MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes appearing elsewhere in this prospectus. The discussion in this section regarding our business and operations include "forward-looking statements’’ within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as “may”, “expect”, “anticipate”, “estimate”, or “continue”, or the negative thereof or other variations thereof or comparable terminology. You are cautioned that all forward looking statements are speculative, and there are certain risks and uncertainties that could cause actual events or results to differ from those referred to in such forward-looking statements. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the ""Risk Factors’’ section and elsewhere in this prospectus. We assume no obligation to update any such forward-looking statements. The following should be read in conjunction with the audited financial statements and the notes thereto included elsewhere herein. Certain numbers in this section have been rounded for ease of analysis.

The following discussion and analysis by management provides information with respect to our financial condition and results of operations for the six-month period ended January 31, 2013 and for the fiscal years ended July 31, 2012, 2011and 2010. This discussion should be read in conjunction with the information in the consolidated financial statements and the notes pertaining thereto and under the caption “Risk Factors” included elsewhere in this prospectus.

Overview of Business

We are engaged primarily in the research and development of drug delivery systems and technologies. Our primary focus at the present time is our proprietary technology for the administration of formulations of large molecule drugs to the oral (buccal) cavity using a hand-held aerosol applicator. Through our wholly-owned subsidiary, Antigen, we have expanded our focus to include immunomedicines incorporating proprietary vaccine formulations.

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

Our subsidiary, Antigen Express, concentrates on developing proprietary vaccine formulations that work by stimulating the immune system to either attack offending agents (i.e., cancer cells, bacteria, and viruses) or to stop attacking benign elements (i.e. self proteins and allergens). Our immunomedicine products are based on two platform technologies and are in the early stages of development. We continue clinical development of Antigen’s synthetic peptide vaccines designed to stimulate a potent and specific immune response against tumors expressing the HER-2/neu oncogene for patients with HER-2/neu positive breast cancer in a Phase II clinical trial and patients with prostate cancer and against avian influenza in two Phase I clinical trials. We recently initiated an additional Phase I clinical trial in patients with either breast or ovarian cancer.  The synthetic vaccine technology has certain advantages for pandemic or potentially pandemic viruses, such as the H5N1 avian and H1N1 swine flu.  In addition to developing vaccines for pandemic influenza viruses, we have vaccine development efforts underway for seasonal influenza virus, HIV, HPV, melanoma, ovarian cancer, allergy and Type I diabetes mellitus. We have established collaborations with clinical investigators at academic centers to advance these technologies.

To date, we have received regulatory approval in Ecuador, India (subject to regulatory approval of a 2012 in-country study), Lebanon and Algeria for the commercial marketing and sale of Generex Oral-lyn™. We have previously submitted regulatory dossiers for Generex Oral-lyn™ in a number of other countries, including Bangladesh, Kenya, Jordan and Armenia. While we believe these countries will ultimately approve our product for commercial sale, we do not anticipate recognizing revenues in any of these jurisdictions in the next twelve months. No dossier related activities or product shipments have taken place during 2011, nor are any expected to these countries during the remainder of 2012.

In March 2008, we initiated Phase III clinical trials for this product in the U.S. with the first patient screening for such trials at a clinical study site in Texas in April 2008. Approximately 450 patients have been enrolled to date at approximately 70 clinical sites around the world, including sites in the United States, Canada, Bulgaria, Poland, Romania, Russia, Ukraine and Ecuador. The final subjects completed the trial in August 2011. After appropriate validation, the data from approximately 450 patients was tabulated, reviewed and analyzed. Those results from the Phase III trial along with a comprehensive review and supplemental analyses of approximately 40 prior Oral-lyn clinical studies were compiled and submitted to the FDA in late December 2011 in a comprehensive package including a composite metanalysis of all safety data. We are currently in ongoing discussions with the FDA with respect to the pathway for regulatory approval, including any additional clinical or pharmacological studies that might be required to support regulatory approval or enhance marketing success. We do not currently plan to expend significant resources on additional clinical trials of Oral-lyn™ until after such time that we secure additional financing.

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. To date, we have not been profitable and our accumulated net loss available to shareholders was $364,011,261 at January 31, 2013. As of January 31, 2013, our current cash position is not sufficient to meet our working capital needs for the next twelve months. To continue operations, we will require additional funds to support our working capital requirements and any development activities, or will need to suspend operations. Management is seeking various alternatives to ensure that we can meet some of our operating cash flow requirements through financing activities, such as private placement of our common stock, preferred stock offerings and offerings of debt and convertible debt instruments as well as through merger or acquisition opportunities. In addition, management is actively seeking strategic alternatives, including strategic investments and divestitures. Management has sold, and is also seeking further sales of, non-essential real estate assets which are classified as Assets Held for Investment to augment its cash position. We cannot provide any assurance that we will obtain the required funding. Our inability to obtain required funding in the near future or our inability to obtain funding on favorable terms will have a material adverse effect on our operations and our strategic development plan for future growth. If we cannot successfully raise additional capital and implement our strategic development plan, our liquidity, financial condition and business prospects will be materially and adversely affected and we may have to cease operations.

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

Accounting for Research and Development Projects

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

During the six-month period ended January 31, 2013 and the fiscal year ended July 31, 2012, we expended resources on the clinical testing of our buccal insulin product, Generex Oral-lyn™. The completion of late-stage trials in Canada and eventually the United States may require significantly greater funds than we currently have on hand.

During the six-month period ended January 31, 2013 and the fiscal year ended July 31, 2012, we expended resources on research and development relating to Antigen’s peptide immunotherapeutic vaccines and related technologies. One Antigen vaccine is currently in Phase II clinical trials in the United States involving patients with HER-2/neu positive breast cancer, and we have completed a Phase I clinical trial for an Antigen vaccine for H5N1 avian influenza which was conducted at the Lebanese-Canadian Hospital in Beirut. Antigen’s prostate cancer vaccine based on AE37 has been tested in a completed (August 2009) Phase I clinical trial in Greece.

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

Most of our buccal delivery research and development activities to date have involved developing our platform technology for use with insulin. As a result, we have not made significant distinctions in the accounting for research and development expenses among products, as a significant portion of all research has involved improvements to the platform technology in connection with insulin, which may benefit all of our potential buccal products. During the six months ended January 31, 2013, approximately 20% of our $1,153,877 in research and development expenses was attributable to insulin and platform technology development.  During the fiscal year ended July 31, 2012, approximately 61% of our $4,987,236 in research expenses was attributable to insulin and platform technology development, and we did not have any research expenses related to other buccal projects. During the fiscal year ended July 31, 2011, approximately 75% or $7,669,139 of our $10,250,397 in research expenses was attributable to insulin and platform technology development, and we did not have any research expenses related to other buccal projects. During the fiscal year ended July 31, 2010, approximately 86% or $11,516,050 of our $13,361,156 in research expenses was attributable to insulin and platform technology development, and we did not have any research expenses related to other buccal projects.

