UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
for the quarterly
period ended
or
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices, zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| 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. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes ☐ No
The number of shares outstanding of the registrant’s common stock as of June 12, 2024 was:
| Class A common stock, par value $0.01 per share: | ||
| Class B common stock, par value $0.01 per share: |
RAFAEL HOLDINGS, INC.
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
RAFAEL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| April 30, 2024 | July 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Available-for-sale securities | ||||||||
| Interest receivable | ||||||||
| Convertible note receivable, related party | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Investment in equity securities | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Investments – Other Pharmaceuticals | ||||||||
| Investments – Hedge Funds | ||||||||
| Investment – Day Three | ||||||||
| Investments – Cyclo Therapeutics Inc. | ||||||||
| Convertible note receivable | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| In-process research and development | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Convertible notes | ||||||||
| Other current liabilities | ||||||||
| Due to related parties | ||||||||
| Installment note payable | ||||||||
| Total current liabilities | ||||||||
| Accrued expenses, noncurrent | ||||||||
| Convertible notes, noncurrent | ||||||||
| Deferred income tax liabilities, net | ||||||||
| Other liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| EQUITY | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost; | ( | ) | ||||||
| Accumulated other comprehensive loss related to unrealized loss on available-for-sale securities | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income related to foreign currency translation adjustment | ||||||||
| Total equity attributable to Rafael Holdings, Inc. | ||||||||
| Noncontrolling interests | ( | ) | ||||||
| TOTAL EQUITY | ||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||
See accompanying notes to the unaudited consolidated interim financial statements.
1
RAFAEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited, in thousands, except share and per share data)
| Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| REVENUE | ||||||||||||||||
| Infusion Technology | $ | $ | $ | $ | ||||||||||||
| Rental – Third Party | ||||||||||||||||
| Rental – Related Party | ||||||||||||||||
| Total revenue | ||||||||||||||||
| COSTS AND EXPENSES | ||||||||||||||||
| Cost of Infusion Technology revenue | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| In-process research and development expense | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Impairment of investments - Other Pharmaceuticals | ( | ) | ( | ) | ||||||||||||
| Loss on initial investment in Day Three upon acquisition | ( | ) | ||||||||||||||
| Realized gain on available-for-sale securities | ||||||||||||||||
| Realized loss on investment in equity securities | ( | ) | ||||||||||||||
| Realized gain on investment - Cyclo Therapeutics Inc. | ||||||||||||||||
| Unrealized (loss) gain on investment - Cyclo Therapeutics Inc. | ( | ) | ||||||||||||||
| Unrealized (loss) gain on investment - Hedge Funds | ( | ) | ( | ) | ( | ) | ||||||||||
| Recovery of receivables from Cornerstone | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Loss from continuing operations before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Benefit from income taxes | ||||||||||||||||
| Equity in loss of Day Three | ( | ) | ||||||||||||||
| Consolidated net loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Discontinued Operations (Note 13) | ||||||||||||||||
| Loss from discontinued operations related to 520 Property | ( | ) | ||||||||||||||
| Gain on disposal of 520 Property | ||||||||||||||||
| Income from discontinued operations | ||||||||||||||||
| Consolidated net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to Rafael Holdings, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| OTHER COMPREHENSIVE LOSS | ||||||||||||||||
| Consolidated net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Unrealized (loss) gain on available-for-sale securities | ( | ) | ( | ) | ||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss attributable to Rafael Holdings, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income (loss) per share attributable to common stockholders | ||||||||||||||||
| Basic and diluted: | ||||||||||||||||
| ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted average number of shares used in calculation of income (loss) per share | ||||||||||||||||
See accompanying notes to the unaudited consolidated interim financial statements.
2
RAFAEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited, in thousands, except share data)
| Three Months Ended April 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
| Common Stock, | Common Stock, | Additional | other | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | paid-in | Accumulated | comprehensive | Noncontrolling | Class B | Total | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | deficit | income | interests | Shares | Amount | Equity | ||||||||||||||||||||||||||||||||||
| Balance at February 1, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for payroll taxes | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Unrealized gain on available-for-sale securities | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Gain on RP Finance consolidation | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Paid-in capital arising from Cornerstone Acquisition | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest arising from Cornerstone Acquisition | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest arising from RP Finance Consolidation | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Elimination of RP Finance investment in Cornerstone | — | — | ( | ) | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at April 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited consolidated interim financial statements.
3
RAFAEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited, in thousands, except share data)
| Nine Months Ended April 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
| Common Stock, | Common Stock, | Additional | other | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | paid-in | Accumulated | comprehensive | Noncontrolling | Class B | Total | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | deficit | income | interests | Shares | Amount | Equity | ||||||||||||||||||||||||||||||||||
| Balance at August 1, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for payroll taxes | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Unrealized gain on available-for-sale securities | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Sale of Rafael Medical Devices membership units | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest in Day Three acquisition | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Gain on RP Finance consolidation | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Paid-in capital arising from Cornerstone Acquisition | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest arising from Cornerstone Acquisition | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest arising from RP Finance Consolidation | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Elimination of RP Finance investment in Cornerstone | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Dissolution of Levco | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at April 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited consolidated interim financial statements.
4
RAFAEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited, in thousands, except share data)
| Three Months Ended April 30, 2023 | ||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Common Stock, | Common Stock, | Additional | other | |||||||||||||||||||||||||||||||||
| Series A | Series B | paid-in | Accumulated | comprehensive | Noncontrolling | Total | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | deficit | income | interests | Equity | ||||||||||||||||||||||||||||
| Balance at February 1, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||||||||||||||
| Forfeiture of restricted stock | — | |||||||||||||||||||||||||||||||||||
| Shares withheld for payroll taxes | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Unrealized loss on available-for-sale securities | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Acquisition of additional ownership interest in LipoMedix | — | — | ( | ) | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at April 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
See accompanying notes to the unaudited consolidated interim financial statements.
5
RAFAEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited, in thousands, except share data)
| Nine Months Ended April 30, 2023 | ||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Common Stock, | Common Stock, | Additional | other | |||||||||||||||||||||||||||||||||
| Series A | Series B | paid-in | Accumulated | comprehensive | Noncontrolling | Total | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | deficit | income | interests | Equity | ||||||||||||||||||||||||||||
| Balance at August 1, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||
| Forfeiture of restricted stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Shares withheld for payroll taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Unrealized loss on available-for-sale securities | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Acquisition of additional ownership interest in LipoMedix | — | — | ( | ) | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at April 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
See accompanying notes to the unaudited consolidated interim financial statements.
6
RAFAEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
| Nine Months Ended April 30, | ||||||||
| 2024 | 2023 | |||||||
| Operating activities | ||||||||
| Consolidated net loss | $ | ( | ) | $ | ( | ) | ||
| Less: income from discontinued operations | ||||||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile consolidated net loss to net cash used in operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Gain on sale of property and equipment | ( | ) | ||||||
| Net unrealized loss (gain) on investment - Hedge Funds | ( | ) | ||||||
| Realized loss on investment in equity securities | ||||||||
| Realized gain on available-for-sale securities | ( | ) | ( | ) | ||||
| Amortization of discount on available-for-sale securities | ( | ) | ( | ) | ||||
| Impairment of investments - Other Pharmaceuticals | ||||||||
| Loss on initial investment in Day Three upon acquisition | ||||||||
| Realized gain in equity investments - Cyclo Therapeutics Inc. | ( | ) | ||||||
| Unrealized gain in equity investments - Cyclo Therapeutics Inc. | ( | ) | ||||||
| Recovery of receivables from Cornerstone | ( | ) | ||||||
| In-process research and development expense | ||||||||
| Accretion of interest expense | ||||||||
| Gain on dissolution of a business | ||||||||
| Equity in loss of Day Three | ||||||||
| Bad debt expense | ||||||||
| Stock-based compensation | ||||||||
| Change in assets and liabilities, net of effects from acquisitions and discontinued operations: | ||||||||
| Trade accounts receivable | ( | ) | ( | ) | ||||
| Interest receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ||||||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Other current liabilities | ( | ) | ||||||
| Due to related parties | ( | ) | ||||||
| Other liabilities | ( | ) | ||||||
| Net cash used in continuing operations | ( | ) | ( | ) | ||||
| Net cash used in discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Purchases of available-for-sale securities | ( | ) | ( | ) | ||||
| Proceeds from the sale and maturities of available-for-sale securities | ||||||||
| Proceeds from Day Three patent sale | ||||||||
| Purchase of intangible assets | ( | ) | ||||||
| Proceeds from investments – Other Pharmaceuticals | ||||||||
| Proceeds from sales of equity securities | ||||||||
| Issuance of convertible note receivable, related party | ( | ) | ||||||
| Purchase of Investment in Day Three | ( | ) | ||||||
| Purchase of Investment in Cyclo Therapeutics Inc. | ( | ) | ||||||
| Issuance of convertible note receivable | ( | ) | ||||||
| Issuance of Day Three Promissory Notes | ( | ) | ||||||
| Cash acquired in acquisition of Day Three, net of cash payments | ||||||||
| Cash acquired in the Cornerstone Acquisition, net of cash payments | ||||||||
| Proceeds from hedge funds | ||||||||
| Net cash used in investing activities of continuing operations | ( | ) | ( | ) | ||||
| Proceeds from sale of 520 Property - discontinued operations | ||||||||
| Payment of transaction costs for sale of 520 Property - discontinued operations | ( | ) | ||||||
| Net cash provided by investing activities of discontinued operations | ||||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Financing activities | ||||||||
| Principal payments on installment note payable | ( | ) | ||||||
| Payments for taxes related to shares withheld for employee taxes | ( | ) | ( | ) | ||||
| Purchases of treasury stock | ( | ) | ||||||
| Proceeds from sale of Rafael Medical Devices membership units | ||||||||
| Net cash used in financing activities of continuing operations | ( | ) | ( | ) | ||||
| Payment of Note Payable in connection with sale of 520 Property - discontinued operations | ( | ) | ||||||
| Net cash used in financing activities of discontinued operations | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Non-cash supplemental disclosure | ||||||||
| Acquisition of additional ownership interest in LipoMedix | $ | $ | ||||||
| Conversion of RFL Line of Credit into Cornerstone Common Stock | $ | $ | ||||||
| Conversion of 2023 Promissory Note into Cornerstone Common Stock | $ | $ | ||||||
| Recognition of noncontrolling interest in the Cornerstone Acquisition | $ | $ | ||||||
| Recognition of noncontrolling interest in the RP Finance Consolidation, net of elimination | $ | $ | ||||||
| Gain on RP Finance Consolidation recorded as an adjustment to additional paid-in capital due to related party nature of transaction, net of elimination | $ | $ | ||||||
| Noncash consideration received in exchange for equipment | $ | $ | ||||||
| Other receivable recognized related to sale of patent | $ | $ | ||||||
| Consideration for acquisition of Day Three included in accrued expenses | $ | $ | ||||||
| Elimination of principal and accrued interest on the Day Three Promissory Notes included in consideration for acquisition of Day Three | $ | $ | ||||||
See accompanying notes to the unaudited consolidated interim financial statements.
7
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS
Description of Business
Rafael Holdings, Inc. (“Rafael Holdings”, “Rafael”, “we” or the “Company”) is a holding company with interests in clinical and early-stage pharmaceutical companies (the “Pharmaceutical Companies”), including a majority interest in Cornerstone Pharmaceuticals, Inc. (“Cornerstone”), formerly known as Rafael Pharmaceuticals Inc., a cancer metabolism-based therapeutics company, a majority equity interest in LipoMedix Pharmaceuticals Ltd. (“LipoMedix”), a clinical stage pharmaceutical company, Barer Institute Inc. (“Barer”), a wholly-owned preclinical cancer metabolism research operation, and an investment in Cyclo Therapeutics Inc. (Nasdaq: CYTH), (“Cyclo Therapeutics” or “Cyclo”), a clinical-stage biotechnology company dedicated to developing Trappsol® Cyclo™, which is being evaluated in clinical trials for the potential treatment of Niemann-Pick Disease Type C1 (NPC), a rare, fatal and progressive genetic disorder. We also hold a majority interest in Day Three Labs, Inc. (“Day Three”), a company which reimagines existing cannabis offerings with pharmaceutical-grade technology and innovation like Unlokt™ to bring to market better, cleaner, more precise and predictable products, and a majority interest in Rafael Medical Devices, LLC, an orthopedic-focused medical device company developing instruments to advance minimally invasive surgeries (“Rafael Medical Devices” and Day Three together with the Pharmaceutical Companies, represent our “Investment Companies”). In November 2022, the Company resolved to curtail its early-stage development efforts, including pre-clinical research at Barer. The decision was taken to reduce spending as the Company focuses on exploring strategic opportunities. The Company’s primary focus is to expand our investment portfolio through opportunistic and strategic investments including therapeutics, which address high unmet medical needs.
