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Equity
 12 Months Ended
Jul. 31, 2022
Stockholders' Equity Note [Abstract]  
EQUITY

NOTE 17 – 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.

 

On May 27, 2021, the Company filed a Registration Statement on Form S-3, whereby the Company may sell up to $250 million of Class B common stock. This Registration Statement was declared effective on June 7, 2021.

 

On June 1, 2021, the Company filed a Registration Statement on Form S-3 and issued 48,859 shares of Class B common stock to the Altira Second Seller totaling $2.25 million to satisfy a portion of the remaining non-contingent obligation due to the Altira Second Seller.

 

On August 19, 2021, the Company entered into a Securities Purchase Agreement (the “Institutional Purchase Agreement”) with Institutional Investors and a Securities Purchase Agreement with I9Plus, LLC, (the “Jonas Purchase Agreement”), an entity affiliated with Howard S. Jonas, the Chairman of the Board of Directors of the Company. On August 24, 2021, the Company issued 2,833,425 shares of Class B common stock (the “Institutional Shares”), par value $0.01 per share, to the Institutional Investors, at a purchase price equal to $35.00 per share, for aggregate gross proceeds of approximately $99.2 million, before deducting placement agent fees and other offering expenses. Additionally, pursuant to the Jonas Purchase Agreement, the Company issued 112,501 shares of Class B common stock to I9Plus, LLC, at a purchase price equal to $44.42 per share, which was equal to the closing price of a share of the Class B common stock on the New York Stock Exchange on August 19, 2021 (the “Jonas Offering”). The Jonas Offering resulted in additional aggregate gross proceeds of approximately $5.0 million. The total net proceeds from the issuance of shares was $98.0 million after deducting transaction costs of $6.2 million.

 

On August 19, 2021, in connection with the Institutional Purchase Agreement, the Company entered into a Registration Rights Agreement with the Institutional Investors whereby the Company agreed to prepare and file a registration statement with the SEC within 30 days after the earlier of (i) the date of the closing of the Merger Agreement, and (ii) the date the Merger Agreement is terminated in accordance with its terms, for purposes of registering the resale of the Institutional Shares and any shares of Class B common stock issued as a dividend or other distribution with respect to the Institutional Shares.

 

On January 19, 2022, the Company approved the 2021 Equity Incentive Plan (the “2021 Plan”). The 2018 Equity Incentive Plan was suspended and replaced by the 2021 Plan, and no new grants were awarded under the 2018 Equity Incentive Plan as of January 19, 2022. Existing grants under the 2018 Equity Incentive Plan will not be impacted by the adoption of the 2021 Plan. Any of the Company’s employees, directors, consultants, and other service providers, and those of the Company’s affiliates, are eligible to participate in the 2021 Plan. In accordance with applicable tax rules, only employees (and the employees of parent or subsidiary corporations) are eligible to be granted incentive stock options. The 2021 Plan authorizes stock options (both incentive stock options or non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, and cash or other stock-based awards. The maximum number of shares of Class B common stock that may be issued under the 2021 Plan is 1,919,025 shares. During the year ended July 31, 2022, 1,533,311 restricted shares and 237,761 options were issued pursuant to the 2021 Plan, respectively. As of July 31, 2022, there were 229,697 shares still available for issuance under the 2021 Plan.

 

On February 15, 2022, the Company filed a Registration Statement on Form S-3 (as amended on March 2, 2022) registering the resale by institutional investors (the “Institutional Investors”) of the shares purchased by them. The Registration Statement was declared effective on March 7, 2022.

 

On June 22, 2022, the Company entered into a Stock Purchase Agreement (the “I9 SPA”) with I9 Plus. On July 6, 2022, pursuant to the I9 SPA, the Company sold 3,225,806 shares of the Company’s Class B common stock to I9 Plus at a price per share of $1.86 and an aggregate sale price of $6 million, presented in common stock sold to related party within the statement of stockholders’ equity. The price per share was calculated to be the greater of (1) the volume weighted average price for the Class B common stock on the New York Stock Exchange for the five trading days ending on June 21, 2022 (which were the five trading days beginning with the first full trading day following the date that the transaction was approved by the Board of Directors of the Company, and its Corporate Governance Committee which consists solely of independent members of the Board) and (2) the closing price of the Class B common stock on June 21, 2022 (the trading day immediately preceding the date of the I9 SPA to ensure that the sale price was not below the Minimum Price under NYSE Rule 312.03(b)). The shares were issued in reliance on the exemption from registration provided for under Section 4(a)(2) of the Securities Act of 1933, as amended.

