-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NIpXxfbpf1SLDMFJ/g16+rqHE4fU/VruF1tczUQcNBrs8Ctj06IKE6htuyM7MOQ0 lbI8zdurANm67s2AAzk5Pg== 0001144204-06-024736.txt : 20060614 0001144204-06-024736.hdr.sgml : 20060614 20060614135228 ACCESSION NUMBER: 0001144204-06-024736 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20060430 FILED AS OF DATE: 20060614 DATE AS OF CHANGE: 20060614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENEREX BIOTECHNOLOGY CORP CENTRAL INDEX KEY: 0001059784 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 820490211 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25169 FILM NUMBER: 06904372 BUSINESS ADDRESS: STREET 1: 33 HARBOUR SQ STREET 2: STE 202 CITY: TORONTO ONTARIO CANADA STATE: A1 ZIP: M5J 2G2 BUSINESS PHONE: 4163642551 MAIL ADDRESS: STREET 1: 33 HARBOUR SQ STREET 2: STE 202 CITY: TORONTO ONTARIO CA STATE: A1 ZIP: M5J 2G2 10-Q 1 v045407_10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2006

o TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from_________________ to ________________

COMMISSION FILE NUMBER: 0-25169

GENEREX BIOTECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
98-0178636
 
 
(State of other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
 
 
33 HARBOUR SQUARE, SUITE 202
TORONTO, ONTARIO
CANADA M5J 2G2
(Address of principal executive offices)

416/364-2551
(Registrant's telephone number, including area code)
 
Not applicable
(Former name, former address and former fiscal year
if changed since last report)

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

 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x 

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 98,495,931 as of June 2, 2006.
 


 
GENEREX BIOTECHNOLOGY CORPORATION

INDEX

PART I. FINANCIAL INFORMATION
 
 
 
Item 1.     Financial Statements.
1
 
 
  (Unaudited)
 
  Consolidated Balance Sheets -
 
  April 30, 2006 and July 31, 2005
1
 
 
  Consolidated Statements of Operations -- for the three and nine month
 
  periods ended April 30, 2006 and 2005, and cumulative from
 
  November 2, 1995 to April 30, 2006
2
 
 
  Consolidated Statements of Cash Flows -- For the nine month
 
  periods ended April 30, 2006 and 2005, and cumulative from
 
  November 2, 1995 to April 30, 2006
3
 
 
  Notes to Consolidated Financial Statements
4
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
26
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
45
 
 
Item 4. Controls and Procedures
45
 
 
PART II: OTHER INFORMATION
 
 
 
Item 1. Legal Proceedings
46
 
 
Item 1A. Risk Factors
46
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
51
 
 
Item 3. Defaults Upon Senior Securities
53
 
 
Item 4. Submission of Matters to a Vote of Security Holders
53
 
 
Item 5. Other Information
53
 
 
Item 6. Exhibits
54
 
 
Signatures 
61
 


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES  
  
(A DEVELOPMENT STAGE COMPANY)  
  
CONSOLIDATED BALANCE SHEETS  
  
                
                
                
        
April 30,
  
July 31,
  
        
2006
  
2005
  
ASSETS              
Current Assets:
               
Cash and cash equivalents
        
$
31,183,186
  
$
586,530
  
Restricted cash
          
--
   
204,734
 
Short-term investments
          
10,773,605
   
--
 
Other current assets
          
174,840
   
165,586
 
Deferred debt issuance costs
          
36,888
   
337,798
 
Total Current Assets 
          
42,168,519
   
1,294,648
 
                     
                     
Property and Equipment, Net
          
2,700,051
   
3,976,742
 
Assets Held for Investment, Net
          
3,680,815
   
2,371,749
 
Patents, Net
          
5,198,612
   
5,443,094
 
Due From Related Party
          
--
   
379,612
 
                     
TOTAL ASSETS 
        
$
53,747,997
  
$
13,465,845
  
                     
                     
LIABILITIES AND STOCKHOLDERS’ EQUITY 
                    
                     
Current Liabilities:
                    
Accounts payable and accrued expenses
        
$
2,846,411
  
$
2,410,846
  
Short-term advance
          
--
   
325,179
 
Current maturities of long-term debt
          
2,022,840
   
2,571,530
 
Convertible Debentures, Net of Debt Discount of $1,119,923 and
                   
$2,108,459 at April 30, 2006 and July 31, 2005, respectively
          
253,154
   
1,314,926
 
Total Current Liabilities 
          
5,122,405
   
6,622,481
 
                     
Long-Term Debt, Net
          
1,331,182
   
716,361
 
                     
Commitments and Contingencies
                    
                     
Stockholders’ Equity:
                    
Special Voting Rights Preferred stock, $.001 par value;
                   
authorized, issued and outstanding 1,000 shares at
                    
April 30, 2006 and July 31, 2005, respectively
          
1
   
1
 
Common stock, $.001 par value; authorized 150,000,000 shares at
                    
April 30, 2006 and July 31, 2005; 98,242,854 and 41,933,898
                   
shares issued and outstanding, respectively
          
98,242
   
41,935
 
Additional paid-in capital
          
222,120,021
   
126,044,326
 
Deficit accumulated during the development stage
          
(175,705,417
)
  
(120,528,108
)
Accumulated other comprehensive income
          
781,563
   
568,849
 
Total Stockholders’ Equity 
          
47,294,410
   
6,127,003
 
                     
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 
        
$
53,747,997
  
$
13,465,845
  

1

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES  
  
(A DEVELOPMENT STAGE COMPANY)  
  
CONSOLIDATED STATEMENTS OF OPERATIONS  
  
                        
                   
Cumulative From 
  
                   
November 2, 1995 
  
   
For the Three Months Ended
  
For the Nine Months Ended
  
(Date of Inception) 
  
   
April 30,
  
April 30,
  
to April 30, 
  
   
2006
  
2005
  
2006
  
2005
  
2006 
  
                        
Revenues
  
$
43,750
  
$
43,750
  
$
131,250
  
$
263,250
  
$
2,150,546
  
                                 
Operating Expenses:
                                
Research and development
    
1,635,238
   
1,009,799
   
3,628,732
   
6,586,764
   
58,547,177
 
Research and development -
                                
related party
    
--
   
--
   
--
   
--
   
220,218
 
General and administrative
    
2,299,011
   
2,358,472
   
7,684,754
   
9,231,266
   
73,135,868
 
General and administrative -
                                
related party
    
--
   
--
   
--
   
--
   
314,328
 
Total Operating Expenses 
    
3,934,249
   
3,368,271
   
11,313,486
   
15,818,030
   
132,217,591
 
                                 
Operating Loss
    
(3,890,499
)
  
(3,324,521
)
  
(11,182,236
)
  
(15,554,780
)
  
(130,067,045
)
                                 
Other Income (Expense):
                                
Miscellaneous income (expense)
    
--
   
--
   
500
   
--
   
196,193
 
Income from Rental Operations, net
    
42,506
   
28,503
   
78,346
   
103,292
   
283,022
 
Interest income
    
241,053
   
3,015
   
257,149
   
21,791
   
3,651,629
 
Interest expense
    
(17,227,595
)
  
(1,403,667
)
  
(32,458,126
)
  
(2,223,183
)
  
(37,293,061
)
Loss on extinguishment of debt
    
(10,938,959
)
  
--
   
(11,872,942
)
  
--
   
(13,219,283
)
                                 
Net Loss Before Undernoted
    
(31,773,494
)
  
(4,696,670
)
  
(55,177,309
)
  
(17,652,880
)
  
(176,448,545
)
                                 
Minority Interest Share of Loss
    
--
   
--
   
--
   
--
   
3,038,185
 
                                 
Net Loss
    
(31,773,494
)
  
(4,696,670
)
  
(55,177,309
)
  
(17,652,880
)
  
(173,410,360
)
                                 
Preferred Stock Dividend
    
--
   
--
   
--
   
--
   
2,295,057
 
                                 
Net Loss Available to Common
                                
Shareholders
  
$
(31,773,494
)
$
(4,696,670
)
$
(55,177,309
)
$
(17,652,880
)
$
(175,705,417
)
                                 
Basic and Diluted Net Loss Per
                                
Common Share
  
$
(.36
)
$
(.13
)
$
(.84
)
$
(.49
)
      
                                 
Weighted Average Number of Shares
                                
of Common Stock Outstanding
    
88,683,352
   
36,099,735
   
65,719,702
   
35,743,730
       
 
 
2


GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES  
  
(A DEVELOPMENT STAGE COMPANY)  
  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
  
                
           
Cumulative From 
  
           
November 2, 1995 
  
   
For the Nine Months Ended
 
(Date of Inception) 
  
   
April 30,
  
to April 30, 
  
   
2006
 
2005
  
2006 
  
Cash Flows From Operating Activities:
               
Net loss
  
$
(55,177,309
)
$
(17,652,880
)
$
(173,410,360
)
Adjustments to reconcile net loss to net cash used
                    
in operating activities:
                    
Depreciation and amortization
    
846,239
   
827,459
   
4,427,419
 
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
   
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
    
11,872,942
   
--
   
13,219,283
 
Common stock issued as employee compensation
    
126,104
   
--
   
126,104
 
Common stock issued for services rendered
    
422,599
   
1,093,528
   
5,208,863
 
Amortization of prepaid services in conjunction with common stock issuance
    
138,375
   
--
   
138,375
 
Non-cash compensation expense
    
--
   
--
   
45,390
 
Stock options and warrants issued for services rendered
    
137,200
   
530,600
   
6,971,073
 
Issuance of warrants as additional exercise right inducement
    
16,888,239
   
--
   
16,888,239
 
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
    
1,195,315
   
155,988
   
1,443,422
 
Amortization of discount on convertible debentures
    
14,075,693
   
1,849,976
   
17,810,504
 
Common stock issued as interest payment on convertible debentures
    
168,365
   
--
   
245,361
 
Interest on short-term advance
    
13,524
   
--
   
22,190
 
Founders’ shares transferred for services rendered
    
--
   
--
   
353,506
 
Fees in connection with short-term refinancing of long-term debt
    
7,882
   
105,293
   
113,182
 
Changes in operating assets and liabilities (excluding the effects of
                   
acquisition):
                    
Miscellaneous receivables 
    
--
   
--
   
43,812
 
Other current assets 
    
45,275
   
821,442
   
(66,966
)
Accounts payable and accrued expenses 
    
1,182,117
   
2,843,052
   
7,047,868
 
Other, net 
    
--
   
--
   
110,317
 
 Net Cash Used in Operating Activities
    
(8,056,162
)
  
(9,172,439
)
  
(98,139,958
)
                     
Cash Flows From Investing Activities:
                    
Purchase of property and equipment
    
(85,168
)
  
(62,099
)
  
(4,377,884
)
Costs incurred for patents
    
(37,253
)
  
(169,573
)
  
(1,532,239
)
Change in restricted cash
    
214,364
   
(8,214
)
  
43,368
 
Proceeds from maturity of short term investments
    
3,000,000
   
--
   
129,687,046
 
Purchases of short-term investments
    
(13,773,605
)
  
--
   
(140,460,651
)
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
    
(10,681,662
)
  
149,703
   
(20,417,289
)
                     
Cash Flows From Financing Activities:
                    
Proceeds from short-term advance
    
--
   
325,179
   
325,179
 
Repayment of short-term advance
    
(347,369
)
  
--
   
(347,369
)
Proceeds from issuance of long-term debt
    
35,051
   
350,222
   
2,005,199
 
Repayment of long-term debt
    
(297,792
)
  
(60,068
)
  
(1,504,730
)
Change in due to related parties
    
--
   
--
   
154,541
 
Proceeds from exercise of warrants
    
32,819,119
   
--
   
37,372,103
 
Proceeds from exercise of stock options
    
3,174,555
   
--
   
4,184,995
 
Proceeds from minority interest investment
    
--
   
--
   
3,038,185
 
Proceeds from issuance of preferred stock
    
--
   
--
   
12,015,000
 
Proceeds from issuance of convertible debentures, net
    
13,955,000
   
4,299,930
   
20,254,930
 
Repayments of convertible debentures
    
--
   
(416,513
)
  
(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
    
49,338,564
   
4,498,750
   
149,717,455
 
                     
Effect of Exchange Rates on Cash
    
(4,084
)
  
9,441
   
22,978
 
                     
Net Increase (Decrease) in Cash and Cash Equivalents
    
30,596,656
   
(4,514,545
)
  
31,183,186
 
                     
Cash and Cash Equivalents, Beginning of Period
    
586,530
   
4,950,419
   
--
 
                     
Cash and Cash Equivalents, End of Period
  
$
31,183,186
  
$
435,874
  
$
31,183,186
  

3
 
 

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.   Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by generally accepted accounting principles for complete financial statements are not included herein. The interim statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K. The results for the three and nine 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 April 30, 2006 of approximately $176 million. The Company has funded its activities to date almost exclusively from debt and equity financings.

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

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

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

4

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
2.
Effects of Recent Accounting Pronouncements (Continued)

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

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

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets”, to simplify accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Additionally, SFAS No. 156 permits, but does not require, an entity to choose either the amortization method or the fair value measurement method for measuring each class of separately recognized servicing assets and servicing liabilities. SFAS No. 156 applies to all separately recognized servicing assets and servicing liabilities acquired of issued after the beginning of an entity’s fiscal year that begins after September 15, 2006, although early adoption is permitted. The Company believes that this SFAS will have no effect on the Company’s financial condition or results of operations.




5

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


 
3.
Stock-Based Compensation
As of April 30, 2006, the Company had two stockholder-approved stock incentive plans under which options exercisable for shares of common stock have been or may be granted to employees, directors, consultants and advisors. A total of 2,000,000 shares of common stock are reserved for issuance under the 2000 Stock Option Plan (the 2000 Plan) and a total of 12,000,000 shares of common stock are reserved for issuance under the 2001 Stock Option Plan (the 2001 Plan). There were 1,900,000 and 427,331 shares of common stock reserved for future awards under the 2000 Plan and 2001 Plan, respectively, as of April 30, 2006.

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.

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

For the three and nine months ended April 30, 2006, no compensation expense was recorded for options outstanding as of August 1, 2005. There were no options granted during the three and nine months ended April 30, 2006.

The following table illustrates the pro forma effect on net income and earnings per share for the three and nine months ended April 30, 2005, assuming the Company had applied the fair value recognition provisions of SFAS 123(R) to all previously granted share-based awards after giving consideration to potential forfeitures during such periods. The fair value of each option grant is estimated at the grant date using the Black-Scholes option-pricing model based on the assumptions listed below. The estimated fair value of options granted is expensed at the date of grant. Share-based employee compensation for the three and nine months ended April 30, 2006 in the amount of $-0- (net of related tax), is included in the net loss of $31,773,494 and $55,177,309, respectively. The following table represents the impact had the treatment been adopted at August 1, 2004.

6

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

3.
Stock-Based Compensation (Continued)
 
 
  
Nine Months
  
Three Months
  
 
  
Ended
  
Ended
  
 
  
April 30,
  
April 30,
  
 
  
2005
  
2005
  
           
Net Loss Available to Common Stockholders,
          
as Reported
  
$
(17,652,880
)
$
(4,696,670
)
               
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
    
1,998,140
    
567,500
  
               
Pro Forma Net Loss Available to Common Stockholders
  
$
(19,651,020
)
$
(5,264,170
)
               
Loss Per Share:
              
Basic and diluted, as reported
  
$
(0.49
)
$
(0.13
)
Basic and diluted, pro forma
  
$
(0.55
)
$
(0.15
)

The implementation of the provisions of SFAS 123(R) and SAB 107 during the three and nine months ended April 30, 2006 did not have a material impact on the Company’s cash flow from operations or cash flow from financing activities.

The following information relates to stock options that have been granted under the Company’s stockholder-approved incentive plans. The stock option exercise price is typically granted at 100 percent of the fair market value on the date the options are granted. Options may be exercised for a period of five years commencing on the date of grant and typically vesting over two years from the date of grant.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. No options were granted to employees during the three and nine months ended April 30, 2006.

The summary of the stock option activity for the nine months ended April 30, 2006 is as follows:

   
Weighted
  
Weighted
      
   
Average
  
Average
      
   
Exercise
  
Remaining
      
   
Price
  
Contractual
      
   
Shares
  
Share
  
Term (Years)
  
               
Outstanding, August 1, 2005
    
11,607,269
  
$
1.51
    
3.65
 
Granted
    
--
  
$
--
    
--
  
Cancelled
    
(140,000
)
$
9.41
    
--
  
Exercised
    
(2,317,672
)
$
1.19
    
--
  
Outstanding, April 30, 2006
    
9,149,597
  
$
1.42
    
3.04
  




7

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
3.
Stock-Based Compensation (Continued)
The summary of the status of the Company’s non-vested as of April 30, 2006, as changed during the nine months 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
  
Non-vested Stock Options, April 30, 2006
    
--
  
$
--
  

As of April 30, 2006, there was no unrecognized compensation related to non-vested stock options granted under the Company’s stock option plans.

 
4.
Comprehensive Income/(Loss)
Comprehensive loss, which includes net loss and the change in the foreign currency translation account during the period, for the three months ended April 30, 2006 and 2005, was $31,708,769 and $4,740,742, respectively and for the nine months ended April 30, 2006 and 2005 was $54,964,595 and $17,443,659, respectively.