The Company previously held debt and equity investments
in Cornerstone that included preferred and common equity interests. On June 17, 2021, the Company entered into a merger agreement to acquire
full ownership of Cornerstone in exchange for issuing Company Class B common stock to the other stockholders of Cornerstone (“Merger
Agreement” or “Merger”). On October 28, 2021, the Company 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”). In connection with the preparation
of the Company’s financial statements for the first quarter ended October 31, 2021, accounting principles generally accepted in
the United States of America (“U.S. GAAP”) required that the Company assess the impact of the Data Events and determine whether
the carrying values of the Company’s assets were impaired based upon the Company’s expectations to realize future value. In
light of the Data Events, the Company concluded that the likelihood of further development of and prospects for CPI-613 is uncertain and
fully impaired in the first quarter ended October 31, 2021 the value of its loans, receivables, and investment in Cornerstone based upon
its valuation of Cornerstone. On February 2, 2022, the Company terminated the Merger Agreement with Cornerstone, effective immediately,
in accordance with its terms. On March 21, 2023, the Company loaned $
The Company owns a
On March 13, 2024, Cornerstone consummated a restructuring
of its outstanding debt and equity interests (the “Cornerstone Restructuring”). As a result of the Cornerstone Restructuring,
Rafael became a
8
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In May 2023, the Company first invested in Cyclo Therapeutics. Cyclo is a clinical stage biotechnology company that develops cyclodextrin-based products for the treatment of neurodegenerative diseases. Cyclo’s lead drug candidate is Trappsol® Cyclo™ (hydroxypropyl beta cyclodextrin), a treatment for Niemann-Pick Type C disease (“NPC”). NPC is a rare and fatal autosomal recessive genetic disease resulting in disrupted cholesterol metabolism that impacts the brain, lungs, liver, spleen, and other organs. In January 2017, the FDA granted Fast Track designation to Trappsol® Cyclo™ for the treatment of NPC. Initial patient enrollment in the U.S. Phase I study commenced in September 2017, and in May 2020, Cyclo announced Top Line data showing a favorable safety and tolerability profile for Trappsol® Cyclo™ in this study. Cyclo is currently conducting a Phase 3 Clinical Trial Evaluating Trappsol® Cyclo™ in Pediatric and Adult Patients with Niemann-Pick Disease Type C1. See Note 11 for more information on the Company’s investments in Cyclo.
In 2019, the Company established Barer, a preclinical cancer metabolism research operation, to focus on developing a pipeline of novel therapeutic compounds, including compounds to regulate cancer metabolism with potentially broader application in other indications beyond cancer. Barer has been comprised of scientists and academic advisors that are experts in cancer metabolism, chemistry, and drug development. In addition to its own internal discovery efforts, Barer pursued collaborative research agreements and in-licensing opportunities with leading scientists from top academic institutions. Barer’s majority owned subsidiary, Farber Partners, LLC (“Farber”), was formed around one such agreement with Princeton University’s Office of Technology Licensing (“Princeton”) for technology from the laboratory of Professor Joshua Rabinowitz, in the Department of Chemistry, Princeton University, for an exclusive worldwide license to its SHMT (serine hydroxymethyltransferase) inhibitor program. In November 2022, the Company resolved to curtail its early-stage development efforts, including pre-clinical research at Barer Institute.
The Company first invested in LipoMedix in 2019,
a privately held Israeli clinical stage pharmaceutical company focused on the development of an innovative, safe and effective cancer
therapy based on liposome delivery, and currently holds
In May 2021, the Company formed Rafael Medical
Devices, an orthopedic-focused medical device company developing instruments to advance minimally invasive surgeries. In August 2023,
the Company raised $
On April 7, 2023, the Company entered into a Common
Stock Purchase Agreement (the “Day Three Purchase Agreement”) with Day Three. Day Three is a company which reimagines existing
cannabis offerings with pharmaceutical-grade technology and innovation like Unlokt™ to bring to market better, cleaner, more precise
and predictable products. Pursuant to the Day Three Purchase Agreement, the Company purchased
In January 2024, the Company entered into a series
of transactions with Day Three and certain shareholders to purchase an aggregate of
9
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Historically, the Company owned real estate assets. In 2020, the Company sold an office building located in Piscataway, New Jersey and on August 22, 2022, the Company sold the 520 Property. As of April 30, 2024, the Company holds a portion of a commercial building in Jerusalem, Israel as its remaining real estate asset.
The “Company” in these consolidated financial statements refers to Rafael Holdings and its subsidiaries on a consolidated basis.
| Company | Country of Incorporation | Percentage Owned | ||||
| Broad Atlantic Associates, LLC | % | |||||
| IDT R.E. Holdings Ltd. | % | |||||
| Rafael Holdings Realty, Inc. | % | |||||
| Barer Institute, Inc. | % | |||||
| Hillview Avenue Realty, JV | % | |||||
| Hillview Avenue Realty, LLC | % | |||||
| Rafael Medical Devices, LLC | % | |||||
| Levco Pharmaceuticals Ltd. | %*** | |||||
| Farber Partners, LLC | % | |||||
| Pharma Holdings, LLC | % | |||||
| LipoMedix Pharmaceuticals Ltd. | %**** | |||||
| Altira Capital & Consulting, LLC | % | |||||
| CS Pharma Holdings, LLC | %** | |||||
| Day Three Labs, Inc. | % | |||||
| Cornerstone Pharmaceuticals, Inc. | % | |||||
| RP Finance, LLC | % | |||||
| ** |
| *** |
| **** |
10
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, which include only normal recurring adjustments, considered necessary for a fair presentation have been included.
The Company’s fiscal year ends on July 31 of each calendar year. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year indicated (e.g., fiscal year 2023 refers to the fiscal year ended July 31, 2023).
The accompanying consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with U.S. GAAP. The accompanying consolidated financial statements reflect the activity related to the 520 Property as discontinued operations. Operating results for the nine months ended April 30, 2024 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 consolidated 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 included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2023, or the 2023 Form 10-K, as filed with the U.S. Securities and Exchange Commission (the “SEC”).
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated balance sheet and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly from those estimates.
Liquidity
As of April 30, 2024, the Company had cash
and cash equivalents of approximately $
Cost of Infusion Technology revenue
The cost of Infusion Technology revenue includes costs related to supplies, materials, production labor, and travel costs.
Concentration of Credit Risk and Significant Customers
The Company routinely assesses the financial strength of its customers. As a result, the Company believes that its accounts receivable credit risk exposure is limited.
As of April 30, 2024, there was one Day Three
customer which represented
11
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the three months ended April 30, 2024, one
customer and one tenant represented
Cash and Cash Equivalents
The Company considers all liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Reserve for Receivables
The allowance for doubtful accounts reflects the
Company’s best estimate of lifetime credit losses inherent in the accounts receivable balance. The allowance is determined based
on known troubled accounts, historical experience and other currently available evidence. Doubtful accounts are written off upon final
determination that the trade accounts will not be collected. The computation of this allowance is based on the tenants’ or customers’
payment histories, as well as certain industry or geographic specific credit considerations. If the Company’s estimates of collectability
differ from the cash received, then the timing and amount of the Company’s reported revenue could be impacted. The Company recorded
bad debt expense from discontinued operations of approximately $
Convertible Note Receivables
The Company’s convertible note receivables are classified as available-for-sale as defined under Accounting Standards Codification (“ASC”) 320, Investments - Debt and Equity Securities, and are recorded at fair value. Subsequent changes in fair value are recorded in accumulated other comprehensive income (loss).
The fair value of the convertible note receivables are estimated using a scenario-based analysis based on the probability-weighted present value of future investment returns, considering each of the possible outcomes available to the Company, including cash repayment, equity conversion, and collateral transfer scenarios. Estimating the fair value of the convertible note requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors.
Variable Interest Entities
In accordance with ASC 810, Consolidation, the Company assesses whether it has a variable interest in legal entities in which it has a financial relationship and, if so, whether or not those entities are variable interest entities (“VIEs”). For those entities that qualify as VIEs, ASC 810 requires the Company to determine if the Company is the primary beneficiary of the VIE, and if so, to consolidate the VIE.
If an entity is determined to be a VIE, the Company evaluates whether the Company is the primary beneficiary. The primary beneficiary analysis is a qualitative analysis based on power and economics. The Company consolidates a VIE if both power and benefits belong to the Company – that is, the Company (i) has the power to direct the activities of a VIE that most significantly influence the VIE’s economic performance (power), and (ii) has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE (benefits). The Company consolidates VIEs whenever it is determined that the Company is the primary beneficiary.
12
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Investments
The method of accounting applied to long-term investments in equity securities involves an evaluation of the significant terms of each investment that explicitly grant or suggest evidence of control or influence over the operations of the investee and also include the identification of any variable interests in which the Company is the primary beneficiary. The consolidated financial statements include the Company’s controlled affiliates. All significant intercompany accounts and transactions between the consolidated affiliates are eliminated.
Investments in equity securities may be accounted for using (i) the fair value option, if elected, (ii) fair value through earnings if fair value is readily determinable or (iii) for equity investments without readily determinable fair values, the measurement alternative to measure at cost adjusted for any impairment and observable price changes, as applicable. The election to use the measurement alternative is made for each eligible investment.
The Company has elected the fair value option to account for its investment in Cyclo Therapeutics, as the Company has significant influence over Cyclo’s management. The fair value option is irrevocable once elected. The Company measured its initial investment in Cyclo at fair value and shall record all subsequent changes in fair value in earnings in the consolidated statements of operations and comprehensive loss. The Company believes the fair value option best reflects the underlying economics of the investment. The Company has determined that Cyclo is a VIE; however, the Company has determined that it is not the primary beneficiary as the Company does not have the power to direct the activities of Cyclo that most significantly impact Cyclo’s economic performance. See Note 11, “Investments in Cyclo Therapeutics, Inc.”
Investments in which the Company does not have the ability to exercise significant influence over operating and financial matters are accounted for in accordance with ASC 321, Investments – Equity Securities. Investments without readily determinable fair values are accounted for using the measurement alternative which is at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company periodically evaluates its investments for impairment due to declines considered to be other than temporary. If the Company determines that a decline in fair value is other than temporary, then a charge to earnings is recorded in the accompanying consolidated statements of operations and comprehensive loss, and a new basis in the investment is established.
Investments - Hedge Funds
The Company accounts for its investments in hedge funds in accordance with ASC 321, Investments – Equity Securities. Unrealized gains and losses resulting from the change in fair value of these securities is included in unrealized (loss) gain on investments - Hedge Funds in the consolidated statements of operations and comprehensive loss.
Corporate Bonds and US Treasury Bills
The Company’s marketable securities are considered to be available-for-sale as defined under ASC 320, Investments - Debt and Equity Securities, and are recorded at fair value. Unrealized gains or losses are included in accumulated other comprehensive loss. Realized gains or losses are released from accumulated other comprehensive loss and into earnings on the consolidated statements of operations and comprehensive loss.
Effective August 1, 2023, the Company uses a current expected credit losses (“CECL”) model to estimate the allowance for credit losses on available-for-sale debt securities. For available-for-sale debt securities in an unrealized loss position, management first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.
13
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any decline in fair value that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. No allowance for credit losses was recognized by the Company at April 30, 2024.
Cost Method Investment
Prior to the Cornerstone Acquisition, the Company had determined that Cornerstone was a VIE; however, the Company had determined that it was not the primary beneficiary as the Company did not have the power to direct the activities of Cornerstone that most significantly impact Cornerstone’s economic performance. See Note 3 for additional information.
Equity Method Investments
The Company has determined that RP Finance, LLC (“RP Finance”) and Day Three, and the Company’s investments in RP Finance and Day Three, are VIEs; however, the Company previously determined that it was not the primary beneficiary as the Company did not have the power to direct the activities of RP Finance and Day Three that most significantly impact their economic performance and, therefore, was not required to consolidate RP Finance and Day Three. The Company previously accounted for RP Finance and Day Three using the equity method of accounting.
As of January 2, 2024, Day Three is a majority-owned subsidiary which is consolidated.
In conjunction with the Cornerstone Acquisition on March 13, 2024, the Company reassessed its relationship with RP Finance and, as a result of the Cornerstone Restructuring and resulting Cornerstone Acquisition, 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.
Long-Lived Assets
Classification | Years | |||
| Building and improvements | ||||
| Tenant improvements | ||||
| Machinery and equipment | ||||
| Other (primarily office equipment, furniture and fixtures) | ||||
Properties
On August 22, 2022, Broad Atlantic Associates
LLC, a wholly-owned subsidiary of the Company (“Broad Atlantic”), completed the sale of the 520 Property for a purchase price
of $
The Company owns a portion of the 6th floor of a building located at 5 Shlomo Halevi Street, in Jerusalem, Israel.
14
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Business Combinations
Amounts paid for acquisitions are allocated to the assets acquired and liabilities assumed based on their estimated fair value at the date of acquisition. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions provided by management, including expected future cash flows. We allocate any excess purchase price over the fair value of the identifiable net assets and liabilities acquired to goodwill. Identifiable intangible assets with finite lives are amortized over their useful lives. Acquisition-related costs, including advisory, legal, accounting, valuation, and other costs, are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.
Impairment of Long-Lived Assets
The Company assesses the recoverability of long-lived assets, which include property and equipment, intangible assets, in-process research and development and patents whenever significant events or changes in circumstances indicate that its carrying amount may not be recoverable. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset are compared to its carrying amount to determine whether the asset’s carrying value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the nine months ended April 30, 2024 and 2023, the Company determined there was no impairment of its long-lived assets.
Assets Held-for-Sale and Discontinued Operations
The Company classifies assets as held-for-sale if all held-for-sale criteria are met pursuant to ASC 360-10, Property, Plant and Equipment. Criteria include management commitment to sell the disposal group in its present condition and the sale being deemed probable of being completed within one year. Assets classified as held-for-sale are not depreciated and are measured at the lower of their carrying amount or fair value less cost to sell. The Company assesses the fair value of a disposal group, less any costs to sell, each reporting period it remains classified as held-for-sale and reports any subsequent changes as an adjustment to the carrying value of the disposal group, as long as the new carrying value does not exceed the initial carrying value of the disposal group.
Strategic changes in the Company’s operations can be considered a discontinued operation if both the operations and cash flows of the discontinued component have been (or will be) eliminated from the ongoing operations of the Company and the Company will not have any significant continuing involvement in the operations of the discontinued component after the disposal transaction. The results of the discontinued operations shall be reflected as a discontinued operation on the consolidated statements of operations and comprehensive loss and prior periods shall be recast to reflect the earnings from discontinued operations. As a result of the agreement to sell the 520 Property, the accompanying consolidated financial statements reflect the activity related to the sale of the 520 Property as discontinued operations. The Company determined that the 520 Property met the held-for-sale and discontinued operations criteria as of July 1, 2022. The 520 Property was disposed of on August 22, 2022. See Note 13 for additional information regarding the results, major classes of assets and liabilities, significant non-cash operating items, and capital expenditures of discontinued operations.
