NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 — DESCRIPTION OF BUSINESS
Rafael
Holdings, Inc. (“Rafael Holdings” or the “Company”), a Delaware corporation, owns interests in clinical
stage pharmaceutical companies and commercial real estate assets. The assets are operated as two separate lines of business.
The pharmaceutical holdings include preferred
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 and certain short-term
debt interests in LipoMedix Pharmaceuticals Ltd., or LipoMedix, a clinical stage oncological pharmaceutical company based in Israel.
In addition, we have more recently 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.
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 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.
The
“Company” in these financial statements refers to Rafael Holdings on a consolidated basis from the date of the Spin-Off.
All significant intercompany accounts and transactions have been eliminated in consolidation.
All
majority-owned subsidiaries are consolidated with all intercompany transactions and balances being eliminated in consolidation.
The entities included in these financial statements are as follows:
Company
|
|
Country
of Incorporation
|
|
Percentage
Owned
|
|
Rafael Holdings, Inc.
|
|
United States – Delaware
|
|
|
|
|
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 Realty Holdings, Inc.
|
|
United States – Delaware
|
|
|
100
|
%
|
Barer Institute, Inc.
|
|
United States – Delaware
|
|
|
100
|
%
|
Pharma Holdings, LLC
|
|
United States – Delaware
|
|
|
90
|
%
|
CS Pharma Holdings, LLC
|
|
United States – Delaware
|
|
|
45
|
%*
|
LipoMedix Pharmaceuticals Ltd.
|
|
Israel
|
|
|
57.9
|
%
|
*
|
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.
|
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited 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”) for interim financial
information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments,
which include only normal recurring adjustments, considered necessary for a fair presentation have been included.
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 2020 refers to the fiscal year ending July 31, 2020).
Operating
results for the three and nine months ended April 30, 2020 are not necessarily indicative of the results that may be expected
for the fiscal year ending July 31, 2020. The balance sheet at July 31, 2019 has been derived from the Company’s audited
consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP
for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s
audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended July
31, 2019, or the 2019 Form 10-K, as filed with the U.S. Securities and Exchange Commission (“SEC”).
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 and combined 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 “Other Expenses, net” 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.
Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ 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.
The Company has granted a rent concession to
two of its retail tenants during the month of April; however, the Company does not believe this is recurring and believes that
the rental revenues will continue.
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.
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 and Expenses
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.
Recently
Issued Accounting Pronouncements 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 April 30, 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.
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.
NOTE
3 – 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 directly holds 36.7 million shares of Rafael Pharmaceuticals Series D Convertible Preferred Stock and a warrant to increase
the collective ownership of Pharma Holdings and CS Pharma 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,
LLC to purchase shares of the Warrant from December 31, 2020 to June 30, 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 39% 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,
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.
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.
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, LLC (“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 $53 thousand in income from its ownership interests of 37.5%
in RP Finance as of April 30, 2020.
NOTE
5 — INVESTMENT IN LIPOMEDIX
LipoMedix
is a development-stage, privately held Israeli company focused on the development of an innovative, safe and effective cancer
therapy based on liposome delivery.
The
Company holds 57.9% 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 52.1% to 57.9%.
In
April 2019, the Company provided no-interest bridge financing of $250,000 to LipoMedix (the “2019 Bridge Note”). The
2019 Bridge Note converted into 471,698 shares of LipoMedix on September 28, 2019 which increased the Company’s ownership
on that date from 50.6% to 52.1%.
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. 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. 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. 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.