 
5.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:

   
April 30,
  
July 31,
  
   
2006
  
2005
  
           
Accounts Payable
  
$
786,024
  
$
999,726
  
Accounting and Auditing
    
122,430
    
274,627
  
Accrued Legal Fees and Settlement
    
134,665
    
599,461
  
Termination Agreements and Severance Pay
    
179,120
    
265,720
  
Executive Compensation and Directors Fees
    
1,624,172
    
271,312
  
Total
  
$
2,846,411
  
$
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.


8

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
6.
Convertible Debentures (Continued)

$4 Million Convertible Debenture (Continued)
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 nine months ended April 30, 2006, $155,988 has been amortized as interest expense and the remaining unamortized balance of $-0- 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.

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

The Company amortized the convertible debenture debt discount attributed to the beneficial conversion feature and the value of the warrants and recorded non-cash interest expense of $630,452 during the nine months ended April 30, 2006. During the nine months ended April 30, 2006, the Company has issued 646,834 shares of common stock to the holders of the convertible debentures upon receipt of the holders’ notice of conversion of principal and interest totaling $530,403. This conversion resulted in a charge of $42,409 to loss on extinguishment of debt that represents the difference between quoted market price of the Company’s common stock and 10 percent discount to the average of the 20-day VWAP.

The Company has repaid the note holders $693,671 of the principal and interest in 1,169,613 shares of common stock during the nine months ended April 30, 2006. This repayment resulted in a charge of $147,457 to loss on extinguishment of debt that represents the difference between quoted market price of the Company’s common stock and 10 percent discount to the average of the 20-day VWAP. The note holders have converted the balance of the debenture prior to the period end.

$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.

9

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
6.
Convertible Debentures (Continued)

$500,000 Convertible Debenture (Continued)
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.

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

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

During the nine months ended April 30, 2006, the Company issued 644,003 shares of common stock to the holder of the convertible note upon receipt of the holder’s notice of conversion of principal and interest totaling $528,082. The note holders have converted the balance of the debenture prior to the period end.

$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.




10

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
6.
Convertible Debentures (Continued)

$100,000 Convertible Debenture (Continued)
The holder of the convertible note also received warrants to purchase 243,902 of common stock at $0.82 per share. In accordance with EITF 00-27, the Company recognized the value attributable to the warrants in the amount of $49,104 to additional paid-in capital and a discount against the convertible note. The Company valued the warrants in accordance with EITF 00-27 using the Black-Scholes pricing model assuming a risk-free rate of 2.78 percent, an expected volatility of 1.0054 and a five year life. The debt discount attributed to the value of the warrants issued is amortized over the convertible note’s maturity period as interest expense using the effective yield method.

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

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

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

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

During the nine months ended April 30, 2006, the Company issued 128,834 shares of common stock to the holders of the convertible note upon receipt of the holder’s notice of conversion of principal and interest totaling $105,644. The note holders have converted the balance of the debenture prior to the period end.





11

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
6.
Convertible Debentures (Continued)

$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 nine months ended April 30, 2006, the Company has amortized the remaining balance of deferred debt issuance costs in the amount of $155,129 as non-cash interest expense resulting from the convertible debenture being fully repaid and the remaining unamortized balance of $-0- 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 $828,571 to additional paid-in capital and a discount against the convertible debenture. The Company valued the warrants in accordance with EITF 00-27 using the Black-Scholes pricing model assuming a risk-free rate of 3.02 percent, an expected volatility of 0.9775 and a five year life. The debt discount attributed to the value of the warrants issued is amortized over the convertible debenture’s maturity period as interest expense using the effective yield method.

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

The Company amortized the convertible debenture debt discount attributed to the beneficial conversion feature and the value of the warrants and recorded non-cash interest expense of $62,316 for the nine months ended April 30, 2006. During the nine months ended April 30, 2006, the Company has issued 2,363,352 shares of common stock to the holders of the convertible debentures upon receipt of the holders’ notice of conversions of principal and interest totaling $1,418,011.


12
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 Company has repaid the note holders $225,322 of the principal and interest in 407,075 shares of common stock during the nine months ended April 30, 2006. This repayment resulted in a charge of $62,242 to loss on extinguishment of debt that represents the difference between quoted market price of the Company’s common stock and 10 percent discount to the average of the 20-day VWAP. The note holders have converted the balance of the debenture prior to the period end.

Second $2 Million Convertible Debenture
On September 8, 2005, the holders of the $2 million convertible debenture exercised their additional investment right “AIR Exercise” resulting in four $500,000 convertible promissory notes (“convertible debentures’) for an aggregate proceeds of $2,000,000. The notes carry a 6% coupon and a 15-month term and amortize in 13 equal monthly installments commencing in the third month of the term. The convertible debentures are convertible into registered common stock of the Company at $0.82 per share. The principal and interest payments are payable in cash or, at the Company's option, the lesser of registered stock valued at a 10% discount to the average of the 20-day VWAP as of the payment date or $0.82, subject to certain restrictions. The transaction terms include 100% five-year warrant coverage at a per share exercise price equal to a 10% premium to the 10-day VWAP on the closing date and a 100% additional investment right exercisable for up to twelve months following the effective date of the registration statement in respect of the transaction. In consideration of the AIR Exercise the Company reduced the conversion price of the convertible debentures issuable upon the AIR Exercise from $0.82 to $0.60 per share.

Proceeds related to the AIR Exercise, net of issuance costs of $185,600, amounted to $1,814,400. Included in the issuance costs were warrants to purchase 60,000 shares of common stock at $0.82 per share and 170,732 shares of common stock valued at $0.82 per share issued to a third party. The fair value of the warrant was determined to be $30,600 using the Black Scholes pricing model assuming a risk-free rate of 3.76 percent, an expected volatility of 0.9232 and a five year life. The fair value of the warrant, which has been allocated to additional paid in capital, together with the $140,000 of issuance costs associated with the shares of common stock issued and $15,000 of legal costs are being amortized over the life of the debt as a deferred debt issuance cost. During the nine months ended April 30, 2006, $185,600 has been amortized as interest expense and the remaining unamortized balance of $-0- 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.


13

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
6.
Convertible Debentures (Continued)

Second $2 Million Convertible Debenture (Continued)
The Company amortized the convertible debenture debt discount attributed to the beneficial conversion feature and the value of the warrants and recorded non-cash interest expense of $1,970,370 for the nine months ended April 30, 2006. During the nine months ended April 30, 2006, the Company has issued 2,878,648 shares of common stock to the holders of the convertible debentures upon receipt of the holders’ notice of conversions of principal and interest totaling $1,729,144. This conversion resulted in a charge of $1,088,868 to loss on extinguishment of debt that represents the difference between quoted market price of the Company’s common stock and 10 percent discount to the average of the 20-day VWAP.

The Company has repaid the note holders $293,893 of the principal and interest in 489,824 shares of common stock during the nine months ended April 30, 2006. This repayment resulted in a charge of $394,913 to loss on extinguishment of debt that represents the difference between quoted market price of the Company’s common stock and 10 percent discount to the average of the 20-day VWAP. The note holders have converted the balance of the debenture prior to the period end.

Second $500,000 Convertible Debenture
On October 27, 2005, one of the debenture holders exercised its additional investment right “AIR Exercise” resulting in a $500,000 convertible promissory note (“convertible debenture’) for an aggregate proceeds of $500,000. The convertible debenture carries a 6% coupon and a 15-month term and amortize in 13 equal monthly installments commencing in the third month of the term. The convertible debenture is convertible into registered common stock of the Company at $0.82 per share. The principal and interest payments are payable in cash or, at the Company's option, the lesser of registered stock valued at a 10% discount to the average of the 20-day VWAP as of the payment date or $0.82, subject to certain restrictions. The transaction terms include 100% five-year warrant coverage at a per share exercise price equal to a 10% premium to the 10-day VWAP on the closing date and a 100% additional investment right exercisable for up to twelve months following the effective date of the registration statement in respect of the transaction.

Proceeds related to the AIR Exercise, net of issuance costs of $49,250, amounted to $500,000. 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 nine months ended April 30, 2006, $49,250 has been amortized as interest expense and the remaining unamortized balance of $-0- 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.



14

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
6.
Convertible Debentures (Continued)

Second $500,000 Convertible Debenture (Continued)
In accordance with EITF 98-5 the Company recognized the value attributable to the beneficial conversion feature valued at $229,050, to additional paid-in capital and a discount against the convertible debenture. The debt discount attributed to the beneficial conversion feature is amortized over the convertible debenture's maturity period as interest expense using the effective yield method.

The Company amortized the convertible debenture debt discount attributed to the beneficial conversion feature and the value of the warrants and recorded non-cash interest expense of $500,000 for the nine months ended April 30, 2006. During the nine months ended April 30, 2006, the Company has issued 470,450 shares of common stock to the holders of the convertible debentures upon receipt of the holders’ notice of conversions of principal and interest totaling $385,769. This conversion resulted in a charge of $1,180,830 to loss on extinguishment of debt that represents the difference between quoted market price of the Company’s common stock and 10 percent discount to the average of the 20-day VWAP.

The Company has repaid the note holders $125,244 of the principal and interest in 152,736 shares of common stock during the nine months ended April 30, 2006. This repayment resulted in a charge of $93,362 to loss on extinguishment of debt that represents the difference between quoted market price of the Company’s common stock and 10 percent discount to the average of the 20-day VWAP. The note holders have converted the balance of the debenture prior to the period end.

$3,500,000 Convertible Debenture
On December 4, 2005, the Company and each of the holders of the $4 million convertible debenture entered into an Amendment No. 3 to Securities Purchase Agreement and Registration Rights Agreement pursuant to which (i) all but one of the Investors agreed to exercise an aggregate of $1,500,000 in principal amount (“$3.5 Million Convertible Debenture”) of the Additional AIRs granted to such Investors in connection with the Second AIR Exercise resulting in a $3,500,000 convertible promissory note (“convertible debenture’) for an aggregate proceeds of $3,500,000. The convertible debenture carries a 6% coupon and a 15-month term and amortize in 13 equal monthly installments commencing in the third month of the term. The convertible debenture is convertible into registered common stock of the Company at $0.82 per share. The principal and interest payments are payable in cash or, at the Company's option, the lesser of registered stock valued at a 10% discount to the average of the 20-day VWAP as of the payment date or $0.82, subject to certain restrictions. The transaction terms include 100% five-year warrant coverage at a per share exercise price equal to a 10% premium to the 10-day VWAP on the closing date and a 100% additional investment right exercisable for up to twelve months following the effective date of the registration statement in respect of the transaction.

Proceeds related to the AIR Exercise, net of issuance costs of $15,000, amounted to $3,485,000. Included in the issuance costs were warrants to purchase 105,000 shares of common stock at $0.82 per share and 224,000 shares of common stock valued at $0.95 per share issued to a third party. The fair value of the warrant was determined to be $76,650 using the Black Scholes pricing model assuming a risk-free rate of 4.02 percent, an expected volatility of 0.9288 and a five year life. The fair value of the warrant, which has been allocated to additional paid in capital, together with the $212,800 of issuance costs associated with the shares of common stock issued and $15,000 of legal costs are being amortized over the life of the debt as a deferred debt issuance cost. During the nine months ended April 30, 2006, $304,450 has been amortized as interest expense and the remaining unamortized balance of $-0- is included in deferred debt issuance costs.

15

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
6.
Convertible Debentures (Continued)

$3,500,000 Convertible Debenture (Continued)
The holder of the convertible debenture also received warrants to purchase 4,268,292 shares of common stock at $0.82 per share. In accordance with EITF 00-27, the Company recognized the value attributable to the warrants in the amount of $1,648,387 to additional paid-in capital and a discount against the convertible debenture. The Company valued the warrants in accordance with EITF 00-27 using the Black-Scholes pricing model assuming a risk-free rate of 4.02 percent, an expected volatility of 0.9288 and a five year life. The debt discount attributed to the value of the warrants issued is amortized over the convertible debenture’s maturity period as interest expense using the effective yield method.

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

The Company amortized the convertible debenture debt discount attributed to the beneficial conversion feature and the value of the warrants and recorded non-cash interest expense of $3,500,000 for the nine months ended April 30, 2006. During the nine months ended April 30, 2006, the Company has issued 4,189,923 shares of common stock to the holders of the convertible debentures upon receipt of the holders’ notice of conversions of principal and interest totaling $3,435,735. This conversion resulted in a charge of $1,473,115 to loss on extinguishment of debt that represents the difference between quoted market price of the Company’s common stock and 10 percent discount to the average of the 20-day VWAP.

The Company has repaid the note holders $86,475 of the principal and interest in 105,456 shares of common stock during the nine months ended April 30, 2006. This repayment resulted in a charge of $176,556 to loss on extinguishment of debt that represents the difference between quoted market price of the Company’s common stock and 10 percent discount to the average of the 20-day VWAP. The note holders have converted the balance of the debenture prior to the period end.

Second $4,000,000 Convertible Debenture
On January 20, 2006, the Company and each of the holders of the $4 million convertible debenture entered into an Amendment No. 4 to Securities Purchase Agreement and Registration Rights Agreement pursuant to which the investors agreed to exercise an additional $4,000,000 in principal amount of Additional Investment Rights (AIR) (“Second $4 Million Convertible Debenture”) of the Additional AIRs granted to such Investors in connection with the Third AIR Exercise resulting in a $4,000,000 convertible promissory note (“convertible debenture’) for an aggregate proceeds of $4,000,000. The convertible debenture carries a 6% coupon and a 15-month term and amortize in 13 equal monthly installments commencing in the third month of the term. The convertible debenture is convertible into registered common stock of the Company at $1.05 per share. The principal and interest payments are payable in cash or, at the Company's option, the lesser of registered stock valued at a 10% discount to the average of the 20-day VWAP as of the payment date or $0.82, subject to certain restrictions. The transaction terms include 100% five-year warrant coverage at a per share exercise price equal to a 10% premium to the 10-day VWAP on the closing date and a 100% additional investment right exercisable for up to twelve months following the effective date of the registration statement in respect of the transaction.




16

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
6.
Convertible Debentures (Continued)

Second $4,000,000 Convertible Debenture (Continued)
Proceeds related to the AIR Exercise, net of issuance costs of $15,000, amounted to $3,985,000. Included in the issuance costs were warrants to purchase 120,000 shares of common stock at $1.05 per share and 266,667 shares of common stock valued at $1.00 per share issued to a third party. The fair value of the warrant was determined to be $88,800 using the Black Scholes pricing model assuming a risk-free rate of 4.23 percent, an expected volatility of 0.9210 and a five year life. The fair value of the warrant, which has been allocated to additional paid in capital, together with the $266,667 of issuance costs associated with the shares of common stock issued and $15,000 of legal costs are being amortized over the life of the debt as a deferred debt issuance cost. During the nine months ended April 30, 2006, $338,396 has been amortized as interest expense and the remaining unamortized balance of $32,071 is included in deferred debt issuance costs.

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

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

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 $2,957,773 for the nine months ended April 30, 2006. During the nine months ended April 30, 2006, the Company has issued 3,461,946 shares of common stock to the holders of the convertible debentures upon receipt of the holders’ notice of conversions of principal and interest totaling $3,635,041. This conversion resulted in a charge of $4,558,356 to loss on extinguishment of debt that represents the difference between quoted market price of the Company’s common stock and 10 percent discount to the average of the 20-day VWAP.

The Company has repaid the note holders $175,501 of the principal and interest in 167,144 shares of common stock during the nine months ended April 30, 2006. This repayment resulted in a charge of $275,788 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.




17

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


 
6.
Convertible Debentures (Continued)

Third $4,000,000 Convertible Debenture
On February 28, 2006, the holders of the Second $4 million convertible debenture exercised their additional investment right “AIR Exercise” resulting in four $1,000,000 convertible promissory notes (“convertible debentures’) for an aggregate proceeds of $4,000,000. The convertible debentures 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 $1.25 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 $1.25, subject to certain restrictions. The Company did not incur issuance costs associated with the proceeds.

The holder of the convertible debenture also received warrants to purchase 3,200,000 shares of common stock at $1.25 per share. In accordance with EITF 00-27, the Company recognized the value attributable to the warrants in the amount of $2,374,507 to additional paid-in capital and a discount against the convertible debenture. The Company valued the warrants in accordance with EITF 00-27 using the Black-Scholes pricing model assuming a risk-free rate of 4.49 percent, an expected volatility of 0.9380 and a 5.5 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 $1,625,493, to additional paid-in capital and a discount against the convertible debenture. The debt discount attributed to the beneficial conversion feature is amortized over the convertible debenture's maturity period as interest expense using the effective yield method.

The Company amortized the convertible debenture debt discount attributed to the beneficial conversion feature and the value of the warrants and recorded non-cash interest expense of $3,039,090 for the nine months ended April 30, 2006. During the nine months ended April 30, 2006, the Company has issued 2,280,592 shares of common stock to the holders of the convertible debentures upon receipt of the holders’ notice of conversions of principal and interest totaling $2,850,739. This conversion resulted in a charge of $2,373,363 to loss on extinguishment of debt that represents the difference between quoted market price of the Company’s common stock and 10 percent discount to the average of the 20-day VWAP.

During the nine months ended April 30, 2006, the Company has not repaid monthly principal and interest through the issuance of shares of common stock.