 

New Employment Agreement

 

On June 13, 2022, the Company entered into an employment agreement with Howard S. Jonas (who serves as the Chairman of the Board and Executive Chairman of the Company) (the “Employment Agreement”), which provides, among other things: (i) a term of five years (subject to extension unless either party elects not to renew); (ii) an annual base salary of $260,000, of which $250,000 is payable through the issuance of restricted shares of the Company’s Class B common stock (“Class B Stock”) with the value of the shares based upon the volume weighted closing price of the Class B Stock on the NYSE on the thirty days ending with the NYSE trading day immediately preceding the issuance to be issued within thirty days of the date of the Employment Agreement (the “Start Date”) and each annual anniversary, and such shares vesting, contingent on Mr. Jonas’ remaining in continuous service to the Company, in substantially equal amounts on the three, six, nine and twelve month anniversaries of the Start Date or annual anniversary; and (iii) a grant of restricted shares of Class B stock with a value of $600,000, issuable within 30 days with the value of the shares based upon the volume weighted closing price of the Class B Stock on the NYSE on the thirty days ending with the NYSE trading day immediately preceding the issuance and such shares, and vesting, contingent on Mr. Jonas’ remaining in continuous service to the Company, in substantially equal amounts on the first and second annual anniversaries of the Start Date.

 

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, 2020     580,874     $ 4.90       2.65     $ 2,846  
Granted     118,409       40.85      
—
      
—
  
Exercised     (14,546 )     4.90      
—
      
—
  
Cancelled / Forfeited     (1,323 )     4.90      
—
      
—
  
Outstanding at July 31, 2021     683,414     $ 11.13       3.05     $ 26,982  
Granted     518,304       20.54       9.25      
—
  
Cancelled / Forfeited     (180,441 )    
—
      
—
      
—
  
Outstanding at July 31, 2022     1,021,277     $ 12.11       4.47     $
—
  
Exercisable at July 31, 2022     594,607     $ 6.69       1.06     $
—
  

 

At July 31, 2022, there are unrecognized compensation costs related to non-vested stock options of $4.1 million, which are expected to be recognized over the next 4.2 years.

 

Vesting terms of options granted to two executive team members during the year ended July 31, 2022 were modified to extend the vesting period by one year. This was accounted for as a modification, and no incremental compensation cost was recorded as the amount is nominal.

 

The value of option grants is calculated using the Black-Scholes option pricing model with the following assumptions for options granted during the years ended July 31, 2022 and 2021:

 

   July 31,
2022		   July 31,
2021		 
Risk-free interest rate   0.67% - 1.7%   1%
Expected term (in years)   6.04 - 6.11    6.04 
Expected volatility   75% - 93%   75%
Expected dividend yield   —%   
—
%

 

The weighted-average grant date fair value of stock options granted during the years ended July 31, 2022 and 2021 was $3.29 and $23.49, respectively.

 

Rafael Medical Devices, Inc. Stock Options

 

The Rafael Medical Devices, Inc. 2022 Equity Incentive Plan (the “RMD 2022 Plan”) was created and adopted by the Company in May 2022. The RMD 2022 Plan allows for the issuance of up to 10,000 shares of Class B common stock of Rafael Medical Devices which may be awarded in the form of incentive stock options or restricted shares. There are 4,734 shares available for issuance under the RMD 2022 Plan as of July 31, 2022.

 

The fair value of Rafael Medical Devices, Inc. common stock was estimated for financial reporting purposes based on a valuation of $4.02 per share as of January 31, 2022. To determine the fair value of the common stock, the Company first determined an enterprise value using accepted valuation approaches; adjusted these valuation approaches with relevant discounts and then allocated the equity value to the common stock and common stock equivalents on a fully diluted basis. The enterprise value was estimated using the generally accepted income approach. The income approach estimates enterprise value based on the estimated present value of future cash flows the business is expected to generate over its remaining life. The estimated present value is calculated using a discount rate reflective of the risks associated with an investment in a similar company in a similar industry or having a similar history of revenue growth. The Company then subtracted the net non-operating assets and applied a discount for lack of marketability to determine equity fair value.

 

A summary of stock option activity for Rafael Medical Devices, Inc. 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, 2021    
—
     $
—
      
—
     $
           —
  
Granted     5,266       3.82       9.76      
—
  
Outstanding at July 31, 2022     5,266     $ 3.82       9.76      
—
  
Exercisable at July 31, 2022     1,316     $ 3.82       9.76     $
—
  

 

At July 31, 2022, there are unrecognized compensation costs related to non-vested stock options of $11 thousand, which are expected to be recognized over the next 2.44 years.

 

The value of option grants is calculated using the Black-Scholes option pricing model with the following assumptions for options granted during the year ended July 31, 2022:

 

Risk-free interest rate   3.0%
Expected term (in years)   5.63 
Expected volatility   97.0%
Expected dividend yield   
—
%

 

The weighted-average grant date fair value of stock options granted during the year ended July 31, 2022, was $3.12.

