| Description of Business and Summary of Significant Accounting Policies | Note
1 — Description of Business and Summary of Significant Accounting Policies Description
of Business Rafael
Holdings, Inc. (“Rafael Holdings”), a Delaware corporation, is comprised of all of the accounts of the following wholly-owned
subsidiaries: IDT 225 Old NB Road, LLC, a Delaware limited liability company; Rafael Realty LLC, a New Jersey limited liability
company; I.D.T. R.E. Holdings, Ltd., an Israeli company; Broad-Atlantic Associates LLC, a Delaware limited liability company;
and Rafael Realty Holdings, Inc., a Delaware corporation. Additionally, it includes the accounts of the 50.6% LipoMedix Pharmaceuticals,
Ltd., an Israeli Company, the 69.3% owned Hillview Avenue Realty, a Delaware limited liability company and Hillview Avenue Realty
JV, a Delaware limited liability company and the 90% owned IDT-Rafael Holdings, LLC, a Delaware limited liability company, in
which the Company owns its 50% interest in CS Pharma Holdings, LLC (effectively, a 45% interest). The
“Company” in these financial statements refers to Rafael Holdings on this consolidated and combined basis as if Rafael
Holdings existed and owned the above interests in these entities in all periods presented. All
significant intercompany accounts and transactions have been eliminated in consolidation or combination. Properties
The
Company owns commercial real estate located at 520 Broad Street, Newark, New Jersey, which serves as headquarters for IDT Corporation
(“IDT”), Genie Energy Ltd. and 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 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 ending in the calendar year indicated (e.g., fiscal year 2018 refers to the fiscal year ending July 31, 2018). The
Company’s Spin-Off The
Company was formerly a subsidiary of IDT. On March 26, 2018, IDT spun-off the Company to IDT’s stockholders and the Company
became an independent public company through a pro rata distribution of the Company’s common stock held by IDT to IDT’s
stockholders (the “Spin-Off”). As a result of the Spin-Off, each of IDT’s stockholders received: (i) one share
of the Company’s Class A common stock for every two shares of IDT’s Class A common stock held of record on March 13,
2018 (the “Record Date”), and (ii) one share of the Company’s Class B common stock for every two shares of IDT’s
Class B common stock held of record on the Record Date. On March 26, 2018, 787,163 shares of the Company’s Class A common
stock, and 11,754,835 shares of the Company’s Class B common stock were issued and outstanding, which includes 114,945 restricted
stock units issued to employees and consultants in connection with the spin. The
Company entered into various agreements with IDT prior to the Spin-Off including a Separation and Distribution Agreement to effect
the separation and provide a framework for the Company’s relationship with IDT after the Spin-Off, and a Transition Services
Agreement, which provides for certain services to be performed by IDT to facilitate the Company’s transition into a separate
publicly-traded company. These agreements provide for, among other things, (1) the allocation between the Company and IDT
of employee benefits, taxes and other liabilities and obligations attributable to periods prior to the Spin-Off, (2) transitional
services to be provided by IDT relating to human resources and employee benefits administration, and (3) finance, accounting,
tax, investor relations and legal services to be provided by IDT to the Company following the Spin-Off. In addition, the Company
entered into a Tax Separation Agreement with IDT, which sets forth the responsibilities of the Company and IDT with respect to,
among other things, liabilities for federal, state, local and foreign taxes for periods before and including the Spin-Off, the
preparation and filing of tax returns for such periods and disputes with taxing authorities regarding taxes for such periods. Use
of Estimates The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from those estimates. Revenue
Recognition Contractual
rental revenue is reported on a straight-line basis over the terms of the respective leases. Accrued rental income, included
within Accounts and Rents Receivable and Other Assets on the consolidated and combined balance sheets, represents cumulative
rental income earned in excess of rent payments received pursuant to the terms of the individual lease agreements. 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. Recoveries
from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs
are recognized as revenue in the period during which the expenses are incurred. Tenant reimbursements are recognized and presented
in accordance with guidance in ASC 605-45 “Principal Agent Considerations” (“ASC 605-45”). ASC 605-45