18

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


 
7.
Short-term Advance
On March 30, 2005, the Company entered into an agreement with an affiliated party to provide the Company with approximately $325,200 in funding. The funds were designated to assist the Company in satisfying its obligations under the terms of the first $4,000,000 convertible debenture agreements. The Company is obligated to repay the advance, without interest, in three equal installments on October 1, 2005, November 1, 2005 and December 1, 2005. Upon failure to repay any installment when due, all amounts become payable on demand and interest on such unpaid amounts will accrue interest at the rate of 8 percent per annum. The Company did not make the required installments, therefore, has accrued interest in the amount of $22,190. During the three months ended April 30, 2006, the Company has repaid the short-term advance together with accrued interest in the amount of $347,369.

8. Pending Litigation 

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

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

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.


19


GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


 
8.
Pending Litigation (Continued)

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. In March 2006 the litigation was settled, without any economic payment by the Company, and the action was dismissed, on consent, without costs.

The Company is involved in certain other legal proceedings in addition to those specifically described herein. Subject to the uncertainty inherent in all litigation, the Company does not believe at the present time that the resolution of any of these legal proceedings is likely to have a material adverse effect on the Company’s financial position, operations or cash flows.

With respect to all litigation, as additional information concerning the estimates used by the Company becomes known, the Company reassesses its position both with respect to accrued liabilities and other potential exposures.

 
9.
Net Loss Per Share
Basic EPS and Diluted EPS for the three months and nine months ended April 30, 2006 and 2005 have been computed by dividing the net loss for each respective period by the weighted average number of shares outstanding during that period. All outstanding warrants and options, approximately 25,246,229 and 26,485,026 incremental shares at April 30, 2006 and 2005, respectively, have been excluded from the computation of Diluted EPS as they are anti-dilutive.


20

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


 
10.
Supplemental Disclosure of Cash Flow Information
 

   
For the Nine Months Ended
  
 
  
April 30,
  
Cash paid during the period for:
  
2006
  
2005
  
Interest
  
$
49,864
  
$
260,973
  
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
  
$
619,467
  
$
--
  
Value of warrants issued in conjunction with capitalized
              
services upon issuance of convertible debentures
  
$
210,300
  
$
89,900
  
Costs paid from proceeds in conjunction with capitalized
              
services upon issuance of convertible debentures
  
$
45,000
  
$
--
  
Value of warrants issued in conjunction with issuance of
             
convertible debentures and related beneficial conversion
              
feature
  
$
13,087,156
  
$
3,843,450
  
Satisfaction of accounts payable through the issuance of
             
common stock
  
$
391,147
  
$
779,760
  
Principal repayment of convertible debentures through the
              
issuance of common stock
  
$
1,498,843
  
$
506,824
  
Issuance of common stock in conjunction with convertible
             
debenture conversion
  
$
14,551,466
  
$
143,500
  
Sale of Series A Preferred Stock and mandatorily converted
              
to common shares
  
$
--
  
$
14,310,057
  
Issuance of below market stock options in satisfaction of
              
accounts payable and accrued expenses
  
$
--
  
$
1,332,052
  
Increase in receivable included in other current assets in
             
connection with short-term refinancing of long-term debt
  
$
--
  
$
79,480
  
Increase in other current assets for the prepayment of services
              
through the issuance of common stock
  
$
184,500
  
$
--
  
Satisfaction of due from related party through reduction of
              
accrued executive compensation
  
$
415,828
  
$
--
  
 

 
 
11.
Transactions with Related Party
At April 30, 2006, the Company has agreed to accept a reduction in amounts due as executive compensation in satisfaction of amounts due from related party in the amount of $415,828. Prior to this agreement, the Company’s change in “Due from Related Party” for the nine months ended April 30, 2006 represented only the effect of change in exchange rate for the nine months ended versus that in effect at July 31, 2005.

 
12.
Stockholders’ Equity
In August 2005, the Company issued 265,929 shares of common stock to various consultants for services rendered in the amount of $157,289. The shares were valued at $0.59 to $0.61 per share based on the quoted market price of the Company’s common stock on the dates of the issuances.

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


21
GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


12.
Stockholders’ Equity (Continued)
In September 2005, the Company and each of the holders of the $4 million convertible debenture entered into an Amendment No. 2 to Securities Purchase Agreement and Registration Rights Agreement pursuant to which the investors agreed to exercise an additional $2,000,000 in principal amount of Additional Investment Rights (AIR) (“Second $2 Million Convertible Debenture”). In connection with this investment, the Company agreed to issue warrants to purchase an aggregate of 2,439,024 shares of the Company’s common stock at the exercise price of $0.82 per share exercisable for five years commencing six months following the issuance thereof and to grant each investor further AIR. In addition, in connection with the transaction contemplated by Amendment No. 2, the Company issued a placement agent (i) 170,732 shares of common stock in lieu of a cash fee equal to 7 percent of the gross proceeds received by the Company and (ii) warrants exercisable into approximately 60,000 shares of common stock at the same exercise price as the AIR warrants (see Note 6).

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

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

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

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

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

22

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


 
12.
Stockholders’ Equity (Continued)
In December 2005, the Company and each of the holders of the $4 million convertible debenture entered into an Amendment No. 2 to Securities Purchase Agreement and Registration Rights Agreement pursuant to which (i) all but one of the Investors agreed to exercise an aggregate of $1,500,000 in principal amount of the Additional AIRs granted to such Investors in connection with the First AIR Exercise and (ii) all of the Investors agreed to exercise an aggregate of $2,000,000 in principal amount of the Additional AIRs granted to the Investors in connection with the Second AIR Exercise (“$3.5 Million Convertible Debenture”). In connection with the $3.5 Million Convertible Debenture, the Company agreed to issue warrants to purchase an aggregate of 4,268,292 shares of the Company’s common stock at the exercise price of $0.82 per share exercisable for five years commencing six months following the issuance thereof and to grant each investor further AIR. In addition, in connection with the transaction contemplated by Amendment No. 2, the Company issued a placement agent (i) 224,000 shares of common stock in lieu of a cash commission and (ii) warrants exercisable into approximately 105,000 shares of common stock at the same exercise price as the AIR warrants (see Note 6).

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

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

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

In February 2006, the Company issued 140,115 shares of common stock valued at $126,104 as employee compensation.

In February 2006, the Company issued 50,000 shares of common stock to a consultant for services rendered in the amount of $76,500. The shares were valued at $1.53 per share based on the quoted market price of the Company’s common stock on the dates of the issuances.


23

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


 
12.
Stockholders’ Equity (Continued)
In February 2006, the holders of the Second $4 million convertible debenture exercised their additional investment right “AIR Exercise” resulting in $4,000,000 in principal amount of convertible debentures (“Third $4 Million Convertible Debenture”). In connection with this investment, the Company agreed to issue warrants to purchase an aggregate of 3,200,000 shares of the Company’s common stock at the exercise price of $1.25 per share exercisable for five years commencing six months following the issuance thereof and to grant each investor further AIR (see Note 6).

In February 2006, the Company issued an aggregate of 4,770,617 warrants to certain debenture holders as an incentive to exercise their existing warrants.  All warrants have a five year term, an exercise price of $3.00 per share and were valued at $1.74.  The warrants, which were valued using the Black-Scholes pricing model with expected volatility of 0.9380 percent and risk free interest of 4.49 percent, resulted in charges to the interest expense of $8,307,606. 

In March 2006, the Company issued 75,000 shares of common stock to various consultants for services rendered in the amount of $189,500. The shares were valued at $2.31 to $2.96 per share based on the quoted market price of the Company’s common stock on the dates of the issuances.

In March 2006, the Company issued 2,390 shares of common stock to a vendor for the satisfaction of $1,959 of accounts payable. The shares were valued at $3.20 per share based on the quoted market price of the Company’s common stock on the dates of the issuances. This conversion resulted in a charge of $5,689 to loss on extinguishment of debt that represents the difference between quoted market price of the Company’s common stock and accounts payable balance.

In March 2006, the Company issued an aggregate of 800,000 warrants to certain debenture holders as an incentive to exercise their existing warrants.  All warrants have a five year term, an exercise price of $3.00 per share and were valued at $1.62.  The warrants, which were valued using the Black-Scholes pricing model with expected volatility of .9377percent and risk free interest of 4.49 percent, resulted in charges to the interest expense of $1,293,953. 

In April 2006, the Company issued 38,400 shares of common stock to various consultants for services rendered in the amount of $102,528. The shares were valued at $2.67 per share based on the quoted market price of the Company’s common stock on the date of the issue.

In April 2006, the Company issued 204,465 shares of common stock to an investor in a private placement for the proceeds of $255,581. The amount was included in accounts payable and accrued liabilities prior to the finalization of the terms of the private placement.

In April 2006, the Company issued an aggregate of 70,000 warrants to employees of the Company. All warrants have a five year term, an exercise price of $2.66 per share and were valued at $1.96. The warrants, which were valued using the Black-Scholes pricing model with expected volatility of 92.89 percent and risk free interest of 4.77 percent, resulted in charges to operations of $137,200.

During the nine months ended April 30, 2006, the Company issued an aggregate of 2,491,846 shares of common stock as monthly principal and interest payments totaling $1,600,106 of convertible debentures (see Note 6).


24

GENEREX BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


 
12.
Stockholders’ Equity (Continued)
During the nine months ended April 30, 2006, the Company issued an aggregate of 17,064,582 shares of common stock resulting from the conversion of $11,767,829 of principal and accrued interest of convertible debentures (see Note 6).

During the nine months ended April 30, 2006, the Company received aggregate cash proceeds of $3,174,554 from exercises of stock options. The Company issued 2,317,672 shares of common stock as a result of these transactions.

During the nine months ended April 30, 2006, the Company received aggregate cash proceeds of $32,819,118 from exercises of stock warrants. The Company issued 32,750,438 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
    
17,064,582
  
$
17,065
  
$
25,318,446
  
$
25,335,511
  
Convertible Debenture Monthly
                          
Repayments
    
2,491,846
    
2,492
    
2,747,929
    
2,750,421
  
Warrants and Stock Options Exercised
                          
for Cash
    
35,059,931
    
35,060
    
35,958,613
    
35,993,673
  
Cashless Exercise of Warrants
    
8,179
    
8
    
(8
)
   --  
Issuance for Services and Accounts
                          
Payable
    
1,544,303
    
1,544
    
1,601,848
    
1,603,392
  
Issuance as Compensation
    
140,115
    
140
    
125,964
    
126,104
  
                           
                           
Total
     56,308,956  
$
$56,309
  
$
$65,752,792
  
$
$65,809,101
  

 
13.
Subsequent Events
During May 2006, the Company refinanced certain long-term debt with a balance at April 30, 2006 in the amount of $658,557. The significant terms of refinancing include interest at 7.6 percent per annum and maturing May 2010.

In June 2006, the Company issued an aggregate of 3,414,636 shares and 2,560,980 warrants to purchase its common stock at $2.45 per share to four investors for aggregate gross proceeds of 7 million.

In June 2006, the Company issued an aggregate of 3,273,144 warrants to certain debenture holders as an incentive to exercise their existing warrants. All warrants have a five year term, an exercise price of $2.35 per share and were valued at $1.39. The warrants, which were valued using the Black-Scholes pricing model with expected volatility of 0.9302 percent and risk free interest of 4.98 percent, resulted in charges to the interest expense of $4,549,670.




25
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 April 30, 2006 that may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). The Act limits our liability in any lawsuit based on forward-looking statements that we have made. All statements, other than statements of historical facts, included in this Quarterly Report that address activities, events or developments that we expect or anticipate will or may occur in the future, including such matters as our projections, future capital expenditures, business strategy, competitive strengths, goals, expansion, market and industry developments and the growth of our businesses and operations, are forward-looking statements. These statements can be identified by introductory words such as "expects," "plans," "intends," "believes," "will," "estimates," "forecasts," "projects" or words of similar meaning, and by the fact that they do not relate strictly to historical or current facts. Our forward-looking statements address, among other things:

 
Ÿ
our expectations concerning product candidates for our technologies;
 
Ÿ
our expectations concerning existing or potential development and license agreements for third-party collaborations and joint ventures;
 
Ÿ
our expectations of when different phases of clinical activity may commence or be completed;
 
Ÿ
our expectations of when regulatory submissions may be filed or when regulatory approvals may be received; and
 
Ÿ
our expectations in respect of the timing and results of commercialization activities.

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

 
Ÿ
the inherent uncertainties of product development based on our new and as yet not fully proven technologies;
 
Ÿ
the risks and uncertainties regarding the actual effect on humans of seemingly safe and efficacious formulations and treatments when tested clinically;
 
Ÿ
the inherent uncertainties associated with clinical trials of product candidates;
 
Ÿ
the inherent uncertainties associated with the process of obtaining regulatory approval to market product candidates;
 
Ÿ
the inherent uncertainties associated with commercialization of products that have received regulatory approval; and
 
Ÿ
our ability to obtain the necessary financing to fund our operations.

Additional factors that could affect future results are set forth in Part I, Item 1. Business - Certain Additional Risk Factors of our Annual Report on Form 10-K for the year ended July 31, 2005 and in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q. We caution investors that the forward-looking statements contained in this Quarterly Report must be interpreted and understood in light of conditions and circumstances that exist as of the date of this Quarterly Report. We expressly disclaim any obligation or undertaking to update or revise forward-looking statements to reflect any changes in management's expectations resulting from future events or changes in the conditions or circumstances upon which such expectations are based.
 
26

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.
 
27

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. Under the Termination Agreement, all rights granted by each party to the other terminated, and each party retained its intellectual property rights. We obtained full ownership of Generex (Bermuda).

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

Our immunomedicine products work by stimulating the immune system to either attack offending agents (i.e., cancer cells, bacteria, and viruses) or to stop attacking benign elements (i.e., self proteins and allergens). Our immunomedicine products are based on two platform technologies that were discovered by a former executive officer of Antigen, the Ii-Key hybrid peptides and Ii-Suppression. Phase 1 clinical testing in humans has commenced at The Walter Reed Army Medical Center in respect of a vaccine designed to stimulate an immune response against the tumor-causing gene HER-2/neu, which occurs in a significant percentage of patients with breast cancer as well as other cancers. The other immunomedicine products, including a vaccine for avian influenza, are in the pre-clinical stage of development, and trials in human patients are not expected for at least six months. Development efforts are underway in melanoma, breast cancer, prostate cancer, HIV, the avian influenza virus, smallpox, SARS and Type I diabetes mellitus. We are establishing collaborations with clinical investigators at academic centers to advance the technology, with the ultimate goal of conducting human clinical testing.

With the commencement of commercial sales of our oral insulin product, Generex Oral-lyn™, in Ecuador in the fourth quarter of our fiscal 2006, we expect to receive revenues from product sales in the current calendar year. 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 April 30, 2006, we received a total of $43,750 in such research grants, and we have received a total of $131,250 in such grants in fiscal 2006. We do not expect to receive such grants on a going forward basis. We expect to satisfy the majority of our cash needs during the current year from capital raised through debt and equity financings.

Disclosure Regarding Research and Development Projects

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

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

Our insulin product, Generex Oral-lyn™, was approved for commercial sale by drug regulatory authorities in Ecuador in early May 2005 for the treatment of patients with either Type-1 or Type-2 diabetes mellitus.. It is our intention that our South American joint venture partner, PharmaBrand S.A., will handle the commercial production and sale of Generex Oral-lyn™ in Ecuador. Commercial sales of Generex Oral-lyn™ began in Ecuador in the forth quarter of our current fiscal year.
 
28

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

Most of our buccal delivery research and development activities to date have involved developing our platform technology for use with insulin and morphine. Insubstantial amounts have been expended on projects with other drugs, and those projects involved a substantial amount of platform technology development. Therefore, in the past, we have not made significant distinctions in the accounting for research and development expenses among products, as a significant portion of all research has involved improvements to the platform technology in connection with insulin, which is expected to benefit all of our potential products. During the nine months ended April 30, 2006, approximately 80% of our $3,628,732 in research expenses was attributable to insulin and platform technology development, and did not spend any money on morphine and fentanyl projects. In the comparable period ended April 30, 2005, approximately 85% of our $6,586,764 of research and development was expended for insulin and platform technology, and approximately 1% for morphine and fentanyl.

Approximately 20% or $736,972 of our research and development expenses for the nine months ended April 30, 2006 were related to Antigen's immunomedicine products compared to approximately 14% or $936,223 for the same period last year. Because these products are in a very early, pre-clinical stage of development (other than the breast cancer vaccine which is in Phase 1 trials), all of the expenses were accounted for as basic research and no distinctions were made as to particular products. Because of the early stage of development, we cannot predict the timing of completion of any products arising from the Antigen Express is technology, or when products from this technology might begin producing revenues.

Developments in Fiscal Quarter Ended April 30, 2006

Amendments of Outstanding Warrants

On February 27, 2006, we and the four accredited investors under the November 10, 2004 Securities Purchase Agreement (the “Securities Purchase Agreement”) amended the terms of certain outstanding warrants to purchase common stock issued in connection with the Securities Purchase Agreement, as amended, (the “February Exercised Warrants”) to accelerate the exercise date to February 27, 2006 in consideration of the full and immediate exercise thereof. The February Exercised Warrants consisted of warrants issued: (i) to Omicron Master Trust (“Omicron”) on July 22, 2005 for 243,902 shares of our common stock at $0.82 per share and then currently exercisable; (ii) to Cranshire Capital, L.P. (“Cranshire”) on October 20, 2005 for 300,000 shares of our common stock at $1.20 per share (originally exercisable on April 20, 2006); (iii) to Iroquois Capital, L.P. (“Iroquois”) on October 20, 2005 for 609,756 shares of our common stock at $1.20 per share (originally exercisable on April 20, 2006); (iv) to Cranshire on October 27, 2005 for 309,756 shares of our common stock at $1.25 per share (originally exercisable on April 27, 2006); (v) to Omicron and Smithfield Fiduciary LLC (“Smithfield”) on October 27, 2006 for 609,756 shares each of our common stock at $1.25 per share (originally exercisable on April 27, 2006); (vi) to each of the investors on October 27, 2005 for 304,878 shares each of our common stock at $1.25 per share (originally exercisable on April 27, 2006); (vii) to Cranshire on December 9, 2005 for 1,829,268 shares of our common stock at $1.25 per share (originally exercisable on June 9, 2006); and (viii) to each of the investors on January 20, 2006 for 952,381 shares each of our common stock at $1.05 per share (originally exercisable on July 20, 2006).

