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Cyclo Merger

12 Months Ended

Jul. 31, 2025

NOTE 3 - CYCLO MERGER

On March 25, 2025, the Company, Cyclo, Tandem Therapeutics, Inc., a wholly-owned subsidiary of the Company (“First Merger Sub”), and Tandem Therapeutics, LLC, a wholly-owned subsidiary of the Company (“Second Merger Sub”), completed a business combination transaction pursuant to which: (i) First Merger Sub merged with and into Cyclo, with Cyclo being the surviving entity (the “First Merger”), and (ii) immediately following the First Merger, Cyclo merged with and into Second Merger Sub, with Second Merger Sub being the surviving entity (the “Surviving Entity”) of the subsequent merger (the “Second Merger” and together with the First Merger, the “Merger”). As part of the Merger:

a) The Company issued 7,132,228 shares of its Class B common stock in exchange for 20,234,468 shares of common stock of Cyclo (“Cyclo Common Stock”) that were issued and outstanding immediately prior to March 25, 2025 (the “Closing Date”), based on an exchange ratio equal to 0.3525 (the “Exchange Ratio”);

b) All compensatory options (the “Historical Cyclo Options”) to purchase Cyclo Common Stock that were outstanding immediately prior to the Merger were converted into options to acquire, on substantially similar terms and conditions, a number of shares, adjusted based on the Exchange Ratio, of the Company’s Class B common stock (rounded down to the nearest whole share), at an adjusted exercise price per share based upon the Exchange Ratio (rounded up to the nearest whole cent) (the “Rollover Options”);

c) Unless otherwise provided for in outstanding warrant agreements, all outstanding warrants to purchase Cyclo Common Stock (the “Cyclo Warrants”), other than those held by the Company (the “Rafael-Owned Cyclo Warrants”, as defined in Note 4, which were cancelled), converted into warrants to purchase 1,087,100 shares of Rafael’s Class B common stock, at an adjusted exercise price per share based upon the Exchange Ratio (the “Replacement Warrants”). Certain historical Cyclo Warrants provided the holder with the right to elect to receive cash payment in lieu of receiving warrants to purchase Rafael’s Class B common stock and were settled through cash payments totaling $3.6 million; and

d) The outstanding principal and accrued interest on the Cyclo Convertible Notes, as defined in Note 5, were forgiven.

Upon consummation of, and as a result of the Merger, the Company became the primary beneficiary of Cyclo, a VIE that constitutes a business. In accordance with ASC 810, the initial consolidation of a VIE that is a business is a business combination and shall be accounted for in accordance with the provisions in ASC 805, Business Combinations (“ASC 805”).

In accordance with the guidance for a step acquisition in ASC 805, Rafael recognized goodwill on the initial consolidation of Cyclo as of the Closing Date of the Merger, measured as the excess of (a) the sum of (i) the fair value of consideration transferred, (ii) the fair value of any noncontrolling interests in the acquiree, and (iii) the fair value of previously held equity interests, over (b) the net amount of the identifiable assets acquired and liabilities assumed measured in accordance with ASC 805.

The following table presents, in accordance with ASC 805, the sum of (i) the fair value of consideration transferred, (ii) the fair value of any noncontrolling interests in the acquiree, and (iii) the fair value of previously held equity interests (amounts in thousands):

Fair value of consideration
(i) Fair value of Rafael common shares issued¹	$	14,692
Fair value of Rollover Options²		360
Fair value of Replacement Warrants³		472
Cash paid to extinguish warrants⁴		3,586
Fair value of the Cyclo Convertible Notes which were forgiven⁵		21,472
(ii) Fair value of noncontrolling interests		—
(iii) Fair value of previously held equity interests⁶		9,367
Total consideration	$	49,949

⁽¹⁾	The fair value of the 7,132,228 shares of Rafael Class B common stock issued was measured utilizing the share price of Rafael’s Class B common stock of $2.06, which was the closing share price on March 25, 2025.

⁽²⁾

Represents the fair value-based measure of the Rollover Options issued by the Company that is attributable to pre-Merger vesting based on the fair-value-based measure of the Cyclo Options over the requisite service period. The fair value of the Rollover Options was measured utilizing a share price of Rafael Class B common stock of $2.06 and the pre-Merger fair value of the historical Cyclo Options was measured utilizing a share price of Cyclo Common Stock of approximately $0.72, which were their respective closing share prices on March 25, 2025.

⁽³⁾	Represents the fair value of the Replacement Warrants that were measured utilizing a share price of Rafael’s Class B common stock of $2.06, which was the closing share price on March 25, 2025.

⁽⁴⁾

Represents the cash-settlement amount paid to the holders of certain Cyclo Warrants that exercised their rights under provisions within their warrant agreements that granted the holders an option to elect cash-settlement upon certain events. The Merger with Cyclo triggered the option to elect cash-settlement and certain holders of these certain warrants elected to receive cash payment in lieu of receiving warrants to purchase Rafael Class B common stock.

⁽⁵⁾	Represents the outstanding principal and accrued interest on the Cyclo Convertible Notes which were forgiven as part of the Merger. At the Closing Date of the Merger, the fair value of the Cyclo Convertible Notes equaled the outstanding principal and accrued interest of $21.5 million.

