Convertible Notes Payable to Related Parties

9 Months Ended

Apr. 30, 2025

Debt Disclosure [Abstract]

Convertible Notes Payable to Related Parties

5. Convertible Notes Payable to Related Parties

On September 16, 2024, the Company entered into a Note Purchase Agreement, or the 2025 Note Purchase Agreement, with certain accredited investors, or 2025 Lenders, pursuant to which the Company issued the Lenders convertible promissory notes, or the 2025 Notes, collectively with the 2025 Note Purchase Agreement, the 2025 Note Documents, with an aggregate principal balance of $500,000, or the 2025 Private Placement. The 2025 Note Documents provide for subsequent closings for an aggregate offering size of $3.0 million in principal balance. Tom Y. Lee, a member of the Company’s Board of Directors, or the Board, invested $500,000 in the 2025 Private Placement, through affiliates or directly. The disinterested members of the Board approved the 2025 Private Placement. 

During the nine months ended April 30, 2025, the Company issued additional 2025 Notes to Mr. Lee pursuant to the 2025 Note Purchase Agreement in subsequent closings with an aggregate principal of $1,250,000. As of April 30, 2025, $1,750,000 of principal was outstanding under the 2025 Note Documents.

The 2025 Note Documents provided that the interest to the 2025 Lenders shall accrue at rates between 6.79% and 7.88%, compounded annually. The Maturity Date (as defined in the 2025 Notes) of the 2025 Notes is the third-year anniversary of the date of issuance, or such earlier date as the 2024 Notes provide.

Conversion. All or any portion of the principal amount of the 2025 Notes, plus accrued and unpaid interest, is convertible at any time, in whole or in part, at a 2025 Lender’s or the Company’s option, into shares of the Company’s common stock at a conversion price equal to the 30-day volume-weighted average price of the Company’s common stock as reported on the market or exchange on which the Company’s common stock is listed or quoted for trading, or the VWAP, on the date of conversion on the last trading day prior to the date of conversion, provided that such conversion price is at least $0.095 per share and less than or equal to $0.175 per share, subject to certain customary adjustments. Additionally, at any time following September 16, 2025, the holders of a majority of the outstanding principal balance under the 2025 Notes may elect specified in writing to convert all of the 2025 Notes at a conversion price equal to the VWAP, provided that the conversion price is equal to at least $0.095 per share, subject to certain customary adjustments.

March and June 2024 Convertible Note Purchase Agreements

On March 22, 2024, the Company entered into a Note Purchase Agreement, or the 2024 Note Purchase Agreement, with certain accredited investors, or 2024 Lenders, pursuant to which the Company issued the Lenders convertible promissory notes, or the 2024 Notes, collectively with the 2024 Note Purchase Agreement, the 2024 Note Documents, with an aggregate principal balance of $500,000, or the 2024 Private Placement. Tom Y. Lee, a member of the Company’s Board, invested $500,000 in the 2024 Private Placement, through affiliates or directly.

On June 21, 2024, the Company issued an additional 2024 Note to Mr. Lee pursuant to the 2024 Note Purchase Agreement in a subsequent closing with an aggregate principal of $500,000. The disinterested members of the Board approved the 2024 Private Placement. As of April 30, 2025, $1,000,000 of principal was outstanding under the 2024 Note Documents.

The 2024 Note Documents provided that the interest to the 2024 Lenders shall accrue at the rate of 7.81%, compounded annually. The Maturity Date (as defined in the 2024 Notes) of the 2024 Notes is the third-year anniversary of the date of issuance, or such earlier date as the 2024 Notes provide.

