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Commitments and Contingencies

9 Months Ended

Apr. 30, 2021

Commitments and Contingencies Disclosure [Abstract]

Note 3 - Commitments and Contingencies

Pending Litigation

The Company is a defendant in one legal proceeding relating to alleged breach of contract and claims against certain of the Company’s original buccal delivery patents. The Company is also a defendant in two legal proceedings brought by a former executive officer and her affiliate. These legal proceedings have been reported in the Company’s prior periodic reports. No activity has occurred in these cases in several years, and the Company now considers them dormant.

In December 2011, a vendor of the Company commenced an action against the Company and its subsidiary, Generex Pharmaceuticals, Inc., in the Ontario Superior Court of Justice claiming damages for unpaid invoices including interest in the amount of $429,000, in addition to costs and further interest. The Company responded to this statement of claim and also asserted a counterclaim in the proceeding for $200,000 arising from the vendor’s breach of contract and detinue, together with interest and costs. On November 16, 2012, the parties agreed to settle this action and the Company has agreed to pay the plaintiff $125,000, following the spinout of its subsidiary NGIO, from the proceeds of any public or private financing related to NGIO subsequent to such spinout. Each party agreed to execute mutual releases to the claim and counterclaim to be held in trust by each party’s counsel until payment of the settlement amount. Following payment to the plaintiff, the parties agree that a Consent Dismissal Order without costs will be filed with the court. If the Company fails to make the payment following completion of any post-spinout financing related to NGIO or any other subsidiaries, the Plaintiffs may take out a judgment in the amount of the claim plus interest of 3% per annum and costs fixed at $25,000 which has been accrued as of April 30, 2021.

On August 22, 2017, Generex received a letter from counsel for Three Brothers Trading LLC, d/b/a Alternative Execution Group (“AEXG”), claiming breach of a Memorandum of Understanding (“MOU”) between Generex and AEXG. The MOU related to AEXG referring potential financing candidate to Generex. The letter from AEXG counsel claimed that Generex’ acceptance of $3,000,000 in financing from Pharma Trials, LLC, in March 2017, violated the provisions of the MOU prohibiting Generex from seeking other financing, with certain exceptions, for a period of 60 days after execution of the MOU. AEXG has demanded at least $210,000 in cash and 84,000 warrants for Generex stock convertible at $2.50 per share, for attorney’s fees and costs. AEXG filed a demand for arbitration and on September 25, 2018, an arbitration hearing was held with an arbitrator from the American Arbitration Association’s International Centre for Dispute Resolution. On December 3, 2018, an arbitrator awarded AEXG an aggregate of $315,695 in damages, costs and fees as well as warrants exercisable for 84,000 shares of Generex Common Stock at an exercise price of $2.50 per share. AEXG filed a petition to confirm the arbitrator’s award in the United States District Court for the Southern District of New York. The petition includes a demand of $3,300,360 as the value of the warrants. The arbitrator did not award the specific amount of $3.5 million, but only liquidated damages in the amount of $210,000 and the value of 84,000 warrants “as of today” (the date of the award) plus attorney’s fees, certain costs, prejudgment and post-judgment interest (which continues to run on a daily basis) and arbitration fees. Generex has responded that the value of the warrants on the date of the award is $0, or some figure far less than the value calculated by AEXG. The petition to confirm the arbitrator’s award and Generex’ opposition were remanded by the Court to the arbitrator and returned for clarification. The arbitrator stated that he was unable to add any clarification, as he did not take evidence on the issue of warrant valuation. AEXG filed a petition and on April 24, 2020, the Court issued an Opinion and Order in the Litigation confirming the portions of the Arbitration Award regarding liquidated damages, pre-judgment interest, legal fees, and costs, but remanding to the Arbitrator for further proceedings the portion of the Arbitration Award relating to “the economic value today of 84,000 warrants convertible to Generex stock exercisable at $2.50 per share as of September 24, 2018” (the “Remanded Arbitration”). On September 18, 2020, the Court issued that AEXG recover from Generex the total sum of $384,771, which sum consists of $210,000 in liquidated damages, $93,304 in legal fees, $12,393 in arbitration fees, $3,313 in arbitration expenses, $65,762 in pre-judgment interest, and post-judgment interest at a rate established by 28 U.S.C § 1961 from September 18, 2020, until the judgment is satisfied, this judgement dealt only with the dollar fees portion, leaving still open the value of the warrants (the “Partial Judgement”). The parties settled and agreed to the terms of the Partial Judgment that included a payment schedule to which Generex has paid $200,000 in cash to date with the remaining balance being paid and retired in 30 days. The settlement terms do not apply, settle, or resolve in any manner the Remanded Arbitration or the issues pending therein, including, but not limited to, the economic value of the 84,000 warrants, Generex’ right to contest AEXG’s attorneys’ fees, or Generex’ right to contest the issue of who is the prevailing party for fees other than those fees awarded in the Arbitration Award. On January 29, 2021, the Remanded Arbitration order was issued by the Arbitrator; AEXG was awarded (i) $3,300,000 as the economic value of the warrants plus accrued simple interest at 9% from December 3, 2018 and (ii) $550,320 in legal fees. On April 7, 2021, Generex entered into a Settlement Agreement and Release with AEXG (the “Settlement”); under the terms of the Settlement, Generex agreed to pay $41,730 in legal fees and $3,300,000 for the warrants plus accrued simple interest at 9% from December 3, 2018. As of April 30, 2021, the Company accrued $4,595,899 related to this matter. The April 7, 2021 Settlement also included interest awarded to AEXG of approximately $790,000 that was accrued during the quarter ended April 30, 2021. The payment under the Settlement was due June 15, 2021, but not paid by Generex; Generex is working with AEXG to make such payment.