During the three months ended January 31, 2013, approximately 80%, or $926,090 of our research and development expenses was attributable to Antigen's immunomedicine products. During the fiscal year ended July 31, 2012, approximately 39% or $1,941,774 in research expenses was attributable to Antigen's immunomedicine products. Approximately 25% or $2,581,258 of our research and development expenses for the fiscal year ended July 31, 2011 was related to Antigen's immunomedicine products, compared to approximately 14% or $1,845,106 of our research and development expenses for the fiscal year ended July 31, 2010. Because these products are in initial phases of clinical trials or early, pre-clinical stage of development (with the exception of the Phase II clinical trials of Antigen HER-2/neu positive breast cancer vaccine that are underway), all of the expenses were accounted for as basic research and no distinctions were made as to particular products. Due to the early stage of development, we cannot predict the timing of completion of any products arising from this technology, or when products from this technology might begin producing revenues.

Critical Accounting Policies

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

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

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

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

Inventory. Inventories are stated at the lower of cost or market with cost determined using the first-in first-out method. Management considers such factors as the amount of inventory on hand and in the distribution channel, estimated time to sell such inventory, inventories shelf life and current market conditions when determining whether the lower cost or market is used. As appropriate, a provision is recorded to reduce inventories to their net realizable value.  Inventory also includes the cost of products sold to the customers with the rights of return. At July 31, 2012, all inventory balances had been written down to zero.

Impairment of Long-Lived Assets . Management reviews for impairment whenever events or changes in circumstances indicate that the carrying amount of property and equipment may not be recoverable under the provisions of accounting for the impairment of long-lived assets. If it is determined that an impairment loss has occurred based upon expected future cash flows, the loss is recognized in the Consolidated Statement of Operations. As of January 31, 2013, there were no indications of any impairment of our long-lived assets.

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. In the fiscal year ended July 31, 2012, we recorded a write down of $440,780 on certain patents. There were no patent write downs or disposals in the fiscal years ended July 31, 2011 and 2010.

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

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

Derivative warrant liability .  FASB ASC 815, Derivatives and Hedging, requires all derivatives to be recorded on the consolidated balance sheet at fair value for fiscal years beginning after December 15, 2008.  As a result, certain derivative warrant liabilities (namely those with a price protection feature) are now separately valued as of August 1, 2009 and accounted for on our balance sheet, with any changes in fair value recorded in earnings.  On our consolidated balance sheets as of January 31, 2013, July 31, 2012 and July 31, 2011, we used the binomial lattice model to estimate the fair value of these warrants. Key assumptions of the binomial lattice option-pricing model include the market price of our stock, the exercise price of the warrants, applicable volatility rates, risk-free interest rates, expected dividends and the instrument’s remaining term.  These assumptions require significant management judgment.  In addition, changes in any of these variables during a period can result in material changes in the fair value (and resultant gains or losses) of this derivative instrument.

Results of Operations

Six months ended January 31, 2013 Compared to Six months ended January 31, 2012

We had a net loss for the six-month period ended January 31, 2013 of $6,297,184 versus a net loss of $8,782,297 in the corresponding six-month period of the prior fiscal year. The loss in this year’s fiscal six-month period was primarily caused by operating expenses of $3,230,811 and a loss due to the change in the fair value of the derivative liabilities of $3,783,290, while in the prior year, operating expenses were $5,264,006 and the loss due to the change in the fair value of the derivative liabilities was $4,212,545.  Our operating loss for the six-month period ended January 31, 2013 decreased to $3,230,811 compared to $5,256,009 in the same fiscal period of 2012.  The decrease in operating loss resulted from a decrease in selling and marketing expense (to $0 from $149,058), a decrease in research and development expenses (to $1,153,877 from $2,708,668), and a decrease in general and administrative expenses (to $2,076,934 from $2,406,280). We did not have any revenues in the six-month period ended January 31, 2013 and in the six-month period ended January 31, 2012 we only had revenues of $14,889, reflecting our decision to discontinue sales of our over-the-counter products.

The decrease in research and development expenses in the current fiscal six-month period versus the comparative six-month period in the previous fiscal year is primarily due to there being no significant expenditures in this fiscal year related to the field portion of the global Phase III clinical trials of our oral insulin product and platform technology which was completed in in the first quarter of the prior fiscal year. Our efforts to significantly reduce expenses in all categories also contributed to the decrease in this category. The decrease in general and administrative expenses is related to a decrease in payroll related expenses of approximately $301,000 and a decrease in professional services expenses including legal and accounting services of approximately $154,000 in the six-month period ended January 31, 2013, as compared to the previous year six-month period ended January 31, 2012, as well as reductions of expenses in most other categories due to efforts to conserve cash until we complete the strategic development plan announced by management on March 30, 2011. The decrease in selling expenses for the six-month period ended January 31, 2013 versus the prior year comparative six-month period is associated with no longer expending resources on the over-the-counter products in the current fiscal period.

Our interest expense in the first two quarters of fiscal 2013 was $367,256 compared to the previous year period at $94,832 due primarily to the accrual of the “make-whole” dividend payments of $202,500 on the December 2012 Series D convertible preferred stock financing and interest penalties on the discharge of previous mortgages.   We recognized higher income from assets held for investment (net of expense) of $1,083,866 in the first two quarters of fiscal 2013 compared to $780,324 in the same quarter of the previous fiscal year due to a gain on sale of one of our properties held for investment of $994,125. In the previous year, we had a gain on sale of properties held for investment of $639,680. Change in the fair value of derivative liabilities contributed a loss of $3,783,290 in the current year six-month period, while in the prior year six-month period, the loss was $4,212,545.

Our net income available to shareholders was decreased by $102,297 in first two fiscal quarters of fiscal 2013 relating to a preferred stock dividend as a result of the accounting treatment of our convertible preferred stock financing in August 2012. This amount represents a deemed dividend to the investors as a result of this financing, as further described in Note 9 to the Notes to Consolidated Financial Statements included elsewhere in this registration statement.  There was no preferred stock dividend in the comparable period of fiscal 2012.

Year Ended July 31, 2012 Compared to Year Ended July 31, 2011

Our net loss available to shareholders for the fiscal year ended July 31, 2012 (fiscal 2012) was $9,867,024 versus $22,442,284 in the fiscal year ended July 31, 2011 (fiscal 2011). The decrease in net loss in fiscal 2012 versus fiscal 2011 is primarily due to the decrease in operating expenses by approximately $14.6 million in fiscal 2012, offset by a loss due to the revaluation of the derivative liabilities in fiscal 2012 of $1,081,440 versus a gain of $2,220,916 in fiscal 2011. Our operating loss for fiscal 2012 decreased to $10,024,048 compared to $24,533,082 in fiscal 2011. The decrease resulted primarily from a decrease in research and development expenses to $4,987,236 from $10,250,397, a decrease in selling expense to $165,175 from $1,025,774 and a decrease in general and administrative expenses to $4,889,179 from $13,392,920. Revenue decreased to $28,651 from $291,628, while gross profits decreased to $17,542 from $136,009. The decrease in revenue and gross profit is attributable to the discontinuation of sales of our consumer/ over-the-counter products.

