UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION Quarterly report pursuant to section 13 ORor 15(d) OF THE SECURITIES EXCHANGE ACT OFof the Securities Exchange Act of 1934

FOR THE QUARTERLY PERIOD ENDED JANUARYfor the quarterly period ended January 31, 20182022.

or

or

☐TRANSITION REPORT PURSUANT TO SECTION Transition report pursuant to section 13 ORor 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934of the Securities Exchange Act of 1934.

Commission File Number: 000-55863

RAFAEL HOLDINGS, INC.

(Exact Namename of Registrantregistrant as Specifiedspecified in its Charter)

charter)

(973) 438-3500520 Broad Street, Newark, New Jersey 07102

(Address of principal executive offices, zip code)

(212) 658-1450

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act.):Act). Yes ☐ No ☒

AsThe number of shares outstanding of the registrant’s common stock as of March 12, 2018, the registrant had the following shares outstanding:14, 2022 was:

RAFAEL HOLDINGS, INC.

TABLE OF CONTENTS

PART I.1. FINANCIAL INFORMATION

ITEM 1. Financial Statements

RAFAEL HOLDINGS, INC.

COMBINED

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share and per share data)

See accompanying notes to combinedthe unaudited consolidated interim financial statements.

RAFAEL HOLDINGS, INC.

COMBINEDCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
(Unaudited)LOSS

(unaudited, in thousands, except share and per share data)

See accompanying notes to combinedthe unaudited consolidated interim financial statements.

RAFAEL HOLDINGS, INC.

COMBINEDCONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOMEEQUITY

(Unaudited)

 (unaudited, in thousands, except share data)

See accompanying notes to combinedthe unaudited consolidated interim financial statements.

RAFAEL HOLDINGS, INC.

COMBINEDCONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)EQUITY

 (unaudited, in thousands, except share data)

See accompanying notes to combinedthe unaudited consolidated interim financial statements.

RAFAEL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

See accompanying notes to the unaudited consolidated interim financial statements.

RAFAEL HOLDINGS, INC.

NOTES TO COMBINEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – DESCRIPTION OF BUSINESS

Note 1 — Description of Business and Basis of Presentation

Description of Business

Rafael Holdings, Inc. (NYSE-RFL), (“Rafael Holdings” or the “Company”), a Delaware corporation, is focused on discovering and developing novel cancer and immune metabolism therapies with the potential to improve and extend the lives of patients. The Company also owns commercial real estate assets, which it operates as a wholly-owned subsidiaryseparate line of IDT Corporation (“IDT”business.

The Company has an investment in Rafael Pharmaceuticals Inc., or Rafael Pharmaceuticals, that includes preferred and common equity interests and a warrant to purchase additional equity. On June 17, 2021, the “Parent”).On or about March 26, 2018, IDT expectsCompany entered into a merger agreement to complete a tax-free spinoff (the “Spin-Off”)acquire full ownership of our capital stock, through a pro rata distribution of our common stock to its stockholders of record as of the close of business on March 13, 2018 (the “Spin-Off record date”). As a result of the Spin-Off, each of IDT’s stockholders will receive: (i) one share of our Class A common stockRafael Pharmaceuticals in exchange for every two shares of IDT’s Class A common stock held on the Spin-Off record date; (ii) one share of ourissuing Company Class B common stock to the other stockholders of Rafael Pharmaceuticals. On October 28, 2021, the Company announced that the AVENGER 500 Phase 3 clinical trial for every two sharesCPI-613® (devimistat), Rafael Pharmaceuticals’ lead product candidate, did not meet its primary endpoint of IDT’s Class B common stock heldsignificant improvement in overall survival in patients with metastatic adenocarcinoma of the pancreas, and following a pre-specified interim analysis, the independent data monitoring committee for the ARMADA 2000 Phase 3 study for devimistat has 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 first quarter financial statements, 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 currently the likelihood of further development of and prospects for CPI-613 is uncertain and has fully impaired in the Company’s financial statements for the six months ended January 31, 2022, the value of its loans, receivables, and investment in Rafael Pharmaceuticals based upon its valuation of Rafael Pharmaceuticals. On February 2, 2022, the Company withdrew its Registration Statement on Form S-4, which terminated the Spin-Off record date;merger agreement pursuant to certain sections of the merger agreement, effective immediately.

In 2019, the Company established the Barer Institute (“Barer”), an early-stage small molecule research institute 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 is led by a team of scientists and (iv) cashacademic advisors considered to be among the leading experts in lieucancer metabolism, chemistry, and drug development. In addition to its own internal discovery efforts, Barer is pursuing collaborative research agreements and in-licensing opportunities with leading scientists from top academic institutions. Farber Partners, LLC (“Farber”) was formed to support agreements with Princeton University’s Office of Technology Licensing for technology from the laboratory of Professor Joshua Rabinowitz, in the Department of Chemistry, Princeton University, including an exclusive worldwide license to its SHMT (serine hydroxymethyltransferase) inhibitor program. The Company also holds a majority equity interest in LipoMedix Pharmaceuticals Ltd. (“LipoMedix”), a clinical stage oncological pharmaceutical company based in Israel. In addition, the Company has recently initiated efforts to develop other early stage pharmaceutical ventures.