On October 26, 2018, Generex entered into a securities purchase agreement with Alpha Capital Anstalt (“Alpha”) pursuant to which a note due on October 26, 2019 was called for repayment in the principal amount of $682,000. On January 25, 2019, Generex received a letter from Alpha’s counsel stating that the note was in default because Generex’ common stock was not listed on NASDAQ within 90 days after the issuance of the note. The letter demanded repayment in full. On February 12, 2019, Alpha filed a lawsuit in the Supreme Court of New York, demanding the aggregate principal amount, default interest and costs. Generex does not agree with Alpha’s legal demands and continues to defend the lawsuit. On March 25, 2021, Generex entered into a Settlement Agreement and Mutual Release with Alpha (the “Settlement”); under the terms of the Settlement, Generex agreed to pay Alpha $750,000. There was an additional $370,553 of accrued interest related to this note that the Company recognized as a gain on settlement of debt. On May 17, 2021, Generex paid $750,000 to Alpha.

On March 21, 2019, Compass Bank filed suit against NuGenerex Distributions Solutions 2, L.L.C. (“NDS”) in the District Court of Dallas County, Texas requesting damages of $3,413,000. This lawsuit is directly connected to assets that were supposed to be transferred to NDS from a third party, but never were transferred. Compass Bank had a lien on those certain assets that were supposed to be transferred into the ownership of NDS, a subsidiary of Generex. NDS and Generex shall continue to defend this legal matter. As of April 30, 2021, the Company has accrued $3,416,695 related to this matter.

In May 2019 Brooks Houghton threatened litigation by way of a FINRA Dispute Resolution. Brooks Houghton, who the managing representative is Mr. Centonfanti a prior board member, was under contract to perform due diligence on the Veneto transaction, as well as other unrelated items. The Veneto transaction closed three times, each time with a reduction in price due to material negative circumstances. Brook Houghton, who was under contract to perform due diligence, claims their fee should be paid on the initial closing price not the ultimate resolution of the matter. The company offered to compensate Brooks Houghton pursuant to agreement, 3% on the most recent closing price for Veneto for which Brooks Houghton may have performed some level of work on, payable in kind, and Brooks Houghton declined the offer. Brooks Houghton is claiming $450,000 for the first closing of Veneto, $714,000 for the second closing of Veneto, $882,353 for the Regentys acquisition, and $705,882 for Olaregen. The Company shall continue to defend this legal matter. As of April 30, 2021, the Company has accrued for the full $2,752,235 balance. On May 11, 2021, the parties agreed to temporarily postpone arbitration in hopes of an amicable settlement.