The investors agreed to immediately exercise 100% of the February Exercised Warrants (for aggregate gross proceeds to us of $11,014,267) in exchange for (a) the acceleration of the exercise periods and (b) the issuance of additional warrants equal to 50% of the February Exercised Warrants (an aggregate of 4,770,617 shares) (the “February Inducement Warrants”). The February Inducement Warrants have an exercise price of $3.00 per share and will be exercisable for five years commencing on August 27, 2006.
 
29

Exercise of A4 Additional AIRs

On February 28, 2006, we amended the terms of the Additional Investment Rights (the “A4 Additional AIRs”) previously granted to the investors in connection with Amendment No. 4 to the Securities Purchase Agreement entered into on January 19, 2006 (“Amendment No. 4”) to accelerate the initial exercise date thereof to February 28, 2006 in consideration of the full and immediate exercise thereof by the investors.

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

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

Upon the occurrence of an “Event of Default” with respect to the A4 Additional AIR Debentures, the full principal amount of each such Debenture, together with interest and other amounts owing in respect thereof, may be accelerated at the holder’s option and payable in cash. The aggregate amount payable upon an Event of Default will be equal to the “Mandatory Prepayment Amount,” which shall be calculated for the A4 Additional AIR Debentures in the same manner as described below with respect to the A2 AIR Debenture under Financial Condition, Liquidity and Resources - Second AIR Exercise Pursuant to Amendment No. 2.

The A4 Additional AIR Warrants issued to the investors on February 28, 2006 are initially exercisable into an aggregate of 3,200,000 shares of our common stock, and the initial exercise price of each A4 Additional AIR Warrant is equal to $1.25. The conversion price of the A4 Additional AIR Debentures and the exercise price of the A4 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.

On March 6, 2006, we agreed with the investors to amend the terms of A4 Additional AIR Warrants to accelerate the exercise dates thereunder in respect of fifty percent (50%) of the shares of our common stock issuable thereunder (an aggregate of 1,600,000 shares) to March 6, 2006. The A4 Additional AIR Warrants were initially exercisable on August 31, 2006. The investors agreed to immediately exercise fifty percent (50%) of the A4 Additional AIR Warrants (for aggregate gross proceeds to the Company of $2,000,000) in exchange for (a) the acceleration of the exercise period (insofar as it applied to fifty percent (50%) of the stock issuable thereunder, and (b) the issuance of additional warrants equal to 50% of the exercised A4 Additional AIR Warrants (an aggregate of 800,000 shares). The new warrants have an exercise price of $3.00 per share and will be exercisable for five years from September 6, 2006.
 
30

Developments Subsequent to Fiscal Quarter Ended April 30, 2006
 
On June 1, 2006, we entered into a Securities Purchase Agreement with four accredited investors for the sale of shares of our common stock and warrants in a private placement for an aggregate purchase price of $7.0 million. These transactions closed on June 2, 2006.
 
Pursuant to the Securities Purchase Agreement, each of Cranshire, Iroquois, Smithfield and Rockmore Investment Master Fund Ltd. ("Rockmore") purchased 853,659 restricted shares of the our common stock (the "Shares") and warrants to purchase 640,245 shares of common stock at an exercise price of $2.45 per share (the "Related Warrants"). The purchase price for each Unit consisting of one share and .75 warrants was $2.05. Consequently, each investor paid an aggregate of $1,750,000.95.
 
Pursuant to the Securities Purchase Agreement, we agreed to file a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), to register the re-sale by the investors of the Shares and the shares of common stock issuable upon exercise of the Related Warrants. In the Securities Purchase Agreement, we also granted the investors certain participation rights pursuant to which, upon any financing at any time within the next twelve months, the investors will have the right to purchase up to 100% of such financing.
 
The exercise price of the Related Warrants is subject to certain anti-dilution adjustments upon issuance of securities at a price per share of common stock less than the then applicable exercise price or the market price of our common stock at that time.
 
On June 1, 2006, we agreed with the investors to amend the terms of outstanding warrants to purchase an aggregate of 4,364,190 shares of common stock (the "Outstanding Warrants") to accelerate their exercise periods to June 1, 2006. The Outstanding Warrants included warrants to purchase an aggregate of 4,364,190 shares of our common stock with strike prices of $1.25 and $1.60 per share and exercise dates of August 28, 2006 and July 23, 2006. These Outstanding Warrants included warrants for 292,408 shares exercisable at $1.60 per share and warrants for 127,880 shares exercisable at $1.25 per share originally issued to Omicron which had been assigned to Rockmore. Each of the investors agreed to immediately exercise the full amount of its Outstanding Warrants. In consideration of the investors' exercise of the Outstanding Warrants, we issued to each investor additional warrants exercisable for a period of five years entitling the holder thereof to purchase a number of shares of common stock equal to 75% of the shares of common stock issuable upon the conversion in full (without regard to any restrictions on conversion therein contained) of the Outstanding Warrants (an aggregate of 3,273,144 shares of common stock) at an exercise price of $2.35 per share.
 
Results of Operations
Three and Nine Months Ended April 30, 2006 Compared to Three and Nine Months Ended April 30, 2005

Our net loss for the quarter ended April 30, 2006 was $31,773,494 versus $4,696,670 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 and loss on extinguishment of debt incurred in connection with convertible debentures. Our operating loss for the quarter increased to $3,890,499 compared to $3,324,521 in the third fiscal quarter of 2005. The increase is a result of the higher research and development expenses ($1,635,238 versus $1,009,799 last year) despite a moderate decrease in our general and administrative expenses (to $2,299,011 from $2,358,472).

The increase in research and development expenses for the fiscal quarter ending April 30, 2006 reflects an increased level of research and development activities in respect of our buccal delivery technologies including pre-commercialization activities of our buccal insulin product in Ecuador. Expenses associated with clinical and regulatory consultants also contributed to higher research and development costs this quarter. The increase in expenses was slightly offset by a small reduction in research and development activities of Antigen Express.

The small decrease in general and administrative expenses for the third fiscal quarter of 2006 is result of the decrease in financial services and audit and accounting expenses despite the increase in legal, consulting advertising and travel expenses and higher executive compensation.

Our interest expense in the third fiscal quarter of 2006 increased to $17,227,595 compared to interest expense of $1,403,667 in the third fiscal quarter of 2005 due to interest paid in connection with convertible debentures entered during last fiscal year and current quarter and interest expense associated with the value of warrants issued to convertible debenture holders as an incentive to exercise their existing warrants. Our interest and income from rental operations increased to $283,559 in the third fiscal quarter of 2006 compared to $31,518 in the same quarter last year due to the reallocation of certain properties to rental operations and larger balances and higher interest earned on short term investments. In addition, this fiscal quarter we incurred $10,938,959 in losses on extinguishment of debt in connection with monthly amortization payments due on convertible debentures which amount represents the difference between the quoted market price of our stock and a 10% discount to the average of the 20-day VWAP that was used to determine the number of shares issued.
 
31

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 nine months ended April 30, 2006, we engaged in several capital-raising transactions with certain of our stockholders as described above and below under the caption Developments in Fiscal Quarter Ended April 30, 2006 in this Part I - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and as described in our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2006. At April 30, 2006, we had cash and short-term investments of approximately $42 million, an increase of approximately $41 million from the balance as of the end of the prior fiscal year. The increase is attributable to the proceeds received in connection with warrant and additional investment right exercises during nine month of our fiscal 2006. At April 30, 2006, we believed that our anticipated cash position was sufficient to meet our working capital needs for the next 12 months based on the pace of our planned activities. Beyond that, we will likely require additional funds to support our working capital requirements or for other purposes. From time to time as deemed appropriate by management, we may seek to raise funds through private or public equity financing or from other sources. If we are unable to raise additional capital as needed, we could be required to "scale back" or otherwise revise our business plan. Any significant scale back of operations or modification of our business plan due to a lack of funding could be expected to affect our prospects materially and adversely.

At April 30, 2006, we had 6% Secured Convertible Debentures (the “Debentures”) outstanding in the aggregate principal amount of $1,373,077, which were issued in connection with the Securities Purchase Agreement and the amendments thereto. At such date, we had issued an aggregate of 19,556,428 shares of common stock resulting from the conversion of an aggregate of $13,367,935 of Debenture principal and accrued interest issued under the auspices of the Securities Purchase Agreement, as amended.

At April 30, 2006, we had 14,896,230 outstanding warrants and 9,149,597 options to purchase our common stock.

November 2004 Securities Purchase Agreement

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

In connection with the Securities Purchase Agreement, we granted an Additional Investment Right to holders of the Debentures. Pursuant to the terms of each Additional Investment Right, each holder had the right at any time prior to January 24, 2006 to purchase on the same terms and conditions as the private placement up to the same number of Debentures and warrants purchased by such holder at the closing of the private placement.
 
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In connection with the Securities Purchase Agreement, we also issued to a placement agent a warrant exercisable into approximately 145,000 shares of common stock at the same exercise price as the warrants issued to the holders of the Debentures.

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

AIR Exercise Pursuant to Amendment No. 1

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

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

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

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

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

In addition, in connection with the transactions contemplated by Amendment No. 1, we issued to a placement agent (i) 170,732 shares of common stock in lieu of a cash fee equal to 7% of the gross proceeds received by us and (ii) warrants exercisable into approximately 60,000 shares of our common stock at the same exercise price as the A1 AIR Warrants.
 
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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 investor parties to the Securities Purchase Agreement entered into Amendment No. 2 pursuant to which the investors agreed to exercise the remaining $2,000,000 in principal amount of their original additional investment rights acquired pursuant to the Securities Purchase Agreement on November 12, 2004 (the “A2 AIR Exercise”). In connection with the A2 AIR Exercise, we issued the investors:

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

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

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

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

Upon the occurrence of an “Event of Default,” including a default in payment of principal or interest (including late fees) which is not cured within three trading days, the full principal amount of each A2 AIR Debenture, together with interest and other amounts owing in respect thereof, to the date of acceleration will become, at the holder’s election, due and payable in cash. The aggregate amount payable upon an Event of Default shall be equal to the “Mandatory Prepayment Amount.” The Mandatory Prepayment Amount for any A2 AIR Debentures shall equal the sum of (i) the greater of: (A) 130% of the principal amount of A2 AIR Debentures to be prepaid, plus all accrued and unpaid interest thereon, or (B) the principal amount of A2 AIR Debentures to be prepaid, plus all other accrued and unpaid interest thereof, divided by the conversion price on (x) the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is paid in full, whichever is less, multiplied by the daily volume weighted average price of the common stock on (x) the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is paid in full, whichever is greater, and (ii) all other amounts, costs, expenses and liquidated damages due in respect of such Second AIR Debentures. The interest rate on the A2 AIR Debentures will accrue at the rate of 18% per annum, or such lower maximum amount of interest permitted to be charged under applicable law, beginning five days after the occurrence of any Event of Default that results in the acceleration of the A2 AIR Debentures. A late fee of 18% per annum, or such lower maximum amount of interest permitted to be charged under applicable law, will accrue on a daily basis on all overdue accrued and unpaid interest under the A2 AIR Debentures from the due date to the date of payment.
 
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The A2 AIR Warrants were amended (to abridge the exercise periods) and exercised in full in late October 2005 as described below under the caption Exercise of Outstanding AIR Warrants. The A2 Additional AIRs were amended (to abridge the exercise periods) and exercised in full in December 2005 as described below under Omicron’s Exercise of Additional AIR and Third AIR Exercise Pursuant to Amendment No. 3.

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

Cranshire and Omicron Notes and Related Warrants

We entered into a Promissory Note and Agreement with Cranshire on March 28, 2005 and entered into a Promissory Note and Agreement with Omicron on April 6, 2005 pursuant to which Cranshire and Omicron loaned us the principal amounts of $500,000 and $100,000, respectively (the "Notes"). The outstanding principal balances under the Notes and any accrued but unpaid interest thereon was due and payable on May 15, 2005 to the extent that Cranshire and Omicron had not exercised their respective conversion rights under the Notes. On April 28, 2005, as additional consideration for the loans from Cranshire and Omicron, we issued Cranshire a warrant to purchase an aggregate of 1,219,512 shares of our common stock at a per share price of $0.82 and issued Omicron a warrant to purchase an aggregate of 243,902 shares of our common stock at a per share price of $0.82.

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 and July 22, 2005, Cranshire and Omicron agreed to extend the interest payment date and the maturity date of each of the Notes, with the last extension to September 20, 2005. In consideration of each such extension, we issued Cranshire a warrant to purchase an aggregate of 1,219,512 shares of our common stock at a per share price of $0.82 and issued Omicron a warrant to purchase an aggregate of 243,902 shares of our common stock at a per share price of $0.82

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, and, on December 9, 2005, in consideration thereof, we issued to Cranshire a five-year warrant to purchase an aggregate of 1,829,268 shares of our common stock at $1.25 per share. On February 28, 2006, Omicron exercised one of its warrants previously issued to it in connection with its Note pursuant to which it purchased an aggregate of 243,902 shares of our common stock for $200,000. In consideration of such exercise, we issued to Omicron a five-year warrant to purchase an aggregate of 121,951 shares of our common stock at $3 per share. Prior thereto, Omicron has voluntarily exercised all of its other warrants previously issued to it in connection with its Note for no additional consideration.
 
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Exercise of Outstanding Warrants Issued Pursuant to Securities Purchase Agreement

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

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

Exercise of Outstanding AIR Warrants

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

Omicron’s Exercise of Additional AIR

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

Third AIR Exercise Pursuant to Amendment No. 3

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

In connection with Amendment No. 3, we and the investors, excluding Omicron, agreed to accelerate the initial exercise date of the A1 Additional AIRs (the 181st day following the date of issuance) in consideration of the full and immediate exercise by such investors of their A1 Additional AIRs and the delivery to us of Notices of Exercise in respect thereof on or before the close of business on December 5, 2005. In addition, we and all four of the investors agreed to accelerate the initial exercise dates of the A2 Additional AIRs (the 181st day following the date of issuance) in consideration of the full and immediate exercise by the investors of their A2 Additional AIRs and the delivery to us of Notices of Exercise in respect thereof on or before the close of business on December 5, 2005.
 
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Each investor timely delivered its Notices of Exercise In connection with the exercise of each A1 Additional AIR and each A2 Additional AIR on December 5, 2005, each investor purchased a $500,000 principal amount Debenture with a conversion price of $0.82 (the A1 Additional Debentures and the A2 Additional Debentures) and a Warrant entitling the investor to purchase a number of shares of our common stock equal to 100% of the shares of common stock issuable upon the conversion in full of the A1 Additional AIR Debenture and the A2 Additional AIR Debenture (together, the “A1/A2 Additional AIR Debentures”) at a $0.82 conversion price (subject to adjustment as set forth therein) (without regard to any restrictions on conversion therein contained) at an exercise price of $0.82 per share (the A1 Additional AIR Warrants and the A2 Additional AIR Warrants (together, the “A1/A2 Additional AIR Warrants”)). Accordingly, we issued to the investors A1/A2 Additional AIR Debentures in the aggregate principal amount of $3,500,000 and A1/A2 Additional AIR Warrants to purchase an aggregate of 4,268,292 shares of our common stock, exercisable for five years commencing six months following the issuance thereof. We received proceeds of approximately $3,500,000 in connection with the investors’ exercise of their A1 Additional AIRs and their A2 Additional AIRS.

The A1/A2 Additional AIR Debentures have since been fully converted into shares of our common stock. The A1/A2 Additional AIR Debentures had a term of fifteen months and amortized 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 accrued at a rate of 6% per annum. The principal and accrued interest could be repaid in cash or, at our option, in shares of our common stock. If we elected to pay principal and interest in shares of our common stock, the value of each share of common stock would be equal to the lesser of (i) $0.82 and (ii) ninety percent (90%) of the average of the daily volume weighted average price for the common stock over the twenty trading day period immediately preceding the date of payment. At the option of the holder of each A1/A2 Additional AIR Debenture, the principal amount outstanding under each A1/A2 Additional AIR Debenture was convertible at any time into shares of our common stock at a conversion price of $0.82.

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

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

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

Exercise of Warrants in December 2005.

On December 9, 2005, in consideration for the exercise of certain outstanding warrants previously issued in connection with its Note, we issued to Cranshire five-year warrants to purchase an aggregate of 1,829,268 shares of our common stock at $1.25 per share. We received aggregate proceeds of approximately $3,000,000 in connection with the warrant exercise.
 