The decrease in general and administrative expenses is primarily related to a decrease in professional expenses including legal, audit, consulting and financial services of over $6.1 million in fiscal 2012 versus 2011 due to cost cutting measures, as well as a decrease of over $1.0 million in payroll related costs due to a reduction in the number of employees which also caused a reduction in travel expenses of over $450,000 versus fiscal 2011.  The decrease in selling expenses of over $860,000 for fiscal 2012 versus fiscal 2011 is associated with a reduction in advertising and promotion related to the discontinuation of our consumer/over-the-counter products, as well as the closure of our MENA sales office in Dubai. Research and development expenses decreased by almost $5.3 million in fiscal 2012 from fiscal 2011, as expenditures relating to the Phase III trials for our Generex Oral-lyn™ product decreased significantly in fiscal 2012 versus fiscal 2011.

Our interest expense in fiscal 2012 increased to $592,525, compared to interest expense of $208,906 in fiscal 2011, due to the refinancing of properties, as well as interest penalties related to the discharge of mortgages upon the sale of certain of our properties.  Our interest income decreased to $1,519 in fiscal 2012 from $6,455 in fiscal 2011 due to lower average cash balances. We received higher income from assets held for investment (net of expense) of $2,206,216 which included $1,957,089 gain on sale of properties, as well as income from rental operations (net of expense) of $249,127 versus $349,458 in income from rental operations (net of expense) in fiscal 2011.

Our net loss available to shareholders was increased by $376,746 in fiscal 2012 versus $766,417 in fiscal 2011 relating to preferred stock dividends as a result of the accounting treatment of our convertible preferred stock financings in February 2012 and July 2011, respectively. This amount represents a deemed dividend to the investors as a result of these financings, as further described in Note 11 to the Notes to Consolidated Financial Statements included elsewhere in this registration statement.

Year Ended July 31, 2011 Compared to Year Ended July 31, 2010

Our net loss available to shareholders for the fiscal year ended July 31, 2011 (fiscal 2011) was $22,442,284 versus $25,279,940 in the fiscal year ended July 31, 2010 (fiscal 2010). The decrease in net loss in fiscal 2011 versus fiscal 2010 is primarily due to the decrease in operating expenses by over $5 million in fiscal 2011, offset by a smaller gain due to the revaluation of the derivative warrants in fiscal 2011 of $2,220,916 versus a gain of $4,125,590 in fiscal 2010. Our operating loss for fiscal 2011 decreased to $24,533,082 compared to $29,429,817 in fiscal 2010. The decrease resulted primarily from a decrease in research and development expenses to $10,250,397 from $13,361,156, a decrease in selling expense to $1,025,774 from $3,709,767 offset by a slight increase in general and administrative expenses to $13,392,920 from $12,719,239. Revenue decreased to $291,628 from $1,172,611, while gross profits decreased to $136,009 from $360,345. The decrease in revenue and gross profit is attributable to lower sales of our consumer/ over-the-counter products in North America, as well as the Middle East North African region.

The increase in general and administrative expenses is primarily related to an increase in professional expenses, including the issuance of stock in exchange for financial and consulting services which amounted to $1,856,505 in fiscal 2011 versus $961,862 in fiscal 2010.  The decrease in selling expenses for fiscal 2011 versus fiscal 2010 is associated with a reduction in advertising and promotion related to our consumer/over-the-counter products, as well as a reduction of costs associated with our MENA sales office in Dubai. Research and development expenses decreased by over $3 million in fiscal 2011 from fiscal 2010, as expenditures relating to the Phase III trials for our Generex Oral-lyn™ product decreased significantly in fiscal 2011 versus fiscal 2010, which was partially offset by increases in the cost of Phase II trials for Antigen’s immunomedicine products.

Our interest expense in fiscal 2011 decreased slightly to $208,906, compared to interest expense of $210,083 in fiscal 2010.  Our interest income decreased to $6,455 in fiscal 2011from $27,045 in fiscal 2010 primarily due to lower average cash balances. We received higher income from rental operations (net of expense) of $349,458 in fiscal 2011 compared to $206,575 in fiscal 2010 due to higher tenancies in fiscal 2011, in addition to the positive impacts of a stronger Canadian dollar.

Our net loss available to shareholders was increased by $766,417 in fiscal 2011 relating to a preferred stock dividend as a result of the accounting treatment of our convertible preferred stock financing in July 2011. This amount represents a deemed dividend to the investors as a result of this financing, as further described in Note 12 to the Notes to Consolidated Financial Statements included elsewhere in this registration statement.  There was no preferred stock dividend in fiscal 2010.

Financial Condition, Liquidity and Resources

Sources of Liquidity

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

As of January 31, 2013, our current cash position is not sufficient to meet our working capital needs for the next twelve months. Therefore, we will require additional funds to support our working capital requirements and any development or other activities, or will need to curtail our clinical trials and other planned activities or suspend operations. To continue operations, we will require additional funds to support our working capital requirements and any development activities, or will need to suspend operations. We are seeking various alternatives to ensure that we can meet some of our operating cash flow requirements through financing activities, such as private placement of our common stock, preferred stock offerings and offerings of debt and convertible debt instruments as well as through merger or acquisition opportunities. In addition, we are actively seeking strategic alternatives, including strategic investments and divestitures. We have sold, and are also seeking further sales of, non-essential real estate assets which are classified as Assets Held for Investment to augment its cash position. We cannot provide any assurance that we will obtain the required funding. Our inability to obtain required funding in the near future or our inability to obtain funding on favorable terms will have a material adverse effect on our operations and our strategic development plan for future growth. If we cannot successfully raise additional capital and implement our strategic development plan, our liquidity, financial condition and business prospects will be materially and adversely affected and we may have to cease operations.

While we have financed our development stage activities to date primarily through private placements of our common stock and securities convertible into our common stock and raised approximately $4.0 million during fiscal 2012 (including the net proceeds from mortgage financings in January and February 2012) and approximately $3.0 million during fiscal 2013 to date (including the proceeds from our mortgage financing in November 2012 and proceeds from warrant exercises), our cash balances have been extremely low thus far in fiscal 2013.

On March 30, 2011, our realigned management team announced its strategic development plan for Generex’s future growth. The plan included the spin-out of Antigen Express, a reverse stock split for Generex and a rights offering to Generex stockholders. As proposed, we would spin out Antigen Express as a separate DTC-eligible company, register its shares with the Securities and Exchange Commission (the “SEC”), and seek to list its shares on a national securities exchange. Management believes that the spin-out would increase value for stockholders and provide Antigen Express with ready access to capital markets to finance its on-going clinical and regulatory initiatives. Management further believes that the spin-out would benefit Generex, by allowing Generex to hold a controlling interest in a publicly-traded company while continuing to focus on maximizing opportunities for its buccal drug delivery platform. The spin-out would be accomplished by the issuance of one or more dividends of Antigen Express stock to Generex stockholders. No determination has been made as to the timing of the proposed spin-out. This prospectus does not constitute an offer of any securities for sale or a solicitation of an offer to buy any securities related to these planned transactions.

Although stockholders approved a reverse stock split proposal at the June 8, 2011 annual meeting of stockholders, the reverse stock split could only be implemented in conjunction with an effort to list our common stock on a national stock exchange. The stockholder approval expired on December 7, 2012. Our stockholders approved a new reverse split proposal at our annual general meeting held on March 28, 2013, which approval allows the Board to implement a reverse split in its discretion and is not contingent upon listing our common stock on a national stock exchange. The terms of the securities purchase agreements that we entered into on January 31, 2012, August 8, 2012 and December 10, 2012 also prohibit us from undertaking a reverse or forward stock split or reclassification of our common stock except for a reverse stock split made in conjunction with a listing of the common stock on a national securities exchange.