NOTE
6 — 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;
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 April 30, 2020 and July 31, 2019:
|
|
April 30, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
(unaudited, in thousands)
|
|
Investments – Hedge Funds
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,617
|
|
|
$
|
5,617
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,617
|
|
|
$
|
5,617
|
|
|
|
July 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets:
|
|
(unaudited, in thousands)
|
|
Investments – Hedge Funds
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,125
|
|
|
$
|
5,125
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,125
|
|
|
$
|
5,125
|
|
At
April 30, 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).
|
|
Nine Months Ended
April 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(unaudited, in thousands)
|
|
Balance, beginning of period
|
|
$
|
5,125
|
|
|
$
|
12,118
|
|
Conversion of Series D Convertible Note
|
|
|
—
|
|
|
|
(7,900
|
)
|
Total gain included in earnings
|
|
|
492
|
|
|
|
414
|
|
Balance, end of period
|
|
$
|
5,617
|
|
|
$
|
4,632
|
|
At July 31, 2018, the fair value of the
Rafael Pharmaceuticals convertible promissory notes, which were classified as Level 3, was estimated based on a valuation of Rafael
Pharmaceuticals by reference to recent transactions in its securities, the September 2016 Series D Convertible Note investment,
as well as utilizing a discounted cash flow technique under the Income Approach and other factors that could not be corroborated
by the market. The Note was converted into shares of Series D Convertible Preferred Stock of Rafael Pharmaceuticals in January
2019.
Prior to the Spin-Off, IDT contributed a $2.0 million investment
in securities of 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 $0.3 million for the nine months ended
April 30, 2020.
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 expenses
and other current assets, and other current liabilities. At April 30, 2020 and July 31, 2019, the carrying amount of these
assets and liabilities approximated fair value because of the immediate or 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 April 30, 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.
The Company’s financial instruments
include trade accounts receivable, trade accounts payable, and due from related parties. The recorded carrying amount 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 April 30, 2020 or July 31, 2019.
NOTE 7 — TRADE ACCOUNTS RECEIVABLE
Trade Accounts Receivable consisted of the following:
|
|
April 30,
2020
|
|
|
July 31,
2019
|
|
|
|
(unaudited, in thousands)
|
|
Trade Accounts Receivable – Third Party
|
|
$
|
267
|
|
|
$
|
561
|
|
Trade Accounts Receivable – Related Party
|
|
|
137
|
|
|
|
11
|
|
Less: Allowance for Doubtful Accounts
|
|
|
(143
|
)
|
|
|
(122
|
)
|
Trade Accounts Receivable, net
|
|
$
|
261
|
|
|
$
|
450
|
|
The current portion of deferred rental
income included in Prepaid Expenses and Other Current Assets was approximately $17,000 and $34,000 as of April 30, 2020 and July
31, 2019, respectively.
The noncurrent portion of deferred rental
income included in Other Assets was approximately $1.4 million as of April 30, 2020 and July 31, 2019.
NOTE 8 — PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
April 30,
2020
|
|
|
July 31,
2019
|
|
|
|
(unaudited, in thousands)
|
|
Building and Improvements
|
|
$
|
54,711
|
|
|
$
|
54,241
|
|
Land
|
|
|
10,412
|
|
|
|
10,412
|
|
Furniture and Fixtures
|
|
|
1,145
|
|
|
|
1,145
|
|
Other
|
|
|
276
|
|
|
|
255
|
|
|
|
|
66,544
|
|
|
|
66,053
|
|
Less: Accumulated Depreciation and Amortization
|
|
|
(18,733
|
)
|
|
|
(17,320
|
)
|
Total
|
|
$
|
47,811
|
|
|
$
|
48,733
|
|
Other property and equipment consists of
furniture and fixtures, office and other equipment and miscellaneous computer hardware.
Depreciation and amortization expense pertaining
to property and equipment was approximately $474,000 and $436,000 for the three months ended April 30, 2020 and 2019, respectively,
and $1.4 million and $1.3 million for the nine months ended April 30, 2020 and 2019, respectively.
The Company’s headquarters are located at 520 Broad Street
in Newark, New Jersey where it occupies office space in the building owned by its subsidiary.
NOTE 9 — 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 share includes potentially dilutive securities
such as stock options and other convertible instruments.
