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Equity
 3 Months Ended
Oct. 31, 2023
Equity [Abstract]  
EQUITY

NOTE 20 – EQUITY

 

Share Repurchase Program

 

In April 2023, the Company’s Board of Directors approved a share repurchase program (the “2023 Share Repurchase Program”) authorizing the repurchase of up to $5 million of the Company’s Class B common stock. Under the 2023 Share Repurchase Program, which took effect on April 14, 2023, the Company may purchase its shares from time to time until the earlier of June 16, 2023 (the “Plan Termination Date”) or when $5 million worth of shares at $1.75 per share or below have been purchased. In July 2023, the 2023 Share Repurchase Program was amended to extend the Plan Termination Date to the earlier of July 1, 2024, or when $5 million worth of shares at $1.75 per share or below have been purchased.

 

The timing and amount of any share repurchases under the 2023 Share Repurchase Program will be determined at the Company's discretion and based on market conditions and other considerations. Share repurchases under the authorizations may be made through open market purchases or pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934. The program does not obligate the Company to acquire any particular amount of its Class B common stock, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.

 

During the three months ended October 31, 2023, the Company repurchased 50,700 of its Class B common stock for a total cost of $79 thousand under the Share Repurchase Program.

 

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 to issue 48,859 shares of Class B common stock for payment due on the purchase of Altira, an investment which has been subsequently fully impaired.

 

On August 19, 2021, the Company entered into a Securities Purchase Agreement (the "Institutional Purchase Agreement") with certain third party institutional investors (the "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.

 

The 2018 Equity Incentive Plan was created and adopted by the Company in March 2018. On January 19, 2022, the Company's stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”). The 2018 Equity Incentive Plan was suspended and replaced by the 2021 Plan, and, following January 19, 2022, no new grants are to be awarded under the 2018 Equity Incentive Plan. 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. On January 19, 2022, the Company filed a Registration Statement on Form S-8 registering 1,919,025 shares Class B Common Stock reserved for issuance under the 2021 Plan. On November 28, 2022, the Company’s Board of Directors approved an amendment to the 2021 Plan that, among other things, increases the number of shares of the Company’s Class B Common Stock available for the grant of awards thereunder by an additional 696,770, which the stockholders approved on January 23, 2023. The maximum number of shares of Class B common stock that may be issued under the 2021 Plan is 2,615,795 shares. As of October 31, 2023, there were 682,404 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 the Institutional Investors of the shares purchased by them. The Registration Statement was declared effective on March 7, 2022.

 

On July 6, 2022, pursuant to the I9 SPA dated June 22, 2022 with I9 Plus, LLC, an entity affiliated with members of the family of Howard Jonas, the Company sold 3,225,806 shares of the Company’s Class B common stock to I9 Plus, LLC at a price per share of $1.86 and an aggregate sale price of $6 million.

 

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. On July 12, 2022, the Employment Agreement was amended to provide an annual base salary of $290,000, of which $250,000 is payable through the issuance of Class B Stock in accordance with the terms defined above.

 

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, 2023   388,409   $14.51    8.71   $
        —
 
Granted   
—
    
—
    
—
    
—
 
Expired   
—
    
—
    
—
    
—
 
Cancelled / Forfeited   
—
    
—
    
—
    
—
 
Outstanding at October 31, 2023   388,409   $14.51    8.45   $
—
 
Exercisable at October 31, 2023   115,800   $27.76    7.73   $
—
 

 

At October 31, 2023, there is unrecognized compensation costs related to non-vested stock options of $1.2 million, which are expected to be recognized over the next 2.9 years.

 

Rafael Medical Devices Stock Options

 

The Rafael Medical Devices, LLC 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 which may be awarded in the form of incentive stock options or restricted shares.

 

In connection with the conversion of Rafael Medical Devices from a Delaware corporation to a Delaware limited liability company, Rafael Medical Devices adopted the Rafael Medical Devices, LLC 2023 Equity Incentive Plan (the “RMD 2023 Plan”) in August 2023. The RMD 2023 Plan allows for issuance of up to 46,125 Class A Units (the "Units"). There were 2,247 units available for issuance under the RMD 2023 Plan as of October 31, 2023.