The Company’s commercial real estate holdings consist of a fractional share of all classes of our common stock.The combined financial statements include all of the accounts of the following wholly-owned subsidiaries of IDT, which will be contributed to Rafael Holdings prior to the Spin-Off: IDT 225 Old NB Road, LLC, a Delaware Limited Liability Company; IDT Realty LLC, abuilding at 520 Broad Street in Newark, New Jersey Limited Liability Company; I.D.T. R.E. Holdings, Ltd.(that serves as headquarters for the Company and certain other entities and hosts other tenants), an Israeli Company; Broad Atlantic Associates LLC,associated 800-car public garage, and a Delaware Limited Liability Company; Broad Atlantic Realty LLC,portion of a Delaware Limited Liability Company; Hillview Avenue Realty, a Delaware Limited Liability Company; Hillview Avenue Realty JV, a Delaware Limited Liability Company; IDT Capital Real Estate Holdings LLC, a Delaware Limited Liability Company; and IDT Capital, Inc., a Delaware Corporation. Additionally, it includes the accounts of the majority-owned Lipomedix Pharmaceuticals, Ltd., an Israeli Company.building in Israel.

The “Company” in these consolidated financial statements refers to Rafael Holdings and its subsidiaries on this combined basis as if Rafael Holdings existed and owned the above interests in these entities in all periods presented.

a consolidated basis. All significant intercompany accounts and transactions have been eliminated in combination.consolidation.

Properties

RAFAEL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

All majority-owned subsidiaries are consolidated with all intercompany transactions and balances eliminated in consolidation or combination. The Company owns commercial real estate located at 520 Broad Street, Newark, New Jersey, which servesentities included in these consolidated financial statements are as headquarters for IDT, Genie Energyfollows:

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements of the Company and a related 800-car public parking garage across the street, as well as a building located at 225 Old New Brunswick Road in Piscataway, New Jersey that is used partially by IDT Telecom, Inc. for certain of its operations. Additionally, the Company owns a portion of the 6^th floor of a building located at 5 Shlomo Halevi Street, in Jerusalem, Israel.

Basis of Presentation

The accompanying unaudited combined financial statements the Companysubsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 108 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, (consisting ofwhich include only normal recurring accruals)adjustments, considered necessary for a fair presentation have been included. Operating results for the three and six months ended January 31, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2018. The balance sheet at July 31, 2017 has been derived from the Company’s audited financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the combined financial statements and footnotes thereto included elsewhere in the Registration Statement on Form 10-12G filed on February 19, 2018.

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 endingended in the calendar year indicated (e.g., fiscal year 20172021 refers to the fiscal year ended July 31, 2021).

Operating results for the three and six months ended January 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2017).

Note 2 — Acquisition of Lipomedix Pharmaceuticals Ltd. (“Lipomedix”)

Lipomedix is a development-stage, privately held Israeli company focused on2022. The balance sheet at July 31, 2021 has been derived from the development of an innovative, safe and effective cancer therapy based on liposome delivery.

As a result of its initial $100,000 investment, the Company received approximately 3.2%Company’s audited consolidated financial statements at that date but does not include all of the common shares outstanding. Duringinformation and footnotes required by U.S. GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with the second quarter of fiscal year 2017,Company’s audited financial statements and notes thereto included in the Company made an additional $300,000 investment in Lipomedix, increasing its ownership to 13.95% of the issued and outstanding ordinary shares, as well as providing Lipomedix with an advance of $200,000. During the fourth quarter of fiscal year 2017, the Company made an additional $1.1 million investment, inclusive of the $200,000 advance, in Lipomedix, increasing its ownership to 38.86% of the issued share capital of the issued and outstanding ordinary shares. As such, the Company began accounting for this investment under the equity method as of andCompany’s Annual Report on Form 10-K for the fourth quarter of fiscal year 2017. During the fourth quarter of fiscal year 2017, the Company recognized approximately $113,000 as its proportionate share of Lipomedix's loss. As ofended July 31, 2017, Lipomedix had2021, or the 2021 Form 10-K, as filed with the U.S. Securities and Exchange Commission (the “SEC”).

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets totaling $1.2 million and liabilities totaling $77,000.

RAFAEL HOLDINGS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS

Note 2 — Acquisitionand disclosure of Lipomedix Pharmaceuticals Ltd. (“Lipomedix”) (cont.)

On November 16, 2017,contingent assets and liabilities at the Company exercised its option to purchase additional shares in Lipomedix for $900,000, which increased its ownership to 50.6%date of the issued and outstanding ordinary shares. As such, the Company began consolidating this investment as of and for the second quarter of fiscal year 2018.

The impact of the acquisition’s purchase price allocations on the Company’s combined balance sheet and the acquisition datereported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly from those estimates.

RAFAEL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Liquidity

As of January 31, 2022, the Company had cash and cash equivalents of $65.0 million in addition to an investment in hedge funds valued at $5.0 million. The Company expects the balance of cash and cash equivalents and investment in hedge funds to be sufficient to meet our obligations for the next 12 months from the issuance of these consolidated financial statements.