The following table summarizes the Company’s
potentially dilutive securities which have been excluded from the calculation of dilutive loss per share as their effect would
be anti-dilutive:
|
|
April 30,
2020
|
|
|
July 31,
2019
|
|
|
|
(unaudited)
|
|
Stock Options
|
|
|
580,874
|
|
|
|
587,133
|
|
Convertible Note
|
|
|
—
|
|
|
|
1,847,594
|
|
Total
|
|
|
580,874
|
|
|
|
2,434,727
|
|
In the three and nine months ended April
30, 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 10 — 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
$205,000 in related party services to IDT, of which approximately $27,000 is included in due to related parties at April 30, 2020.
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 $120,000 during each of the first
three quarters of fiscal 2020. As of April 30, 2020, Rafael Pharmaceuticals owed the Company $135,000 included in due from Rafael
Pharmaceuticals.
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 and the remainder by the Company.
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 and the remainder by the Company.
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 43% and 44% of the Company’s total revenue for the three months ended April 30, 2020 and
2019, respectively, and 43% and 38% for the nine months ended April 30, 2020 and 2019, respectively. See Note 15 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.
NOTE 11 — 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.
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, 2019, the Company had federal
net operating loss (“NOL”) carryforwards from domestic operations of approximately $22.3 million to offset future taxable
income. The Company has state NOLs of $3.2 million. The Company has NOL carryforwards from foreign operations of $1.2 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 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.
NOTE 12 — 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 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 and a portion of
an office building in Israel.
Operating results for the business segments of the Company are
as follows:
(unaudited, in thousands)
|
|
Pharmaceuticals
|
|
|
Real Estate
|
|
|
Total
|
|
Three Months Ended April 30, 2020
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
1,224
|
|
|
$
|
1,224
|
|
Loss from operations
|
|
|
(778
|
)
|
|
|
(1,187
|
)
|
|
|
(1,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
1,377
|
|
|
$
|
1,377
|
|
Loss from operations
|
|
|
(311
|
)
|
|
|
(1,107
|
)
|
|
|
(1,418
|
)
|
(unaudited, in thousands)
|
|
Pharmaceuticals
|
|
|
Real Estate
|
|
|
Total
|
|
Nine Months Ended April 30, 2020
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
3,670
|
|
|
$
|
3,670
|
|
Loss from operations
|
|
|
(1,558
|
)
|
|
|
(3,855
|
)
|
|
|
(5,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended April 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
3,529
|
|
|
$
|
3,529
|
|
Loss from operations
|
|
|
(1,014
|
)
|
|
|
(2,930
|
)
|
|
|
(3,944
|
)
|
Geographic Information
Revenues from tenants located outside of
the United States were generated entirely from tenants 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):
Three Months Ended April 30, (unaudited)
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Revenue from tenants located in Israel
|
|
|
6
|
%
|
|
|
2
|
%
|
Nine Months Ended April 30, (unaudited)
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Revenue from tenants located in Israel
|
|
|
6
|
%
|
|
|
2
|
%
|
Net long-lived assets and total assets held outside of the United
States, which are located in Israel, were as follows:
(unaudited, in thousands)
|
|
United States
|
|
|
Israel
|
|
|
Total
|
|
April 30, 2020
|
|
|
|
|
|
|
|
|
|
Long-lived assets, net
|
|
$
|
46,201
|
|
|
$
|
1,610
|
|
|
$
|
47,811
|
|
Total assets
|
|
|
133,933
|
|
|
|
3,498
|
|
|
|
137,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets, net
|
|
$
|
47,096
|
|
|
$
|
1,637
|
|
|
$
|
48,733
|
|
Total assets
|
|
|
138,535
|
|
|
|
3,608
|
|
|
|
142,143
|
|
NOTE 13 — COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Under a Founders Agreement among LipoMedix
and other parties, two of LipoMedix founders would become entitled to consulting payments in the approximate amounts of $385,000
and $358,000, respectively, upon the satisfaction of certain conditions thereto. LipoMedix believes that those conditions have
not been satisfied and does not believe that they are likely to be satisfied until LipoMedix is successful in raising significant
capital in the future.