Goodwill
The Company assesses goodwill for impairment on an annual basis or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. The Company regularly monitors current business conditions and other factors including, but not limited to, adverse industry or economic trends and lower projections of profitability that may impact future operating results. The process of evaluating the potential impairment of goodwill requires significant judgement. In performing the Company’s annual goodwill impairment test, the Company is permitted to first assess qualitative factors to determine whether it is more likely than not the fair value of the Company’s reporting unit is less than its carrying amount, including goodwill. In performing the qualitative assessment, the Company considers certain events and circumstances specific to the reporting unit and the entity as a whole, such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The Company is also permitted to bypass the qualitative assessment and proceed directly to the quantitative test. If the Company chooses to undertake the qualitative assessment and concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company would then proceed to the quantitative impairment test. In the quantitative assessment, the Company compares the fair value of the reporting unit to its carrying amount, which includes goodwill. If the fair value exceeds the carrying value, no impairment loss exists. If the fair value is less than the carrying amount, a goodwill impairment loss is measured and recorded.
The Company assesses goodwill for impairment on an annual basis as of May 31 or more frequently when events and circumstances occur indicating that recorded goodwill may be impaired.
15
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In-Process Research and Development
The Company has acquired in-process research and development (“IPR&D”) intangible assets pursuant to a business combination. These IPR&D assets are considered indefinite-lived intangible assets until completion or abandonment of the associated research and development efforts. These IPR&D assets are not amortized but reviewed for impairment at least annually, or when events or changes in the business environment indicate the carrying value may be impaired.
Acquired IPR&D pursuant to an asset acquisition that has no alternative future use is expensed immediately as a component of in-process research and development expense in the consolidated statement of operations and comprehensive income (loss).
Revenue Recognition
The Company applies the five-step approach as described in ASC 606, Revenue from Contracts with Customers, which 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.
The Company disaggregates its revenue by source within its consolidated statements of operations and comprehensive loss. As an owner and operator of real estate, the Company derives rental revenue from leasing office and parking space to tenants at its properties. In addition, the Company earns revenue from recoveries from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs. Revenue from recoveries from tenants is recorded together with rental income on the consolidated statements of operations and comprehensive loss which is also consistent with the guidance under ASC 842, Leases.
The revenue derived from the 520 Property, which included leasing office and parking space to the tenants, is presented within discontinued operations in the consolidated statements of operations and comprehensive loss.
Contractual rental revenue is reported on a straight-line basis over the terms of the respective leases. Accrued rental income, included within other assets on the consolidated balance sheets, represents cumulative rental income earned in excess of rent payments received pursuant to the terms of the individual lease agreements.
The Company also earned revenue from parking which was derived primarily from monthly and transient daily parking. The monthly and transient daily parking revenue falls within the scope of ASC 606 and was 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, consistent with the Company’s previous accounting.
The Company’s infusion technology revenue is derived from Day Three’s Unlokt technology which is recognized in accordance with ASC 606. Day Three provides manufacturing services where they use proprietary technology, equipment, and processes to manufacture water soluble product for their customers at their customer facilities. Day Three is acting as a principal in the transaction, as it is primarily responsible for fulfillment and acceptability of the services. Infusion technology revenue is recognized over time as the Company’s performance obligation is satisfied, which is generally within a 30-day period. The criterion in ASC 606-10-25-27, that the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, is met given that the customer is controlling the product as Day Three is performing the service on the customer’s premises. Revenue is recognized over the period of performance using an output method where the number of grams produced is the output, as such method best depicts the Company’s efforts to satisfy the performance obligation. Customer billings in advance of revenue recognition result in contract liabilities. As of April 30, 2024, there were no contract liabilities recognized on the consolidated balance sheets related to infusion technology revenue.
Research and Development Costs
Research and development costs and expenses incurred by consolidated entities consist primarily of salaries and related personnel expenses, stock-based compensation, fees paid to external service providers, 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.
Contingent milestone payments associated with acquiring rights to intellectual property are recognized when probable and estimable. These amounts are expensed to research and development when there is no alternative future use associated with the intellectual property.
16
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock-Based Compensation
The Company accounts for stock-based compensation using the provisions of ASC 718, Stock-Based Compensation, which requires the recognition of the fair value of stock-based compensation. Stock-based compensation is estimated at the grant date based on the fair value of the awards. The Company accounts for forfeitures of grants as they occur. Compensation cost for awards is recognized using the straight-line method over the vesting period. Stock-based compensation is included in general and administrative expense and research and development expense in the consolidated statements of operations and comprehensive loss.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the period in which related temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in its assessment of a valuation allowance. 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 income in the period that includes the enactment date of such change.
The Company uses a two-step approach for recognizing
and measuring tax benefits taken or expected to be taken in a tax return. The Company determines whether it is more-likely-than-not that
a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical
merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company presumes
that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. Tax positions
that meet the more-likely-than-not recognition threshold are measured to determine the amount of tax benefit to recognize in the financial
statements. The tax position is measured at the largest amount of benefit that is greater than
The Company classifies interest and penalties on income taxes as a component of income tax expense, if any.
Contingencies
The Company accrues for loss contingencies when both (a) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements and (b) the amount of loss can reasonably be estimated. When the Company accrues for loss contingencies and the reasonable estimate of the loss is within a range, the Company records its best estimate within the range. When no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount in the range. The Company discloses an estimated possible loss or a range of loss when it is at least reasonably possible that a loss may have been incurred.
Fair Value Measurements
Fair value of financial and non-financial assets and liabilities is defined as an exit price, which is 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. The three-tier hierarchy for inputs used to measure fair value, which prioritizes the inputs to valuation techniques used to measure fair value, is as follows:
| ● | Level 1 - quoted prices in active markets for identical assets or liabilities; |
| ● | Level 2 - quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or |
| ● | Level 3 - unobservable inputs for the asset or liability, such as discounted cash flow models or valuations. |
A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.
17
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Loss Per Share
Basic loss per share is computed by dividing net loss attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted loss per share is determined in the same manner as basic loss per share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture and to assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase would be anti-dilutive. The Company uses loss from continuing operations as the “control number” or benchmark to determine whether potential common shares are dilutive or anti-dilutive for purposes of reporting loss per share for discontinued operations.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, which was codified in ASC 326, Financial Instruments - Credit Losses (“ASC 326”). The standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. Because the Company is a smaller reporting company, ASC 326 became effective for the Company for fiscal years beginning after December 15, 2022. As such, the Company adopted ASC 326 effective August 1, 2023, utilizing the modified retrospective transition method. Upon adoption, the Company updated its impairment model to utilize a forward-looking CECL model in place of the incurred loss methodology for financial instruments measured at amortized cost, primarily including its accounts receivable. In relation to available-for-sale (“AFS”) debt securities, the guidance eliminates the concept of “other-than-temporary” impairment, and instead focuses on determining whether any impairment is a result of a credit loss or other factors. The adoption of ASC 326 did not have a material impact on our unaudited consolidated financial statements as of the adoption date.
Recently Issued Accounting Standards Not Yet Adopted
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and are adopted by the Company as of the specified effective date. 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 or results of operations upon adoption.
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies an issuer’s accounting for convertible instruments by reducing the number of accounting models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification and makes targeted improvements to the disclosures for convertible instruments and earnings-per-share (“EPS”) guidance. This update will be effective for the Company’s fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Entities can elect to adopt the new guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements and intends to adopt the standard as of August 1, 2024.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which clarifies the guidance in ASC Topic 820, Fair Value Measurement (“Topic 820”), when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and intends to adopt the standard as of August 1, 2024.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for all entities for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The new guidance is effective for the Company in the annual period beginning August 1, 2024 and interim periods beginning February 1, 2025. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
18
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – CORNERSTONE RESTRUCTURING, ACQUISITION, AND RP FINANCE CONSOLIDATION
Prior to the Cornerstone Restructuring, Rafael (directly via certain of its subsidiaries, and through an equity method investment in RP Finance) held certain debt and equity investments in Cornerstone, which are described in Note 4.
Restructuring of Cornerstone
On March
13, 2024, Rafael, Cornerstone, and other holders of debt and equity securities of Cornerstone agreed
to various transactions which effected a recapitalization and restructuring of the outstanding debt and equity interests in Cornerstone.
In the Cornerstone Restructuring, Rafael obtained shares of common stock of Cornerstone (“Cornerstone
Common Stock”) that gave the Company control over approximately
(i) all issued and outstanding
shares of Cornerstone’s preferred stock and non-voting common stock converted into shares of Cornerstone Common Stock (the “Mandatory
Common Conversion”) on a one-for-one basis, which shares of Cornerstone Common Stock were then subjected to the Reverse Stock Split
(as defined below), including the conversion of Rafael’s
(ii) Cornerstone offered shares
of Cornerstone’s Common Stock to all holders of Cornerstone’s promissory notes convertible into Cornerstone Series C preferred
stock (the “Series C Convertible Notes”) who were 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 Common Stock at
the Cornerstone Restructuring Common Stock Price as described below (the “Series C Convertible Notes Exchange”). Approximately
(iii) Rafael converted the
approximately $
19
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(iv) Rafael converted the
approximately $
(v) Cornerstone and RP Finance
amended the RPF Line of Credit (as defined in Note 5) to (i) extend the maturity date of the approximately $
(vi) Rafael invested an additional
$
(vii) 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 one-for-ten 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 Cornerstone Restructuring and eliminate the authorized preferred stock not required to be authorized as a result of the Mandatory Common Conversion;
(viii) 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 three directors of Cornerstone that are independent of Rafael; and
(ix) Cornerstone increased
the available reserve of Cornerstone Common Stock for grant to employees, consultants and other service providers to approximately
20
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Acquisition of Cornerstone
As a result of the Cornerstone Restructuring,
Rafael became a
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”). In accordance with the calculation within ASC 810, no gain or loss was recognized on the Cornerstone Acquisition.
The net amount of the VIE’s identifiable assets and liabilities recognized with respect to the Cornerstone 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.
| Fair value of consideration paid | ||||
| Fair value of RFL Line of Credit | $ | |||
| Fair value of 2023 Promissory Note | ||||
| Cash consideration | ||||
| (i) Total fair value of consideration paid | ||||
| (ii) Fair value of noncontrolling interests | ||||
| (iii) Reported value of previously held interests(1) | ||||
| Sum of (i), (ii), and (iii) | $ | |||
| (1) |
21
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| Assets acquired and liabilities assumed | ||||
| Cash and cash equivalents | $ | |||
| Prepaid expenses and other current assets | ||||
| Property and equipment | ||||
| Other assets | ||||
| Acquired IPR&D | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Series C Convertible Notes, short-term portion | ( | ) | ||
| Due to related parties | ( | ) | ||
| Other current liabilities | ( | ) | ||
| Series C Convertible Notes, long-term portion | ( | ) | ||
| Creditor payable, noncurrent | ( | ) | ||
| Amended RPF Line of Credit | ( | ) | ||
| Other liabilities | ( | ) | ||
| Total | $ | |||
In accordance with the calculation within ASC
810, no gain or loss was recognized on the initial consolidation of Cornerstone. The Company incurred transaction costs of $
The Company recognized a gain in the amount of
$
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 projected 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 seeks to 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 Cornerstone Acquisition has been accounted for as an acquisition of a VIE that is not a business, it was determined that the fair value of IPR&D asset acquired with no alternative future use should be charged to IPR&D expense at the acquisition date.
The Company assumed Cornerstone’s liability to RP Finance under the Amended RPF Line of Credit at its fair value in the Cornerstone Acquisition and acquired RP Finance’s receivable from Cornerstone under the Amended RPF Line of Credit at its fair value in the RP Finance Consolidation. These intercompany amounts are eliminated in consolidation. The Company will accrete the fair value of Cornerstone’s liability and RP Finance’s receivable under the Amended RPF Line of Credit to the amount due on May 31, 2028 as interest expense and interest income, respectively, in the consolidated statements of operations and comprehensive loss over the estimated term of the Amended RPF Line of Credit.
The creditors of Cornerstone do not have legal recourse to the Company’s general credit.
The consolidated financial statements include
the results of the Cornerstone Acquisition subsequent to the closing date. Cornerstone did not produce any revenue for the period from
the closing date through April 30, 2024. Cornerstone incurred a net loss of $
22
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Consolidation of RP Finance
RP Finance, an entity in which the Company owns
a
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 following table presents, in accordance with ASC 810, the sum of (i) the fair value of consideration paid, (ii) the fair value of noncontrolling interests, and (iii) the reported amount of previously held interests (amounts in thousands):
| (i) Fair value of consideration paid | $ | |||
| (ii) Fair value of noncontrolling interests | ||||
| (iii) Reported value of previously held interests(1) | ||||
| Sum of (i), (ii), and (iii) | $ |
| (1) |
| Assets acquired and liabilities assumed | ||||
| Investments - Cornerstone common stock | $ | |||
| Due from Cornerstone - Amended RPF Line of Credit | ||||
| Total | $ | |||
In accordance with the calculation within ASC
810, a gain of $
The Company assumed Cornerstone’s liability to RP Finance under the Amended RPF Line of Credit at its fair value in the Cornerstone Acquisition and acquired RP Finance’s receivable from Cornerstone under the Amended RPF Line of Credit at its fair value in the RP Finance Consolidation. These intercompany amounts are eliminated in consolidation. The Company will accrete the fair value of Cornerstone’s liability and RP Finance’s receivable under the Amended RPF Line of Credit to the amount due on May 31, 2028 as interest expense and interest income, respectively, in the consolidated statements of operations and comprehensive loss over the estimated term of the Amended RPF Line of Credit.