On September 9, 2019 Generex and its subsidiary NuGenerex Distribution Solutions, LLC, and NuGenerex Distributions Solutions 2, LLC (jointly “NDS”) filed a litigation against Veneto, and the constituent entities, for fraud, breach of contract, and a motion for a temporary restraining order restraining the shares contemplated in the Asset Purchase Agreement (“APA”) (supra) for hiding their involvement in a massive healthcare fraud scheme, which is currently being prosecuted civilly by the federal government and filing to transfer assets specified in the APA. The Company’s motion for a temporary restraining order on transfer of shares Generex issued in connection with the acquisition of Veneto assets was denied by the Court of Chancery. Generex has continued to pursue claims against Veneto and its principals in a separate arbitration. In a related action, the Company’s transfer agent was sued for failure to process a transfer of the shares issued pursuant to the APA. This suit was brought in the United States District Court for the Eastern District of New York. Generex was not named in the suit, but the transfer agent notified the Company of its obligation to indemnify them pursuant to its agreement with the transfer agent. The action against the transfer agent was dismissed with prejudice and on consent on November 25, 2019. As of this filing, Generex’ arbitration against Veneto and its principals is still active.

On December 2, 2019, the Company was named as a respondent in an arbitration brought by KSKZ Management, LLC before the American Arbitration Association in Texas. The Claimant alleges that the Company breached a consulting agreement that purportedly obligated the Company to pay claimant a monthly consulting fee for three years. Claimant is seeking approximately $3,450,000 in unpaid consulting fees allegedly due. The Company is vigorously defending itself and has filed counterclaims against Claimant. The Company believes that the likelihood of an unfavorable outcome is remote and as result has not accrued anything for this claim.

On February 18, 2020, the Company was named as a defendant in an action brought by Discover Growth Fund, LLC (“Discover”) in the United States District Court for the District of Delaware. The plaintiff alleges that the Company breached a Purchase Agreement and Promissory Note and seeks $2,475,000 in damages. The plaintiff also filed a confession of judgment in support of its claim. On May 4, 2020 the District Court entered judgment against the Company in the amount of $2,200,000. Counsel for Generex and Discover have engaged in settlement discussions. In addition, on August 20, 2020 the Company was named as a defendant in an action brought by Discover in the Court of Chancery of the State of Delaware. The complaint alleges that the Company breached a Purchase Agreement, Promissory Note and Transfer Agent Instructions and seeks to compel the Company to honor notices of conversion from Discover and issue it shares pursuant to the Purchase Agreement and Promissory Note. . The Company accrued approximately $2,500,000 related to this claim. In December 2020, Discover was awarded $2,200,000 via a confession of judgment award, along with legal fees of $53,312 against Generex and personally, its CEO, Joseph Moscato. On February 19, 2021, Generex paid $2,253,312 to Discover to fully satisfy the judgement; no stock was exchanged to satisfy this judgment.

On October 2, 2020, the Company and its subsidiary, NuGenerex Distribution Solutions, LLC, was named as a defendant in an action brought by AVEM Medical, LLC, formerly known as MediSource Partners, LLC and Pantheon Medical – Foot & Ankle, LLC in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida, Civil Division. The complaint alleges that the Company breached an Asset Purchase Agreement by issuing fewer shares to the seller than what the agreements contemplated. AVEM claims entitlement to an additional $312,000 in Company stock, and Pantheon claims entitlement to an additional $576,800 in Company stock. The Company has filed a motion to dismiss the case for lack of subject matter jurisdiction, and it intends to vigorously defend the case wherever it is ultimately litigated. The Company intends to vigorously defend the case. The Company accrued $790,558 of interest as of April 30, 2021.