 

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.

 

In January 2021, the Company granted a total of 12,609 restricted shares of Class B common stock to non-employee directors, all of which were granted from the 2018 Equity Incentive Plan. The restricted shares vested immediately on the grant date. The share based compensation cost was approximately $286 thousand, which was included in selling, general and administrative expense in the consolidated statement of operations and comprehensive loss.

 

In January 2022, the Company granted 33,360 restricted shares of Class B common stock to non-employee directors, 18,336 of which were granted from the 2018 Equity Incentive Plan, and 15,024 of which were granted from the 2021 Plan. The restricted shares vested immediately on the grant date. The share based compensation cost was approximately $151 thousand, which was included in selling, general and administrative expense in the consolidated statement of operations and comprehensive loss.

 

On February 1, 2022, the Company issued 986,835 shares of Class B restricted stock to two members of the executive team. Approximately 24% of the restricted shares vest in December 2022, with the remaining shares vesting ratably each quarter through December 2025.

 

On June 14, 2022, the Company issued 452,130 shares of Class B restricted stock to Howard S. Jonas.

 

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, 2020     123,104     $ 10.80  
Granted     956,317       48.34  
Vested     (69,347 )     (10.76 )
Cancelled / Forfeited     (2,099 )     (13.54 )
Outstanding at July 31, 2021     1,007,975     $ 46.77  
Granted     1,533,311       4.24  
Vested     (90,608 )     16.86  
Cancelled / Forfeited     (943,305 )     (48.50 )
Non-vested shares at July 31, 2022     1,507,373     $ 4.22  

 

At July 31, 2022, there was $4.9 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements, which is expected to be recognized over the next 3.25 years.

 

On November 21, 2021, Ameet Mallik resigned as Chief Executive Officer of the Company, effective January 31, 2022. In connection with his resignation, there was a material forfeiture of the former CEO’s Class B restricted shares, resulting in a reversal of approximately $19.0 million in stock-based compensation expense that was previously recorded to selling, general and administrative expense. Additionally, pursuant to the terms of his employment agreement, the Company paid $5.0 million relating to his severance payout, which is included in selling, general and administrative expense on the consolidated statement of operations and comprehensive loss for the year ended July 31, 2022.

 

A summary of the stock-based compensation expense for the Company’s equity incentive plans is presented below:

 

   Year Ended July 31, 
   2022   2021 
   (in thousands) 
Selling, general and administrative  $17,270   $6,110 
Research and development   791    523 
Forfeiture of RSUs within selling, general and administrative   (18,978)   
—
 
Net stock-based compensation (credit) expense  $(917)  $6,633 

 

Securities Purchase Agreement

 

On December 7, 2020, Rafael Holdings entered into a Securities Purchase Agreement (the “SPA”) for the sale of 567,437 shares of the Company’s Class B common stock at a price per share of $22.91 (which was the closing price for the Class B common stock on the New York Stock Exchange on December 4, 2020, the trading day immediately preceding the date of the SPA) for an aggregate purchase price of $13 million.

 

Approximately $8.2 million of the proceeds received pursuant to the SPA were used by the Company to exercise an additional portion of the Warrant in order to maintain the Company’s relative position in Cornerstone Pharmaceuticals in light of issuances of Cornerstone Pharmaceuticals equity securities to third-party shareholders of Cornerstone Pharmaceuticals, due to warrant exercises by these shareholders. The Company is using the remaining proceeds to fund the operations of its drug development programs including its Barer Institute subsidiary, and for general corporate purposes. Under the SPA, two entities, on whose Boards of Directors Howard Jonas, the Registrant’s Chairman of the Board and former Chief Executive Officer serves, each purchased 218,245 shares of Class B common stock for consideration of $5 million each. The shares and warrants were issued in reliance on the exemption from registration provided for under Section 4(a)(2) of the Securities Act of 1933, as amended.

 

Equity-classified Warrants

 

In connection with the SPA entered into on December 7, 2020, each purchaser was granted warrants to purchase twenty percent (20%) of the shares of Class B common stock purchased by such purchaser. The Company issued warrants to purchase 113,487 shares of Class B common stock to the purchasers. The warrants are exercisable at a per share exercise price of $22.91, and are exercisable at any time on or after December 7, 2020 through June 6, 2022. The Company determined that these warrants are equity-classified.

 

During fiscal 2021, IDT and Genie each exercised 43,649 warrants, resulting in a total of 87,298 shares of Class B common stock issued for proceeds of approximately $2 million.

 

On June 6, 2022, the Company’s outstanding warrants to purchase 26,189 shares of common stock at an exercise price of $22.91 per share expired. There were no exercises of warrants during the year ended July 31, 2022. At July 31, 2022, the Company had no outstanding warrants.