NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – DESCRIPTION OF BUSINESS
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Rafael Holdings, Inc. (“Rafael Holdings”
or the “Company”), a Delaware corporation, owns interests in pre-clinical and clinical stage pharmaceutical companies
and commercial real estate assets. The assets are operated as two separate lines of business.
The pharmaceutical holdings include preferred
and common equity interests and a warrant to purchase additional equity interests in Rafael Pharmaceuticals, Inc., or Rafael Pharmaceuticals,
which is a clinical stage, oncology-focused pharmaceutical company committed to the development and commercialization of therapies
that exploit the metabolic differences between normal cells and cancer cells; and, a majority equity interest in LipoMedix Pharmaceuticals
Ltd., or LipoMedix, a clinical stage oncological pharmaceutical company based in Israel. In addition, in 2019, we established the
Barer Institute (“Barer”), a wholly-owned early stage venture focused on developing a pipeline of therapeutic compounds,
including compounds to regulate cancer metabolism. The venture is pursuing collaborative research agreements with leading scientists
from top academic institutions to develop other early stage ventures. In addition, we have recently initiated efforts to develop
other early stage pharmaceutical ventures.
The commercial real estate holdings consist
of a building at 520 Broad Street in Newark, New Jersey that serves as headquarters for the Company and certain other entities
and hosts other tenants and an associated 800-car public garage, an office/data center building in Piscataway, New Jersey (see
Note 18 for subsequent event) and a portion of a building in Israel.
On March 26, 2018, IDT Corporation, or
IDT, the former parent corporation of the Company, completed a tax-free spinoff (the “Spin-Off”) of the Company’s
capital stock, through a pro rata distribution of common stock to its stockholders of record as of the close of business on March
13, 2018. (See Note 13 for additional information on related party transactions.)
Basis of Presentation
The “Company” in these consolidated
financial statements refers to Rafael Holdings on a consolidated basis. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The Company’s fiscal year ends on
July 31 of each calendar year. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year
indicated (e.g., fiscal year 2020 refers to the fiscal year ended July 31, 2020).
The accompanying consolidated financial
statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in
the United States of America (“U.S. GAAP”).
All majority-owned subsidiaries are consolidated
with all intercompany transactions and balances being eliminated in consolidation or combination. The entities included in these
consolidated financial statements are as follows:
Company
|
|
Country of Incorporation
|
|
Percentage
Owned
|
|
Rafael Holdings, Inc.
|
|
United States – Delaware
|
|
|
100
|
%
|
Broad Atlantic Associates, LLC
|
|
United States – Delaware
|
|
|
100
|
%
|
IDT 225 Old NB Road, LLC
|
|
United States – Delaware
|
|
|
100
|
%
|
IDT R.E. Holdings Ltd.
|
|
Israel
|
|
|
100
|
%
|
Rafael Holdings Realty, Inc.
|
|
United States – Delaware
|
|
|
100
|
%
|
Barer Institute, Inc.
|
|
United States – Delaware
|
|
|
100
|
%
|
The Barer Institute, LLC
|
|
United States – Delaware
|
|
|
100
|
%
|
Hillview Avenue Realty, JV
|
|
United States – Delaware
|
|
|
100
|
%
|
Hillview Avenue Realty, LLC
|
|
United States – Delaware
|
|
|
100
|
%
|
Pharma Holdings, LLC
|
|
United States – Delaware
|
|
|
90
|
%
|
CS Pharma Holdings, LLC
|
|
United States – Delaware
|
|
|
45
|
%*
|
LipoMedix Pharmaceuticals Ltd.
|
|
Israel
|
|
|
67
|
%
|
|
*
|
50% of CS Pharma Holdings,
LLC is owned by Pharma Holdings, LLC. We have a 90% ownership in Pharma Holdings, LLC and, therefore, an effective 45% interest
in CS Pharma Holdings, LLC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenue and expenses
during the reporting periods. Actual results could differ significantly from those estimates.
Risks and Uncertainties - COVID-19
In December 2019, a new coronavirus, now
known as COVID-19, which has proved to be highly contagious, emerged in Wuhan, China and has since spread around the globe. The
Company actively monitors the outbreak and its potential impact on its operations and those of the Company’s holdings. Although
the Company’s operations are mainly in the United States, the Company has assets outside of the United States, and some of
the Company’s pharmaceutical holdings conduct operations, manufacturing and clinical trial activities in Europe and Asia.
The impacts on the operations and specifically
the ongoing clinical trials of our pharmaceutical holdings have been actively managed by respective pharmaceutical management teams
who have worked closely with the appropriate regulatory agencies to continue clinical trial activities with as minimal impact as
possible including receiving waivers for certain clinical trial activities from the respective regulatory agencies to continue
the studies.
The Company has granted a rent concession
to two of its retail tenants during the month of April. Additionally, one tenant has not paid rent in June and July 2020 due to
the New Jersey state gym closures; however, the Company does not believe this is recurring and believes that the rental revenues
will materially continue as the tenant has resumed paying original contractual rent payments. There is a general degree of uncertainty
in the national commercial real estate market based on the COVID-19 pandemic and as a result there is a potential impact to
the value of our real estate portfolio.
The Company has implemented a number of
measures to protect the health and safety of our workforce including a mandatory work-from-home policy for our workforce who can
perform their jobs from home as well as restrictions on business travel and workplace and in-person meetings.
Due to both known and unknown risks, including
quarantines, closures and other restrictions resulting from the outbreak, operations and those of the Company’s holdings
may be adversely impacted. Additionally, as there is an evolving nature to the COVID-19 situation, we cannot reasonably assess
or predict at this time the full extent of the negative impact that the COVID-19 pandemic may have on our business, financial condition,
results of operations and cash flows. The impact will depend on future developments such as the ultimate duration and the severity
of the spread of the COVID-19 pandemic in the U.S. and globally, the effectiveness of federal, state, local and foreign government
actions on mitigation and spread of COVID-19, the pandemic's impact on the U.S. and global economies, changes in our customers'
behavior emanating from the pandemic and how quickly we can resume our normal operations, among others. For all these reasons,
the Company may incur expenses or delays relating to such events outside of the Company’s control, which could have a material
adverse impact on the Company’s business.
Cash and Cash Equivalents
The Company considers all liquid investments
with an original maturity of three months or less when purchased to be cash equivalents.
Concentration of Credit Risk and Significant
Customers
The Company routinely assesses the financial
strength of its customers. As a result, the Company believes that its accounts receivable credit risk exposure is limited. For
the year ended July 31, 2020, related parties represented 52% of the Company’s revenue, respectively, and as of July 31,
2020, five customers represented 11%, 10%, 10%, 5%, and 4% of the Company’s accounts receivable balance, respectively. For
the year ended July 31, 2019, related parties and one other customer represented 53%, and 10% of the Company’s revenue,
respectively, and as of July 31, 2019, five customers represented 38%, 17%, 16%, 12%, and 7% of the Company’s accounts
receivable balance, respectively.
Allowance for Doubtful Accounts
The allowance for doubtful accounts reflects
the Company’s best estimate of probable losses inherent in the accounts receivable balance. The allowance is determined based
on known troubled accounts, historical experience and other currently available evidence. Doubtful accounts are written off upon
final determination that the trade accounts will not be collected. The computation of this allowance is based on the tenants’
or parking customers’ payment histories and current credit statuses, as well as certain industry or geographic specific credit
considerations. If the Company’s estimates of collectability differ from the cash received, then the timing and amount of
the Company’s reported revenue could be impacted. The credit risk is mitigated by the high quality of the Company’s
existing tenant base, inclusive of related parties, which represented 52% and 53% of the Company’s total revenue for the
years ended July 31, 2020 and 2019, respectively. The Company recorded bad debt expense of approximately $96,000 and $40,000
for the years ended July 31, 2020 and 2019, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investments
The method of accounting applied to long-term
investments, whether consolidated, equity or cost, involves an evaluation of the significant terms of each investment that explicitly
grant or suggest evidence of control or influence over the operations of the investee and also includes the identification of any
variable interests in which the Company is the primary beneficiary. The consolidated financial statements include the Company’s
controlled affiliates. All significant intercompany accounts and transactions between the consolidated affiliates are eliminated.
Investments in businesses that the Company
does not control, but in which the Company has the ability to exercise significant influence over operating and financial matters,
are accounted for using the equity method. Investments in which the Company does not have the ability to exercise significant influence
over operating and financial matters are accounted for using the cost method. The Company periodically evaluates its investments
for impairment due to declines considered to be other than temporary. If the Company determines that a decline in fair value is
other than temporary, then a charge to earnings is recorded in the accompanying consolidated statements of operations and comprehensive
loss, and a new basis in the investment is established.
