer to exist any indebtedness or liens of any kind, on or with respect to any of its property or assets (including, without limitation, in respect to any of the Secured Proceeds as that terms is defined in the Custodial Agreement) now owned or hereafter acquired or any interest therein or any income or profits therefrom that is senior to, or pari passu with, in any respect, the Company’s obligations under the Debentures;

b) amend its certificate of incorporation, bylaws or to the charter documents so as to adversely affect any rights of the Holder;

c) other than redemption payments with respect to the Company's Special Voting Rights Preferred Stock not to exceed $5,000 in the aggregate and repurchases of the Company's Series A Convertible Preferred Stock to the extent that the cash payments in respect of any such repurchases does not exceed, in the aggregate, $50,000, repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or other equity or debt securities other than as to the Conversion Shares to the extent permitted or required under the Transaction Documents or as otherwise permitted by the Transaction Documents; or

d) enter into any agreement with respect to any of the foregoing.

Section 8. Events of Default.

a) “Event of Default”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i. any default in the payment of (A) the principal amount of any Debenture, or (B) interest (including Late Fees) on, or liquidated damages in respect of, any Debenture, in each case free of any claim of subordination, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured, within 3 Trading Days;

ii. the Company shall fail to observe or perform any other covenant or agreement contained in this Debenture or any of the other Transaction Documents (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion which breach is addressed in clause (xii) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after notice of such default sent by the Holder or by any other Holder and (B)10 Trading Days after the Company shall become or should have become aware of such failure;

iii. a default or event of default (subject to any grace or cure period provided for in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents other than the Debentures, or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is bound;

iv. any representation or warranty made herein, in any other Transaction Documents, in any written statement pursuant hereto or thereto, or in any other report, financial statement or certificate made or delivered to the Holder or any other holder of Debentures shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v. (i) the Company or any of its Subsidiaries shall commence, or there shall be commenced against the Company or any such Subsidiary, a case under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any Subsidiary commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any Subsidiary thereof or (ii) there is commenced against the Company or any Subsidiary thereof any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 60 days; or (iii) the Company or any Subsidiary thereof is adjudicated by a court of competent jurisdiction insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or (iv) the Company or any Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 60 days; or (v) the Company or any Subsidiary thereof makes a general assignment for the benefit of creditors; or (vi) the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or (vii) the Company or any Subsidiary thereof shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (viii) the Company or any Subsidiary thereof shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or (ix) any corporate or other action is taken by the Company or any Subsidiary thereof for the purpose of effecting any of the foregoing;

vi. the Company or any Subsidiary shall default in any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company in an amount exceeding $150,000, whether such indebtedness now exists or shall hereafter be created and such default shall result in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

vii. the Common Stock shall not be eligible for quotation on or quoted for trading on a Trading Market and shall not again be eligible for and quoted or listed for trading thereon within five Trading Days;

viii. the Company shall be a party to any Change of Control Transaction or Fundamental Transaction, shall agree to sell or dispose of all or in excess of 33% of its assets in one or more transactions (whether or not such sale would constitute a Change of Control Transaction) or shall redeem or repurchase more than a de minimis number of its outstanding shares of Common Stock or other equity securities of the Company (other than redemption payments with respect to the Company's Special Voting Rights Preferred Stock not to exceed $5,000 in the aggregate during the term of this Debenture);

ix. if, during the Effectiveness Period (as defined in the Registration Rights Agreement), the effectiveness of the Registration Statement lapses for any reason or the Holder shall not be permitted to resell Registrable Securities (as defined in the Registration Rights Agreement) under the Registration Statement, in either case, for more than 30 consecutive Trading Days or 60 non-consecutive Trading Days during any 12 month period; provided, however, that in the event that the Company is negotiating a merger, consolidation, acquisition or sale of all or substantially all of its assets or a similar transaction and in the written opinion of counsel to the Company, the Registration Statement, would be required to be amended to include information concerning such transactions or the parties thereto that is not available or may not be publicly disclosed at the time, the Company shall be permitted an additional 10 consecutive Trading during any 12 month period relating to such an event;

x. an Event (as defined in the Registration Rights Agreement) shall not have been cured to the satisfaction of the Holder prior to the expiration of thirty days from the Event Date (as defined in the Registration Rights Agreement) relating thereto (other than an Event resulting from a failure of an Registration Statement to be declared effective by the Commission on or prior to the Effectiveness Date (as defined in the Registration Rights Agreement), which shall be covered by Section 8(a)(ix);