The consolidated financial statements include the results of RP Finance subsequent to the closing date. The results of operations of RP Finance were insignificant.
23
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Unaudited Pro Forma Financial Information
The following table sets forth the pro forma consolidated
results of operations of Rafael, Cornerstone, and RP Finance after giving effect to the Cornerstone Restructuring, the Cornerstone Acquisition,
and the RP Finance Consolidation for the three and nine months ended April 30, 2024 and 2023, as if the Cornerstone Restructuring, the
Cornerstone Acquisition, and the RP Finance Consolidation had collectively occurred on August 1, 2022.
Three
Months ended | Nine
Months ended | |||||||||||||||
| (unaudited, in thousands, except for share and per share amounts) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss from continuing operations attributable to common stockholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss per share from continuing operations attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding | ||||||||||||||||
The pro forma loss from operations for the nine
months ended April 30, 2023 includes the IPR&D expense of $
The pro forma net loss from continuing operations
attributable to common stockholders for the nine months ended April 30, 2023 includes a gain of $
NOTE 4 – INVESTMENT IN CORNERSTONE
Cornerstone is a clinical stage, cancer metabolism-based therapeutics company focused on the development and commercialization of therapies that seeks to exploit the metabolic differences between normal cells and cancer cells.
Prior to the Cornerstone Restructuring described in Note 3, Rafael (directly via certain of its subsidiaries, and through an equity method investment in RP Finance) held certain debt and equity investments in Cornerstone which included:
(a)
24
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(b) a loan of $
(c) a $
(d) a $
(e) loans in the aggregate
amount of $
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.
A trust for the benefit of the children of Howard
Jonas (Chairman of the Board and Executive Chairman and former Chief Executive Officer of the Company and Member of the Board of Cornerstone)
holds a financial instrument (the “Instrument”) that owns
Prior to the Cornerstone Restructuring described
in Note 3, the Company indirectly owned
Prior to the Cornerstone Restructuring, the Company had determined that Cornerstone was a VIE; however, the Company had determined that it was not the primary beneficiary as it did not have the power to direct the activities of Cornerstone that most significantly impact Cornerstone’s economic performance. In addition, the interests held in Cornerstone were Series D Convertible Preferred Stock and did not represent in-substance common stock.
On March 13, 2024, Cornerstone consummated a restructuring of its outstanding debt and equity interests. See Note 3 for additional information regarding the Cornerstone Restructuring transaction.
25
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – INVESTMENT IN RP FINANCE, LLC
On February 3, 2020, Cornerstone entered into
a Line of Credit with RP Finance (“RPF Line of Credit”) which provided a revolving commitment of up to $
The Company owns
RP Finance had funded a cumulative total of $
Prior to the Cornerstone Restructuring and resulting RP Finance Consolidation described in Note 3, the Company had determined that RP Finance was a VIE; however, the Company had determined that it was not the primary beneficiary as the Company did not have the power to direct the activities of RP Finance that most significantly impacted RP Finance’s economic performance and, therefore, was not required to consolidate RP Finance. Therefore, the Company used the equity method of accounting to record its investment in RP Finance.
On March 13, 2024, Cornerstone consummated the Cornerstone Restructuring of its outstanding debt and equity interests. As part of the Cornerstone Restructuring, Cornerstone and RP Finance amended the RPF Line of Credit agreement. See Note 3 for additional information regarding the Cornerstone Restructuring transaction.
NOTE 6 – CONVERTIBLE NOTES PAYABLE
As of April 30, 2024, Cornerstone has $
The outstanding Series C Convertible Notes are convertible, at the option of the holders in certain equity financings consummated by Cornerstone or into equity securities and warrants to purchase equity securities of Cornerstone.
In the event of a liquidation event of Cornerstone prior to the repayment or conversion of the Series C Convertible Notes, the holders are 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 exercised their conversion right.
Of the Series C Convertible Notes outstanding as of April 30, 2024:
(a) Series C Convertible Notes with
an aggregate principal amount of $
26
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(b) Series C Convertible Notes with
an aggregate principal amount of $
During the three and nine months ended April 30,
2024 and 2023, the Company recorded $
NOTE 7 – ACCRUED EXPENSES
| April 30, 2024 | July 31, 2023 | |||||||
| (unaudited in thousands) | ||||||||
| Accrued expenses, current | ||||||||
| Accrued payroll expenses | $ | $ | ||||||
| Accrued bonuses | ||||||||
| Accrued professional fees | ||||||||
| Accrued interest | ||||||||
| Other accrued expenses | ||||||||
| Total accrued expenses, current | ||||||||
| Creditor payable, noncurrent | ||||||||
| Total accrued expenses | $ | $ | ||||||
In the Cornerstone Acquisition, Rafael assumed
a forbearance agreement, signed by Cornerstone on June 2, 2023, with a major creditor (the “Creditor”) of Cornerstone to
which Cornerstone owed approximately $
Following the payment of the initial $
As part of the Cornerstone Acquisition, the creditor
payable was recognized by the Company as an assumed liability and measured at its fair value of $
The carrying value of the creditor payable was
$
27
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – CONVERTIBLE NOTE RECEIVABLE
On March 8, 2024, Day Three entered into a convertible
note subscription agreement with a third-party company, Steady State LLC. Steady State LLC promises to pay to Day Three $
NOTE 9 – INVESTMENT IN LIPOMEDIX PHARMACEUTICALS LTD.
LipoMedix is a development-stage, privately held Israeli company focused on the development of an innovative, safe and effective cancer therapy based on liposome delivery.
In March 2021, the Company provided bridge financing
in the principal amount of up to $
On November 15, 2021, the Company entered into
a share purchase agreement with LipoMedix to purchase up to
As of the date of the LipoMedix SPA, there was
an outstanding loan balance including principal of $
On February 9, 2023, the Company entered into
a Share Purchase Agreement with LipoMedix to purchase
As of April 30, 2024, the Company held
28
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – INVESTMENT IN DAY THREE LABS INC.
Initial investment in Day Three
On April 7, 2023, the Company entered into a Common
Stock Purchase Agreement (the “Day Three Purchase Agreement”) with Day Three. Day Three is a company which reimagines existing
cannabis offerings with pharmaceutical-grade technology and innovation like Unlokt™ to bring to market better, cleaner, more precise
and predictable products. Pursuant to the Day Three Purchase Agreement, the Company purchased
Prior to January 2024, the Company accounted for
this investment as an equity method investment in accordance with the guidance in ASC 323, Investments – Equity Method and Joint
Ventures. The Company determined that a
The Company determined that Day Three is a VIE; however, the Company determined that, prior to January 2024, it was not the primary beneficiary as it did not have the power to direct the activities that most significantly impacted Day Three’s economic performance. The Company has therefore concluded it was not required to consolidate Day Three. The Company used the equity method of accounting to record its investment in Day Three.
Day Three’s fiscal year ends on December
31 and as a result, the Company recognizes its share of Day Three’s earnings/loss on a one-month lag. For the three and nine months
ended April 30, 2024, the Company recognized approximately $
Acquisition of Day Three
In January 2024, the Company entered into a series
of transactions with Day Three and certain shareholders to purchase an aggregate of
During the period of October 2023 through January
2024, the Company advanced $
The aggregate consideration of the Day Three Acquisition
was $
29
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| (in thousands) | Purchase Consideration | |||
| Cash consideration | $ | |||
| Accrued consideration | ||||
| Exchange of Day Three Promissory Notes for Common Stock | ||||
| Fair value of previously held interests(1) | ||||
| Total purchase consideration | $ | |||
| (1) |
| (in thousands) | January 2, 2024 | |||
| Cash and cash equivalents | $ | |||
| Accounts receivable | ||||
| Prepaid expenses and other current assets | ||||
| Property and equipment, net | ||||
| Goodwill | ||||
| Identifiable intangible assets | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Installment note payable | ( | ) | ||
| Deferred tax liability | ( | ) | ||
| Total fair value of net assets acquired | ||||
| Less: noncontrolling interest | ( | ) | ||
| Net assets acquired attributable to Rafael | $ | |||
The preliminary fair values of the assets acquired and liabilities assumed in the Day Three Acquisition are subject to change as we perform additional reviews of our assumptions utilized. Further adjustments may be necessary as additional information related to the fair values of assets acquired, liabilities assumed, and tax implications thereon is assessed during the measurement period (up to one year from the acquisition date).
The noncontrolling interest was recognized at fair value, which was determined using the implied enterprise value based on the purchase price multiplied by the ratio of the number of shares owned by minority holders to total shares, as of the acquisition date.
Included in the acquired liabilities assumed in
the Day Three Acquisition is a non-interest bearing installment note payable of $
30
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Goodwill of $
Intangible assets acquired primarily include patents,
technology licenses and non-compete agreements. The weighted average amortization period for the acquired intangible assets is approximately
The consolidated financial statements include the results of the Day Three Acquisition subsequent to the closing date. Pro forma information is not presented as the acquisition was not considered significant.
On January 23, 2024, Day Three entered into an asset purchase agreement
for the sale of certain patents for $
On March 20, 2024, Day Three amended and restated its certificate of incorporation, to, among other things, effect a reverse split of all of Day Three’s common stock on a one-for-one thousand basis (the “DTL Reverse Stock Split”).
NOTE 11 – INVESTMENT IN CYCLO THERAPEUTICS, INC.
On May 2, 2023,
the Company entered into a Securities Purchase Agreement (the “Cyclo SPA”) with Cyclo. Cyclo is a clinical-stage biotechnology
company dedicated to developing life-changing medicines for patients and families living with challenging diseases through its lead therapeutic
asset, Trappsol®. The Company purchased
from Cyclo (i)
Cyclo and the Company are party to a Registration Rights Agreement requiring Cyclo to file a registration statement with the Securities and Exchange Commission to register the resale of the shares and shares of common stock underlying the May Warrant, upon the request of Rafael.
On August 1, 2023, pursuant to a Securities Purchase
Agreement (the “Cyclo II SPA”) dated June 1, 2023, the Company purchased an additional
On October 20, 2023, the Company exercised the
May Warrant to purchase
William Conkling, Rafael’s CEO, serves on Cyclo’s Board of Directors.
The Company has determined that Cyclo is a VIE;
however, the Company has determined that it is not the primary beneficiary as the Company does not have the power to direct the activities
of Cyclo that most significantly impact Cyclo’s economic performance and, therefore, is not required to consolidate Cyclo. The Company
has elected to account for its investment in Cyclo under the fair value option, with subsequent changes in fair value recognized as unrealized
gain (loss) in the consolidated statements of operations and comprehensive loss. During the three and nine months ended April 30, 2024,
the Company recognized unrealized (loss) gain of $(
31
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| April 30, 2024 | ||||||||
| Ownership % | Aggregate Fair Value (in thousands) | |||||||
| Cyclo | % | $ | ||||||
The
NOTE 12 – INVESTMENTS IN MARKETABLE SECURITIES
The Company has classified its investments in corporate bonds, U.S. agency bonds, and U.S. treasury bills as available-for-sale securities. These securities are carried at estimated fair value with unrealized holding gains and losses included in accumulated other comprehensive loss in stockholders’ equity until realized. Investment transactions are recorded on their trade date. Gains and losses on marketable security transactions are reported on the specific-identification method. Interest income is accrued daily and adjusted for amortization of premiums and accretion of discounts on the corporate bonds, U.S. agency bonds, and U.S. treasury bills.
| April 30, 2024 | Amortized cost | Gross unrealized gains | Gross unrealized (losses) | Fair value | ||||||||||||
| (in thousands) | ||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||
| U.S. Treasury Bills | $ | $ | $ | ( | ) | $ | ||||||||||
| U.S. Agency bonds | ( | ) | ||||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Total available-for-sale securities | $ | $ | $ | ( | ) | $ | ||||||||||
| July 31, 2023 | Amortized cost | Gross unrealized gains | Gross unrealized (losses) | Fair value | ||||||||||||
| (in thousands) | ||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||
| U.S. Treasury Bills | $ | $ | $ | $ | ||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Total available-for-sale securities | $ | $ | $ | ( | ) | $ | ||||||||||
During the three and nine months ended April 30,
2024, the Company reclassified approximately $
Corporate bonds, U.S. agency bonds, and U.S. Treasury Bills held as
of April 30, 2024 were all due within
Marketable securities in an unrealized loss position as of April 30, 2024 and July 31, 2023 were not deemed impaired at acquisition. Effective August 1, 2023, the Company evaluates subsequent unrealized losses to determine whether the decline in fair value has resulted from credit losses or other factors. No such credit losses have been identified during the three and nine months ended April 30, 2024.
32
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 – DISCONTINUED OPERATIONS
On July 1, 2022, the Company determined that the 520 Property met the held-for-sale criteria and the Company therefore classified the 520 Property as held-for-sale in the consolidated balance sheets at July 31, 2022. The sale of the 520 Property also represented a significant strategic shift that will have a major effect on the Company’s operations and financial results. Therefore, the Company has classified the results of operations related to the 520 Property as discontinued operations in the consolidated statements of operations and comprehensive loss. Depreciation on the 520 Property ceased on July 1, 2022, as a result of the 520 Property being classified as held-for-sale.
