| EQUITY | NOTE 25 – EQUITY Share Repurchase Program Effective April 14, 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, the Company was authorized to purchase,
at purchase prices up to $1.75 per share, shares of its Class B common stock from time to time until June 16, 2023 (the “Plan Termination
Date”). In July 2023, the 2023 Share Repurchase Program was amended to extend the Plan Termination Date to July 1, 2024. On December
22, 2023, the Company suspended the share repurchase program through the Plan Termination Date. 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 year ended July 31, 2024, the Company
repurchased 101,487 of its Class B common stock for a total cost of $168 thousand under the 2023 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 were $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. 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. In March 2018, the Company established its 2018
Equity Incentive Plan. 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 of 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 July 31, 2024, there were 171,986 shares
still available for issuance under the 2021 Plan. 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 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 common 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 common stock on the NYSE on the 30 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 June
19, 2024, the Employment Agreement was amended to provide an annual base salary of $294,000, of which $250,000 is payable through the
issuance of Class B common 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, 2022 1,021,277 $ 12.11 4.47 $ — Granted 175,000 2.08 9.51 — Expired (589,205 ) — — — Cancelled / Forfeited (218,663 ) — — — Outstanding at July 31, 2023 388,409 $ 14.51 8.71 $ — Granted 250,000 1.84 9.50 — Outstanding at July 31, 2024 638,409 $ 9.55 8.39 $ — Exercisable at July 31, 2024 114,602 $ 13.13 7.61 $ — The weighted average grant date fair value per
unit for the options granted during the years ended July 31, 2024 and 2023, was $1.34 and $1.58, respectively. At July 31, 2024,
there were unrecognized compensation costs related to non-vested stock options of $1.3 million, which are expected to be recognized over
the next 2.2 years from July 31, 2024. The value of option grants is calculated using
the Black-Scholes model with the following assumptions for options granted during the years ended July 31, 2024 and 2023, respectively: For the Year Ended 2024 2023 Risk-free interest rate 3.98 % 3.66 % Expected term (in years) 6.25 6.11 Expected volatility 88 % 95 % Expected dividend yield — % — % Rafael Medical Devices Stock Options The Rafael Medical Devices 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 July 31, 2024. 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 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 year ended July 31, 2024:
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, 2022 5,266 $ 3.82 9.76 $ — Granted — — — — Outstanding at July 31, 2023 5,266 $ 3.82 8.76 $ — Granted 43,878 10.00 9.01 — Cancelled / Forfeited (5,266 ) 3.82 — — Outstanding at July 31, 2024 43,878 $ 10.00 9.01 $ — Exercisable at July 31, 2024 11,886 $ 10.00 9.01 $ — The weighted average grant date fair value per
unit for the RMD option grants during the year ended July 31, 2024 was $8.50. At July 31, 2024, the total unrecognized compensation
related to stock option awards granted was $193 thousand, which the Company expects to recognize over a weighted average period of approximately
3.0 years. Cornerstone Stock Options Cornerstone has outstanding stock options and
non-qualified options to purchase Cornerstone’s common stock which were granted under Cornerstone’s 2009 and 2018 Stock Incentive Plans
(the “Plans”), as well as additional options issued during a prior capital raise. At July 31, 2024, there were 1,004,341 options
outstanding granted under the Plans that are vested with a weighted average exercise price of $24.17 per share and a weighted average
remaining contractual term of 4.4 years. The fair value of outstanding options granted under the Plans assumed during the Cornerstone
Acquisition were determined to be de minimis. In connection with Cornerstone’s 2003 common
stock offerings, Cornerstone entered into an option agreement with an individual in connection with identifying investors. The option
agreement grants the right to purchase an option (a “Purchase Option”) to purchase 472,000 Class A Options (“Class A
Options”), which allows the purchase of 0.25 shares of common stock for each Class A Option at $11.00 per share. In order to secure
this Class A Option, a Purchase Option must initially be purchased for $.005 per potential share of Class A options. Upon exercise of
each Class A Option, a right is granted to one Class B Option (“Class B Options”), which allow the purchase of 0.25 shares
of common stock for each Class B Option at $12.50 per share. The expiration date of the Class A Options is the later of October 29, 2005
or six months from the date the Company’s shares become publicly traded. The Class B Options expire 180 days from the exercise of
the Class A Options. In 2003, 625,000 options (the “Cornerstone Common Options”) were granted with an exercise price of $11.00
per share to a 2003 investor. These Cornerstone Common Options are set to expire 180 days following the closing of an IPO, or from the
date Cornerstone’s shares become publicly traded. The fair value of the Class A Options, Class B Options, and Cornerstone Common
Options assumed during the Cornerstone Acquisition were determined to be de minimis. As part of the Cornerstone Restructuring, as detailed
in Note 3, Cornerstone increased the available reserve of Cornerstone Common Stock for grant to employees, consultants and other service
providers to approximately 10% of Cornerstone’s capital stock following the Cornerstone Restructuring, the Mandatory Common Conversion
and the Reverse Stock Split (the “Reserve Increase”) but prior to the issuance of the RPF 6% Top Up Shares or any shares to
the holders of the Remaining Series C Convertible Notes after the Closing. 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 statements 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 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. On January 5, 2024, the Company issued 101,402
shares of Class B restricted stock to certain members of its Board of Directors. On June 13, 2024, the Company issued 159,016 shares
of Class B restricted stock to Howard S. Jonas. 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, 2022 1,507,373 $ 4.22
Granted 220,019 1.99
Vested (745,867 ) 3.37
Cancelled / Forfeited (296,759 ) (5.10 )
Outstanding at July 31, 2023 684,766 $ 4.04
Granted 506,826 1.75
Vested (583,052 ) 3.15
Non-vested shares at July 31, 2024 608,540 $ 2.99 At July 31, 2024, there was $0.8 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 Year Ended
2024 2023
General and administrative $ 2,000 $ 3,044
Research and development 296 194
Forfeiture of RSUs within general and administrative — (931 )
Forfeiture of RSUs within research and development — (119 )
Net stock-based compensation expense $ 2,296 $ 2,188 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 in light of issuances of Cornerstone equity securities to third-party shareholders of Cornerstone, 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 July 31, 2024, the Company had no outstanding
warrants. |