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Fourth AIR Exercise Pursuant to Amendment No. 4

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

Pursuant to Amendment No. 4, we amended the terms of the A3 Additional AIRs to accelerate the initial exercise dates thereof to January 19, 2006 and to reduce the conversion price from $1.25 to $1.05 in consideration of their full and immediate exercise by the investors. We received proceeds of approximately $4,000,000 in connection with the investors’ exercise of their A3 Additional AIRs.

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

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

Upon the occurrence of an “Event of Default” with respect to each A3 Additional AIR Debenture, the full principal amount of each such Debenture, together with interest and other amounts owing in respect thereof, may be accelerated at the holder’s option and payable in cash. The aggregate amount payable upon an Event of Default will be equal to the “Mandatory Prepayment Amount,” which shall be calculated for the A3 Additional AIR Debentures in the same manner as described above with respect to the A2 AIR Debentures under Second AIR Exercise Pursuant to Amendment No. 2.

In addition, in consideration of each investor’s exercise of its A3 Additional AIR, we granted to each investor a further additional investment right (the “A4 Additional AIR”) pursuant to which each investor had the right to purchase detachable units consisting of (a) a Debenture in principal amount of $1,000,000 with a conversion price of $1.25 (the “A4 Additional AIR Debenture”) and (b) a warrant entitling the holder thereof to purchase a number of shares of our common stock equal to 100% of the shares of common stock issuable upon the conversion in full of the A4 Additional AIR Debenture at a $1.25 conversion price (subject to adjustment as set forth therein) (without regard to any restrictions on conversion therein contained) at an exercise price of $1.25 per share (the “A4 Additional AIR Warrants”). The A4 Additional AIRs were amended (to abridge the exercise periods) and exercised in full on February 28, 2006 as described below under Exercise of A4 Additional AIRs.

Under the terms of Amendment No. 4, we also agreed to register for resale the securities issuable upon conversion/exercise of the A4 Additional AIR Debentures and the A4 Additional AIR Warrants, consistent with the investors’ existing registration rights under the Registration Rights Agreement. We agreed to register such securities on the Registration Statement contemplated by Amendment No. 3. The Registration Statement became effective on February 24, 2006.
 
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In addition, in connection with the transactions contemplated by Amendment No. 4, we issued to a placement agent (i) 266,667 shares of common stock in lieu of a cash fee equal to 7% of the gross proceeds received by us and (ii) warrants exercisable into approximately 120,000 shares of common stock at the same exercise price as the AIR Warrants. These shares were registered for resale in the registration statement which became effective on February 24, 2006.

January 2006 Acceleration and Exercise of AIR Warrants

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

Amendments of Outstanding Warrants

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

The investors agreed to immediately exercise 100% of the February Exercised Warrants (for aggregate gross proceeds to us of $11,014,267) in exchange for (a) the acceleration of the exercise periods and (b) the issuance of additional warrants equal to 50% of the February Exercised Warrants (an aggregate of 4,770,617 shares) (the “February Inducement Warrants”). The February Inducement Warrants have an exercise price of $3.00 per share and will be exercisable for five years commencing on August 27, 2006.
 
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Exercise of A4 Additional AIRs

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

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

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

Upon the occurrence of an “Event of Default” with respect to each A4 Additional AIR Debenture, the full principal amount of each such Debenture, together with interest and other amounts owing in respect thereof, may be accelerated at the holder’s option and payable in cash. The aggregate amount payable upon an Event of Default will be equal to the “Mandatory Prepayment Amount,” which shall be calculated for the A4 Additional AIR Debentures in the same manner as described above with respect to the A2 AIR Debentures under Second AIR Exercise Pursuant to Amendment No. 2.

The A4 Additional AIR Warrants issued to the investors on February 28, 2006 are initially exercisable into an aggregate of 3,200,000 shares of our common stock, and the initial exercise price of each A4 Additional AIR Warrant is equal to $1.25. The conversion price of the A4 Additional AIR Debentures and the exercise price of the A4 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.

On March 6, 2006, we agreed with the investors to amend the terms of A4 Additional AIR Warrants to accelerate the exercise dates thereunder in respect of fifty percent (50%) of the shares of our common stock issuable thereunder (an aggregate of 1,600,000 shares) to March 6, 2006. The A4 Additional AIR Warrants were initially exercisable on August 31, 2006. The investors agreed to immediately exercise fifty percent (50%) of the A4 Additional AIR Warrants (for aggregate gross proceeds to the Company of $2,000,000) in exchange for (a) the acceleration of the exercise period (insofar as it applied to fifty percent (50%) of the stock issuable thereunder, and (b) the issuance of additional warrants equal to 50% of the exercised A4 Additional AIR Warrants (an aggregate of 800,000 shares). The new warrants have an exercise price of $3.00 per share and will be exercisable for five years from September 6, 2006.
 
40

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. Because we did not make the first installment payment on October 1, 2005 as of that date, all amounts owed to Eckert Seamans became payable on demand, and interest on such unpaid amounts began accruing at the rate of 8% per annum. On March 28, 2006, we paid the outstanding balance ($337,937) due under the Assistance Agreement in full.

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.

Issuance of Other Warrants

On April 17, 2006, our Board of Directors ratified the issuance to Zapfe Holdings Inc. of an aggregate of 204,465 shares of common stock and a warrant to purchase 102,232 shares of our common stock at an exercise price of $1.25 per share. We issued the stock and warrant in consideration of an investment of CAD$300,000. The warrant is exercisable until January 13, 2011. The holder has agreed that it will not exercise this warrant if such exercise would cause the holder, together with its respective affiliates, to beneficially own more than 9.99% of our common stock then outstanding. The holder may exercise the warrant by tendering cash or through a cashless exercise after the first year anniversary or prior to the first year anniversary if there is no effective registration statement registering for resale the shares of common stock into which the warrants are exercisable. The number of shares to be issued upon cashless exercise of the warrants is determined as follows: the number of shares with respect to which the warrant is being exercised multiplied by [(the average of the closing prices for the five trading days immediately prior to (but not including) the exercise date minus the exercise price) divided by the average of the closing prices for the five trading days immediately prior to (but not including) the exercise date]. The shares of common stock and the shares of common stock issuable upon exercise of the warrant were included on our registration statement filed on February 1, 2006 and declared effective by the SEC on February 27, 2006.

On April 17, 2006, our Board of Directors approved the issuance to one of our directors, Dr. Gerald Bernstein, of a five-year warrant to purchase 50,000 shares of our common stock pursuant to the terms of Dr. Bernstein’s employment agreement and granted a bonus to an employee of our subsidiary Antigen Express, Inc. in the form of a five-year warrant to purchase up to an aggregate of 20,000 shares of our common stock. Each such warrant has an exercise price of $2.66 per share, which represented the average of the closing prices of our common stock for the five trading days ended April 17, 2006.
 
Pursuant to the Securities Purchase Agreement dated as of June 1, 2006, each of Cranshire, Iroquois, Smithfield and Rockmore purchased 853,659 restricted shares of the our common stock and warrants to purchase 640,245 shares of common stock at an exercise price of $2.45 per share. The purchase price for each Unit consisting of one share and .75 warrants was $2.05. Consequently, each investor paid an aggregate of $1,750,000.95 ($7.0 million in total). We also granted the investors certain participation rights pursuant to which, upon any financing at any time within the next twelve months, the investors will have the right to purchase up to 100% of such financing. The exercise price of the Related Warrants is subject to certain anti-dilution adjustments upon issuance of securities at a price per share of common stock less than the then applicable exercise price or the market price of our common stock at that time. This transaction closed on June 2, 2006.
 
On June 1, 2006, we agreed with the investors to amend the terms of outstanding warrants to purchase an aggregate of 4,364,190 shares of common stock (the "Outstanding Warrants") to accelerate their exercise periods to June 1, 2006. The Outstanding Warrants included warrants to purchase an aggregate of 4,364,190 shares of our common stock with strike prices of $1.25 and $1.60 per share and exercise dates of August 28, 2006 and July 23, 2006. These Outstanding Warrants included warrants for 292,408 shares exercisable at $1.60 per share and warrants for 127,880 shares exercisable at $1.25 per share originally issued to Omicron which had been assigned to Rockmore. Each of the investors agreed to immediately exercise the full amount of its Outstanding Warrants. On June 2, 2006, in consideration of the investors' exercise of the Outstanding Warrants, we issued to each investor additional warrants exercisable for a period of five years entitling the holder thereof to purchase a number of shares of common stock equal to 75% of the shares of common stock issuable upon the conversion in full (without regard to any restrictions on conversion therein contained) of the Outstanding Warrants (an aggregate of 3,273,144 shares of common stock) at an exercise price of $2.35 per share.
 
41
 
Going Concern Uncertainty

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

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 April 30, 2006 of approximately $175,705,417. We have funded our activities to date almost exclusively from debt and equity financings.

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

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

Critical Accounting Policies

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

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

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

Intangible Assets. We have intangible assets related to patents. The determination of the related estimated useful lives and whether or not these assets are impaired involves significant judgments. In assessing the recoverability of these intangible assets, we use an estimate of undiscounted operating income and related cash flows over the remaining useful life, market conditions and other factors to determine the recoverability of the asset. If these estimates or their related assumptions change in the future, we may be required to record impairment charges against these assets.
 
42

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
4,729,336
3,307,455
1,421,881
0
0
Capital Lease Obligations
0
0
0
0
0
Operating Lease Obligations
52,362
32,092
16,903
3,367
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
$4,781,698
$3,339,547
$1,438,784
$3,367
$0

Related Party Transactions

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

We utilize a management company to manage all of our real properties. The property management company is owned by Anna Gluskin, our Chairman, Chief Executive Officer and President, 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 April 30, 2006 and 2005, we paid the management company approximately $11,864 and $11,000, respectively, in management fees.

At April 30, 2006, EBI, Inc., a company controlled by Ms. Rose Perri, was indebted to the Company in the amount of $415,828 for obligations incurred in 1997 and 1998. The U.S. dollar amount of this obligation has been shown on our balance sheets as “Due From Related Party” and the circumstances of the incurrence of this obligation have been reported in our forms 10-K/A and Proxy Statements including those for fiscal year 2005 and our most recent annual meeting of stockholders. On April 30, 2006, the Company, Ms. Perri and EBI agreed to satisfy the amounts due from EBI by an offsetting reduction in the amount of compensation owed by the Company to Ms. Perri.
 
43

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.

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

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets”, to simplify accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Additionally, SFAS No. 156 permits, but does not require, an entity to choose either the amortization method or the fair value measurement method for measuring each class of separately recognized servicing assets and servicing liabilities. SFAS No. 156 applies to all separately recognized servicing assets and servicing liabilities acquired of issued after the beginning of an entity’s fiscal year that begins after September 15, 2006, although early adoption is permitted. The Company believes that this SFAS will have no effect on the Company’s financial condition or results of operations.
 
44

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 April 30, 2006, we have fixed rate debt totaling $3,356,260. This amount consists of the following:

Loan
Amount
  
Interest Rate
per Annum
$436,529
  
4.913%
$270,657
  
4.924%
$1,161,754
  
6.07%
$658,557
  
6.85%
$358,240
  
8.5%
$210,799
  
10%
$259,724
  
16.5%
$3,356,260
  
Total

These debt instruments mature from June 2006 through March 2009. \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.
 
45

Changes in internal control over financial reporting

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.
In addition to the other information included in this Quarterly Report on Form 10-Q, you should carefully review and consider the factors discussed in Part I, Item 1. Business - Certain Additional Risk Factors of our Annual Report on Form 10-K for the year ended July 31, 2005, certain of which have been updated below. These factors materially affect our business, financial condition or future results of operations. The risks, uncertainties and other factors described in our Annual Report on Form 10-K and below are not the only ones facing our company. Additional risks, uncertainties and other factors not presently known to us or that we currently deem immaterial may also impair our business operations, financial condition or operating results. Any of the risks, uncertainties and other factors could cause the trading price of our common stock to decline substantially.

Risks Related to Our Financial Condition

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

We are a development stage company with a limited history of operations, and do not expect sufficient revenues to support our operation in the immediately foreseeable future. We do expect to receive some revenue from the sale of our oral insulin product in Ecuador in fiscal 2006. To date, we have not been profitable and our accumulated net loss was $175,705,417 at April 30, 2006. Our losses have resulted principally from costs incurred in research and development, including clinical trials, and from general and administrative costs associated with our operations. While we seek to attain profitability, we cannot be sure that we will ever achieve product and other revenue sufficient for us to attain this objective.

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

We need additional capital.

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

We will require funds in excess of our existing cash resources:
 
46

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

 
Ÿ
to develop other buccal and immunomedicine products;

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

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

 
Ÿ
to establish and expand our manufacturing capabilities;

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

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

 
Ÿ
to otherwise carry on business.

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

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

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

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

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

Risks Related to Our Technologies

With the exceptions of Generex Oral-lyn™ and Glucose RapidSpray™, our technologies and products are at an early stage of development and we cannot expect revenues in respect thereof in the foreseeable future.
 
47

With the exception of Generex 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, and Glucose RapidSpray™, an over-the-counter confectionary, we have no products approved for commercial sale at the present time. To be profitable, we must not only successfully research, develop and obtain regulatory approval for our products under development, but also manufacture, introduce, market and distribute them once development is completed. We may not be successful in one or more of these stages of the development or commercialization of our products, and/or any of the products we develop may not be commercially viable.

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

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

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

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.

Risks Related to Marketing of Our Potential Products

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

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

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

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

 
Ÿ
the availability of third-party (i.e., insurer and governmental agency) reimbursements.
 
48
We will not receive revenues from our oral insulin formulation in Ecuador or any of our other products that may receive regulatory approval until we can successfully manufacture, market and distribute them in the relevant market.

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

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

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

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

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

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

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

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

The price of our common stock may be volatile.

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

 
Ÿ
announcements of research activities and technology innovations or new products by us or our competitors;
 
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Ÿ
changes in market valuation of companies in our industry generally;

 
Ÿ
variations in operating results;

 
Ÿ
changes in governmental regulations;

 
Ÿ
developments in patent and other proprietary rights;

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

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

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

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

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.

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

Unregistered Sales of Equity Securities

In the fiscal quarter ended April 30, 2006, we sold warrants to purchase shares of our common stock in the amounts and to the purchasers and on the terms as disclosed above in this Quarterly Report under the captions Amendments of Outstanding Warrants and Exercise of A4 Additional AIRs under Part I - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Financial Condition, Liquidity and Resources, which disclosures are incorporated herein by reference. We undertook the offer and sale of these warrants, including shares of common stock into which such warrants are exercisable, by us to the purchasers in reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”). Each of the purchasers 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. Any certificates issued representing such warrants and shares of common stock issued upon exercise thereof will be legended to indicate that they are restricted. No sale of these securities involved the use of underwriters.

On April 17, 2006, we issued 204,465 shares of common stock and a warrant to purchase 102,232 shares of our common stock to Zapfe Holdings Inc. We issued the stock and warrant in consideration of an investment of CAD$300,000. The exercise price of the warrant is $1.25 per share. The conversion features of the warrant 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. The sale of the shares of common stock and warrant, including the shares of common stock to be issued upon exercise of the warrant, is exempt from the registration under Securities Act in reliance upon Section 4(2) thereof. Zapfe Holdings Inc. has represented to us that it is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D. The shares of common stock and the shares of common stock issuable upon exercise of the warrant were included on our registration statement filed on February 1, 2006 and declared effective by the SEC on February 27, 2006. The sale did not involve the use of underwriters, and no commissions were paid in connection with the sale, if any, thereof.
 
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On April 17, 2006, we issued an aggregate of 72,000 shares of our restricted common stock to The Abajian Group, LLC (“Abajian”) as partial consideration for Abajian’s provision of services under an agreement with us relating to the solicitation, evaluation and design of third-party wholesale and retail distribution channels for certain of our products. All shares of our common stock issued to Abajian shall be restricted for 18 months from the date of issuance. Abajian has certain “piggyback” registration rights with respect to the shares of common stock. The sales of all such shares of restricted common stock were exempt from registration under the Securities Act, in reliance upon Section 4(2) thereof. Abajian has represented us that it is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D. The certificate issued for the restricted shares of common stock was legended to indicate that the shares are restricted. The sale 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.

On April 17, 2006, we issued 1,400 shares of our restricted common stock to a consultant pursuant to early termination of the consulting agreement between the consultant and us. All shares of our common stock issued to the consultant shall be restricted for 12 months from the date of issuance. The sales of all such shares of restricted common stock were exempt from registration under the Securities Act, in reliance upon Section 4(2) thereof. The consultant is a resident of Canada. The certificate issued for the restricted shares of common stock was legended to indicate that the shares are restricted. The sale 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.

On April 17, 2006, we issued a five-year warrant to purchase 50,000 shares of our common stock to one of our directors, Dr. Gerald Bernstein. The warrant was issued pursuant to the terms of Dr. Bernstein’s employment agreement. The warrant has an exercise price of $2.66 per share, which represented the average of the closing prices of our common stock for the five trading days ended April 17, 2006. In the event that the issuance of this warrant is deemed to be a “sale” as that term is defined under Section 2(a)(3) of the Securities Act, such “sale” is exempt from registration under the Securities Act in reliance upon Section 4(2) thereof. Dr. Bernstein, as a director of Generex, is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D. The warrant was, and the certificates representing the shares of common stock issuable upon exercise thereof will be, legended to indicate that they are restricted. The sale, if any, of such warrant did not involve the use of underwriters, and no commissions were paid in connection with the issuance or sale, if any, thereof.