Risks and Uncertainties - COVID-19, War in Ukraine

In December 2019, a novel strain of coronavirus, SARS-CoV, which causes COVID-19, has proved to be highly contagious. It has since spread extensively throughout the world, including the United States, and was declared a global pandemic by the World Health Organization in March 2020. The Company actively monitors the outbreak, including the spread of new variants of interest, and its potential impact on the Company’s operations and those of the Company’s holdings.

The pandemic’s impacts on the Company’s and its affiliates’ operations and specifically the ongoing clinical trials being conducted by Rafael Pharmaceuticals are being managed by Rafael Pharmaceuticals and its agents.

Even with growing availability of testing and vaccines and the relaxation of public health measures that were implemented to limit the spread of the pandemic, there continues to be uncertainty around the COVID-19 pandemic and its impact.

The Company has implemented a number of measures to protect the health and safety of the Company’s workforce including a voluntary work-from-home policy for the Company’s workforce who can perform their jobs from home as well as restrictions on discretionary business travel. Most of our employees have returned to working from the office on a part-time basis.

The full impact of the COVID-19 pandemic on the Company will depend on factors such as the length of time of the pandemic; the responses of federal, state and local governments, the impact of future variants that may emerge; vaccination rates among the population; the efficacy of the COVID-19 vaccines; the longer-term impact of the pandemic on the economy and consumer behavior; and the effect on our employees, vendors, and other partners.

The short and long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time. The imposition of sanctions and counter sanctions may have an adverse effect on the economic markets generally and could impact our business and the companies in which we have investments, financial condition, and results of operations. Because of the highly uncertain and dynamic nature of these events, it is not currently possible to estimate the impact of the Russian – Ukraine war on our business and the companies in which we have investments.

Reclassification

Certain comparative figures have been reclassified to conform to the current period presentation. The unaudited consolidated statement of operations and comprehensive loss for the three months ended October 31, 2021 included a provision for losses on related party receivables of $188 thousand in loss before operations related to interest income due from Rafael Pharmaceuticals. This amount was reclassed to interest expense, net during the current period.

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. For the three and six months ended January 31, 2022, related parties represented 57% and 63% of the Company’s revenue, respectively, and as of January 31, 2022, two customers, one of which is a related party, represented 65% and 15% of the Company’s accounts receivable balance, respectively. For the three and six months ended January 31, 2021, related parties represented 62% and 59%, respectively, of the Company’s revenue, and as of January 31, 2021, one customer represented 68% of the Company’s accounts receivable balance, respectively.

RAFAEL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

Restricted Cash

Restricted cash represents escrow funds held in bank accounts owned by the Company to be used to pay the severance due the chief executive officer for termination without cause, pursuant to his employment agreement. The Company does not have the right to use this cash balance for any other purpose.

Reserve for Receivables

The Company evaluates accounts receivable, loans, interest and fees receivable for impairment under ASC 310, Receivables. The Company also evaluates the reserve for losses and estimates collectability of accounts receivable, loans, interest and fees receivable based on historical bad debt experience, management’s assessment of the financial condition of individual companies with which the Company conducts business, current market conditions, and reasonable and supportable forecasts of future economic conditions.

Investments

The method of accounting applied to long-term investments, whether consolidated, equity or cost, 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 businesses that the Company does not control, but in which the Company has the ability to exercise significant influence over operating and financial matters, are accounted for using the equity method. Investments in which the Company does not have the ability to exercise significant influence over operating and financial matters are accounted for using the cost method. 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.

Variable Interest Entities

In accordance with Accounting Standards Codification (“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.

RAFAEL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Cost Method Investments - Rafael Pharmaceuticals (see Note 3) 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 Rafael Pharmaceuticals that most significantly impact Rafael Pharmaceuticals’ economic performance. Cost method investments are presented as “Investments - Rafael Pharmaceuticals.”

Equity Method Investments - RP Finance, LLC (“RP Finance”), (see Note 5), has been identified as 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 RP Finance that most significantly impact RP Finance’s economic performance and, therefore, is not required to consolidate RP Finance. The Company accounts for its investment in RP Finance using the equity method of accounting.

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 the majority of its 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.

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 earns revenue from parking which is derived primarily from monthly and transient daily parking. The monthly and transient daily parking revenue falls within the scope of ASC 606 and is 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 maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments or parking customers to pay amounts due.

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.

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 total consideration transferred were as follows:

Note 3 — Fair Value Measurements

The following table presents the balance of assets measured at fair valuegrant date based on a recurring basis:

At January 31, 2018 and July 31, 2017, the Company did not have any liabilities measured at fair value on a recurring basis.

At January 31, 2018 and July 31, 2017, the fair value of the Rafael convertible promissory notes, which were classifiedawards. The Company accounts for forfeitures as Level 3, was estimated based on a valuationthey occur. Compensation cost for awards is recognized using the straight-line method over the vesting period. Stock-based compensation is included in selling, general and administrative expense and research and development expense in the consolidated statements of Rafael Pharmaceuticals by referenceoperations and comprehensive loss.

