Form 8-K/A - Current report: [Amend]

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

Amendment No. 1

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 13, 2024

RAFAEL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

1-38411

82-2296593

(State or other jurisdiction

of Incorporation)

(Commission File Number)

(IRS Employer

Identification No.)

520 Broad Street

Newark, New Jersey

07102

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (212) 658-1450

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Securities registered pursuant to Section 12(b)-2 of the Exchange Act:

Title of each class

Trading Symbol

Name of each exchange on

which registered

Class B common stock, par value $0.01 per share

RFL

New York Stock Exchange

Explanatory Note

This Form 8-K/A is filed as an amendment (“Amendment No. 1”) to the Current Report on Form 8-K by Rafael Holdings, Inc. (the “Company”) under Items 2.01 and 9.01 on March 13, 2024 (the “Original 8-K”). Amendment No. 1 is being filed in order to provide certain financial statements and to furnish certain pro forma financial information pursuant to Item 9.01 of this Form 8-K/A.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

The audited financial statements of Cornerstone Pharmaceuticals, Inc. (“Cornerstone”) as of and for the year ended July 31, 2023 and the unaudited financial statements of Cornerstone as of and for the three months ended October 31, 2023.

(b) Pro Forma Financial Information.

The unaudited pro forma condensed combined financial information of the Company giving effect to the various transactions which effected a recapitalization and restructuring of Cornerstone, the acquisition by the Company of a controlling interest in Cornerstone, and the consolidation of RP Finance LLC, are filed herewith as Exhibit 99.2.

(d) Exhibits.

Exhibit No.		Document
23.1		Consent of CohnReznick LLP
99.1		Audited Financial statements of Cornerstone Pharmaceuticals, Inc. as of and for the year ended July 31, 2023.
99.2		Unaudited Financial statements of Cornerstone Pharmaceuticals, Inc. as of and for the three months ended October 31, 2023
99.3		The unaudited proforma condensed combined financial statements of the Company.
104		Cover Page Interactive Data File, formatted in Inline XBRL document.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

RAFAEL HOLDINGS, INC.

By:	/s/ William Conkling
	Name:	William Conkling
	Title:	Chief Executive Officer

Dated: May 23, 2024

EXHIBIT INDEX

Exhibit No.		Document
23.1		Consent of CohnReznick LLP
99.1		Audited Financial statements of Cornerstone Pharmaceuticals, Inc. as of and for the year ended July 31, 2023.
99.2		Unaudited Financial statements of Cornerstone Pharmaceuticals, Inc. as of and for the three months ended October 31, 2023
99.3		The unaudited proforma condensed combined financial statements of the Company.
104		Cover Page Interactive Data File, formatted in Inline XBRL document.

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in registration statement No. 333-274254 on Form S-8, registration statement No. 333-262754 on Form S-3/A, registration statement No. 333-256865 on Form S-3, registration statement No. 333-256565 on Form S-3 and registration statement No. 333-253455 on Form S-3 of Rafael Holdings, Inc., of our report dated May 16, 2024, with respect to the consolidated financial statements of Cornerstone Pharmaceuticals, Inc. as of July 31, 2023 and 2022, and for the years then ended, which report is included in Amendment No. 1 to Current Report on Form 8-K/A filed on May 23, 2024.

/s/ CohnReznick LLP

New York, New York

May 23, 2024

Exhibit 99.1

Cornerstone Pharmaceuticals, Inc.

(Formerly Rafael Pharmaceuticals, Inc.)
Financial Statements

As of and For the Years Ended July 31, 2023 and 2022

CORNERSTONE PHARMACEUTICALS, INC.

TABLE OF CONTENTS

	Page

INDEPENDENT AUDITOR’S REPORT	1

FINANCIAL STATEMENTS:

Balance Sheets as of July 31, 2023 and 2022	3

Statements of Operations for the Years Ended July 31, 2023 and 2022	4

Statements of Stockholders’ Deficit for the Years Ended July 31, 2023 and 2022	5

Statements of Cash Flows for the Years Ended July 31, 2023 and 2022	6

Notes to Financial Statements as of and for the Years Ended July 31, 2023 and 2022	7

Independent Auditor’s Report

To the Management

Cornerstone Pharmaceuticals, Inc.

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Cornerstone Pharmaceuticals, Inc. (formerly Rafael Pharmaceuticals, Inc.), which comprise the balance sheets as of July 31, 2023 and 2022 and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes to the financial statements.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Cornerstone Pharmaceuticals, Inc. as of July 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (“GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Cornerstone Pharmaceuticals, Inc. and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and negative net cash flows from operating activities, and these conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Cornerstone Pharmaceuticals, Inc.’s ability to continue as a going concern for one year after the date that the financial statements are available to be issued.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:

●

Exercise professional judgment and maintain professional skepticism throughout the audit.

●

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

●

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Cornerstone Pharmaceuticals, Inc.’s internal control. Accordingly, no such opinion is expressed.

●

Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

●

Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Cornerstone Pharmaceuticals, Inc.’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

New York, New York

May 16, 2024

CORNERSTONE PHARMACEUTICALS, INC.
BALANCE SHEETS
As of July 31, 2023 and 2022
(in thousands, except share and per share data)

	July 31,			July 31,
	2023			2022
ASSETS
CURRENT ASSETS
Cash	$	5,918		$	11,149
Marketable securities		78			75
Prepaid expenses and other current assets		116			1,067
Total current assets		6,112			12,291
NON-CURRENT ASSETS
Property and equipment, net		72			154
Deferred debt issuance costs		11,712			19,442
TOTAL ASSETS	$	17,896		$	31,887

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable	$	4,856		$	15,588
Accrued expenses		4,970			5,991
Deferred officers’ salaries		27			27
Advances payable - related parties		1,289			1,289
Note payable		-			217
Line of credit - related parties		29,178			-
Convertible promissory note - related parties		2,053			-
Convertible notes		12,239			12,239
Total current liabilities		54,612			35,351

LONG-TERM LIABILITIES
Note payable - long-term		-			598
Accounts payable - long-term		8,542			-
Line of credit - long-term		21,875			46,875
Derivative liabilities		3,832			25,534
TOTAL LIABILITIES		88,861			108,358

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ DEFICIT
Convertible Preferred stock, $0.001 par value; 300,000,000 shares authorized; 95,506,059 shares issued and outstanding as of July 31, 2023 and 2022, respectively		97			97
Common stock, $0.01 par value; 31,000,000 shares authorized; 2,442,034 shares issued and outstanding as of July 31, 2023 and 2022, respectively		24			24
Additional paid-in capital		189,898			188,587
Accumulated deficit		(260,984	)		(265,179	)
Total stockholders’ deficit		(70,965	)		(76,471	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	17,896		$	31,887

Common stock amounts have been retroactively adjusted to reflect a 10 for 1 reverse stock split of the Company’s common stock effective as of March 13, 2024.

See accompanying notes to the financial statements.

CORNERSTONE PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
For the Years Ended July 31, 2023 and 2022
(in thousands)

	July 31,			July 31,
	2023			2022
OPERATING EXPENSES
Research and development	$	8,238			35,054
General and administrative		2,796			3,434
TOTAL OPERATING EXPENSES		11,034			38,488
LOSS FROM OPERATIONS		11,034			38,488

OTHER INCOME AND (EXPENSE)
Interest income		5			-
Interest expense		(12,390	)		(8,159	)
Change in fair value of derivative liabilities		21,702			30,907
Forgiveness of loan		815			599
TOTAL OTHER INCOME AND (EXPENSE)		10,132			23,347
LOSS BEFORE INCOME TAXES		902			15,141
INCOME TAX BENEFIT		(5,096	)		(4,925	)
NET (INCOME) LOSS	$	(4,194	)	$	10,216

See accompanying notes to the financial statements

CORNERSTONE PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS’ DEFICIT
For the Years Ended July 31, 2023 and 2022
(in thousands, except share data)

	Preferred Stock
	Series A				Series B				Series C				Series D				Common Stock				Additional					Total
	Shares		Par Value		Shares		Par Value		Shares		Par Value		Shares		Par Value		Shares		Par Value		Paid-in Capital		Accumulated Deficit			Stockholders’ Deficit
Balance as of July 31, 2021		3,057,500	$	3		26,454,278	$	27		6,321,194	$	6		60,673,087	$	61		2,441,784	$	24	$	186,731	$	(254,963	)	$	(68,111	)
Stock-based compensation resulting from stock options granted to non-employees and employees		-		-		-		-		-		-		-		-		-		-		1,850		-			1,850
Common stock issued for exercise of options		-		-		-		-		-		-		-		-		250		-		6		-			6
Net loss		-		-		-		-		-		-		-		-		-		-		-		(10,216	)		(10,216	)
Balance as of July 31, 2022		3,057,500	$	3		26,454,278	$	27		6,321,194	$	6		60,673,087	$	61		2,442,034	$	24	$	188,587	$	(265,179	)	$	(76,471	)

Balance as of July 31, 2022		3,057,500	$	3		26,454,278	$	27		6,321,194	$	6		60,673,087	$	61		2,442,034	$	24	$	188,587	$	(265,179	)	$	(76,471	)
Stock-based compensation resulting from stock options granted to non-employees and employees		-		-		-		-		-		-		-		-		-		-		1,311		-			1,311
Net income		-		-		-		-		-		-		-		-		-		-		-		4,194			4,194
Balance as of July 31, 2023		3,057,500	$	3		26,454,278	$	27		6,321,194	$	6		60,673,087	$	61		2,442,034	$	24	$	189,898	$	(260,985	)	$	(70,965	)

Common stock amounts have been retroactively adjusted to reflect a 10 for 1 reverse stock split of the Company’s common stock effective as of March 13, 2024.

See accompanying notes to the financial statements.

CORNERSTONE PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended July 31, 2023 and 2022
(in thousands)

	July 31,			July 31,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net (income) loss	$	4,194		$	(10,216	)
Adjustments to reconcile net (income) loss to net cash used in operating activities:
Depreciation and amortization		82			88
Amortization of debt discount		7,730			7,730
Interest expense on convertible promissory note - related parties		4,232			-
Noncash stock-based compensation		1,311			1,850
Gain on forgiveness of loan		(815	)		(599	)
Change in fair value of derivative liabilities		(21,702	)		(30,907	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		951			4,483
Accounts payable		(10,732	)		8,774
Accounts payable - long-term		8,542			-
Accrued expenses		(1,021	)		(501	)
Deferred officers’ salaries		-			(146	)
Due to related party		-			120
NET CASH USED IN OPERATING ACTIVITIES		(7,228	)		(19,324	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		-			(12	)
Investment in marketable securities		(3	)		-
NET CASH PROVIDED BY INVESTING ACTIVITIES		(3	)		(12	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit - related party		-			30,000
Proceeds from convertible promissory note - related parties		2,000			-
Common stock issued for exercise of options		-			6
NET CASH USED IN FINANCING ACTIVITIES		2,000			30,006
NET (DECREASE) INCREASE IN CASH		(5,231	)		10,670
CASH AT BEGINNING OF YEAR		11,149			479
CASH AT END OF YEAR	$	5,918		$	11,149

See accompanying notes to the financial statements.

CORNERSTONE PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JULY 31, 2023 AND 2022

These notes have been retroactively adjusted to reflect a 10 for 1 reverse stock split of the Company’s common stock effective as of March 13, 2024.

1.	ORGANIZATION, BUSINESS OVERVIEW AND MANAGEMENT’S PLAN

Cornerstone Pharmaceuticals, Inc. (formerly Rafael Pharmaceuticals, Inc.) was formed as a result of a merger in 2002 between Cornerstone Ventures, LLC (“Ventures”), a New York limited liability company which was organized on May 14, 1999, and Cornerstone Pharmaceuticals, Inc., a New York corporation which was incorporated on November 1, 2001, with Cornerstone Pharmaceuticals, Inc. (the “Company”) being the surviving entity. On December 24, 2009, the Company (New York) was merged with and into a newly formed Delaware corporation by the same name, for the purpose of changing domiciles. This merger had no financial or accounting effects on the Company. On May 10, 2017, the Board of Directors approved the resolution changing the name to Rafael Pharmaceuticals, Inc. On April 29, 2022, the Board of Directors approved the resolution changing the Company’s name back to Cornerstone Pharmaceuticals, Inc.

The Company is a privately held, clinical stage, oncology-focused biopharmaceutical company engaged in developing therapeutics that exploit and target cancer cell metabolism. The drug candidate is in the development phase (see Note 16) and has not received regulatory approval. The Company has yet to generate any revenues from its product candidate in development. The Company has performed certain research related activities under grant and service agreements for which revenue was earned and recognized.

Since inception, the Company has incurred significant losses from operations and has not generated positive cash flows from operations. In addition, the Company does not have any revenue stream to support its cost structure. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts and the classification of liabilities that might be necessary from the outcome of this uncertainty.

Management’s Plan

The development of the Company’s products will require a commitment of substantial funds to conduct the costly and time-consuming research, preclinical and clinical testing necessary to bring such products to market and to establish, acquire or contract for manufacturing and marketing capabilities. Future capital requirements will depend on factors including scientific progress in research and development programs, the Company’s ability to establish collaborative arrangements with others for drug development, progress with preclinical and clinical trials, the time and costs involved in obtaining regulatory approvals and effective commercialization activities. Since inception, the Company has incurred significant losses from operations and has not generated positive cash flows from operations. In addition, the Company does not have any revenue stream to support its cost structure. The Company has secured two lines of credit, a $50,000,000 Line of Credit and a $25,000,000 Line of Credit, which the Company will use for planned activities and to expand its activities (see Note 7).

The Company will need to raise substantial additional capital in order to bring its products to market and reach additional milestones in its licensing agreement in order to recognize revenue. There can be no assurance that such new offerings will be consummated or that such collaborative ventures will be entered into on favorable terms, if at all. If such new offerings are not consummated or additional financing is not otherwise available, the Company will be required to modify its business development plans or reduce or cease certain or all operations. In the event that any additional funding is obtained, such financings may have a dilutive effect to current stockholders. As of July 31, 2023, the Company has drawn down$46,875,000 onits Lines of Credit and the remaining amount available to draw down is $28,125,000.

As of July 31, 2023, the Company is in default on approximately $12,239,320 of convertible notes as they are beyond their payment terms and that other debt which is also past due but no notice of default has been provided (see Note 7).

Subsequent to the balance sheet date, the Company submitted several proposed restructuring transactions for stockholder approval. The transactions includes a minority stockholder right offering, conversion of convertible notes plus accrued interest through date of transaction in the amount of $15,514,631 to common stock, converting all preferred stock to common stock, conversion of related parties’ debt plus accrued interest through date of transaction in the amount of $32,730,465 to common stock and additional investment of $1.5 million from a related party in exchange for common stock at a set transaction price. This transaction included a reverse stock split to the ratio of 10:1. All references to common shares and common per share amounts presented in the have been adjusted retroactively to reflect the stock split. Included in these transactions was an amendment to the first Line of Credit, limiting the Company to the amount already drawn, removing the anti-dilution protections and extending the maturity date to May 31, 2028. The Company received approval and closed these transactions on March 13, 2024. As a result of these transactions, Rafael Holdings, Inc. and its affiliates became the controlling shareholder of the Company.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation — The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America (“U.S. GAAP”) applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The valuation of derivative liabilities, fair value of the of stock-based compensation expense, allocation of certain expenses between general and administrative and research and development expenses, accounting for the issuance of warrants, and accounting for certain income tax items including our conclusion to establish a valuation allowance, require the significant use of estimates and assumptions. Management believes that amounts recorded based on estimates and assumptions are reasonable and any differences between estimates and actual amounts will not have a material impact on the Company’s financial statements.

Cash and Marketable Securities — Cash consists of cash and deposits of all highly-liquid debt instruments of three months or less that are readily convertible into cash.

The Company’s investments in marketable securities have been classified and accounted for as trading securities. The Company’s marketable securities are measured at fair value with gains and losses recognized in other income/(expense). The cost of securities sold is determined using the specific identification method.

Property and Equipment — Property and equipment consist of office equipment, laboratory equipment and leasehold improvements. Property and equipment are recorded at cost less accumulated depreciation and amortization. The related depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets as follows: office equipment and laboratory equipment - three to five years; and leasehold improvements - 10 years, which represents the lesser of the estimated life of the assets or the lease term. Minor maintenance and repairs, and minor renewals and betterments are charged to expense as incurred.

Advances Payable to Related Parties — Funds were advanced to the Company from time to time for operating purposes from related parties. Advances payable to related parties were $1.3 million at July 31, 2023 and 2022.

Long-Lived Assets — The Company reviews its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. An impairment loss is recognized whenever the carrying amount of a long-lived asset exceeds the expected future cash flows, on an undiscounted basis, to be generated from the asset, including eventual disposition. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. The Company’s management determined that no events or changes in circumstances have indicated that asset-carrying values were no longer recoverable. No impairment charges were recorded during the years ended July 31, 2023 and 2022.

Income Taxes — Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Valuation allowances have been established as it is more likely than not that the deferred tax assets will not be realized.

The Company files income tax returns in the U.S. federal jurisdiction and certain state jurisdictions. The tax years subject to audit are 2018 through 2023. The Company does not believe there will be a material change in its recognized tax positions over the next 12 months.

The Company recognizes the effect of uncertain income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

The Company has sustained losses since inception, which has generally resulted in a zero percent effective tax rate except for the benefit realized for selling the New Jersey net operating losses (NOL’s) and credits (defined in Note 13).

The Company’s policy is to recognize interest and penalties accrued on tax matters as a component of income tax expense. The Company has not incurred any interest or penalties.

Revenue Recognition — In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09. The objective of the ASU is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, which supersedes most of the existing revenue recognition guidance, including industry-specific guidance. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the ASU, companies will perform a five-step analysis of transactions to determine when and how revenue is recognized. The five-step analysis consists of the following: (i) identifying the contract with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract and (v) recognizing revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB’s ASC.

The Company derives its revenue from the License of the Licensed Compounds and products which falls within the scope of accounting standard codification ASC 606, Revenue from Contracts with Customers and is accounted for at the point in time when control of the goods or services transfers to the customer and the Company’s performance obligation is satisfied.

Research and Development Costs and Expenses — Research and development (“R&D”) costs and expenses consist primarily of salaries and related personnel expenses, stock-based compensation, fees paid to external service providers, purchased in-process research and development, laboratory supplies, costs for facilities and equipment, license costs, and other costs for research and development activities. Research and development expenses are recorded in operating expenses in the period in which they are incurred. Estimates have been used in determining the liability for certain costs where services have been performed but not yet invoiced. The Company monitors levels of performance under each significant contract for external service providers, including the extent of patient enrollment and other activities through communications with the service providers to reflect the actual amount expended.

Concentrations of Risk — Financial instruments which potentially subject the Company to concentrations of risk principally consist of cash. At times the Company invests excess cash primarily in money market funds backed by U.S. Treasury collateral. At times, such funds may exceed federally insured limits. At times during fiscal years 2023 and 2022, the Company had cash that was in excess of the federally insured limits. The Company places its temporary cash investments with high credit quality institutions.

Any products developed by the Company will require approval from the U.S. Food and Drug Administration (“FDA”) or foreign regulatory agencies prior to commercial sales. There can be no assurance that the Company’s products will receive the necessary approvals. If the Company is denied such approvals or such approvals are delayed, it could have a material adverse effect on the Company.