requires that these reimbursements be recorded on a gross basis, as: the Company is generally the primary obligor with respect
to purchasing goods and services from third-party suppliers; has discretion in selecting the supplier; and has credit risk. The
Company’s parking revenues are derived from monthly parking and transient parking. The Company recognizes parking revenue
as earned. 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 year ended July 31, 2018, related parties and one customer represented 51%, and 10% of
the Company’s revenue, respectively, and as of July 31, 2018, five customers represented 28%, 16%, 12%, 12%, and 12% of the Company’s
accounts receivable balance, respectively. For the year ended July 31, 2017, related parties represented 64% of the Company’s
revenue, and as of July 31, 2017, three customers represented 27%, 26% and 24% of the Company’s accounts receivable balance,
respectively. For the year ended July 31, 2016, related parties represented 67% of the Company’s revenue, and as of July 31, 2016,
four customers represented 19%, 14%, 13% and 11% of the Company’s accounts receivable balance, respectively. Long-Lived
Assets Equipment,
buildings, equipment and furniture and fixtures are recorded at cost and are depreciated on a straight-line basis over their estimated
useful lives, which range as follows:
Classification Years
Building
and Improvements 40
Tenant
Improvements 7
Other
(primarily equipment and furniture and fixtures) 5 The
Company tests the recoverability of its long-lived assets with finite useful lives whenever events or changes in circumstances
indicate that the carrying value of the asset may not be recoverable. The Company tests for recoverability based on the projected
undiscounted cash flows to be derived from such asset. If the projected undiscounted future cash flows are less than the carrying
value of the asset, the Company will record an impairment loss, if any, based on the difference between the estimated fair value
and the carrying value of the asset. The Company generally measures fair value by considering sale prices for similar assets or
by discounting estimated future cash flows from such asset using an appropriate discount rate. Cash flow projections and fair
value estimates require significant estimates and assumptions by management. Should the estimates and assumptions prove to be
incorrect, the Company may be required to record impairments in future periods and such impairments could be material. 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. Marketable
Securities The
Company’s investments in marketable securities are classified as “available-for-sale.” Available-for-sale securities
are required to be carried at their fair value, with unrealized gains and losses (net of income taxes) that are considered temporary
in nature recorded in “Accumulated other comprehensive loss” in the accompanying consolidated and combined balance
sheets. The Company uses the specific identification method in computing the gross realized gains and gross realized losses on
the sales of marketable securities. The Company periodically evaluates its investments in marketable securities for impairment
due to declines in market value considered to be other than temporary. Such impairment evaluations include, in addition to persistent,
declining market prices, general economic and Company-specific evaluations. If the Company determines that a decline in market
value is other than temporary, then a charge to operations is recorded in “Other expenses, net” in the accompanying
consolidated and combined statements of income and a new cost basis in the investment is established. 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 includes the identification of any variable interests in which the Company is the primary beneficiary.
The consolidated and combined financial statements include the Company’s controlled affiliates. In addition, Rafael
Pharmaceuticals (see Note 7) is a variable interest entity; 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. All significant intercompany accounts and transactions between the
consolidated and combined 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. Equity and cost method investments are included “Investments – Rafael Pharmaceuticals”
and “Investments – Other” in the accompanying consolidated and combined balance sheets. The
Company periodically evaluates its equity and cost method 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 “Other Expenses, net” in the accompanying consolidated and combined statements of income, and a
new basis in the investment is established. Income
Taxes The
accompanying consolidated and combined financial statements include provisions for federal, state and foreign income taxes. Prior
to the Spin-Off, the Company joined with its Parent and other affiliates in filing a federal income tax return on a combined basis.
