ctdh20240930

ctdh20240930_10q.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: September 30, 2024

☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____ to ____

Commission file number: 0-25466

CYCLO THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Nevada		59-3029743
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

6714 NW 16th Street, Suite B, Gainesville, Florida		32653
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: 386-418-8060

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.0001 per share	CYTH	The Nasdaq Stock Market LLC
Warrants to purchase Common Stock	CYTHW	The Nasdaq Stock Market LLC

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 every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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)

☐Yes ☒ No

As of November 12, 2024, the Company had outstanding 28,768,055 shares of its common stock.

CYCLO THERAPEUTICS, INC.

FORM 10-Q

TABLE OF CONTENTS

	Description	Page

PART I	FINANCIAL INFORMATION	1
Item 1.	Financial Statements.	1
	Condensed Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023.	1
	Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023.	2
	Condensed Consolidated Statement of Stockholders’ Equity (Deficit) (Unaudited) for the Three Months Ended September 30, 2024 and 2023.	3
	Condensed Consolidated Statement of Stockholders’ Equity (Deficit) (Unaudited) for the Nine Months Ended September 30, 2024 and 2023.	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2024 and 2023.	5
	Notes to Condensed (Unaudited) Consolidated Financial Statements.	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	26
Item 4.	Controls and Procedures.	27
PART II	OTHER INFORMATION	28
Item 1.	Legal Proceedings.	28
Item 1A.	Risk Factors.	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	28
Item 3.	Defaults Upon Senior Securities.	28
Item 4.	Mine Safety Disclosures.	28
Item 5.	Other Information.	28
Item 6.	Exhibits.	29

SIGNATURES		31

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2024			December 31, 2023
	(unaudited)
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	928,010		$	9,246,592
Accounts receivable, net of allowances of $0 and $10,272, respectively		187,682			122,379
Inventory		236,110			254,352
Prepaid insurance and services		177,836			384,889
Prepaid clinical expenses		1,726,970			2,310,045
Total current assets		3,256,608			12,318,257

FURNITURE AND EQUIPMENT, NET		19,988			38,332

RIGHT-OF-USE LEASE ASSETS, NET		26,636			890,949

NON-CURRENT PREPAID CLINICAL EXPENSES		1,950,670			-

TOTAL ASSETS	$	5,253,902		$	13,247,538

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Current portion of lease liabilities	$	20,116		$	1,010,631
Convertible note payable		12,178,000			-
Accounts payable and accrued expenses		6,521,983			7,457,416
Total current liabilities		18,720,099			8,468,047

LONG-TERM LIABILITIES
Lease liabilities, net of current portion		7,143			22,484
Total long-term liabilities		7,143			22,484
Commitments and contingencies (Note 13)

STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $.0001 per share, 5,000,000 shares authorized, 0 outstanding		-			-
Common stock, par value $.0001 per share, 250,000,000 shares authorized, 28,768,055 and 28,556,072 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively		2,877			2,856
Additional paid-in capital		89,537,725			88,610,832
Accumulated deficit		(103,013,942	)		(83,856,681	)
Total stockholders' equity (deficit)		(13,473,340	)		4,757,007

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (deficit)	$	5,253,902		$	13,247,538

See accompanying Notes to Condensed Consolidated Financial Statements.

- 1 -

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2024			2023			2024			2023

REVENUES
Product sales	$	233,772		$	495,477		$	559,326		$	765,006
Cost of goods sold (exclusive of direct and indirect overhead and handling costs)		16,798			38,767			42,002			68,872
GROSS PROFIT		216,974			456,710			517,324			696,134

EXPENSES
Personnel		843,157			834,878			2,581,207			2,526,700
Research and development		5,492,844			3,469,067			11,830,127			10,037,433
Repairs and maintenance		3,495			847			13,822			9,162
Professional fees		1,412,432			597,095			2,430,263			1,494,332
Office and other		640,590			220,607			2,361,381			775,922
Board of Director fees and costs		111,281			95,560			327,061			243,143
Depreciation		2,177			4,819			6,531			14,457
Freight and shipping		441			1,297			1,315			2,519
Loss on disposal of equipment		-			-			11,813			-
Total expenses		8,506,417			5,224,170			19,563,520			15,103,668

LOSS FROM OPERATIONS		(8,289,443	)		(4,767,460	)		(19,046,196	)		(14,407,534	)

OTHER INCOME (EXPENSE)
Investment and other income (expense), net		549,621			(3,893	)		591,312			(7,359	)
Lease income		373,878			-			1,475,623			-
Loss on change in fair value of convertible promissory note		(1,467,000	)		-			(2,178,000	)		-
Total other income (expense), net		(543,501	)		(3,893	)		(111,065	)		(7,359	)

LOSS BEFORE PROVISION FOR INCOME TAXES		(8,832,944	)		(4,771,353	)		(19,157,261	)		(14,414,893	)

PROVISION FOR INCOME TAXES		-			-			-			-

NET LOSS	$	(8,832,944	)	$	(4,771,353	)	$	(19,157,261	)	$	(14,414,893	)

BASIC AND DILUTED NET LOSS PER COMMON SHARE	$	(0.31	)	$	(0.29	)	$	(0.67	)	$	(1.00	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES BASIC AND DILUTED OUTSTANDING		28,729,641			16,191,723			28,674,910			14,394,920

See accompanying Notes to Condensed Consolidated Financial Statements.