The Company’s drug candidates are in the development phase and none have received regulatory approval. To achieve profitable operations, the Company must successfully develop, test, manufacture and market its products. There can be no assurance that any such products can be developed successfully or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed. These factors could have a material adverse effect on the Company’s future financial results.

For the year ended July 31, 2023, the Company had purchase concentrations of 19% from one vendor.

For the year ended July 31, 2022, the Company had purchase concentrations of 66% and 9% from two vendors.

Stock-Based Compensation — The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). ASC 718 requires all grants of employee stock options to be recognized in the statement of operations based on their grant date fair values, which is determined by using the Black-Scholes option-pricing model. For stock options granted to employees and to members of the Board of Directors for their services on the Board of Directors, the Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. The use of the Black- Scholes option- pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. The Company records compensation cost over the related service periods.

The Company recorded stock-based option compensation as follows (in thousands):

	For the Years Ended July 31,
	2023		2022
General and administrative	$	175	$	218
Research and development		1,136		1,632
Total	$	1,311	$	1,850

No related tax benefits from stock compensation expense were recognized for the years ended July 31, 2023 and 2022.

Warrants — The Company accounts for warrants to purchase stock based on guidelines provided in ASC Topic 815, Derivatives and Hedging – Contracts in Entity’s Own Equity (“ASC 815”) which provides guidance on contracts that are settled in the Company’s own shares as either a liability or as an equity instrument depending on the warrant agreement. The Company uses the Black-Scholes or trinomial pricing models, depending on the applicable terms of the warrant agreement, to value the derivative warrant liabilities in bifurcating such amount from convertible notes payable (See Notes 8 and 11).

Deferred Financing Costs — The Company accounted for deferred financing costs in accordance with ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), which provides guidance on how to accounts for changes in the way debt issuance costs are reported. Debt issuance costs, prior to ASU 2015-03, were reported on the balance sheet as assets and amortized over the life of the loan(s). ASU 2015-03 requires these costs to be reported as liabilities on the balance sheet as a discount to the debt. These costs were incurred before an associated debt liability is recorded in the financial statements, therefore, are presented as an asset on the Company’s balance sheet. These costs represent the common stock issued and the anti-dilution provision associated with obtaining the Line of Credit (see Note 7). These fees are amortized over the terms of the respective financing agreements, on a straight- line basis which approximates the effective interest method. Unamortized deferred financing fees are expensed in full when the associated debt is refinanced, repaid before maturity, or otherwise extinguished.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position, results of operations or cash flows upon adoption.

3.	FAIR VALUE MEASUREMENTS

Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement and Disclosures, establishes a consistent framework in how to value the fair value of assets and liabilities. This framework is intended to increase consistency in how fair value determinations are made under various existing accounting standards that permit, or in some cases require, estimates of fair value. This standard also expands financial statement disclosure requirements about a company’s use of fair value measurements, including the effect of such measures on earnings.

This standard defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This standard also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs are used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Reported amounts for cash, accounts payable and stockholder advances are generally considered to be representative of their respective fair values because of the short-term nature of those instruments and are considered Level 1.

As required by ASC 820-10, assets and liabilities fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Convertible promissory notes were recorded based on the face values as of their respective issuance dates with the exception of the Convertible Promissory Note – D Series (“D Note”) dated September 16, 2016 with a face value of $10,000,000. The proceeds allocated to the Series D Note are adjusted for amortization for the difference between the issuance value and the fair value as of the date of issuance. Due to close proximity to the issuance dates, including the relatively short maturity dates, the carrying amounts of the convertible notes were valued as of their issuance dates except for the D Note which was carried at the initial fair value measurement date as adjusted for discount amortization. The Company concluded that an estimation of the fair value of the convertible promissory notes was not practical due to the short-term maturity obligations of the respective instruments (see Note 8).

The Company determined that the anti-dilution feature of the line of credit (see Note 7) should be recognized as a free-standing instrument that meets the definition of a derivative under ASC 815. Accordingly, the Company recorded the value of the anti-dilution feature as a derivative liability which will be stated at fair value at each reporting period with changes in fair value being recorded as a marked-to-market adjustment in the Company’s statement of operations. For the significant assumptions the Company used to calculate the derivative liability (see Note 9).

The following tables set forth the Company’s assets and liabilities fair value at July 31, 2023 and 2022 by level within the fair value hierarchy:

	Carrying		Fair Value Measurement as of July 31, 2023
	Value		Level 1		Level 2		Level 3
Assets:
Cash	$	5,918	$	5,918	$	-	$	-
Marketable securities		78		78		-		-

Liabilities:
Convertible notes	$	12,239	$	-	$	-	$	12,239
Convertible promissory note - related parties		2,053		-		-		2,053
Account payable – long-term		8,542		-		-		8,542
Derivative liabilities		3,832		-		-		3,832

	Carrying		Fair Value Measurement as of July 31, 2022
	Value		Level 1		Level 2		Level 3
Assets:
Cash	$	11,149	$	11,149	$	-	$	-
Marketable securities		75		75		-		-

Liabilities:
Convertible notes	$	12,239	$	-	$	-	$	12,239
Derivative liabilities		25,534		-		-		25,534

The following table sets forth the Company’s change in derivative liabilities for the year ended July 31, 2023:

	Derivative Liabilities
Balance as of July 31, 2021	$	56,441
Change in fair value		(30,907	)
Balance as of July 31, 2022		25,534
Change in fair value		(21,702	)
Balance as of July 31, 2023	$	3,832

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets are comprised of the following:

	July 31,
	2023		2022
Deposits with vendors and service providers	$	49	$	985
Insurance		67		82
Total	$	116	$	1,067

5. PROPERTY AND EQUIPMENT

Property and equipment, net is comprised of the following:

	July 31,
	2023			2022
Laboratory equipment	$	1,004		$	1,004
Computer and office equipment		150			150
Leasehold improvements		2,089			2,089
		3,243			3,243
Less: Accumulated depreciation and amortization		(3,171	)		(3,089	)
	$	72		$	154

Depreciation and amortization expense was $82 and $88 for the years ended July 31, 2023 and 2022, respectively.

6. ACCRUED EXPENSES

Accrued expenses is comprised of the following:

	July 31,
	2023		2022
Interest (due to convertible note holders)	$	3,993	$	3,565
Compensation		50		50
Clinical and research costs		746		2,077
Other		155		240
Legal and professional fees		26		59
Total	$	4,970	$	5,991

Compensation costs include unpaid employee salaries and benefits and severance obligations to former executives.

7. NOTES PAYABLE

Creditor Balance

On June 2, 2023, the Company signed a forbearance agreement (“Agreement”) with a major creditor (the “Creditor”) whom they owed approximately $10,542,000 million arising from unpaid amounts in connection with work performed and costs incurred by the Creditor under previous work orders. The outstanding balance does not bear interest. As part of the Company’s plan to seek new capitalization, the Company paid $2,000,000 following the execution of a change order on July 21, 2023. The Company also agreed to an additional payment of $2,000,000 upon the issuance of a FDA authorization to market any product of the Company. In the event the Company completes a capital transaction which results in an aggregate of $100,000,000 in additional capital received after January 1, 2023, the Company agrees to pay an additional $4,000,000 to the Creditor within 15 days of such capital transaction. In exchange for Company’s agreement to make timely payments of the above-mentioned sums due in the Agreement, the Creditor will waive approximately $2,542,000 of outstanding debt, representing all remaining amounts due to the Creditor.

Following the payment of the initial $2,000,000, and pursuant to the terms of the agreement, the Creditor agreed to forbear from exercising any of its rights, remedies or claims in respect to the outstanding balance. The forbearance shall not be deemed to have otherwise waived, released, or adversely affected any of the Creditor’s rights, remedies or claims in respect to the outstanding balance.

As of July 31, 2023 related to this debt, the Company has $8,542,000 accrued on the balance sheet under accounts payable – long- term, which includes the $2,542,000 which will be waive once all other payments are made.

Convertible Promissory Note – Related Party

On March 22, 2023, the Company entered into an agreement for the purchase of an asset and all the rights comprising or associated with the development, manufacture, and commercialization of a clinical-stage cancer metabolism molecule. Assets purchased included the drug compound, patents, trademarks, transferred contracts, IND files and related correspondence, as well as physical inventory of the drug for use in clinical trials. Total consideration for all assets purchased amounted to $2,000,000, which was expensed to research and development on the statement of operations. The Company funded this purchase via a convertible promissory note (the “CPN”) from a related party. The CPN had an initial maturity date of May 22, 2023 and bore interest at a rate of 7.5% per annum which would increase to 11% if extended. Subsequent to the balance sheet date, the Company amended the maturity date and interest to March 14, 2024 with the interest rate remaining at 7.5%.

The entire CPN together with all accrued unpaid interest, may, at the Company’s election at any time be converted into a number of shares calculated by dividing the entire amount owed by the conversion price used by the Company in a qualified offering/conversion, and if no qualified offering/conversion has been consummated, the fair market value for the conversion as determined by an independent third-party valuation firm. Subsequent to the balance sheet date, the Company is in the process of a comprehensive restructuring with the related party and plans to convert this note into shares.

Subsequent to the balance sheet date, the Company submitted several proposed restructuring transactions for stockholder approval. Included in these transactions was conversion of the CNP debt plus accrued interest in exchange for common stock at a set transaction price. The transactions included a reverse stock split to the ratio of 10:1. The Company received approval and closed on the transactions on March 13, 2024. As a result of these transactions, Rafael Holdings, Inc. and its affiliates became the controlling shareholders of the Company.

Paycheck Protection Program Loan’s

In May 2020, the Company was granted a loan (the “PPP Loan”) in the amount of $599,242, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. This program provides small businesses with funds to pay up to eight weeks of payroll costs including benefits. The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. In April 2021, the Company received an additional $814,642 PPP loan.

The first PPP loan matures in two years, and the second PPP loan matures five years after being granted. Both PPP loans bear interest at a rate of 1.00% per annum, payable in monthly payments commencing six months after loan disbursements. The notes may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs and any payments of certain covered interest, lease and utility payments. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company was granted forgiveness for the first PPP loan in June 2022 and the second PPP loan in April 2023, which was recorded on the statement of operations under “Gain on forgiveness of loan.” As of July 31, 2023, there is no amount due relating to the PPP Loans.

During the years ended July 31, 2023 and 2022, the Company recorded $0 and $8,211 of PPP Loan interest expense, respectively.

Lines of Credit

A. RP Finance

On February 3, 2020, the Company entered into a Line of Credit Loan Agreement (“Line of Credit Agreement”) with RP Finance, LLC (“RP Finance”), which provides a revolving commitment of up to $50,000,000 to fund clinical trials and other capital needs.

Rafael Holdings, Inc. owns 37.5% of the equity interests in RP Finance and is required to fund 37.5% of funding requests from the Company under the Line of Credit Agreement. Howard Jonas owns 37.5% of the equity interests in RP Finance and is required to fund 37.5% of funding requests from the Company under the Line of Credit Agreement. The remaining 25% equity interests in RP Finance is owned by other shareholders of the Company and are required to fund 25% of funding requests from the Company under the Line of Credit Agreement.

Under the Line of Credit Agreement, all funds borrowed will bear interest (subject to the Heter Iska) at the mid-term Applicable Federal Rate published by the U.S. Internal Revenue Service. The maturity date is the earlier of February 3, 2025, upon a change of control of the Company or a sale of the Company or its assets. The Company can draw on the facility on 60 days’ notice. The funds borrowed under the Line of Credit Agreement must be repaid out of certain proceeds from equity sales by the Company.

In connection with entering into the Line of Credit Agreement, the Company agreed to issue to RP Finance 261,231 shares of its common stock, representing 12% of the issued and outstanding shares of common stock, with such interest subject to anti-dilution protection as set forth in the Line of Credit Agreement. The common stock issued was valued at a price of $19.5 a share, or $5,112,297. The anti-dilution clause was valued at $33,580,762, which was recorded as a derivative liability. The total aggregate value of the stock issued and the anti-dilution clause was $38,693,059, which the Company recorded as deferred debt issuance costs, net and will be amortized over the life of the line of credit on a straight-line basis which approximates the effective interest method. For each of the years ended July 31, 2023 and 2022, the Company recorded $7,730,140 as amortization expense respectively. As of July 31, 2023, the remaining amount of the deferred debt issuance cost was $11,711,692.

As of July 31, 2023, the Company has drawn down $21,875,000 on its Line of Credit and the remaining amount available to draw down is $28,125,000. Subsequent to the balance sheet date, this Line of Credit was amended, limiting the Company to the amount already drawn, removed the anti-dilution protections and extending the maturity date to May 31, 2028.

Subsequent to the balance sheet date, the Company submitted several proposed restructuring transactions for stockholder approval. Included in these transactions was an amendment to the first Line of Credit, limiting the Company to the amount already drawn, removing the anti-dilution protections and extending the maturity date to May 31, 2028. The Company received approval and closed these transactions on March 13, 2024.

B. Rafael Holdings

On September 24, 2021, the Company enter into a second Line of Credit Loan Agreement between the Company(“debtor”) and Rafael Holdings, Inc.(“lender”), a Delaware corporation in the amount of $25,000,000 to fund business activities.

Under the second Line of Credit Agreement, all funds borrowed will bear interest at a variable rate as set forth in the agreement, 9% per annum (subject to the Heter Iska). The maturity date means the later of (x) the end date under a merger agreement signed on June 17, 2021, and (y) 135 calendar days following termination of the merger agreement. The lender may elect in its sole discretion by issuing written notice to the debtor to convert the outstanding balance into a number of fully paid and non-assessable shares of any existing class and series of equity of the debtor that equals the outstanding balance divided by the conversion price.

Per the terms of the Heter Iska, funds received under the second Line of Credit Loan Agreement would not be treated as a loan and bear interest but would be treated as an investment with a profit-sharing agreement for the profits or losses generated from the use of those funds. The Company can elect to repay those funds along with amounts representing the interest calculated under the terms of the second Line of Credit Loan Agreement in place of Rafael Holdings, Inc.’s share of the profit generated. During the year ended July 31, 2023, the Company recorded interest in the amounted of $4,178,325.

As of July 31^, 2023, the Company drawn down the full $25,000,000 of the second Line of Credit.

Subsequent to the balance sheet date, the Company submitted several proposed restructuring transactions for stockholder approval. Included in these transactions was conversion of the second Line of Credit debt plus accrued interest in exchange for common stock at a set transaction price. This transaction included a reverse stock split to the ratio of 10:1. The Company received approval and closed this transaction on March 13, 2024. As a result of these transactions, Rafael Holdings, Inc. and its affiliates became the controlling shareholder of the Company.

8. CONVERTIBLE NOTES

The convertible notes issuance through July 31, 2023 are as follows:

	Total		C Notes (1) (2)
Balance as of July 31, 2022	$	12,239	$	12,239
Converted during 2023		-		-
Balance as of July 31, 2023	$	12,239	$	12,239

The Company has $12,239,000 of Series C convertible promissory notes outstanding (the “C Notes”). The C Notes carry an interest rate of 3.5% per annum and are due, together with accrued interest, one year (unless amended) from date of issuance and automatically accelerate upon the sale of the Company in its entirety or the sale or license of substantially all of the Company’s assets or intellectual property. The C Notes (including all accrued and unpaid interest thereon) automatically convert into the same class of securities (including stock warrants) sold in our next equity financing (i) where the Company receives gross proceeds of at least $10,000,000 from Institutional Investors (a “Qualified Financing”), or (ii) from an underwritten initial public offering (“IPO”). The conversion price of the C Notes upon a Qualified Financing shall be the lesser of (i) 90% of the price per share (or unit) at which the securities in the Qualified Financing are sold, or (ii) $1.25 price per share (or unit) (whichever is less) at the holder’s selection of (i) or (ii), and 90% of the share price per share (or unit) at which securities in an IPO are first sold.

In addition to the mandatory conversion, any holder of C Notes has the option to (i) redeem any subsequent equity financing that does not result in gross proceeds of at least $10,000,000 from Institutional Investors, pursuant to which the C Notes will convert into the same class of securities sold in such financing at the Applicable Qualified Financing Purchase Price or (ii) at any time, convert the notes into “Series C Units.” Each unit is comprised of one share of the Company’s Series C Convertible Preferred Stock (“C Preferred Stock”) at a conversion price of $1.25 per unit, and one warrant to purchase one share of the Company’s C Preferred Stock at an exercise price of $1.375 per share. The warrants expire four years from the initial date of the note unless amended. The Company has extended the expiration dates on certain warrants (see Note 11).

In the event of a Liquidation Event prior to the repayment or conversion of the C Notes, the holder shall be entitled to receive either (a) an amount equal to the outstanding principal and interest due, or (b) the pro rata per share amount of the proceeds of such liquidation the holders would be entitled to had they converted the C Note into Series C Units immediately prior to such Liquidation Event and exercised all warrants to purchase Series C Preferred Stock issued in connection with such conversion. At the time of issuance, no beneficial conversion charge was recorded as the fair value of the Series C unit was determined by management to be less than the stated conversion value. When the triggering event that forces conversion where both price and shares are known, a beneficial conversion charge will be recorded in earnings with a corresponding charge to additional paid-in capital.

On January 16, 2016, the Company issued a $500,000 C Note to an investor. The C Note carried an interest rate of 3.5% per annum and was due, together with accrued interest, on January 14, 2018. On January 21, 2016, the Company entered into a subscription agreement for the issuance of up to $10,000,000 in 3.5% Series D Convertible Promissory Notes with an investor which are convertible into Series D Preferred Stock and shares of common stock into which Series D Preferred Stock may be convertible. Upon completion of due diligence, and the payment by the investor of $9,500,000, a Series D Note in the amount of $10,000,000 carrying an interest rate of 3.5% per annum was issued. The D Note, including the unpaid interest, has a maturity date of two years. In addition, the Company issued a warrant (“Warrant”) to the holder to purchase up to 56% of the outstanding capital stock of the Company.

On March 31, 2016, the Company entered into the First Global Amendment to the Loan Documents (“Amendment”). The Amendment provided for an additional advance of $1,500,000 in proceeds in exchange for an additional C Note. The C Notes were issued on April 13, 2016 and carried an interest rate of 3.5% per annum and were due April 12, 2018. An equity bonus was also granted to be calculated based on 10% of the outstanding capital stock on a fully dilutive basis based on achieving certain milestones: the earlier to occur of FDA approval of drug development; an IPO with a valuation of a least $500,000,000; a Liquidation Event or Change of Control based upon escalating Liquidation Values ($250,000,000, $350,000,000 and $500,000,000 within 12, 24 and 36 months, respectively).

As of July 31, 2023, the C Notes of $12,239,000 are currently in default as they are beyond their payment terms. The Company is seeking to extend the maturities of the notes.

On September 16, 2016, the remaining $8,000,000 for the D Note was received less expenses. The Company already issued C Notes ($2,000,000) which upon closing became part of the D Note amounting to $10,000,000. In addition, the Company issued a Warrant to purchase shares of capital stock of the Company representing up to 56% of the then issued and outstanding shares on a converted and fully diluted basis. The exercise price is to be the lower of 70% of the price sold in an equity offering, or $1.25 per share, subject to adjustments. The minimum initial exercise of the warrant being at least $5,000,000 and at least 5% of the capital stock. In January 2019, the D Note was converted into shares of Series D Preferred Stock at a conversion price of $1.25.

