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Convertible Note Receivable, Related Party

3 Months Ended

Oct. 31, 2023

Convertible Note Receivable, Related Party [Abstract]

CONVERTIBLE NOTE RECEIVABLE, RELATED PARTY

NOTE 5 – CONVERTIBLE NOTE RECEIVABLE, RELATED PARTY

On March 21, 2023, the Company loaned $2.0 million to Cornerstone which is represented by the Promissory Note made by Cornerstone. The Promissory Note, which bears interest at a rate of seven and one-half percent (7.5%) per annum, was originally due and payable on May 22, 2023. On May 22, 2023, the Promissory Note was amended to extend the maturity date to November 30, 2023 and to waive any increase in the interest rate provided for in the Promissory Note, provided that the entire principal amount and all accrued interest thereon is repaid in cash or converted into equity securities of Cornerstone no later than November 30, 2023. The Company is in the process of a comprehensive restructuring transaction with Cornerstone (refer to Note 4).

The Promissory Note is secured by a first priority security interest in all of Cornerstone’s right, title and interest in and to all of the tangible and intangible assets purchased by Cornerstone pursuant to the Purchase Agreement between Cornerstone and Calithera Biosciences, Inc. (“Calithera”), a clinical-stage, precision oncology biopharmaceutical company developing targeted therapies to redefine treatment for biomarker-specific patient populations, and all proceeds therefrom and all rights to the data related to CB-839 (the “Collateral”).

The interest on the Promissory Note accrues from the issuance date until the Promissory Note is paid in full or converted, which shall accrue on a quarterly basis. Subject to the amendment described above, in the event the total outstanding amount under the Promissory Note is not repaid by the amended maturity date, the rate of interest shall be eleven percent (11%), retroactive from and after the maturity date. Subject to the amendment described above, following the occurrence of and during the continuation of an uncured Event of Default (as defined below), the outstanding principal amount shall bear interest at the rate of fourteen percent (14%) per annum (the “Default Interest Rate”) until the earliest of (i) cure of such Event of Default, (ii) repayment of all outstanding amounts due under the Promissory Note, (iii) conversion of all then outstanding obligations under the Promissory Note, or (iv) transfer of all its rights related to the Collateral.

The entire (and not less than the entire) outstanding principal amount due under the Promissory Note together with all accrued unpaid interest thereon and other amounts owing thereunder (together, the “Owed Amount”), may, at Cornerstone’s election at any time prior to the maturity date, be converted into a number of shares (the “Conversion Shares”) calculated by dividing the entire Owed Amount by the conversion price used by Cornerstone in a Qualified Offering/Conversion (as defined in the Promissory Note), and if no such Qualified Offering/Conversion has been consummated, the fair market value for the Conversion as determined by an independent third party valuation firm (the “Conversion Price”).

The Promissory Note contains certain trigger events (as defined in the Promissory Note) that generally, if uncured within five (5) trading days, may result in an event of default in accordance with the terms of the Promissory Note (such event, an “Event of Default”). Upon an Event of a Default, the Company may consider the Promissory Note immediately due and payable. Upon an Event of Default, the interest rate may also be increased to the lesser of 18% per annum or the maximum rate permitted under applicable law.

The Company recorded the Promissory Note at fair value as the security is classified as available-for-sale. Subsequent changes in fair value are recorded in unrealized gain or loss on available-for-sale securities as a component of other comprehensive income (loss) in the consolidated statements of operations and comprehensive loss. The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value of the Promissory Note as of October 31, 2023 and July 31, 2023 are as follows:

October 31, 2023	Amortized cost		Gross unrealized gains		Gross unrealized (losses)			Fair value
	(in thousands)
Convertible note receivable, related party	$	2,000	$	—	$	(142	)	$	1,858

July 31, 2023	Amortized cost		Gross unrealized gains		Gross unrealized (losses)			Fair value
	(in thousands)
Convertible note receivable, related party	$	2,000	$	—	$	(79	)	$	1,921

Interest income on the Promissory Note totaled approximately $91 thousand for the three months ended October 31, 2023 and is recorded in interest receivable on the consolidated balance sheets.