xi. the Company shall fail for any reason, other than as a result of the limitations set forth in Section 4(c) hereof, to deliver certificates to a Holder prior to the fifth Trading Day after a Conversion Date pursuant to and in accordance with Section 4(d) or the Company shall provide notice to the Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversions of any Debentures in accordance with the terms hereof;

xii. the Company shall fail for any reason to pay in full the amount of cash due pursuant to a Buy-In within 5 Trading Days after notice therefor is delivered hereunder or shall fail to pay all amounts owed on account of an Event of Default within five days of the date due;

xiii. any Person shall breach the agreements delivered to the initial Holders pursuant to Section 2.2(a)(iv) of the Purchase Agreement.

b) Remedies Upon Event of Default. If any Event of Default occurs, the full principal amount of this Debenture, together with interest and other amounts owing in respect thereof, to the date of acceleration shall become, at the Holder’s election, immediately due and payable in cash. The aggregate amount payable upon an Event of Default shall be equal to the Mandatory Prepayment Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at the rate of 18% per annum, or such lower maximum amount of interest permitted to be charged under applicable law. All Debentures for which the full Mandatory Prepayment Amount hereunder shall have been paid in accordance herewith shall promptly be surrendered to or as directed by the Company. The Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a Debenture holder until such time, if any, as the full payment under this Section shall have been received by it. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 9. Miscellaneous.

a) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, facsimile number 416-364-9363, Attn: Anna E. Gluskin, President, or such other address or facsimile number as the Company may specify for such purposes by notice to the Holders delivered in accordance with this Section. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile telephone number or address of such Holder appearing on the books of the Company, or if no such facsimile telephone number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 5:00 p.m. (New York City time), (ii) the date after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section later than 5:00 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, interest and liquidated damages (if any) on, this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company and, pursuant to the Cusotdial Agreement dated the date hereof by and between the Company and the Purchasers (as defined therein), is secured by a first priority security interest in certain Secured Proceeds (as defined in the Custodial Agreement) for the benefit of the Holder. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.

c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, and indemnity, if requested, all reasonably satisfactory to the Company.

d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver must be in writing.

f) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impeded the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

h) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.


	GENEREX BIOTECHNOLOGY CORPORTION

	By:	/s/ Mark A. Fletcher
		Name: Mark A. Fletcher Title: Executive Vice-President, General Counsel

ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 6% Convertible Debenture of Generex Biotechnology Company, a Delaware corporation (the “Company”), due on January 27, 2006 , into shares of common stock, par value $0.001 per share (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts determined in accordance with Section 13(d) of the Exchange Act, specified under Section 4 of this Debenture.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debentures to be Converted:

Payment of Interest in Common Stock __ yes __ no

If yes, $_____ of Interest Accrued on Account

of Conversion at Issue.

Is conversion to be applied against next Monthly

Redemption Payment and if so, what portion? (note

failure to answer deemed entire portion to be applied) $_________

Number of shares of Common Stock to be issued:

Signature:

Name:

Address:

Schedule 1

CONVERSION SCHEDULE

The 6% Convertible Debentures due on January 27, 2007, in the aggregate principal amount of $____________ issued by Generex Biotechnology Company. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:


Date of Conversion (or for first entry, Original Issue Date)	Amount of Conversion	Aggregate Principal Amount Remaining Subsequent to Conversion (or original Principal Amount)	Company Attest

DATE: December 15, 2005	By: /s/ Anna E. Gluskin
	Anna E. Gluskin, Chief Executive Officer (Principal Executive Officer)



DATE: December 15, 2005	By: /s/ Rose C. Perri
	Rose C. Perri, Chief Financial Officer (Principal Financial and Accounting Officer)


	GENEREX BIOTECHNOLOGY CORPORATION

	By:	/s/ Mark A. Fletcher
		Name: Mark A. Fletcher Title: Executive Vice-President, General Counsel

	1.		I have reviewed this quarterly report on Form 10-Q of Generex Biotechnology Corporation;

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	c)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

DATE: December 15, 2005	By: /s/ Rose C. Perri
	Rose C. Perri, Chief Financial Officer (Principal Financial and Accounting Officer)