In addition, the Investor (defined in Note 15) was granted voting proxies by holders of a majority of the shares of the Company’s common stock outstanding, permitting the Investor to veto certain financing or asset transactions for a period of two years. The Amendment provides that the subscriber may appoint two additional Board Members and the Chairman of the Board, Veto Rights for any subsequent financing, sale, a change of control or other arrangement, and Equity Bonus Shares.

The Company accounted for the D Note transaction in accordance ASC 470 and ASC 815. The proceeds were allocated based on the fair value of the note, warrant, equity bonus, and a conversion feature using the Black-Scholes calculation as of the date of the transaction. Thus, the D Note was valued at $3.1 million net of deferred financing charges of approximately $125,000 at issuance. The fair value of the note was calculated using the Black-Scholes method.

During the years ended July 31, 2023 and 2022, the Company recorded $428,376 and $428,376 of convertible note interest expense, respectively, recorded to interest expense on the statements of operations.

9. DERIVATIVE LIABILITIES

The Company determined that the anti-dilution feature of the Line of Credit (see Note 7) should be recognized as a free- standing instrument that meets the definition of a derivative under ASC 815. Accordingly, the Company recorded the value of the anti-dilution feature as a derivative liability which will be stated at fair value at each reporting period with changes in fair value being recorded as a marked-to-market adjustment in the Company’s statement of operations.

The fair value of the derivative liability – Line of Credit is estimated using a Monte Carlo pricing model with the following assumptions:

	July 31, 2023			July 31, 2022
Market value of common stock	$	0.03		$	0.3
Expected volatility		75.9	%		77.5	%
Expected term (in years)		1.51			2.51
Risk-free interest rate		5.03	%		2.70	%

10. STOCKHOLDERS’ EQUITY

Common Stock — In September 2016, the Company increased the number of authorized shares for common stock from 17,500,000 shares to 31,000,000 including 1,000,000 shares of non-voting common stock. Dividends on common stock will be paid when and if declared by the Board of Directors, subject to restrictions of any other equity security. Each holder is entitled to vote on all matters except for matters exclusively related to other securities. Each holder is entitled to one vote for each common share held. The Company at all times reserves enough common stock to affect a conversion of the shares of other securities into common stock.

On February 3, 2020, the Company entered into a Line of Credit Loan Agreement with RP Finance, which provides a revolving commitment of up to $50,000,000 to fund clinical trials and other capital needs. In connection with entering into the Line of Credit Agreement, the Company issued to RP Finance 261,231 shares of its common stock representing 12% of the issued and outstanding shares of common stock. The shares were valued, through a third-party valuation, at a price of $19.5 a share, or $5,112,297.

During the years ended July 31, 2023 and 2022, the Company issued 0 and 250, respectively shares of common stock were issues upon exercise of employee options.

Convertible Preferred Stock — In September 2016, the Company increased the number of authorized shares for preferred stock from 100,000,000 shares to 300,000,000 shares. Dividends will be paid when and if declared by the Board of Directors, subject to restrictions of various equity and debt securities. The Company has not declared any dividends on any class of its preferred or common stock. Each preferred stockholder is entitled to vote based on the number of shares held as if converted to common stock. Certain series of preferred stock require separate approval of a majority of the holders of that series. For changes in articles of incorporation, the majority of preferred stockholders must approve any actions. The various series of preferred stock have convertible features which provide for mandatory or automatic conversions to common stock and non-mandatory conversions to common stock or other securities. Each issue provides for a conversion formula which is based on the lower of the started conversion rate or a rate based on the new equity offering. In the event of a liquidation, certain series of preferred stock would receive its stated liquidated values before other series and preferred stock would receive liquidated values prior to the common shareholders. Neither the Company nor the holder of the preferred stock have the right to redeem or cause the redemption of the preferred stock.

The following summarizes the Preferred Stock:

	July 31,
	2023						2022
Series	Shares Authorized		Shares Issued		Liquidation Preference		Shares Authorized		Shares Issued		Liquidation Preference
A		6,050,000		3,057,500	$	3,057,500		6,050,000		3,057,500	$	3,057,500
B-1		1,892,072		1,513,658		1,892,073		1,892,072		1,513,658		1,892,072
B-2		17,500,000		10,000,000		10,000,000		17,500,000		10,000,000		10,000,000
B-3		30,000,000		10,000,000		10,000,000		30,000,000		10,000,000		10,000,000
B-4		10,400,000		4,940,600		6,175,750		10,400,000		4,940,620		6,175,775
C		25,000,000		6,321,312		7,901,640		25,000,000		6,321,194		-
D		131,000,000		60,673,087		75,841,359		161,000,000		60,673,087		-
		221,842,072		96,506,157	$	114,868,321		251,842,072		96,506,059	$	31,125,347

The above tables include 221,842,072 in shares authorized under their respective series as of July 31, 2023 and 251,842,072 as of July 31, 2022; however, the Company has 300,000,000 shares authorized for all series of Preferred Stock.

The following are the various classes of Preferred Sock that the Company has issued:

Series A – Contemporaneous with the merger in 2002 as discussed in Note 1, the Company issued 3,057,500 shares of $.001 par value Series A Convertible Preferred Stock (“Series A Preferred”) to a group of investors for $1.00 per share. Each share of Series A Preferred is convertible into common stock at a conversion price of $10.00 per share. Series A Preferred is automatically converted into common stock upon the effectiveness of the Company’s filing of an S-1 registration statement with the Securities and Exchange Commission or from the written notification of a majority of the holders of the Series A Preferred share. The conversion price is adjusted for dilutive issuances subject to certain exclusions.

Series B-1, B-2 and B-3 – Prior to 2009, two investors made investments in units, each unit consisting of common stock with a liquidation preference and non-callable warrants. The issuance of Series B-4 Convertible Preferred Stock in 2009 (“Series B-4 Preferred”), for the investment prior to 2009 a total of 17,713,658 units were exchanged for shares of Series B-1, B-2, and B-3 Convertible Preferred Stock and non-callable warrants. In 2011, the Company issued an additional 3.8 million units. Series B-1, B-2 and B-3 were entitled to appoint two members of the Board of Directors. As of July 31, 2019, the warrants have either expired or were exchanged for common stock.

Series B-4 – In 2009, a group of investors invested $6,175,750 for 4,940,620 units of Series B-4 Preferred shares and non-callable warrants. Each warrant provides for the purchase of Series B-4 Preferred at $1.375 per share. Such warrants expired December 2013. The Preferred Series B-4 Preferred Stock shareholders and the Company entered into an Investor’s Rights Agreement providing certain registration rights, rights of participation in subsequent financings excluding among other items underwritten public offerings. Additionally, the Preferred Series B-4 conversion (to common stock) price is adjusted for certain dilutive issuances until the Company receives proceeds of $10 million in equity. In addition, the Company issued non-callable finder warrants to purchase up to 518,764 shares of Series B-4 Preferred, of which 172,922 expired in December 2013 and 345,842 expired on December 31, 2016.

The Series B Preferred have a liquidated value superior to Series A Preferred and will automatically convert if there is a firm commitment of a fully underwritten public offering of at least $10 million or if the majority of the Series B Preferred holders (of which the B-1, B-2 and B-3 equaled the majority) agreed to convert.

Series C –The Series C Preferred Stock will automatically convert into common stock in the event of a qualified public offering providing at least $20,000,000 and the common shares are traded on a nationally recognized exchange. The Series C Preferred Stock will also automatically convert to common stock upon the written consent of the majority of outstanding shares of the Preferred Stock voting as a single class. Holders of C Notes can convert into Series C Preferred and warrants to purchase Series C Preferred Stock. No C Notes have converted into Series C Preferred Stock.

Series D – The Series D Preferred shares will automatically convert into common stock in the event of a qualified public offering which is underwritten by an underwriter of international standing and traded on an internationally recognized exchange or NASDAQ, and such underwriting has a minimum equity valuation of $200,000,000 and results in aggregate cash proceeds of not less than $50,000,000. The Series D Preferred shares will also automatically convert to common stock upon the written consent of the majority of outstanding shares of the Series D preferred shares. The holder of the Series D Preferred shares has liquidation rights superior to other shareholders equal to the Original Issuance Amount based on $1.25 per share. As of July 31, 2023, 60.7 million shares of Series D Preferred stock were issued upon partial exercise of the Series D Warrant and the conversion of the D Note plus accrued interest.

11. WARRANTS

Preferred Convertible Series C Warrants — The warrants were issued in connection with Series C Convertible Notes. The notes convert into “Series C Units.” Each unit is comprised of one share of the Company’s Series C Convertible Preferred Stock (“C Preferred Stock”) at a conversion price of $1.25 per unit, and one warrant to purchase one share of the Company’s C Preferred Stock at an exercise price of $1.375 per share. The warrants expire four years from the initial date of the note unless amended. The Company has extended the expiration dates on certain warrants (see below). In October 2020, the Company received $3,013,028 as a deposit for the exercising of certain C warrants. In December 2020, 6,321,194 C warrants were exercised at a price of $1.375 for a total of $8,691,642 and 2,410,922 C warrants were forfeited. The Company received $7,134,514 in cash and converted $1,557,128 of accrued expenses and related party payables in 2020. The remaining 3,253,948 C warrants expired in February 2022.

Preferred Convertible Series D Warrant — The warrant was issued in connection with the September 16, 2016 private offering which resulted in the issuance of a $10,000,000 D Note. The warrant is for the purchase of up to 56% of the then issued and outstanding stock of the Company on an as-converted and fully diluted basis. The exercise price of the warrant is the lower of 70% of the price sold in an equity financing, or $1.25 per share, subject to certain adjustments. The minimum initial and subsequent exercises of the warrant shall be for such number of shares that will result in at least $5,000,000 of gross proceeds to the Company, or such lesser amount as represents 5% of the outstanding capital stock, or such lesser amount as may then remain unexercised. The warrant will expire upon the earlier of August 15, 2021 or a qualified IPO or liquidation event. On January 28, 2021, Rafael Holdings, Inc. partially exercised warrants to maintain the 51% ownership percentage and purchased 7,298,950 shares of the Company’s Series D Preferred Stock for $9,123,688.

As of July 31, 2023, the Warrant holder owns 60,673,087 shares of Series D Preferred Stock.

12. OPTIONS

In 2009, the Company established the 2009 Stock Incentive Plan (“2009 Plan”) providing for the additional granting of incentive stock options and non-qualified options to purchase the Company’s common stock. A total of 550,000 shares were authorized under the 2009 Plan and 102,410 shares are available for grant as of July 31, 2023. In 2018, the Company established the 2018 Stock Incentive Plan (“2018 Plan”) providing for the additional granting of incentive stock options and non-qualified options to purchase the Company’s common stock. A total of 450,000 shares were authorized under the 2018 Plan. In 2019, the 2018 plan was amended and an additional 200,000 shares were authorized for a total of 650,000 authorized shares and 118,248 shares are available for grant as of July 31, 2023.

The Company follows the provisions of the ASC Topic 718, which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and non-employee directors, including employee stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is generally recognized as an expense over the requisite service period.

During the period from August 1, 2022 to July 31, 2023, there were no stock options granted.

The Company utilizes the Black-Scholes valuation method to value stock options and recognize compensation expense over the vesting period. The expected life represents the period that the Company’s stock-based compensation awards are expected to be outstanding. The Company uses a simplified method provided in Securities and Exchange Commission release, Staff Accounting Bulletin No. 110, which averages an award’s weighted average vesting period and contractual term for “plain vanilla” share options. The expected volatility was estimated by analyzing the historic volatility of similar public biotech companies in the oncology field, considering the state of product completion. The Company used an estimated forfeiture rate of 10%.

No related tax benefits were recorded for the years ended July 31, 2023 and 2022. Generally, options are granted with an exercise price at, or in excess of, the fair value of the common stock at the date of issuance. Options typically vest over a one- to four-year period in equal increments and expire not more than 10 years after the grant date.

The Company recorded stock-based option compensation in the statements of operations as follows (in thousands):

	For the Years Ended July 31,
	2023		2022
General and administrative	$	175	$	218
Research and development		1,136		1,632
Total	$	1,311	$	1,850

A summary of option activity for the combined plans for the years ended July 31, 2023 and 2022, and the change for the years then ended, is presented as follows:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contract Terms (Years)
Options outstanding - July 31, 2021		12,145,914			2.31		6.6
Granted		-			-		-
Forfeited		(1,488,750	)		2.61		-
Exercised		(2,500	)		2.50		-
Options outstanding - July 31, 2022		10,654,664			2.38		5.7
Granted		-			-		-
Forfeited		(261,250	)		2.50		-
Expired		(100,000	)		1.25
Exercised		-			-		-
Options outstanding - July 31, 2023		10,293,414			2.39		5.7
Options vested and expected to vest - July 31, 2023		10,158,211			2.38		-
Options exercisable - July 31, 2023		8,941,373			2.31		-

Other Options — The Company has issued other options to investors and others as finders’ fees (collectively) in connection with prior capital raises.

In connection with the Company’s 2003 common stock offerings, the Company 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 “Options”) were granted at a strike price of $11.00 per share to a 2003 investor. These Options are set to expire 180 days following the closing of an IPO, or from the date the Company’s shares become publicly traded.

13. INCOME TAXES

The benefit for income taxes consists of the following for the years ended July 31, 2023 and 2022:

	For the Years Ended July 31,
	2023			2022
Current state	$	(5,096,058	)	$	(4,924,830	)
Deferred - Federal		5,028,315			12,077,850
Deferred – State		(7,872,007	)		2,058,420
Total		(7,939,750	)		9,211,440
Change in valuation allowance		2,843,693			(14,136,270	)
	$	(5,096,057	)	$	(4,924,830	)

Deferred tax assets (liabilities) as of July 31, 2023 and 2022 consist of the following:

	For the Years Ended July 31,
	2023			2022
Net operating loss carryovers (defined in Note 13)	$	44,082,898		$	50,589,121
Tax credits		12,128,278			12,494,773
Depreciation		286,152			295,636
Other		13,331			84,045
R&D 174		1,936,281			-
Charity		141,193			141,193
Deferred debt amortization (discount)		5,637,750			3,464,808
Accrued interest		1,169,099			1,169,099
Gross deferred tax assets		65,394,982			68,238,675
Valuation allowance		(65,394,982	)		(68,238,675	)
Net deferred taxes	$	-		$	-

A reconciliation between the Company’s effective tax rate and the federal statutory rate for the years ended July 31, 2023 and 2022 is as follows:

	For the Years Ended July 31,
	2023			2022
Federal statutory rate		21.0	%		21.0	%
Permanent differences		475.5	%		40.3	%
Federal R&D		-117.9	%		30.0	%
State taxes		7.1	%		7.1	%
State NOL sale		565.9	%		32.5	%
Valuation allowance		315.8	%		-93.4	%
Prior year adjustment		-679.6	%		-1.6	%
Other		3.9	%		-4.1	%
Effective tax rate		565.7	%		31.8	%

In accordance with the State of New Jersey’s Technology Business Tax Certificate Program, which allowed certain high technology and biotechnology companies to sell unused net operating loss carryforwards (“NOLs”) to other New Jersey-based corporate taxpayers based in New Jersey.

For the years ended July 31, 2023 and 2022, the Company received $5,096,000 and $4,925,000, respectively, related to the R&D credit of 2022 and 2021.

As of July 31, 2022, the Company has approximately $208,600,000 of federal NOLs that will begin to expire in 2023 and approximately $6,200,000 of New Jersey NOLs that will begin to expire in 2043. The federal NOLs generated in the current year will not expire. The Company has undergone ownership changes and has determined that a “change in ownership” as defined by IRC (“International Residential Code”) Section 382 of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, did occur during 2008. Accordingly, about $19,875,000 of the Company’s NOLs carryforwards are limited and the Company can only use $3,601,883 for the first five years from the ownership change and $1,488,550 per year going forward. Therefore, all of the limited NOLs are now available. The Company has R&D credit carryovers for federal and New Jersey of approximately $11,826,000 and $411,000 respectively. The federal will begin to expire in 2029 and the state in 2043.

The Company did not have a liability related to unrecognized tax benefits as of July 31, 2023 and 2022. Further, because the Company has recorded a full valuation allowance on its net deferred tax assets, the effect of implementing FASB Interpretation No. 48 (“FIN 48) would have simply been a reduction of such allowance by the amount. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

The Company records interest accrued and penalties related to unrecorded tax benefits in the interest expense and the operating expense. The Company had not accrued any interest or penalties related to unrecognized benefits. The Company is no longer subject to federal income tax assessment for years before 2020 and 2019 for New Jersey income tax assessment. However, since the Company has incurred NOLs in every year since inception, all of its income tax returns are subject to examination and adjustments by the Internal Revenue Service for at least three years following the year in which the tax attributes are utilized. The Company does not believe that there will be a material change in its unrecognized tax positions over the next 12 months.

14. COMMITMENTS

License Agreements — The Company is a party to two license agreements in connection with certain technology being used for products under development and is required to make certain annual maintenance payments. In addition, royalty payments, calculated on a low single digit percentage of net sales, as defined in the respective agreements, will be required upon the commercialization of licensed technology. Sublicensing fees are calculated and due based upon a percentage of gross sublicense fees. The Company expenses license obligation payments to research and development on the statement of operations.

One worldwide license agreement requires the Company to reimburse the other party for costs associated with filing and defending various patents worldwide. Payment obligations under this license agreement remain in effect until the last underlying patents granted under the license agreement expire in their respective countries. Currently, the last patent expired in 2019. License maintenance fees are currently $20,000 per year and continue for the term of the agreement. The license maintenance fees are replaced by minimum royalties of $10,000 during the first year following governmental approval to market products and escalate to $1,000,000 during the term of the agreement. The Company is also responsible for sub licensing fees. The Company may credit each annual license maintenance fee in full against all royalties and sublicensing fees due during the same calendar year. The Company may terminate the license agreement upon 90 days’ notice. Either party may terminate the license agreement if the other party commits any material breach of any covenant or promise and does not cure such breach within 30 days of the receipt of written notice of such material breach. In May 2017, the Company renegotiated the agreement referred to as the “second license.” In exchange for a waiver of certain product development milestones, the Company modified the agreement to pay a low single digit percentage royalty for a duration of five years on Net Sales of product sold after the expiration of the licensed patent and potentially up to eight years. As of July 31, 2023, there are no products being marketed which are covered by the patents under the license agreement.

The remaining minimum payments required under the license agreement, assuming the agreements are not terminated by the Company, excluding any escalation for receiving government marketing approval subsequent to July 31, 2018, are $20,000 per year. The agreement may continue until January 1, 2029 (if not earlier terminated).

