Rafael Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended January 31, 2021. The company operates pharmaceutical investments and commercial real estate; the filing is unaudited. Amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Three months ended Jan. 31, 2021 | Six months ended Jan. 31, 2021 | Comparable 2020 period |
|---|---|---|---|
| Revenue | $0.959 | $2.012 | $1.236 / $2.446 |
| Operating loss | $(10.817) | $(13.308) | $(1.906) / $(3.448) |
| Net loss attributable to Rafael Holdings | $(8.165) | $(9.611) | $(1.253) / $(2.851) |
| Basic and diluted loss per share | $(0.50) | $(0.60) | $(0.08) / $(0.18) |
| Operating cash flow | Not reported by quarter | $(5.527) | $(1.900) for six months |
Pharmaceuticals generated no revenue. For the six months, real estate revenue was $2.012 million, down 18% year over year; third-party rent and parking fell, partly reflecting the Piscataway property sale and reduced parking demand during COVID-19. Related-party rent remained $1.047 million. Related parties represented 59% of six-month revenue.
Operating loss widened principally because of a $7.0 million Altira impairment and higher research and development expense. Six-month results also included $3.433 million of unrealized hedge-fund gains, a $0.749 million gain on the Piscataway building sale, and a $0.724 million impairment of another pharmaceutical investment. The hedge-fund gain is unrealized.
Balance sheet, liquidity and capital
- At January 31, cash and cash equivalents were $6.086 million; current assets were $6.686 million and current liabilities $10.829 million. Total assets were $146.249 million, total liabilities $10.862 million, and equity $135.387 million.
- Hedge-fund investments were $8.943 million, all classified as Level 3 fair value measurements; the valuation relies on information from fund managers or general partners.
- Six-month investing cash outflow was $8.420 million, including $9.123 million invested in Rafael Pharmaceuticals and $3.750 million funded to RP Finance. Financing cash inflow of $13.809 million was mainly from a $13.0 million stock-and-warrant issuance. Cash declined $0.120 million over the period.
- The company reported no significant debt balance. It has a $50 million RP Finance revolving facility for Rafael Pharmaceuticals, with the company responsible for funding 37.5% of facility draws; the company funded $3.75 million in the six months.
- Management said cash, expected operating cash flows and hedge-fund investments were expected to meet currently anticipated requirements for the next 12 months. This is management’s assessment, not formal earnings guidance.
Material changes and significant items
- On January 28, Pharma Holdings partially exercised its warrant to buy 7.3 million Rafael Pharmaceuticals Series D preferred shares for $9.1 million, helping maintain 51% ownership of issued shares. The company reports 41% ownership on a fully diluted basis, excluding the remaining warrant. Full exercise could require about $17 million based on currently issued shares or about $125 million on an as-converted fully diluted basis; the company says it may not be able to exercise the warrant in full.
- The company acquired an additional 33.333% of Altira, bringing reported ownership to 66.666%, but recorded a full $7.0 million impairment of the recognized cost during the six-month period. At January 31, $9.5 million remained recorded as current liabilities for Altira purchase payments. Subsequent February payments included issuing Rafael Holdings shares for amounts due.
- Research and development expense rose to $2.083 million for six months from $0.693 million, reflecting expanded Barer activity and the start of Levco and Farber operations.
- In August 2020, the company sold its Piscataway office/data-center building for $3.875 million and recognized a $0.749 million gain.
- After quarter-end, the company agreed to lend LipoMedix $0.4 million at 8% interest, but had not funded it as of the filing date. It also disclosed planned executive appointments: Ameet Mallik as CEO effective May 1, 2021, and William Conkling as Chief Commercial Officer effective March 16, 2021.
Outlook, risks and contingencies
- Management said COVID-19 had reduced parking use and created uncertainty around commercial property values and monetization. Pharmaceutical clinical trials continued with management teams working with regulators, but the company could not assess the pandemic’s full potential effects on operations, trials, cash flows or liquidity.
- Real estate concentration and related-party dependence are notable: related-party leases accounted for 59% of six-month revenue. Certain related parties may terminate leases on four months’ notice, subject to terms disclosed in the filing.
- The company disclosed an OSHA settlement with approximately $48,000 outstanding at January 31. A separate employee personal-injury claim was described as remote, with no accrual recorded. LipoMedix founder claims had been settled, with payments linked to future investments and proceeds.
- The company reported no material changes to previously disclosed risk factors, no significant changes in market-risk exposures, and effective disclosure controls as of January 31, 2021. It reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether cash burn, available cash and hedge-fund liquidity support the stated 12-month funding outlook, particularly given ongoing investment and clinical-development needs.
- The recoverability and valuation of Level 3 hedge-fund investments and the carrying value of the $79.141 million Rafael Pharmaceuticals investment.
- Altira purchase-payment timing and amounts, including post-quarter stock issuances and any remaining contingent payments; assess the implications of the full impairment.
- The costs, funding responsibilities and dilution implications of further Rafael Pharmaceuticals warrant exercise and RP Finance draws.
- Whether real estate collections, occupancy and related-party leases remain stable amid COVID-19 and the high share of revenue from related parties.