Variable Interest Entities
In accordance with Accounting Standards
Codification (“ASC”) 810, Consolidation, the Company assesses whether it has a variable interest in legal entities
in which it has a financial relationship and, if so, whether or not those entities are variable interest entities (“VIEs”).
For those entities that qualify as VIEs, ASC 810 requires the Company to determine if the Company is the primary beneficiary of
the VIE, and if so, to consolidate the VIE.
If an entity is determined to be a VIE,
the Company evaluates whether the Company is the primary beneficiary. The primary beneficiary analysis is a qualitative analysis
based on power and economics. The Company consolidates a VIE if both power and benefits belong to the Company – that is,
the Company (i) has the power to direct the activities of a VIE that most significantly influence the VIE’s economic performance
(power), and (ii) has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially
be significant to the VIE (benefits). The Company consolidates VIEs whenever it is determined that the Company is the primary beneficiary.
Cost Method Investments - Rafael
Pharmaceuticals (see Note 2) is a VIE; however, the Company has determined that it is not the primary beneficiary as the Company
does not have the power to direct the activities of Rafael Pharmaceuticals that most significantly impact Rafael Pharmaceuticals’
economic performance. Cost method investments are presented as “Investments - Rafael Pharmaceuticals.”
Equity Method Investments - RP Finance,
LLC (“RP Finance”), (see Note 4), has been identified as a VIE; however, the Company has determined that it is not
the primary beneficiary as the Company does not have the power to direct the activities of RP Finance that most significantly impact
RP Finance’s economic performance and, therefore, is not required to consolidate RP Finance. The Company accounts for its
investment in RP Finance using the equity method of accounting.
Long-Lived Assets
Equipment, buildings, leasehold improvements,
and furniture and fixtures are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives,
which range as follows:
Classification
|
|
Years
|
Building and improvements
|
|
40
|
Tenant improvements
|
|
7-15
|
Other (primarily equipment and furniture and fixtures)
|
|
5
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company tests the recoverability of
its long-lived assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of
the asset may not be recoverable. The Company tests for recoverability based on the projected undiscounted cash flows to be derived
from such asset. If the projected undiscounted future cash flows are less than the carrying value of the asset, the Company will
record an impairment loss, if any, based on the difference between the estimated fair value and the carrying value of the asset.
The Company generally measures fair value by considering sale prices for similar assets or by discounting estimated future cash
flows from such asset using an appropriate discount rate. Cash flow projections and fair value estimates require significant estimates
and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record
impairments in future periods and such impairments could be material.
Properties
The Company owns commercial real estate
located at 520 Broad Street in Newark, New Jersey, and a related 800-car public parking garage across the street, as well as a
building located at 225 Old New Brunswick Road in Piscataway, New Jersey (see Note 18 for subsequent event). Additionally, the
Company owns a portion of the 6th floor of a building located at 5 Shlomo Halevi Street, Har Hotzvim, in Jerusalem, Israel.
Revenue Recognition
In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers
(Topic 606), or ASU 2014-09. The objective of the ASU is to establish a single comprehensive model for entities to use in accounting
for revenue arising from contracts with customers, which supersedes most of the existing revenue recognition guidance, including
industry-specific guidance. The core principle is that an entity should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. In applying the ASU, companies will perform a five-step analysis of transactions to determine when and
how revenue is recognized. The five-step analysis consists of the following: (i) identifying the contract with a customer, (ii)
identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction
price to the performance obligations in the contract and (v) recognizing revenue when (or as) the entity satisfies a performance
obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB’s
ASC. The Company adopted ASU 2014-09 effective August 1, 2018 using the modified retrospective approach. The Company reviewed all
contracts that were not completed as of August 1, 2018 and the adoption did not have a material impact on the Company’s consolidated
financial statements.
The Company disaggregates its revenue by
source within its consolidated statements of operations and comprehensive loss. As an owner and operator of real estate, the Company
derives the majority of its revenue from leasing office and parking space to tenants at its properties. In addition, the Company
earns revenue from recoveries from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes
and other recoverable costs. Revenue from recoveries from tenants is recorded together with rental income on the consolidated statements
of operations and comprehensive loss which is also consistent with the guidance under ASC 842, Leases.
Contractual rental revenue is reported
on a straight-line basis over the terms of the respective leases. Accrued rental income, included within other assets on the consolidated
balance sheets, represents cumulative rental income earned in excess of rent payments received pursuant to the terms of the individual
lease agreements.
The Company also earns revenue from parking
which is derived primarily from monthly and transient daily parking. The monthly and transient daily parking revenue falls within
the scope of ASC 606 and is accounted for at the point in time when control of the goods or services transfers to the customer
and the Company’s performance obligation is satisfied, consistent with the Company’s previous accounting.
The Company maintains an allowance for
doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments or parking customers
to pay amounts due.
Research and Development Costs
Research and development costs and expenses
consist primarily of salaries and related personnel expenses, stock-based compensation, fees paid to external service providers,
laboratory supplies, costs for facilities and equipment, license costs, and other costs for research and development activities.
Research and development expenses are recorded in operating expenses in the period in which they are incurred. Estimates have been
used in determining the liability for certain costs where services have been performed but not yet invoiced. The Company monitors
levels of performance under each significant contract for external service providers, including the extent of patient enrollment
and other activities through communications with the service providers to reflect the actual amount expended.
Contingent milestone payments associated
with acquiring rights to intellectual property are recognized when probable and estimable. These amounts are expensed to research
and development when there is no alternative future use associated with the intellectual property.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Repairs and Maintenance
The Company charges the cost of repairs
and maintenance, including the cost of replacing minor items not constituting substantial betterment, to selling, general and administrative
expenses as these costs are incurred.
Stock-Based Compensation
The Company accounts for stock-based compensation
using the provisions of ASC 718, Stock Based Compensation, which requires the recognition of the fair value of stock-based
compensation. Stock-based compensation is estimated at the grant date based on the fair value of the awards. The Company accounts
for forfeitures as they occur. Compensation cost for awards is recognized using the straight-line method over the vesting period.
Stock-based compensation is included in selling, general and administrative expense in the consolidated statements of operations
and comprehensive loss.
Income Taxes
The Company recognizes deferred tax assets
and liabilities for the future tax consequences attributable to temporary differences between the financial statements carrying
amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely
than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets
depends on the generation of future taxable income during the period in which related temporary differences become deductible.
The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies
in its assessment of a valuation allowance. Deferred tax assets and liabilities are measured using the enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date of such change.
The Company uses a two-step approach for
recognizing and measuring tax benefits taken or expected to be taken in a tax return. The Company determines whether it is more-likely-than-not
that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based
on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold,
the Company presumes that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant
information. Tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount of tax
benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater
than 50% likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts
recognized in the financial statements will generally result in one or more of the following: an increase in a liability for income
taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset, or an increase in a deferred
tax liability.
The Company classifies interest and penalties
on income taxes as a component of income tax expense, if any.
Contingencies
The Company accrues for loss contingencies
when both (a) information available prior to issuance of the financial statements indicates that it is probable that a liability
had been incurred at the date of the financial statements and (b) the amount of loss can reasonably be estimated. When the
Company accrues for loss contingencies and the reasonable estimate of the loss is within a range, the Company records its best
estimate within the range. When no amount within the range is a better estimate than any other amount, the Company accrues the
minimum amount in the range. The Company discloses an estimated possible loss or a range of loss when it is at least reasonably
possible that a loss may have been incurred.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements
Fair value of financial and non-financial
assets and liabilities is defined as an exit price, which is the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs
used to measure fair value, which prioritizes the inputs to valuation techniques used to measure fair value, is as follows:
Level 1 quoted prices in active
markets for identical assets or liabilities;
Level 2 quoted prices in active
markets for similar assets and liabilities and inputs that are observable for the asset or liability; or
Level 3 unobservable inputs for
the asset or liability, such as discounted cash flow models or valuations.
A financial asset’s or liability’s
classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation
of the assets and liabilities being measured and their placement within the fair value hierarchy.
Functional Currency
The U.S. Dollar is the functional currency
of our entities operating in the United States. The functional currency for our subsidiary operating outside of the United States
is the New Israeli Shekel, the currency of the primary economic environment in which the subsidiary primarily expends cash. The
Company translates that subsidiary’s financial statements into U.S. Dollars. The Company translates assets and liabilities
at the exchange rate in effect as of the consolidated financial statement date, and translates accounts from the statements of
operations and comprehensive loss using the weighted average exchange rate for the period. The Company reports gains and losses
from currency exchange rate changes related to intercompany receivables and payables, currently in non-operating expenses.
Loss Per Share
Basic loss per share is computed by dividing
net loss attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes
of common stock outstanding during the applicable period. Diluted loss per share is determined in the same manner as basic loss
per share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture and to
assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase would
be anti-dilutive.