 

Rafael Medical Devices, LLC records compensation expense for stock-based awards based upon an assessment of the grant date fair value for options using the Black-Scholes option pricing model. The expected term was determined according to the simplified method, which is the average of the vesting tranche dates and the contractual term. Due to the lack of company specific historical and implied volatility data, the estimate of expected volatility is primarily based on the historical volatility of a group of similar companies that are publicly traded. For these analyses, characteristics from comparable companies are selected, including enterprise value and position within the industry, and with historical share price information sufficient to meet the expected life of the share-based awards. The risk-free interest rate is determined by reference to the U.S. Treasury Constant Maturity Treasury rates with remaining maturities similar to the expected term of the options. Expected dividend yield is zero as Rafael Medical Devices, LLC has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future.

 

The following table summarizes assumptions used to compute the fair value of Units granted under the RMD 2023 Plan during the three months ended October 31, 2023:

 

Risk-free interest rate   4.24-4.54% 
Expected term (in years)   5-6.25 
Expected volatility   113%
Expected dividend yield   
—%

 

A summary of option activity for Rafael Medical Devices, LLC 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, 2023   5,266   $3.82    9.76   $
          —
 
Granted   43,878    10.00    9.75    
—
 
Exercised   
—
    
—
    
—
    
—
 
Cancelled / Forfeited   (5,266)   3.82    
—
    
—
 
Outstanding at October 31, 2023   43,878   $10.00    9.75   $
—
 
Exercisable at October 31, 2023   11,886   $10.00    9.75   $
—
 

 

The weighted average grant date fair value per unit for the RMD option grants during the three months ended October 31, 2023 was $8.50. At October 31, 2023, the total unrecognized compensation related to stock option awards granted, was $246 thousand, which the Company expects to recognize over a weighted-average period of approximately 3.8 years.

 

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 2022, the Company granted 33,360 restricted shares of Class B common stock to non-employee directors, 18,336 of which were granted under the 2018 Equity Incentive Plan, and 15,024 of which were granted under 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 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 executive officers. Approximately 24% of the restricted shares vested 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.

 

In January 2023, the Company issued 120,019 shares of Class B restricted stock to certain members of its Board of Directors, and 100,000 shares of Class B restricted stock to its Chief Financial Officer.

 

During January 2023, 296,759 shares of Class B restricted stock were cancelled or forfeited due to (i) the cancellation of 285,036 shares of restricted stock in connection with the departure of the Company's former Chief Financial Officer and (ii) the remaining shares forfeited upon the termination of certain employees of the Company.

 

In connection with Patrick Fabbio’s January 27, 2023 departure as the Company's Chief Financial Officer, the Company and Mr. Fabbio entered into a Separation and General Release Agreement (the “Separation Agreement”), which provides, among other things, that the Company shall pay Mr. Fabbio severance in the amount of $307,913, which is included in selling, general and administrative expense on the consolidated statement of operations and comprehensive loss for the year ended July 31, 2023.

 

In connection with the termination of Mr. Fabbio’s position as Chief Financial Officer of the Company, there was a material forfeiture of his Class B restricted shares and stock options resulting in a reversal of approximately $915 thousand in stock-based compensation expense for the year ended July 31, 2023 that was previously recorded to selling, general and administrative expense.

 

On August 28, 2023, the Company issued 111,408 shares of Class B restricted stock to Howard S. Jonas.

 

On October 25, 2023, the Company issued 135,000 shares of Class B restricted stock to employees of the Company.

 

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, 2023   684,766   $4.22 
Granted   246,408    1.84 
Vested   (76,001)   4.03 
Non-vested shares at October 31, 2023   855,173   $3.41 

 

At October 31, 2023, there was $1.7 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements, which is expected to be recognized over the next four years.

 

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

 

   For the Three Months Ended,
October 31		 
   2023   2022 
General and administrative  $508   $1,083 
Research and development   141    97 
Net stock-based compensation expense  $649   $1,180 

 

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 a 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. 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.

 

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. As of October 31, 2023, the Company had no outstanding warrants.