Recently Issued Accounting Standards Not Yet Adopted

From time to recent transactions in its securities, the September 2016 Series D Convertible Note investment, as well as utilizing a discounted cash flow technique under the Income Approach and other factors that could not be corroboratedtime, new accounting pronouncements are issued by the market.

RAFAEL HOLDINGS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS

Note 3 — Fair Value Measurements (cont.Financial Accounting Standards Board (“FASB”)

The following tables summarize or other standard setting bodies and are adopted by the change in the balanceCompany as of the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3). There were no liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) inspecified effective date. The Company believes that the six months ended January 31, 2018 or the year ended July 31, 2017.

The Company’s financial instruments include accounts and rents receivable, accounts payable, and due to IDT Corporation. The recorded carrying amountimpact of accounts and rents receivable, accounts payable and due to IDT Corporation approximates their fair value due to their short-term nature. Other than noted above, the Company didrecently issued standards that are not yet effective will not have any other assetsa material impact on its financial position or liabilities that were measured at fair value on a recurring basis asresults of January 31, 2018 or July 31, 2017.operations upon adoption.

NOTE 3 – INVESTMENT IN RAFAEL PHARMACEUTICALS

Note 4 — Establishment of Valuation Allowance for Deferred Tax Asset

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the amendments to related party leases effective August 1, 2017, which, in comparison to fiscal year 2017, will reduce revenues by approximately $1.7 million annually through 2025. Such objective evidence limits the ability to consider other subjective evidence, such as the Company’s projections for future growth. On the basis of this evaluation, a valuation allowance of $8.4 million was recorded to reserve for the entirety of the Company’s domestic deferred tax asset during the first quarter of fiscal 2018. The amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income during the carryforward period are increased, or if additional weight is given to subjective evidence, such as the Company’s projections for growth.

Note 5 —Equity Investment in Rafael Pharmaceuticals Inc. (“Rafael Pharmaceuticals”)and Impairment of Cost Method Investment

Rafael Pharmaceuticals is a clinical stage, oncology-focused pharmaceuticalcancer metabolism-based therapeutics company committed to the development and commercialization of therapies that exploit the metabolic differences between normal cells and cancer cells.

On December 7, 2015, IDT approved an investment of up to $10 million in Rafael Pharmaceuticals. $2 million of this investment was funded as of July 31, 2016, as follows: $500,000 funded upon signing the SubscriptionThe Company owns equity interests and Loan Agreement during the second quarter of fiscal year 2016; and $1.5 million funded during the third quarter of fiscal year 2016. The initial $2 million investment was in exchange for Rafael Pharmaceuticals' 3.5% convertible promissory notes due in fiscal year 2018. To date, the Company has not accrued interest on this note, as collection cannot be reasonably assured; however, the Company has received an independent appraisal indicating the fair value of its investment in Rafael Pharmaceuticals exceeds the carrying value. On September 16, 2016, the Company made an additional $8 million investment in exchange for Rafael Pharmaceuticals' 3.5% convertible promissory notes due in fiscal year 2018.

Upon Spin-Off, the Company will own, subsequent to January 31, 2018, its interests/rights in Rafael Pharmaceuticals through a 90%-owned non-operating subsidiary, IDT-RafaelPharma Holdings, LLC. (“IDT-Rafael Holdings”). IDT-RafaelLLC, or Pharma Holdings.

Pharma Holdings holds warrants to purchase a significant stake in Rafael Pharmaceuticals, as well as other equity and governance rights in Rafael Pharmaceuticals, and owns 50% of CS Pharma Holdings, LLC, (“or CS Pharma”),Pharma, a non-operating entity which holds the convertible debt and other rights to purchasethat owns equity interests in Rafael Pharmaceuticals.

Those interests/rights include:

RAFAEL HOLDINGS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS

Note 5 — Investment in Rafael Pharmaceuticals, Inc. (“Rafael Pharmaceuticals”) (cont.)

On March 2, 2017, Howard Jonas, IDT’s Chairman of Accordingly, the Board, and Chairman of the Board of Rafael Pharmaceuticals, purchased 10% of IDT-Rafael Holdings for a purchase price of $1 million, which represented 10% of the Company’s cost basis in IDT-Rafael Holdings. Accordingly, we will holdCompany holds an effective 45% indirect interest in the assets held by CS Pharma, including its cash. Separately,Pharma.

A trust for the benefit of the children of Howard Jonas (Chairman of the Board and Deborah Jonas jointly own $525,000former Chief Executive Officer of Series C Convertible Notes of Rafael Pharmaceuticals, and The Howard S. and Deborah Jonas Foundation owns $525,000 of Series C Notes of Rafael Pharmaceuticals.

Additionally, the Company previously owned the contractual right to receive "Bonus Shares" for an additional 10% of the outstanding capital stock of Rafael Pharmaceuticals that are issued only upon achieving certain milestones. If the milestones are met, Bonus Shares are to be issued without any additional payment.

