Rafael Holdings, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2021, the three months ended October 31, 2020. Balance-sheet comparisons are to July 31, 2020. Rafael Holdings combines clinical-stage pharmaceutical interests with commercial real estate operations.
Financial performance and position
| Metric | Quarter ended October 31, 2020 | Comparable 2019 period / prior balance date |
|---|---|---|
| Revenue | $1.053 million | $1.210 million |
| Operating loss | $2.491 million | $1.542 million |
| Net loss attributable to Rafael Holdings | $1.446 million; $0.09 per share | $1.598 million; $0.10 per share |
| Cash used in operating activities | $2.653 million | $0.936 million |
| Cash and cash equivalents | $7.231 million | $6.206 million at July 31, 2020 |
| Total assets / total liabilities | $134.618 million / $5.302 million | $136.347 million / $5.819 million at July 31, 2020 |
Current assets were $8.240 million and current liabilities $5.269 million at quarter-end. The balance sheet reports no borrowings; liabilities included a $3.5 million amount due for an Altira membership-interest purchase. No debt balance is otherwise clearly presented. Pharmaceuticals generated no revenue; real estate generated all reported revenue. The filing does not provide a company-wide margin measure.
Material changes and unusual items
- Revenue declined 13%, mainly reflecting the August sale of the Piscataway property and lower parking activity amid work-from-home conditions. Operating loss increased 62%, with higher pharmaceutical R&D and real-estate SG&A contributing.
- Attributable net loss improved despite the larger operating loss, reflecting a $749,000 gain on the Piscataway building sale, a $944,000 unrealized hedge-fund gain, and $96,000 of equity-method earnings from RP Finance. These were partly offset by a $724,000 impairment of an investment in another pharmaceutical company.
- Operating cash outflow rose to $2.653 million. Investing activities provided $3.638 million, primarily from the property sale and a $2.0 million hedge-fund distribution, partly offset by a $1.875 million RP Finance funding contribution. Cash increased $1.025 million during the quarter.
- At October 31, the company held $6.454 million of hedge-fund investments valued using Level 3 inputs, which rely on unobservable information. The company’s investment in Rafael Pharmaceuticals was carried at cost.
Outlook, risks, and contingencies
- Management said cash on hand, expected operating cash flows, and the subsequent $13 million equity financing were expected to cover anticipated working capital, R&D, and capital needs for the 12 months from issuance of the financial statements. No earnings or revenue guidance was provided. The company does not anticipate dividends until it achieves sustainable profitability and retains minimum cash reserves.
- COVID-19 may disrupt clinical trials and pharmaceutical operations and affect real-estate values, rent collection, parking revenue, and asset monetization. Clinical-trial activities continued with regulatory waivers where applicable. A tenant that missed August 2020 rent due to gym closures subsequently resumed payments. Management said the pandemic’s full financial impact could not be predicted.
- The company’s warrant could increase its ownership in Rafael Pharmaceuticals, but exercising it in full would require approximately $16 million based on issued shares or approximately $104 million on an as-converted fully diluted basis. Management said available cash would not permit full exercise; further equity issuance could require additional funding to maintain ownership.
- In December 2020, the company entered into a $13 million Class B stock sale at $22.91 per share, with warrants attached; two entities associated with the CEO purchased $10 million of shares. Management expected most proceeds to support further warrant exercise in Rafael Pharmaceuticals, with the remainder for drug-development programs and general corporate purposes.
- Also after quarter-end, the company entered a second Altira agreement with up to $10 million of stated consideration, with payment timing tied in part to clinical-trial and regulatory milestones. A $3.5 million obligation under the earlier Altira agreement was already recorded as current at quarter-end.
- Legal matters include an OSHA settlement requiring $127,294 in quarterly installments through November 2021; approximately $64,000 was accrued for probable and estimable legal fees and losses. A personal-injury claim related to the Newark property was assessed as remote, with no accrual.
Important facts for investors to verify
- Whether the post-quarter $13 million financing and planned Rafael Pharmaceuticals warrant exercise adequately fund the company’s intended investments and liquidity needs.
- Clinical-trial progress and financing requirements at Rafael Pharmaceuticals and LipoMedix, including the cost and dilution implications of exercising the warrant.
- Performance and valuation assumptions for Level 3 hedge-fund holdings and the impaired pharmaceutical investment.
- Collection and concentration risks in real-estate revenue, including related-party tenants, lease termination rights, and the impact of COVID-19 on parking and property values.
- Payment obligations under both Altira agreements, milestone triggers, and the potential use of Class B shares instead of cash.