Recently Issued Accounting Standards
Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, that changes
the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities
will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition
of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in
a manner similar to current practice, except the losses will be recognized as allowances instead of reductions in the amortized
cost of the securities. In addition, an entity will have to disclose significantly more information about allowances, credit quality
indicators and past due securities. The new standard is effective for fiscal years beginning after December 15, 2022, including
interim periods within those fiscal years, and will be applied as a cumulative-effect adjustment to retained earnings. The Company
is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements and intends
to adopt the standard on August 1, 2023.
Recently Adopted Accounting Pronouncements
The FASB issued ASU 2016-02, Leases
(Topic 842) in February 2016. The new standard, as amended by subsequent accounting updates thereto, replaces historical lease
accounting guidance and requires lessees to account for a lease by recognizing right-of-use (“ROU”) asset and corresponding
lease liability on the balance sheet. Lessor accounting under Topic 842 is largely unchanged from historical U.S. GAAP and generally
aligns with accounting for revenue from contracts with customers (Topic 606).
The Company initially adopted the new lease
accounting standard as of August 1, 2019 and elected the optional transition method to apply the new standard prospectively. The
Company elected the package of transition practical expedients and, therefore, did not reassess: (1) whether any expired or existing
contracts are or contain leases; (2) lease classification for any expired or existing leases; and (3) initial direct costs for
any existing leases. Further, as of July 31, 2020, the Company was not a lessee under any leasing arrangements, which had, and
will have, the following impacts on the Company:
Topic 842 changed certain requirements
regarding the classification of leases that could result in the Company recognizing certain long-term leases entered into or modified
after August 1, 2019 as sales-type leases, as opposed to operating leases.
The Company did not have a cumulative-effect
adjustment as of the adoption date.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company elected the practical expedient
to not separate certain non-lease components from the lease component to which they relate because the timing and pattern of transfer
for the lease components and non-lease components are the same and the related lease component is classified as an operating lease.
As a result, the Company continues to present all rentals and reimbursements from tenants as a single line item rental income within
the consolidated statements of operations and comprehensive loss. No reclassifications to prior periods for comparability were
required.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,
which required us to prospectively record changes in the fair value of our equity investments, except for those accounted for under
the equity method, in net income instead of in accumulated other comprehensive income. The Company implemented ASU 2016-01 in the
first quarter of fiscal 2019 effective August 1, 2018. A cumulative-effect adjustment was recorded as of August 1, 2018 to reclassify
approximately $39,000 of unrealized loss on equity securities from accumulated other comprehensive loss to accumulated deficit
resulting in prior periods no longer being comparable.
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Accumulated
Deficit
|
|
|
|
(in thousands)
|
|
Balance at July 31, 2018
|
|
$
|
4,043
|
|
|
$
|
(1,108
|
)
|
Impact from adoption of ASU 2016-01
|
|
|
39
|
|
|
|
(39
|
)
|
Balance at August 1, 2018
|
|
$
|
4,082
|
|
|
$
|
(1,147
|
)
|
NOTE 2 – INVESTMENT IN RAFAEL
PHARMACEUTICALS
Rafael Pharmaceuticals is a clinical stage,
oncology-focused pharmaceutical company committed to the development and commercialization of therapies that exploit the metabolic
differences between normal cells and cancer cells.
The Company owns equity interests and rights
in Rafael Pharmaceuticals through a 90%-owned non-operating subsidiary, Pharma Holdings, LLC, or Pharma Holdings.
Pharma Holdings owns 50% of CS Pharma Holdings, LLC (“CS
Pharma”), a non-operating entity that owns equity interests in Rafael Pharmaceuticals. Accordingly, the Company holds an
effective 45% indirect interest in the assets held by CS Pharma.
Howard Jonas, Chairman of the Board and
Chief Executive Officer of the Company, and Chairman of the Board of Rafael Pharmaceuticals, owns 10% of Pharma Holdings.
Pharma Holdings holds 36.7 million shares
of Rafael Pharmaceuticals Series D Convertible Preferred Stock and a warrant to increase ownership to up to 56% of the fully diluted
equity interests in Rafael Pharmaceuticals (the “Warrant”). The Warrant is exercisable at the lower of 70% of the price
sold in an equity financing, or $1.25 per share, subject to certain adjustments, and will expire upon the earlier of June 30, 2021,
a qualified initial public offering, or liquidation event of Rafael Pharmaceuticals.
On March 25, 2020, the Board of Directors of
Rafael Pharmaceuticals extended the expiration date of the Warrant held by Pharma Holdings to purchase shares of the Warrant from
December 31, 2020 to June 30, 2021 and on August 31, 2020 the Board of Directors of Rafael Pharmaceuticals further extended the
expiration date of the Warrant held by Pharma Holdings, LLC to purchase shares of the Warrant to August 15, 2021.
Pharma Holdings also holds certain governance rights in Rafael
Pharmaceuticals including appointment of directors.
CS Pharma holds 16.7 million shares of
Rafael Pharmaceuticals Series D Convertible Preferred Stock. CS Pharma owned a $10 million Series D Convertible Note, with 3.5%
interest, in Rafael Pharmaceuticals which was converted in January 2019.
The Company and its subsidiaries collectively
own securities representing 51% of the outstanding capital stock of Rafael Pharmaceuticals and 37% of the capital stock on a fully
diluted basis (excluding the remainder of the Warrant).
The Series D Convertible Preferred Stock
has a stated value of $1.25 per share (subject to appropriate adjustment to reflect any stock split, combination, reclassification
or reorganization of the Series D Preferred Stock or any dilutive issuances, as described below). Holders of Series D Stock are
entitled to receive non-cumulative dividends when, as and if declared by the board of Rafael Pharmaceuticals, prior to any dividends
to any other class of capital stock of Rafael Pharmaceuticals. In the event of any liquidation, dissolution or winding up of the
Company, or in the event of any deemed liquidation, proceeds from such liquidation, dissolution or winding up shall be distributed
first to the holders of Series D Stock. Except with respect to certain major decisions, or as required by law, holders of Series
D Stock vote together with the holders of the other preferred stock and common stock and not as a separate class.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company serves as the managing member
of Pharma Holdings, and Pharma Holdings serves as the managing member of CS Pharma, with broad authority to make all key decisions
regarding their respective holdings. Any distributions that are made to CS Pharma from Rafael Pharmaceuticals that are in turn
distributed by CS Pharma, will need to be made pro rata to all members, which would entitle Pharma Holdings to 50% (based on current
ownership) of such distributions. Similarly, if Pharma Holdings were to distribute proceeds it receives from CS Pharma, it would
do so on a pro rata basis, entitling the Company to 90% (based on current ownership) of such distributions.
The Company evaluated its investments in
Rafael Pharmaceuticals in accordance with ASC 323, Investments - Equity Method and Joint Ventures, to establish the appropriate
accounting treatment for its investment and has concluded that its investment did not meet the criteria for the equity method of
accounting or consolidation and is carried at cost.
Rafael Pharmaceuticals is a VIE; however,
the Company has determined that it is not the primary beneficiary as it does not have the power to direct the activities of Rafael
Pharmaceuticals that most significantly impact Rafael Pharmaceuticals’ economic performance. In addition, the interests held
in Rafael Pharmaceuticals are Series D Convertible Preferred Stock and do not represent in-substance common stock.
Howard Jonas has additional contractual
rights to receive additional Rafael Pharmaceutical shares (“Bonus Shares”) for an additional 10% of the fully diluted
capital stock of Rafael Pharmaceuticals upon the achievement of certain milestones. The additional 10% is based on the fully diluted
capital stock of Rafael Pharmaceuticals, excluding the remainder for the Warrant, at the time of issuance. If any of the milestones
are met, the Bonus Shares are to be issued without any additional payment. Howard Jonas has the right to transfer the Bonus Shares,
in his discretion, to others, including those who are instrumental to the future success of Rafael Pharmaceuticals.