Conversion. All or any portion of the principal amount of the 2024 Notes, plus accrued and unpaid interest, is convertible at any time, in whole or in part, at a 2024 Lender’s or the Company’s option, into shares of the Company’s common stock at a conversion price equal to the 30-day volume-weighted average price of the Company’s common stock as reported on the market or exchange on which the Company’s common stock is listed or quoted for trading, or the VWAP, on the date of conversion on the last trading day prior to the date of conversion, provided that such conversion price is at least $0.13 per share and less than or equal to $0.21 per share for the March 2024 Note and at least $0.115 per share and less than or equal to $0.195 per share for the June 2024 Note, subject to certain customary adjustments. Additionally, at any time following March 22, 2025, the holders of a majority of the outstanding principal balance under the 2024 Notes may elect specified in writing to convert all of the 2024 Notes at a conversion price equal to the VWAP, provided that the conversion price is equal to at least $0.115 and $0.13 per share, as discussed above, subject to certain customary adjustments.

July and October 2023 Convertible Note Purchase Agreements

In July, 2023, the Company entered into a Note Purchase Agreement, or the 2023 Note Purchase Agreement with certain accredited investors, or the 2023 Lenders, pursuant to which the Company issued the 2023 Lenders convertible promissory notes, or the 2023 Notes, collectively with the 2023 Note Purchase Agreement, or the 2023 Note Documents, with an aggregate principal balance of $1,015,000 the 2023 Private Placement. The 2023 Note Documents provide for subsequent closings for an aggregate offering size of $1.8 million in principal balance. Messrs. Tom Y. Lee and Ivan Chen, each a member of the Company’s Board invested $1,000,000 and $15,000, as of July 31, 2023, respectively in the 2023 Private Placement, through affiliates or directly. On October 20, 2023, we issued an additional 2023 Note to Mr. Lee pursuant to the 2023 Note Purchase Agreement in a subsequent closing with an aggregate principal of $785,000. The disinterested members of the Board approved the 2023 Private Placement. As of April 30, 2025, $1,800,000 of principal was outstanding under 2023 Note Documents.

The 2023 Note Documents provided that the interest to the Lender shall accrue at the rate of 7.55% and 7.81%, compounded annually, for the 2023 Notes issued in July 2023 and the October 2023 Note issued in October 2023, respectively. The Maturity Date (as defined in the Notes) of the 2023 Notes is the third-year anniversary of the date of issuance, or such earlier date as the 2023 Notes provide.

Conversion. All or any portion of the principal amount of the 2023 Notes, plus accrued and unpaid interest, is convertible at any time, in whole or in part, at a 2023 Lender’s or the Company’s option, into shares of the Company’s common stock at a conversion price equal to the VWAP on the date of conversion on the last trading day prior to the date of conversion, provided that such conversion price is at least $0.15 per share and less than or equal to $0.23 per share, subject to certain customary adjustments. Additionally, at any time following July 3, 2024, the holders of a majority of the outstanding principal balance under the 2023 Notes may elect specified in writing to convert all of the Notes at a conversion price equal to the VWAP, provided that the conversion price is equal to at least $0.15 per share, subject to certain customary adjustments.

Other terms of the Note Agreements.

Further, on all the notes discussed above, in the event of certain corporate transactions, all outstanding principal and unpaid accrued interest due on such Notes shall be automatically converted into conversion shares on the trading day immediately prior to the closing date of such corporate transaction. The number of shares to be issued upon such conversion shall be based on the VWAP on the last trading day prior to the public announcement of the execution of the definitive documents with respect to such transaction.

Events of Default. The Notes Documents provide for certain events of default that are typical for a transaction of this type, including, among other things, default in the payment of principal or interest for more than 30 days, the Company’s making an assignment for the benefit of creditors, within 15 days after the commencement of bankruptcy proceedings against the Company, or breach of certain covenants described below.

Covenants. The Company will be subject to certain customary covenants regarding the current public information, reservation of adequate share reserve, and maintenance of intellectual property rights, among other customary matters.

During the nine months ended April 30, 2025 and 2024, the Company recognized $200,000 and $94,000 of interest expense related to the 2025, 2024 and 2023 Notes, respectively. As of April 30, 2025, interest of $349,000 was added to the principal resulting in a balance owed of $4,899,000. In addition, as of April 30, 2025, the Notes and accrued interest were convertible into 39,452,645 shares of common stock.