The Company’s second license continues until the termination of the later of the last to expire patent or royalty obligation under the agreement on a country-by-country basis (currently, or as otherwise provided in the license agreement). Fifty percent of the maintenance fee payments, up to $1.1 million, may be credited against the potential future royalty payments, calculated on a single digit percentage of net sales, as defined, that the Company would have to make to the license holder should royalties be paid. The agreement may be terminated on 15 days’ written notice after default by the other party if said default is not cured within 30 days of receipt of notice by the defaulting party. In addition, the Company may terminate the agreement on 15 days’ written notice to the license holder. Royalties are due based on Gross Sales, as defined, for products sold relating to patented and unpatented technology, and shall terminate on the 15th anniversary of the first commercial sale of the product in the corresponding country or territory. Sublicense payments are due in connection with any sublicense fees received relating to patented and non-patented products related to the patented technology and proprietary know-how, as provided in the agreement. As of July 31, 2023, there were no products being marketed which are covered by the patents under the license agreement. There were no additional annual license maintenance fees required beyond 2010.

In addition, Ventures (as discussed in Note 1) had an operating agreement with Altira Capital and Consulting LLC (“Altira”) that provided for the payment of royalties to Altira in exchange for the assignment of intellectual property to the Company. At the time of the operating agreement, Altira was owned by two officers (the Chief Executive Officer and the President) of the Company. The operating agreement was terminated when Ventures and the Company merged in 2002. At the merger date, the Company agreed to continue the specific section of the operating agreement dealing with the payment of royalties to Altira, including the establishment of a royalty pool for certain inventors. Altira would receive a royalty as part of a newly created inventor’s royalty pool to include specific inventors of Company technology for the products and services developed in part by certain Altira principals and other inventors. The Company is obligated to pay royalties based upon percentage (low single digit) of net sales, as defined in the royalty agreement. The royalty obligations remain in effect, on a country-by-country basis, until the last to expire patent claims associated with such products and services expire or are no longer in force. No payments have been made in connection with a royalty pool. As of July 31, 2023, the last to expire patent claim is to remain in force until fiscal 2034.

Lease Obligations — The Company entered into a 10-year lease agreement on June 1, 2006 for office and laboratory space in Cranbury, New Jersey. Such agreement’s initial term expired during July 2016 and was amended in September 2016. The amended lease agreement renews the lease for an additional seven years commencing on August 1, 2016 and ending on July 31, 2023, which was extended July 2023 to commence on September 30, 2023 (see Note 16).

Rent expense including deferred rent charges amounted to $284,410 and $473,034 for the years ended July 31, 2023 and 2022, respectively.

15. RELATED PARTY TRANSACTIONS

On January 16, 2016, CS Pharma Holdings, LLC (“CS Pharma”), a subsidiary of IDT Corporation and/or IDT Corporation (the “Investor”) and the Company entered into a subscription agreement for the issuance of up to a $10,000,000 D Note to the Investor which was convertible into Series D Preferred Stock subject to due diligence and the conversion of a prior $500,000 advance to a C Note holder. On March 31, 2016, the Company entered into the First Global Amendment to the Loan Document providing for an additional $1,500,000 of funds to the Company in exchange for the issuance of an additional C Note in the same amount which was issued on April 13, 2016. After completion of due diligence and negotiations, on September 16, 2016, the Investor provided the remaining $8,000,000 less expenses. The Company cancelled both C Notes and issued a Series D Note in the amount of $10,000,000. The D Note, including the unpaid interest, has a maturity date of two years. In addition, the Company issued a warrant to the Investor to purchase up to 56% of the outstanding capital stock of the Company. An equity bonus was granted to be calculated based on 10% of the outstanding capital stock subject to certain milestones. In addition, the Investor was granted voting proxies by holders of a majority of the shares of the Company’s common stock outstanding permitting the Investor to veto certain financing or asset transactions for a period of two years. The Amendment provided that the subscriber may appoint two additional Board Members and the Chairman of the Board, as well as Veto Rights for subsequent financing, sale, a change of control or other arrangement, and Equity Bonus Shares.

In March 2018, IDT Corporation spun off a former subsidiary to an independent public company, Rafael Holdings, LLC, which acquired upon spin off, interests/rights in Cornerstone Pharmaceuticals, Inc. through a 90%-owned non-operating subsidiary, IDT- Rafael Holdings, LLC (“IDT-Rafael Holdings”). IDT-Rafael Holdings holds the Preferred Convertible Series D Warrant to purchase a significant stake in Cornerstone Pharmaceuticals, Inc., as well as other equity and governance rights in Cornerstone Pharmaceuticals, Inc., and owns 50% of CS Pharma, a non-operating entity which holds the convertible debt and other rights to purchase equity interests in Cornerstone Pharmaceuticals, Inc.

The Company’s Chairman of the Board of Directors (appointed in April 2016), Mr. Howard Jonas, who is also the current Chairman of the Board of the Investor, held jointly with his spouse $525,000 in C Notes as of July 31, 2018. In addition, an affiliated foundation held an additional $525,000 of C Notes. These C Notes are recorded on the Balance Sheet under Convertible notes.

On February 3, 2020, the Company entered into a Line of Credit Agreement with RP Finance, which provides a revolving commitment of up to $50,000,000 to fund clinical trials and other capital needs. Rafael Holdings, Inc. owns 37.5% of the equity interests in RP Finance and is required to fund 37.5% of funding requests from the Company under the Line of Credit Agreement. Howard Jonas owns 37.5% of the equity interests in RP Finance, and is required to fund 37.5% of funding requests from the Company under the Line of Credit Agreement. The remaining 25% equity interests in RP Finance is owned by other shareholders of the Company (see Note 7).

Altira (see Note 14), a significant investor, is owned by an officer and director of the Company, a former officer and director of the Company and two other significant investors/directors (herein the “Two Investors”) who became partners in Altira in 2004. In June 2006, a company controlled by the Two Investors, Cedar Brook East Corporate Center, L.P., leased a facility to the Company under a 10- year non-cancelable lease (see Note 14) which renewed in 2016. The amended lease agreement renewed the lease for an additional seven years commencing on August 1, 2016 and ending on July 31, 2023, which was extended July 2023 to commence on September 30, 2023 (see subsequent events). Altira is entitled to receive royalties on net sales as described in Note 14. The Two Investors continued to invest in the preferred stock issuances and make advances to the Company.

The Company pays $40,000 per month in management fees to Rafael Holdings, Inc. for accounting and other administrative functions. Rafael Holdings, Inc. is the parent company of Pharma Holdings. At both July 31, 2023 and 2022, the Company owed $720,000 to Rafael Holdings, Inc. During the years ended July 31, 2023 and 2022, there were $0 and $120,000 of related parties advances, respectively.

As of July 31, 2023, the remaining balance due to related parties was $1,288,522.

16. SUBSEQUENT EVENTS

The Company evaluated events that have occurred from the date of the financial statements through the date the financial statements were available to be issued.

On August 24, 2023, the Company entered into a settlement agreement with a vendor, resulting in the vendor agreeing to waive any further payment on any outstanding invoices totaling the amount of $2,100,850. The company removed the $2,100,850 from accounts payable on August 24, 2023.

On September 8, 2023, the Company signed a two-year lease agreement for a new premises commencing on September 25, 2023. Monthly lease payments amount to $2,581 per month, a total of $3,054 per month for operational and utilities expenses.

On September 6, 2023, the Company entered into a separation agreement with its Chief Executive Officer, who left the organization on December 15, 2023. On March 26, 2024, the Company’s Board of Directors approved and appointed a new Chief Executive Officer.

Subsequent to the balance sheet date, the Company submitted several proposed restructuring transactions for stockholder approval. The transactions, includes minority stockholder rights offering, conversion of convertible notes plus accrued interest through date of transaction in the amount of $15,514,631 to common stock, converting all preferred stock to common stock, conversion of related parties’ debt plus aaccrued interest through date of transaction in the amount of $32,730,465 to common stock, additional investment of $1.5 million from a related party in exchange for common stock at a set transaction price. This transaction included a reverse stock split to the ratio of 10:1. All references to common shares and common per share amounts presented have been adjusted retroactively to reflect the stock split. Included in these transactions was an amendment to the first Line of Credit, limiting the Company to the amount already drawn, removing the anti- dilution protections and extending the maturity date to May 31, 2028. The Company received approval and closed these transactions on March 13, 2024. As a result of these transactions, Rafael Holdings, Inc. and its affiliates became the controlling shareholders of the Company.

Exhibit 99.2

Cornerstone Pharmaceuticals, Inc.

(Formerly Rafael Pharmaceuticals, Inc.)
Financial Statements

As of and For the Three Months Ended October 31, 2023 and 2022

CORNERSTONE PHARMACEUTICALS, INC.

TABLE OF CONTENTS

		Page
FINANCIAL STATEMENTS:

Balance Sheets as of October 31, 2023 and July 31, 2023		1

Statements of Operations for Three Months Ended October 31, 2023 and 2022		2

Statements of Stockholders’ Deficit for Three Months Ended October 31, 2023 and 2022		3

Statements of Cash Flows for Three Months Ended October 31, 2023 and 2022		4

Notes to Financial Statements as of and for Three Months Ended October 31, 2023 and 2022		5

CORNERSTONE PHARMACEUTICALS, INC.
BALANCE SHEETS

As of October 31, 2023 and July 31, 2023

(in thousands, except share and per share data)

	October 31,			July 31,
	2023			2023
	(Unaudited)			(Note 2)
ASSETS

CURRENT ASSETS
Cash	$	3,414		$	5,918
Marketable securities		79			78
Prepaid expenses and other current assets		144			116
Total current assets		3,637			6,112

NON-CURRENT ASSETS
Property and equipment, net		21			72
ROU asset, net		55			-
Deferred debt issuance costs		9,763			11,712

TOTAL ASSETS	$	13,476		$	17,896

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES
Accounts payable	$	2,391		$	4,856
Accrued expenses		4,691			4,970
Deferred officers’ salaries		27			27
Advances payable - related parties		1,289			1,289
Line of credit - related parties		29,753			29,178
Convertible promissory note - related parties		2,091			2,053
Convertible notes		12,189			12,239
Operating lease liability		28			-
Total current liabilities		52,459			54,612

LONG-TERM LIABILITIES
Accounts payable - long-term		8,542			8,542
Line of credit - long-term		21,875			21,875
Derivative liabilities		5,190			3,832
Operating lease liability - long-term		27			-

TOTAL LIABILITIES		88,093			88,861

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ DEFICIT

Convertible Preferred stock, $0.001 par value; 300,000,000 shares authorized; 96,554,287 shares issued and outstanding as of October 31, 2023 and 95,506,059 as of July 31, 2023, respectively		97			97
Common stock, $0.01 par value; 31,000,000 shares authorized; 2,442,034 shares issued and outstanding as of October 31, 2023 and July 31, 2023, respectively		24			24
Additional paid-in capital		190,212			189,898
Accumulated deficit		(264,950	)		(260,984	)
Total stockholders’ deficit		(74,617	)		(70,965	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	13,476		$	17,896

Common stock amounts have been retroactively adjusted to reflect a 10 for 1 reverse stock split of the Company’s common stock effective as of March 13, 2024.

See accompanying notes to the financial statements.

CORNERSTONE PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS

For the Three Months Ended October 31, 2023 and 2022

(in thousands)

(Unaudited)

	For The Three Months Ended October 31,
	2023			2022

OPERATING EXPENSES
Research and development	$	1,277			2,392
General and administrative		729			527
TOTAL OPERATING EXPENSES		2,006			2,919

LOSS FROM OPERATIONS		2,006			2,919

OTHER INCOME AND (EXPENSE)
Interest income		1			1
Interest expense		(2,661	)		(4,528	)
Change in fair value of derivative liabilities		(1,358	)		5,426
Forgiveness of accounts payable		2,101			-
Foreign exchange loss		(43	)		-
TOTAL OTHER INCOME AND (EXPENSE)		(1,960	)		899

LOSS BEFORE INCOME TAXES		3,966			2,020

INCOME TAX BENEFIT		-			-

NET LOSS	$	3,966		$	2,020

See accompanying notes to the financial statements

CORNERSTONE PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS’ DEFICIT

For the Three Months Ended October 31, 2023 and 2022

(in thousands, except share data)

(Unaudited)

	Preferred Stock																	Common Stock				Additional					Total
	Series A				Series B					Series C				Series D								Paid-in		Accumulated			Stockholders’
	Shares		Par Value		Shares			Par Value		Shares		Par Value		Shares		Par Value		Shares		Par Value		Capital		Deficit			Deficit
Balance as of July 31, 2022		3,057,500	$	3		26,454,278		$	27		6,321,194	$	6		60,673,087	$	61		2,442,034	$	24	$	188,587	$	(265,179	)	$	(76,471	)
Stock-based compensation resulting from stock options granted to non-employees and employees		-		-		-			-		-		-		-		-		-		-		328		-			328
Net Loss		-		-		-			-		-		-		-		-		-		-		-		(2,020	)		(2,020	)
Balance as of October 31, 2022		3,057,500	$	3		26,454,278		$	27		6,321,194	$	6		60,673,087	$	61		2,442,034	$	24	$	188,915	$	(267,199	)	$	(78,163	)

Balance as of July 31, 2023		3,057,500	$	3		26,454,278		$	27		6,321,194	$	6		60,673,087	$	61		2,442,034	$	24	$	189,898	$	(260,984	)	$	(70,965	)
Stock-based compensation resulting from stock options granted to non-employees and employees		-		-		-			-		-		-		-		-		-		-		254		-			254
Preferred stock issued for exercise of warrants		-		-		(20	)		-		48,248		-		-		-		-		-		60					60
Net Loss		-		-		-			-		-		-		-		-		-		-		-		(3,966	)		(3,966	)
Balance as of October 31, 2023		3,057,500	$	3		26,454,258		$	27		6,369,442	$	6		60,673,087	$	61		2,442,034	$	24	$	190,212	$	(264,950	)	$	(74,617	)

Common stock amounts have been retroactively adjusted to reflect a 10 for 1 reverse stock split of the Company’s common stock effective as of March 13, 2024.

See accompanying notes to the financial statements

CORNERSTONE PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS

For the Periods Ended October 31, 2023 and 2022

(in thousands)

(Unaudited)

	For The Three Months Ended October 31,
	2023			2022

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(3,966	)	$	(2,020	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		3			22
Amortization of debt discount		1,949			1,949
ROU asset, net		(55	)		-
Loss on sale of fixed assets		43			-
Interest expense on convertible promissory note - related parties		613			2,472
Non cash stock-based compensation		254			328
Change in fair value of derivative liabilities		1,358			(5,426	)
Gain on forgiveness of accounts payable		(2,101	)		-
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(28	)		71
Operating lease liability		55			-
Accounts payable		(364	)		18
Accrued expenses		(269	)		188

NET CASH USED IN OPERATING ACTIVITIES		(2,508	)		(2,398	)

CASH FLOWS FROM INVESTING ACTIVITIES
Sale of property and equipment		5			-
Investment in marketable securities		(1	)		-
NET CASH PROVIDED BY INVESTING ACTIVITIES		4			-

NET DECREASE IN CASH		(2,504	)		(2,398	)

CASH AT BEGINNING OF PERIOD		5,918			11,149

CASH AT END OF PERIOD	$	3,414		$	8,751

See accompanying notes to the financial statements

CORNERSTONE PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

AS OF AND FOR THE PERIODS ENDED OCTOBER 31, 2023 AND 2022

These notes have been retroactively adjusted to reflect a 10 for 1 reverse stock split of the Company’s common stock effective as of March 13, 2024.

ORGANIZATION, BUSINESS OVERVIEW AND MANAGEMENT’S PLAN

Management’s Plan

As of October 31, 2023, the Company is in default on approximately $12,189,320 of convertible notes as they are beyond their payment terms and that other debt which is also past due but no notice of default has been provided (see Note 7).

Subsequent to the balance sheet date, the Company submitted several proposed restructuring transactions for stockholder approval. The transactions included a minority stockholder right offering, conversion of convertible notes plus accrued interest through date of transaction in the amount of $15,514,631 to common stock, converting all preferred stock to common stock, conversion of related parties’ debt plus accrued interest through date of transaction in the amount of $32,730,465 to common stock and additional investment of $1,500,000 from a related party in exchange for common stock at a set transaction price. This transaction included a reverse stock split to the ratio of 10:1. All references to common shares and common per share amounts presented have been adjusted retroactively to reflect the stock split. Included in these transactions was an amendment to the first Line of Credit, limiting the Company to the amount already drawn, removing the anti-dilution protections and extending the maturity date to May 31, 2028. The Company received approval and closed these transactions on March 13, 2024. As a result of these transactions, Rafael Holdings, Inc. and its affiliates became the controlling shareholder of the Company.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operating results for the three months ended October 31, 2023 and 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2024. The balance sheet at July 31, 2023 has been derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the years ended July 31, 2022 and 2020.

Cash and Marketable Securities — Cash consists of cash and deposits of all highly-liquid debt instruments of three months or less that are readily convertible into cash.

Advances Payables to Related Parties — Funds were advanced to the Company from time to time for operating purposes from related parties. Advances payable to related parties were $1,288,522 at October 31, 2023 and July 31, 2023.

Leases - The Company accounts for its leases in accordance with ASC Topic 842, Leases (“ASC 842”). ASC 842 is a Financial Accounting Standards Board (“FASB”) guideline that requires companies to record leases longer than 12 months as assets and liabilities on their balance sheets. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. Variable lease expenses, if any, are recorded when incurred.

The Company files income tax returns in the U.S. federal jurisdiction and certain state jurisdictions. The tax years subject to audit are 2021 through 2023. The Company does not believe there will be a material change in its recognized tax positions over the next 12 months.

The Company’s policy is to recognize interest and penalties accrued on tax matters as a component of income tax expense. The Company has not incurred any interest or penalties.

Revenue Recognition — In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09. The objective of the ASU is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, which supersedes most of the existing revenue recognition guidance, including industry-specific guidance. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the ASU, companies will perform a five-step analysis of transactions to determine when and how revenue is recognized. The five-step analysis consists of the following: (i) identifying the contract with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract, and (v) recognizing revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB’s ASC.

For the three months ended October 31, 2023, the Company had purchase concentrations of 25% and 13% from two vendors.

For the three months ended October 31, 2022, the Company had no purchase concentrations of over 10% to any individual vendor.

The Company recorded stock-based option compensation as follows (in thousands):

	For the Three Months ended October 31,
	2023		2022
General and administrative	$	43	$	44
Research and development		211		284
Total	$	254	$	328

No related tax benefits from stock compensation expense were recognized for the three months ended October 31, 2023 and 2022.

As of October 31, 2023, there was $994,174 of unrecognized compensation cost related to non-vested share-based compensation, which will be amortized over the remaining service period.

Warrants — The Company accounts for warrants to purchase stock based on guidelines provided in ASC Topic 815, Derivatives and Hedging – Contracts in Entity’s Own Equity (“ASC 815”) which provides guidance on contracts that are settled in the Company’s own shares as either a liability or as an equity instrument depending on the warrant agreement. The Company uses the Black-Scholes or trinomial pricing models, depending on the applicable terms of the warrant agreement, to value the derivative warrant liabilities in bifurcating such amount from convertible notes payable (See Notes 8 and 11).

Deferred Financing Costs — The Company accounted for deferred financing costs in accordance with ASU Topic 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), which provides guidance on how to accounts for changes in the way debt issuance costs are reported. Debt issuance costs, prior to ASU 2015-03, were reported on the balance sheet as assets and amortized over the life of the loan(s). ASU 2015-03 requires these costs to be reported as liabilities on the balance sheet as a discount to the debt. These costs were incurred before an associated debt liability is recorded in the financial statements, therefore, are presented as an asset on the Company’s balance sheet. These costs represent the common stock issued and the anti-dilution provision associated with obtaining the Line of Credit (see Note 7). These fees are amortized over the terms of the respective financing agreements, on a straight- line basis which approximates the effective interest method. Unamortized deferred financing fees are expensed in full when the associated debt is refinanced, repaid before maturity, or otherwise extinguished.