On August 22, 2022, Broad Atlantic completed the
sale of the 520 Property for an aggregate gross purchase price of $
The 520 Property was encumbered by a mortgage
securing a $
Discontinued operations include (i) rental and parking revenues, (ii) payroll, benefits, facility costs, real estate taxes, consulting and professional fees dedicated to the 520 Property, (iii) depreciation and amortization expenses and (iv) interest (including amortization of debt issuance costs) on the note payable on the 520 Property. The operating results of these items are presented in our consolidated statements of operations and comprehensive loss as discontinued operations for all periods presented.
| Nine Months Ended April 30, | ||||
| 2023 | ||||
| Revenue from discontinued operations: | ||||
| Rental – third party | $ | |||
| Rental – related party | ||||
| Parking | ||||
| Total revenue from discontinued operations | ||||
| Costs and expenses from discontinued operations: | ||||
| General and administrative | ||||
| Depreciation and amortization | ||||
| Loss from discontinued operations | ( | ) | ||
| Interest expense | ( | ) | ||
| Loss from discontinued operations | ( | ) | ||
| Gain on disposal of discontinued operations | ||||
| Income from discontinued operations | $ | |||
The gain on disposal of discontinued operations
of approximately $
NOTE 14 – FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
| ● | Level 1 - quoted prices in active markets for identical assets or liabilities; |
| ● | Level 2 - quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or |
| ● | Level 3 - unobservable inputs for the asset or liability, such as discounted cash flow models or valuations. |
33
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
| April 30, 2024 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | (in thousands) | |||||||||||||||
| Available-for-sale securities - Corporate and U.S. Agency Bonds | $ | $ | $ | $ | ||||||||||||
| Available-for-sale securities - U.S. Treasury Bills | ||||||||||||||||
| Investment in Cyclo Therapeutics Inc. - Common Stock | ||||||||||||||||
| Investment in Cyclo Therapeutics Inc. - Warrants | ||||||||||||||||
| Hedge funds | ||||||||||||||||
| Convertible note receivable | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| July 31, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | (in thousands) | |||||||||||||||
| Available-for-sale securities - Corporate Bonds | $ | $ | $ | $ | ||||||||||||
| Available-for-sale securities - U.S. Treasury Bills | ||||||||||||||||
| Investment in equity securities | ||||||||||||||||
| Investment in Cyclo Therapeutics Inc. - Common Stock | ||||||||||||||||
| Investment in Cyclo Therapeutics Inc. - Warrants | ||||||||||||||||
| Hedge funds | ||||||||||||||||
| Convertible note receivable, related party | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
As of April 30, 2024 and July 31, 2023, the Company did not have any liabilities measured at fair value on a recurring basis.
34
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Withdrawal from Hedge Fund Investments | ( | ) | ||||||||||||||
| Unrealized loss on Hedge Fund | ( | ) | ( | ) | ( | ) | ||||||||||
| Investment in Cyclo Warrants | ||||||||||||||||
| Unrealized gain (loss) on Cyclo Warrants | ( | ) | ||||||||||||||
| Funding of convertible note receivable, related party | ||||||||||||||||
| Unrealized gain on convertible note receivable, related party | ||||||||||||||||
| Realized gain on convertible note receivable, related party released from accumulated other comprehensive income | ( | ) | ( | ) | ||||||||||||
| Conversion of convertible note receivable, related party | ( | ) | ( | ) | ||||||||||||
| Funding of new convertible note receivable | ||||||||||||||||
| Unrealized gain on convertible note receivable | ||||||||||||||||
| Total loss included in other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||
Hedge funds classified as Level 3 include investments
and securities which may not be based on readily observable data inputs. The availability of observable inputs can vary from security
to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and
not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. The fair value
of these assets is estimated based on information provided by the fund managers or the general partners. Therefore, these assets are classified
as Level 3. During the nine months ended April 30, 2024, the Company requested a withdrawal from Hedge Fund Investments of $
Available-for-sale securities classified as Level 3 include a convertible note receivable, related party (see Note 8) which may not be based on readily observable data inputs. The availability of observable inputs can vary and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. The fair value of this asset is estimated using a scenario-based analysis based on the probability-weighted present value of future investments returns, considering each of the possible outcomes available to us, including cash repayment, equity conversion, and collateral transfer scenarios. Estimating the fair value of the convertible note requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. Therefore, this asset is classified as Level 3.
The Company recognizes the fair value of the Cyclo Warrants utilizing a Black-Scholes option pricing valuation model (“Black-Scholes model”) at acquisition and each reporting date. The application of the Black-Scholes model utilizes significant assumptions, including expected volatility, expected life and risk-free interest rate. In order to determine the volatility, we measured expected volatility based on several inputs, including considering a peer group of publicly traded companies and the implied volatility of Cyclo’s publicly-traded warrants. As a result of the unobservable inputs that were used to determine the expected volatility of the Cyclo Warrants, the fair value measurement of these warrants reflected a Level 3 measurement within the fair value measurement hierarchy. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The expected volatility is a key assumption or input to the valuation of the Cyclo Warrants, however changes in the expected volatility assumption will have less of an effect on the Black-Scholes model valuation as the Cyclo Warrants approach their expiration. Both of the Cyclo Warrants are subject to limits on exercise and any sales of the underlying shares of common stock would be subject to volume restrictions for which a discount to the stock price of Cyclo was applied. The Black-Scholes model further incorporated a discount for the overall lack of marketability for the Cyclo Warrants.
35
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| Unobservable Input | Range | Weighted Average | ||||||
| Price Per Share [1] | $ | |||||||
| Exercise Price | $ | $ | ||||||
| Expected Volatility | % | |||||||
| Risk - Free Rate [2] | % | |||||||
| Marketability Discount | % | |||||||
| Remaining Term (Years) | ||||||||
| Fair Value per Warrant [3] | $ | |||||||
| [1] |
| [2] |
| [3] |
The Company holds $
Fair Value of Other Financial Instruments
The estimated fair value of the Company’s other financial instruments was determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting these data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
The Company’s financial instruments include trade accounts receivable, trade accounts payable, and due from related parties. The recorded carrying amounts of accounts receivable, accounts payable and due to related parties approximate their fair value due to their short-term nature.
NOTE 15 – ACCOUNTS RECEIVABLE
| April 30, 2024 | July 31, 2023 | |||||||
| (in thousands) | ||||||||
| Accounts receivable - third party | $ | $ | ||||||
| Accounts receivable - related party | ||||||||
| Less allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
36
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 16 – PROPERTY AND EQUIPMENT
| April 30, 2024 | July 31, 2023 | |||||||
| (in thousands) | ||||||||
| Building and improvements | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Other | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Other property and equipment consist of other equipment and miscellaneous computer hardware.
Depreciation expense and amortization pertaining
to property and equipment was approximately $
NOTE 17 – GOODWILL AND INTANGIBLE ASSETS
Goodwill
| Healthcare | Real Estate | Infusion Technology | Consolidated | |||||||||||||
| (in thousands) | ||||||||||||||||
| Balance as of July 31, 2023 | $ | $ | $ | $ | ||||||||||||
| Day Three Acquisition | ||||||||||||||||
| Balance as of April 30, 2024 | $ | $ | $ | $ | ||||||||||||
Intangible assets
| Weighted average remaining useful life (years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||
| (in thousands) | ||||||||||||||||
| Intellectual Property | $ | ( | ) | $ | ||||||||||||
| Non-compete Agreements | ( | ) | ||||||||||||||
| Total Intangible Assets | $ | ( | ) | $ | ||||||||||||
37
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| Year Ending July 31, | (in thousands) | |||
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
Amortization
of intangible assets totaled $
NOTE 18 – LOSS PER SHARE
Basic loss per share is computed by dividing net loss attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted loss per share includes potentially dilutive securities such as stock options, unvested restricted stock, warrants to purchase common stock, and other convertible instruments unless the result of inclusion would be anti-dilutive.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| April 30, | April 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Shares issuable upon exercise of stock options | ||||||||||||||||
| Shares issuable upon vesting of restricted stock | ||||||||||||||||
The diluted loss per share computation equals basic loss per share for the three and nine months ended April 30, 2024 and 2023 because the Company had a net loss from continuing operations in all such periods and the impact of the assumed vesting of restricted shares and exercise of stock options would have been anti-dilutive.
38
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| April 30, | April 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Numerator for net loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Numerator for discontinued operations | ||||||||||||||||
| Net loss attributable to Rafael Holdings, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator: | ||||||||||||||||
| Income (loss) per share attributable to common stockholders | ||||||||||||||||
| Basic and diluted: | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
NOTE 19 – NOTE PAYABLE, HELD-FOR-SALE
On July 9, 2021, the Company, as guarantor, Rafael
Holdings Realty, Inc., a wholly-owned subsidiary of the Company (“Realty”), as pledgor, and Broad-Atlantic, a wholly-owned
subsidiary of Realty (the “Borrower,” and together with the Company and Realty, the “Borrower Parties”), as borrower,
entered into a loan agreement (the “Loan Agreement”) with 520 Broad Street LLC, a third-party lender (the “Lender”).
The Loan Agreement provided for a loan in the amount of $
The Loan
Agreement contained customary affirmative covenants, negative covenants and events of default, as defined in the Loan Agreement, including
covenants and restrictions that, among other things, restricted the Borrower’s ability to incur liens, or transfer, lease or sell
the collateral as defined in the Loan Agreement. A failure to comply with these covenants would have permitted the Lender to declare the
Borrower’s obligations under the Loan Agreement, together with accrued interest and fees, to be immediately due and payable. The
Company was in compliance with the covenants in the Loan Agreement as of July 31, 2022. The Company extended the maturity date
to
39
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In connection with the sale of the 520 Property,
on August 22, 2022, the Company paid off the outstanding principal balance of $
Interest expense under the Note Payable, which
is recognized in loss on discontinued operations, amounted to $
NOTE 20 – RELATED PARTY TRANSACTIONS
IDT Corporation
IDT Corporation (“IDT”), a related
party through common ownership and some common members of management, has historically maintained a due to/from balance that relates to
cash advances for investments, loan repayments, charges for services provided to the Company by IDT and payroll costs for the Company’s
personnel that were paid by IDT as the relevant persons were also providing services to IDT. IDT billed the Company approximately $
IDT leased, prior to the Company’s sale of the
520 Property, approximately
Genie Energy Ltd.
Genie Energy Ltd. (“Genie”), a related
party through common ownership and some common members of management, leased office space at 520 Broad Street prior to the Company’s
sale of the 520 Property. The Company invoiced Genie approximately $
Related Party Rental Income
The Company leased space to related parties (including
IDT – see above) which represented approximately
Howard Jonas, Chairman of the Board, Former Chief Executive Officer
On July 6, 2022, pursuant to a Stock Purchase
Agreement (the “I9 SPA”) dated June 22, 2022 with I9 Plus, LLC, an entity affiliated with members of the family of Howard
Jonas, the Company sold
40
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On July 31, 2023, eight trusts, each for the benefit
of a child of Howard S. Jonas, the Company’s Executive Chairman and Chairman of the Board, with independent trustees, transferred
an aggregate of
NOTE 21 – INCOME TAXES
During the three months ended April 30, 2024 and
2023, the Company recognized an income tax benefit of $
The Company recognized a deferred tax liability
of $
In accordance with the State of New Jersey’s
Technology Business Tax Certificate Transfer 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, the Company received
approximately $
NOTE 22 – BUSINESS SEGMENT INFORMATION
The Company conducts business as
The accounting policies of the segments are the same as the accounting policies of the Company as a whole. The Company evaluates the performance of its Healthcare segment based primarily on research and development efforts and results of clinical trials and the Infusion Technology and Real Estate segments based primarily on results of operations.
The Healthcare segment is comprised of a majority equity interest in LipoMedix, Barer, Cornerstone and Rafael Medical Devices. To date, the Healthcare segment has not generated any revenues.
The Real Estate segment consists of the Company’s real estate holdings, which is currently comprised of a portion of a commercial building in Israel. The revenues, and (loss) income from operations of the 520 Property have been excluded from the Real Estate segment in the figures below due to its classification of held-for-sale and discontinued operations.
The Infusion Technology segment is comprised of a majority equity interest in Day Three. Revenues associated with the Infusion Technology segment include infusion technology revenue derived from Day Three’s Unlokt technology.
41
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| (in thousands) | Healthcare | Infusion Technology | Real Estate | Total | ||||||||||||
| Three Months Ended April 30, 2024 | ||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Three Months Ended April 30, 2023 | ||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ||||||||||||
| (in thousands) | Healthcare | Infusion Technology | Real Estate | Total | ||||||||||||
| Nine Months Ended April 30, 2024 | ||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Nine Months Ended April 30, 2023 | ||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ||||||||||||
Total assets by segment are not provided to or reviewed by the CODM.
Geographic Information
Real Estate Segment
Revenues from tenants located outside of the United
States were generated entirely from related parties located in Israel.
| Three Months Ended April 30, | 2024 | 2023 | ||||||
| Revenue from tenants located in Israel | % | % | ||||||
| Nine Months Ended April 30, | 2024 | 2023 | ||||||
| Revenue from tenants located in Israel | % | % | ||||||
| (in thousands) | United States | Israel | Total | |||||||||
| April 30, 2024 | ||||||||||||
| Property, plant, and equipment, net | $ | $ | $ | |||||||||
| Total assets | ||||||||||||
| July 31, 2023 | ||||||||||||
| Property, plant, and equipment, net | $ | $ | $ | |||||||||
| Total assets | ||||||||||||
42
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 23 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company may from time to time be subject to legal proceedings that may arise in the ordinary course of business. Although there can be no assurance in this regard, the Company does not expect any of those legal proceedings to have a material adverse effect on the Company’s results of operations, cash flows or financial condition.
License Agreements
Cornerstone 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. Cornerstone expenses license obligation payments to research and development on the statement of operations.
One worldwide license agreement requires Cornerstone
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.
The last patent expired in 2019. License maintenance fees are currently $
The remaining minimum payments required under
the license agreement, assuming the agreements are not terminated by Cornerstone, excluding any escalation for receiving government marketing
approval subsequent to July 31, 2018, are $
Cornerstone’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).
