Rafael Holdings, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended July 31, 2023; comparisons are to the year ended July 31, 2022. Rafael is a holding company with healthcare investments and a remaining commercial property in Jerusalem. The filing is an annual report, not a calendar-quarter report.
Business context and portfolio
Healthcare interests include Cornerstone Pharmaceuticals, LipoMedix, Barer/Farber, Cyclo Therapeutics, Day Three Labs and Rafael Medical Devices. The healthcare segment generated no revenue. In November 2022, Rafael curtailed Barer’s early-stage research to reduce spending and focus on strategic opportunities. The company sold its Newark 520 Broad Street property in August 2022 and retains a leased portion of an office building in Jerusalem.
Key financial results
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue from continuing operations | $279,000 | $410,000 |
| Healthcare operating loss | $15.1 million | $60.7 million |
| Net loss from continuing operations | $8.7 million | $140.5 million |
| Gain (loss) from discontinued operations, including property sale | $6.5 million | $(1.8) million |
| Net loss attributable to Rafael Holdings | $1.9 million | $124.7 million |
| Basic and diluted loss per share | $(0.08) | $(6.31) |
| Operating cash used in continuing operations | $10.2 million | $26.0 million |
FY2023 interest income was $3.3 million, versus $201,000 in FY2022, primarily reflecting a larger available-for-sale securities portfolio. A $2.7 million unrealized gain on the Cyclo investment also contributed to FY2023 results. The FY2022 loss included a $79.1 million Cornerstone investment impairment and $35.1 million of provisions for Cornerstone and related-party receivables; these were not repeated in FY2023. The 520 Property sale produced a reported $6.8 million gain.
Margins: Not meaningful as a measure of the healthcare business, which had no revenue and is development-stage. Consolidated continuing revenue was principally real-estate rental income.
Liquidity, debt and cash flow
At July 31, 2023, Rafael reported $21.5 million cash and cash equivalents, $57.7 million of available-for-sale securities, $80.8 million working capital and $98.8 million total assets. Total liabilities were $2.2 million; the $15 million mortgage-backed note on the Newark property was repaid upon its sale. Available-for-sale securities consisted mainly of corporate bonds and Treasury bills, all with maturities within one year. Hedge-fund investments were $5.0 million and are less liquid.
Cash used in continuing operating activities was $10.2 million; continuing investing activities used $27.0 million, including security purchases, investments in Day Three and Cyclo, and a $2.0 million Cornerstone loan. The sale of the 520 Property provided $48.2 million of discontinued-operation investing cash flow. Overall cash and cash equivalents declined $5.0 million to $21.5 million. Management said cash and available-for-sale securities were expected to cover obligations for at least 12 months from issuance of the financial statements.
Material changes, outlook and risks
- Investments: Rafael invested $3.0 million in Day Three for a 33.3% fully diluted interest, with an unexercised warrant; acquired additional LipoMedix shares for $2.1 million, raising ownership to 95%; and invested $2.1 million in Cyclo. After year-end, Rafael invested another $5.0 million in Cyclo, bringing common-stock ownership to 34%, and subsequently exercised a Cyclo warrant in a transaction with an aggregate purchase price of approximately $1.8 million.
- Cornerstone: The March 2023 $2.0 million note bears 7.5% interest and was extended to November 30, 2023; it is convertible at Cornerstone’s election and secured by specified assets and rights related to acquired CB-839 assets. Cornerstone was pursuing a restructuring involving debt conversion, preferred-stock conversion and other terms, subject to conditions outside Rafael’s control. The filing does not establish the outcome of that restructuring.
- Clinical and execution risk: Devimistat’s pancreatic-cancer Phase 3 trial missed its primary endpoint, and another Phase 3 trial was recommended for discontinuation as unlikely to meet its endpoint. Cyclo’s Trappsol Cyclo remains in Phase 3; approval, efficacy and commercialization are uncertain. The companies rely on third parties for trials and manufacturing and have no commercial product revenue from the healthcare segment.
- Other risks and contingencies: The filing highlights limited capital-raising certainty, investment valuation and liquidity risks, regulatory and product-liability exposure, intellectual-property and competition risks, and control by Howard S. Jonas, who held approximately 51% of combined voting power as of October 27, 2023. The October 2023 Israel conflict could disrupt Israeli operations and the Jerusalem property; commercial insurance excludes war- and terrorism-related losses. A prior email-compromise incident led to two invoice payments; one had been recovered by the filing date.
- Capital allocation: No dividends were anticipated until sustainable profitability and minimum cash reserves are achieved. A share repurchase authorization of up to $5 million was extended through July 1, 2024, subject to its terms; no shares were repurchased in FY2023.
Management reported effective disclosure controls and internal control over financial reporting as of July 31, 2023. The independent auditor gave an unqualified opinion on the financial statements but did not attest to internal control effectiveness because Rafael qualified for the emerging-growth-company exemption. Management noted prior internal-control material weaknesses had been remediated.
Important facts for investors to verify
- Subsequent filings and disclosures on Cornerstone’s restructuring, the $2.0 million note, and the recoverability or conversion of Rafael’s Cornerstone exposures.
- Updated Cyclo ownership, warrant terms, investment fair value and progress or results of the Trappsol Cyclo Phase 3 trial.
- Current liquidity, investment portfolio composition and valuation, and cash burn relative to management’s 12-month liquidity assessment.
- Whether the Israel conflict has materially affected LipoMedix, Day Three, employees, tenants or the Jerusalem property, including the extent of any uninsured losses.
- Progress and funding needs at Day Three and Rafael Medical Devices, including the effect of outside investment and dilution on Rafael’s ownership.