Rafael Holdings, Inc. Fair Value Disclosure

NOTE 15 – FAIR VALUE MEASUREMENTS

 

Fair value is defined as 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. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

 

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Level 1 - quoted prices in active markets for identical assets or liabilities;

 

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Level 2 - quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or

 

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Level 3 - unobservable inputs for the asset or liability, such as discounted cash flow models or valuations.

 

The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

The Company’s assets required to be measured at fair value on a recurring basis and where they are classified within the fair value hierarchy as of July 31, 2025 and July 31, 2024 are as follows:

 

		July 31, 2025
		Level 1				Level 2				Level 3				Total
Assets:		(in thousands)
Convertible notes receivable classified as available-for-sale		$	—			$	—			$	1,858			$	1,858
Total		$	—			$	—			$	1,858			$	1,858

 

		July 31, 2024
		Level 1				Level 2				Level 3				Total
Assets:		(in thousands)
Available-for-sale securities - Corporate and U.S. Agency Bonds		$	—			$	59,298			$	—			$	59,298
Available-for-sale securities - U.S. Treasury Bills			3,967				—				—				3,967
Investment in Cyclo - Common Stock			10,746				—				—				10,746
Convertible notes receivable, due from Cyclo			—				—				5,191				5,191
Investment in Cyclo - Warrants			—				—				1,264				1,264
Hedge funds			—				—				2,547				2,547
Convertible notes receivable classified as available-for-sale			—				—				1,146				1,146
Total		$	14,713			$	59,298			$	10,148			$	84,159

 

As of July 31, 2025 and July 31, 2024, the Company did not have any liabilities measured at fair value on a recurring basis.

The following table summarizes the changes in the fair value of the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

 

		Year Ended July 31,
		2025				2024
		(in thousands)
Balance, beginning of period		$	10,148			$	6,905
Withdrawal from Hedge Fund Investments			(2,547	)			(2,500	)
Unrealized gain on Hedge Fund			—				63
Investment in Cyclo Warrants			—				1,338
Unrealized loss on Cyclo Warrants			(1,264	)			(74	)
Funding of Cyclo Convertible Notes			19,500				4,000
Unrealized gain on issuance of Cyclo Convertible Notes			—				1,313
Change in fair value of Cyclo Convertible Notes			(719	)			(122	)
Conversion of Cyclo Convertible Note			(2,500	)			—
Forgiveness of Cyclo Convertible Notes in the Cyclo Merger			(21,472	)			—
Unrealized gain on Convertible note receivable, related party			—				742
Realized gain on convertible note receivable, related party released from accumulated other comprehensive income			—				(663	)
Conversion of convertible note receivable, related party			—				(2,000	)
Unrealized gain on convertible note receivable			—				—
Issuance of new convertible notes receivable			500				1,000
Change in fair value of convertible notes receivable classified as available-for sale			212				146
Balance, end of period		$	1,858			$	10,148

 

Hedge funds classified as Level 3 include investments and securities which may not be based on readily observable data inputs. The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. The fair value of these assets is estimated based on information provided by the fund managers or the general partners. Therefore, these assets are classified as Level 3. During the year ended July 31, 2025, the Company withdrew its remaining balance in Hedge Fund Investments and recognized a realized loss of $2 thousand upon the withdrawal’s approval.

 

Available-for-sale securities classified as Level 3 include convertible notes receivable which may not be based on readily observable data inputs. The availability of observable inputs can vary and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. The fair value of these assets is estimated using a scenario-based analysis based on the probability-weighted present value of future investment returns, considering each of the possible outcomes available to us, including cash repayment, equity conversion, and collateral transfer scenarios. Estimating the fair value of the convertible notes receivable requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. Therefore, these assets are classified as Level 3.

 

Fair Value of Other Financial Instruments

 

The estimated fair value of the Company’s other financial instruments was determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting these data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.

 

The Company’s financial instruments include trade accounts receivable, trade accounts payable, and due from related parties. The recorded carrying amounts of accounts receivable, accounts payable and due to related parties approximate their fair value due to their short-term nature.