43
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As part of a royalty agreement, Cornerstone is
obligated to pay royalties, based upon percentage (low single digit) of net sales, to Altira Capital and Consulting LLC (“Altira”),
a consolidated subsidiary which the Company has a
NOTE 24 – EQUITY
Share Repurchase Program
Effective April 14, 2023, the Company’s
Board of Directors approved a share repurchase program (the “2023 Share Repurchase Program”) authorizing the repurchase of
up to $
The timing and amount of any share repurchases under the 2023 Share Repurchase Program will be determined at the Company’s discretion and based on market conditions and other considerations. Share repurchases under the authorizations may be made through open market purchases or pursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934. The program does not obligate the Company to acquire any particular amount of its Class B common stock, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.
During the nine months ended April 30, 2024, the
Company repurchased
On December 22, 2023, the Company suspended the share repurchase program.
Class A Common Stock and Class B Common Stock
The rights of holders of Class A common stock and Class B common stock are identical except for certain voting and conversion rights and restrictions on transferability. The holders of Class A common stock and Class B common stock receive identical dividends per share when and if declared by the Company’s Board of Directors. In addition, the holders of Class A common stock and Class B common stock have identical and equal priority rights per share in liquidation. The Class A common stock and Class B common stock do not have any other contractual participation rights. The holders of Class A common stock are entitled to three votes per share and the holders of Class B common stock are entitled to one-tenth of a vote per share. Each share of Class A common stock may be converted into one share of Class B common stock, at any time, at the option of the holder. Shares of Class A common stock are subject to certain limitations on transferability that do not apply to shares of Class B common stock.
On May 27, 2021, the Company filed a Registration
Statement on Form S-3, whereby the Company may sell up to $
On June 1, 2021, the Company filed a Registration
Statement on Form S-3 to issue
On August 19, 2021, the Company entered into a
Securities Purchase Agreement (the “Institutional Purchase Agreement”) with certain third-party institutional investors (the
“Institutional Investors”) and a Securities Purchase Agreement with I9Plus, LLC, (the “Jonas Purchase Agreement”),
an entity affiliated with Howard S. Jonas, the Chairman of the Board of Directors of the Company.
On August 19, 2021, in connection with the Institutional Purchase Agreement, the Company entered into a Registration Rights Agreement with the Institutional Investors whereby the Company agreed to prepare and file a registration statement with the SEC within 30 days after the earlier of (i) the date of the closing of the Merger Agreement, and (ii) the date the Merger Agreement is terminated in accordance with its terms, for purposes of registering the resale of the Institutional Shares and any shares of Class B common stock issued as a dividend or other distribution with respect to the Institutional Shares.
On February 15, 2022, the Company filed a Registration Statement on Form S-3 (as amended on March 2, 2022) registering the resale by the Institutional Investors of the shares purchased by them. The Registration Statement was declared effective on March 7, 2022.
44
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In March 2018, the Company established its 2018
Equity Incentive Plan. On January 19, 2022, the Company’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”).
The 2018 Equity Incentive Plan was suspended and replaced by the 2021 Plan and, following January 19, 2022, no new grants are to be awarded
under the 2018 Equity Incentive Plan. Existing grants under the 2018 Equity Incentive Plan will not be impacted by the adoption of the
2021 Plan. Any of the Company’s employees, directors, consultants, and other service providers, and those of the Company’s
affiliates, are eligible to participate in the 2021 Plan. In accordance with applicable tax rules, only employees (and the employees of
parent or subsidiary corporations) are eligible to be granted incentive stock options. The 2021 Plan authorizes stock options (both incentive
stock options or non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, and cash or other
stock-based awards. On January 19, 2022, the Company filed a Registration Statement on Form S-8 registering
On July 6, 2022, pursuant to the I9 SPA dated
June 22, 2022 with I9 Plus, LLC, an entity affiliated with members of the family of Howard Jonas, the Company sold
Employment Agreement
On June 13, 2022, the Company entered into an
employment agreement with Howard S. Jonas (who serves as the Chairman of the Board and Executive Chairman of the Company) (the “Employment
Agreement”), which provides, among other things: (i) a term of
Stock Options
Number
of | Weighted | Weighted | Aggregate | |||||||||||||
| Outstanding at July 31, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Outstanding at April 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at April 30, 2024 | $ | $ | ||||||||||||||
The weighted average grant date fair value per
unit for the option grants during the nine months ended April 30, 2024 was $
| Risk-free interest rate | % | |||
| Expected term (in years) | ||||
| Expected volatility | % | |||
| Expected dividend yield | % |
45
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Rafael Medical Devices Stock Options
The Rafael Medical Devices 2022 Equity Incentive
Plan (the “RMD 2022 Plan”) was created and adopted by the Company in May 2022. The RMD 2022 Plan allows for the issuance of
up to
In connection with the conversion of Rafael Medical
Devices from a Delaware corporation to a Delaware limited liability company, Rafael Medical Devices adopted the Rafael Medical Devices,
LLC 2023 Equity Incentive Plan (the “RMD 2023 Plan”) in August 2023. The RMD 2023 Plan allows for issuance of up to
Rafael Medical Devices, LLC records compensation expense for stock-based awards based upon an assessment of the grant date fair value for options using the Black-Scholes model. The expected term was determined according to the simplified method, which is the average of the vesting tranche dates and the contractual term. Due to the lack of company specific historical and implied volatility data, the estimate of expected volatility is primarily based on the historical volatility of a group of similar companies that are publicly traded. For these analyses, characteristics from comparable companies are selected, including enterprise value and position within the industry, and with historical share price information sufficient to meet the expected life of the share-based awards. The risk-free interest rate is determined by reference to the U.S. Treasury Constant Maturity Treasury rates with remaining maturities similar to the expected term of the options. Expected dividend yield is zero as Rafael Medical Devices, LLC has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future.
| Risk-free interest rate | % | |||
| Expected term (in years) | ||||
| Expected volatility | % | |||
| Expected dividend yield | % |
Number
of | Weighted | Weighted | Aggregate | |||||||||||||
| Outstanding at July 31, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Cancelled / Forfeited | ( | ) | ||||||||||||||
| Outstanding at April 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at April 30, 2024 | $ | $ | ||||||||||||||
The weighted average grant date fair value per
unit for the RMD option grants during the nine months ended April 30, 2024 was $
Cornerstone Stock Options
Cornerstone has outstanding stock options and non-qualified options purchase Cornerstone’s common stock which were granted under Cornerstone’s 2009 and 2018 Stock Incentive Plans (the “Plans”), as well as additional options issued during a prior capital raise.
At April 30, 2024, there were
46
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In connection with Cornerstone’s 2003 common
stock offerings, Cornerstone entered into an option agreement with an individual in connection with identifying investors. The option
agreement grants the right to purchase an option (a “Purchase Option”) to purchase
As part of the Cornerstone Restructuring, as detailed
in Note 3, Cornerstone increased the available reserve of Cornerstone Common Stock for grant to employees, consultants and other service
providers to approximately
Restricted Stock
The fair value of restricted shares of the Company’s Class B common stock is determined based on the closing price of the Company’s Class B common stock on the grant date. Share awards generally vest on a graded basis over three years of service.
In January 2022, the Company granted
On February 1, 2022, the Company issued
On June 14, 2022, the Company issued
In January 2023, the Company issued
During January 2023,
In connection with Patrick Fabbio’s January
27, 2023 departure as the Company’s Chief Financial Officer, the Company and Mr. Fabbio entered into a Separation and General Release
Agreement (the “Separation Agreement”), which provides, among other things, that the Company shall pay Mr. Fabbio severance
in the amount of $
In connection with the termination of Mr. Fabbio’s
position as Chief Financial Officer of the Company, there was a material forfeiture of his Class B restricted shares and stock options
resulting in a reversal of approximately $
On August 28, 2023, the Company issued
On October 25, 2023, the Company issued
On January 5, 2024, the Company issued
Number
of | Weighted | |||||||
| Outstanding at July 31, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Non-vested shares at April 30, 2024 | $ | |||||||
At April 30, 2024, there was $
47
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| For the Three Months Ended April 30 | For the Nine Months Ended April 30 | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Forfeiture of RSUs within general and administrative | ( | ) | ||||||||||||||
| Forfeiture of RSUs within research and development | ( | ) | ||||||||||||||
| Net stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
Securities Purchase Agreement
On December 7, 2020, Rafael Holdings entered into
a Securities Purchase Agreement (the “SPA”) for the sale of
Approximately $
Equity-classified Warrants
In connection with the SPA entered into on December
7, 2020, each purchaser was granted warrants to purchase twenty percent (
On June 6, 2022, the Company’s outstanding warrants
to purchase
48
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 25 – LEASES
| Year ending July 31, | Related Parties | Other | Total | |||||||||
| (in thousands) | ||||||||||||
| 2024 | $ | $ | $ | |||||||||
| 2025 | ||||||||||||
| Total Minimum Future Rental Income | $ | $ | $ | |||||||||
NOTE 26 – SUBSEQUENT EVENTS
On May 1, 2024, Rafael entered into a stock purchase
agreement with Day Three to purchase
On June 11, 2024, Rafael entered into a Note Purchase
Agreement with Cyclo, pursuant to which Cyclo issued and sold a convertible promissory note in the principal amount of $
49
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Rafael Holdings, Inc. (“Rafael Holdings”, “Rafael”, “we” or the “Company”) is a holding company with interests in clinical and early-stage pharmaceutical companies (the “Pharmaceutical Companies”), including a majority interest in Cornerstone Pharmaceuticals, Inc. (“Cornerstone”), formerly known as Rafael Pharmaceuticals Inc., a cancer metabolism-based therapeutics company, a majority equity interest in LipoMedix Pharmaceuticals Ltd. (“LipoMedix”), a clinical stage pharmaceutical company, Barer Institute Inc. (“Barer”), a wholly-owned preclinical cancer metabolism research operation, and an investment in Cyclo Therapeutics Inc. (Nasdaq: CYTH), (“Cyclo Therapeutics” or “Cyclo”), a clinical-stage biotechnology company dedicated to developing Trappsol® Cyclo™, which is being evaluated in clinical trials for the potential treatment of Niemann-Pick Disease Type C1 (NPC), a rare, fatal and progressive genetic disorder. We also hold a majority interest in Day Three Labs, Inc. (“Day Three”), a company which reimagines existing cannabis offerings with pharmaceutical-grade technology and innovation like Unlokt™ to bring to market better, cleaner, more precise and predictable products, and a majority interest in Rafael Medical Devices, LLC, an orthopedic-focused medical device company developing instruments to advance minimally invasive surgeries (“Rafael Medical Devices” and Day Three together with the Pharmaceutical Companies, represent our “Investment Companies”). In November 2022, the Company resolved to curtail its early-stage development efforts, including pre-clinical research at Barer. The decision was taken to reduce spending as the Company focuses on exploring strategic opportunities. The Company’s primary focus is to expand our investment portfolio through opportunistic and strategic investments including therapeutics, which address high unmet medical needs.
The Company previously held debt and equity investments in Cornerstone that included preferred and common equity interests. On June 17, 2021, the Company entered into a merger agreement to acquire full ownership of Cornerstone in exchange for issuing Company Class B common stock to the other stockholders of Cornerstone (“Merger Agreement” or “Merger”). On October 28, 2021, the Company 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”). In light of the Data Events, the Company concluded that the prospects for CPI-613 were uncertain and fully impaired in its financial statements for the fiscal year ended July 31, 2022, the value of its loans, receivables, and investment in Cornerstone based upon its valuation of Cornerstone.
On September 24, 2021, the Company entered into a Line of Credit Loan Agreement (the “Line of Credit Agreement”) with Cornerstone under which Cornerstone borrowed $25 million from the Company. Due to the Data Events, the Company recorded a full reserve on the $25 million due the Company from Cornerstone.
On February 2, 2022, the Company terminated the Merger Agreement with Cornerstone, effective immediately, in accordance with its terms.
On March 21, 2023, the Company loaned $2.0 million to Cornerstone which debt is represented by a promissory note made by Cornerstone (the “2023 Promissory Note”). The 2023 Promissory Note, which bears interest at a rate of seven and one-half percent (7.5%) per annum, was originally due and payable on May 22, 2023. The 2023 Promissory Note was amended to extend the maturity date to March 13, 2024 and to waive any increase in the interest rate provided for in the 2023 Promissory Note, provided that the entire principal amount and all accrued interest thereon is repaid in cash or converted into equity securities of Cornerstone no later than March 13, 2024.
On March 13, 2024, Cornerstone consummated a restructuring of its outstanding debt and equity interests. See Note 3 to our accompanying consolidated financial statements for additional information regarding the restructuring transaction.
In 2019, the Company established Barer Institute Inc., an early-stage small molecule research operation focused on developing a pipeline of novel therapeutic compounds, including compounds to regulate cancer metabolism with potentially broader application in other indications beyond cancer. Barer was led by a team of scientists and academic advisors considered to be among the leading experts in cancer metabolism, chemistry, and drug development. In addition to its own internal discovery efforts, Barer pursued collaborative research agreements and in-licensing opportunities with leading scientists from top academic institutions. Barer’s subsidiary, Farber Partners, LLC (“Farber”), was formed around one such agreement with Princeton University’s Office of Technology Licensing (“Princeton”) for technology from the laboratory of Professor Joshua Rabinowitz, in the Department of Chemistry, Princeton University, for an exclusive worldwide license to its SHMT (serine hydroxymethyltransferase) inhibitor program. In November 2022, the Company resolved to curtail its early-stage development efforts, including pre-clinical research at Barer Institute. The Company also holds a majority equity interest in LipoMedix, a clinical stage oncological pharmaceutical company based in Israel. In addition, the Company has invested in other early-stage pharmaceutical ventures.
In 2016, the Company first invested in LipoMedix Pharmaceuticals Ltd. (“LipoMedix”), a clinical stage pharmaceutical company. On February 9, 2023, the Company entered into a Share Purchase Agreement with LipoMedix in which LipoMedix sold 70,000,000 ordinary shares to the Company at a price per share of $0.03 and an aggregate sale price of approximately $2.1 million. Subsequent to this transaction, the Company owns 95% of LipoMedix.
