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Investment in Cyclo Therapeutics, Inc.

3 Months Ended

Oct. 31, 2023

Investment in Cyclo Therapeutics, Inc. [Abstract]

NOTE 9 – INVESTMENT IN CYCLO THERAPEUTICS, INC.

On May 2, 2023, the Company entered into a Securities Purchase Agreement (the “Cyclo SPA”) with Cyclo. Cyclo is a clinical-stage biotechnology company dedicated to developing life-changing medicines for patients and families living with challenging diseases through its lead therapeutic asset, Trappsol^®. The Company purchased from Cyclo (i) 2,514,970 common shares (the “Purchased Shares”) and (ii) a warrant to purchase 2,514,970 common shares with an exercise price of $0.71 per share (the “May Warrant”), at a combined purchase price equal to $0.835 per Purchased Share and May Warrant to purchase one share, for an aggregate purchase price of $2.1 million. The May Warrant is exercisable until August 1, 2030.

On August 1, 2023, pursuant to a Securities Purchase Agreement (the “Cyclo II SPA”) dated June 1, 2023, the Company purchased an additional 4,000,000 shares of common stock (the “Cyclo II Shares”), and received a warrant to purchase an additional 4,000,000 Shares (the “Cyclo II Warrant”), for an aggregate purchase price of $5,000,000. The Cyclo II Warrant has an exercise price of $1.25 per share and is exercisable until August 1, 2030. The August 1, 2023 investment increased the Company's percentage ownership of Cyclo common stock to approximately 34%. As of the date of this report, the Company has not exercised the Cyclo II Warrant.

Cyclo and the Company are party to a Registration Rights Agreement requiring Cyclo to file a registration statement with the Securities and Exchange Commission to register the resale of the shares and shares of common stock underlying the May Warrant, upon the request of Rafael.

William Conkling, Rafael's CEO, serves on Cyclo’s Board of Directors.

On October 20, 2023, the Company exercised the May Warrant to purchase 2,514,970 common shares at an exercise price of $0.71 per share, pursuant to a Securities Purchase Agreement dated October 20, 2023, and received a new warrant (the "Replacement Warrant") to purchase 2,766,467 common shares at an exercise price of $0.95 per share. The Replacement Warrant is exercisable until October 20, 2027. As of the date of this report, the Company had not exercised the Replacement Warrant. Both the Cyclo II Warrant and Replacement Warrant (collectively, the "Cyclo Warrants") are subject to the restriction that exercise(s) do not convey more than 49% ownership to the Company. Upon exercise of the May Warrant, the Company recognized a realized gain of $424 thousand. The October 20, 2023 investment increased the Company's percentage ownership of Cyclo common stock to approximately 40%.

The Company has determined that Cyclo 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 Cyclo that most significantly impact Cyclo’s economic performance and, therefore, is not required to consolidate Cyclo. The Company has elected to account for its investment in Cyclo under the fair value option, with subsequent changes in fair value recognized as unrealized gain (loss) in the consolidated statements of operations and comprehensive loss. During the three months ended October 31, 2023, the Company recognized an unrealized loss of $2.1 million related to its investment in Cyclo.

Summarized Fair Value Method Investment Details

Ownership %

Aggregate
Fair Value

(in thousands)

October 31, 2023

Cyclo

9,849

The 40% ownership percentage as of October 31, 2023 is comprised of the shares of common stock owned by the Company and does not include the Cyclo II Warrant or the Replacement Warrant. The total aggregate fair value of the Cyclo investment of $9,849,042 as of October 31, 2023 is comprised of common shares with an aggregate fair value of $8,759,042 and Cyclo Warrants with an aggregate fair value of $1,090,000. The total aggregate fair value of the Cyclo investment of $4,763,102 as of July 31, 2023 is comprised of common shares with an aggregate fair value of $3,898,204 and the May Warrants with an aggregate fair value of $864,898 (See Note 11).