Acquisitions

9 Months Ended

Apr. 30, 2020

Business Combinations [Abstract]

Acquisitions

Note 16 – Acquisitions:

MediSource and Pantheon:

On August 1, 2019, the Company, through its wholly owned subsidiary NDS, closed on Asset Purchase Agreements (the “APAs”) for the purchase of substantially all the operating assets of MediSource Partners, LLC (“MediSource”) and Pantheon Medical - Foot & Ankle, LLC (“Pantheon”).

MediSource contracts with vendors (including Pantheon) for nationwide distribution of implants and devices for spine, hips, knees, foot, ankle, hand, and wrist surgeries. Additional product lines include biologics (blood, bone, tissue, and stem cells), durable medical equipment, and soft goods. MediSource also supplies kits to process bone marrow aspirates and platelet rich plasma biologics at the time of surgery.

Pantheon sells a physician friendly, “all-in-one,” integrated kit that includes plates, screws, and tools required for orthopedic surgeons and podiatrists conducting foot and ankle surgeries. Over the next three years, Pantheon expects to develop and submit several new product lines to the FDA, which will include cannulated surgical screws and surgical staples, as well as a proprietary Hammertoe System.

The goal in acquiring these operating companies is that they expect to provide multiple and significant revenue streams through delivery of patient-focused healthcare products and services, thus generating value and ultimately creating goodwill upon acquisition.

Travis H. Bird was the CEO and principal owner of both Pantheon and MediSource.

Under the APAs:

• Generex issued 400,000 shares of common stock in exchange for the Pantheon assets, and 560,000 shares of common stock in exchange for the MediSource assets.

• Generex and NDS will pay up to $700,000 in cash to Pantheon as an earn out payment. No payment will be made unless the business conducted by NDS using the former Pantheon assets has EBITDA in the twelve months following closing in excess of $500,000. If the Pantheon business’s EBITDA meets or exceeds $1,000,000, the entire $700,000 will be paid. If the Pantheon business’s EBITDA exceeds $500,000 but is less than $1,000,000, a pro rata portion of the $700,000 earn-out will be paid.

• Generex and NDS will pay up to $500,000 in cash to MediSource as an earn out payment. No payment will be made unless the business conducted by NDS using the former MediSource assets has EBITDA in the twelve months following closing in excess of $130,000. If the MediSource business’s EBITDA meets or exceeds $500,000, the entire $500,000 will be paid. If the MediSource business’s EBITDA exceeds $130,000 but is less than $500,000, a pro rata portion of the $500,000 earn-out will be paid.

• In the event the EBITDA targets are met for one or both MediSource and Pantheon, Travis Bird will receive sales commissions equal to 15% of net sales during the first year following closing, and 10% of net sales during the second year.

• Both MediSource and Pantheon agreed to waive the 1.4:1 stock split.

• Each of Pantheon and MediSource will retain 50% of its cash on hand and 50% of its accounts receivable, with the remainder transferred to NDS at closing.

• Generex and NDS will not assume any Pantheon or MediSource liabilities except for post-closing obligations under assumed contracts.

• Pantheon and MediSource will not transfer their Medicare and Medicaid numbers.

At closing, Mr. Bird entered into an 18-month consulting agreement with NDS. As compensation, Mr. Bird will receive Generex common stock with a value of $250,000, as well as monthly payments equaling $97,222. The monthly payments shall be paid from any available cash from the operations of Pantheon and MediSource. Any remaining balance of such monthly payments will consist of common stock. The agreement specifies the shares are to be freely tradeable. In addition, Mr. Travis will agree to fully assign and exchange any ownership rights in any new technology he develops with the Company, in exchange for a payment of $500,000 in value of common stock for each completed item submitted to the FDA.