50
On April 7, 2023, the Company entered into a Common Stock Purchase Agreement (the “Day Three Purchase Agreement”) with Day Three. Day Three is a cannabinoid ingredient manufacturer specializing in the development and commercialization of novel cannabis product solutions. Pursuant to the Day Three Purchase Agreement, the Company purchased 4,302,224 shares of common stock representing 38% of the outstanding shares of common stock of Day Three (33.33% on a fully diluted basis), for a purchase price of $3.0 million. The Company also received a warrant exercisable for 7,528,893 shares of common stock at an aggregate purchase price of $3.0 million, which expires five years from the date of issuance or earlier based on the occurrence of certain events as defined in the Day Three Purchase Agreement. As of April 30, 2024, the Company had not exercised the warrant. See Note 10 to our accompanying consolidated financial statements for further detail.
On May 2, 2023, the Company entered into a Securities Purchase Agreement (the “Cyclo SPA”) with Cyclo. Cyclo is a clinical stage biotechnology company dedicated to developing life-changing medicines for patients and families living with challenging diseases through its lead therapeutic asset, Trappsol®. The Company purchased from Cyclo (i) 2,514,970 common shares (the “Purchased Shares”) and (ii) a warrant to purchase 2,514,970 common shares with an exercise price of $0.71 per share (the “May Warrant”), at a combined purchase price equal to $0.835 per Purchased Share and May Warrant to purchase one share, for an aggregate purchase price of $2.1 million. The May Warrant is exercisable until August 1, 2030.
On August 1, 2023, pursuant to a Securities Purchase Agreement (the “Cyclo II SPA”) dated June 1, 2023, the Company purchased an additional 4,000,000 shares of common stock (the “Cyclo II Shares”), and received a warrant to purchase an additional 4,000,000 Shares (the “Cyclo II Warrant”), for an aggregate purchase price of $5,000,000. The Cyclo II Warrant has an exercise price of $1.25 per share and is exercisable until August 1, 2030. The August 1, 2023 investment increased the Company’s percentage ownership of Cyclo common stock to approximately 34%. As of the date of this filing, the Company has not exercised the Cyclo II Warrant.
On October 20, 2023, the Company exercised the May Warrant to purchase 2,514,970 common shares at an exercise price of $0.71 per share, pursuant to a Securities Purchase Agreement dated October 20, 2023, and received a new warrant (the “Replacement Warrant”) to purchase 2,766,467 common shares at an exercise price of $0.95 per share. The Replacement Warrant is exercisable until October 20, 2027. As of the date of this report, the Company had not exercised the Replacement Warrant. Both the Cyclo II Warrant and Replacement Warrant (collectively, the “Cyclo Warrants”) are subject to the restriction that exercise(s) do not convey more than 49% ownership to the Company. Upon exercise of the May Warrant, the Company recognized a realized gain of $424 thousand. The October 20, 2023 investment increased the Company’s percentage ownership of Cyclo common stock to approximately 40%.
In August 2023, the Company raised $925,000 from third parties in exchange for a 31.62% ownership of Rafael Medical Devices. As of July 31, 2023, the Company recorded $825,000 of the funds received related to the sale within prepaid expenses and other current assets and other current liabilities within the consolidated balance sheets.
Historically, the Company owned real estate assets. In 2020, the Company sold an office building located in Piscataway, New Jersey and on August 22, 2022, the Company sold the 520 Property. As of July 31, 2023, the Company holds a portion of a commercial building in Jerusalem, Israel as its remaining real estate asset.
Results of Operations
Our business consists of three reportable segments - Healthcare, Infusion Technology, and Real Estate. We evaluate the performance of our Healthcare segment based primarily on research and development efforts and results of clinical trials, and our Infusion Technology and Real Estate segments based primarily on results of operations. Accordingly, the income and expense line items below loss from operations are only included in the discussion of consolidated results of operations.
Healthcare Segment
Our consolidated expenses for our Healthcare segment were as follows:
| Three Months Ended April 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| General and administrative | $ | (1,636 | ) | $ | (2,306 | ) | $ | 670 | 29 | % | ||||||
| Research and development | (1,212 | ) | (740 | ) | (472 | ) | (64 | )% | ||||||||
| IPR&D expense | (89,861 | ) | — | (89,861 | ) | (100 | )% | |||||||||
| Depreciation and amortization | (73 | ) | (3 | ) | (70 | ) | (2333 | )% | ||||||||
| Loss from operations | $ | (92,782 | ) | $ | (3,049 | ) | $ | (89,733 | ) | (2943 | )% | |||||
51
| Nine Months Ended April 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| General and administrative | $ | (6,190 | ) | $ | (7,436 | ) | $ | 1,246 | 17 | % | ||||||
| Research and development | (2,313 | ) | (5,046 | ) | 2,733 | 54 | % | |||||||||
| IPR&D expense | (89,861 | ) | — | (89,861 | ) | (100 | )% | |||||||||
| Depreciation and amortization | (112 | ) | (12 | ) | (100 | ) | (833 | )% | ||||||||
| Loss from operations | $ | (98,476 | ) | $ | (12,494 | ) | $ | (85,982 | ) | (688 | )% | |||||
To date, the Healthcare segment has not generated any revenues. The entirety of the expenses in the Healthcare segment relate to the activities of Barer, LipoMedix, Farber, Cornerstone, and Rafael Medical Devices. As of April 30, 2024, we held a 100% interest in Barer, a 95% interest in LipoMedix, a 93% interest in Farber, a 67% interest in Cornerstone, and a 68% interest in Rafael Medical Devices.
On August 1, 2023, Rafael Medical Devices closed on the sale of membership units in exchange for $925,000, and following that sale, the Company holds a 68% voting interest based on the outstanding equity interests in Rafael Medical Devices. As of July 31, 2023, the Company recorded $825,000 of the funds received related to the sale within prepaid expenses and other current assets and other liabilities within the consolidated balance sheets.
General and administrative expenses. General and administrative expenses consist mainly of payroll, stock-based compensation expense, benefits, facilities, consulting and professional fees. The Company operations have been scaled to meet the current needs which has led to reduced overall general and administrative expenses. The decrease during the three months ended April 30, 2024 compared to the three months ended April 30, 2023 is comprised of a decrease in licenses and fees of approximately $0.3, a decrease in insurance expense of approximately $0.3 million, and a decrease in stock-based compensation of approximately $0.1 million.
The decrease in general and administrative expenses during the nine months ended April 30, 2024 compared to the nine months ended April 30, 2023 is comprised of a decrease in insurance expense of approximately $1.0 million, a decrease in payroll expenses of approximately $0.7 million, a decrease in severance pay expense of approximately $0.3 million, partially offset by a net increase in professional fees of approximately $0.9 million.
Research and development expenses. Research and development expenses increased for the three months and decreased for the nine months ended April 30, 2024 as compared to the corresponding periods in fiscal 2023. Research and development expenses are derived from activity at Barer, LipoMedix, Farber, Cornerstone, and Rafael Medical Devices. The increase in the current quarter relates to new activity for Cornerstone. The decrease for the nine month period stems from the November 2022 decision to curtail the Company’s early-stage development efforts, including pre-clinical research at Barer Institute.
IPR&D expense. IPR&D expenses during the three and nine months ended April 30, 2024 compared to the three and nine months ended April 30, 2023 increased by $89.9 million due to the Cornerstone Acquisition. See Note 3 to our accompanying consolidated financial statements for more information on the transaction.
Infusion Technology
| Three Months Ended April 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Infusion Technology Revenue | $ | 262 | $ | — | $ | 262 | 100 | % | ||||||||
| Cost of Infusion Technology revenue | (85 | ) | — | (85 | ) | (100 | )% | |||||||||
| General and administrative | (225 | ) | — | (225 | ) | (100 | )% | |||||||||
| Research and development | (314 | ) | — | (314 | ) | (100 | )% | |||||||||
| Loss from operations | $ | (362 | ) | $ | — | $ | (362 | ) | (100 | )% | ||||||
52
| Nine Months Ended April 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Infusion Technology Revenue | $ | 262 | $ | — | $ | 262 | 100 | % | ||||||||
| Cost of Infusion Technology revenue | (85 | ) | — | (85 | ) | (100 | )% | |||||||||
| General and administrative | (225 | ) | — | (225 | ) | (100 | )% | |||||||||
| Research and development | (314 | ) | — | (314 | ) | (100 | )% | |||||||||
| Loss from operations | $ | (362 | ) | $ | — | $ | (362 | ) | (100 | )% | ||||||
Infusion Technology Revenue. Infusion Technology Revenue increased by $262 thousand during the three and nine months ended April 30, 2024 compared to the three and nine months ended April 30, 2023 due to the acquisition of Day Three in January 2024.
Cost of Infusion Technology revenue. Cost of Infusion Technology increased by $85 thousand during the three and nine months ended April 30, 2024 compared to the three and nine months ended April 30, 2023 due to the acquisition of Day Three in January 2024. The specific costs are related to supplies, materials, production labor, and travel costs.
General and administrative expense. General and administrative expenses consist mainly of payroll, insurance, software, and licenses. General and administrative expenses increased by $225 thousand during the three and nine months ended April 30, 2024 compared to the three and nine months ended April 30, 2023 due to the acquisition of Day Three in January 2024.
Research and development expenses. Research and development expenses increased by $314 thousand during the three and nine months ended April 30, 2024 compared to the three and nine months ended April 30, 2023 due to the acquisition of Day Three in January 2024.
Real Estate Segment
The revenue and expenses of the 520 Property have been excluded from the real estate segment in the figures below due to its classification of held-for-sale and discontinued operations, and the sale of the 520 Property on August 22, 2022. The Real Estate segment consists of a portion of a commercial building in Israel. Consolidated income (loss) and expenses for our Real Estate segment were as follows:
| Three Months Ended April 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Rental – Third Party | $ | 47 | $ | 44 | $ | 3 | 7 | % | ||||||||
| Rental – Related Party | 27 | 27 | — | — | % | |||||||||||
| General and administrative | (62 | ) | (37 | ) | (25 | ) | (68 | )% | ||||||||
| Depreciation and amortization | (29 | ) | (16 | ) | (13 | ) | (81 | )% | ||||||||
| (Loss) income from operations | $ | (17 | ) | $ | 18 | $ | (35 | ) | 194 | % | ||||||
| Nine Months Ended April 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Rental – Third Party | $ | 129 | $ | 130 | $ | (1 | ) | (1 | )% | |||||||
| Rental – Related Party | 81 | 81 | — | — | % | |||||||||||
| General and administrative | (109 | ) | (101 | ) | (8 | ) | (8 | )% | ||||||||
| Depreciation and amortization | (45 | ) | (48 | ) | 3 | 6 | % | |||||||||
| Income from operations | $ | 56 | $ | 62 | $ | (6 | ) | 10 | % | |||||||
Rental - Third Party. Rental revenue decreased by $3 thousand and $1 thousand during the three and nine months ended April 30, 2024 compared to the three and nine months ended April 30, 2023.
General and administrative. General and administrative expense decreased by $25 thousand and $8 thousand during the three and nine months ended April 30, 2024, respectively compared to the three and nine months ended April 30, 2023.
53
Consolidated Operations
Our consolidated income and expense line items below loss from operations were as follows:
| Three Months Ended April 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Loss from operations | $ | (93,161 | ) | $ | (3,031 | ) | $ | (90,130 | ) | (2974 | )% | |||||
| Interest income | 502 | 1,531 | (1,029 | ) | 67 | % | ||||||||||
| Impairment of investments - Other Pharmaceuticals | — | (128 | ) | 128 | 100 | % | ||||||||||
| Realized gain on available-for-sale securities | 945 | — | 945 | (100 | )% | |||||||||||
| Unrealized loss on investment - Cyclo Therapeutics Inc. | (4,395 | ) | — | (4,395 | ) | (100 | )% | |||||||||
| Unrealized loss on investments - Hedge Funds | (3 | ) | (131 | ) | 128 | (98 | )% | |||||||||
| Recovery of receivables from Cornerstone Pharmaceuticals | 31,305 | — | 31,305 | 100 | % | |||||||||||
| Interest expense | (85 | ) | — | (85 | ) | 100 | % | |||||||||
| Loss from continuing operations before income taxes | (64,892 | ) | (1,759 | ) | (63,133 | ) | (3589 | )% | ||||||||
| Benefit from income taxes | 2,599 | 269 | 2,330 | 866 | % | |||||||||||
| Consolidated net loss from continuing operations | (62,293 | ) | (1,490 | ) | (60,803 | ) | (4081 | )% | ||||||||
| Net loss attributable to noncontrolling interests | (29,942 | ) | (53 | ) | (29,889 | ) | (56394 | )% | ||||||||
| Net loss attributable to Rafael Holdings, Inc. | $ | (32,351 | ) | $ | (1,437 | ) | $ | (30,914 | ) | (2151 | )% | |||||
| Nine Months Ended April 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Loss from operations | $ | (98,782 | ) | $ | (12,432 | ) | $ | (86,350 | ) | (695 | )% | |||||
| Interest income | 1,777 | 2,301 | (524 | ) | 23 | % | ||||||||||
| Impairment of investments - Other Pharmaceuticals | — | (351 | ) | 351 | 100 | % | ||||||||||
| Loss on initial investment in Day Three upon acquisition | (1,633 | ) | — | (1,633 | ) | (100 | )% | |||||||||
| Realized gain on available-for-sale securities | 1,521 | 154 | 1,367 | 888 | % | |||||||||||
| Realized loss on investment in equity securities | (46 | ) | — | (46 | ) | (100 | )% | |||||||||
| Realized gain on investment - Cyclo Therapeutics Inc. | 424 | — | 424 | (100 | )% | |||||||||||
| Unrealized gain on investment - Cyclo Therapeutics Inc. | 3,199 | — | 3,199 | 100 | % | |||||||||||
| Unrealized (loss) gain on investment - Hedge Funds | (118 | ) | 120 | (238 | ) | (198 | )% | |||||||||
| Recovery of receivables from Cornerstone Pharmaceuticals | 31,305 | — | (1,633 | ) | 100 | % | ||||||||||
| Interest expense | (85 | ) | — | (1,633 | ) | (100 | )% | |||||||||
| Other income | 118 | — | 118 | 100 | % | |||||||||||
| Loss from continuing operations before income taxes | (62,320 | ) | (10,208 | ) | (52,112 | ) | (511 | )% | ||||||||
| Benefit from income taxes | 2,593 | 259 | 2,334 | 901 | % | |||||||||||
| Equity in loss of Day Three | (422 | ) | — | (422 | ) | 100 | % | |||||||||
| Consolidated net loss from continuing operations | (60,149 | ) | (9,949 | ) | (50,200 | ) | (505 | )% | ||||||||
| Income from discontinued operations related to 520 Property | — | 6,543 | (6,543 | ) | 100 | % | ||||||||||
| Net loss attributable to noncontrolling interests | (30,207 | ) | (311 | ) | (29,896 | ) | (9613 | )% | ||||||||
| Net loss attributable to Rafael Holdings, Inc. | $ | (29,942 | ) | $ | (3,095 | ) | $ | (26,847 | ) | (867 | )% | |||||
Interest income. Interest income was $0.5 million and $1.5 million for the three months ended April 30, 2024 and 2023, respectively. Interest income was $1.8 million and $2.3 million for the nine months ended April 30, 2024 and 2023, respectively. The decrease is primarily due to changes in market rates and changes in the portfolio.