On September 12, 2017, IDT’s Compensation Committee, Corporate Governance Committee and Board of Directors approved a compensatory arrangement with Howard S. Jonas related to this right to receive additional Rafael Pharmaceutical shares. In connection with this arrangement, IDT-Rafael Holdings distributed this right to its members such that the Company received the right to 9% of the outstanding capital stock of Rafael Pharmaceuticals and Mr. Jonas received the right to 1% of the outstanding capital stock of Rafael Pharmaceuticals. In addition, as compensation for assuming the role offormer Chairman of the Board of the Company, and to create additional incentive to contribute to its success, on September 19, 2017, the Company assigned its right to receive 9%Rafael Pharmaceuticals) holds a financial instrument (the “Instrument”) that owns 10% of the outstanding capital stockPharma Holdings.

Pharma Holdings holds 44.0 million shares of Rafael Pharmaceuticals to Mr. Jonas. The right is further transferable by Mr. Jonas, in his discretion.

The Rafael Pharmaceuticals Series D Note earns interest at 3.5% per annum, with principalConvertible Preferred Stock and accrued interest due and payable on September 16, 2018. The Series D Note is convertible ata warrant to increase the holder’s option into sharescombined ownership of Rafael Pharmaceuticals’ Series D Preferred Stock. The Series D Note also includes a mandatory conversion into Rafael Pharmaceuticals common stock upon a qualified initial public offering, and conversion at the holder’s option upon an unqualified financing event. In all cases, the Series D Note conversion price is based on the applicable financing purchase price. IDT-RafaelPharma Holdings and CS Pharma were issued warrants to purchase shares of capital stock of Rafael Pharmaceuticals representing up to 56% of the then issued and outstanding capital stock of Rafael Pharmaceuticals, on an as-converted and fully diluted basis. The right to exercise warrants as to the first $10 million thereof is held by CS Pharma and the remainder is owned by IDT-Rafael Holdings. The warrant expires on December 31, 2020. Currently, if the Company desires to raise additional financing from unaffiliated parties in connection with its exercise of its warrant or other current rights to investequity interests in Rafael Pharmaceuticals (but not including the Rafael Pharmaceuticals rights held by CS Pharma), it first must give the other CS Pharma holders the opportunity to provide such financing on a pro rata basis.(the “Warrant”). The exercise price of the warrantWarrant is exercisable at the lower of 70% of the price sold in an equity financing, or $1.25 per share, subject to certain adjustments. The minimum initial and subsequent exercises

On March 25, 2020, the Board of Directors of Rafael Pharmaceuticals extended the expiration date of the warrant shall be for such numberWarrant held by Pharma Holdings to purchase shares of shares that will result in at least $5 millionthe Warrant from December 31, 2020 to June 30, 2021, and on August 31, 2020 the Board of gross proceeds toDirectors of Rafael Pharmaceuticals further extended the expiration date of the Warrant held by Pharma Holdings, LLC to purchase shares of the Warrant to August 15, 2021. In connection with the merger agreement, the Warrant expiration was extended and will now expire on April 1, 2022, however, at this time, the Company does not intend to exercise the Warrant.

RAFAEL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Pharma Holdings also holds certain governance rights in Rafael Pharmaceuticals including appointment of directors. Pharma Holdings is not the primary beneficiary of Rafael Pharmaceuticals as it does not control or such lesser amount as represents 5%direct the activities of Rafael Pharmaceuticals that most significantly impact Rafael Pharmaceuticals’ economic performance.

CS Pharma holds 16.7 million shares of Rafael Pharmaceuticals Series D Convertible Preferred Stock. CS Pharma owned a $10 million Series D Convertible Note, with 3.5% interest, in Rafael Pharmaceuticals which was converted to shares of Series D Preferred Stock in January 2019.

The Company and its subsidiaries collectively own securities representing 51% of the outstanding capital stock of Rafael Pharmaceuticals and 41% of the capital stock on a fully diluted basis (excluding the remainder of the Warrant).

The Series D Convertible Preferred Stock has a stated value of $1.25 per share (subject to appropriate adjustment to reflect any stock split, combination, reclassification or such lesser amountreorganization of the Series D Preferred Stock or any dilutive issuances, as may then remain unexercised. The warrant will expire upondescribed below). Holders of Series D Stock are entitled to receive non-cumulative dividends when, as and if declared by the earlier of December 31, 2020 or a qualified initial public offering or liquidation event of Rafael Pharmaceuticals.

As of January 31, 2018, and based on current shares issued and outstandingBoard of Rafael Pharmaceuticals, the Company would needprior to pay approximately $71 millionany dividends to exercise the warrant in full and approximately $56 million to purchase a 51% controlling stake. On an as-converted and fully diluted basis (for all convertible securitiesany other class of capital stock of Rafael Pharmaceuticals. In the event of any liquidation, dissolution or winding up Rafael Pharmaceuticals, outstanding),or in the Company would need approximately $122 millionevent of any deemed liquidation, proceeds from such liquidation, dissolution or winding up shall be distributed first to exercise the warrant in fullholders of Series D Stock. Except with respect to certain major decisions, or as required by law, holders of Series D Stock vote together with the holders of the other preferred stock and approximately $98 million to purchasecommon stock and not as a 51% controlling stake in Rafael Pharmaceuticals. Given the Company’s anticipated available cash upon the Spin-Off, the Company would not be able to exercise the warrant in its entirety and the Company may never be able to exercise the warrant in full.separate class.