- 2 -

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024 and 2023

(Unaudited)

	Common Stock										Total
	Shares		Par Value		Additional Paid-In Capital			Accumulated Deficit			Stockholders’ Equity (Deficit)

Balance, June 30, 2024		28,696,028	$	2,870	$	89,055,380		$	(94,180,998	)	$	(5,122,748	)

Merger recapitalization transaction costs		-		-		(1,396	)		-			(1,396	)

Adjustment to merger recapitalization liability		-		-		214,169			-			214,169

Stock issued to nonemployees		72,027		7		90,747						90,754

Stock-based compensation		-		-		178,825			-			178,825

Net loss		-		-		-			(8,832,944	)		(8,832,944	)

Balance, September 30, 2024		28,768,055	$	2,877	$	89,537,725		$	(103,013,942	)	$	(13,473,340	)

Balance, June 30, 2023		15,308,449	$	1,531	$	71,956,553		$	(73,442,919	)	$	(1,484,835	)

Sale of common stock		4,000,000		400		4,999,600			-			5,000,000

Exercise of stock options		1,155		-		1,478			-			1,478

Stock issued to nonemployees		55,485		6		75,454			-			75,460

Stock-based compensation		-		-		126,580						126,580

Net loss		-		-		-			(4,771,353	)		(4,771,353	)

Balance, September 30, 2023		19,365,089	$	1,937	$	77,159,665		$	(78,214,272	)	$	(1,052,670	)

See accompanying Notes to Condensed Consolidated Financial Statements.

- 3 -

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 and 2023

(Unaudited)

	Common Stock										Total
	Shares		Par Value		Additional Paid-In Capital			Accumulated Deficit			Stockholders’ Equity Deficit)

Balance, December 31, 2023		28,556,072	$	2,856	$	88,610,832		$	(83,856,681	)	$	4,757,007

Merger recapitalization transaction costs		-		-		(95,911	)		-			(95,911	)

Adjustment to merger recapitalization liability		-		-		214,169			-			214,169

Stock issued to nonemployees		211,983		21		287,370			-			287,391

Stock-based compensation		-		-		521,265			-			521,265

Net loss		-		-		-			(19,157,261	)		(19,157,261	)

Balance, September 30, 2024		28,768,055	$	2,877	$	89,537,725		$	(103,013,942	)	$	(13,473,340	)

Balance, December 31, 2022		8,481,848	$	849	$	64,533,074		$	(63,799,379	)	$	734,544

Sale of common stock and accompanying warrants, net		9,007,853		900		12,145,989			-			12,146,889

Exercise of warrants		1,678,696		168		-			-			168

Exercise of stock options		1,155		-		1,478			-			1,478

Stock issued to nonemployees		195,537		20		219,694			-			219,714

Stock-based compensation		-		-		259,430			-			259,430

Net loss		-		-		-			(14,414,893	)		(14,414,893	)

Balance, September 30, 2023		19,365,089	$	1,937	$	77,159,665		$	(78,214,272	)	$	(1,052,670	)

See accompanying Notes to Condensed Consolidated Financial Statements.

- 4 -

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(19,157,261	)	$	(14,414,893	)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		6,531			14,457
Loss on disposal of equipment		11,813			-
Stock-based compensation		521,265			259,430
Stock compensation to nonemployees		287,391			219,714
Loss on change in fair value of convertible promissory note		2,178,000			-
Increase or decrease in:
Accounts receivable, net		(65,303	)		(248,769	)
Inventory, net		18,242			44,736
Prepaid clinical expenses		(1,367,595	)		(841,350	)
Prepaid insurance and services		65,510			(49,187	)
Other		-			1,883
Accounts payable and accrued expenses		(721,264	)		3,123,835
Total adjustments		934,590			2,524,749

NET CASH USED IN OPERATING ACTIVITIES		(18,222,671	)		(11,890,144	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of warrants		-			2,917,581
Net proceeds from sale of stock		-			9,229,308
Merger transaction costs		(95,911	)		-
Exercise of stock options		-			1,478
Exercise of warrants		-			168
Net proceeds from issuance of convertible note		10,000,000			-
NET CASH PROVIDED BY FINANCING ACTIVITIES		9,904,089			12,148,535

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(8,318,582	)		258,391

CASH AND CASH EQUIVALENTS, beginning of period		9,246,592			1,543,418

CASH AND CASH EQUIVALENTS, end of period	$	928,010		$	1,801,809

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	2,318		$	9,807

See accompanying Notes to Condensed Consolidated Financial Statements.