The Company holds a Warrant to purchase a significant
stake in Rafael Pharmaceuticals, as well as other equity and governance rights in Rafael Pharmaceuticals, which the Company can’t
exercise, in full, at this time and may never be able to exercise. The Company currently own 51% of the issued and outstanding
equity in Rafael Pharmaceuticals. Approximately 8% of the issued and outstanding equity is owned by the Company’s subsidiary
CS Pharma and 42% is held by the Company’s subsidiary Pharma Holdings. The Company’s subsidiary Pharma Holdings holds
a non-dilutive option to increase the Company’s total ownership to 56%. Based on the current shares issued and outstanding
of Rafael Pharmaceuticals as of July 31, 2020, the Company, and the Company’s affiliates, would need to pay approximately
$16 million to exercise the Warrant in full. On an as-converted fully diluted basis (for all convertible securities of Rafael Pharmaceuticals
outstanding), the Company, and the Company’s affiliates would need to pay approximately $104 million to exercise the Warrant
in full including additional issuances under the Line of Credit. Howard Jonas holds 10% of the interest in Pharma Holdings and
would need to contribute 10% of any cash necessary to exercise any portion of the Warrant. Following any exercise, a portion of
the Company’s interest in Rafael Pharmaceuticals would continue to be held for the benefit of the other equity holders in
Pharma Holdings and CS Pharma. Given the Company’s anticipated available cash, the Company would not be able to exercise
the Warrant in its entirety and the Company may never be able to exercise the Warrant in full. Rafael Pharmaceuticals may also
issue additional equity interests, such as stock options, which will require the Company to pay additional cash to maintain the
Company’s ownership percentage or exercise the Warrant in full.
NOTE 3 – INVESTMENT IN ALTIRA
The Company entered into a Membership Interest
Purchase Agreement (the “Purchase Agreement”) on May 13, 2020 with a member (the “Seller”) of Altira Capital
& Consulting, LLC (“Altira”). Pursuant to the Purchase Agreement, on May 13, 2020, the Seller sold the economic
rights related to a 33.333% membership interest in Altira to the Company and in effect the Company purchased the potential right
to receive a 1% royalty on Net Sales (as defined in the Altira Royalty Agreement) on sales of certain Rafael Pharmaceutical products.
The purchase consideration for the purchase of the membership interest consists of 1) $1,000,000 payable monthly in four equal
installments of $250,000 each; 2) payment of $3,000,000 due on January 3, 2021; 3) $3,000,000 due within fifteen (15) days of the
interim data analysis in Rafael Pharmaceutical’s Phase 3 pivotal trial (AVENGER 500®) of CPI-613®
(devimistat) which is currently estimated to be on or about October 31, 2020; and 4) payment of $3,000,000 which is due within
one-hundred and twenty (120) days from the date that Rafael Pharmaceuticals files a new drug application with the U.S. Food and
Drug Administration for approval of devimistat (CPI-613) as a first in-line therapy for pancreatic cancer, as defined within the
Purchase Agreement. The post-closing payments are to be made, at the Company’s discretion, in cash or shares of the Company’s
Class B common stock based on the ten days average share price of the Company’s Class B common stock prior to the date of
payment or any combination thereof.
The Company has accounted for the purchase
of the 33.333% membership interest in Altira as an equity method investment in accordance with the guidance in ASC 323, Investments
– Equity Method and Joint Ventures. The Company determined that a 33.333% membership interest in Altira indicates that the
Company is able to exercise significant influence over Altira, and the Company's membership interest is considered to be "more
than minor" in accordance with the guidance. The cost of the investment was determined to be $4,000,000 pursuant to the terms
of the Purchase Agreement. The contingent consideration, as described within the Purchase Agreement, in the amount of $6,000,000,
will be recognized when the payments are considered probable.
During the year ended July 31, 2020, the
Company paid the Seller $500,000 in cash, and has recorded the remaining payments due to the Seller of $3,500,000 as a current
liability. Furthermore, the Company has identified an other than temporary impairment (“OTTI”) of the equity method
investment based on the guidance at ASC 323, and has determined that the investment is fully impaired and has recorded an impairment
charge of $4,000,000, which is the total amount of the investment in Altira. The assets and operations of Altira are not significant,
and the Company has identified the equity investment in Altira as a related party transaction (see Note 13).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – INVESTMENT IN RP FINANCE, LLC
On February 3, 2020, Rafael Pharmaceuticals
entered into a Line of Credit Loan Agreement (“Line of Credit Agreement”) with RP Finance which provides a revolving
commitment of up to $50,000,000 to fund clinical trials and other capital needs.
The Company owns 37.5% of the equity interests
in RP Finance and is required to fund 37.5% of funding requests from Rafael Pharmaceuticals under the Line of Credit Agreement.
Howard Jonas owns 37.5% of the equity interests in RP Finance, and is required to fund 37.5% of funding requests from Rafael Pharmaceuticals
under the Line of Credit Agreement. The remaining 25% equity interests in RP Finance is owned by other shareholders of Rafael Pharmaceuticals.
Under the Line of Credit Agreement, all
funds borrowed will bear interest at the mid-term Applicable Federal Rate published by the U.S. Internal Revenue Service. The maturity
date is the earlier of February 3, 2025, upon a change of control of Rafael Pharmaceuticals or a sale of Rafael Pharmaceuticals
or its assets. Rafael Pharmaceuticals can draw on the facility on 60 days’ notice. The funds borrowed under the Line of Credit
Agreement must be repaid out of certain proceeds from equity sales by Rafael Pharmaceuticals.
In connection with entering into the Line
of Credit Agreement, Rafael Pharmaceuticals agreed to issue to RP Finance shares of its common stock representing 12% of the issued
and outstanding shares of Rafael Pharmaceuticals common stock, with such interest subject to anti-dilution protection as set forth
in the Line of Credit Agreement.
RP Finance has been identified as a VIE;
however, the Company has determined that it is not the primary beneficiary as the Company does not have the power to direct the
activities of RP Finance that most significantly impact RP Finance’s economic performance and, therefore, is not required
to consolidate RP Finance. Therefore, we will use the equity method of accounting to record our investment in RP Finance. The Company
has recognized approximately $192 thousand and $0 in income from its ownership interests of 37.5% in RP Finance for the years ended
July 31, 2020 and 2019, respectively. The assets and operations of RP Finance are not significant, and the Company has identified
the equity investment in RP Finance as a related party transaction (see Note 13).
NOTE 5 – INVESTMENT IN LIPOMEDIX PHARMACEUTICALS LTD.
LipoMedix is a clinical-stage, privately
held Israeli company focused on the development of an innovative, safe and effective cancer therapy based on liposome delivery.
The Company holds 67% of the issued and outstanding
ordinary shares of LipoMedix and has consolidated this investment from the second quarter of fiscal 2018.
In July 2018, the Company provided no-interest
bridge financing of $875,000 to LipoMedix (the “2018 Bridge Note”), which was converted into 1,650,943 shares of LipoMedix
on January 20, 2020 in accordance with its terms, thereby increasing the Company’s ownership from 52% to 58%.
In April 2019, the Company provided no-interest
bridge financing of $250,000 to LipoMedix (the “2019 Bridge Note”). The 2019 Bridge Note is automatically convertible
into shares of LipoMedix as follows: (i) upon an issuance of an aggregate $2.0 million of additional equity securities (excluding
the conversion of the Bridge Notes); or (ii) upon a liquidation or dissolution of LipoMedix or a sale of LipoMedix or its assets.
If converted, the 2019 Bridge Note will be converted into shares of the most senior class of equity of LipoMedix then issued. If
converted upon an equity financing, the 2019 Bridge Note will be converted at a conversion price per share that is equal to 75%
of the price paid in the equity offering. If converted upon a liquidation or sale event, the 2019 Bridge Note will be converted
at a conversion price per share that is equal to 75% of the per share distribution received by LipoMedix equity holders in connection
with the event or if greater the Company will receive a payment equal to the 2019 Bridge Note ($250,000). If none of such events
occurs prior to September 28, 2019, the 2019 Bridge Note will be converted into the most senior class of shares LipoMedix has then
issued at a conversion price per share equal to $0.53 (calculated on the basis of LipoMedix’s pre-money valuation of $5.0
million). The 2019 Bridge Note converted into 471,698 shares of LipoMedix on September 28, 2019.
In November 2019, the Company provided
bridge financing in the principal amount of $100,000 to LipoMedix with a maturity date of May 3, 2020 and an interest rate of 6%.
Under the terms of the note, as long as it remains outstanding, LipoMedix may not incur any additional debt, make any shareholder
distributions, or assume any liens on property or assets.
In January 2020, the Company provided bridge
financing in the principal amount of $125,000 to LipoMedix with a maturity date of May 3, 2020 and an interest rate of 6%. Under
the terms of the note, as long as it remains outstanding, LipoMedix may not incur any additional debt, make any shareholder distributions,
or assume any liens on property or assets.
In March 2020, the Company provided bridge
financing in the principal amount of $75,000 to LipoMedix with a maturity date of April 20, 2020 and an interest rate of 10%. Under
the terms of the note, as long as it remains outstanding, LipoMedix may not incur any additional debt, make any shareholder distributions,
or assume any liens on property or assets.
On May 20, 2020, the Company entered into a
Share Purchase Agreement with LipoMedix to purchase 4,000,000 ordinary shares of LipoMedix for an aggregate purchase price of $1,000,000.