Management may seek to meet all or some of our operating cash flow requirements through financing activities, such as private placement of our common stock, preferred stock offerings and offerings of debt and convertible debt instruments as well as through merger or acquisition opportunities. The securities purchase agreements that we entered into on January 31, 2012, August 8, 2012 and December 10, 2012 with certain investors prohibits us from (i) issuing additional equity securities until 60 days after the effective date of a registration statement covering the resale of the common stock issuable upon exercise of the warrants and conversion of the preferred stock sold in that transaction and (ii) issuing additional debt or equity securities with a variable conversion or exercise price until February 1, 2013, August 10, 2013 and December 10, 2013, respectively.

Through the shelf registration statement (File No. 333-164591) that we filed on January 29, 2010 and which was declared effective on February 9, 2010, we raised an aggregate of $4,056,000 in gross proceeds between January and April 2011 and raised an additional $2,575,000 in gross proceeds in July 2011 pursuant to a convertible preferred stock purchase agreement with takedowns from the shelf registration statement as described below. Upon the filing of our Annual Report on Form 10-K on October 14, 2011, we were no longer eligible to use the shelf registration statement as the aggregate market value of our outstanding voting and non-voting common equity held by non-affiliates is less than $75 million. As we are required under the registration rights agreement that we entered into on August 8, 2012 with certain investors to register shares of our common stock issuable upon conversion or exercise of the securities purchased by the investors, we are filing this registration statement on Form S-1 because we are not eligible to use Form S-3. We will incur additional legal and accounting fees in connection with the preparation of this Form S-1 registration statement.

In addition, management is actively pursuing financial and strategic alternatives, including strategic investments and divestitures, industry collaboration activities, and potential strategic partners. Management has sold, and is also seeking further sales of, non-essential real estate assets which are classified as Assets Held for Investment to augment its cash position.

We believe that the successful commercial launch of Oral-lyn™ in countries where we have approval would enhance our ability to access additional sources of funding.  We will continue to require substantial funds to continue research and development, including preclinical studies and clinical trials of our product candidates, further clinical trials for Oral-lyn™ and to commence sales and marketing efforts if the FDA or other regulatory approvals are obtained.  

Unforeseen problems with the conduct or results of Phase III clinical trials for Oral-lyn™ or further negative developments in general economic conditions could interfere with our ability to raise additional capital as needed, or materially adversely affect the terms upon which such capital is available.  We cannot provide any assurance that we will obtain the required funding. Our inability to obtain required funding in the near future or our inability to obtain funding on favorable terms will have a material adverse effect on our operations and our strategic development plan for future growth. If we cannot successfully raise additional capital and implement our strategic development plan, our liquidity, financial condition and business prospects will be materially and adversely affected and we may have to cease operations.

Equity Financings

Following is a summary of the equity financing activities that we completed in fiscal 2012 and in fiscal 2013 to date in August 2012 and December 2012.

Financing – February 2012

Series B 9% Convertible Preferred Stock and Warrants

On January 31, 2012, we entered into a securities purchase agreement with certain investors, pursuant to which we agreed to sell an aggregate of 2,000 shares of our newly designated non-voting Series B 9% Convertible Preferred Stock and warrants to purchase up to an aggregate of 100% of the shares of our common stock issuable upon conversion of the convertible preferred stock. The purchase closed on February 1, 2012. We sold the convertible preferred stock and warrants in units, with each unit consisting of one share of convertible preferred stock and a warrant to purchase 100% of the shares of the Company’s common stock issuable upon conversion of such share of convertible preferred stock. Each unit was sold at a negotiated price of $1,000, for an aggregate purchase price of $2,000,000. An aggregate of 26,666,666 shares of our common stock are issuable upon conversion of, or exercise of, the convertible preferred stock and warrants. We received net proceeds of approximately $1,975,000 from this transaction, which was reflected in the financial statements for the fiscal quarter ending April 30, 2012. We entered into this securities purchase agreement pursuant to the investors’ additional investment rights existing under the securities purchase agreement dated July 8 2011.

Subject to certain ownership limitations, the Series B convertible preferred stock will be convertible at the option of the holder at any time into shares of our common stock at an effective conversion price of $0.15 per share (adjusted to $0.08 on August 10, 2012), and will accrue a 9% dividend until February 1, 2015 and, beginning on February 1, 2015 and on each one year anniversary thereafter, such dividend rate will increase by an additional 3%. The dividend will be payable quarterly on September 30, December 31, March 31 and June 30, beginning on the first such date after the original issue date and on each conversion date in cash, or at our option, in shares of common stock. In the event that the convertible preferred stock is converted prior to February 1, 2015, we will pay the holder of the converted preferred stock an amount equal to $270 per $1,000 of stated value of the convertible preferred stock, less the amount of all prior quarterly dividends paid on such converted preferred stock before the relevant conversion date. Such “make-whole payment” may be made in cash or, at our option, in shares of our common stock. In addition, beginning February 1, 2015, we will pay dividends on shares of preferred stock equal to (on an as-if-converted-to-common-stock basis) and in the same form as dividends (other than dividends in the form of common stock) actually paid on shares of the common stock when, as and if such dividends are paid. We will incur a late fee of 18% per annum on unpaid dividends.

The conversion price of the Series B convertible preferred stock will be subject to adjustment in the case of stock splits, stock dividends, combinations of shares, similar recapitalization transactions and certain pro-rata distributions to common stockholders. The conversion price will also be adjusted if we sell or grant any shares of common stock or securities convertible into, or rights to acquire, common stock at an effective price per share that is lower than the then conversion price, except in the event of certain exempt issuances. In addition, the holders of convertible preferred stock will be entitled to receive any securities or rights to acquire securities or property granted or issued by us pro rata to the holders of our common stock to the same extent as if such holders had converted all of their shares of convertible preferred stock. In the event of a fundamental transaction, such as a merger, consolidation, sale of substantially all assets and similar reorganizations or recapitalizations, the holders of convertible preferred stock will be entitled to receive, upon conversion of their shares, any securities or other consideration received by the holders of our common stock pursuant to the fundamental transaction.

We may become obligated to redeem the Series B convertible preferred stock in cash upon the occurrence of certain triggering events, including, material breach of certain contractual obligations to the holders of the convertible preferred stock, the occurrence of a change in control of Generex, the occurrence of certain insolvency events relating to Generex, or the failure of our common stock to continue to be listed or quoted for trading on one or more specified United States securities exchanges or regulated quotation service. Upon the occurrence of certain triggering events, each holder of convertible preferred stock will have the option to redeem such holder’s shares of convertible preferred stock for a redemption price payable in shares of common stock or receive an increased dividend rate of 18% on all of such holder’s outstanding convertible preferred stock. Late fees will apply on all redemption amounts not paid within five trading days of the payment date.