Recently Issued Accounting Pronouncements

FAIR VALUE MEASUREMENTS

Accounting Standards Codification ASC Topic 820, Fair Value Measurement and Disclosures (“ASU 820”), establishes a consistent framework in how to value the fair value of assets and liabilities. This framework is intended to increase consistency in how fair value determinations are made under various existing accounting standards that permit, or in some cases require, estimates of fair value. This standard also expands financial statement disclosure requirements about a company’s use of fair value measurements, including the effect of such measures on earnings.

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following tables set forth the Company’s assets and liabilities fair value at October 31, 2023 and July 31, 2023 by level within the fair value hierarchy (in thousands):

	Carrying		Fair Value Measurement as of October 31, 2023
	Value		Level 1		Level 2		Level 3
Assets:
Cash	$	3,414	$	3,414	$	-	$	-
Marketable securities		79		79		-		-
Liabilities:
Convertible notes	$	12,189	$	-	$	-	$	12,189
Convertible promissory note - related parties		2,091		-		-		2,091
Account payable – long-term		8,542		-		-		8,542
Derivative liabilities		5,190		-		-		5,190

	Carrying		Fair Value Measurement as of J uly 31, 2023
	Value		Level 1		Level 2		Level 3
Assets:
Cash	$	5,918	$	5,918	$	-	$	-
Marketable securities		78		78		-		-
Liabilities:
Convertible notes	$	12,239	$	-	$	-	$	12,239
Convertible promissory note - related parties		2,053		-		-		2,053
Account payable – long-term		8,542		-		-		8,542
Derivative liabilities		3,832		-		-		3,832

The following table sets forth the Company’s change in derivative liabilities for the period ended October 31, 2023 (in thousands):

	Derivative Liabilities
Balance as of July 31, 2022	$	25,534
Change in fair value		(21,702	)
Balance as of July 31, 2023		3,832
Change in fair value		(1,358	)
Balance as of October 31, 2023	$	5,190

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets are comprised of the following (in thousands):

	October 31, 2023		July 31, 2023
Deposits with vendors and service providers	$	91	$	49
Insurance		53		67
Total	$	144	$	116

PROPERTY AND EQUIPMENT

Property and equipment, net is comprised of the following (in thousands):

	October 31, 2023			July 31, 2023
Laboratory equipment	$	933		$	1,004
Computer and office equipment		150			150
Leasehold improvements		2,089			2,089
		3,172			3,243
Less: Accumulated depreciation and amortization		(3,151	)		(3,171	)
	$	21		$	72

Depreciation and amortization expense was $3 and $22 for the three months ended October 31, 2023 and 2022, respectively. For the three months ended October 31, 2023 the company received $5k for the sale of fixed assets and recorded a loss of $43 on that sale.

ACCRUED EXPENSES

Accrued expenses is comprised of the following (in thousands):

	October 31, 2023		July 31 2023
Interest (due to convertible note holders)	$	4,082	$	3,993
Compensation		50		50
Clinical and research costs		217		746
Other		258		155
Legal and professional fees		84		26
Total	$	4,691	$	4,970

Compensation costs include unpaid employee salaries and benefits and severance obligations to former executives.

NOTES PAYABLE

Creditor Balance

As of October 31, 2023 related to this debt, the Company has $8,542,000 accrued on the balance sheet under accounts payable – long-term, which includes the $2,542,000 which will be waived once all other payments are made.

Convertible Promissory Note – Related Party

During the three months ended October 31, 2023 and 2022, the Company recorded $37,808 and $0 of interest expense, respectively, recorded to interest expense on the statements of operations.

Lines of Credit

RP Finance

In connection with entering into the Line of Credit Agreement, the Company agreed to issue to RP Finance 261,231 shares of its common stock, representing 12% of the issued and outstanding shares of common stock, with such interest subject to anti-dilution protection as set forth in the Line of Credit Agreement. The common stock issued was valued at a price of $19.5 a share, or $5,112,297. The anti-dilution clause was valued at $33,580,762, which was recorded as a derivative liability. The total aggregate value of the stock issued and the anti-dilution clause was $38,693,059, which the Company recorded as deferred debt issuance costs, net and will be amortized over the life of the line of credit on a straight-line basis which approximates the effective interest method. For three months ended October 31, 2023 and the years ended July 31, 2023, the Company recorded $1,948,418 and $7,730,140 as amortization expense respectively. As of October 31, 2023, the remaining amount of the deferred debt issuance cost was $9,763,273.

As of October 31, 2023, the Company has drawn down $21,875,000 on its Line of Credit and the remaining amount available to draw down is $28,125,000. Subsequent to the balance sheet date, this Line of Credit was amended, limiting the Company to the amount already drawn, removed the anti-dilution protections and extending the maturity date to May 31, 2028.

Rafael Holdings

Per the terms of the Heter Iska, funds received under the second Line of Credit Loan Agreement would not be treated as a loan and bear interest but would be treated as an investment with a profit-sharing agreement for the profits or losses generated from the use of those funds. The Company can elect to repay those funds along with amounts representing the interest calculated under the terms of the second Line of Credit Loan Agreement in place of Rafael Holdings, Inc.’s share of the profit generated. During the three months ended October 31, 2023 and 2022, the Company recorded interest in the amounts of $575,000 and $2,472,075.

As of October 31, 2023, the Company drawn down the full $25,000,000 of the second Line of Credit.

Subsequent to the balance sheet date, the Company submitted several proposed restructuring transactions for stockholder approval. Included in these transactions was conversion of the second Line of Credit debt plus accrued interest in exchange for common stock at a set transaction price. This transaction included a reverse stock split to the ratio of 10:1. The Company received approval and closed this transaction on March 13, 2024. As a result of these transactions, Rafael Holdings, Inc. and its affiliates became the controlling shareholder of the Company.

CONVERTIBLE NOTES

The convertible notes issuance through October 31, 2023 are as follows:

	Total		C Notes (1) (2)
Balance as of July 31, 2023	$	12,239	$	12,239
Converted		50		-
Balance as of October 31, 2023	$	12,189	$	12,239

The Company has $12,189,320 of Series C convertible promissory notes outstanding (the “C Notes”). The C Notes carry an interest rate of 3.5% per annum and are due, together with accrued interest, one year (unless amended) from date of issuance and automatically accelerate upon the sale of the Company in its entirety or the sale or license of substantially all of the Company’s assets or intellectual property. The C Notes (including all accrued and unpaid interest thereon) automatically convert into the same class of securities (including stock warrants) sold in our next equity financing (i) where the Company receives gross proceeds of at least $10,000,000 from Institutional Investors (a “Qualified Financing”), or (ii) from an underwritten initial public offering (“IPO”). The conversion price of the C Notes upon a Qualified Financing shall be the lesser of (i) 90% of the price per share (or unit) at which the securities in the Qualified Financing are sold, or (ii) $1.25 price per share (or unit) (whichever is less) at the holder’s selection of (i) or (ii), and 90% of the share price per share (or unit) at which securities in an IPO are first sold.

As of October 31, 2023, the C Notes of $12,189,320 are currently in default as they are beyond their payment terms. The Company is seeking to extend the maturities of the notes.

During the three months ended October 31, 2023 and 2022, the Company recorded $89,348 and $107,094 of convertible note interest expense, respectively, recorded to interest expense on the statements of operations.

DERIVATIVE LIABILITIES

The fair value of the derivative liability – Line of Credit is estimated using a Monte Carlo pricing model with the following assumptions:

	October 31, 2023			July 31, 2023
Market value of common stock	$	0.03		$	0.03
Expected volatility		75.9	%		75.9	%
Expected term (in years)		1.26			1.51
Risk-free interest rate		5.26	%		5.03	%

10.

STOCKHOLDERS’ EQUITY

During the three months ended October 31, 2023 and 2022, the Company issued 0 shares.

The following summarizes the Preferred Stock:

	October 31, 2023						July 31, 2023
Series	Shares Authorized		Shares Issued		Liquidation Preference		Shares Authorized		Shares Issued		Liquidation Preference
A		6,050,000		3,057,500	$	3,057,500		6,050,000		3,057,500	$	3,057,500
B-1		1,892,072		1,513,658		1,892,073		1,892,072		1,513,658		1,892,073
B-2		17,500,000		10,000,000		10,000,000		17,500,000		10,000,000		10,000,000
B-3		30,000,000		10,000,000		10,000,000		30,000,000		10,000,000		10,000,000
B-4		10,400,000		4,940,600		6,175,750		10,400,000		4,940,600		6,175,750
C		25,000,000		6,369,442		7,961,803		25,000,000		6,321,312		7,901,640
D		131,000,000		60,673,087		75,841,359		131,000,000		60,673,087		75,841,359
		221,842,072		96,554,287	$	114,928,485		221,842,072		96,554,287	$	114,686,322

The above tables include 221,842,072 in shares authorized under their respective series as of October 31, 2023; however, the Company has 300,000,000 shares authorized for all series of Preferred Stock.

The following are the various classes of Preferred Stock that the Company has issued:

Series B-1, B-2 and B-3 – Prior to 2009, two investors made investments in units, each unit consisting of common stock with a liquidation preference and non-callable warrants. The issuance of Series B-4 Convertible Preferred Stock in 2009 (“Series B-4 Preferred”), for the investment prior to 2009 a total of 17,713,658 units were exchanged for shares of Series B-1, B-2 and B-3 Convertible Preferred Stock and non-callable warrants. In 2011, the Company issued an additional 3.8 million units. Series B-1, B-2 and B-3 were entitled to appoint two members of the Board of Directors. As of July 31, 2019, the warrants have either expired or were exchanged for common stock.

11.

WARRANTS

Preferred Convertible Series C Warrants — The warrants were issued in connection with Series C Convertible Notes. The notes convert into “Series C Units.” Each unit is comprised of one share of the Company’s Series C Convertible Preferred Stock (“C Preferred stock”) at a conversion price of $1.25 per unit, and one warrant to purchase one share of the Company’s C Preferred Stock at an exercise price of $1.375 per share. The warrants expire four years from the initial date of the note unless amended. The Company has extended the expiration dates on certain warrants (see below). In October 2020, the Company received $3,013,028 as a deposit for the exercising of certain C warrants. In December 2020, 6,321,194 C warrants were exercised at a price of $1.375 for a total of $8,691,642 and 2,410,922 C warrants were forfeited. The Company received $7,134,514 in cash and converted $1,557,128 of accrued expenses and related party payables in 2020. The remaining 3,253,948 C warrants expired in February 2022.

As of October 31, 2023, the Warrant holder owns 60,673,087 shares of Series D Preferred Stock.

12.

OPTIONS

In 2009, the Company established the 2009 Stock Incentive Plan (“2009 Plan”) providing for the additional granting of incentive stock options and non-qualified options to purchase the Company’s common stock. A total of 550,000 shares were authorized under the 2009 Plan and 102,410 shares are available for grant as of October 31, 2023. In 2018, the Company established the 2018 Stock Incentive Plan (“2018 Plan”) providing for the additional granting of incentive stock options and non-qualified options to purchase the Company’s common stock. A total of 450,000 shares were authorized under the 2018 Plan. In 2019, the 2018 plan was amended and an additional 200,000 shares were authorized for a total of 650,000 authorized shares and 118,249 shares are available for grant as of October 31, 2023.

During the period from August 1, 2023 to October 31, 2023, there were no stock options granted.

The Company recorded stock-based option compensation in the statements of operations as follows (in thousands):

	For the Three Months ended October 31,
	2023		2022
General and administrative	$	43	$	44
Research and development		211		284
Total	$	254	$	328

A summary of option activity for the combined plans for the years ended July 31, 2023 and 2022, and the change for the years then ended, is presented as follows:

						Weighted
				Weighted		Average
				Average		Remaining
	Number of Options			Exercise Price		Contract Terms (Years)
Options outstanding - July 31, 2022		10,654,664			2.38		5.7
Granted		-			-		-
Forfeited		(261,250	)		2.50		-
Expired		(100,000	)		1.25
Options outstanding - July 31, 2023		10,293,414			2.39		5.7
Granted		-			-		-
Forfeited		-			-		-
Expired		(250,000	)		1.25
Exercised		-			-		-
Options outstanding - October 31, 2023		10,043,414			2.42		4.6
Options vested and expected to vest - October 31, 2023		9,930,055			2.41		-
Options exercisable - October 31, 2023		8,909,814			2.34		-

Other Options — The Company has issued other options to investors and others as finders’ fees (collectively) in connection with prior capital raises.

13.

INCOME TAXES

The Company did not have a liability related to unrecognized tax benefits as of October 31, 2023 and July 31, 2023. Further, because the Company has recorded a full valuation allowance on its net deferred tax assets, the effect of implementing FASB Interpretation No. 48 (“FIN 48) would have simply been a reduction of such allowance by the amount. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

14.

COMMITMENTS

One worldwide license agreement requires the Company to reimburse the other party for costs associated with filing and defending various patents worldwide. Payment obligations under this license agreement remain in effect until the last underlying patents granted under the license agreement expire in their respective countries. Currently, the last patent expired in 2019. License maintenance fees are currently $20,000 per year and continue for the term of the agreement. The license maintenance fees are replaced by minimum royalties of $10,000 during the first year following governmental approval to market products and escalate to $1,000,000 during the term of the agreement. The Company is also responsible for sub licensing fees. The Company may credit each annual license maintenance fee in full against all royalties and sublicensing fees due during the same calendar year. The Company may terminate the license agreement upon 90 days’ notice. Either party may terminate the license agreement if the other party commits any material breach of any covenant or promise and does not cure such breach within 30 days of the receipt of written notice of such material breach. In May 2017, the Company renegotiated the agreement referred to as the “second license.” In exchange for a waiver of certain product development milestones, the Company modified the agreement to pay a low single digit percentage royalty for a duration of five years on Net Sales of product sold after the expiration of the licensed patent and potentially up to eight years. As of October 31, 2023, there are no products being marketed which are covered by the patents under the license agreement.

In addition, Ventures (as discussed in Note 1) had an operating agreement with Altira Capital and Consulting LLC (“Altira”) that provided for the payment of royalties to Altira in exchange for the assignment of intellectual property to the Company. At the time of the operating agreement, Altira was owned by two officers (the Chief Executive Officer and the President) of the Company. The operating agreement was terminated when Ventures and the Company merged in 2002. At the merger date, the Company agreed to continue the specific section of the operating agreement dealing with the payment of royalties to Altira, including the establishment of a royalty pool for certain inventors. Altira would receive a royalty as part of a newly created inventor’s royalty pool to include specific inventors of Company technology for the products and services developed in part by certain Altira principals and other inventors. The Company is obligated to pay royalties based upon percentage (low single digit) of net sales, as defined in the royalty agreement. The royalty obligations remain in effect, on a country-by-country basis, until the last to expire patent claims associated with such products and services expire or are no longer in force. No payments have been made in connection with a royalty pool. As of October 31, 2023, the last to expire patent claim is to remain in force until fiscal 2034.

On September 8, 2023, the Company entered into a lease agreement for the purposes of leasing office space for a two-year period ending September 30, 2025. Monthly rental payments are $2,581. The agreement does not contain an option for extension.

The assets and liabilities from operating leases are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of twelve months or less, are not recorded on the balance sheet.

The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, the Company used an incremental borrowing rate determined using the Company’s most recent borrowing rate for their convertible loan.

Operating Leases

The Company’s weighted-average remaining lease term relating to its operating leases is 1.9 years, with a weighted-average discount rate of 7.5%. The Company incurred lease expense for its operating leases of $2,851 and paid cash in the amount of $2,851 during the three months ended October 31, 2023.

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of October 31, 2023(in thousands):

Maturity of Lease Liabilities
For the 12 months ended October 31,:	Total

2024	$	23
2025		31
2026		5
Total undiscounted operating lease payments		59
Less: Imputed interest		4
Present value of operating lease liabilities		55
Less: current portion		27
Non-current portion	$	28

Rent expense amounted to $73,790 and $70,953 for the three months ended October 31, 2023 and 2022, respectively.

Separation Agreement — On September 6, 2023, the Company entered into a separation agreement with its Chief Executive Officer, who left the organization on December 15, 2023. Executive and the Company have agreed that effective as of September 6, 2023, Executive will cease to serve as the Company’s President and Chief Executive Officer and will become and serve as the Company’s Executive Vice Chair. Executive and the Company agree that unless earlier terminated by either of the Parties, Executive’s employment with the Company shall terminate effective as of the close of business on December 15, 2023. The agreement included separation pay, which will be paid following the terminate date, which will be paid in 24 substantially equal semi-monthly installments in accordance with the Company’s regular payroll schedule beginning no later than the second payroll date following the effective date of the Affirmation. Executive will be credited with an additional 12 months of vesting with respect to his outstanding option awards.

15.

FORGIVENESS OF ACCOUNTS PAYABLE

On August 24, 2023, the Company entered into a settlement agreement with a vendor, resulting in the vendor agreeing to waive any further payment on any outstanding invoices totaling the amount of $2,100,850. The Company removed the $2,100,850 from accounts payable and recorded a gain on forgiveness of accounts payable in the statements of operations.

16.

RELATED PARTY TRANSACTIONS

On January 16, 2016, CS Pharma Holdings, LLC (“CS Pharma”), a subsidiary of IDT Corporation and/or IDT Corporation (the “Investor”) and the Company entered into a subscription agreement for the issuance of up to a $10,000,000 D Note to the Investor which was convertible into Series D Preferred Stock subject to due diligence and the conversion of a prior $500,000 advance to a C Noteholder. On March 31, 2016, the Company entered into the First Global Amendment to the Loan Document providing for an additional $1,500,000 of funds to the Company in exchange for the issuance of an additional C Note in the same amount which was issued on April 13, 2016. After completion of due diligence and negotiations, on September 16, 2016, the Investor provided the remaining $8,000,000 less expenses. The Company cancelled both C Notes and issued a Series D Note in the amount of $10,000,000. The D Note, including the unpaid interest, has a maturity date of two years. In addition, the Company issued a warrant to the Investor to purchase up to 56% of the outstanding capital stock of the Company. An equity bonus was granted to be calculated based on 10% of the outstanding capital stock subject to certain milestones. In addition, the Investor was granted voting proxies by holders of a majority of the shares of the Company’s common stock outstanding permitting the Investor to veto certain financing or asset transactions for a period of two years. The Amendment provided that the subscriber may appoint two additional Board Members and the Chairman of the Board, as well as Veto Rights for subsequent financing, sale, a change of control or other arrangement, and Equity Bonus Shares.

The Company pays $40,000 per month in management fees to Rafael Holdings, Inc. for accounting and other administrative functions. Rafael Holdings, Inc. is the parent company of Pharma Holdings. At both July 31, 2023 and 2022, the Company owed $720,000 to Rafael Holdings, Inc. During the three months ended October 31, 2023 and 2022, there were $0 of related parties’ advances, respectively.

As of October 31, 2023, the remaining balance due to related parties was $1,288,522.