On April 20, 2021, the Company was named as a defendant in an action brought by Quantum Media Group, LLC (“Quantum”) in the Supreme Court of the State of New York County of New York. The complaint alleges that the Company breached a service contract. Quantum claims entitlement to $102,260 in service payments. The Company has filed a motion to dismiss the case for failure to state a cause of action, and it intends to vigorously defend the case. The Company has accrued the total amount of the claim.

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

Commitments

Intellectual Property

In connection with the Company’s acquisition of Olaregen, the intellectual property owned by Olaregen was acquired with an initial payment remitted by Olaregen in accordance with the $4 million signed commitment agreement entered into with Activation Therapeutics, Inc. The remaining $3.35 million balance is to be paid in quarterly installments equal to 10% of quarterly net sales generated by Activation Therapeutics assuming the Exellagen average selling price per unit exceeds $800. In the event that the average selling price per unit is less than $800 per unit, cost of goods sold shall be excluded from the computation of net sales.

Acquisitions

ALTuCELL

On November 22, 2019, the Company entered into a Stock Purchase Agreement (“SPA”) for the purchase of 51% of the outstanding capital stock of GH Care, Inc. DBA ALTuCELL, Inc.(“ALTuCELL”).

Under the SPA, in exchange for the ALTuCELL Stock, Generex will issue to ALTuCELL 2,240,000 shares of Generex common stock with an attributed value of $4 million to be issued at the market price of the day at closing, but no less than $0.89 per share. The Company will also pay $2.5 million in cash of which $212,000 has already been paid. In addition to stock and cash at closing, Generex has agreed to pay up to an aggregate of $3,500,000 to ALTuCELL upon ALTuCELL’s attainment of certain milestones.

On January 27, 2020, Generex and ALTuCELL executed an Amendment Agreement to the SPA (the “Amendment”). Under the Amendment, closing will occur within 30 days of the full execution of the Amendment, subject to the conditions to closing under the SPA. The parties agreed that Generex will pay the $2.5 million closing payment from certain specifically identified sources. If ALTuCELL chooses to cancel the transaction as a result of delays due to forces beyond the control of Generex, including government regulatory delays or extended reviews by regulators that delay approvals of corporate actions, or by natural disasters or other unforeseen events beyond the control of Generex, ALTuCELL, agrees to return all payments made by Generex. As of April 30, 2021, Generex has advanced $212,000 to ALTuCELL. As of the date of this filing, the acquisition did not close, however, both companies are negotiating the terms of the extension.

Olaregen

On November 24, 2019, the Company amended the Stock Purchase Agreement with Olaregen. The Company was obligated to pay in full $11,600,000 to Olaregen by November 30, 2019, in connection with the purchase of Olaregen capital stock. On February 14, 2020, the Company agreed to exchange 4,250,000 shares of Generex Common Stock and 1,065,000 shares of NGIO for the remaining outstanding shares of Olaregen with a waiver of any penalties and accrued interest on the outstanding Olaregen Note. As a result, Olaregen is wholly owned by the Company.

Regentys

On November 25, 2019, the Company amended the Stock Purchase Agreement with Regentys originally on January 7, 2019. Effective November 25, 2019, the remaining three payments of $2,039,001, $2,000,000, and $3,000,000 were all payable on or before December 30, 2019. The Company is negotiating the terms of a new extension and there has been no demand for payment currently.

MediSource – 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 and Pantheon which provided the Pantheon Earn-out and MediSource Earn-out based about the EDITDA achieved by Patheon and MediSource. Neither earn-out was achieved nor anticipated for the remainder of the earn-out period and therefore the liability for contingent consideration was relieved.

On July 20, 2020, Travis Bird terminated his consulting agreement with the Company and Travis Bird caused the operations of MediSource and Pantheon to curtail. As of this filing, no resolution and/or settlement has been reached and there is no guarantee that these operations will resume. This event has led to the full impairment of goodwill and intangibles of MediSource and Pantheon for the fiscal year ended July 31, 2020.

