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Fair Value Measurements
 3 Months Ended
Oct. 31, 2023
Fair Value Measurements [Abstract]  
FAIR VALUE MEASUREMENTS

NOTE 11 – FAIR VALUE MEASUREMENTS

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

 

●Level 1 - quoted prices in active markets for identical assets or liabilities;

 

●Level 2 - quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or

 

●Level 3 - unobservable inputs for the asset or liability, such as discounted cash flow models or valuations.

 

The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

The following is a listing of the Company’s assets required to be measured at fair value on a recurring basis and where they are classified within the fair value hierarchy as of October 31, 2023 and July 31, 2023:

 

   October 31, 2023 
   Level 1   Level 2   Level 3   Total 
Assets:  (in thousands) 
Available-for-sale securities - Corporate Bonds  $
—
   $46,476   $
—
   $46,476 
Available-for-sale securities - U.S. Treasury Bills   12,418    
—
    
—
    12,418 
Investment in Cyclo Therapeutics Inc. - Common Stock   8,759    
—
    
—
    8,759 
Investment in Cyclo Therapeutics Inc. - Warrants   
—
    
—
    1,090    1,090 
Hedge funds   
—
    
—
    2,318    2,318 
Convertible note receivable, related party   
—
    
—
    1,858    1,858 
Total  $21,177   $46,476   $5,266   $72,919 

 

   July 31, 2023 
   Level 1   Level 2   Level 3   Total 
Assets:  (in thousands) 
Available-for-sale securities - Corporate Bonds  $
—
   $46,439   $
—
   $46,439 
Available-for-sale securities - U.S. Treasury Bills   11,275    
—
    
—
    11,275 
Investment in equity securities   294    
—
    
—
    294 
Investment in Cyclo Therapeutics Inc. - Common Stock   3,898    
—
    
—
    3,898 
Investment in Cyclo Therapeutics Inc. - Warrants   865    
—
    
—
    865 
Hedge funds   
—
    
—
    4,984    4,984 
Convertible note receivable, related party   
—
    
—
    1,921    1,921 
Total  $16,332   $46,439   $6,905   $69,676 

 

As of October 31, 2023 and 2022, the Company did not have any liabilities measured at fair value on a recurring basis.

 

The following table summarizes the changes in the fair value of the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

 

   Three Months Ended
October 31,		 
   2023   2022 
   (in thousands) 
Balance, beginning of period  $6,905   $4,764 
Withdrawal from Hedge Fund Investments   (2,500)   
—
 
Unrealized loss on Hedge Fund   (166)   (127)
Investment in Cyclo Warrants   1,338    
—
 
Unrealized loss on Cyclo Warrants   (248)   
 
 
Unrealized loss on Convertible Note Receivable, Related Party   (63)   
—
 
Balance, end of period  $5,266   $4,637 

 

Hedge funds classified as Level 3 include investments and securities which may not be based on readily observable data inputs. The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. The fair value of these assets is estimated based on information provided by the fund managers or the general partners. Therefore, these assets are classified as Level 3. During the three months ended October 31, 2023, the Company requested a withdrawal from Hedge Fund Investments of $2.5 million. The withdrawal was not yet funded at October 31, 2023 and is included in Prepaid expenses and other current assets in the accompanying consolidated balance sheets.

 

Available-for-sale securities classified as Level 3 include a convertible note receivable, related party (see Note 5) which may not be based on readily observable data inputs. The availability of observable inputs can vary and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. The fair value of this asset is estimated using a scenario-based analysis based on the probability-weighted present value of future investments returns, considering each of the possible outcomes available to us, including cash repayment, equity conversion, and collateral transfer scenarios. Estimating the fair value of the convertible note requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. Therefore, this asset is classified as Level 3.

 

The Company recognizes the fair value of the Cyclo Warrants utilizing a Black-Scholes option-pricing valuation model (“Black-Scholes model”) at acquisition and each reporting date. The application of the Black-Scholes model utilizes significant assumptions, including expected volatility, expected life and risk-free interest rate. In order to determine the volatility, we measured expected volatility based on several inputs, including considering a peer group of publicly traded companies and the implied volatility of the Company's publicly-traded warrants. As a result of the unobservable inputs that were used to determine the expected volatility of the Cyclo Warrants, the fair value measurement of these warrants reflected a Level 3 measurement within the fair value measurement hierarchy. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term.‌ The expected volatility is a key assumption or input to the valuation of the Cyclo Warrants, however changes in the expected volatility assumption will have less of an effect on the Black-Scholes model valuation as the Cyclo Warrants approach their expiration. Both of the Cyclo Warrants are subject to limits on exercise and any sales of the underlying shares of common stock would be subject to volume restrictions for which a discount to the stock price of Cyclo was applied. The Black-Scholes model further incorporated a discount for the overall lack of marketability for the Cyclo Warrants.

 

Below are the unobservable inputs to the Cyclo Warrants which reflect a Level 3 measurement within the fair value measurement hierarchy as of October 31, 2023:

 

Unobservable Input  Range  Weighted Average
Price Per Share [1]  $0.49 - $0.58  $0.54
Exercise Price  $0.95 - $1.25  $1.10
Expected Volatility  82.2% - 85.5%  84.0%
Risk - Free Rate [2]  4.90%  4.90%
Marketability Discount  45.0% - 50.0%  48.0%
Remaining Term  3.97 to 6.75 years  5.36 years
Fair Value per Warrant [3]  $0.15 - $0.18  $0.17

 

[1]Closing price of Cyclo’s common shares adjusted to reflect regulatory resale restrictions which ranged from 40.0% to 50.0%
[2]US Treasury rate for a period commensurate with the Remaining Term.
[3]Concluded fair value per warrant as of October 31, 2023

 

The Company holds $0.0 and $65 thousand as of October 31, 2023 and July 31, 2023, respectively, in investments in securities in another entity that are not liquid, which were included in Investments - Other Pharmaceuticals in the accompanying consolidated balance sheets. The investment is accounted for under ASC 321, Investments - Equity Securities, using the measurement alternative as defined within the guidance.

 

Fair Value of Other Financial Instruments

 

The estimated fair value of the Company’s other financial instruments was determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting these data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.

 

The Company’s financial instruments include trade accounts receivable, trade accounts payable, and due from related parties. The recorded carrying amounts of accounts receivable, accounts payable and due to related parties approximate their fair value due to their short-term nature.