Acquisition of Hema Diagnostics Systems, LLC

6 Months Ended

Jan. 31, 2017

Business Combinations [Abstract]

Acquisition of Hema Diagnostics Systems, LLC

Note 10 - Acquisition of Hema Diagnostics Systems, LLC

On January 18, 2017, the Company acquired a 51% interest in Hema Diagnostic Systems, LLC (“HDS”), pursuant to the Acquisition Agreement. At closing, the Company acquired 4,950 of HDS’s 10,000 previously outstanding limited liability company units in exchange for 53,191 shares of Generex common stock valued at $250,000, plus 20 shares of Generex common stock issued to HDS in exchange for 300 new limited liability company units.

Following the closing and the completion of Company’s reverse stock split, the Company is required to issue a further 230,000 shares of common stock and issue a warrant to a former shareholder of HDS to acquire 15,000,000 additional shares of Generex common stock for $2.50 per share. The issue of this warrant is contingent upon the Company obtaining approval from its shareholders for an increase in its authorized share capital. The total consideration was valued at $1,350,916 on the date of the acquisition.

Fair Value of the HDS Assets

The intangibles assets acquired include In–Process Research & Development (“IPR&D”). The Fair Value of the IPR&D intangible asset using an Asset Cost Accumulation methodology as of January 18, 2017 (the “Valuation Date”) was determined to be $1,955,932.

The net purchase price of HDS was determined to be as follows:

	Stock Price at Closing		Shares		Fair Value
Purchase price:
Common Stock at closing	$	4.77		53,191	$	253,721
Common Stock after closing	$	4.77		20		95
Common Stock post reverse stock split	$	4.77		230,000		1,097,100
Net purchase price					$	1,350,916

As of January 18, 2017, the issue of the warrant to acquire 15,000,000 additional common shares of Generex was contingent upon shareholder approval of an increase in the Company’s authorized capital stock. No warrant has been issued by the Company and terms of the warrant have not been finalized. Management is not of the opinion that it is more likely than not that the warrant will be issued and accordingly no value has been attributed to it.

The preliminary purchase price allocation of HDS was determined to be as follows:

Purchase price allocation:
Net assets of HDS			(13,642,900	)
Non-controlling interest			(1,297,939	)
In-Process Research & Development			1,955,932
Goodwill			14,335,823
Total Purchase Price	51% Ownership	$	1,350,916
Non-controlling interest	49% Ownership	$	1,297,939

Goodwill and Intangible Assets

The change in the carrying amount of goodwill and other intangible assets for the six months ended January 31, 2017, is as follows:

	Total			Goodwill			Other Intangibles, net
Balance as of July 31, 2016	$	—		$	—		$	—
Acquisition of HDS		16,291,754			14,335,822			1,955,932
Current year amortization		—			—			—
Impairment of goodwill		(14,335,822	)		(14,335,822	)		—
Balance as of January 31, 2017	$	1,955,932		$	—		$	1,955,932

Intangible assets are generally amortized on a straight-line basis over the useful lives of the assets.

Goodwill represents the excess of the purchase price over the fair market value of net assets acquired. Goodwill for HDS was $14.3 million as of the date of the acquisition. The Company conducted an impairment assessment of goodwill and determined that the goodwill should be fully impaired.