The Company serves as the managing member of IDT-RafaelPharma Holdings, and IDT-RafaelPharma Holdings serves as the managing member of CS Pharma, with broad authority to make all key decisions regarding their respective holdings. Any distributions that are made to CS Pharma from Rafael Pharmaceuticals that are in turn distributed by CS Pharma, will need to be made pro rata to all members, which would entitle IDT-RafaelPharma Holdings to 50% (based on current ownership) of such distributions. Similarly, if IDT-RafaelPharma Holdings were to distribute proceeds it receives from CS Pharma, it would do so on a pro rata basis, entitledentitling the Company to 90% (based on current ownership) of such distributions.

RAFAEL HOLDINGS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS

Note 5 — InvestmentThe Company evaluated its investments in Rafael Pharmaceuticals Inc. (“Rafael Pharmaceuticals”) (cont.)in accordance with ASC 323, Investments - Equity Method and Joint Ventures, to establish the appropriate accounting treatment for its investment and has concluded that its investment did not meet the criteria for the equity method of accounting or consolidation and is carried at cost.

The Company’s investment in Rafael Pharmaceuticals, which was included in “Investments” in the accompanying combined balance sheets, consists of the following:

Rafael Pharmaceuticals is a variable interest entity;VIE; however, the Company has determined that it is not the primary beneficiary as isit does not have the power to direct the activities of Rafael Pharmaceuticals that most significantly impact Rafael Pharmaceuticals’ economic performance. In addition, the interests held in Rafael Pharmaceuticals are Series D Convertible Preferred Stock and do not represent in-substance common stock.

The Instrument holds a contractual right to receive additional shares of Rafael Pharmaceuticals capital stock equal to 10% of the fully diluted capital stock of Rafael Pharmaceuticals (the “Bonus Shares”) upon the achievement of certain milestones. The additional 10% is based on the fully diluted capital stock of Rafael Pharmaceuticals, excluding the remainder for the Warrant, at the time of issuance. If any of the milestones are met, the Bonus Shares are to be issued without any additional payment.

RAFAEL HOLDINGS, INC.

Note 6 — Related Party TransactionsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Pharma Holdings holds the Warrant to purchase a significant stake in Rafael Pharmaceuticals, as well as other equity and governance rights in Rafael Pharmaceuticals. The Company continuescurrently owns 51% of the issued and outstanding equity in Rafael Pharmaceuticals. Approximately 8% of the issued and outstanding equity is owned by the Company’s subsidiary CS Pharma and 43% is held by the Company’s subsidiary Pharma Holdings. The Company’s subsidiary Pharma Holdings holds the Warrant, which is non-dilutable and provides for the Company to increase its (via Pharma Holdings and CS Pharma and inclusive of the interests held by the other owners of those entities) total ownership to 56%. Based on the current shares issued and outstanding of Rafael Pharmaceuticals as of July 31, 2021, the Company, and the Company’s affiliates, would need to pay approximately $17 million to exercise the Warrant in full to 56%. On an as-converted fully diluted basis (for all convertible securities of Rafael Pharmaceuticals outstanding), the Company and the Company’s affiliates would need to pay approximately $126 million to exercise the Warrant in full (including to offset the impact of additional issuances of Rafael Pharmaceuticals equity under the Line of Credit, as defined below). The Instrument holds 10% of the interest in Pharma Holdings and would need to contribute 10% of any cash necessary to exercise any portion of the Warrant. Following any exercise, a portion of the Company’s interest in Rafael Pharmaceuticals would continue to be held for the benefit of the other equity holders in Pharma Holdings and CS Pharma. Given the Company’s anticipated available cash, the Company would not be able to exercise the Warrant in its entirety and the Company may never be able to exercise the Warrant in full. Rafael Pharmaceuticals may also issue additional equity interests, such as employee stock options, which will require the Company to pay additional cash to maintain the Company’s ownership percentage or exercise the Warrant in full.

On January 28, 2021, Pharma Holdings partially exercised the Warrant to maintain the 51% ownership percentage and purchased 7.3 million shares of Rafael Pharmaceuticals’ Series D Preferred Stock for $9.1 million, of which $0.9 million was contributed by the holder of a minority interest in Pharma Holdings.

Due to the Data Events, during the six months ended January 31, 2022, the Company recorded an impairment charge of approximately $79.1 million related to the cost method investment in Rafael Pharmaceuticals representing the total amount of the Company’s cost method investment. The impairment loss was included in “Impairment of cost method investment – Rafael Pharmaceuticals” in the accompanying consolidated statements of operations and comprehensive loss for the six months ended January 31, 2022.

Approximately $17.3 million of the total impairment loss of $79.1 million was applicable to noncontrolling interests in certain of the Company’s subsidiaries and was allocated to the holders of interests in CS Pharma and Pharma Holdings in the approximate amounts of $10.4 million and $6.9 million, respectively.