Agreements

Research and Development Agreements

On November 20, 2018, the Company entered into a clinical trial agreement with NSABP Foundation, Inc. (“NSABP”) under which NSABP will conduct clinical research using the Company’s AE37 peptide immunotherapeutic vaccine in combination with pembrolizumab (Keytruda®) for the treatment of metastatic triple negative breast cancer. The Company has agreed to pay NSABP an amount not to exceed $2,118,461 based on NSABP achieving various milestones. The Company recognized $80,000 and $251,459 as research and development related to the clinical trial agreement with NSABP for the nine months ending April 30, 2021 and 2020, respectively.

The Clinical Trial Agreement terminates upon the completion of the obligations under such agreement. The Clinical Trial Agreement may be terminated by (i) any party if the authorization to conduct the Phase II clinical trial is revoked by the FDA; if the human and/or toxicology results support termination; safety concerns; if the manufacture of a drug used in the Phase II clinical trial has been exhausted or (ii) by NSABP if NGIO fails to pay NSABP an undisputed amount under the Clinical Trial Agreement.

On June 2, 2020, the Company entered into a Laboratory Services Agreement and Statement of Work Agreement with Cellular Technology Limited (“CTL”). The Agreement calls for CTL to provide certain laboratory testing and analysis. These services provided by CTL to Generex are part of the development of a potential vaccine for COVID-19 based upon NGIO Ii-Key vaccine technology. NGIO is a majority owned subsidiary of Generex. Generex/NGIO will own the intellectual property generated by CTL’s work.

Pursuant to this agreement, Generex will pay to CTL a fee for work plan completion an amount not to exceed $1,296,854. During the three and nine months ended April 30, 2021, the Company has incurred $149,895 and $1,265,835 of expenses, respectively. There was a balance of $1,020,225 accrued at April 30, 2021.

COVID-19 Collaboration Agreement

On October 5, 2020, the Company and its subsidiary NGIO entered into a Distribution and Licensing Agreement (the “Bintai Agreement”) with Bintai Healthcare SDN BHD, a subsidiary of Bintai Kinden Corporation Berhad of Malaysia (“Bintai”) for the exclusive rights to distribute, sell, develop and commercialize the Ii-Key-SARS-CoV-2 coronavirus vaccine (the “Malaysia Vaccine”) in Malaysia and South East Asia countries, with right of first refusal to commercialize the Vaccine within New Zealand, Australia and the Global Halal markets. The Bintai Agreement, among other things, consists of Bintai providing 100% funding for U.S. clinical development, manufacturing and commercial registration of the Malaysia Vaccine for the Territory.

As of April 30, 2021, Generex, has received $2,000,000 in cash to pursue the commercialization of the Vaccine.

On November 13, 2020, Generex and the China Partners entered into the Ii-Key Innovative Vaccine Development Agreement (the “COVID Agreement”) to set up a joint research team and a joint entity in China (the “Joint Entity”) that shall jointly develop and industrialize the Vaccine in China. The COVID Agreement provides that Generex will provide the Joint Entity with (i) Ii-Key-SARS-CoV-2 technology; (ii) technical know-how; (iii) preclinical and clinical data and (iv) background material on the Ii-Key platform pertaining to its Ii-Key peptide vaccine technology (collectively, the “COVID Vaccine Technology”). Pursuant to the COVID Agreement, Generex provided the Joint Entity with a perpetual sole and exclusive license to use the COVID Vaccine Technology in China. Generex shall negotiate separately with the Joint Entity with respect to the sale of such technology in other countries outside of China. Under the COVID Agreement Guoxin will provide the funding for the clinical development, manufacturing and commercial registration of the Vaccine for China and the Joint Entity will provide Generex with the following:

1. Licensing Fee: $5,000,000 upfront non-refundable fee due upon the execution of the Agreement.

2. Royalty Fee: Once the Vaccine comes on to market for the first commercial sale, then the Joint Entity shall:

Offer Generex 20% of the equity interests in the Joint Entity; NGIO shall be the 100% owner of any equity consideration provided to Generex pursuant to the February 19, 2021 “Work, Cost and Fee Sharing Agreement,” disclosed below; or

Cash payments to Generex in a price equal to $2 per dose for the COVID-19 vaccine.