Income taxes for the Company for periods prior to the Spin-Off are calculated on a separate tax return basis. Our income taxes
for the period subsequent to the Spin-Off will be filed on our initial consolidated standalone return with the IRS. The
Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between
the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance
is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate
realization of deferred tax assets depends on the generation of future taxable income during the period in which related temporary
differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in its assessment of a valuation allowance. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date of such change. The
Company uses a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. The
Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution
of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position
has met the more-likely-than-not recognition threshold, the Company presumes that the position will be examined by the appropriate
taxing authority that has full knowledge of all relevant information. Tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of tax benefit to recognize in the financial statements. The tax position is measured
at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Differences
between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one or
more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a
reduction in a deferred tax asset, or an increase in a deferred tax liability. The
Company classifies interest and penalties on income taxes as a component of income tax expense. In
November 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-17, “ Balance Sheet Classification
of Deferred Taxes Contingencies The
Company accrues for loss contingencies when both (a) information available prior to issuance of the financial statements
indicates that it is probable that a liability had been incurred at the date of the financial statements and (b) the amount
of loss can reasonably be estimated. When the Company accrues for loss contingencies and the reasonable estimate of the loss is
within a range, the Company records its best estimate within the range. When no amount within the range is a better estimate than
any other amount, the Company accrues the minimum amount in the range. The Company discloses an estimated possible loss or a range
of loss when it is at least reasonably possible that a loss may have been incurred. Fair
Value Measurements Fair
value of financial and non-financial assets and liabilities is defined as an exit price, which is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The three-tier hierarchy for inputs used to measure fair value, which prioritizes the inputs to valuation techniques used to measure
fair value, is as follows:
Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 — unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A
financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is
significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement
requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair
value hierarchy. Functional
Currency The
U.S. Dollar is the functional currency of our entities operating in the United States. The functional currency for our
subsidiary operating outside of the United States is the New Israeli Shekel, the currency of the primary economic environment
in which the subsidiary primarily expends cash. For consolidated and combined entities whose functional currency is not the
U.S. Dollar, the Company translates their financial statements into U.S. dollars. The Company translates assets and
liabilities at the exchange rate in effect as of the financial statement date, and translate accounts from the statements of
comprehensive income (loss) using the weighted average exchange rate for the period. The Company reports gains and losses
from currency exchange rate changes related to intercompany receivables and payables, currently in non-operating
expenses. Allowance
for Doubtful Accounts The
allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the accounts receivable
balance. The allowance is determined based on known troubled accounts, historical experience and other currently available evidence.
Doubtful accounts are written-off upon final determination that the trade accounts will not be collected. The computation of this
allowance is based on the tenants’ or parking customers’ payment histories and current credit statuses, as well as
certain industry or geographic specific credit considerations. If the Company’s estimates of collectability differ from
the cash received, then the timing and amount of the Company’s reported revenue could be impacted. The credit risk is mitigated
by the high quality of the Company’s existing tenant base, inclusive of related parties, which represented 51%, 64%, and
67% of the Company’s revenue for the years ended July 31, 2018, 2017 and 2016, respectively. The Company recorded bad debt
expense of $0, $0, and $82,000 for the years ended July 31, 2018, 2017 and 2016, respectively. Research
and Development Costs Costs
for research and development are charged to expense as incurred. Research and development costs were incurred by LipoMedix. Repairs
and Maintenance The
Company charges the cost of repairs and maintenance, including the cost of replacing minor items not constituting substantial
betterment, to selling, general and administrative expenses as these costs are incurred. Earnings
Per Share Basic
earnings per share is computed by dividing net income attributable to all classes of common stockholders of the Company by the
weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings per
share is determined in the same manner as basic earnings per share, except that the number of shares is increased to include restricted
stock still subject to risk of forfeiture and to assume exercise of potentially dilutive stock options using the treasury stock
method, unless the effect of such increase is anti-dilutive. Stock
Based Compensation The
