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Investment in Cornerstone Pharmaceuticals | 3 Months Ended
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Oct. 31, 2023
Investment in Cornerstone Pharmaceuticals [Abstract] |
INVESTMENT IN CORNERSTONE PHARMACEUTICALS | NOTE 4 – INVESTMENT IN CORNERSTONE PHARMACEUTICALS Equity Investment in Cornerstone Pharmaceuticals and Impairment of Cost Method Investment Cornerstone Pharmaceuticals is a clinical stage, cancer metabolism-based therapeutics company focused on the development and commercialization of therapies that exploit the metabolic differences between normal cells and cancer cells. The Company owns debt and equity interests and rights in Cornerstone Pharmaceuticals through a 90%-owned non-operating subsidiary, Pharma Holdings, LLC, or Pharma Holdings. Pharma Holdings owns 50% of CS Pharma Holdings, LLC, or CS Pharma, a non-operating entity that owns equity interests in Cornerstone Pharmaceuticals. Accordingly, the Company holds an effective 45% indirect interest in the assets held by CS Pharma. A trust for the benefit of the children of Howard Jonas (Chairman of the Board and Executive Chairman and former Chief Executive Officer of the Company and Member of the Board of Cornerstone Pharmaceuticals) holds a financial instrument (the “Instrument”) that owns 10% of Pharma Holdings. Pharma Holdings holds 44.0 million shares of Cornerstone Pharmaceuticals' Series D Convertible Preferred Stock. Pharma Holdings also holds certain governance rights in Cornerstone Pharmaceuticals including the appointment of directors. Pharma Holdings is not the primary beneficiary of Cornerstone Pharmaceuticals as it does not control or direct the activities of Cornerstone Pharmaceuticals that most significantly impact Cornerstone Pharmaceuticals' economic performance. CS Pharma holds 16.7 million shares of Cornerstone Pharmaceuticals Series D Convertible Preferred Stock. The Company and its subsidiaries collectively own securities representing 51% of the outstanding capital stock of Cornerstone Pharmaceuticals and 42% of the capital stock on a fully diluted basis. 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 Cornerstone Pharmaceuticals, prior to any dividends to any other class of capital stock of Cornerstone Pharmaceuticals. In the event of any liquidation, dissolution or winding up of Cornerstone Pharmaceuticals, 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. 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 Cornerstone 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 Cornerstone 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. The Company has determined that Cornerstone 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 Cornerstone Pharmaceuticals that most significantly impact Cornerstone Pharmaceuticals’ economic performance. In addition, the interests held in Cornerstone Pharmaceuticals are Series D Convertible Preferred Stock and do not represent in-substance common stock. The Instrument holds a contractual right to receive additional shares of Cornerstone Pharmaceuticals capital stock equal to 10% of the fully diluted capital stock of Cornerstone Pharmaceuticals (the "Bonus Shares") upon the achievement of certain milestones. The additional 10% is based on the fully diluted capital stock of Cornerstone Pharmaceuticals, at the time of issuance. If any of the milestones are met, the Bonus Shares are to be issued without any additional payment. The Company currently owns 51% of the issued and outstanding equity in Cornerstone Pharmaceuticals and has certain governance rights. Approximately 8% of the issued and outstanding equity is owned by the Company’s subsidiary CS Pharma and 43% is held by the Company’s subsidiary Pharma Holdings. Line of Credit to Cornerstone Pharmaceuticals and Impairment of Related Receivable On September 24, 2021, the Company entered into a Line of Credit Loan Agreement (the “Line of Credit Agreement”) with Cornerstone Pharmaceuticals under which Cornerstone Pharmaceuticals borrowed $25 million from the Company. The first advance was in the amount of $1.9 million on September 24, 2021. On October 1, 2021, a second advance was made in the amount of $23.1 million. The Line of Credit Agreement accrues interest at 9% per annum. The maturity date of the Line of Credit Agreement was June 17, 2022, and the amounts due on that date were not paid. The Company is in discussions with Cornerstone Pharmaceuticals and is evaluating its rights and plan of action with respect to the Line of Credit Agreement (in the contexts of all of its interests in Cornerstone Pharmaceuticals). Due to the Data Events, the Company recorded a full reserve on the amounts due the Company from Cornerstone Pharmaceuticals related to the Line of Credit Agreement for $25 million during the year ended July 31, 2022. Planned Restructuring Cornerstone is in the process of a comprehensive restructuring transaction including, the conversion of the debt under the Line of Credit Agreement and the Promissory Note held by the Company, the conversion and modification of other Cornerstone debt obligations, the extension of the Cornerstone debt held by RP Finance, a reverse stock split, the conversion of all outstanding preferred stock of Cornerstone into common stock and the adoption of certain governance measures. This transaction is subject to a number of conditions which are beyond the Company’s control.

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- Definition The entire disclosure for investment. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Topic 320 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//320/tableOfContent Reference 2: http://www.xbrl.org/2009/role/commonPracticeRef -Name Accounting Standards Codification -Topic 321 -Publisher FASB -URI https://asc.fasb.org//321/tableOfContent Reference 3: http://www.xbrl.org/2009/role/commonPracticeRef -Name Accounting Standards Codification -Topic 325 -Publisher FASB -URI https://asc.fasb.org//325/tableOfContent + Details
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