54
Impairment of investments - Other Pharmaceuticals. We recorded impairment losses of $128 thousand and $351 thousand related to our investment in Nanovibronix using the measurement alternative for the three and nine months ended April 30, 2023, respectively.
Realized gain on available-for-sale securities. We recorded realized gain of approximately $0.9 million and $0 for the three months ended April 30, 2024 and 2023, respectively, related to available-for-sale securities sold during the period. We recorded realized gains of approximately $1.5 million and $0.2 million for the nine months ended April 30, 2024 and 2023, respectively, related to available-for-sale securities sold during the period.
Realized gain on investment - Cyclo. We recorded a realized gain of approximately $424 thousand related to the exercise of the May Warrants in connection with our October 2023 investment in Cyclo for the nine months ended April 30, 2024.
Unrealized (loss) gain on investment - Cyclo. We recorded an unrealized loss of approximately $4.4 million and an unrealized gain of $3.2 million related to the change in fair value in our investment in Cyclo for the three and nine months ended April 30, 2024, respectively.
Unrealized (loss) gain on investment - Hedge Funds. We recorded an unrealized loss of approximately $3 thousand and $131 thousand for the three months ended April 30, 2024 and 2023, respectively. We recorded an unrealized loss of approximately $118 thousand and an unrealized gain of approximately $120 thousand for the nine months ended April 30, 2024 and 2023, respectively.
Recovery of receivables from Cornerstone Pharmaceuticals. We recorded an increase in recovery of receivables from Cornerstone Pharmaceuticals of approximately $31.3 million for the three and nine months ended April 30, 2024. See Note 3 to our accompanying consolidated financial statements for more information related to this matter.
Benefit from income tax. In accordance with the State of New Jersey’s Technology Business Tax Certificate Transfer 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, the Company received approximately $2.6 million for the sale of the Company’s prior period NOLs totaling $31.6 million in the third quarter of fiscal 2024 which was recorded in the benefit from income taxes in the consolidated statements of operations and comprehensive loss for the three and nine months ended April 30, 2024.
Equity in loss of Day Three. We recognized a loss of approximately $0 and $422 thousand from our ownership interest in Day Three due to operating results for the three and nine months ended April 30, 2024, respectively. As of January 2, 2024, Day Three is a majority-owned subsidiary which is consolidated. See Note 10 to our accompanying consolidated financial statements for further information regarding the acquisition.
Income from discontinued operations related to 520 Property. Discontinued operations include: (i) rental and parking revenues, (ii) payroll, benefits, facilities, consulting and professional fees dedicated to 520 Property, (iii) depreciation and amortization expenses, (iv) interest (including amortization of debt issuance costs) on the note payable that was secured by a mortgage on the 520 Property, and (v) gain on the disposal of the 520 Property. The operating results of these items are presented in our consolidated statements of operations and comprehensive loss as discontinued operations for all periods presented. The decrease in the net income attributable to discontinued operations for the nine months ended April 30, 2024 as compared to the nine months ended April 30, 2023 was due to a gain on the sale of the 520 Property of $6.8 million.
See Note 13 to our accompanying consolidated financial statements for further information regarding discontinued operations.
55
Liquidity and Capital Resources
| April 30, | July 31, | Change | ||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Balance Sheet Data: | (in thousands) | |||||||||||||||
| Cash and cash equivalents | $ | 7,436 | $ | 21,498 | $ | (14,062 | ) | (65 | )% | |||||||
| Convertible note receivable, related party | — | 1,921 | (1,921 | ) | (100 | )% | ||||||||||
| Working capital | 66,265 | 80,796 | (14,531 | ) | (18 | )% | ||||||||||
| Total assets | 101,623 | 98,829 | 2,794 | 3 | % | |||||||||||
| Total equity attributable to Rafael Holdings, Inc. | 86,100 | 100,293 | (14,193 | ) | (14 | )% | ||||||||||
| Noncontrolling interests | 4,459 | (3,664 | ) | 8,123 | (222 | )% | ||||||||||
| Total equity | $ | 90,559 | $ | 96,629 | $ | (6,070 | ) | (6 | )% | |||||||
| Nine Months Ended April 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Cash flows used in | (in thousands) | |||||||||||||||
| Operating activities of continuing operations | $ | (4,913 | ) | $ | (8,751 | ) | $ | 3,838 | (44 | )% | ||||||
| Investing activities of continuing operations | (8,946 | ) | (34,367 | ) | 25,421 | (74 | )% | |||||||||
| Financing activities of continuing operations | (155 | ) | (183 | ) | 28 | (15 | )% | |||||||||
| Effect of exchange rates on cash and cash equivalents | (48 | ) | (279 | ) | 231 | (83 | )% | |||||||||
| Operating, investing, and financing activities of discontinued operations | — | 32,484 | (32,484 | ) | (100 | )% | ||||||||||
| Decrease in cash and cash equivalents | $ | (14,062 | ) | $ | (11,096 | ) | ||||||||||
Capital Resources
As of April 30, 2024, we held cash and cash equivalents of approximately $7.4 million and available-for-sale securities valued at approximately $64.9 million. On August 22, 2022, the Company received net proceeds of approximately $33 million in connection with the sale of the 520 Property (see Note 13 to our accompanying consolidated financial statements for further details). The Company expects its balance of cash and cash equivalents, and available-for-sale securities, to be sufficient to meet our obligations for at least the next 12 months from the filing of this Quarterly Report on Form 10-Q.
Operating Activities
Cash used in operating activities decreased by $3.8 million from cash used of $8.8 million for the nine months ended April 30, 2023 to cash used of $4.9 million for the nine months ended April 30, 2024, as the increase in the loss from continuing operations was more than offset by the impact from non-cash items, such as $89.86 million in in-process research and development expense, $31.31 million from the recovery of receivables from Cornerstone, and changes in assets and liabilities.
Investing Activities
Cash used in investing activities for the nine months ended April 30, 2024 was primarily due to purchases of available-for-sale securities of approximately $133.7 million and the investment in Cyclo of $6.8 million, partially offset by proceeds of $129.0 million from sales and maturities of available-for-sale securities and $2.5 million in proceeds from hedge funds.
Cash used in investing activities for the nine months ended April 30, 2023 was primarily due to purchases of available-for-sale securities of approximately $166.3 million, the investment in Day Three of $3.0 million, and the issuance of a convertible promissory note receivable of $2.0 million. This is partially offset by proceeds of $137.0 million from the sale of available-for-sale securities.
Financing Activities
Cash used in financing activities for the nine months ended April 30, 2024 was primarily related to the principal payments on installment of the note payable of $0.8 million partially offset by the proceeds from sale of RMD membership units of $0.9 million.
56
Cash used in financing activities for the nine months ended April 30, 2023 was primarily related to payments for taxes related to shares withheld for employee taxes.
We do not anticipate paying dividends on our common stock until we achieve sustainable profitability and retain certain minimum cash reserves. The payment of dividends in any specific period will be at the sole discretion of our Board of Directors.
Operating, Financing, and Investing Activities of Discontinued Operations
The cash flows from discontinued operations - 520 Property for the nine months ended April 30, 2023 represent the net income excluding non-cash depreciation and amortization, as well as the net proceeds from the sale of the 520 Property.
Critical Accounting Estimates
We have chosen accounting policies that we believe are appropriate to accurately and fairly report our operating results and financial condition in conformity with U.S. GAAP. We apply these accounting policies in a consistent manner. Our significant accounting policies are discussed in Note 2, “Summary of Significant Accounting Policies,” in our accompanying consolidated financial statements.
The application of critical accounting policies requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. We evaluate these estimates and assumptions on an ongoing basis and may retain outside consultants to assist in our evaluation. If actual results ultimately differ from previous estimates, the revisions are included in results of operations in the period in which the actual amounts become known. The critical accounting policies that involve the most significant management judgments and estimates used in preparation of our consolidated financial statements, or are the most sensitive to change from outside factors, are discussed in the Critical Accounting Estimates section in Item 7 of the Annual Report on Form 10-K for fiscal 2023. There were no material changes during the nine months ended April 30, 2024 to the Critical Accounting Estimates previously disclosed in the Annual Report on Form 10-K for fiscal 2023 except as follows:
Investments - Fair Value Method
The Company has elected the fair value option to account for its investment in Cyclo Therapeutics Inc. over which the Company has significant influence. The fair value option is irrevocable once elected. The Company measures its investment in Cyclo at fair value and records all subsequent changes in fair value in earnings in the consolidated statement of operations. The Company believes the fair value option best reflects the underlying economics of the investment. See Note 12, “Investments,” in our accompanying consolidated financial statements for further details.
The total aggregate fair value of the Cyclo investment of $15,171,714 as of April 30, 2024 is comprised of common shares with an aggregate fair value of $13,183,712 (measured based on the closing stock price of Cyclo Therapeutics, Inc., a Level 1 fair value) and warrants with an aggregate fair value of $1,988,002 (measured using a Level 3 fair value estimate).
The Company recognizes the fair value of the Cyclo Warrants utilizing a Black-Scholes model at acquisition and each reporting date. The application of the Black-Scholes model utilizes significant assumptions, including expected volatility, expected life and risk-free interest rate. In order to determine the volatility, we measured expected volatility based on several inputs, including considering a peer group of publicly traded companies and the implied volatility of the Company’s publicly-traded warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. Both of the Cyclo Warrants and the underlying shares of common stock are subject to volume restrictions in accordance with SEC Rule 144 for which a discount to the stock price of Cyclo was applied. The Black-Scholes model further incorporated a discount for the overall lack of marketability for the Cyclo Warrants.
Certain inputs utilized in our Black-Scholes model may fluctuate in future periods based upon factors which are outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of our warrant liability which could also result in material non-cash gain or loss being reported in our consolidated statements of operations and comprehensive loss.
57
Business Combinations
Amounts paid for acquisitions are allocated to the assets acquired and liabilities assumed based on their estimated fair value at the date of acquisition. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions provided by management, including expected future cash flows. We allocate any excess purchase price over the fair value of the identifiable net assets and liabilities acquired to goodwill. Identifiable intangible assets with finite lives are amortized over their useful lives. Acquisition-related costs, including advisory, legal, accounting, valuation, and other costs, are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.
Goodwill
The Company assesses goodwill for impairment on an annual basis or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. The Company regularly monitors current business conditions and other factors including, but not limited to, adverse industry or economic trends and lower projections of profitability that may impact future operating results. The process of evaluating the potential impairment of goodwill requires significant judgement. In performing the Company’s annual goodwill impairment test, the Company is permitted to first assess qualitative factors to determine whether it is more likely than not the fair value of the Company’s reporting unit is less than its carrying amount, including goodwill. In performing the qualitative assessment, the Company considers certain events and circumstances specific to the reporting unit and the entity as a whole, such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The Company is also permitted to bypass the qualitative assessment and proceed directly to the quantitative test. If the Company chooses to undertake the qualitative assessment and concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company would then proceed to the quantitative impairment test. In the quantitative assessment, the Company compares the fair value of the reporting unit to its carrying amount, which includes goodwill. If the fair value exceeds the carrying value, no impairment loss exists. If the fair value is less than the carrying amount, a goodwill impairment loss is measured and recorded.
The Company assesses goodwill for impairment on an annual basis as of May 31 or more frequently when events and circumstances occur indicating that recorded goodwill may be impaired.
Off-Balance Sheet Arrangements
We do not have any “off-balance sheet arrangements,” as defined in relevant SEC regulations, that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes in our market risk exposures from those described in Item 7A of our 2023 Form 10-K.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of April 30, 2024.
Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting during the quarter ended April 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
58
Part II
Item 1. Legal Proceedings
Legal proceedings in which we are involved, if any, are more fully described in Note 23 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
There were no material changes from the risk factors previously disclosed in Item 1A to Part I of our Annual Report on Form 10-K for fiscal 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information
Item 6. Exhibits
|
Exhibit |
Description | |
| 31.1* | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1* | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2* | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed or furnished herewith. |
59
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 thereunto duly authorized.
Date: June 14, 2024
| Rafael Holdings, Inc. | ||
| By: | /s/ William Conkling | |
| William Conkling | ||
| Chief Executive Officer | ||
| By: | /s/ David Polinsky | |
| David Polinsky | ||
| Chief Financial Officer | ||
60