Subject to certain ownership limitations, the warrants will be exercisable at any time after their date of issuance and on or before the fifth-year anniversary thereafter at an exercise price of $0.15 (price adjusted to $0.08 on August 10, 2012 in connection with the financings below) per share of common stock. The exercise price of the warrants and, in some cases, the number of shares issuable upon exercise, are subject to adjustment in the case of stock splits, stock dividends, combinations of shares, similar recapitalization transactions and certain pro-rata distributions to common stockholders. The exercise price and number of shares of common stock issuable upon exercise will also be adjusted if we sell or grant any shares of common stock or securities convertible into, or rights to acquire, common stock at an effective price per share that is lower than the then exercise price, except in the event of certain exempt issuances. In addition, the warrant holders will be entitled to receive any securities or rights to acquire securities or property granted or issued by us pro rata to the holders of our common stock to the same extent as if such holders had exercised all of their warrants. In the event of a fundamental transaction, such as a merger, consolidation, sale of substantially all assets and similar reorganizations or recapitalizations, the warrant holders will be entitled to receive, upon exercise of their warrants, any securities or other consideration received by the holders of common stock pursuant to the fundamental transaction.

The securities purchase agreement and the certificate of designation authorizing the Series B convertible preferred stock include certain agreements and covenants for the benefit of the holders of the convertible preferred stock, including restrictions on our ability to amend the certificate of incorporation and bylaws, pay cash dividends or distributions with respect to our common stock or other junior securities, repurchase more than a de minimis number of shares of our common stock or other junior securities.

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

We offered these securities privately pursuant to Rule 506 of Regulation D under the Securities Act of 1933. We entered into a registration rights agreement with the investors pursuant to which we agreed to file a registration statement with the SEC covering the public resale of the common stock issuable upon conversion of the preferred stock, issuable as dividends on the preferred stock, issuable upon exercise of the warrants and issued as a finders’ fee. We agreed to file the registration statement by March 16, 2012 and to use our best efforts to have the registration statement declared effective within 120 days after closing. If these deadlines were not met, we would have been liable for liquidated damages up to 6% of the purchase price under the securities purchase agreement. The registration statement was declared effective on April 9, 2012.

In addition, if, during the six-month period after the issuance of the warrants and continuing until such time that all of the securities may be sold without our meeting the current public information requirement under Securities Act rule 144(c)(1), we fail to meet such requirement, we will pay liquidate damages equal to 2.0% of the purchase price paid by each investor, payable in cash every 30 days until current public information for Generex is available or is no longer required for the investors to rely on Rule 144 to transfer the securities (including underlying securities) acquired under the securities purchase agreement.

Contemporaneous with entering into the securities purchase agreement, we and the investors also agreed to certain clarifications to the exercise price adjustment provisions under the outstanding warrants issued in July 2011. Under that agreement, the parties agreed to an exercise price of $0.15 per share for the warrants to purchase 14,500,000 shares of common stock (24,166,664 shares after the anti-dilution adjustment required under the terms of the warrants), which were in the process of being exercised prior to the parties entering into the securities purchase agreement, and unexercised outstanding warrants to purchase 2,666,666 shares of common stock (4,444,442 shares following the required anti-dilution adjustment).

As of March 28, 2013, all of the issued Series B 9% Convertible Preferred Stock had been converted to common stock. There were 38,019,163 shares of common stock issued upon the conversion of the Series B convertible preferred stock and 11,207,750 shares of common stock issued as “make-whole payments” on such conversions. As of March 28, 2013, all of the warrants issued in connection with this transaction had been exercised and there were none outstanding.

Financing – August 2012

Series C 9% Convertible Preferred Stock and Warrants

On August 8, 2012, we entered into a securities purchase agreement with certain investors, pursuant to which we agreed to sell an aggregate of 750 shares of our newly designated non-voting Series C 9% Convertible Preferred Stock and warrants to purchase up to an aggregate of 100% of the shares of our common stock issuable upon conversion of the convertible preferred stock. The purchase closed on August 10, 2012. We sold the convertible preferred stock and warrants in units, with each unit consisting of one share of convertible preferred stock and a warrant to purchase 100% of the shares of the Company’s common stock issuable upon conversion of such share of convertible preferred stock. Each unit was sold at a negotiated price of $1,000, for an aggregate purchase price of $750,000. An aggregate of 18,750,000 shares of our common stock are issuable upon conversion of, or exercise of, the convertible preferred stock and warrants (which total was adjusted to 49,999,998 shares on December 10, 2012 in conjunction with our Series D convertible preferred stock financing). We received net proceeds of approximately $725,000 from this transaction, which will be reflected in the financial statements for the fiscal quarter ending October 31, 2012. We entered into this securities purchase agreement pursuant to the investors’ additional investment rights existing under the securities purchase agreement dated July 8 2011.

Subject to certain ownership limitations, the Series C convertible preferred stock will be convertible at the option of the holder at any time into shares of our common stock at an effective conversion price of $0.08 (adjusted to $0.03 per share on December 10, 2012) per share, and will accrue a 9% dividend until August 10, 2015 and, beginning on August 10, 2015 and on each one year anniversary thereafter, such dividend rate will increase by an additional 3%. The dividend will be payable quarterly on September 30, December 31, March 31 and June 30, beginning on the first such date after the original issue date and on each conversion date in cash, or at our option, in shares of common stock. In the event that the convertible preferred stock is converted prior to August 10, 2015, we will pay the holder of the converted preferred stock an amount equal to $270 per $1,000 of stated value of the convertible preferred stock, less the amount of all prior quarterly dividends paid on such converted preferred stock before the relevant conversion date. Such “make-whole payment” may be made in cash or, at our option, in shares of our common stock. In addition, beginning August 10, 2015, we will pay dividends on shares of preferred stock equal to (on an as-if-converted-to-common-stock basis) and in the same form as dividends (other than dividends in the form of common stock) actually paid on shares of the common stock when, as and if such dividends are paid. We will incur a late fee of 18% per annum on unpaid dividends.

The conversion price of the Series C convertible preferred stock will be subject to adjustment in the case of stock splits, stock dividends, combinations of shares, similar recapitalization transactions and certain pro-rata distributions to common stockholders. The conversion price will also be adjusted if we sell or grant any shares of common stock or securities convertible into, or rights to acquire, common stock at an effective price per share that is lower than the then conversion price, except in the event of certain exempt issuances. In addition, the holders of convertible preferred stock will be entitled to receive any securities or rights to acquire securities or property granted or issued by us pro rata to the holders of our common stock to the same extent as if such holders had converted all of their shares of convertible preferred stock. In the event of a fundamental transaction, such as a merger, consolidation, sale of substantially all assets and similar reorganizations or recapitalizations, the holders of convertible preferred stock will be entitled to receive, upon conversion of their shares, any securities or other consideration received by the holders of our common stock pursuant to the fundamental transaction.

We may become obligated to redeem the Series C convertible preferred stock in cash upon the occurrence of certain triggering events, including, material breach of certain contractual obligations to the holders of the convertible preferred stock, the occurrence of a change in control of Generex, the occurrence of certain insolvency events relating to Generex, or the failure of our common stock to continue to be listed or quoted for trading on one or more specified United States securities exchanges or regulated quotation service. Upon the occurrence of certain triggering events, each holder of convertible preferred stock will have the option to redeem such holder’s shares of convertible preferred stock for a redemption price payable in shares of common stock or receive an increased dividend rate of 18% on all of such holder’s outstanding convertible preferred stock. Late fees will apply on all redemption amounts not paid within five trading days of the payment date.