3. Equity Distributions: the net profits of the Joint Entity shall pay to Generex first until Generex receives $20 million, then the China Partners will receive the next $80 million in net profits from the Joint Entity and thereafter Generex and the China Partners will receive net profits from the Joint Entity in accordance with their pro rate equity interests.

If the Vaccine fails in its clinical trials, Generex will compensate the Joint Entity through one of two methods:

1. Generex will grant the Joint Entity sole and exclusive use of its technology and related intellectual property in Excellagen for a license fee of $10 million less the $5 million paid to Generex pursuant to the COVID Agreement and the remaining $5 million will be paid to Generex following NMPA approval; or

2. Generex will grant the Joint Entity with a sole and exclusive license for the whole Ii-Key platform which includes infectious diseases and cancer for a $50 million license fee less the $5 million license fee paid to Generex pursuant to the COVID Agreement.

The COVID Agreement also provides for the Joint Entity having a right of first refusal for the Ii-Key vaccine technology for oncology, infectious disease, and autoimmune diseases for an upfront license fee of $50 million.

As of April 30, 2021, Generex, has received approximately 4,500,000, net of taxes, from the COVID Agreement in cash to pursue the commercialization of the Vaccine.

On November 13, 2020, Generex and the China Partners entered into the Ii-Key Innovative Flu Vaccine Development Agreement (the “Swine Flu Agreement”). Pursuant to the Swine Flu Agreement, the parties agreed that upon the successful development of the flu vaccine and receipt of approval from NMPA for the product launch, the Joint Entity shall have a sole and exclusive world-wide license for swine flu and shall pay Generex a license fee of $2.5 million less certain costs estimated at $500,000.

Employee Compensation and Settlement Agreements

During the nine months ended April 30, 2021, the Company awarded executives and employees bonus compensation of $7,060,417 to be paid in approximately $1 million in cash and $6 million in stock.

Payable to Foundation

On February 1, 2007, the Company entered into a clinical study agreement (the “CSA”) with a Henry J. Jackson Foundation (“Foundation”) for two Phase II clinical trials to determine if a vaccine containing AE37 plus GM-CSF or another peptide vaccine compound (GP2) plus GM-CSF improved patient outcomes. The Foundation conducted the study, under the sponsorship of an institute affiliated with the United States Military until the IND #12229 was transferred to NGIO (then Antigen Express), after which HJF continued trial management on behalf of NGIO. In consideration for the study the Company agreed to total compensation of $2,700,000 at various intervals over the term of the agreement.

On September 1, 2013, the Foundation and the Company entered into a forbearance agreement (the “Forbearance Agreement”) under which the Company acknowledged they were $1,315,817 in arrears in its payment and interest obligations to the Foundation under the CSA (the “Original Forbearance Amount”). Pursuant to the Forbearance Agreement, the Company and the Foundation in exchange for the Foundations deferring the Company’s overdue payments, future payments and interest, the Company agreed, among other things to pay the Foundation certain royalties and accelerated payments (“Forbearance Payments”). Effective August 1, 2015, the Company capitalized all outstanding unpaid interest on the outstanding balance. For the three and nine months ended April 30, 2021, the Company recorded interest expense in the amount of $261,069 and $749,493, respectively, in the statements of operations. For the three and nine months ended April 30, 2020, the Company recorded interest expense in the amount of and $218,350 and $626,867, respectively, in the statements of operations. As of April 30, 2021 and July 31, 2020, the Company has recorded accrued interest of $4,660,634 and $3,911,141, respectively.