17.

SUBSEQUENT EVENTS

The Company evaluated events that have occurred from the date of the financial statements through the date the financial statements were available to be issued.

Subsequent to the balance sheet date, the Company submitted several proposed restructuring transactions for stockholder approval. The transactions, includes minority stockholder rights offering, conversion of convertible notes plus accrued interest through date of the transaction in the amount of $15,514,631 to common stock, converting all preferred stock to common stock, conversion of related parties’ debt plus accrued interest through the date of the transaction in the amount of $32,730,465 to common stock, additional investment of $1,500,000 from a related party in exchange for common stock at a set transaction price. This transaction included a reverse stock split to the ratio of 10:1. All references to common shares and common per share amounts presented have been adjusted retroactively to reflect the stock split. Included in these transactions was an amendment to the first Line of Credit, limiting the Company to the amount already drawn, removing the anti- dilution protections and extending the maturity date to May 31, 2028. The Company received approval and closed these transactions on March 13, 2024. As a result of these transactions, Rafael Holdings, Inc. and its affiliates became the controlling shareholders of the Company.

On March 26, 2024, the Company’s Board of Directors approved and appointed a new Chief Executive Officer.

On May 7, 2024, the Company received a Termination Notice of License Agreement from Ono Pharmaceutical Co., Ltd (“Ono”) relating to the license agreement dated June 25, 2019, which gave Ono exclusive license to develop, manufacture, and commercialize CPI-613(Devimisitat) in Asia. Ono formally notified the Company that they determined to discontinue the development of CPI-613 licensed under this agreement and as a result, Ono is terminating the agreement.

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Introductory Note

On March 13, 2024, Rafael Holdings, Inc. (“Rafael”, “Parent”, or the “Company”), Cornerstone Pharmaceuticals, Inc. (“Cornerstone”), and other holders of debt and equity securities of Cornerstone agreed to various transactions which effected a recapitalization and restructuring of Cornerstone, (as such term is defined in Note 1 to this Unaudited Pro Forma Condensed Consolidated Financial Information, the “Restructuring”). In the Restructuring, Rafael obtained shares of common stock of Cornerstone (“Cornerstone Common Stock” or “Common Stock of Cornerstone”) that gave the Company control over approximately 67% of the outstanding equity of Cornerstone (the “Acquisition”). For accounting purposes, Rafael was determined to be the acquirer, as the Company has been determined to be the primary beneficiary of Cornerstone, a Variable Interest Entity (“VIE”), in accordance with ASC 810, Consolidation (“ASC 810”), as further discussed in Note 1 below.

RP Finance LLC (“RP Finance”), an entity in which the Company owns a 37.5% equity interest (previously accounted for as an equity method investment of Rafael), and in which an entity associated with members of the family of Howard Jonas holds an additional 37.5% equity interest, holds debt and equity investments in Cornerstone (which is included in the Company’s equity ownership interest in Cornerstone noted above). In conjunction with the Restructuring and Acquisition, the Company reassessed its relationship with RP Finance, and as a result determined that RP Finance is still a VIE and that the Company became the primary beneficiary of RP Finance as the Company now holds the ability to control Cornerstone’s repayment of the RPF Line of Credit (as defined in Note 1) to RP Finance which directly impacts RP Finance’s economic performance. Therefore, following the Restructuring and Acquisition, the Company consolidates RP Finance (the “RP Finance Consolidation”).

Unaudited Pro Forma Combined Financial Information

The following unaudited pro forma condensed combined financial statements have been prepared to present the combination of the historical financial statements of Rafael and the historical financial statements of Cornerstone, after giving effect to the Restructuring, the Acquisition, and the RP Finance Consolidation. The unaudited pro forma condensed combined financial information includes (all financial information is prepared in accordance with U.S. GAAP):

(a) The unaudited pro forma condensed combined balance sheet as of October 31, 2023, combines (i) the unaudited balance sheet of Cornerstone as of October 31, 2023, as derived from its historical financial statements included in Exhibit No. 99.2 to this Form 8-K amendment and (ii) the unaudited consolidated balance sheet of Rafael as of October 31, 2023, as filed on Rafael’s Form 10-Q with the SEC on December 14, 2023, and gives pro forma effect to the Restructuring, Acquisition, and RP Finance Consolidation as if they had collectively been completed on October 31, 2023.

(b) The unaudited pro forma condensed combined statement of operations for the three month period ended October 31, 2023 combines (i) the unaudited statement of operations of Cornerstone for the three month period ended October 31, 2023, as derived from its historical financial statements included in Exhibit No. 99.2 to this Form 8-K amendment and (ii) the unaudited interim consolidated statement of operations of Rafael for the three month period ended October 31, 2023, as filed on Rafael’s Form 10-Q with the SEC on December 14, 2023, and gives pro forma effect to the Restructuring, Acquisition, and RP Finance Consolidation as if they had collectively occurred on August 1, 2022.

(c) The unaudited pro forma condensed combined statement of operations for the year ended July 31, 2023 combines (i) the audited statement of operations of Cornerstone for the year ended July 31, 2023, as derived from its historical financial statements included in Exhibit No. 99.1 to this Form 8-K amendment and (ii) the audited consolidated statement of operations of Rafael for the year ended July 31, 2023, as filed on Rafael’s Form 10-K with the SEC on October 30, 2023, and gives pro forma effect to the Restructuring, Acquisition, and RP Finance Consolidation as if they had collectively occurred on August 1, 2022.

The unaudited pro forma condensed combined financial information should be read in conjunction with the audited and unaudited historical financial statements and related notes of Cornerstone and Rafael, as referred to above. Further review may identify differences between the accounting policies of Cornerstone and Rafael that, when the Cornerstone policies are conformed to those of Rafael, could have a material impact on the financial statements of the combined company. At this time, Cornerstone and Rafael are not aware of any accounting policy differences that would have a material impact on the unaudited pro forma condensed combined financial information of the combined company. The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X.

The unaudited pro forma condensed combined financial information is based on the assumptions and adjustments that are described in the accompanying notes. The unaudited pro forma condensed combined financial statements and pro forma adjustments have been prepared based on preliminary estimates of fair value of consideration, noncontrolling interests, and assets acquired and liabilities assumed. Differences between these preliminary estimates and the final accounting are likely to occur and these differences could be material as compared to the accompanying unaudited pro forma condensed combined financial statements and the combined companies’ future results of operations and financial position.

The unaudited pro forma condensed combined financial information is provided for illustrative and information purposes only and is not intended to represent or necessarily be indicative of the combined company’s results of operations or financial condition had the Restructuring, the Acquisition, and the RP Finance Consolidation been completed on the dates indicated, nor do they purport to project our results of operations or financial condition for any future period or as of any future date. The unaudited pro forma condensed combined financial information does not include any cost savings or operating synergies, which may be realized subsequent to the combination, or the impact of any integration-related items. Moreover, the pro forma adjustments represent best estimates based upon the information available to date and are preliminary and subject to change after more detailed information is obtained.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF OCTOBER 31, 2023

(in thousands, except share and per share data)

	Rafael			Cornerstone			Transaction Accounting Adjustments
	Holdings, Inc.			Pharmaceuticals, Inc.			Restructuring Adjustments				Acquisition of Cornerstone				RP Finance Consolidation				Pro Forma Combined
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	13,197		$	3,414		$	1,500		E	$	—			$	—			$	16,611
								(1,500	)	E1
Available-for-sale securities		58,894			—			—				—				—				58,894
Marketable securities		—			79			—				—				—				79
Interest receivable		420			—			—				—				—				420
Due from Cornerstone - 2023 Promissory Note		1,858			—			(1,858	)	C1		—				—				—
Accounts receivable, net of allowance for doubtful accounts		231			—			—				—				—				231
Prepaid expenses and other current assets		2,866			144			—				—				—				3,010
Total current assets		77,466			3,637			(1,858	)			—				—				79,245

Property and equipment, net		1,671			21			—				—				—				1,692
Deferred debt issuance costs		—			9,763			(9,763	)	F		(4,603	)	H		—				—
								4,603		F
Due from Cornerstone - RPF Line of Credit		—			—			—				—				15,336		K1		—
																(15,336	)	L
Due from Cornerstone - RFL Line of Credit		—			—			29,753		B1		—				—				—
								(29,753	)	B1
Investments - Cornerstone Pharmaceuticals		—			—			—		A1		(33,111	)	H		4,931		K1		—
								29,753		B1						(4,931	)	L
								1,858		C1
								1,500		E1
Investments – Hedge Funds		2,318			—			—				—				—				2,318
Investment - Day Three Labs Inc.		2,581			—			—				—				—				2,581
Investments - Cyclo Therapeutics Inc.		9,849			—			—				—				—				9,849
In-process research and development		1,575			—			—				—				—				1,575
Other assets		42			55			—				—				—				97
TOTAL ASSETS	$	95,502		$	13,476		$	26,093			$	(37,714	)		$	—			$	97,357

LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable	$	471		$	2,391		$	—			$	—			$	—			$	2,862
Accrued expenses		325			4,691			(3,863	)	D	$	—			$	—				1,980
								(23	)	D1
								428		G
								422		G1
Deferred officers’ salaries		—			27		$	—			$	—				—				27
Advances payable to related parties		—			1,289		$	—			$	(720	)	J		—				569
RFL Line of Credit		—			29,753			(29,753	)	B	$	—				—				—
2023 Promissory Note payable		—			2,091			(2,091	)	C	$	—				—				—
Series C Convertible Notes		—			12,189			(11,506	)	D		—				—				613
								(70	)	D1
Other current liabilities		115			28			—				—				—				143
Due to related parties		23			—			—				—				—				23
Total current liabilities		934			52,459			(46,456	)			(720	)			—				6,217

Other liabilities		56			27			—				—				—				83
Fortrea payable		—			8,542			—				(5,797	)	H		—				2,745
Series C Convertible Notes L/T		—			—			93		D1		(23	)	H		—				70
RPF Line of Credit		—			21,875			—				(6,539	)	H		(15,336	)	L		—
Derivative liabilities		—			5,190			(5,190	)	F		—				—				—
TOTAL LIABILITIES		990			88,093			(51,553	)			(13,079	)			(15,336	)			9,115

EQUITY (DEFICIT)
Class A common stock, $0.01 par value; 35,000,000 shares authorized, 787,163 shares issued and outstanding as of October 31, 2023		8			—			—				—				—				8
Class B common stock, $0.01 par value; 200,000,000 shares authorized, 23,882,117 issued and 23,668,315 outstanding (excluding treasury shares of 50,700) as of October 31, 2023		238			—			—				—				—				238
Cornerstone Convertible Preferred Stock, $0.001 par value		—			97			(97	)	A		—				—				—
Cornerstone Common Stock, $0.01 par value		—			24			97		A		(652	)	H		—				—
								301		B
								21		C
								157		D
								15		E
								37		F
Additional paid-in capital		265,487			190,212			29,452		B		(256,678	)	H		7,600		K1		280,135
								2,070		C		8,897		H		(1,849	)	L
								33,466		D
								1,485		E
								4,566		F
								(4,573	)	F
Accumulated deficit		(170,971	)		(264,950	)		—		A1		283,632		H		—				(200,059	)
								29,753		B1		(58,997	)	I
								(142	)	C1		720		J
								(18,254	)	D
								(428	)	G
								(422	)	G1
Treasury stock, at cost; 50,700 and 0 Class B shares as of October 31, 2023		(79	)		—			—				—				—				(79	)
Accumulated other comprehensive loss related to unrealized loss on available-for-sale securities		(146	)		—			142		C1		—				—				(4	)
Accumulated other comprehensive income related to foreign currency translation adjustment		3,668			—			—				—				—				3,668
Total equity		98,205			(74,617	)		77,646				(23,078	)			5,751				83,907
Non-controlling interest		(3,693	)					—				27,501		H		12,667		K1		4,335
												(29,058	)	I		(3,082	)	L
TOTAL EQUITY (DEFICIT) ATTRIBUTABLE TO PARENT		94,512			(74,617	)		77,646				(24,635	)			15,336				88,242
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	95,502		$	13,476		$	26,093			$	(37,714	)		$	—			$	97,357

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED OCTOBER 31, 2023

(in thousands, except share and per share data)

	Rafael			Cornerstone			Transaction Accounting Adjustments
	Holdings, Inc.			Pharmaceuticals, Inc.			Restructuring Adjustments				Acquisition of Cornerstone				RP Finance Consolidation		Pro Forma Combined
REVENUE
Rental – Third Party	$	41		$	—		$	—			$	—			$	—	$	41
Rental – Related Party		27			—			—				—				—		27
Total revenue	$	68		$	—		$	—			$	—			$	—	$	68

COSTS AND EXPENSES
General and administrative	$	2,040		$	729		$	(397	)	GG	$	—			$	—	$	2,372
Research and development		489			1,277			—				—				—		1,766
Depreciation and amortization		17			—			—				—				—		17
Loss from operations	$	(2,478	)	$	(2,006	)	$	397			$	—			$	—	$	(4,087	)

Interest expense		—			(2,661	)		575		BB		(150	)	HH		—		(150	)
								38		CC
								101		DD
								(1	)	DD1
								1,948		FF
Interest income		582			1			(38	)	CC1		—				—		545
Realized gain on available-for-sale securities		177			—			—				—				—		177
Realized loss on investment in equity securities		(46	)		—			—				—				—		(46	)
Realized gain - Cyclo Therapeutics Inc.		424			—			—				—				—		424
Unrealized loss on investments - Cyclo Therapeutics Inc.		(2,124	)		—			—				—				—		(2,124	)
Unrealized loss on investments - Hedge Funds		(166	)		—			—				—				—		(166	)
Change in fair value of derivative liabilities		—			(1,358	)		1,358		FF		—				—		—
Foreign exchange loss		—			(43	)		—				—				—		(43	)
Gain on forgiveness of accounts payable		—			2,101			—				—				—		2,101
Other income		93			—			—				—				—		93
Loss from operations before income taxes	$	(3,538	)	$	(3,966	)	$	4,378			$	(150	)		$	—	$	(3,275	)
Benefit from (provision for) income taxes		(6	)		—			—				—				—		(6	)
Equity in loss of Day Three Labs Inc.		(216	)		—			—				—				—		(216	)
Consolidated net loss from operations	$	(3,760	)	$	(3,966	)	$	4,378			$	(150	)		$	—	$	(3,497	)
Net loss attributable to noncontrolling interests		(122	)		—			—				(32	)	JJ		—		(154	)
Net loss from operations attributable to Parent	$	(3,638	)	$	(3,966	)	$	4,378			$	(182	)		$	—	$	(3,407	)

Loss per share attributable to common stockholders
Basic and diluted loss from operations per share	$	(0.15	)														$	(0.14	)
Weighted average number of shares used in calculation of loss per share
Basic and diluted		23,644,647																23,644,647

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JULY 31, 2023

(in thousands, except share and per share data)

							Transaction Accounting Adjustments
	Rafael Holdings, Inc.			Cornerstone Pharmaceuticals, Inc.			Restructuring Adjustments				Acquisition of Cornerstone				RP Finance Consolidation		Pro Forma Combined
REVENUE
Rental – Third Party	$	171		$	—		$	—			$	—			$	—	$	171
Rental – Related Party		108			—			—				—				—		108
Total revenue	$	279		$	—		$	—			$	—			$	—	$	279

COSTS AND EXPENSES
General and administrative	$	8,932		$	2,796		$	1,247		GG	$	—			$	—	$	12,975
In-process research and development		—			—			—				88,055		II		—		88,055
Research and development		6,312			8,238			—				—				—		14,550
Depreciation and amortization		78			—			—				—				—		78
Loss from operations	$	(15,043	)	$	(11,034	)	$	(1,247	)		$	(88,055	)		$	—	$	(115,379	)

Interest expense		—			(12,390	)		4,178		BB		(596	)	HH		—		(624	)
								53		CC
								403		DD
								(3	)	DD1
								7,730		FF
Interest income		3,253			5			(53	)	CC1		—				—		3,205
Impairment of investments - Other Pharmaceuticals		(334	)		—			—				—				—		(334	)
Realized gain (loss) on available-for-sale securities		154			—			—				—				—		154
Realized gain on investment in equity securities		309			—			—				—				—		309
Unrealized gain on investment in equity securities		33			—			—				—				—		33
Unrealized gain on investments - Cyclo Therapeutics Inc.		2,663			—			—				—				—		2,663
Unrealized gain (loss) on investments - Hedge Funds		220			—			—				—				—		220
Change in fair value of derivative liabilities		—			21,702			(21,702	)	FF		—				—		—
Recovery of receivable from Cornerstone Pharmaceuticals pursuant to RFL Line of Credit		—			—			29,753		BB1		—				—		29,753
Gain on forgiveness of loan		—			815			—				—				—		815
Loss from continuing operations before income taxes	$	(8,745	)	$	(902	)	$	19,112			$	(88,651	)		$	—	$	(79,185	)
Benefit from income taxes		255			5,096			—				—				—		5,351
Equity in loss of Day Three Labs Inc.		(203	)		—			—				—				—		(203	)
Net (loss) income from continuing operations	$	(8,693	)	$	4,194		$	19,112			$	(88,651	)		$	—	$	(74,037	)
Net loss attributable to noncontrolling interests		(339	)		—			—				(30,924	)	JJ		—		(31,263	)
Net (loss) income from continuing operations attributable to Parent	$	(8,354	)	$	4,194		$	19,112			$	(57,727	)		$	—	$	(42,774	)

Loss per share attributable to common stockholders
Basic and diluted loss from continuing operations per share		(0.36	)															(1.84	)
Weighted average number of shares used in calculation of loss per share
Basic and diluted		23,263,211																23,263,211

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Note 1. Description of the Restructuring, Acquisition, and RP Finance Consolidation

Background

On March 13, 2024, Rafael Holdings, Inc. (“Rafael”, “Parent”, or the “Company”), Cornerstone Pharmaceuticals, Inc. (“Cornerstone”), and other holders of debt and equity securities of Cornerstone agreed to various transactions which effected a recapitalization and restructuring of Cornerstone (the “Restructuring”), as defined below. In the Restructuring, Rafael obtained shares of Cornerstone Common Stock that gave the Company control over approximately 67% of the outstanding equity of Cornerstone (the “Acquisition”). For accounting purposes, Rafael was determined to be the acquirer, as the Company has been determined to be the primary beneficiary of Cornerstone, a VIE, in accordance with ASC 810. For Rafael, the Acquisition is the result of the Restructuring of Cornerstone.

Prior to the Restructuring of Cornerstone, Rafael (individually and together with its subsidiaries, and through an equity method investment in RP Finance) held certain debt and equity investments in Cornerstone which included:

(a) 44.0 million shares of Series D Preferred Stock of Cornerstone held by Pharma Holdings LLC (“Pharma Holdings”), a 90% owned non-operating subsidiary of the Company, and 16.7 million shares of Series D Preferred Stock of Cornerstone held by CS Pharma Holdings LLC (“CS Pharma”), a non-operating subsidiary of the Company (the “Series D Preferred Stock”). Pharma Holdings owns 50% of CS Pharma. Accordingly, the Company holds an effective 45% indirect interest in the assets held by CS Pharma. Due to the Data Events (as defined below), the Company previously recorded a full impairment of the value of the Series D Preferred Stock included in the Company’s cost method investment in Cornerstone.