The purchase consideration consists of the outstanding Promissory Notes between the Company and LipoMedix dated November 13, 2019,
January 21, 2020 and March 27, 2020 in the total principal amount of $300,000 plus accrued interest, for an aggregate amount of
$306,737, and $693,263 of cash, thereby increasing the Company’s ownership from 58% to 67%.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – MARKETABLE SECURITIES
During fiscal 2019, all marketable securities
held by the Company were liquidated in connection with the partial exercise of the Rafael Pharmaceuticals Warrant. There were no
marketable securities held by the Company as of July 31, 2020 and 2019.
Proceeds from maturities and sales of available-for-sale
securities were $25.0 million in fiscal year 2019. The gross realized gains that were included in earnings as a result of sales
totaled $330,000 in fiscal year 2019. There were no gross realized losses that were included in earnings as a result of sales in
fiscal year 2019. The Company uses the specific identification method in computing the gross realized gains and gross realized
losses on the sales of marketable securities.
NOTE 7 – FAIR VALUE MEASUREMENTS
The Fair Value Measurements and Disclosures
topic of the FASB ASC requires disclosures about how fair value is determined for assets and liabilities and a hierarchy for which
these assets and liabilities must be grouped is established, based on significant levels of inputs as follows:
Level 1 quoted prices in active
markets for identical assets or liabilities;
Level 2 quoted prices in active
markets for similar assets and liabilities and inputs that are observable for the asset or liability; or
Level 3 unobservable inputs for
the asset or liability, such as discounted cash flow models or valuations.
The determination of where assets and liabilities
fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following is a listing of the Company’s
assets required to be measured at fair value on a recurring basis and where they are classified within the fair value hierarchy
as of July 31, 2020 and July 31, 2019:
|
|
At July 31, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
Hedge Funds
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,510
|
|
|
$
|
7,510
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,510
|
|
|
$
|
7,510
|
|
|
|
July 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
Hedge Funds
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,125
|
|
|
$
|
5,125
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,125
|
|
|
$
|
5,125
|
|
At July 31, 2020 and July 31,
2019, the Company did not have any liabilities measured at fair value on a recurring basis.
The following table summarizes the change
in the balance of the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs
(Level 3):
|
|
At July 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Balance, beginning of period
|
|
$
|
5,125
|
|
|
$
|
12,118
|
|
Conversion of Series D Convertible Note
|
|
|
—
|
|
|
|
(7,900
|
)
|
Total gain included in earnings
|
|
|
2,385
|
|
|
|
907
|
|
Balance, end of period
|
|
$
|
7,510
|
|
|
$
|
5,125
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The September 2016 Series D Convertible
Note was converted into shares of Series D Convertible Preferred Stock of Rafael Pharmaceuticals in January 2019.
Prior to the Spin-Off, IDT contributed
$2.0 million in investments in securities in another entity that are not liquid, which were included in Investments - Other Pharmaceuticals
in the accompanying consolidated balance sheets. The investment is accounted for under ASC 321, Investments - Equity Securities,
using the measurement alternative as defined within the guidance, and the Company recorded an impairment loss of $0.8 million and
$0 for the years ended July 30, 2020 and 2019, respectively.
Fair Value of Other Financial Instruments
The estimated fair value of the Company’s
other financial instruments was determined using available market information or other appropriate valuation methodologies. However,
considerable judgment is required in interpreting these data to develop estimates of fair value. Consequently, the estimates are
not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
Cash and cash equivalents, prepaid expense
and other current assets, and accounts payable. At July 31, 2020 and July 31, 2019, the carrying amount of these
assets and liabilities approximated fair value because of the short period of time to maturity. The fair value estimates for cash
and cash equivalents were classified as Level 1 and other current assets, and other current liabilities were classified as Level
2 of the fair value hierarchy.
Other assets and other liabilities. At
July 31, 2020 and July 31, 2019, the carrying amount of these assets and liabilities approximated fair value. The fair
values were estimated based on the Company’s assumptions, which were classified as Level 3 of the fair value hierarchy.
Hedge funds classified as Level 3 include
investments and securities which may not be based on readily observable data inputs. The availability of observable inputs can
vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether
the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular
to the security. The fair value of these assets is estimated based on information provided by the fund managers or the general
partners. Therefore, these assets are classified as Level 3.
The Company’s financial instruments
include trade accounts receivable, trade accounts payable, and due from related parties. The recorded carrying amounts of trade
accounts receivable, trade accounts payable and due from related parties approximate their fair value due to their short-term nature.
Other than noted above, the Company did not have any other assets or liabilities that were measured at fair value on a recurring
basis as of July 31, 2020 or July 31, 2019.
NOTE 8 – TRADE ACCOUNTS RECEIVABLE
Trade Accounts Receivable consisted of
the following:
|
|
July 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Trade Accounts Receivable
|
|
$
|
364
|
|
|
$
|
561
|
|
Accounts Receivable - Related Party
|
|
|
121
|
|
|
|
11
|
|
Less Allowance for Doubtful Accounts
|
|
|
(218
|
)
|
|
|
(122
|
)
|
Trade Accounts Receivable, net
|
|
$
|
267
|
|
|
$
|
450
|
|
The current portion of deferred rental
income included in prepaid expenses and other current assets was approximately $11 thousand and $34 thousand as of July 31,
2020 and July 31, 2019, respectively.
The noncurrent portion of deferred rental
income included in Other Assets was approximately $1.5 million and $1.4 million as of July 31, 2020 and July 31, 2019,
respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
At July 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Building and Improvements
|
|
$
|
47,591
|
|
|
$
|
54,241
|
|
Land
|
|
|
10,412
|
|
|
|
10,412
|
|
Furniture and Fixtures
|
|
|
1,145
|
|
|
|
1,145
|
|
Other
|
|
|
256
|
|
|
|
255
|
|
|
|
|
59,404
|
|
|
|
66,053
|
|
Less Accumulated Depreciation
|
|
|
(14,971
|
)
|
|
|
(17,320
|
)
|
Total
|
|
$
|
44,433
|
|
|
$
|
48,733
|
|
Other property and equipment consist of
other equipment and miscellaneous computer hardware.
Depreciation expense pertaining
to property and equipment was approximately $1.9 million and $1.8 million for the years ended July 31, 2020 and 2019, respectively.
NOTE 10 – INCOME TAXES
On December 22, 2017, the U.S. government
enacted “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for
fiscal Year 2018”, which is commonly referred to as “The Tax Cuts and Jobs Act” (the “Tax Act”).
The Tax Act provides for comprehensive tax legislation that, among other things, reduces the U.S. federal statutory corporate tax
rate from 35.0% to 21.0% effective January 1, 2018, broadens the U.S. federal income tax base, requires companies to pay a one-time
repatriation tax on earnings of certain foreign subsidiaries that were previously tax deferred (“transition tax”),
and creates new taxes on certain foreign sourced earnings.
The Company has completed its accounting
for the income tax effects of the enactment of the Tax Act. At July 31, 2019, the Company did not have any undistributed earnings
of its foreign subsidiaries. As a result, no additional income or withholding taxes were provided for, for the undistributed earnings
or any additional outside basis differences inherent in the foreign entities. The Company reviewed the global intangible low taxed
income (“GILTI”) and base erosion anti-abuse tax (“BEAT”) that became effective August 1, 2018 and has
not recorded any impact associated with either.
At July 31, 2020, the Company has federal
net operating loss (“NOL”) carryforwards from domestic operations of approximately $32.7 million, to offset future
taxable income. The Company has state NOLs of $13.6 million. The Company has NOLs from foreign operations of $2.4 million. As part
of the Tax Act, federal NOLs generated in 2018 and later are not subject to an expiration period and are available to offset 80%
of taxable income in the year in which they are utilized. The federal NOL carryforwards generated prior to 2018 will begin to expire
in 2026. The state NOLs will begin to expire in 2038 and foreign NOLs do not expire.
The Company anticipates that its assumptions
and estimates may change as a result of future guidance and interpretation from the Internal Revenue Service, the SEC, the FASB,
and various other taxing jurisdictions. In particular, the Company anticipates that the U.S. state jurisdictions will continue
to determine and announce their conformity with or decoupling from the Tax Act, either in its entirety or with respect to specific
provisions. Legislative and interpretive actions could result in adjustments to the Company’s provisional estimates when
the accounting for the income tax effects of the Tax Act is completed.