The Company accounted for the Acquisition of MediSource and Pantheon as a business combination using the purchase method of accounting as prescribed in Accounting Standards Codification 805, Business Combinations (“ASC 805”) and ASC 820 – Fair Value Measurements and Disclosures (“ASC 820”). In accordance with ASC 805 and ASC 820, we used our best estimates and assumptions to accurately assign fair value to the tangible assets acquired, identifiable intangible assets and liabilities assumed as of the acquisition dates. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed. 

Fair Value of the MediSource Acquisition

The following table summarizes the allocation of the preliminary purchase price as of the MediSource acquisition:

	Preliminary Allocation as of August 1, 2019
Cash and cash equivalents	$	13,895
Other current assets		11,864
Property and equipment, net		8,992
Accounts payable and accrued liabilities		(31,439	)
Net Tangible Assets	$	3,312
Tradename / Trademarks		47,600
Business Contracts		346,800
Non-Competes		124,600
Total Fair Value of Assets Acquired		522,312
Consideration:
Fair value of common stock		479,980
Contingent consideration		409,790
Consideration included in consulting agreement		104,168
Total Purchase Price		993,938
Goodwill	$	471,626

Fair Value of the Pantheon Acquisition

The following table summarizes the allocation of the preliminary purchase price as of the Pantheon acquisition:

	Preliminary Allocation as of August 1, 2019
Cash and cash equivalents	$	35,410
Accounts receivable		133,269
Prepaid expenses		3,336
Inventory		266,071
Medical Equipment, net		67,299
Accounts payable		(53,242	)
Accrued liabilities		(15,573	)
Net Tangible Assets	$	436,570
Tradename / Trademarks		55,400
IP/Technology		41,500
Non-compete agreement		232,100
Customer Base		274,600
Total assets acquired	$	1,040,170
Consideration:
Fair value of common stock		671,972
Contingent consideration		354,292
Consideration included in consulting agreement		145,833
Goodwill	$	131,927

The components of the acquired intangible assets were as follows:

	Preliminary Fair Value		Average Estimated Life
Tradename / Trademarks	$	103,000		15
IP/Technology		41,500		5
Business Contracts		346,800		15
Customer Base		274,600		10
Non-compete agreement		356,700		3
	$	1,112,600

The components of the purchase consideration as of April 30, 2020 and 2019 is as follows:

Balance Sheet Components	As of April 30, 2019		As of April 30, 2020
Warrants to be issued		—		—
Call Option		—		—
Pantheon		—		473,949
MediSource		—		409,763
Total Balance of Contingent Consideration		—		883,712

The components in the change in fair value of the purchase consideration for the nine months ending April 30, 2020 and 2019 is as follows:

	Nine months ending April 30, 2019			Nine months ending April 30, 2020
Warrants to be issued		15,930,072			—
Call Option		(782,481	)		—
Pantheon		—			64,159
MediSource		—			55,471
Change in fair value of purchase consideration		15,147,591			119,630

Unaudited Supplemental Pro Forma Data

Unaudited pro forma results of operations for the three and nine months ended April 30, 2020 and 2019 as though the Company acquired MediSource and Pantheon on the first day of each fiscal year are set forth below.

	Three Months Ended						Nine Months Ended
	April 30,						April 30,
	2020			2019			2020			2019
Revenues	$	498,676		$	1,515,036		$	2,077,764		$	7,624,831
Cost of revenues		116,292			1,366,268			415,569			4,570,820
Gross profit		382,384			148,767			1,662,195			3,054,012
Operating expenses		3,956,738			9,387,355			14,343,559			19,607,676
Operating loss		(3,574,354	)		9,238,587			(12,681,364	)		(16,553,664	)
Other income (expense)		(2,186,463	)		(1,853,364	)		(9,672,030	)		11,028,865
Net loss	$	(5,760,817	)	$	7,385,223		$	(22,353,394	)	$	(5,524,800	)
Comprehensive net loss	$	(5,609,420	)	$	(9,944,144	)	$	(21,666,893	)	$	(4,546,148	)