In addition, on April 17, 2006, our Board of Directors granted a bonus to an employee of our subsidiary Antigen Express, Inc. of a five-year warrant to purchase up to an aggregate of 20,000 shares of our common stock at an exercise price of $2.66 per share, which represented the average of the closing prices of our common stock for the five trading days ended April 17, 2006. The issuance of this warrant is not deemed to be a “sale” as that term is defined under Section 2(a)(3) of the Securities Act. The warrant was, and the certificates representing the shares of common stock issuable upon exercise of the warrant will be, legended to indicate that they are restricted.

On April 17, 2006, the Board of Directors also approved the donation of 25,000 shares of our common stock to the University Campus Bio-Medico in Rome, Italy. The issuance of these shares is not deemed to be a “sale” as that term is defined under Section 2(a)(3) of the Securities Act. The shares of common stock were included on our registration statement filed on February 1, 2006 and declared effective by the SEC on February 27, 2006.
 
On June 1, 2006, we entered into a Securities Purchase Agreement with four accredited investors for the sale of shares of its common stock and warrants in a private placement for an aggregate purchase price of $7.0 million. This transaction closed on June 2, 2006. Pursuant to the Securities Purchase Agreement, each of Cranshire, Rockmore, Iroquois and Smithfield purchased 853,659 restricted shares of the our common stock (the "Shares") and warrants to purchase 640,245 shares of common stock at an exercise price of $2.45 per share (the "Related Warrants"). The purchase price for each Unit consisting of one share and .75 warrants was $2.05. Consequently, each investor paid an aggregate of $1,750,000.95. The terms and conditions applicable to the Shares and Related Warrants, including the conversion features of the Related Warrants, 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 June 1, 2006, we agreed with the investors to amend the terms of outstanding warrants to purchase an aggregate of 4,364,190 shares of common stock (the "Outstanding Warrants") to accelerate their exercise periods to June 1, 2006. The Outstanding Warrants included warrants to purchase an aggregate of 4,364,190 shares of our common stock with strike prices of $1.25 and $1.60 per share and exercise dates of August 28, 2006 and July 23, 2006. These Outstanding Warrants included warrants for 292,408 shares exercisable at $1.60 per share and warrants for 127,880 shares exercisable at $1.25 per share originally issued to Omicron which had been assigned to Rockmore. Each of the investors agreed to immediately exercise the full amount of its Outstanding Warrants. On June 2, 2006, in consideration of the investors' exercise of the Outstanding Warrants, we issued to each investor additional warrants exercisable for a period of five years entitling the holder thereof to purchase a number of shares of common stock equal to 75% of the shares of common stock issuable upon the conversion in full (without regard to any restrictions on conversion therein contained) of the Outstanding Warrants (an aggregate of 3,273,144 shares of Common Stock) at an exercise price of $2.35 per share. We undertook the offer and sale of the Shares and Related Warrants, as well as the shares of common stock issuable upon exercise of the Related Warrants and the Outstanding Warrants, in reliance upon Rule 506 of Regulation D and Section 18(b)(4)(D) of the Securities Act. No underwriting commissions, placement fees or similar amounts were paid in connection with the issuance of the Shares and Related Warrants or the exercise of the Outstanding Warrants.
 
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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 April 30, 2006.

Item 3. Defaults Upon Senior Securities.

Under the terms of an Assistance Agreement with Eckert Seamans Cherin & Mellott, LLC, , we agreed to repay an advance of $325,179 without interest in three equal installments due on October 1, 2005, November 1, 2005 and December 1, 2005. Because we did not make the first installment payment on October 1, 2005, all amounts owed to Eckert Seamans became payable on demand as of that date, and interest on such unpaid amounts began accruing at the rate of 8% per annum. On March 28, 2006, we paid the outstanding balance ($337,937) due under the Assistance Agreement in full. 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.

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Item 6. Exhibits.

Exhibit
 
 
Number
  
Description of Exhibit
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
 
 
 
3(II)
 
Bylaws of Generex Biotechnology Corporation (incorporated by reference to Exhibit 3.2 to Generex Biotechnology Corporation’s Registration Statement on Form S-1 (File No. 333-82667) filed on July 12, 1999)
 
 
 
4.1
 
Form of common stock certificate (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Registration Statement on Form S-1 (File No. 333-82667) filed on July 12, 1999)
 
 
 
4.2
 
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)
 
 
 
4.3.1
 
Form of Securities Purchase Agreement entered into with Cranshire Capital, L.P.; Gryphon Partners, L.P.; Langley Partners, L.P.; Lakeshore Capital, Ltd.; LH Financial; Omicron Capital; Photon Fund, Ltd.; Howard Todd Horberg and Vertical Ventures, LLC dated May 29, 2003 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 10-Q/A for the quarter ended April 30, 2003 filed on August 13, 2003)
 
 
 
4.3.2
 
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)
 
 
 
4.3.3
 
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)
 
 
 
4.4.1
 
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)
 
 
 
4.4.2
 
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)
 
 
 
4.4.3
 
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)
 
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Exhibit
 
 
Number
  
Description of Exhibit
4.4.4
 
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)
 
 
 
4.5.1
 
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)
 
 
 
4.5.2
 
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)
 
 
 
4.5.3
 
Form of Warrant issued in connection with Exhibit 4.5.1 (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K/A filed on March 24, 2004)
 
 
 
4.5.4
 
Form of Additional Investment Right issued in connection with Exhibit 4.5.1 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K/A filed on March 24, 2004)
     
4.6.1
 
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)
 
 
 
4.6.2
 
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)
 
 
 
4.6.3
 
Warrant issued in connection with Exhibit 4.6.1 (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.6.4
 
Additional Investment Right issued in connection with Exhibit 4.6.1 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.7.1
 
Securities Purchase Agreement, dated January 9, 2004, by and between Generex Biotechnology Corporation and Vertical Ventures, LLC (incorporated by reference to Exhibit 4.5 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.7.2
 
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)
 
 
 
4.7.3
 
Warrant issued in connection with Exhibit 4.7.1 (incorporated by reference to Exhibit 4.7 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.7.4
 
Additional Investment Right issued in connection with Exhibit 4.7.1 (incorporated by reference to Exhibit 4.8 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.8.1
 
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)
 
 
 
4.8.2
 
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)
 
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Exhibit
 
 
Number
  
Description of Exhibit
4.8.3
 
Warrant issued in connection with Exhibit 4.8.1 (incorporated by reference to Exhibit 4.11 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.8.4
 
Additional Investment Right issued in connection with Exhibit 4.8.1 (incorporated by reference to Exhibit 4.12 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.8.5
 
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)
 
 
 
4.9.1
 
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)
 
 
 
4.9.2
 
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)
 
 
 
4.9.3
 
Additional Investment Right issued in connection with Exhibit 4.9.1 (incorporated by reference to Exhibit 4.17 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.10.1
 
Securities Purchase Agreement, dated February 13, 2004, by and between Generex Biotechnology Corporation and Zapfe Holdings, Inc. (incorporated by reference to Exhibit 4.18 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.10.2
 
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)
 
 
 
4.10.3
 
Warrant issued in connection with Exhibit 4.10.1 (incorporated by reference to Exhibit 4.20 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.10.4
 
Additional Investment Right issued in connection with Exhibit 4.10.1 (incorporated by reference to Exhibit 4.21 Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.11.1
 
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)
 
 
 
4.11.2
 
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)
 
 
 
4.11.3
 
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 filed on July 14, 2004)
 
 
 
4.11.4
 
Form of Additional Investment Right issued in connection Exhibit 4.11.1 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on July 14, 2004)
 
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Exhibit
 
 
Number
  
Description of Exhibit
4.12.1
 
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)
 
 
 
4.12.2
 
Form of 6% Secured Convertible Debenture issued in connection with Exhibit 4.12.1 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on November 12, 2004)
 
 
 
4.12.3
 
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)
 
 
 
4.12.4
 
Form of Additional Investment Right issued in connection with Exhibit 4.12.1 (incorporated by reference to Exhibit 4.5 to Generex Biotechnology Corporation’s Report on Form 8-K filed on November 12, 2004)
 
 
 
4.12.5
 
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)
 
 
 
4.12.6
 
Form of Voting Agreement entered into in connection with Exhibit 4.12.1 (incorporated by reference to Exhibit 4.7 to Generex Biotechnology Corporation’s Report on Form 8-K filed on November 12, 2004)
 
 
 
4.13
 
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)
 
 
 
4.14
 
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)
 
 
 
4.15.1
 
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)
 
 
 
4.15.2
 
Form of AIR Debenture issued in connection with Exhibit 4.15.1 (incorporated by reference to Exhibit 4.25.2 to Generex Biotechnology Corporation’s Report on Form 10-K filed on October 31, 2005)
 
 
 
4.15.3
 
Form of AIR Warrant issued in connection with Exhibit 4.15.1(incorporated by reference to Exhibit 4.25.3 to Generex Biotechnology Corporation’s Report on Form 10-K filed on October 31, 2005)
 
 
 
4.15.4
 
Form of Additional AIR issued in connection with Exhibit 4.15.1 (incorporated by reference to Exhibit 4.25.4 to Generex Biotechnology Corporation’s Report on Form 10-K filed on October 31, 2005)
 
 
 
4.16.1
 
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)
 
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Exhibit
 
 
Number
  
Description of Exhibit
4.16.2
 
Form of Air Debenture issued in connection with Exhibit 4.16.1 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on September 9, 2005)
 
 
 
4.16.3
 
Form of AIR Warrant issued in connection with Exhibit 4.16.1 (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on September 9, 2005)
 
 
 
4.16.4
 
Form of Additional AIR issued in connection with Exhibit 4.16.1 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on September 9, 2005)
 
 
 
4.17
 
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)
 
 
 
4.18.1
 
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)
 
 
 
4.18.2
 
Additional AIR Debenture issued by Generex Biotechnology Corporation to Omicron Master Trust on October 27, 2005 issued in connection with Exhibit 4.18.1 (incorporated by reference to Exhibit 4.37 to Generex Biotechnology Corporation’s Report on Form 10-Q filed on December 15, 2005)
 
 
 
4.18.3
 
Additional AIR Warrant issued by Generex Biotechnology Corporation to Omicron Master Trust on October 27, 2005 issued in connection with Exhibit 4.18.1 (incorporated by reference to Exhibit 4.38 to Generex Biotechnology Corporation’s Report on Form 10-Q filed on December 15, 2005)
 
 
 
4.19.1
 
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)
 
 
 
4.19.2
 
Form of AIR Debentures issued in connection with Exhibit 4.19.1 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on December 5, 2005)
 
 
 
4.19.3
 
Form of AIR Warrants issued in connection with Exhibit 4.19.1 (incorporated by reference to Exhibit 4.5 to Generex Biotechnology Corporation’s Report on Form 8-K filed on December 5, 2005)
 
 
 
4.19.4
 
Form of Additional AIRs issued in connection with Exhibit 4.19.1 (incorporated by reference to Exhibit 4.6 to Generex Biotechnology Corporation’s Report on Form 8-K filed on December 5, 2005)
 
 
 
4.20
 
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)
 
 
 
4.21
 
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)
 
 
 
4.22
 
Form of Warrant issued by Generex Biotechnology Corporation on January 23, 2006 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on January 24, 2006)
 
58
 

Exhibit
 
 
Number
  
Description of Exhibit
4.23
 
Agreement to amend Warrants between Generex Biotechnology Corporation and Cranshire Capital L.P. dated February 27, 2006 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on February 28, 2006).
 
 
 
4.24
 
Agreement to amend Warrants between Generex Biotechnology Corporation and Omicron Master Trust dated February 27, 2006 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on February 28, 2006).
     
4.25
 
Agreement to amend Warrants between Generex Biotechnology Corporation and Iroquois Capital L.P. dated February 27, 2006 (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on February 28, 2006).
     
4.26
 
Agreement to amend Warrants between Generex Biotechnology Corporation and Smithfield Fiduciary LLC dated February 27, 2006 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on February 28, 2006).
     
4.27
  
Agreement to Amend Additional Investment Right between Generex Biotechnology Corporation and Cranshire Capital, L.P. dated February 28, 2006 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2006).
     
4.28
  
Agreement to Amend Additional Investment Right between Generex Biotechnology Corporation and Omicron Master Trust dated February 28, 2006 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2006).
     
4.29
  
Agreement to Amend Additional Investment Right between Generex Biotechnology Corporation and Iroquois Capital LP dated February 28, 2006 (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2006).
     
4.30
  
Agreement to Amend Additional Investment Right between Generex Biotechnology Corporation and Smithfield Fiduciary LLC dated February 28, 2006 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2006).
     
4.31
  
Form of Agreement to Amend Warrants between Generex Biotechnology Corporation and the Investors dated March 6, 2006 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 7, 2006).
     
4.32
 
Form of Warrant issued by Generex Biotechnology Corporation on March 6, 2006 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 7, 2006)
     
4.33
 
Warrant issued by Generex Biotechnology Corporation on April 17, 2006 to Zapfe Holdings, Inc.
     
4.34
 
Form of Warrant issued by Generex Biotechnology Corporation on April 17, 2006 to certain employees.
     
4.35
  
Securities Purchase Agreement entered into by and between Generex Biotechnology Corporation and four Investors on June 1, 2006 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on June 2, 2006)
 
59
 

Exhibit
 
 
Number
  
Description of Exhibit
4.36
  
Form of Warrant issued by Generex Biotechnology Corporation on June 1, 2006 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on June 2, 2006)
     
4.37
  
Form of Amendment to Outstanding Warrants (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on June 2, 2006)
     
4.38
  
Form of Warrant issued by Generex Biotechnology Corporation on June 1, 2006 in connection with Exhibit 4.37 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on June 2, 2006)
     
9
 
Form of Voting Agreement entered into in connection with Exhibit 4.12.1 (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.



60

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
GENEREX BIOTECHNOLOGY CORPORATION
(Registrant)
 
 
 
 
 
 
Date: June 14, 2006
By:  
/s/ Anna E. Gluskin                                        
 
Anna E. Gluskin
Chairman, President and Chief Executive Officer
 
 
 
 
 
 
 
 
 
 
 
Date: June 14, 2006
By:  
/s/ Rose C. Perri                                              
 
Rose C. Perri
Chief Operating Officer, Chief Financial Officer, Treasurer and Secretary

61

Generex Biotechnology Corporation
Form 10-Q
April 30, 2006
Exhibit Index

Exhibit
 
 
Number
  
Description of Exhibit
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
 
 
 
3(II)
 
Bylaws of Generex Biotechnology Corporation (incorporated by reference to Exhibit 3.2 to Generex Biotechnology Corporation’s Registration Statement on Form S-1 (File No. 333-82667) filed on July 12, 1999)
 
 
 
4.1
 
Form of common stock certificate (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Registration Statement on Form S-1 (File No. 333-82667) filed on July 12, 1999)
 
 
 
4.2
 
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)
 
 
 
4.3.1
 
Form of Securities Purchase Agreement entered into with Cranshire Capital, L.P.; Gryphon Partners, L.P.; Langley Partners, L.P.; Lakeshore Capital, Ltd.; LH Financial; Omicron Capital; Photon Fund, Ltd.; Howard Todd Horberg and Vertical Ventures, LLC dated May 29, 2003 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 10-Q/A for the quarter ended April 30, 2003 filed on August 13, 2003)
 
 
 
4.3.2
 
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)
 
 
 
4.3.3
 
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)
 
 
 
4.4.1
 
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)
 
 
 
4.4.2
 
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)
 
 
 
4.4.3
 
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)
 
62
 

Exhibit
 
 
Number
  
Description of Exhibit
4.4.4
 
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)
 
 
 
4.5.1
 
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)
 
 
 
4.5.2
 
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)
 
 
 
4.5.3
 
Form of Warrant issued in connection with Exhibit 4.5.1 (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K/A filed on March 24, 2004)
 
 
 
4.5.4
 
Form of Additional Investment Right issued in connection with Exhibit 4.5.1 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K/A filed on March 24, 2004)
     
4.6.1
 
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)
 
 
 
4.6.2
 
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)
 
 
 
4.6.3
 
Warrant issued in connection with Exhibit 4.6.1 (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.6.4
 
Additional Investment Right issued in connection with Exhibit 4.6.1 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.7.1
 
Securities Purchase Agreement, dated January 9, 2004, by and between Generex Biotechnology Corporation and Vertical Ventures, LLC (incorporated by reference to Exhibit 4.5 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.7.2
 
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)
 
 
 
4.7.3
 
Warrant issued in connection with Exhibit 4.7.1 (incorporated by reference to Exhibit 4.7 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.7.4
 
Additional Investment Right issued in connection with Exhibit 4.7.1 (incorporated by reference to Exhibit 4.8 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.8.1
 
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)
 
 
 
4.8.2
 
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)
 
63
 

Exhibit
 
 
Number
  
Description of Exhibit
4.8.3
 
Warrant issued in connection with Exhibit 4.8.1 (incorporated by reference to Exhibit 4.11 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.8.4
 
Additional Investment Right issued in connection with Exhibit 4.8.1 (incorporated by reference to Exhibit 4.12 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.8.5
 
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)
 
 
 
4.9.1
 
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)
 
 
 
4.9.2
 
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)
 
 
 
4.9.3
 
Additional Investment Right issued in connection with Exhibit 4.9.1 (incorporated by reference to Exhibit 4.17 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.10.1
 