Subject to certain ownership limitations, the warrants will be exercisable at any time after their date of issuance and on or before the fifth-year anniversary thereafter at an exercise price of $0.08 (adjusted to $0.03 per share on December 10, 2012) per share of common stock. The exercise price of the warrants and, in some cases, the number of shares issuable upon exercise, are subject to adjustment in the case of stock splits, stock dividends, combinations of shares, similar recapitalization transactions and certain pro-rata distributions to common stockholders. The exercise price and number of shares of common stock issuable upon exercise will also be adjusted if we sell or grant any shares of common stock or securities convertible into, or rights to acquire, common stock at an effective price per share that is lower than the then exercise price, except in the event of certain exempt issuances. In addition, the warrant holders will be entitled to receive any securities or rights to acquire securities or property granted or issued by us pro rata to the holders of our common stock to the same extent as if such holders had exercised all of their warrants. In the event of a fundamental transaction, such as a merger, consolidation, sale of substantially all assets and similar reorganizations or recapitalizations, the warrant holders will be entitled to receive, upon exercise of their warrants, any securities or other consideration received by the holders of common stock pursuant to the fundamental transaction.

The securities purchase agreement and the certificate of designation authorizing the Series C convertible preferred stock include certain agreements and covenants for the benefit of the holders of the convertible preferred stock, including restrictions on our ability to amend the certificate of incorporation and bylaws, pay cash dividends or distributions with respect to our common stock or other junior securities, repurchase more than a de minimis number of shares of our common stock or other junior securities.

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

We offered these securities privately pursuant to Rule 506 of Regulation D under the Securities Act of 1933. We entered into a registration rights agreement with the investors pursuant to which we agreed to file a registration statement with the SEC covering the public resale of the common stock issuable upon conversion of the preferred stock, issuable as dividends on the preferred stock, issuable upon exercise of the warrants and issued as a finders’ fee. We agreed to file the registration statement by September 22 and to use our best efforts to have the registration statement declared effective within 120 days after closing. If these deadlines were not met, we would have been liable for liquidated damages up to 6% of the purchase price under the securities purchase agreement. The registration statement was declared effective on November 8, 2012.

In addition, if, during the six-month period after the issuance of the warrants and continuing until such time that all of the securities may be sold without our meeting the current public information requirement under Securities Act rule 144(c)(1), we fail to meet such requirement, we will pay liquidate damages equal to 2.0% of the purchase price paid by each investor, payable in cash every 30 days until current public information for Generex is available or is no longer required for the investors to rely on Rule 144 to transfer the securities (including underlying securities) acquired under the securities purchase agreement.

As of March 28, 2013, all of the issued Series C 9% Convertible Preferred Stock had been converted to common stock. There were 22,916,665 shares of common stock issued upon the conversion of the Series C convertible preferred stock and 6,664,863 shares of common stock issued as “make-whole payments” on such conversions. As of March 28, 2013, 24,565,367 warrants issued in connection with this transaction were outstanding as follows:.

*Upon issuance of securities at a price per share of common stock less than the then applicable exercise price, the warrants are subject to anti-dilution adjustment of the exercise price and to the number of shares of common stock that may be purchased upon exercise of each warrant such that the aggregate exercise price payable upon exercise of the warrant will be the same as the aggregate exercise price in effect immediately prior to such adjustment. Due to the anti-dilution adjustment provision of these warrants, they have been reclassified on Generex’s balance sheet as a liability under the caption “Derivative Warrant Liability” with any changes in fair value at each reporting period recorded in earnings in accordance with ASC 815. On December 10, 2012, in connection with the financing below, the exercise price was adjusted from $0.08 to $0.03 per share and the number of warrants increased from 9,375,000 to 24,999,999.

Financing – December 2012

Series D 9% Convertible Preferred Stock and Warrants

On December 10, 2012, we entered into a securities purchase agreement with certain investors, pursuant to which we agreed to sell an aggregate of 750 shares of our newly designated non-voting Series D 9% Convertible Preferred Stock and warrants to purchase up to an aggregate of 100% of the shares of our common stock issuable upon conversion of the convertible preferred stock. The purchase closed on December 10, 2012. We sold the convertible preferred stock and warrants in units, with each unit consisting of one share of convertible preferred stock and a warrant to purchase 100% of the shares of the Company’s common stock issuable upon conversion of such share of convertible preferred stock. Each unit was sold at a negotiated price of $1,000, for an aggregate purchase price of $750,000. An aggregate of 50,000,000 shares of our common stock are issuable upon conversion of, or exercise of, the convertible preferred stock and warrants. We received net proceeds of approximately $725,000 from this transaction, which are reflected in the financial statements for the fiscal quarter ending January 31, 2013.

Subject to certain ownership limitations, the Series D convertible preferred stock will be convertible at the option of the holder at any time into shares of our common stock at an effective conversion price of $0.03 per share, and will accrue a 9% dividend until December 10, 2015 and, beginning on December 10, 2015 and on each one year anniversary thereafter, such dividend rate will increase by an additional 3%. The dividend will be payable quarterly on September 30, December 31, March 31 and June 30, beginning on the first such date after the original issue date and on each conversion date in cash, or at our option, in shares of common stock. In the event that the convertible preferred stock is converted prior to December 10, 2015, we will pay the holder of the converted preferred stock an amount equal to $270 per $1,000 of stated value of the convertible preferred stock, less the amount of all prior quarterly dividends paid on such converted preferred stock before the relevant conversion date. Such “make-whole payment” may be made in cash or, at our option, in shares of our common stock. In addition, beginning December 10, 2015, we will pay dividends on shares of preferred stock equal to (on an as-if-converted-to-common-stock basis) and in the same form as dividends (other than dividends in the form of common stock) actually paid on shares of the common stock when, as and if such dividends are paid. We will incur a late fee of 18% per annum on unpaid dividends.

The conversion price of the Series D convertible preferred stock will be subject to adjustment in the case of stock splits, stock dividends, combinations of shares, similar recapitalization transactions and certain pro-rata distributions to common stockholders. The conversion price will also be adjusted if we sell or grant any shares of common stock or securities convertible into, or rights to acquire, common stock at an effective price per share that is lower than the then conversion price, except in the event of certain exempt issuances. In addition, the holders of convertible preferred stock will be entitled to receive any securities or rights to acquire securities or property granted or issued by us pro rata to the holders of our common stock to the same extent as if such holders had converted all of their shares of convertible preferred stock. In the event of a fundamental transaction, such as a merger, consolidation, sale of substantially all assets and similar reorganizations or recapitalizations, the holders of convertible preferred stock will be entitled to receive, upon conversion of their shares, any securities or other consideration received by the holders of our common stock pursuant to the fundamental transaction.