(b) a loan of $25 million by the Company to Cornerstone under a Line of Credit Agreement (the “RFL Line of Credit”). Due to the Data Events (as defined below), the Company previously recorded a full reserve on the $25 million in principal due to the Company, and on the accrued interest, from Cornerstone.

(c) a $2 million Promissory Note (the “2023 Promissory Note”) from Cornerstone, bearing interest at a rate of seven and one-half percent (7.5%) per annum, held by the Company. The 2023 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 Company had $1.9 million, representing the fair value of the 2023 Promissory Note, recorded on its balance sheet as of October 31, 2023.

(d) a loan of $21.9 million by RP Finance to Cornerstone under a Line of Credit Agreement which provides a revolving commitment of up to $50 million to fund clinical trials and other capital needs (the “RPF Line of Credit”). The Company owns 37.5% of the equity interests in RP Finance and was required to fund 37.5% of funding requests from Cornerstone Pharmaceuticals under the RPF Line of Credit. RP Finance also holds 2.6 million shares, pre-Reverse Stock Split, of Cornerstone Common Stock (“RPF Historical Cornerstone Shares”), issued to RP Finance in connection with entering into the RPF Line of Credit representing 12% of the issued and outstanding shares of Cornerstone Common Stock prior to the Restructuring, with such ownership interest subject to anti-dilution protection as set forth in the RPF Line of Credit agreement. The Company accounted for its investment in RP Finance under the equity method.

On October 28, 2021, Cornerstone announced that the AVENGER 500 Phase 3 clinical trial for CPI-613® (“devimistat”), Cornerstone’s lead product candidate, did not meet its primary endpoint of significant improvement in overall survival in patients with metastatic adenocarcinoma of the pancreas. In addition, following a pre-specified interim analysis, the independent data monitoring committee for the ARMADA 2000 Phase 3 study for devimistat recommended the trial to be stopped due to a determination that it was unlikely to achieve the primary endpoint (the “Data Events”). Due to the Data Events, on October 28, 2021, the Company recorded a full impairment for the assets recorded related to Rafael’s cost method investment in Cornerstone, the amounts due to Rafael under the RFL Line of Credit, and its investment in RP Finance.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Restructuring of Cornerstone

On March 13, 2024, Cornerstone completed the Restructuring. As part of the Restructuring:

(i) all issued and outstanding shares of Cornerstone’s Preferred Stock converted into Cornerstone Common Stock (the “Mandatory Common Conversion”) on a one-for-one basis;

(ii) Cornerstone offered shares of Cornerstone Common Stock to all holders of Cornerstone’s promissory notes convertible into the Cornerstone Series C Preferred Stock (the “Series C Convertible Notes”) who are Accredited Investors with the purchase price to be paid through conversion of the outstanding principal amount and accrued interest on their Series C Convertible Notes held by each holder into Cornerstone Common Stock at the Restructuring Conversion Price, as defined below (the “Series C Convertible Notes Exchange”). The Company notes that approximately 94% of the Series C Convertible Notes participated in the Series C Convertible Notes Exchange, such that $15.4 million of principal and accrued interest outstanding on the Series C Convertible Notes was converted into shares of Cornerstone Common Stock at the agreed upon price of $0.97 per share, post-Reverse Stock Split, (the “Restructuring Conversion Price”, which is calculated against the outstanding principal balance and unpaid interest through July 31, 2023 for debt instruments) in the Restructuring. Series C Convertible Notes with an aggregate principal and accrued interest amount of $0.9 million remain outstanding, of which Series C Convertible Notes with an aggregate principal and accrued interest amount of $93 thousand were amended in the Restructuring to (i) extend the maturity date thereof to May 31, 2028, and (ii) provide that, on conversion thereof, the converting holder will receive shares of Cornerstone Common Stock. The holders of these amended Series C Convertible Notes that remain outstanding waived such holders’ rights in connection with the Restructuring. Series C Convertible Notes with an aggregate principal and accrued interest amount of $0.8 million remain outstanding and were not amended in connection with the Restructuring;

(iii) Rafael converted (i) the approximately $29.2 million of the outstanding principal and accrued interest under the RFL Line of Credit and (ii) the approximately $2.1 million of the outstanding principal and accrued interest pursuant to the 2023 Promissory Note into Cornerstone Common Stock at the Restructuring Conversion Price;

(iv) Cornerstone and RP Finance amended the RPF Line of Credit, to (i) extend the maturity date of the approximately $21.9 million debt outstanding thereunder to May 31, 2028, (ii) limit the number of shares to be issued thereunder in respect of anti-dilution protection provided for therein in connection with the Restructuring so that following the Restructuring, RP Finance holds six percent (6%) of the outstanding Common Stock of Cornerstone (the “RPF 6% Top Up Shares”), (iii) terminate any anti-dilution protection in respect of such ownership interest following consummation of the Restructuring, and (iv) terminate all future lending obligations of RP Finance under the RPF Line of Credit (collectively, the “Amended RPF Line of Credit”);

(v) Rafael invested an additional $1.5 million in cash in exchange for shares of Cornerstone Common Stock at the Restructuring Conversion Price;

(vi) Cornerstone amended and restated its certificate of incorporation, to, among other things, effect a reverse split of all of Cornerstone’s capital stock on a ten-for-one basis (the “Reverse Stock Split”), set the number of authorized shares of Cornerstone Common Stock to be sufficient for issuance of the Common Stock in the Restructuring and eliminate the authorized Preferred Stock not required to be authorized as a result of the Mandatory Common Conversion;

(vii) Cornerstone amended prior agreements in place giving certain parties rights to designate members of the Board and those rights have been eliminated. All directors are elected by the Cornerstone stockholders and as the majority stockholder, Rafael, can control that vote. The Company has entered into a voting agreement (the “Voting Agreement”) whereby Rafael has agreed to maintain 3 directors of Cornerstone that are independent of Rafael.; and

(viii) 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 Restructuring, the Mandatory Common Conversion and the Reverse Stock Split (the “Reserve Increase”).

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Acquisition of Cornerstone

As a result of the Restructuring, Rafael became a 67% owner of the issued and outstanding Common Stock of Cornerstone, which has become a consolidated subsidiary of Rafael. The Acquisition is accounted for as an acquisition of a VIE that is not a business in accordance with U.S. GAAP. The Company was determined to be the accounting acquirer for financial reporting purposes. The guidance requires an initial screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets. If that screen test is met, the acquired entity is not a business for financial reporting purposes. Accordingly, the Acquisition is being accounted for as an asset acquisition as substantially all of the fair value of Cornerstone’s gross assets is concentrated within in-process research and development (“IPR&D”), an intangible asset.

RP Finance Consolidation

RP Finance, an entity in which the Company owns a 37.5% equity interest (previously accounted for as an equity method investment of Rafael), and in which an entity associated with members of the family of Howard Jonas holds an additional 37.5% equity interest, holds debt and equity investments in Cornerstone (which is included in the Company’s equity ownership interest in Cornerstone noted above). In conjunction with the Acquisition, the Company reassessed its relationship with RP Finance and, as a result of the Restructuring and resulting Acquisition of Cornerstone, determined that RP Finance is still a VIE and that the Company is now considered the primary beneficiary of RP Finance as the Company now holds the ability to control repayment of the RPF Line of Credit, which directly impacts RP Finance’s economic performance. Therefore, the Company has consolidated RP Finance as a result of the Acquisition (the “RP Finance Consolidation”). The RP Finance Consolidation is accounted for as an acquisition of a VIE that is not a business in accordance with U.S. GAAP as RP Finance does not meet the definition of a business under U.S. GAAP.

Under ASC 810, the initial consolidation of a VIE shall not result in goodwill being recognized, and the acquirer shall recognize a gain or loss for the difference of (a) the sum of (i) the fair value of any consideration paid, (ii) the fair value of any noncontrolling interests, and (iii) the reported amount of any previously held interests, and (b) the net amount of the VIE’s identifiable assets and liabilities recognized and measured in accordance with ASC 805, Business Combinations (“ASC 805”). The resulting gain on the RP Finance Consolidation of approximately $7.6 million has been included as an adjustment to additional paid-in capital in the unaudited pro forma condensed combined balance sheet as of October 31, 2023. The estimated related gain is based on the reported amount of Rafael’s previously held interests in RP Finance, a preliminary estimated fair value of noncontrolling interest, and the net amount of RP Finance’s identifiable assets and liabilities and may differ materially once the final fair value is determined.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Note 2. Basis of Presentation

In preparing the pro forma financial statements, Cornerstone’s and RP Finance’s assets and liabilities are preliminarily measured and recognized based on their estimated fair values as of the date of the Acquisition and the RP Finance Consolidation, respectively, with any value associated with IPR&D with no alternative use recorded as an expense. The fair value measurements utilize estimates based on key assumptions of the Acquisition and the RP Finance Consolidation, including historical and current market data. The unaudited pro forma adjustments included herein are preliminary and will be adjusted as additional information becomes available and as additional analyses are performed.

The unaudited pro forma condensed combined financial information was prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of Article 11 of Regulation S-X. The unaudited proforma condensed combined balance sheet as of October 31, 2023 was prepared using the historical consolidated balance sheets of Rafael and Cornerstone as of October 31, 2023 and gives effect to the Restructuring, the Acquisition, and the RP Finance Consolidation as if they had collectively been completed on October 31, 2023. The unaudited pro forma condensed combined statements of operations for the three months ended October 31, 2023 and the year ended July 31, 2023 were prepared using the historical consolidated statements of operations of Rafael and Cornerstone for the three months ended October 31, 2023 and the year ended July 31, 2023, respectively, and gives effect to the Restructuring, the Acquisition, and the RP Finance Consolidation as if they had collectively been completed on August 1, 2022.

The pro forma adjustments reflecting the consummation of the Restructuring, the Acquisition, and the RP Finance Consolidation are based on currently available information and certain assumptions and methodologies that Rafael management believes are reasonable under the circumstances. The unaudited condensed combined pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is possible that the actual adjustments will differ from the pro forma adjustments, and it is possible that the differences may be material. Rafael management believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Restructuring, the Acquisition, and the RP Finance Consolidation based on information available to management at this time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial information.

The unaudited pro forma condensed combined financial information does not give effect to any synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Restructuring, the Acquisition, and the RP Finance Consolidation. The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Restructuring, the Acquisition, and the RP Finance Consolidation taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the Company. The unaudited pro forma condensed combined financial information should be read in conjunction with the historical consolidated financial statements and notes thereto of Rafael and Cornerstone.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Note 3. Accounting Policies and Description of Transactions

In connection with the consummation of the Acquisition and the RP Finance Consolidation, management will perform a comprehensive review of the entities’ accounting policies. As a result of the review, management may identify differences between the accounting policies of the two entities which, when the Cornerstone policies are conformed to those of Rafael, could have a material impact on the financial statements of the Company. Based on its initial analysis, management did not identify any differences that would have a material impact on the unaudited pro forma condensed combined financial information. As a result, the unaudited pro forma condensed combined financial information does not assume any differences in accounting policies.

Cornerstone Preferred Stock Conversion

In connection with the Restructuring, each outstanding share of Cornerstone Preferred Stock has been converted into shares of Cornerstone Common Stock on a one-for-one basis. Rafael’s interest in the Series D Preferred Stock of Cornerstone prior to the Restructuring represents a previously held interest in Cornerstone, which is included in the measurement of the resulting gain/loss recorded on the Acquisition at its reported amount, or $0, in accordance with ASC 810-10-30-4.

RFL Line of Credit and 2023 Promissory Note Conversion

In connection with the Restructuring, Rafael converted $29.2 million of principal and accrued interest outstanding on the RFL Line of Credit and $2.1 million of principal and accrued interest outstanding on the 2023 Promissory Note into shares of Cornerstone Common Stock at the Restructuring Conversion Price. The conversion of the RFL Line of Credit, inclusive of accrued interest, into equity in Cornerstone represents a recovery of a previously written off asset, and the Company recorded the recovery in accordance with ASC 326, Financial Instruments - Credit Losses (“ASC 326”), by recognizing a gain, in conjunction with and immediately prior to the Restructuring equal to the fair value of the Cornerstone Common Stock, up to the amount of principal and accrued interest on the instrument, that was received in settlement of the RFL Line of Credit in connection with the Restructuring. Prior to the Restructuring, the Company recorded the 2023 Promissory Note at its fair value as the security was classified as available-for-sale. The RFL Line of Credit and 2023 Promissory Note are included in the consideration paid at their fair values (which was deemed to be the fair value of the Cornerstone Common Stock received) in the Acquisition in accordance with ASC 810-10-30-4.

Cornerstone Series C Convertible Notes Conversion

In connection with the Restructuring, $15.4 million of the outstanding principal and accrued interest of Cornerstone Series C Convertible Notes converted into Cornerstone Common Stock at the Restructuring Conversion Price. After the Restructuring, there is $0.9 million of outstanding principal and accrued interest on Cornerstone Series C Convertible Notes that remain outstanding, of which Series C Convertible Notes with an aggregate principal and accrued interest amount of $93 thousand were amended in the Restructuring to (i) extend the maturity date thereof to May 31, 2028, and (ii) provide that, on conversion thereof, the converting holder will receive shares of Cornerstone Common Stock. The holders of these amended Series C Convertible Notes that remain outstanding waived such holders’ rights in connection with the Restructuring. Series C Notes with an aggregate principal and accrued interest amount of $0.8 million remain outstanding and were not amended in connection with the Restructuring;

Investment of $1.5 million Cash

In connection with the Restructuring, Rafael paid $1.5 million in cash in exchange for Cornerstone Common Stock at the Restructuring Conversion Price. This $1.5 million investment is included in the consideration paid in the Acquisition in accordance with ASC 810-10-30-4.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

RPF Line of Credit Modification

In connection with the Restructuring, Cornerstone and RP Finance amended the RPF Line of Credit agreement with RP Finance to extend the maturity date of the RPF Line of Credit to May 31, 2028, provide the RPF 6% Top Up Shares, terminate any anti-dilution protection in respect of such ownership interest, and terminate all future lending obligations of RP Finance under the RPF Line of Credit following consummation of the Restructuring.

In conjunction with the Restructuring and prior to the RP Finance Consolidation, RP Finance accounted for the Amended RPF Line of Credit as an extinguishment in accordance with ASC 310, Receivables (“ASC 310”). Under ASC 310, RP Finance concluded that the modification was more than minor and that the Amended RPF Line of Credit should be accounted for as a new loan. As RP Finance had recorded a full reserve on the instrument, there were no unamortized debt issuance costs or interest income recognized relating to the original debt instrument and therefore, no impact to RP Finance’s income statement in extinguishing the original RPF Line of Credit. RP Finance then considered whether a reserve is required for the Amended RPF Line of Credit under the guidance of ASC 450-20, Loss Contingencies (“ASC 450-20”), as the instrument is excluded from the scope of ASC 326, Financial Instruments - Credit Losses, due to RP Finance and Cornerstone being under common control as a result of the Restructuring, the Acquisition, and the RP Finance Consolidation. Pursuant to ASC 450-20, if a loss is probable and reasonably estimable, a loss contingency must be recorded. RP Finance concluded it is probable that a loss would be incurred, and such loss is reasonably estimable given Cornerstone’s financial position prior to the Acquisition. RP Finance recorded a loss contingency under ASC 450-20 equal to the full amount of the outstanding principal and accrued interest on the Amended RPF Line of Credit. The issuance of the RPF 6% Top Up Shares resulted in an increase in RP Finance’s investment in Cornerstone and the resulting gain was recognized as an adjustment to RP Finance’s members’ equity due to the related parties involved.

Cornerstone recorded the RPF 6% Top Up Shares at par value with the excess fair value of the shares over par value recorded as additional paid in capital. In recognizing the effects of the modification, which includes the elimination of historical deferred offering costs and the elimination of the derivative liability related to anti-dilution protection under the RPF Line of Credit, Cornerstone recorded a net gain to additional paid in capital.

In conjunction with the Acquisition, Cornerstone’s liability related to the Amended RPF Line of Credit has been measured at fair value by the Company as an assumed liability. Similarly, in conjunction with the RP Finance Consolidation, RP Finance’s receivable related to the Amended RPF Line of credit, the RPF Historical Cornerstone Shares, and the RPF 6% Top Up Shares have been recognized at their fair values by the Company in accordance with ASC 810-10-30-4.

Cornerstone Reverse Stock Split

In connection with the Restructuring, Cornerstone effected a reverse stock split of all of its capital stock on a one-for-ten basis (the “Reverse Stock Split”). The effect of the Reverse Stock Split has been reflected in the stated par value of Cornerstone Common Stock in the pro forma condensed combined balance sheet as of October 31, 2023, and shares issued in the Restructuring are shown post-Reverse Stock Split in this document unless specified otherwise.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Note 4. Accounting Treatment for the Acquisition

As a result of the Restructuring, Rafael became a 67% majority owner of the outstanding Common Stock of Cornerstone and Rafael became the primary beneficiary of Cornerstone, a VIE that does not constitute as a business, and therefore, no goodwill has been recognized in accordance with ASC 810. The guidance states that Rafael shall initially recognize a gain or loss on the initial consolidation of Cornerstone for the difference of (a) the sum of (i) the fair value of any consideration paid, (ii) the fair value of any noncontrolling interests, and (iii) the reported amount of any previously held interests, and (b) the net amount of the VIE’s identifiable assets and liabilities recognized and measured in accordance with ASC 805.

The net amount of the VIE’s identifiable assets and liabilities recognized with respect to the Acquisition is based upon management’s preliminary estimates of and assumptions related to the fair values of assets acquired and liabilities assumed, using currently available information. For this purpose, fair value shall be determined in accordance with the fair value concepts defined in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). Fair value is defined in ASC 820 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.” Fair value measurements can be highly subjective and can involve a high degree of estimation.

The following table presents, in accordance with ASC 810, the sum of (i) the fair value of any consideration paid, (ii) the fair value of any noncontrolling interests, and (iii) the reported amount of any previously held interests (amounts in $000s):

Fair value of consideration paid
Fair value of RFL Line of Credit	$	37,845
Fair value of 2023 Promissory Note		2,663
Cash consideration		1,500
(i) Total fair value of consideration paid		42,008
(ii) Fair value of noncontrolling interests		27,501
(iii) Reported value of previously held interests⁽¹⁾		—
Sum of (i), (ii), and (iii)	$	69,509

⁽¹⁾	Rafael’s interest in the Series D Preferred Stock of Cornerstone, that was converted into Cornerstone Common Stock in the Restructuring, represents a previously held interest in Cornerstone that is included at its reported amount, or $0.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following table presents, in accordance with ASC 810, the net amount of the VIE’s identifiable assets and liabilities recognized and measured in accordance with ASC 805 (amounts in $000s):

Assets acquired and liabilities assumed
Cash		4,914
Marketable securities		79
Prepaid expenses and other current assets		144
Property and equipment, net		21
Other assets		55
Acquired In Process Research & Development		88,055
Accounts payable		(2,391	)
Accrued expenses		(2,549	)
Series C Convertible Notes		(613	)
Other current liabilities		(28	)
Series C Convertible Notes L/T		(70	)
Fortrea payable		(2,745	)
Amended RPF Line of Credit		(15,336	)
Other liabilities		(27	)
Total	$	69,509

In accordance with the calculation within ASC 810, no gain or loss was recognized on the initial consolidation of Cornerstone.