Securities Purchase Agreement, dated February 13, 2004, by and between Generex Biotechnology Corporation and Zapfe Holdings, Inc. (incorporated by reference to Exhibit 4.18 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.10.2
 
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)
 
 
 
4.10.3
 
Warrant issued in connection with Exhibit 4.10.1 (incorporated by reference to Exhibit 4.20 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.10.4
 
Additional Investment Right issued in connection with Exhibit 4.10.1 (incorporated by reference to Exhibit 4.21 Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2004)
 
 
 
4.11.1
 
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)
 
 
 
4.11.2
 
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)
 
 
 
4.11.3
 
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 filed on July 14, 2004)
 
 
 
4.11.4
 
Form of Additional Investment Right issued in connection Exhibit 4.11.1 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on July 14, 2004)
 
64
 

Exhibit
 
 
Number
  
Description of Exhibit
4.12.1
 
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)
 
 
 
4.12.2
 
Form of 6% Secured Convertible Debenture issued in connection with Exhibit 4.12.1 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on November 12, 2004)
 
 
 
4.12.3
 
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)
 
 
 
4.12.4
 
Form of Additional Investment Right issued in connection with Exhibit 4.12.1 (incorporated by reference to Exhibit 4.5 to Generex Biotechnology Corporation’s Report on Form 8-K filed on November 12, 2004)
 
 
 
4.12.5
 
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)
 
 
 
4.12.6
 
Form of Voting Agreement entered into in connection with Exhibit 4.12.1 (incorporated by reference to Exhibit 4.7 to Generex Biotechnology Corporation’s Report on Form 8-K filed on November 12, 2004)
 
 
 
4.13
 
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)
 
 
 
4.14
 
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)
 
 
 
4.15.1
 
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)
 
 
 
4.15.2
 
Form of AIR Debenture issued in connection with Exhibit 4.15.1 (incorporated by reference to Exhibit 4.25.2 to Generex Biotechnology Corporation’s Report on Form 10-K filed on October 31, 2005)
 
 
 
4.15.3
 
Form of AIR Warrant issued in connection with Exhibit 4.15.1(incorporated by reference to Exhibit 4.25.3 to Generex Biotechnology Corporation’s Report on Form 10-K filed on October 31, 2005)
 
 
 
4.15.4
 
Form of Additional AIR issued in connection with Exhibit 4.15.1 (incorporated by reference to Exhibit 4.25.4 to Generex Biotechnology Corporation’s Report on Form 10-K filed on October 31, 2005)
 
 
 
4.16.1
 
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)
 
65
 

Exhibit
 
 
Number
  
Description of Exhibit
4.16.2
 
Form of Air Debenture issued in connection with Exhibit 4.16.1 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on September 9, 2005)
 
 
 
4.16.3
 
Form of AIR Warrant issued in connection with Exhibit 4.16.1 (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on September 9, 2005)
 
 
 
4.16.4
 
Form of Additional AIR issued in connection with Exhibit 4.16.1 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on September 9, 2005)
 
 
 
4.17
 
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)
 
 
 
4.18.1
 
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)
 
 
 
4.18.2
 
Additional AIR Debenture issued by Generex Biotechnology Corporation to Omicron Master Trust on October 27, 2005 issued in connection with Exhibit 4.18.1 (incorporated by reference to Exhibit 4.37 to Generex Biotechnology Corporation’s Report on Form 10-Q filed on December 15, 2005)
 
 
 
4.18.3
 
Additional AIR Warrant issued by Generex Biotechnology Corporation to Omicron Master Trust on October 27, 2005 issued in connection with Exhibit 4.18.1 (incorporated by reference to Exhibit 4.38 to Generex Biotechnology Corporation’s Report on Form 10-Q filed on December 15, 2005)
 
 
 
4.19.1
 
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)
 
 
 
4.19.2
 
Form of AIR Debentures issued in connection with Exhibit 4.19.1 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on December 5, 2005)
 
 
 
4.19.3
 
Form of AIR Warrants issued in connection with Exhibit 4.19.1 (incorporated by reference to Exhibit 4.5 to Generex Biotechnology Corporation’s Report on Form 8-K filed on December 5, 2005)
 
 
 
4.19.4
 
Form of Additional AIRs issued in connection with Exhibit 4.19.1 (incorporated by reference to Exhibit 4.6 to Generex Biotechnology Corporation’s Report on Form 8-K filed on December 5, 2005)
 
 
 
4.20
 
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)
 
 
 
4.21
 
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)
 
 
 
4.22
 
Form of Warrant issued by Generex Biotechnology Corporation on January 23, 2006 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on January 24, 2006)
 
66
 

Exhibit
 
 
Number
  
Description of Exhibit
4.23
 
Agreement to amend Warrants between Generex Biotechnology Corporation and Cranshire Capital L.P. dated February 27, 2006 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on February 28, 2006).
 
 
 
4.24
 
Agreement to amend Warrants between Generex Biotechnology Corporation and Omicron Master Trust dated February 27, 2006 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on February 28, 2006).
     
4.25
 
Agreement to amend Warrants between Generex Biotechnology Corporation and Iroquois Capital L.P. dated February 27, 2006 (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on February 28, 2006).
     
4.26
 
Agreement to amend Warrants between Generex Biotechnology Corporation and Smithfield Fiduciary LLC dated February 27, 2006 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on February 28, 2006).
     
4.27
  
Agreement to Amend Additional Investment Right between Generex Biotechnology Corporation and Cranshire Capital, L.P. dated February 28, 2006 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2006).
     
4.28
  
Agreement to Amend Additional Investment Right between Generex Biotechnology Corporation and Omicron Master Trust dated February 28, 2006 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2006).
     
4.29
  
Agreement to Amend Additional Investment Right between Generex Biotechnology Corporation and Iroquois Capital LP dated February 28, 2006 (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2006).
     
4.30
  
Agreement to Amend Additional Investment Right between Generex Biotechnology Corporation and Smithfield Fiduciary LLC dated February 28, 2006 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 1, 2006).
     
4.31
  
Form of Agreement to Amend Warrants between Generex Biotechnology Corporation and the Investors dated March 6, 2006 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 7, 2006).
     
4.32
 
Form of Warrant issued by Generex Biotechnology Corporation on March 6, 2006 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on March 7, 2006)
     
4.33
 
Warrant issued by Generex Biotechnology Corporation on April 17, 2006 to Zapfe Holdings, Inc.
     
4.34
 
Form of Warrant issued by Generex Biotechnology Corporation on April 17, 2006 to certain employees.
     
4.35
  
Securities Purchase Agreement entered into by and between Generex Biotechnology Corporation and four Investors on June 1, 2006 (incorporated by reference to Exhibit 4.1 to Generex Biotechnology Corporation’s Report on Form 8-K filed on June 2, 2006)
 
67
 

Exhibit
 
 
Number
  
Description of Exhibit
4.36
  
Form of Warrant issued by Generex Biotechnology Corporation on June 1, 2006 (incorporated by reference to Exhibit 4.2 to Generex Biotechnology Corporation’s Report on Form 8-K filed on June 2, 2006)
     
4.37
  
Form of Amendment to Outstanding Warrants (incorporated by reference to Exhibit 4.3 to Generex Biotechnology Corporation’s Report on Form 8-K filed on June 2, 2006)
     
4.38
  
Form of Warrant issued by Generex Biotechnology Corporation on June 1, 2006 in connection with Exhibit 4.37 (incorporated by reference to Exhibit 4.4 to Generex Biotechnology Corporation’s Report on Form 8-K filed on June 2, 2006)
     
9
 
Form of Voting Agreement entered into in connection with Exhibit 4.12.1 (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.
 
 
68
 EX-3.1 2 v045407_ex3-1.htm Unassociated Document
 
Exhibit 3(I)
 
RESTATED
 
CERTIFICATE OF INCORPORATION
 
OF
 
GENEREX BIOTECHNOLOGY CORPORATION
 


 

 
Generex Biotechnology Corporation, a corporation organized and existing under the laws of the State of Delaware (hereinafter called the “Corporation”), hereby certifies as follows:
 
1. The present name of the Corporation is Generex Biotechnology Corporation. The date of filing of its original Certificate of Incorporation with the Secretary of State was September 4, 1997. The Corporation was originally known as Generex Biotechnology Corporation. On January 16, 1998, in connection with the filing of a Certificate of Merger, its name was changed to GBC - Delaware, Inc. On April 28, 1999, in connection with the filing of a Certificate of Merger, the Corporation changed its name back to Generex Biotechnology Corporation.
 
2. This Restated Certificate of Incorporation has been duly adopted by unanimous written consent of the Board of Directors of the Company without a vote of the stockholders of the Company in accordance with the applicable provisions of Sections 141 and 245 of the General Corporation Law of the State of Delaware.
 
3. This Restated Certificate of Incorporation was duly adopted by the Corporation's Board of Directors in accordance with the provisions of Section 245 of the Delaware General Corporation Law and only restates and integrates, but does not further amend, the provisions of the Corporation's Certificate of Incorporation, as heretofore amended or supplemented. The text of the Certificate of Incorporation of the Corporation is hereby restated without further amendment to read as follows:
 
FIRST: The name of the Corporation is Generex Biotechnology Corporation.
 
SECOND: The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.
 
THIRD: The nature of the business or purposes to be conducted or promoted by the Corporation is as follows:
 
To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
 

 
 
 
 
 
FIFTH: In furtherance of and not in limitation of powers conferred by statute, it is further provided:
 
1. Election of directors need not be by written ballot.
 
2. The Board of Directors is expressly authorized to adopt, amend or repeal the By-Laws of the Corporation.
 
SIXTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute and the Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation.
 
SEVENTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the amended Delaware General Corporation Law. Any repeal or modification of this Article shall not adversely affect any right or protection of a director of the corporation existing hereunder with respect to any act or omission occurring prior to such repeal or modification.
 
EIGHTH: Section 203 of the General Corporation Law of Delaware, as amended, shall not be applicable to this corporation.

 
2
 

 
In accordance with Section 103(a)(2) and Section 103(b)(2) of the General Corporation Law of the State of Delaware, the Corporation hereby executes and acknowledges this Restated Certificate of Incorporation this 13th day of June, 2006.
 

 
GENEREX BIOTECHNOLOGY
CORPORATION
 

 
By: /s/ Rose C. Perri   
 
Name:  Rose C. Perri  
Title:  Secretary & Chief Financial Officer
 

 
3
 

 EX-4.33 3 v045407_ex4-33.htm Unassociated Document
Exhibit 4.33
 
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES 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. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.
 

 
GENEREX BIOTECHNOLOGY CORPORATION
 
WARRANT
 
Date of Original Issuance: January 13, 2006
 
GENEREX BIOTECHNOLOGY CORPORATION, a Delaware corporation (the "Company"), hereby certifies that, for value received, Zapfe Holdings Inc. or its registered assigns (the "Holder"), is entitled to purchase from the Company up to a total of 102,232 shares of common stock, par value $0.001 per share (the "Common Stock"), of the Company (each such share, a "Warrant Share" and all such shares, the "Warrant Shares") at an exercise price equal to $1.25 per share (as adjusted from time to time as provided in Section 9, the "Exercise Price"), at any time and from time to time from and after the date hereof and through and including January 13, 2011 (the "Expiration Date"), and subject to the following terms and conditions:
 
1. Definitions. In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein shall have the meanings given to such terms in the Securities Purchase Agreement of even date herewith to which the Company and the original Holder are parties (the "Purchase Agreement").
 
2. Registration of Warrant. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
 

 
 
 


 
3. Registration of Transfers. The Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Company at its address specified herein. Upon any such registration or transfer, a new Warrant to purchase Common Stock, in substantially the form of this Warrant (any such new Warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant.
 
4. Exercise and Duration of Warrants. Subject to the terms and conditions hereof, this Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the date hereof to and including the Expiration Date. At 6:30 p.m., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value, provided, that if the closing sales price of the Common Stock on the Expiration Date is greater than 102% of the Exercise Price on the Expiration Date, then this Warrant shall be deemed to have been exercised in full (to the extent not previously exercised) on a “cashless exercise” basis at 6:30 P.M. New York City time on the Expiration Date. The Company may not call or redeem any portion of this Warrant without the prior written consent of the Holder.
 
5. Delivery of Warrant Shares.
 
(a) To effect exercises hereunder, the Holder shall not be required to physically surrender this Warrant unless the aggregate Warrant Shares represented by this Warrant is being exercised. Upon delivery of a written notice, in the form of the Exercise Notice attached hereto (the “Exercise Notice”) to the Company (together with the Warrant Shares Exercise Log attached thereto (the “Warrant Shares Exercise Log”) at its address for notice set forth herein and upon payment of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the Company shall promptly (but in no event later than three Trading Days after the Date of Exercise (as defined herein)) issue and deliver to the Holder, a certificate for the Warrant Shares issuable upon such exercise, which, unless otherwise required by the Purchase Agreement, shall be free of restrictive legends. The Company shall, upon request of the Holder and subsequent to the date on which a registration statement covering the resale of the Warrant Shares has been declared effective by the Securities and Exchange Commission, use commercially reasonable efforts to deliver Warrant Shares hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions, if available, provided, that, the Company may, but will not be required to change its transfer agent if its current transfer agent cannot deliver Warrant Shares electronically through the Depository Trust Corporation. A "Date of Exercise" means the date on which the Holder shall have delivered to Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately completed and duly signed and (ii) if such Holder is not utilizing the cashless exercise provisions set forth in this Warrant, payment of the Exercise Price for the number of Warrant Shares so indicated by the Holder to be purchased.
 

 
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(b) If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder will have the right to rescind such exercise.
 
(c) If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Shares in the manner required pursuant to Section 5(a), and if after such third Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a "Buy-In"), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue by (B) the closing bid price of the Common Stock at the time of the obligation giving rise to such purchase obligation and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In.
 
(d) Provided that the Holder has satisfied its obligations hereunder, the Company's obligations to issue and deliver Warrant Shares 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 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 Warrant Shares. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
 
6. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.
 

 
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7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity (which shall not include a surety bond), if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the Company’s obligation to issue the New Warrant.
 
8. Reservation of Warrant Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.
 
9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9.
 
(a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be adjusted to equal the product obtained by multiplying the Exercise Price by a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately before such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this paragraph occurs during the period that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall be adjusted appropriately to reflect such event.
 

 
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(b) Fundamental Transactions. If, at any time while this Warrant is outstanding, (1) the Company effects any merger or consolidation of the Company with or into another Person, (2) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (3) 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 (4) 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 the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind 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 the number of Warrant Shares then issuable upon exercise in full of this Warrant (the "Alternate Consideration"). For purposes of any such exercise, the determination of the Exercise 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 Exercise 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 exercise of this Warrant following such Fundamental Transaction. At the Holder's option and request, any successor to the Company or surviving entity in such Fundamental Transaction shall, either (1) issue to the Holder a new warrant substantially in the form of this Warrant and consistent with the foregoing provisions and evidencing the Holder's right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof, or (2) purchase the Warrant from the Holder for a purchase price, payable in cash within five Trading Days after such request (or, if later, on the effective date of the Fundamental Transaction), equal to the Black Scholes value of the remaining unexercised portion of this Warrant on the date of such request. 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 the Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
 
(c) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.
 
(d) Calculations. All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.
 
(e) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company's Transfer Agent.
 

 
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(f) Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction, at least 20 calendar days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.
 
10. Payment of Exercise Price. The Holder may pay the Exercise Price in one of the following manners:
 
(a) Cash Exercise. The Holder may deliver immediately available funds; or
 
(b) Cashless Exercise. If an Exercise Notice is delivered: (i) prior to the first year anniversary of this Warrant and a registration statement permitting the Holder to resell the Warrant Shares is not then effective or the prospectus forming a part thereof is not then available to the Holder for the resale of the Warrant Shares or (ii) after the first year anniversary of this Warrant, then the Holder may notify the Company in an Exercise Notice of its election to utilize cashless exercise, in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows:
 
X = Y [(A-B)/A]
 
where:
 
X = the number of Warrant Shares to be issued to the Holder.
 
Y = the number of Warrant Shares with respect to which this Warrant is being exercised.
 
A = the average of the closing prices for the five Trading Days immediately prior to (but not including) the Exercise Date.
 
B = the Exercise Price.
 

 
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For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued.
 
11. Limitations on Exercise. Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed 9.999% of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. This provision shall not restrict the number of shares of Common Stock which a Holder may receive or beneficially own in order to determine the amount of securities or other consideration that such Holder may receive in the event of a Fundamental Transaction as contemplated in Section 9 of this Warrant. This restriction may not be waived.
 
12. No Fractional Shares. No fractional shares of Warrant Shares will be issued in connection with any exercise of this Warrant. In lieu of any fractional shares which would, otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the closing price of one Warrant Share as reported by the applicable Trading Market on the date of exercise.
 
13. Notices. Any and all notices or other communications or deliveries hereunder (including, without limitation, any Exercise Notice) shall be in writing and 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 number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading 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. The addresses for such communications shall be:
 
If to the Company:
Generex Biotechnology Corporation
33 Harbour Square, Suite 202
Toronto, Ontario
Canada M5J 2G2
Attention: Anna E. Gluskin
Facsimile: (416) 364-9363
With a copy to:
Eckert Seamans Cherin & Mellott, LLC
1515 Market Street, 9th Floor
Philadelphia, PA 19102
Attention: Gary A. Miller, Esquire
Facsimile: (215) 851-8383


 
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If to the Holder:
To the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section.