We may become obligated to redeem the Series D convertible preferred stock in cash upon the occurrence of certain triggering events, including, material breach of certain contractual obligations to the holders of the convertible preferred stock, the occurrence of a change in control of Generex, the occurrence of certain insolvency events relating to Generex, or the failure of our common stock to continue to be listed or quoted for trading on one or more specified United States securities exchanges or regulated quotation service. Upon the occurrence of certain triggering events, each holder of convertible preferred stock will have the option to redeem such holder’s shares of convertible preferred stock for a redemption price payable in shares of common stock or receive an increased dividend rate of 18% on all of such holder’s outstanding convertible preferred stock. Late fees will apply on all redemption amounts not paid within five trading days of the payment date.

Subject to certain ownership limitations, the warrants will be exercisable at any time after their date of issuance and on or before the fifth-year anniversary thereafter at an exercise price of $0.03 per share of common stock. The exercise price of the warrants and, in some cases, the number of shares issuable upon exercise, are subject to adjustment in the case of stock splits, stock dividends, combinations of shares, similar recapitalization transactions and certain pro-rata distributions to common stockholders. The exercise price and number of shares of common stock issuable upon exercise will also be adjusted if we sell or grant any shares of common stock or securities convertible into, or rights to acquire, common stock at an effective price per share that is lower than the then exercise price, except in the event of certain exempt issuances. In addition, the warrant holders will be entitled to receive any securities or rights to acquire securities or property granted or issued by us pro rata to the holders of our common stock to the same extent as if such holders had exercised all of their warrants. In the event of a fundamental transaction, such as a merger, consolidation, sale of substantially all assets and similar reorganizations or recapitalizations, the warrant holders will be entitled to receive, upon exercise of their warrants, any securities or other consideration received by the holders of common stock pursuant to the fundamental transaction.

The securities purchase agreement and the certificate of designation authorizing the Series D convertible preferred stock include certain agreements and covenants for the benefit of the holders of the convertible preferred stock, including restrictions on our ability to amend the certificate of incorporation and bylaws, pay cash dividends or distributions with respect to our common stock or other junior securities, repurchase more than a de minimis number of shares of our common stock or other junior securities.

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

We offered these securities privately pursuant to Rule 506 of Regulation D under the Securities Act of 1933. We entered into a registration rights agreement with the investors pursuant to which we agreed to file a registration statement with the SEC covering the public resale of the common stock issuable upon conversion of the preferred stock, issuable as dividends on the preferred stock, issuable upon exercise of the warrants and issued as a finders’ fee. Due to the anti-dilution adjustments to the Company’s outstanding Series B and Series C preferred stock, and the warrants issued with those shares of preferred stock, resulting from the issuance of the Series D convertible preferred stock, the Company did not have sufficient authorized Common Stock to issue upon conversion of all of its outstanding preferred stock and exercise of all of its outstanding warrants. The investors have agreed that the Series D convertible preferred stock and the warrants to be issued will not be convertible or exercisable until the Company’s stockholders have authorized an amendment to the company’s Certificate of Incorporation increasing the authorized Common Stock. Similarly, a portion of the Series D investors’ pre-existing warrants will also not be exercisable until after the increase in authorized shares. The securities purchase agreement requires the Company to obtain such authorization within 120 days after closing. Our stockholders authorized an amendment to the our Certificate of Incorporation increasing the authorized Common Stock at our annual meeting on March 28, 2013 and the Certificate of Amendment increasing the authorized shares of our common stock was filed on March 28, 2013.

We agreed to file the registration statement within 15 days of the stockholders’ approval of the increase in authorized shares and to use our best efforts to have the registration statement declared effective within 75 days after the filing date. If these deadlines were not met, we would be liable for liquidated damages up to 6% of the purchase price under the securities purchase agreement.

In addition, if, during the six-month period after the issuance of the warrants and continuing until such time that all of the securities may be sold without our meeting the current public information requirement under Securities Act rule 144(c)(1), we fail to meet such requirement, we will pay liquidate damages equal to 2.0% of the purchase price paid by each investor, payable in cash every 30 days until current public information for Generex is available or is no longer required for the investors to rely on Rule 144 to transfer the securities (including underlying securities) acquired under the securities purchase agreement.

Proceeds from Warrant Exercises

We may receive additional proceeds from the exercise of warrants issued in the registered direct offerings conducted in June, August and September 2009, the sales to Seaside 88, LP in April, May and June 2010 and the warrants issued in July 2011, February 2012, August 2012 and December 2012 in connection with the issuance of the Series A 9% Convertible Preferred Stock, Series B 9% Convertible Preferred Stock, Series C 9% Convertible Preferred Stock and Series D 9% Convertible Preferred Stock, although some of the warrants include a cashless exercise feature.  

As of March 8, 2013, all of the warrants issued in the aforementioned registered direct offerings were exercisable.  At March 8, 2013, outstanding warrants issued in connection with the June, August and September 2009 registered direct offerings, the April, May and June 2010 sales to Seaside and the January to April 2011, July 2011, February 2012, August 2012 and December 2012 registered direct offerings were as follows (after adjustment for anti-dilution provisions and subsequent exercises):

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

**On December 10, 2012, in connection with the issuance of the Series D convertible preferred stock, the exercise price of these warrants was adjusted down to $0.03 (from $0.08), with a corresponding increase in warrants from 6,249,995 to 16,666,653, 24,999,999 to 66,666,664 and 9,375,000 to 24,999,998, respectively.

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

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

The initial exercise price of each Series Warrant was $1.21.  The Series Warrants include a cashless exercise feature. The exercise price of the Series Warrants was subsequently reduced initially to $0.50, then to $0.33, to $0.25, to $0.15, to $0.08 and currently to $0.03 as a result of a price protection provision triggered by our offering of stock in private placements in May 2009, January and July 2011 and February, August 2012 and December 2012.  This price protection feature allows for the reduction in the exercise price of the Series Warrants in the event we subsequently issue common stock or securities convertible into or exercisable for common stock, such as options and warrants, at a price per share less than the Series Warrant exercise price then in effect. In addition, with any reduction to the Series Warrant exercise price, the number of shares of common stock that may be purchased upon exercise of each Series Warrant will be increased or decreased proportionately, so that after such adjustment the aggregate Series Warrant exercise price payable for the adjusted number of shares issuable upon exercise will be the same as the aggregate Series Warrant exercise price in effect immediately prior to such adjustment. We account for these warrants with price protection in accordance with ASC 815 as described in Note 10 to the Notes to Consolidated Financial Statements included elsewhere in this quarterly report on Form 10-Q.

As of March 8, 2013, outstanding Series Warrants were as follows (after adjustment for anti-dilution provisions and subsequent exercises):

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

**On December 10, 2012, in connection with the issuance of the Series D convertible preferred stock, the exercise price of these warrants was adjusted down to $0.03 (from $0.08), with a corresponding increase in warrants from 54,426,222 to 145,136,592 and 10,227,270 to 27,272,720, respectively.