Line of Credit to Rafael Pharmaceuticals and Impairment of Related Receivable

On September 24, 2021, the Company entered into a Line of Credit Loan Agreement (the “Line of Credit Agreement”) with Rafael Pharmaceuticals (the “Debtor”) in which the Debtor may borrow up to an aggregate amount of $25 million. The first advance made to the Debtor was in the amount of $1.9 million on September 24, 2021. On October 1, 2021, a second advance was made to the Debtor in the amount of $23.1 million. The line of credit agreement accrues interest at 9% per annum. The maturity date of the Line of Credit Agreement is June 17, 2022. All outstanding principal and unpaid accrued interest shall be paid on the maturity date unless earlier prepaid in accordance with the Line of Credit Agreement.

Due to the Data Events, during the six months ended January 31, 2022, the Company recorded a full reserve on the amounts due the Company from Rafael Pharmaceuticals related to the Line of Credit Agreement for $25 million.

The Company also recorded a loss on related party receivables of approximately $0.6 million and $1.5 million related to other amounts owed by Rafael Pharmaceuticals during the three and six months ended January 31, 2022, respectively. The Company recorded a reserve on related party interest receivable of $0.6 million and $0.8 million in Interest expense, net, on the consolidated statements of operations and comprehensive loss during the three and six months ended January 31, 2022, respectively.

NOTE 4 – INVESTMENT IN ALTIRA

The Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) on May 13, 2020 with a member (the “First Seller”) of Altira Capital & Consulting, LLC (“Altira”). Pursuant to the Purchase Agreement, on May 13, 2020, the First Seller sold the economic rights related to a 33.333% membership interest in Altira to the Company and in effect the Company purchased the potential right to receive a 1% royalty on Net Sales (as defined in the Royalty Agreement between Altira and Rafael Pharmaceuticals) on sales of certain Rafael Pharmaceuticals’ products. The purchase consideration for the purchase of the membership interest consisted of 1) $1,000,000 that was payable monthly in four equal monthly installments of $250,000 each; 2) $3,000,000 payable on January 3, 2021; 3) $3,000,000 due within fifteen (15) days of interim data analysis in Rafael Pharmaceutical’s Phase 3 pivotal trial (AVENGER 500®) of CPI-613® (devimistat); and 4) $3,000,000 which is due within one-hundred and twenty (120) days from the date that Rafael Pharmaceuticals files a new drug application with the U.S. Food and Drug Administration for approval of devimistat (CPI-613) as a first in-line therapy for pancreatic cancer, as defined in the Purchase Agreement. The post-closing payments are to be made to the First Seller, at the Company’s discretion, in cash or shares of the Company’s Class B common stock based on the ten-day average share price of the Company’s Class B common stock prior to the date of payment or any combination thereof.

RAFAEL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company has accounted for the purchase of the initial 33.333% membership interest in Altira as an equity method investment in accordance with the guidance in ASC 323, Investments – Equity Method and Joint Ventures. The Company determined that a 33.333% membership interest in Altira indicates that the Company is able to exercise significant influence over Altira, and the Company’s membership interest is considered to be “more than minor” in accordance with the guidance. The cost of the investment was determined to be $4,000,000 pursuant to the terms of the Purchase Agreement. The contingent consideration, as described within the Purchase Agreement, in the amount of $6,000,000, will be recognized when the payments are considered probable.

For the fiscal year ended July 31, 2020, the Company determined that the investment in Altira was fully impaired as of the acquisition date as there were no probable cash flows, and accordingly, the investment had no value. The Company recorded an impairment charge of $4,000,000, which was the total amount of the Company’s investment recognized for the Purchase Agreement as of July 31, 2020.

On December 7, 2020, the Company purchased an additional 33.333% of membership interests in Altira, pursuant to a Membership Interest Purchase Agreement (the “Second Altira Agreement”) between the Company and another Altira member, (the “Second Seller”). With this transaction, the Company now owns a right to an aggregate 66.666% of the membership interests in Altira. Pursuant to the Second Altira Agreement, on December 7, 2020, the Second Seller sold his economic rights related to a 33.333% membership interest in Altira to the Company and in effect the Company purchased the potential right to receive an additional 1% royalty on Net Sales (as defined in the Royalty Agreement between Altira and Rafael Pharmaceuticals) on sales of certain Rafael Pharmaceuticals’ products. The purchase consideration for the purchase of the Membership Interest consists of 1) $1,000,000 that was payable monthly in four equal monthly installments of $250,000 each, commencing on January 4, 2021; 2) $3,000,000 payable on January 4, 2021; 3) $3,000,000 due within fifteen (15) days of the earlier to occur of either the completion of Rafael Pharmaceuticals’ Phase III pivotal trial (AVENGER 500®) of CPI-613® (devimistat) or May 31, 2021 and not before January 4, 2021; and 4) $3,000,000 which is due within one-hundred and twenty (120) days from the date that Rafael Pharmaceuticals files a new drug application with the U.S. Food and Drug Administration for approval of devimistat (CPI-613) as a first in-line therapy for pancreatic cancer, as defined in the Purchase Agreement.

Certain of the post-closing payments may be made, at the Company’s discretion, in cash or shares of the Company’s Class B common stock based on the ten-day average share price of the Company’s Class B common stock prior to the date of payment or any combination thereof.