14. Warrant Agent. The Company shall serve as warrant agent under this Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register.
 
15. Miscellaneous.
 
(a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder and their successors and assigns.
 
(b) All questions concerning the construction, validity, enforcement and interpretation of this Warrant 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 this Warrant and the transactions herein contemplated (“Proceedings”) (whether brought against a party hereto or its respective Affiliates, employees or agents) shall be commenced exclusively 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, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such 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 Warrant 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 Warrant or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of this Warrant, then the prevailing party in such Proceeding shall be reimbursed by the other party for its attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.
 

 
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(c) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.
 
(d) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
 
SIGNATURE PAGE FOLLOWS]
 

 
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.
 
 
GENEREX BIOTECHNOLOGY CORPORATION
 
 
 
By:/s/ Rose C. Perri
 
Name: Rose C. Perri [document reviewer]
 
Title: Chief Financial Officer
   
   
 
By: /s/ Mark A. Fletcher   
 
Name: Mark A. Fletcher [document preparer]
Title: Executive Vice-President, General Counsel

 
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GENEREX BIOTECHNOLOGY CORPORATION
WARRANT ORIGINALLY ISSUED JANUARY 13, 2006

EXERCISE NOTICE

 
To GENEREX BIOTECHNOLOGY CORPORATION:
 
The undersigned hereby irrevocably elects to purchase _____________ shares of Common Stock pursuant to the above captioned Warrant, and, if such Holder is not utilizing the cashless exercise provisions set forth in the Warrant, encloses herewith $________ in cash, certified or official bank check or checks or other immediately available funds, which sum represents the aggregate Exercise Price (as defined in the Warrant) for the number of shares of Common Stock to which this Exercise Notice relates, together with any applicable taxes payable by the undersigned pursuant to the Warrant.
 
By its delivery of this Exercise Notice, the undersigned represents and warrants to the Company that in giving effect to the exercise evidenced hereby the Holder will not beneficially own in excess of the number of shares of Common Stock (determined in accordance with Section 13(d) of the Securities Exchange Act of 1934) permitted to be owned under Section 11 of this Warrant to which this notice relates.
 
The undersigned requests that certificates for the shares of Common Stock issuable upon this exercise be issued in the name of
 
 
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
 
(Please print name and address)

 
 
 

Warrant Shares Exercise Log
 
Date
Number of Warrant Shares Available to be Exercised
Number of Warrant Shares Exercised
Number of Warrant Shares Remaining to be Exercised
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      

 

 
 
 

GENEREX BIOTECHNOLOGY CORPORATION
WARRANT ORIGINALLY ISSUED JANUARY 13, 2006

FORM OF ASSIGNMENT

 
[To be completed and signed only upon transfer of Warrant]
 
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the above-captioned Warrant to purchase ____________ shares of Common Stock to which such Warrant relates and appoints ________________ attorney to transfer said right on the books of the Company with full power of substitution in the premises.
 
Dated: _______________, ____
 
 
_______________________________________
 
(Signature must conform in all respects to name of holder as specified on the face of the Warrant)
 
 
 
____________________________________
 
Address of Transferee
 
 
 
____________________________________
 
____________________________________
In the presence of:
  
__________________________
  

EX-4.34 4 v045407_ex4-34.htm Unassociated Document
Exhibit 4.34

WARRANT


THE SECURITIES REPRESENTED BY THIS WARRANT AND SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL IN FORM REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT. ANY SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH THE APPLICABLE STATE SECURITIES LAWS.


Generex Biotechnology Corporation
Warrant To Purchase Common Stock

Number of Shares: ________
Date of Original Issuance: April 17, 2006

Generex Biotechnology Corporation, a Delaware corporation (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, [name], the registered holder hereof or his permitted assigns, is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant, at any time or times on or after the date hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as defined herein) [number] (####) fully paid nonassessable shares of Common Stock (as defined herein) of the Company (the “Warrant Shares”) at the purchase price per share provided in Section 1(b) below.

Section 1.

(a) Resolution. This Warrant is issued pursuant to the unanimous resolution of the Board of Directors of the Company passed on April 17, 2006..

(b) Definitions. The following words and terms as used in this Warrant shall have the following meanings:

(i) “Common Stock” means (i) the Company’s common stock, $.001 par value per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.

 
 



(ii) “Convertible Securities” means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable for Common Stock.

(iii) “Expiration Date” means April 16, 2011.

(iv) “Options” means any rights, warrants, or options to subscribe for or purchase Common Stock or Convertible Securities. 

(v) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.

(vi) “Principal Market” means the NASDAQ National Market or the NASDAQ Capital Market.

(vii) “Securities Act” means the Securities Act of 1933, as amended.

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

(ix) “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 Principal Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Principal 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 Principal 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 Pink Sheets, LLC (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 (d) 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 holder and reasonably acceptable to the Company.

(x) “Warrant” means this Warrant and all Warrants issued in exchange, transfer or replacement of any thereof.

(xi) “Warrant Exercise Price” shall be $2.66 per Common Share, subject to adjustment as hereinafter provided.

 
2
 


Section 2. Exercise of Warrant.

(a) Subject to the terms and conditions hereof, this Warrant may be exercised by the holder hereof then registered on the books of the Company, in whole or in part, at any time on any business day on or after the opening of business on the date hereof and prior to 11:59 P.M. Eastern Time on the Expiration Date by (i) delivery of a written notice, in the form of the subscription notice attached as Exhibit A hereto (the “Exercise Notice”), of such holder’s election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) except as otherwise provided in Section 2(d), payment to the Company of an amount equal to the Warrant Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (plus any applicable issue or transfer taxes) (the “Aggregate Exercise Price”) in cash or by check or wire transfer, and (iii) the surrender to a common carrier for delivery to the Company as soon as practicable following such date, this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction); provided, that if such Warrant Shares are to be issued in any name other than that of the registered holder of this Warrant, such issuance shall be deemed a transfer and the provisions of Section 7 shall be applicable. In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), a certificate or certificates for the Warrant Shares so purchased, in such denominations as may be requested by the holder hereof and registered in the name of, or as directed by, the holder, shall be issued as soon as practicable, and in no event later than three (3) business days after the Company’s receipt of the Exercise Notice, the Aggregate Exercise Price, which shall not be required for a Cashless Exercise (as defined in Section 2(d)), and this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction), and deliver the same at the Company’s expense to, or as directed by, such holder. Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in clause (ii) above, which shall not be required for a Cashless Exercise, the holder of this Warrant shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares. In the case of a dispute as to the determination of the Warrant Exercise Price, the Company shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the holder via facsimile within three (3) business days of receipt of the holder’s subscription notice.

(b) Unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than three (3) business days after any exercise and at its own expense, issue a new Warrant identical in all respects to this Warrant exercised except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant exercised, less the number of Warrant Shares with respect to which such Warrant is exercised.

(c) Notwithstanding anything in this Warrant to the contrary, in no event shall the holder of this Warrant be entitled to exercise a number of Warrant Shares (or portions thereof) in excess of the number of Warrant Shares (or portions thereof) upon exercise of which the sum of (i) the number of Warrant Shares beneficially owned by the holder and its affiliates (other than Warrant Shares which may be deemed beneficially owned through the ownership of the unexercised Warrants and the unexercised or unconverted portion of any other securities of the Company with limitations similar to this paragraph (c)) and (ii) the number of Warrant Shares issuable upon exercise of the Warrants (or portions thereof) with respect to which the determination described herein is being made, would result in beneficial ownership by the holder and its affiliates of more than 9.9% of the outstanding shares of Company common stock. For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Regulation 13D-G of the Securities Exchange Act of 1934, as amended, except as otherwise provided in clause (i) of the preceding sentence.

 
3
 



(d) If at any time after one year from the date of issuance of this Warrant there is no effective registration statement on Form S-3 registering the resale of the Warrant Shares by the holder, then this Warrant may also be exercised at such time by means of a “Cashless Exercise” in which the holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the VWAP on the Trading Day immediately preceding the date of such election;

(B) = the Warrant Exercise Price of this Warrant, as adjusted; and

(X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

Section 3. Representations and Covenants as to Common Stock. The Company hereby represents and covenants as follows:

(a) This Warrant is, and any Warrant issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued.

(b) All Warrant Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.

(c) During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least 100% of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant and the par value of said shares will at all times be less than or equal to the applicable Warrant Exercise Price.

(d) The Company shall promptly secure the listing of the shares of Common Stock issuable upon exercise of this Warrant upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system.

 
4
 



(e) The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

(f) This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets.

Section 4. Taxes. The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise specifically provided herein, no holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the holder of this Warrant of the Warrant Shares which he or she is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on such holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company will provide the holder of this Warrant with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

Section 6. Representations of Holder. The holder of this Warrant, by the acceptance hereof, represents that he is acquiring this Warrant and the Warrant Shares for his own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. The holder of this Warrant further represents, by acceptance hereof, that, as of this date, such holder is an “accredited investor” as such term is defined in Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act (an “Accredited Investor”).

Section 7. Ownership and Transfer.

(a) The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant.

 
5
 



(b) This Warrant and the rights granted to the holder hereof are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed warrant power in the form of Exhibit B attached hereto; provided, however, that any transfer or assignment shall be subject to the conditions set forth in Section 7(c) below.

(c) The holder of this Warrant understands that this Warrant has not been and is not expected to be, registered under the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (i) subsequently registered thereunder, or (ii) the transferee is an affiliated entity that is an Accredited Investor, or (iii) such holder shall have delivered to the Company an opinion of counsel, in generally acceptable form, to the effect that the securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to Regulation S under the Securities Act or to an exemption from such registration; provided that (A) any sale of such securities made in reliance on Rule 144 promulgated under the Securities Act may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the Securities and Exchange Commission thereunder; and (B) neither the Company nor any other person is under any obligation to register the Warrants under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.

(d) The initial holder of this Warrant is entitled to certain piggyback registration rights in respect of the Warrant Shares such that the Warrant Shares shall be included on the next registration statement on Form S-3 that the Company files after the date hereof to register shares of Common Stock under the Securities Act, other than any registration statement that the Company files to register shares of Common Stock issuable pursuant to any employee benefit plan.

Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The Warrant Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows:

(a) Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock. If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased. If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately decreased.

 
6
 



(b) Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:

(i) the Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Closing bid price on the trading day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the Closing bid price on the trading day immediately preceding such record date; and

(ii) either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or a national automated quotation system, then the holder of this Warrant shall receive an additional warrant to purchase Common Stock, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the amount of the assets that would have been payable to the holder of this Warrant pursuant to the Distribution had the holder exercised this Warrant immediately prior to such record date and with an exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i).
 
(c) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors will make an appropriate adjustment in the Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the holders of the Warrants; provided that no such adjustment will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8.

(d) Notices.

(i) Immediately upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the holder of this Warrant, setting forth in reasonable detail, and certifying, the calculation of such adjustment.

 
7
 



(ii) The Company will give written notice to the holder of this Warrant at least twenty (20) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder.

(iii) The Company will also give written notice to the holder of this Warrant at least twenty (20) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder.

Section 9. Purchase Rights; Reorganization, Reclassification, Consolidation, Merger or Sale. (a) In addition to any adjustments pursuant to Section 8 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”), then the holder of this Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

(b) Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company’s assets to another Person or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as “Organic Change”. Prior to the consummation of any (i) sale of all or substantially all of the Company’s assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the “Acquiring Entity”) written agreement (in form and substance satisfactory to the holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding) to deliver to each holder of Warrants in exchange for such Warrants, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the holders of the Warrants (including, an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the Warrants, if the value so reflected is less than the Warrant Exercise Price in effect immediately prior to such consolidation, merger or sale). Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding) to insure that each of the holders of the Warrants will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of such holder’s Warrants, such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock which would have been acquirable and receivable upon the exercise of such holder’s Warrant as of the date of such Organic Change (without taking into account any limitations or restrictions on the exercisability of this Warrant).

 
8
 



Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an indemnification undertaking, issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.

Section 11. Notice. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); (iii) upon receipt, when sent by e-mail (provided that the transmission is electronically tracked and the results of tracking kept on file by the sending party); or (iv) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The mailing addresses, facsimile numbers and e-mail addresses for such communications shall be as set forth below:

If to the Company:

Generex Biotechnology Corporation
33 Harbour Square, Suite 202
Toronto, Ontario M5J 2G2
Telephone: (416) 364-2551
Facsimile: (416) 364-9363
E-mail: mfletcher@generex.com
Attention: Mark A. Fletcher
Executive Vice-President and General Counsel

With a copy to:

Eckert Seamans Cherin & Mellott
1515 Market Street, 9th Floor
Philadelphia, Pennsylvania 19102-1909
Telephone: (215) 851-8472
Facsimile: (215) 851-8383
E-mail: gmiller@escm.com
Attention: Gary A. Miller, Esq.

Or at such other mailing address, facsimile number or e-mail address that the Company shall specify by notice to the holder.

 
9
 



To a holder of this Warrant:

__________________
__________________

Or at such other mailing address, facsimile number or e-mail address that the holder of this Warrant shall specify by notice to the Company.

Each party shall provide five days’ prior written notice to the other party of any change in mailing address, facsimile number or e-mail address.

Section 12. Amendments. This Warrant and any term hereof may be changed, waived, discharged, or terminated only by an instrument in writing signed by the party or holder hereof against which enforcement of such change, waiver, discharge or termination is sought.

Section 13. Date. This Warrant, in all events, shall be wholly void and of no effect after the close of business on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 7 shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant.

Section 14. Descriptive Headings; Governing Law. The descriptive headings of the several Sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be governed by the internal laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Delaware.

This Warrant has been duly executed by the Company as if the 17th day of April, 2006.

   
 
GENEREX BIOTECHNOLOGY CORPORATION
   
   
 
By: /s/ Rose Perri
 
Name: Rose Perri
 
Title: Chief Financial Officer [docrev]
   
   
 
By: /s/ Mark A. Fletcher
 
Name: Mark A. Fletcher
 
Title: Executive Vice-President, General Counsel
 
[docprep]



 
10
 

EXHIBIT A TO WARRANT

SUBSCRIPTION FORM
TO BE EXECUTED BY REGISTERED HOLDER TO EXERCISE WARRANT
Warrant Date:
Apr 17 06
Warrant Expiration:
Apr 16 11
Strike:
$2.66
Amount:
________
Holder:
________

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of Generex Biotechnology Corporation, a Delaware corporation (the “Company”), evidenced by the attached Warrant (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1. Form of Warrant Exercise Price. The Holder intends that payment of the Warrant Exercise Price shall be made as:

a “Cash Exercise” with respect to _______________________ Warrant Shares.

2. Payment of Warrant Exercise Price. If the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder is transmitting herewith the sum of $___________________ to the Company in payment for such Warrant Shares.

3. Delivery of Warrant Shares. The Company shall deliver to the holder __________ Warrant Shares in accordance with the terms of the Warrant.

Date:_____________, 200_

Name of Registered Holder:

________________________________________

Signature:

By: ___________________________________________      
Print Name and Title:______________________________    
Title:_____________________________________

 
11
 

EXHIBIT B TO WARRANT

FORM OF WARRANT POWER

Warrant Date:
Apr 17 06
Warrant Expiration:
Apr 16 11
Strike:
$2.66
Amount:
________
Holder:
________

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to ________________, Federal Identification No. __________, a warrant to purchase ____________ shares of the capital stock of Generex Biotechnology Corporation, a Delaware corporation, standing in the name of the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint ______________, attorney to transfer the warrants of said corporation, with full power of substitution in the premises.


Dated: _________, 200_

 


  _____________________________________
   
 
By:_________________________________________
 
Name:_______________________________________
 
Title:___________________________________

 
12
 
EX-31.1 5 v045407_ex31-1.htm Unassociated Document
Exhibit 31.1
CERTIFICATION

I, Anna E. Gluskin, certify that:

 
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
 
      

 
5.
 
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
      

 
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: June 14, 2006  By:   /s/ Anna E. Gluskin 
 
Anna E. Gluskin, Chief Executive Officer
  (Principal Executive Officer)

 
 
 EX-31.2 6 v045407_ex31-2.htm Unassociated Document
 
 


Exhibit 31.2
CERTIFICATION

I, Rose C. Perri, certify that:

 
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
 
      

 
5.
 
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
      

 
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: June 14, 2006 By:   /s/ Rose C. Perri
 
Rose C. Perri, Chief Financial Officer
  (Principal Financial and Accounting Officer)

 
 
 


 EX-32 7 v045407_ex32.htm
Exhibit 32

CERTIFICATIONS

Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. ss. 1350, as adopted), Anna E. Gluskin, Chief Executive Officer and President of Generex Biotechnology Corporation (the "Company"), and Rose C. Perri, Chief Financial Officer of the Company, each hereby certifies that, to the best of her knowledge:

1.  The Company’s Quarterly Report on Form 10-Q for the period ended April 30, 2006 as filed with the United States Securities and Exchange Commission and to which this Certification is attached as Exhibit 32 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
     
 
 		  
 		  
 
DATE: June 14, 2006 By:   /s/ Anna E. Gluskin
 
Anna E. Gluskin, Chief Executive Officer
  (Principal Executive Officer)

 

     
 
 		  
 		  
 
DATE: June 14, 2006  By:   /s/ Rose C. Perri
 
Rose C. Perri, Chief Financial Officer
  (Principal Financial and Accounting Officer) 

 
 





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