Cash Flows for the Six months ended January 31, 2013

For the six months ended January 31, 2013, we used $1,999,651 in cash to fund our operating activities. The use for operating activities included a net loss of $6,297,184, changes to working capital including a decrease of $25,300 related to deferred revenue, offset by an increase related to accounts payable and accrued expenses of $449,789 and an increase related to other current assets of $39,179,

The use of cash was offset by non-cash expenses of $234,603 related to depreciation and amortization, stock-based compensation to employees of $19,697, stock-based compensation issued in exchange for services rendered by consultants of $185,342 and common stock issued for interest on our convertible preferred stock of $604,800. There was also a year-to-date non-cash loss of $3,783,290 related to the fair valuation of the derivative liabilities at January 31, 2013 and an accounting gain of $993,867 related to the sale of our office property.

We had net cash provided by investing activities of $1,538,545 in the six months ended January 31, 2013, representing primarily the net proceeds after real estate commissions of $1,578,779 related to the sale of the office property, offset by costs incurred for patents of $40,234.

We had cash provided by financing activities in the six months ended January 31, 2013 of $1,348,196, which pertained primarily to $1,450,000 in net proceeds from sales of convertible preferred stock in August and December 2012, gross proceeds from long-term debt related to real estate of $866,403 and proceeds from cash exercises of warrants of $724,664, offset by the repayment of long-term debt upon sale of our office property of $1,692,957.

Our net working capital at January 31, 2013 worsened slightly to negative $8,198,221 from negative $8,054,662 at July 31, 2012, which was attributed largely to the reduction in the current portion of our long-term debt upon the sale of our office property in September 2012 and the net proceeds from the Series C and Series D convertible preferred stock financing in August and December 2012, offset by our cash used in operations for the six-month period ended January 31, 2013.

Cash Flows for the Year Ended July 31, 2012

For the fiscal 2012 year, we used $8,043,979 in cash to fund our operating activities. The use for operating activities included a net loss of $9,490,278. Cash used in operating activities decreased due to a decrease in inventory of $716,392, a decrease related to other current assets of $20,946 and a decrease of $8,470 related to accounts receivable, which were offset by a decrease of $1,218,616 related to accounts payable and accrued expenses and a $105,395 decrease in deferred revenue.

The use of cash related to operating assets and liabilities above was offset by increases related to a non-cash loss of $1,081,440 related to the revaluation of the derivative warrants and additional investment rights, $612,658 related to depreciation and amortization, $732,928 in stock-based compensation, amortization of options and option modifications related to employees, executives and directors, $699,445 in stock-based compensation for services rendered, 485,190 relating to interest which was paid by issuances of common stock and $440,780 related to a loss on the write-off of abandoned patents. These non-cash increase adjustments to reconcile the net loss to net cash used, were offset by a non-cash gain of $2,027,939 related to gains on disposals of properties (including Assets Held for Investment) and equipment.

We had net cash flows from investing activities of $4,777,134 in fiscal 2012, primarily consisting of proceeds from the sale of properties (including Assets Held for Investment) and equipment of $4,953,325, offset by payments for property and equipment of $2,416 and costs incurred for patents of $173,775.

We had net cash flows from financing activities of $746,477 in fiscal 2012. We received net proceeds of $1,975,000 from issuances of convertible preferred stock in our February registered direct offering.  We received $3,561,688 in net proceeds from issuance of long-term debt related to mortgages on our properties, which was offset by monthly mortgage principal payments combined with repayments of mortgages upon the sales of certain of the properties of $4,821,511. We received $1,300 in cash proceeds from exercises of stock options and $30,000 from the exercise of warrants.

Our net working capital deficiency at July 31, 2012 decreased to a deficiency of $8,054,662 from a deficiency of $5,568,217 at July 31, 2011, which was attributed largely to our net cash outflows from our operating activities, offset by our fiscal 2012 investing and financing activities.

Conversion of Outstanding Series A, Series B, Series C and Series D 9% Convertible Preferred Stock

All outstanding shares of our Series A 9% Convertible Preferred Stock were converted into shares of our common stock prior to the end of our previous fiscal year ended July 31, 2012. A total of 17,166,666 shares of common stock have been issued upon the conversion of 2,575 shares of Series A convertible preferred stock. Upon conversion, we paid the holders of the Series A convertible preferred stock a “make whole” payment equal to $270 per $1,000 of stated value of the Series A convertible preferred stock, less the amount of all prior quarterly dividends paid on such converted preferred stock before the relevant conversion date. We issued 6,129,666 additional shares of common stock on such conversions of the Series A convertible preferred stock. Dividends paid on the Series A Convertible Preferred Stock were $12,383 during the fiscal year ended July 31, 2012.

As of January 31, 2013, all of the 2,000 shares of our Series B 9% Convertible Preferred Stock had been converted into shares of our common stock. We issued 38,019,163 shares of common stock upon the conversion of the Series B convertible preferred stock and an additional 11,207,750 shares of common stock were issued as “make-whole payments” on such conversions.

As of January 31, 2013, all of the 750 shares of our Series C 9% Convertible Preferred Stock had been converted into shares of our common stock. We issued 22,916,665 shares of common stock upon the conversion of the Series C convertible preferred stock and an additional 6,664,863 shares of common stock were issued as “make-whole payments” on such conversions.

As of March 28, 2013, none of the 750 shares of our Series D 9% Convertible Preferred Stock had been converted into shares of our common stock.

Funding Requirements

We expect to devote substantial resources to obtaining regulatory approval of Generex Oral-lyn™ in the U.S., Canada and Europe.  We may also devote resources to obtaining approval for the importation, marketing and commercialization of Generex Oral-lyn™ in other countries where we have licensed distributors, including countries where we currently have approval or have submitted regulatory dossiers for approval.

Under the long-term agreement that we signed with sanofi-aventis in December 2009, sanofi-aventis will manufacture and supply recombinant human insulin to us in the territories specified in the agreement. Through this agreement, we will procure recombinant human insulin crystals for use in the production of Generex Oral-lyn™. The terms of the supply agreement required us to make certain minimum purchases of insulin from sanofi-aventis through the period ended December 31, 2011, which minimum purchases we did not satisfy. Sanofi-aventis will be our exclusive supplier in certain countries and a non-exclusive supplier in some other countries. Sanofi-aventis may delete any territory from the agreement in which Generex Oral-lyn™ has not been approved for commercial sale by December 31, 2011. The prices under the supply agreement are subject to adjustment beginning after December 31, 2012. As we did not meet the minimum purchase requirements by December 31, 2011, sanofi-aventis may terminate the agreement. Upon termination, we would be obligated to pay sanofi-aventis for all materials and components that it has acquired or ordered to manufacture insulin based on our forecasts or minimum purchase commitments, all related work-in-progress (at cost) and all finished insulin in inventory. We did not provide any forecasts to sanofi-aventis and have not included any accruals related to the purchase commitments in our consolidated financial statements for the six-month period ended January 31, 2013, nor has sanofi-aventis terminated the agreement.

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

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

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 our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors, and we do not have any non-consolidated special purpose entities.

* Although there are no minimum purchase requirements for any of the remaining contract years under Generex’s supply agreement with sanofi-aventis entered into on December 7, 2009, Generex has not fully satisfied the minimum purchase requirements for the contract years ended December 31, 2010 and 2011. To the extent that Generex has any continuing long-term obligations to purchase insulin under this agreement, such obligations are not included in the table above because the quantities and prices relating to Generex’s obligations are subject to confidential treatment.