⁽⁶⁾

Rafael’s Prior Investment in Cyclo, as defined in Note 4, represents previously held equity interests in Cyclo that were included in the purchase price at their fair values as of the closing of the Merger. Rafael’s ownership of 12,998,194 shares of Cyclo Common Stock prior to the Merger was valued at $9.4 million based on the share price of Cyclo Common Stock of approximately $0.72, which was the closing share price on March 25, 2025. The Rafael-Owned Cyclo Warrants are ascribed a fair value of $0 in the measurement of previously held equity interests above as their exercise prices were greater than the share price of Cyclo Common Stock of approximately $0.72, which was the closing share price on March 25, 2025 and the Rafael-Owned Cyclo Warrants were cancelled at the consummation of the Merger.

The following table presents the preliminary fair values of the identifiable assets acquired and liabilities assumed and goodwill recognized, measured in accordance with ASC 805 (amounts in thousands):

Assets acquired and liabilities assumed
Cash	$	877
Accounts receivable		112
Inventory		270
Prepaid expenses and other current assets		2,690
Property and equipment		22
Prepaid expenses, noncurrent		1,041
Other assets		27
Other receivable		933
Intangible assets - customer relationships		1,040
Acquired In Process Research & Development (IPR&D)		30,000
Accounts payable		(5,208	)
Accrued expenses		(1,464	)
Other current liabilities		(20	)
Deferred tax liabilities		(303	)
Other liabilities		(7	)
Total identifiable net assets acquired	$	30,010
Goodwill	$	19,939

The preliminary fair values of the assets acquired and liabilities assumed in the Merger are subject to change as the Company performs additional reviews of the assumptions utilized. During the fourth quarter ended July 31, 2025, the Company recognized a measurement period adjustment to reflect an acquired other receivable of $933 thousand representing Employee Retention Credits due to Cyclo (see Note 26), with a corresponding decrease to goodwill. In addition, the Company recognized a measurement period adjustment to reduce the balances of acquired prepaid expenses and assumed accounts payable by $551 thousand to align the recognition and classification of prepaid expenses with the Company’s accounting policies. During the measurement period, Cyclo conducted a federal and state valuation allowance analysis to align deferred tax liability reversals with the expected use of deferred tax assets. This included considerations for Section 382 limitations and changes made to Net Operating Loss (NOL) deductions by the Tax Cuts and Jobs Act. Based on the analysis, the Company recognized a measurement period adjustment which decreased the deferred tax liability by $8.699 million on Cyclo’s opening balance sheet, with an offset to goodwill. As discussed in Note 2 – Summary of Significant Accounting Policies – Out of Period Correction, the Company also recognized an out of period correction to account for additional assumed accrued liabilities as of the Merger date. The correction resulted in an increase to assumed accrued liabilities of $1.293 million, with a corresponding increase to goodwill.

Further adjustments may be necessary as additional information related to the fair values of assets acquired, liabilities assumed, and tax implications thereon is assessed during the measurement period (up to one year from the acquisition date). The final purchase accounting will be completed within the one-year measurement period following the Closing Date of the Merger.

The Company incurred transaction costs of $1.0 million and $0.1 million for the years ended July 31, 2025 and 2024, respectively, for consulting, legal, accounting, and other professional fees that have been expensed as general and administrative expenses, as incurred, in connection with the Merger.

To value the IPR&D and Customer Relationships, the Company utilized the Multi-Period Excess Earnings Method (“MPEEM”), under the Income Approach. The method considers the present value of excess earnings generated by Cyclo’s IPR&D and customers after taking into account the cost to realize the revenue, charges for contributory assets and an appropriate discount rate to reflect the time value and risk associated with the invested capital. IPR&D acquired represents Cyclo’s research and development activities related to its lead drug candidate Trappsol® Cyclo™ (hydroxypropyl beta cyclodextrin) as a treatment for Niemann-Pick Type C disease (“NPC”). The acquired Customer Relationships are related to Cyclo’s Specialty Chemicals business. The identifiable intangible assets associated with Customer Relationships are being amortized on a straight-line basis over their preliminary estimated useful lives of eight years. IPR&D is considered an indefinite lived asset.

The Merger has been treated as a tax-free reorganization and therefore Cyclo’s tax basis in the assets acquired and liabilities assumed will carry over. Accordingly, the Company recognized net deferred tax liabilities associated with the Merger of $0.3 million.

The goodwill acquired, which is not tax deductible, represents the excess of the purchase price over the fair values of the net identifiable assets of the business acquired.

Post-Merger operating results

The following table reflects Cyclo’s revenue and loss from operations included in Rafael’s consolidated statement of operations subsequent to the Closing Date of the Merger:

(in thousands)	Year ended July 31, 2025
Product revenue	$	482
Loss from operations		(11,324	)

Pro Forma Financial Information

The following pro forma condensed combined financial information has been prepared to present the combination on a pro forma basis of the historical consolidated financial statements of Rafael and the historical financial statements of Cyclo, after giving effect to the Merger, as if the Merger had occurred on August 1, 2023.

The pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the Merger with Cyclo had taken place on the date noted above, or of results that may occur in the future.

	Year Ended July 31,
*(in thousands)*	2025			2024
Revenue	$	2,046		$	1,769
Loss from operations		(59,786	)		(126,267	)
Net loss attributable to common stockholders		(53,841	)		(59,273	)

The pro forma loss from operations for the year ended July 31, 2024 includes $2.4 million of transaction costs related to the Merger, of which $1.4 million was incurred by Cyclo and $1.0 million was incurred by Rafael.