The components of loss before income taxes
are as follows:
|
|
For the Year Ended July 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Domestic
|
|
$
|
(10,239
|
)
|
|
$
|
(3,410
|
)
|
Foreign
|
|
|
(704
|
)
|
|
|
(1,533
|
)
|
Loss before income taxes
|
|
$
|
(10,943
|
)
|
|
$
|
(4,943
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Provision for) benefit from income taxes as presented in the
consolidated statements of operations and comprehensive loss consisted of the following:
|
|
For the Year Ended July 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Current:
|
|
|
|
|
|
|
Foreign
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
Federal
|
|
|
(9
|
)
|
|
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
Total current expense
|
|
|
(11
|
)
|
|
|
—
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(18
|
)
|
|
|
19
|
|
Federal
|
|
|
—
|
|
|
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
Total deferred expense
|
|
|
(18
|
)
|
|
|
19
|
|
(Provision for) benefit from income taxes
|
|
$
|
(29
|
)
|
|
$
|
19
|
|
The differences between income taxes expected
at the U.S. federal statutory income tax rate and income taxes are reported as follows:
|
|
At July 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
U.S. federal income tax at statutory rate
|
|
$
|
2,298
|
|
|
$
|
908
|
|
State income tax
|
|
|
662
|
|
|
|
172
|
|
Valuation allowance
|
|
|
(3,007
|
)
|
|
|
30
|
|
Foreign tax rate differential
|
|
|
11
|
|
|
|
24
|
|
Tax law change
|
|
|
—
|
|
|
|
—
|
|
Permanent differences
|
|
|
(2
|
)
|
|
|
(102
|
)
|
Rate Change
|
|
|
—
|
|
|
|
(1,030
|
)
|
Other
|
|
|
9
|
|
|
|
17
|
|
(Provision for) benefit from income taxes
|
|
$
|
(29
|
)
|
|
$
|
19
|
|
The Company has not recorded U.S. income
tax expense for foreign earnings because it has not recorded any post spin-off from IDT.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of the Company’s
deferred tax assets and deferred tax liabilities are as follows:
|
|
At July 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
8,395
|
|
|
$
|
5,316
|
|
AMT carryforwards
|
|
|
2,660
|
|
|
|
2,692
|
|
Reserves and accruals
|
|
|
61
|
|
|
|
34
|
|
Stock-based compensation
|
|
|
312
|
|
|
|
119
|
|
Gross deferred tax assets
|
|
|
11,428
|
|
|
|
8,161
|
|
Less valuation allowance
|
|
|
(11,422
|
)
|
|
|
(8,142
|
)
|
Total deferred tax assets
|
|
|
6
|
|
|
|
19
|
|
Total deferred tax liabilities
|
|
|
—
|
|
|
|
—
|
|
Deferred tax assets, net
|
|
$
|
6
|
|
|
$
|
19
|
|
Net deferred tax assets are included in
deferred income tax assets, net in the consolidated balance sheets.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
On September 17, 2018, LipoMedix was notified
of a claim initiated by one of its founders seeking payment of consulting fees in the amount of approximately $377,000 and seeking
to place restrictions on LipoMedix’ bank accounts and other assets to protect his claim. LipoMedix did not believe that the
individual had the right to receive any payment at the current time. LipoMedix responded to the demand for the placement of restrictions
on its assets. In May 2019, LipoMedix received a letter from the other founder requesting payment of his consulting fees. On July
15, 2019, the parties settled the matters and the two founders will be paid a percentage of future investments and certain other
proceeds.
On July 12, 2019, the Company received
a Citation and Notification of Penalty from the Occupational Safety and Health Administration of the U.S. Department of Labor,
or OSHA, related to an OSHA inspection of 520 Broad Street, Newark, New Jersey. The citation seeks to impose penalties related
to alleged violations of the Occupation Safety and Health Act of 1970 at 520 Broad Street. On July 31, 2019, the Company filed
a Notice of Contest with OSHA contesting the citation in its entirety. On February 14, 2020, the Company entered into a Settlement
Agreement with OSHA, as related to the citation received on July 12, 2019. As part of the Settlement Agreement, the Company agreed
to pay a penalty of $127,294 in eight quarterly installment payments through November 2021.
The Company accounts for contingencies
when a loss is considered probable and can be reasonably estimated. For the matters disclosed above, a legal accrual for approximately
$225,000 has been recorded for legal fees and losses believed to be both probable and reasonably estimable, but an exposure to
additional loss may exist in excess of the amount accrued.
On December 31, 2019, an employee of the
Company filed a complaint in connection with the incident that led to the OSHA inspection noted above for personal injuries against
the Company and other parties in the New Jersey Supreme Court for an incident that took place on January 31, 2019 at 520 Broad
Street, Newark, New Jersey. The Company intends to vigorously defend this matter. The loss is considered remote and no accrual
has been recorded.
The Company may from time to time be subject
to legal proceedings that may arise in the ordinary course of business. Although there can be no assurance in this regard, other
than noted above, the Company does not expect any of those legal proceedings to have a material adverse effect on the Company’s
results of operations, cash flows or financial condition.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – CONVERTIBLE NOTE
On November 15, 2018, Howard Jonas, the
Company’s Chairman, CEO, and controlling stockholder entered into an agreement to purchase a convertible note from the Company
for $15.0 million. The term of the note was three years with interest accruing on the principal amount at a rate of 6% per annum,
compounded quarterly. The note was subsequently assigned by Mr. Jonas to the Howard S. Jonas 2017 Annuity Trust. At the option
of the Company, interest on the note can be capitalized and added to principal or payable in cash. The note was convertible at
the option of the holder into shares of Class B common stock at a conversion price of $8.47 per share, the closing price of the
Company’s Class B common stock on the trading day before the date of the investment agreement. The initial principal amount
of the note was convertible into 1,770,956 shares of Class B common stock, and if all interest for the three-year term of the note
is capitalized, the note would have been convertible into 2,117,388 shares of Class B common stock. If the closing price of the
Company’s Class B common stock on the NYSE American is 200% of the conversion price for at least thirty (30) consecutive
days, the Company had the right to cause conversion of the note.
At issuance, the Company recorded a debt
discount of approximately $70,000 related to the beneficial conversion feature of the note and amortized approximately $16,000
of the discount in fiscal 2020 which was included in interest expense. In addition, the Company recorded approximately $0 and $650,000
of interest expense for the years ended July 31, 2020 and 2019, respectively, that is included in accrued expenses in the
accompanying consolidated balance sheets.
|
|
At
July 31,
|
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Convertible Note:
|
|
|
|
Principal value of 6% convertible note at July 31, 2019, due November 15, 2021
|
|
$
|
15,000
|
|
Debt discount
|
|
|
(54
|
)
|
Total long-term carrying value of convertible note
|
|
$
|
14,946
|
|
In August 2019, the note including interest of approximately
$667,000 was converted into 1,849,749 shares of common stock.
NOTE 13 – RELATED PARTY TRANSACTIONS
The Company has historically maintained
an intercompany balance due to/from related parties that relates to cash advances for investments, loan repayments, charges for
services provided to the Company by IDT and payroll costs for the Company’s personnel that were paid by IDT. This is partially
offset by rental income paid to the Company by various companies under common control to IDT. The Company recorded expense of approximately
$309,000 in related party services to IDT, of which approximately $29,000 is included in accounts payable at June 31, 2020.
IDT leases approximately 80,000 square
feet of office space plus parking occupied by IDT at 520 Broad Street, Newark, NJ and approximately 3,600 square feet of office
space in Jerusalem, Israel. IDT paid the Company approximately $1.8 million for office rent and parking during fiscal 2020 and
2019. As of July 31, 2020 and 2019, IDT owed the Company approximately $0 and $9,000, respectively, for office rent and parking.
The Company provides Rafael Pharmaceuticals
with administrative, finance, accounting, tax and legal services. Howard S. Jonas serves as a Chairman of the Board of Rafael Pharmaceuticals
and owns an equity interest in Rafael Pharmaceuticals. The Company billed Rafael Pharmaceuticals $480,000 during fiscal 2020 and
2019. As of July 31, 2020 and 2019, Rafael Pharmaceuticals owed the Company $120,000 and $280,000, respectively, included
in due from related parties.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In September 2018, CS Pharma, in which
the Company owns an effective 45% interest, exercised a warrant to purchase 8 million shares of Rafael Pharmaceutical’s
Series D Convertible Preferred Stock for $10 million representing approximately 8% of the equity on a fully-diluted basis
(excluding the remainder of the Warrant) of Rafael Pharmaceuticals. The Warrant in full is exercisable for up to 56% of the fully
diluted equity of Rafael Pharmaceuticals. The right to exercise the first $10 million of the Warrant was held by CS Pharma.
CS Pharma is owned by 0.25% by Michael Weiss, a non-employee director of the Company. The remainder of the Warrant is held
by Pharma Holdings.
On November 5, 2018, Pharma Holdings,
LLC partially exercised a warrant to purchase 4 million shares of Rafael Pharmaceutical’s Series D Convertible Preferred
Stock for $5 million, of which $500,000 was contributed by Howard Jonas.