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’s 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. On November 26, 2018, the court denied the request by the founder to place restrictions on the 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, 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.
NOTE 14 — EQUITY
On November 15, 2018, Howard Jonas entered
into an agreement to purchase a convertible note from the Company for $15.0 million that was 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.
In August 2019, the note, including interest
of approximately $667,000 was converted into 1,849,749 shares of Class B common stock.
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 2020 which fully vested on the date of the grant. The fair value of the awards on the date of the grant was approximately
$208,000 which was included in selling, general and administrative expense.
Stock Options
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, 2019
|
|
|
587,133
|
|
|
$
|
4.90
|
|
|
|
3.66
|
|
|
$
|
2,877
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(6,000
|
)
|
|
|
4.90
|
|
|
|
2.91
|
|
|
|
(31
|
)
|
Cancelled / Forfeited
|
|
|
(259
|
)
|
|
|
4.90
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at April 30, 2020
|
|
|
580,874
|
|
|
$
|
4.90
|
|
|
|
2.91
|
|
|
$
|
2,846
|
|
Exercisable at April 30, 2020
|
|
|
580,874
|
|
|
$
|
4.90
|
|
|
|
2.91
|
|
|
$
|
2,846
|
|
During the nine months ended April 30,
2020, 259 options were canceled due to employee terminations. At April 30, 2020, there was no unrecognized compensation cost related
to non-vested stock options.
Restricted Stock
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.
A summary of the status of the Company’s
grants of restricted shares of Class B common stock is presented below:
(unaudited)
|
|
Number of
Non-vested
Shares
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Outstanding at July 31, 2019
|
|
|
156,426
|
|
|
$
|
10.41
|
|
Granted
|
|
|
24,071
|
|
|
|
19.87
|
|
Vested
|
|
|
(53,935
|
)
|
|
|
8.36
|
|
Cancelled / Forfeited
|
|
|
—
|
|
|
|
—
|
|
NON-VESTED SHARES AT April 30, 2020
|
|
|
126,562
|
|
|
$
|
10.91
|
|
At April 30, 2020, there was $1.3 million
of total unrecognized compensation cost related to non-vested restricted stock grants, which is expected to be recognized over
the next 2.55 years.
NOTE 15 — 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 three and nine months ended April
30, 2020, was $883 thousand and $2.6 million, respectively.
The future contractual minimum lease payments
to be received (excluding operating expense reimbursements) by the Company as of April 30, 2020, under non-cancelable operating
leases which expire on various dates through 2028 are as follows:
Year ending July 31,
|
|
Related Parties
|
|
|
Other
|
|
|
Total
|
|
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
507
|
|
|
$
|
287
|
|
|
$
|
794
|
|
2021
|
|
|
2,041
|
|
|
|
1,112
|
|
|
|
3,153
|
|
2022
|
|
|
2,078
|
|
|
|
967
|
|
|
|
3,045
|
|
2023
|
|
|
2,117
|
|
|
|
640
|
|
|
|
2,757
|
|
2024
|
|
|
2,155
|
|
|
|
538
|
|
|
|
2,693
|
|
Thereafter
|
|
|
1,659
|
|
|
|
2,498
|
|
|
|
4,157
|
|
Total Minimum Future Rental Income
|
|
$
|
10,557
|
|
|
$
|
6,042
|
|
|
$
|
16,599
|
|
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 16 — SUBSEQUENT EVENTS
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 upon the completion of
Rafael Pharmaceuticals’ Phase III pivotal trial (AVENGER 500®) of CPI-613® (devimistat); 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 day average share price of the Company’s Class B common
stock prior to the date of payment or any combination thereof.
The Company entered into a Share Purchase Agreement,
on May 20, 2020, 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.