The purchase of the additional membership interests was accounted for as an asset acquisition, as Altira is not considered a business in accordance with the guidance in ASC 805, Business Combinations. The membership interests acquired do not consist of inputs, processes, and are not generating outputs, as required in ASC 805 to qualify as a business, and are therefore accounted for as an asset acquisition. Although this transaction is considered an asset acquisition, there are no assets or liabilities to be recorded as of the acquisition date as Altira does not have any business operations. The cost of the investment was determined to be $7,000,000 pursuant to the terms of the Second Altira Agreement.

For the three and six months ended January 31, 2021, the Company determined that the investment in Altira was fully impaired as of the acquisition date as there were no probable cash flows, and accordingly, had no value. The Company recorded an impairment charge of $7,000,000, which was the total amount of the Company’s investment recognized for the Second Altira Agreement as of January 31, 2021.

RAFAEL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the year ended July 31, 2021, the Company issued 129,620 shares of Class B Common Stock with a value of $3.5 million to the First Seller under the Purchase Agreement.

Additionally, the Company issued 150,703 shares of Class B Common Stock with a value of $5 million to the Altira Second Seller, and cash payments totaling $2 million to satisfy the remaining non-contingent obligation due to the Altira Second Seller during the year ended July 31, 2021.

Upon the December 2020 acquisition of the additional 33% membership interest, the Company had a majority interest in Altira, which would require consolidation. However, the assets and operations of Altira are not significant to the Company as a whole. The Company has identified the investment in Altira as a related party transaction (see Note 12).

NOTE 5 – INVESTMENT IN RP FINANCE, LLC

On February 3, 2020, Rafael Pharmaceuticals entered into a Line of Credit Loan Agreement (“Line of Credit Agreement”) with RP Finance which provides a revolving commitment of up to $50,000,000 to fund clinical trials and other capital needs.

The Company owns 37.5% of the equity interests in RP Finance and is required to fund 37.5% of funding requests from Rafael Pharmaceuticals under the Line of Credit Agreement. Howard Jonas owns 37.5% of the equity interests in RP Finance, and is required to fund 37.5% of funding requests from Rafael Pharmaceuticals under the Line of Credit Agreement. The remaining 25% equity interests in RP Finance are owned by other shareholders of Rafael Pharmaceuticals.

Under the Line of Credit Agreement, all funds borrowed will bear interest at the mid-term Applicable Federal Rate published by the U.S. Internal Revenue Service. The maturity date is the earlier of February 3, 2025, upon a change of control of Rafael Pharmaceuticals or a sale of Rafael Pharmaceuticals or its assets. Rafael Pharmaceuticals can draw on the facility on 60 days’ notice. The funds borrowed under the Line of Credit Agreement must be repaid out of certain proceeds from equity sales by Rafael Pharmaceuticals.

In connection with entering into the Line of Credit Agreement, Rafael Pharmaceuticals agreed to issue to RP Finance shares of its common stock representing 12% of the issued and outstanding shares of Rafael Pharmaceuticals common stock, with such interest subject to anti-dilution protection as set forth in the Line of Credit Agreement.

RP Finance has been identified as 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 RP Finance that most significantly impact RP Finance’s economic performance and, therefore, is not required to consolidate RP Finance. Therefore, the Company will use the equity method of accounting to record its investment in RP Finance. The Company has recognized approximately $0 and $96 thousand in earnings from its ownership interests of 37.5% in RP Finance for the three months ended January 31, 2022 and 2021, respectively, and a loss of $575 thousand and earnings of $192 thousand from its ownership interests of 37.5% in RP Finance for the six months ended January 31, 2022 and 2021, respectively. The assets and operations of RP Finance are not significant and the Company has identified the equity investment in RP Finance as a related party transaction (see Note 12).

In August 2020, Rafael Pharmaceuticals called for a $5 million draw on the line of credit facility and the facility was funded by RP Finance LLC in the amount of $5 million, paid in parts in August and September 2020. In November 2020, Rafael Pharmaceuticals called for a second $5 million draw on the line of credit facility and the facility was funded by RP Finance in the amount of $5 million. In June 2021 and July 2021, Rafael Pharmaceuticals called for a total aggregate $10 million draw on the line of credit facility and the facility was funded by RP Finance in the amount of $10 million. In September 2021, Rafael Pharmaceuticals called for a $5 million draw on the line of credit facility and the facility was funded by RP Finance LLC in the amount of $5 million, paid in September 2021. For the six months ended January 31, 2022, the Company has funded a total of $1.875 million in accordance with its 37.5% ownership interest in RP Finance.

As of January 31, 2022, the Company has funded a cumulative total of $9.375 million in accordance with its 37.5% ownership interests in RP Finance.

RAFAEL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Impairment of Equity Method Investment

Due to the Data Events, during the three months ended October 31, 2021, the Company recorded equity in the loss of RP Finance of $575 thousand. As of January 31, 2022, the equity method investment on the Company’s balance sheet was $0, and no additional equity loss of RP Finance was recorded during the three months ended January 31, 2022. The Company was not obligated to guarantee obligations of RP Finance and is not committed to provided further financial support for RP Finance. Additionally, during the six months ended January 31, 2022, the Company recorded a loss on related party receivables of $9.375 million related to amounts owed by RP Finance.

NOTE 6 – INVESTMENT IN LIPOMEDIX PHARMACEUTICALS LTD.