On November 15, 2018, Howard Jonas entered
into an agreement to purchase a convertible note from the Company for $15.0 million convertible into shares of Class B common stock
at $8.47 per share. The term of the note was three years with interest on the principal amount at a rate of 6% per annum, compounded
quarterly. At issuance, the Company recorded a debt discount of approximately $70,000 related to the beneficial conversion feature
of the note and amortized approximately $16,000 of the discount in fiscal 2019 which was recorded as interest expense. In addition,
the Company recorded approximately $650,000 of interest expense for the year ended July 31, 2019. In August 2019, the note including
accrued interest of approximately $667,000 was converted into 1,849,749 shares of common stock.
On January 10, 2019, Pharma Holdings partially
exercised a warrant to purchase 5.1 million shares of Series D Convertible Preferred Stock of Rafael Pharmaceuticals for $6.4 million,
of which $640,000 was contributed by Howard Jonas.
On January 23, 2019, Pharma Holdings partially
exercised a warrant to purchase 36.3 million shares of Series D Convertible Preferred Stock of Rafael Pharmaceuticals for $34.4 million,
of which $3.4 million was contributed by Howard Jonas.
On January 29, 2020, in connection with
the vesting of certain restricted shares of Class B common stock held by an officer of the Company, the Company withheld 5,238
shares to pay for the payroll taxes on the officer’s behalf, totaling approximately $116,000.
The Company leases space to related parties
which represented approximately 52% and 53% of the Company’s total revenue for the years ended July 31, 2020 and 2019,
respectively. See Note 14 for future minimum rent payments from related parties and other tenants.
On April 6, 2020, the Howard S. Jonas 2017
Annuity Trust transferred 787,163 shares of Class A common stock of the Company (representing all of the issued and outstanding
shares of the Class A common stock) and 4,306,738 shares of the Company’s Class B common stock to trusts for the benefit
of eight of Howard Jonas’ children, with independent trustees, which shares were beneficially owned by Mr. Jonas, the Company’s
Chairman and then controlling stockholder of the Company. Following the transfer, Mr. Jonas is no longer a controlling stockholder
of the Company and the Company is no longer a controlled company as defined in Section 303A of the New York Stock Exchange Listed
Company Manual.
The Company acquired membership interest in Altira, a related
party (see Note 3).
The Company has recognized approximately
$192 thousand and $0 in income from it’s ownership interests of 37.5% in RP Finance for the years ended July 31, 2020 and
2019, respectively (see Note 4).
NOTE 14 – LEASES
The Company is the lessor of certain properties
which are leased to tenants under net operating leases with initial term expiration dates ranging from 2021 to 2029. Lease income
included on the consolidated statements of operations and comprehensive loss for the years ended July 31, 2020 and 2019 was
$3.6 million.
The future contractual minimum lease payments
to be received (excluding operating expense reimbursements) by the Company as of July 31, 2020, under non-cancellable operating
leases which expire on various dates through 2028 are as follows:
Year ending July 31,
|
|
Related Parties
|
|
|
Other
|
|
|
Total
|
|
|
|
(in thousands)
|
|
2021
|
|
$
|
2,041
|
|
|
$
|
816
|
|
|
$
|
2,857
|
|
2022
|
|
|
2,078
|
|
|
|
777
|
|
|
|
2,855
|
|
2023
|
|
|
2,117
|
|
|
|
592
|
|
|
|
2,709
|
|
2024
|
|
|
2,155
|
|
|
|
538
|
|
|
|
2,693
|
|
2025
|
|
|
1,659
|
|
|
|
550
|
|
|
|
2,209
|
|
Thereafter
|
|
|
—
|
|
|
|
1,948
|
|
|
|
1,948
|
|
Total Minimum Future Rental Income
|
|
$
|
10,050
|
|
|
$
|
5,221
|
|
|
$
|
15,271
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Related parties represented approximately
52% and 53% of the Company’s total revenue for the years ended July 31, 2020 and 2019, respectively. The Company has related
party leases that expire in April 2025 for (i) an aggregate of 88,631 square feet, which includes two parking spots per thousand
square feet of space leased at 520 Broad Street, Newark, New Jersey, and (ii) 3,595 square feet in Israel. The annual rent is approximately
$2.0 million in the aggregate. The related parties have the right to terminate the domestic leases upon four months’ notice,
and upon early termination will pay a termination penalty equal to 25% of the portion of the rent due over the course of the remaining
term. A related party has the right to terminate the Israeli lease upon four months’ notice. IDT has the right to lease an
additional 50,000 square feet, in 25,000-foot increments, in the building located at 520 Broad Street, Newark, New Jersey on the
same terms as their base lease, and other rights should 25,000 square feet or less remain available to lessees in the building.
Upon expiration of the lease, related parties have the right to renew the leases for another five years.
NOTE 15 – BUSINESS SEGMENT INFORMATION
The Company conducts business as two operating
segments, Pharmaceuticals and Real Estate. The Company’s reportable segments are distinguished by types of service, customers
and methods used to provide their services. The operating results of these business segments are regularly reviewed by the Company’s
CEO and chief operating decision-maker.
The accounting policies of the segments
are the same as the accounting policies of the Company as a whole. The Company evaluates the performance of its Pharmaceuticals
segment based primarily on research and development efforts and results of clinical trials and the Real Estate segment based primarily
on results of operations. All investments in Rafael Pharmaceuticals and assets and expenses associated with LipoMedix and Barer
are tracked separately in the Pharmaceuticals segment. All corporate costs are allocated to the Real Estate segment.
The Pharmaceuticals segment is comprised of
preferred and common equity interests and the Warrant to purchase equity interests in Rafael Pharmaceuticals, a majority equity
interest in LipoMedix and Barer. To date, the Pharmaceuticals segment has not generated any revenues.
The Real Estate segment consists of the
Company’s real estate holdings, including a building at 520 Broad Street in Newark, New Jersey that houses headquarters for
the Company and certain affiliates and its associated public garage, an office/data center building in Piscataway, New Jersey (See
Note 18) and a portion of an office building in Israel.
Operating results for the business segments
of the Company are as follows:
(in thousands)
|
|
Pharmaceuticals
|
|
|
Real Estate
|
|
|
Total
|
|
At Year Ended July 31, 2020
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
4,910
|
|
|
$
|
4,910
|
|
Loss from operations
|
|
|
(2,811
|
)
|
|
|
(5,654
|
)
|
|
|
(8,465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Year Ended July 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
4,931
|
|
|
$
|
4,931
|
|
Loss from operations
|
|
|
(1,613
|
)
|
|
|
(5,083
|
)
|
|
|
(6,696
|
)
|
Geographic Information
Revenues from tenants located outside of
the United States were generated entirely from related parties located in Israel. Revenues from these non-United States customers
as a percentage of total revenues were as follows (revenues by country are determined based on the location of the related facility):
Year Ended
July 31,
|
|
2020
|
|
|
2019
|
|
Revenue from tenants located in Israel
|
|
|
6
|
%
|
|
|
3
|
%
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net long-lived assets and total assets held outside of the United
States, which are located in Israel, were as follows:
(in thousands)
|
|
United States
|
|
|
Israel
|
|
|
Total
|
|
July 31, 2020
|
|
|
|
|
|
|
|
|
|
Long-lived assets, net
|
|
$
|
42,840
|
|
|
$
|
1,593
|
|
|
$
|
44,433
|
|
Total assets
|
|
|
132,286
|
|
|
|
4,061
|
|
|
|
136,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets, net
|
|
$
|
47,096
|
|
|
$
|
1,637
|
|
|
$
|
48,733
|
|
Total assets
|
|
|
138,535
|
|
|
|
3,608
|
|
|
|
142,143
|
|
NOTE 16 – EQUITY
Class A Common Stock and Class B Common Stock
The rights of holders of Class A common
stock and Class B common stock are identical except for certain voting and conversion rights and restrictions on transferability.
The holders of Class A common stock and Class B common stock receive identical dividends per share when and if declared by the
Company’s Board of Directors. In addition, the holders of Class A common stock and Class B common stock have identical and
equal priority rights per share in liquidation. The Class A common stock and Class B common stock do not have any other contractual
participation rights. The holders of Class A common stock are entitled to three votes per share and the holders of Class B common
stock are entitled to one-tenth of a vote per share. Each share of Class A common stock may be converted into one share of Class
B common stock, at any time, at the option of the holder. Shares of Class A common stock are subject to certain limitations on
transferability that do not apply to shares of Class B common stock.
Stock-Based Compensation
The Rafael Holdings, Inc. 2018 Equity Incentive
Plan (the “Plan”) was created and adopted by the Company in March 2018. The Plan allows for the issuance of up to 1,064,048
shares which may be awarded in the form of incentive stock options or restricted shares.