Company recognizes compensation expense for all of its grants of stock-based awards based on the estimated fair value on the grant
date. 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. On
August 1, 2017, the Company adopted the ASU intended to improve the accounting for employee share-based payments. The ASU
simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences and
classification on the statement of cash flows. The adoption of the ASU did not have a significant impact on the
Company’s consolidated and combined financial statements. Other In
March 2016, the FASB issued an ASU to improve the accounting for employee share-based payments. The new standard simplifies
several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification
of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted the new
standard on August 1, 2017. The adoption of the new standard did not have a significant impact on the Company’s
consolidated and combined financial statements. Recently
Issued Accounting Standards Not Yet Adopted In
May 2014, the Financial Accounting Standards Board (“FASB”), and the International Accounting Standards Board jointly
issued a comprehensive new revenue recognition standard that will supersede most of the current revenue recognition guidance under
U.S. GAAP and International Financial Reporting Standards (“IFRS”). The goals of the revenue recognition project were
to clarify and converge the revenue recognition principles under U.S. GAAP and IFRS and to develop guidance that would streamline
and enhance revenue recognition requirements. The Company will adopt this standard on August 1, 2018. Entities have the option
of using either a full retrospective or modified retrospective approach for the adoption of the standard. The Company is evaluating
the impact that the standard will have on its consolidated financial statements. In
January 2016, the FASB issued an ASU to provide more information about recognition, measurement, presentation and disclosure of
financial instruments. The Company adopted the amendments in this ASU on August 1, 2018. The amendments in the ASU include, among
other changes, the following: (1) equity investments (except those accounted for under the equity method or that result in consolidation)
will be measured at fair value with changes in fair value recognized in net income, (2) a qualitative assessment each reporting
period to identify impairment of equity investments without readily determinable fair values, (3) financial assets and financial
liabilities will be presented separately by measurement category and form of financial asset on the balance sheet or the notes
to the financial statements, and (4) an entity should evaluate the need for a valuation allowance on a deferred tax asset related
to available-for-sale securities in combination with the entity’s other deferred tax assets. Entities will no longer be
able to recognize unrealized holding gains and losses on equity securities classified as available-for-sale in other comprehensive
income. In addition, a practicability exception will be available for equity investments that do not have readily determinable
fair values and do not qualify for the net asset value practical expedient. These investments may be measured at cost, less any
impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar
investment of the same issuer. Entities will have to reassess at each reporting period whether an investment qualifies for this
practicability exception. The Company is evaluating the impact that the standard will have on its consolidated financial statements. In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) In
June 2016, the FASB issued an ASU that changes the impairment model for most financial assets and certain other instruments. For
receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model
that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized
losses, entities will measure credit losses in a manner similar to current practice, except the losses will be recognized as allowances
instead of reductions in the amortized cost of the securities. In addition, an entity will have to disclose significantly more
information about allowances, credit quality indicators and past due securities. The new provisions will be applied as a cumulative-effect
adjustment to retained earnings. The Company will adopt the new standard on August 1, 2020. The Company is evaluating the impact
that the new standard will have on its consolidated financial statements. In
August 2017, the FASB issued an ASU intended to improve the financial reporting of hedging relationships to better portray the
economic results of an entity’s risk management activities in its financial statements. In addition, the ASU includes certain
targeted improvements to simplify the application of hedge accounting guidance in U.S. GAAP. The amendments in this ASU are effective
for the Company on August 1, 2019. Early application is permitted. Entities will apply the amendments to cash flow and net investment
hedge relationships that exist on the date of adoption using a modified retrospective approach. The presentation and disclosure
requirements will be applied prospectively. The Company is evaluating the impact that this ASU will have on its consolidated financial
statements. In
June 2018, the FASB issued an ASU to simplify several aspects of the accounting for nonemployee share-based payment transactions
by expanding the scope of Topic 718, Compensation—Stock Compensation Revenue from Contracts with Customers In
August 2018, the FASB issued an ASU that modifies the disclosure requirements for fair value measurements. The amendments in this
ASU are effective for the Company on August 1, 2020. An entity is permitted to early adopt any removed or modified disclosures
and delay adoption of the additional disclosures until their effective date. The Company expects to adopt this ASU for its financial
statements beginning in the first quarter of fiscal 2019. The adoption of this ASU will only impact the fair value measurement
disclosures in the Company’s consolidated financial statements. |