To value the IPR&D, the Company utilized the Multi-Period Excess Earnings Method (“MPEEM”), under the Income Approach. The method reflects the present value of the operating cash flows generated by Cornerstone’s assets after taking into account the cost to realize the revenue, and an appropriate discount rate to reflect the time value and risk associated with the invested capital. IPR&D acquired represents Cornerstone’s research and development activities related to oncology-focused pharmaceuticals which exploit the metabolic differences between normal cells and cancer cells.

IPR&D represents the R&D asset of Cornerstone which is in-process, but not yet completed, and which has no alternative use. As the Acquisition has been accounted for as an acquisition of a VIE that is not a business, the fair value of IPR&D asset acquired with no alternative future use has been charged to expense at the acquisition date.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Note 5 — Accounting Treatment for the RP Finance Consolidation

As a result of the Restructuring and Acquisition, Rafael became the primary beneficiary of RP Finance, a VIE that does not constitute as a business, and therefore, no goodwill has been recognized in accordance with ASC 810. The guidance states that Rafael shall initially recognize a gain or loss on the initial consolidation of RP Finance for the difference of (a) the sum of (i) the fair value of any consideration paid, (ii) the fair value of any noncontrolling interests, and (iii) the reported amount of any previously held interests, and (b) the net amount of the VIE’s identifiable assets and liabilities recognized and measured in accordance with ASC 805.

(i) Fair value of consideration paid	$	—
(ii) Fair value of noncontrolling interests	$	12,667
(iii) Reported value of previously held interests⁽¹⁾	$	—
Sum of (i), (ii), and (iii)	$	12,667

¹	Rafael ownership of 37.5% of the equity interests in RP Finance, accounted for as an equity method investment prior to the RP Finance Consolidation, represents a previously held interest in Cornerstone that is included at its reported amount, or $0.

The following table presents, in accordance with ASC 810, the net amount of the VIE’s identifiable assets and liabilities recognized and measured in accordance with ASC 805 (amounts in $000s):

Assets acquired and liabilities assumed
Investments - Cornerstone Pharmaceuticals	$	4,931
Due from Cornerstone - RPF Line of Credit	$	15,336
Total	$	20,267

In accordance with the calculation within ASC 810, a gain of $7.6 million was recognized as an adjustment to Rafael’s additional paid in capital, due to the related parties involved, on the RP Finance Consolidation.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Note 6. Pro Forma Adjustments

The unaudited pro forma condensed combined financial information has been prepared to illustrate the effects of the Restructuring, the Acquisition, and the RP Finance Consolidation and has been prepared for informational purposes only.

The following is a description of the unaudited pro forma adjustments reflected in the unaudited pro forma condensed combined financial statements:

Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet as of October 31, 2023

Adjustments related to the Restructuring

Series D Preferred Stock Conversion to Cornerstone Common Stock

A.	Reflects the conversion, on a one-for-one basis, of all series of Cornerstone’s Preferred Stock, including 60,673,087 Series D Preferred Stock effectively owned by Rafael, pursuant to the Restructuring. The aggregate of Cornerstone’s Preferred Stock will convert into 9,655,425 shares, post-Reverse Stock Split, of Cornerstone’s Common Stock.

A1.	Reflects Rafael’s conversion of the 60,673,087 shares of Cornerstone’s Series D Preferred Stock into 6,067,306 shares, post-Reverse Stock Split, of Cornerstone Common Stock at the reported value of the Series D Preferred Stock, or $0. Upon the consummation of the Acquisition, the investment will be eliminated as Cornerstone will become a majority owned subsidiary of Rafael (see entry H).

RFL Line of Credit Conversion to Cornerstone Common Stock

B.	Reflects the conversion of the $29.8 million, inclusive of $25.0 million of principal and $4.8 million of accrued interest, pursuant to the RFL Line of Credit into 30,080,747 shares, post-Reverse Stock Split, of Cornerstone’s Common Stock.

B1.	Reflects a $29.8 million gain recognized by Rafael, in conjunction with and immediately prior to the Restructuring, reflected as an adjustment to accumulated deficit, for the recovery of the principal and accrued interest on the RFL Line of Credit previously written off as part of the Data Events. The gain is based on the value of Cornerstone Common Stock received in settlement of the RFL Line of Credit in the Restructuring to the extent of principal and interest due through October 31, 2023. Upon consummation of the Restructuring, reflects the conversion of the $29.8 million value of the RFL Line of Credit into 30,080,747 shares, post-Reverse Stock Split, of Cornerstone’s Common Stock. Upon the consummation of the Acquisition, the investment will be eliminated as Cornerstone will become a majority owned subsidiary of Rafael and the difference between the investment’s carrying value and its fair value included in purchase consideration, which is based on the value of Cornerstone’s Common Stock, results in a gain that is recorded to the Company’s additional paid-in capital given the related party nature of the transaction (see entry H).

2023 Promissory Note Conversion to Cornerstone Common Stock

C.	Reflects the conversion of the $2.1 million due Rafael in principal plus accrued interest pursuant to the 2023 Promissory Note into 2,116,932 shares, post-Reverse Stock Split, of Cornerstone’s Common Stock.

C1.	Reflects the conversion of the 2023 Promissory Note receivable, carried at its fair value of $1.9 million, by Rafael into 2,116,932 shares, post-Reverse Stock Split, of Cornerstone’s Common Stock. In addition, reflects the recognition of the $142 thousand of unrealized losses on the fair value of the 2023 Promissory Note in other comprehensive income. Upon the consummation of the Acquisition, the investment will be eliminated as Cornerstone will become a majority owned subsidiary of Rafael (see entry H).

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Series C Convertible Notes Conversion to Cornerstone Common Stock

D.	Reflects the conversion of $11.5 million of principal, and $3.9 million of accrued interest thereon, of Series C Convertible Notes issued by Cornerstone into 15,739,661 shares, post-Reverse Stock Split, of Cornerstone’s Common Stock. As the Series C Convertible Notes converted into Cornerstone’s Common Stock pursuant to an inducement offer in the Restructuring, reflects the effect of Cornerstone recording a loss of $18.3 million on inducement to convert Series C Notes assumed to have been incurred on August 1, 2022. Cornerstone’s loss on inducement is reflected in accumulated deficit and additional paid in capital. Upon the consummation of the Acquisition, Cornerstone’s equity will be eliminated as Cornerstone will become a majority owned subsidiary of Rafael (see entry H).

D1.	Reflects the reclassification of $70 thousand of principal, and $23 thousand of accrued interest thereon, of Series C Convertible Notes issued by Cornerstone where the maturity date was extended in the Restructuring from short-term to long-term liabilities. Upon the consummation of the Acquisition, the principal and accrued interest on the Series C Convertible Notes issued by Cornerstone where the maturity date was extended in the Restructuring will be remeasured to their fair values as Cornerstone will become a majority owned subsidiary of Rafael (see entry H).

Cash Investment for Cornerstone Common Stock

E.	Reflects the issuance of 1,546,391 shares, post-Reverse Stock Split, of Cornerstone’s Common Stock in exchange for cash of $1.5 million.

E1.	Reflects Rafael’s cash consideration paid of $1.5 million for 1,546,391 shares, post-Reverse Stock Split, of Cornerstone’s Common Stock. Upon the consummation of the Acquisition, the investment will be eliminated as Cornerstone will become a majority owned subsidiary of Rafael (see entry H).

Amended RPF Line of Credit and RPF 6% Top Up Shares

Reflects the recording of $4.6 million of deferred debt issuance costs related to Cornerstone’s issuance of 3,658,368 shares (the RPF 6% Top Up Shares), post-Reverse Stock Split, of Cornerstone Common Stock to RP Finance in connection with the Amended RPF Line of Credit. In addition, reflects the elimination of $9.8 million of historical deferred debt issuance costs related to the RPF Line of Credit and the elimination of the $5.2 million derivative liability related to anti-dilution protection under the RPF Line of Credit, with the net loss of $4.6 million recorded to additional paid in capital.

Transaction Costs

G.	Represents Cornerstone’s preliminary estimated transaction costs, of $651 thousand for consulting, legal, accounting, and other professional fees that are expensed as part of the Restructuring, which amount includes $223 thousand recognized in Cornerstone’s historical financial statements through October 31, 2023. The unaudited pro forma condensed combined balance sheet reflects these costs as an increase to “Accrued expenses.” These costs are expensed through “Accumulated deficit” and are included in the unaudited pro forma condensed combined statement of operations for the year ended July 31, 2023 (see entry GG).

G1.	Represents Rafael’s preliminary estimated transaction costs of $645 thousand for consulting, legal, accounting, and other professional fees that are expensed as part of the Restructuring, which amount includes $223 thousand recognized in the Company’s historical financial statements through October 31, 2023. The unaudited pro forma condensed combined balance sheet reflects these costs as an increase to “Accrued expenses.” These costs are expensed through “Accumulated deficit” and are included in the unaudited pro forma condensed combined statement of operations for the year ended July 31, 2023 (see entry GG).

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Adjustments related to the Acquisition of Cornerstone

Reflects the elimination of $33.1 million of Rafael’s investment in Cornerstone, the recognition of $27.5 million in value of noncontrolling interest in Cornerstone, adjustments to the fair values of the assets acquired and liabilities assumed of Cornerstone as of the date of the Acquisition, including an adjustment of $23 thousand to reflect the fair value of the principal and accrued interest on the Series C Convertible notes payable whose terms were amended in the Restructuring, an adjustment of $6.5 million to reflect the fair value of the RPF Line of Credit payable, an adjustment of $4.6 million to reflect the write off of deferred debt issuance costs related to the Amended RPF Line of Credit, an adjustment of $5.8 million to reflect the fair value of the Fortrea payable, recognition of the fair value of the IPR&D of $88.1 million (which has no alternative future use and will be expensed upon consummation of the Acquisition, see entry I), and the elimination of Cornerstone’s equity prior to the Acquisition including $0.7 million of Cornerstone’s Common Stock at par, $256.7 million of Cornerstone’s additional paid in capital, and $283.6 million of Cornerstone’s accumulated deficit. The fair value of the purchase consideration paid by the Company in the Acquisition was $42.0 million, and the Company’s carrying value of the purchase consideration was $33.1 million immediately prior to the Acquisition, resulting in a gain of $8.9 million that was recorded to the Company’s additional paid in capital given the related party nature of the transaction.

The following table reconciles the adjustments made to Cornerstone’s additional paid in capital (in $000s):

		October 31, 2023
Cornerstone historical additional paid-in capital at October 31, 2023			190,212

Transaction accounting adjustments:
RFL Line of Credit conversion to Cornerstone Common Stock, less amount to Cornerstone Common Stock par value	B		29,452
2023 Promissory Note conversion to Cornerstone Common Stock, less amount to Cornerstone Common Stock par value	C		2,070
Series C Convertible Notes conversion to Cornerstone Common Stock, less amount to Cornerstone Common Stock par value	D		33,466
Cash investment for Cornerstone Common Stock, less amount to Cornerstone Common Stock par value	E		1,485
Issuance of RPF 6% Top Up Shares, less amount to Cornerstone Common Stock par value	F		4,566
Elimination of deferred debt issuance costs related to the RPF Line of Credit and the elimination of the derivative liability related to anti-dilution protection under the RPF Line of Credit	F		(4,573	)
Adjusted Cornerstone historical additional paid-in capital at October 31, 2023			256,678

Elimination of adjusted Cornerstone historical additional paid-in capital	H		(256,678	)
Cornerstone pro forma additional paid-in capital at October 31, 2023			—

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following table reconciles the adjustments made to Cornerstone’s accumulated deficit (in $000s):

		October 31, 2023
Cornerstone historical accumulated deficit at October 31, 2023			(264,950	)

Transaction accounting adjustments:
Loss on inducement to convert Series C Notes to Cornerstone Common Stock	D		(18,254	)
Cornerstone’s preliminary estimated transaction costs not reflected in historical financials through October 31, 2023	G		(428	)
Adjusted Cornerstone historical accumulated deficit at October 31, 2023			(283,632	)

Elimination of adjusted Cornerstone historical accumulated deficit	H		283,632
Cornerstone pro forma accumulated deficit at October 31, 2023			—

I.	Reflects the impact of expensing the acquired IPR&D of $88.1 million, of which $59.0 million is attributable to the Company and $29.1 million is attributable to non-controlling interests, which has no alternative future use upon consummation of the Acquisition, as if the Acquisition had been completed on October 31, 2023. (See related adjustment HH)

J.	Reflects the intercompany elimination of $0.7 million of a Cornerstone payable due Rafael. As the respective receivable amount had previously been written off by Rafael due to the Data Events, the offsetting entry is recorded to Rafael’s accumulated deficit.

Adjustments related to the Consolidation of RP Finance

K1.	Reflects the recognition of RP Finance’s assets and liabilities at their fair values including the fair value of RP Finance’s investment in Cornerstone of $4.9 million, including the RPF Historical Cornerstone Shares and the RPF 6% Top Up Shares, and the fair value of amounts receivable from Cornerstone of $15.3 million under the Amended RPF Line of Credit, the recognition of $12.7 million of noncontrolling interest in RP Finance, and a gain on the RP Finance Consolidation of $7.6 million recorded to Rafael’s additional paid in capital due to the related parties involved (refer to Note 5). Refer to adjustment L for elimination of intercompany amounts recognized as a result of the RP Finance Consolidation.

L.	Represents the elimination of $4.9 million of RP Finance’s investment in Cornerstone representing the fair value of the RPF Historical Cornerstone Shares and the RPF 6% Top Up Shares assumed by Rafael in the RP Finance Consolidation, the elimination of $3.1 million of noncontrolling interest and $1.8 million of additional paid in capital related to the investment in Cornerstone, a consolidated subsidiary of Rafael as a result of the Acquisition. Further, reflects the elimination of the $15.3 million fair value of the receivable due to RP Finance under the Amended RPF Line of Credit and the elimination of the $15.3 million fair value of Cornerstone’s payable with respect to the Amended RPF Line of Credit.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Adjustments to the Unaudited Pro Forma Condensed Combined Statements of Operations

The pro forma adjustments included in the unaudited pro forma condensed combined statements of operations for the three months ended October 31, 2023 and for the year ended July 31, 2023 are as follows:

BB.	Represents the elimination of interest expense related to Cornerstone’s RFL Line of Credit that has been converted into Cornerstone Common Stock in the Restructuring of $0.6 million and $4.2 million for the three months ended October 31, 2023 and the year ended July 31, 2023, respectively.

BB1.	Represents the recognition of a gain of $29.8 million on the recovery of the receivable balance of principal and accrued interest outstanding under the RFL Line of Credit immediately prior to the consummation of the Restructuring. (See related adjustment B1)

CC.	Represents the elimination of interest expense related to Cornerstone’s 2023 Promissory Note that has been converted into Cornerstone Common Stock in the Restructuring of $38 thousand and $53 thousand for the three months ended October 31, 2023 and the year ended July 31, 2023, respectively.

CC1.	Represents the elimination of Rafael’s interest income related to the 2023 Promissory Note that has been converted into Cornerstone Common Stock in the Restructuring of $38 thousand and $53 thousand for the three months ended October 31, 2023 and the year ended July 31, 2023, respectively.

DD.	Represents the elimination of interest expense related to Cornerstone’s Series C Convertible Notes that have been converted into Cornerstone Common Stock in the Restructuring of $0.1 million and $0.4 million for the three months ended October 31, 2023 and the year ended July 31, 2023, respectively.

DD1.	Represents the recognition of implied interest on Cornerstone’s Series C Convertible Notes that have been modified in the Restructuring of $1 thousand and $3 thousand for the three months ended October 31, 2023 and the year ended July 31, 2023, respectively, as these notes are recorded at their fair values as of the date of the Acquisition.

FF.	Represents the elimination of Cornerstone’s amortization of deferred debt issuance costs related to the RPF Line of Credit that has been modified in the Restructuring of $1.9 million and $7.7 million and the elimination of the change in fair value of derivative liabilities related to the anti-dilution provision of the RPF Line of Credit that was terminated in the Restructuring of $1.4 million and $21.7 million for the three months ended October 31, 2023 and the year ended July 31, 2023, respectively.

GG.	Reflects estimated transactions costs of $1.2 million, not already incurred through July 31, 2023, (including $626 thousand of estimated transaction costs incurred by Cornerstone and $621 thousand of estimated transaction costs incurred by Rafael, of which $198 thousand had been included in Cornerstone’s historical income statement for the three months ended October 31, 2023 and $199 thousand had been included in the Company’s historical income statement for the three months ended October 31, 2023) as if incurred on August 1, 2022, the date the Restructuring occurred for the purposes of the unaudited pro forma condensed combined statement of operations. These costs are non-recurring.

HH.	Represents the recognition of the implied interest on the Fortrea Payable of $0.15 million and $0.6 million for the three months ended October 31, 2023 and the year ended July 31, 2023, respectively.

II.	Reflects the impact of expensing the acquired IPR&D of $88.1 million which has no alternative future use upon consummation of the Acquisition for the year ended July 31, 2023 (See Note 4). These costs are non-recurring.

JJ.	Represents the recognition of the net loss attributable to noncontrolling interests of Cornerstone of less than $0.1 million and $30.9 million for the three months ended October 31, 2023 and the year ended July 31, 2023, respectively.

Cover	Mar. 13, 2024
Cover [Abstract]
Document Type	8-K/A
Amendment Flag	true
Amendment Description	This Form 8-K/A is filed as an amendment (“Amendment No. 1”) to the Current Report on Form 8-K by Rafael Holdings, Inc. (the “Company”) under Items 2.01 and 9.01 on March 13, 2024 (the “Original 8-K”). Amendment No. 1 is being filed in order to provide certain financial statements and to furnish certain pro forma financial information pursuant to Item 9.01 of this Form 8-K/A.
Document Period End Date	Mar. 13, 2024
Entity File Number	1-38411
Entity Registrant Name	RAFAEL HOLDINGS, INC.
Entity Central Index Key	0001713863
Entity Tax Identification Number	82-2296593
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	520 Broad Street
Entity Address, City or Town	Newark
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	07102
City Area Code	212)
Local Phone Number	658-1450
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Class B common stock, par value $0.01 per share
Trading Symbol	RFL
Security Exchange Name	NYSE
Entity Emerging Growth Company	false

Rafael (NYSE:RFL)
Gráfica de Acción Histórica
De May 2024 a Jun 2024

Haga Click aquí para más Gráficas Rafael.

Rafael (NYSE:RFL)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024

Datos

Noticias

Herramientas

Mercados

Descubrir

Hot Features

Follow Feed

Flujo de Opciones

Monitor

RFL Rafael Holdings Inc

Noticias sobre Rafael Holdings Inc RFL

Su Consulta Reciente

Empresa

Negocios

Popular

Obtener la aplicación

Tendencias Ahora

Listas Principales

Datos

Noticias

Herramientas

Mercados

Descubrir

Hot Features

Follow Feed

Flujo de Opciones

Monitor

RFL Rafael Holdings Inc

Noticias sobre Rafael Holdings Inc RFL

Su Consulta Reciente

Empresa

Negocios

Popular

Obtener la aplicación