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Investment in RP Finance, LLC | 12 Months Ended
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Jul. 31, 2022
Investment In Rp Finance Llc Abstract |
INVESTMENT IN RP FINANCE, LLC | NOTE 5 – INVESTMENT IN RP FINANCE, LLC On February 3, 2020, Cornerstone Pharmaceuticals entered into a Line of Credit Loan Agreement (“RPF Line of Credit”) 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 Cornerstone Pharmaceuticals under the RPF Line of Credit. Howard Jonas owns 37.5% of the equity interests in RP Finance, and is required to fund 37.5% of funding requests from Cornerstone Pharmaceuticals under the RPF Line of Credit. The remaining 25% equity interests in RP Finance are owned by other shareholders of Cornerstone Pharmaceuticals. Under the RPF Line of Credit, 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 Cornerstone Pharmaceuticals or a sale of Cornerstone Pharmaceuticals or its assets. Cornerstone Pharmaceuticals can draw on the facility on 60 days’ notice. The funds borrowed under the RPF Line of Credit must be repaid out of certain proceeds from equity sales by Cornerstone Pharmaceuticals. In connection with entering into the Line of Credit Agreement, Cornerstone Pharmaceuticals agreed to issue to RP Finance shares of its common stock representing 12% of the issued and outstanding shares of Cornerstone Pharmaceuticals common stock, with such interest subject to anti-dilution protection as set forth in the RPF Line of Credit. The Company has determined that RP Finance 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 RP Finance that most significantly impact RP Finance’s economic performance and, therefore, is not required to consolidate RP Finance. Therefore, the Company will use the equity method of accounting to record its investment in RP Finance. The Company has recognized a loss of approximately $575 thousand and earnings of $383 thousand from its ownership interests of 37.5% in RP Finance for the years ended July 31, 2022 and 2021, 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). In August 2020, Cornerstone Pharmaceuticals called for a $5 million draw on the RPF Line of Credit and the facility was funded by RP Finance in the amount of $5 million. In November 2020, Cornerstone Pharmaceuticals called for a second $5 million draw on the RPF Line of Credit and the facility was funded by RP Finance in the amount of $5 million. In June 2021 and July 2021, Cornerstone Pharmaceuticals called for a total aggregate of $10 million in draws on the line of RPF Line of Credit and the facility was funded by RP Finance in the amount of $10 million. In September 2021, Cornerstone Pharmaceuticals called for a $5 million draw on the RPF Line of Credit and the facility was funded by RP Finance LLC in the amount of $5 million. As of July 31, 2022, the Company has funded a cumulative total of $9.375 million in accordance with its 37.5% ownership interests in RP Finance. The Company recorded a reserve on related party interest receivable of $1.9 million in Interest income, net, on the consolidated statements of operations and comprehensive loss during the year ended July 31, 2022. Impairment of Equity Method Investment Due to the Data Events, during the three months ended October 31, 2021, the Company recorded equity in the loss of RP Finance of $575 thousand. As of July 31, 2022, the equity method investment on the Company’s balance sheet was $0, and no additional equity loss of RP Finance was recorded during the year ended July 31, 2022. The Company was not obligated to guarantee obligations of RP Finance and is not committed to provide further financial support for RP Finance. Additionally, during the year ended July 31, 2022, the Company recorded a loss on related party receivables of $9.375 million related to amounts owed by RP Finance. The loss on related party receivables was recorded in the consolidated statements of operations and comprehensive loss during the year ended July 31, 2022.

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