Rafael Holdings, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended July 31, 2018. The company completed its spin-off from IDT Corporation on March 26, 2018; historical financial statements include combined pre-spin-off results and may not represent results as an independent company. This is an annual report, not a standalone Q4 filing.
Business context
Rafael owns commercial real estate in New Jersey and Israel and holds interests in clinical-stage oncology company Rafael Pharmaceuticals and development-stage LipoMedix. Real estate is the only revenue-generating segment. The company was newly public during the period, with Class B shares beginning NYSE American trading in March 2018.
Key financial metrics
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue (audited statements) | $4.371 million | $5.618 million |
| Operating loss | $3.841 million | Operating income of $221,000 |
| Net loss | $12.076 million | Net income of $138,000 |
| Net loss attributable to Rafael Holdings | $11.649 million | Net income of $138,000 |
| Operating cash flow | -$1.815 million | -$1.623 million |
| Cash and cash equivalents | $15.803 million | $11.756 million |
| Marketable securities | $24.701 million | None reported |
| Total assets | $116.920 million | $86.204 million |
| Total liabilities | $1.355 million | $24.126 million |
Revenue fell about 22% year over year. Based on audited figures, operating margin was approximately -88% and net margin approximately -276%; the unusually large net loss primarily reflects an $8.437 million income-tax provision, including a full valuation allowance against domestic deferred tax assets. The company reported no conventional borrowings on its balance sheet; current liabilities were $891,000, with $276,000 due to related parties. Current assets were $44.512 million. Management said available resources and expected operating cash were sufficient for anticipated requirements through July 31, 2019. Cash and securities include $10 million held in CS Pharma, in which Rafael has an effective 45% interest.
Segment results: Real estate generated $4.371 million of revenue and a $2.780 million operating loss. Pharmaceuticals generated no revenue and recorded a $1.061 million operating loss, including $995,000 of R&D expense. The real estate operating loss compares with $221,000 of operating income in FY2017.
Material changes and unusual items
- Related-party revenue declined to $2.223 million from $3.705 million after lease amendments; related parties still accounted for about 51% of revenue, versus 64% in FY2017. Third-party rental revenue rose to $1.275 million, while parking revenue fell to $873,000.
- SG&A increased to $5.519 million from $3.728 million, reflecting spin-off and public-company costs, added staffing and compensation, and a $606,000 expense tied to a contingent Rafael Pharmaceuticals share right transferred to Howard Jonas.
- The $8.437 million tax provision eliminated the previously recognized $8.859 million net deferred-tax asset; the company recorded an $8.112 million valuation allowance and cited tax-law changes among the drivers.
- Investing cash flow was positive $4.109 million, mainly reflecting $6.670 million of marketable-security sales and maturities, partly offset by $1.700 million of related-party advances and capital spending. Financing cash flow was positive $1.750 million. Capital expenditures were $710,000.
- Post-period, on September 5, 2018, CS Pharma exercised $10 million of warrants for 8 million Rafael Pharmaceuticals Series D preferred shares, approximately 13.5% of that company’s outstanding equity. Rafael Pharmaceuticals’ $10 million Series D note, bearing 3.5% interest, matured September 16, 2018; the parties were discussing its maturity.
- The company’s real estate portfolio was lightly occupied: approximately 24.3% of 520 Broad Street and 28% of the Piscataway building were leased. Both New Jersey buildings were being marketed for potential sale. Estimated portfolio capital expenditures, including tenant improvements, were $24–$45 million.
Outlook, commentary and risks
- Management expected cash, securities and operating cash flow to cover anticipated working capital, R&D and capital needs for the next twelve months. Public-company costs were estimated at $2.0–$2.3 million annually. No revenue or earnings guidance was provided.
- Rafael Pharmaceuticals reported encouraging early clinical results for CPI-613, but outcomes remain uncertain. The filing says Phase III trials in pancreatic cancer and relapsed/refractory AML began in October 2018; it anticipated potential approvals in 2020–2022 only if trials succeed. Early-stage results do not establish pivotal-trial efficacy.
- LipoMedix planned further Promitil development, including a Phase 2B colorectal-cancer study and exploratory radiotherapy combination work. Its stated plans and timelines remain subject to financing, regulatory review and clinical results.
- Principal risks include low occupancy and tenant concentration, related-party dependence and termination rights, possible substantial property investment needs, pharmaceutical development and regulatory failure, competition, reliance on third-party manufacturers without redundant supply, and the need for future capital. Rafael disclosed that exercising its remaining Rafael Pharmaceuticals warrant in full would require substantial additional funds.
- A LipoMedix founder sought approximately $377,000 in consulting fees and restrictions on company assets; LipoMedix disputed the claim and intended to defend it. A separate $100,000 building-service-provider settlement was indemnified by IDT.
- Howard Jonas controlled approximately 70.5% of combined voting power, and the company disclosed related-party and governance conflicts. Disclosure controls were reported effective; the company qualified for the emerging-growth-company auditor-attestation exemption.
Most important facts to verify
- Reconcile the filing’s differing revenue and operating-loss figures: the selected financial data lists $4.405 million revenue and a $3.790 million operating loss, while audited statements and segment tables report $4.371 million and a $3.841 million loss.
- Confirm post-year-end status of the matured Rafael Pharmaceuticals note, the remaining warrant, required funding and the October 2018 Phase III trial launches.
- Assess the quality and accessibility of liquidity, including the company’s effective 45% interest in CS Pharma-held cash, and compare resources with planned pharmaceutical funding and $24–$45 million of potential real estate expenditures.
- Monitor leasing, property-sale progress, tenant termination rights and the 51% related-party share of revenue.
- Track the LipoMedix founder dispute and verify clinical-stage descriptions: the filing describes clinical programs but elsewhere inconsistently characterizes all pharmaceutical candidates as preclinical.