In connection with the Spin-Off, options
to purchase 626,662 shares of Class B common stock options were issued to IDT employees and service providers related to options
to purchase IDT stock held by those individuals. The options have an exercise price of $4.90 per share, which was equal to the
closing price of the Company’s Class B common stock on the first trading day following the consummation of the Spin-Off.
The expiration date of the options is equal to the later of (i) the expiration of the IDT option held by such option holder and
(ii) a date on or about the first anniversary of the Spin-Off when the Company’s insiders will be free to trade in shares
of the Company under the Company’s insider trading policy. The options to purchase shares of the Company were issued under
the Plan.
Option awards to Company employees under
the Plan are generally granted with an exercise price equal to the market price of the Company’s stock on the date of grant.
Option awards generally vest on a graded basis over five years of service and have 10-year contractual terms. No options were granted
in fiscal 2020.
In fiscal 2020, options to purchase 6,000
shares of Class B common stock were exercised and 259 options were cancelled. In fiscal 2019, options to purchase 38,710 shares
of Class B common stock were exercised and 819 options were cancelled. At July 31, 2020 and 2019, there was no unrecognized
compensation cost related to non-vested stock options.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of stock option activity for the Company is as follows:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
Outstanding at July 31, 2018
|
|
|
626,662
|
|
|
$
|
4.90
|
|
|
|
4.72
|
|
|
$
|
3,071
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(38,710
|
)
|
|
|
4.90
|
|
|
|
|
|
|
|
|
|
Cancelled / Forfeited
|
|
|
(819
|
)
|
|
|
4.90
|
|
|
|
|
|
|
|
|
|
Outstanding at July 31, 2019
|
|
|
587,133
|
|
|
$
|
4.90
|
|
|
|
3.66
|
|
|
$
|
2,877
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,000
|
)
|
|
|
4.90
|
|
|
|
|
|
|
|
|
|
Cancelled / Forfeited
|
|
|
(259
|
)
|
|
|
4.90
|
|
|
|
|
|
|
|
|
|
OUTSTANDING AT JULY 31, 2020
|
|
|
580,874
|
|
|
$
|
4.90
|
|
|
|
2.65
|
|
|
$
|
2,846
|
|
EXERCISABLE AT JULY 31, 2020
|
|
|
580,874
|
|
|
$
|
4.90
|
|
|
|
2.65
|
|
|
$
|
2,846
|
|
Restricted Stock Units
The fair value of restricted shares of
the Company’s Class B common stock is determined based on the closing price of the Company’s Class B common stock on
the grant date. Share awards generally vest on a graded basis over three years of service.
As part of the Spin-Off, holders of restricted
Class B common stock of IDT received, in respect of those restricted shares, one restricted share of the Company’s Class
B common stock for every two restricted shares of IDT that they held as of the record date for the Spin-Off. The Company issued
an aggregate of 92,690 restricted shares of its Class B common stock to the holders of restricted Class B common stock of IDT.
Such shares of the Company’s Class B common stock are restricted under the same terms as the IDT restricted stock in respect
of which they were issued. The restricted shares of the Company’s Class B common stock received in the Spin-Off are subject
to forfeiture on the same terms, and their restrictions will lapse at the same time, as the corresponding IDT shares.
On March 28, 2018, the Company granted
employees and consultants 76,445 restricted shares of Class B Common Stock, which vested or will vest as to one-third of the granted
shares on each of March 28, 2019, 2020 and 2021, unless otherwise determined by the Compensation Committee of the Company’s
Board of Directors. The aggregate fair value of the grant was approximately $375,000, which is being charged to expense on a straight-line
basis as the shares vest.
During fiscal 2020 and 2019, the Company
granted employees and consultants 24,071 and 74,637 restricted shares of Class B Common Stock, respectively, which will vest over
approximately three years. The aggregate fair value of the grants in fiscal 2020 and 2019 was approximately $478 thousand and $1.3
million, respectively, which is being charged to expense on a straight-line basis as the shares vest.
A summary of the status of the Company’s
grants of restricted shares of Class B common stock is presented below:
|
|
Number
of
Non-vested
Shares
|
|
|
Weighted
Average
Grant Date Fair Value
|
|
Outstanding at July 31, 2018
|
|
|
141,799
|
|
|
$
|
4.90
|
|
Granted
|
|
|
74,637
|
|
|
|
16.49
|
|
Vested
|
|
|
(60,010
|
)
|
|
|
4.96
|
|
Cancelled / Forfeited
|
|
|
—
|
|
|
|
—
|
|
Outstanding at July 31, 2019
|
|
|
156,426
|
|
|
$
|
10.41
|
|
Granted
|
|
|
24,071
|
|
|
|
19.87
|
|
Vested
|
|
|
(57,060
|
)
|
|
|
(8.17
|
)
|
Cancelled / Forfeited
|
|
|
(333
|
)
|
|
|
(4.90
|
)
|
NON-VESTED SHARES AT JULY 31, 2020
|
|
|
123,104
|
|
|
$
|
10.80
|
|
At July 31,
2020, there was $1.3 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements,
which is expected to be recognized over the next 2.35 years. The total grant date fair value of shares vested in fiscal 2020 and
fiscal 2019 was approximately $466,000 and $298,000, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Approval of Sale of Shares of Class
B Common Stock to Howard S. Jonas
On April 26, 2018, the Corporate Governance
Committee authorized, approved and confirmed an underlying Related Person Transaction involving Howard Jonas with respect to the
Company’s proposed sale to Mr. Jonas of 1,254,200 shares of the Company’s Class B common stock at a price
per share of $6.89, which was the closing price for the Class B common stock on the NYSE on April 26, 2018 (the last closing
price before approval of the arrangement) for an aggregate purchase price of $8,641,438, the purchase price of which would be reduced
by the amount of any dividends whose record date is between the date hereof and the issuance of the shares (the “Sale”).
The Sale took place on January 18, 2019, following stockholder approval on January 10, 2019.
Grant to Board of Directors
Pursuant to the Company’s 2018 Equity
Incentive Plan, each of our three non-employee directors of the Company was granted 4,203 restricted shares of our Class B common
stock in January 2019 which fully vested on the date of the grant. The fair value of the awards on the date of the grant was approximately
$107,000, which was included in selling, general and administrative expense.
NOTE 17 – LOSS PER SHARE
Basic net loss per share is computed by
dividing net loss attributable to all classes of common stockholders of the Company by the weighted average number of shares of
all classes of common stock outstanding during the applicable period. Diluted loss per shares includes potentially dilutive securities
such as stock options and other convertible instruments. For the years ended July 31, 2020 and 2019, these securities have
been excluded from the calculation of diluted net loss per shares because all such securities are anti-dilutive for all periods
presented.
The following table summarizes the Company’s
securities, in common share equivalents, which have been excluded from the calculation of dilutive loss per share as their effect
would be anti-dilutive:
|
|
At July 31,
|
|
|
|
2020
|
|
|
2019
|
|
Stock Options
|
|
|
580,874
|
|
|
|
587,133
|
|
Convertible Note
|
|
|
—
|
|
|
|
1,847,594
|
|
Total
|
|
|
580,874
|
|
|
|
2,434,727
|
|
In the years ended July 31, 2020 and
2019, the diluted loss per share computation equals basic loss per share because the Company had a net loss and the impact of the
assumed exercise of stock options and conversion of the convertible note would have been anti-dilutive.
NOTE 18 – SUBSEQUENT EVENTS
Farber Partners, a Delaware LLC, was formed
on August 18, 2020 to partner with Drs. Josh Rabinowitz and Hahn Kim, renowned scientists from a top institution to develop inhibitors
of cancer and disease metabolism.
Levco Pharmaceuticals Ltd, an Israeli company,
was formed on August 27, 2020 and established to partner with Dr. Alberto Gabizon and a top institution in Israel on the development
of novel compounds for cancer.
On August 28, 2020, pursuant to an agreement
entered into on July 6, 2020, a subsidiary of the Company sold a 3-story, 65,253 square foot office building located at 225 Old
New Brunswick Road in Piscataway, New Jersey to 225 ONBR, LLC, an entity unaffiliated with the Company. The purchase price was
$3,875,000 and, after transfer taxes and broker’s commission, the Company received $3,675,638 in cash. As of July 31, 2020,
the building was presented as held for sale on the consolidated balance sheet.
In August 2020, Rafael Pharmaceuticals called for a $5 million
draw on the line of credit facility and the facility was funded by RP Finance in the amount $5 million, in August 2020 and September
2020. The Company funded $1,875,000 in accordance with its 37.5% ownership interests in RP Finance.
In October 2020, the Company liquidated
$2,000,000 of the Company’s investments in Hedge Funds.
F-26