Notes Payable

9 Months Ended

Apr. 30, 2021

Debt Disclosure [Abstract]

Notes Payable

Note 7 – Notes Payable 

As of April 30, 2021, and July 31, 2020, the Company had notes payable with aggregate principal balances of $10,248,680 and $11,591,479 and debt discounts of $1,133,907 and $425,120, respectively. The notes bear interest between 1% and 16% per annum. During the nine months ended April 30, 2021, the Company made payments on principal of $2,349,996 and converted $1,538,016 of principal into common stock. As of April 30, 2021, there was one note in default with a principal balance of $682,000 and is accruing a default rate of interest of 24% per annum.

	Amount
Balance of notes payable, net on July 31, 2020	$	11,166,359
Issuances of debt		2,239,500
Issuance of PPP loans		125,200
Additions to debt due to default		255,080
Amortization of debt discount		975,834
Forgiveness of PPP loan		(73,100	)
Debt discount		(1,613,166	)
Conversions		(1,610,939	)
Payments		(2,349,996	)
Balance of notes payable, net on April 30, 2021	$	9,114,772

	As of April 30,			As of July 31,
	2021			2020
Notes payable	$	10,248,680		$	11,591,479
Less: debt discount		(1,133,908	)		(425,120	)
Total debt, net of discount		9,114,772			11,166,359
Notes payable, net - noncurrent		551,573			499,656
Notes payable, net - current	$	8,563,199		$	10,666,703

Convertible debt

In December 2019, the Company entered into Securities Purchase Agreements with an investor pursuant to which the Company sold a convertible note bearing interest of 12% per annum in the principal amount of $2,200,000 and due in 18 months. The purchase price of the note was $2,000,000 and the remaining $200,000 of principal amount represents original issue discount. Subject to certain ownership limitations, the note is convertible at the option of the holder at any time into shares of the Company’s common stock at an effective conversion price of 95% of the lowest stock five trading days prior to conversion less. During the 2020 fiscal year, the Company defaulted on the note for not filing the S-1 within a required period. Thereafter the interest increased to 22% per annum and the conversion price decreased to 85% of the lowest stock five trading days prior to conversion. The embedded beneficial conversion feature in the note meets the definition of a derivative and requires bifurcation and liability classification, at fair value. The fair value of the derivative liability as of the date of issuance was $111,508 and was recorded as a discount of the note. On February 18, 2020, the investor has filed suit and in February 2021, Generex fully satisfied the judgment with cash payments totaling $2,253,312.

On June 25, 2020, the Company entered into a Securities Purchase Agreements pursuant to which the Company sold a convertible note bearing interest at 12% per year in the principal amount of $150,000. The purchase price of the note was $145,000 and the remaining $5,000 of principal represents original issue discount. Subject to certain ownership limitations, the notes will be convertible at the option of the holder at any time into shares of our common stock at an effective conversion price equal 80% of the lowest closing price for the ten trading days prior to the day of the notice. The embedded beneficial conversion feature of these Notes meets the definition of a derivative and requires bifurcation and liability classification, at fair value. The fair value of the derivative liability as of the date of issuance was $59,985 and was recorded as a discount of the note. During September 2020 and October 2020, the entire note was converted into common stock. 

During the third quarter of 2021, the Company issued an aggregate of $2,239,500 of convertible notes payable to two investors. The notes are due within one year and bear 8% interest per annum. Subject to certain ownership limitations, the notes will be convertible at the option of the holder after 180 days, or in the event of a default. The embedded beneficial conversion feature of these Notes meets the definition of a derivative and requires bifurcation and liability classification, at fair value. The fair value of the derivative liability as of the date of issuance was $451,080 and was recorded as a discount of the note. The Company also issued 551,072 shares of common stock and granted warrants to purchase 2,007,917 shares of common stock at $0.60 per share. The value of the common stock and warrants were recorded as a discount of the note at fair value.

Paycheck Protection Program Loans

In April 2020, Regentys, Olaregen, NDS 2 and MediSource (collectively “the Subsidiaries”) were granted loans (the “PPP Loans”) in the aggregate amount of $499,473, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Subsidiaries to consider its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Subsidiaries having initially qualified for the loan and qualifying for the forgiveness of such loan based on its future adherence to the forgiveness criteria. On February 28, 2021, Regentys’ PPP loan was forgiven in the amount of $73,100 of principal and $601 of interest which is recognized as other income on the Statement of Operations.

The PPP Loans, which were in the form of a notes with dates ranging between April 17 and April 24, 2020 and mature between two and five years and bear interest at a rate of 1.00% per annum, payable in monthly payments commencing six months after loan disbursements. The notes may be prepaid by the Subsidiaries at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs and any payments of certain covered interest, lease and utility payments. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company is currently applying for forgiveness, but no assurance can be provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.

On March 17, 2021, Olaregen received an additional $125,200 of PPP loan under the same terms.

Compass Bank

Pursuant to the second closing of the acquisition of certain operating assets of Veneto Holdings, L.L.C. and its affiliates, Generex’ wholly owned subsidiary agreed to assume outstanding debt of Veneto subsidiaries to Compass Bank, including obligations under a term loan and a revolving line of credit. Claiming three separate types of default, Compass Bank has demanded payment in full of amounts due under the term loan and revolving line of credit, in an aggregate amount of approximately $3,413,000. Generex believes it has defenses to such demand, including that the bank was not an intended beneficiary of the subsidiary’s agreement to assume the debt.