- 5 -

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The information presented herein as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 is unaudited.

(1) ORGANIZATION AND DESCRIPTION OF BUSINESS:

Cyclo Therapeutics, Inc. (the “Company,” “we,” “our” or “us”) was incorporated in August 1990 as a Florida corporation under the name Cyclodextrin Technologies Development, Inc. with operations beginning in July 1992. In conjunction with a restructuring in 2000, we changed our name to CTD Holdings, Inc. We changed our name to Cyclo Therapeutics, Inc. in September 2019 to better reflect our current business and, on November 6, 2020, we reincorporated from the State of Florida to the State of Nevada.

On December 27, 2023, the Company completed a strategic combination pursuant to that certain Agreement and Plan of Merger, dated as of September 21, 2023, by and among the Company, Cameo Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company ("Merger Sub”), and Applied Molecular Transport Inc., a Delaware corporation ("AMTI”), providing for the merger of Merger Sub with and into AMTI, with AMTI surviving the merger as a wholly-owned subsidiary of the Company (the "AMTI Merger”).

We are a clinical stage biotechnology company that develops cyclodextrin-based products for the treatment of neurodegenerative diseases. We filed a Type II Drug Master File with the U.S. Food and Drug Administration (“FDA”) in 2014 for our lead drug candidate, Trappsol® Cyclo™ (hydroxypropyl beta cyclodextrin) as a treatment for Niemann-Pick Type C disease (“NPC”). NPC is a rare and fatal autosomal recessive genetic disease resulting in disrupted cholesterol metabolism that impacts the brain, lungs, liver, spleen, and other organs. In 2015, we launched an International Clinical Program for Trappsol® Cyclo™ as a treatment for NPC. In 2016, we filed an Investigational New Drug application (“IND”) with the FDA, which described our Phase I clinical plans for a randomized, double blind, parallel group study at a single clinical site in the U.S. The Phase I study evaluated the safety and pharmacokinetics of Trappsol® Cyclo™ along with markers of cholesterol metabolism and markers of NPC during a 12-week treatment period of intravenous administration of Trappsol® Cyclo™ every two weeks to participants 18 years of age and older. The IND was approved by the FDA in September 2016, and in January 2017 the FDA granted Fast Track designation to Trappsol® Cyclo™ for the treatment of NPC. Initial patient enrollment in the U.S. Phase I study commenced in September 2017, and in May 2020 we announced top line data showing Trappsol® Cyclo™ was well tolerated in this study.

We have also completed a Phase I/II clinical study approved by European regulatory bodies with clinical trial centers in the United Kingdom, Sweden, and Israel. The Phase I/II study evaluated the safety, tolerability and efficacy of Trappsol® Cyclo™ through a range of clinical outcomes, including neurologic, respiratory, and measurements of cholesterol metabolism and markers of NPC. Consistent with the 12-week Phase I study (single US site), the European/Israel study administered Trappsol® Cyclo™ intravenously to NPC patients every two weeks in a double-blind, randomized trial, but differs in that the study period was for 48 weeks (24 doses). In March of 2021 we announced that 100% of patients who completed the trial (9 out of 12) improved or remained stable, and 89% met the outcome measure in at least two domains of the 17-domain NPC severity scale. We did not conduct a Phase II trial in the U.S. and instead relied on the data obtained from our Phase I/II trial abroad to support the commencement of our Phase III trial in the U.S.

In February 2020 we had a face-to-face “Type C” meeting with the FDA with respect to the initiation of our pivotal Phase III clinical trial of Trappsol® Cyclo™ based on the clinical data obtained to date. At that meeting, we also discussed with the FDA submitting a New Drug Application (NDA) under Section 505(b)(1) of the Federal Food, Drug, and Cosmetic Act for the treatment of NPC in pediatric and adult patients with Trappsol® Cyclo™. A similar request was submitted to the European Medicines Agency (“EMA”) in February 2020, seeking scientific advice and protocol assistance from the EMA for proceeding with a Phase III clinical trial in Europe. In October 2020 we received a “Study May Proceed” notification from the FDA with respect to the proposed Phase III clinical trial, and in June of 2021 we commenced enrollment in TransportNPC, a pivotal Phase III study of Trappsol® Cyclo™ for the treatment of NPC. In May 2024, we enrolled the last of the 104 patients enrolled in the Phase III study.

- 6 -

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) ORGANIZATION AND DESCRIPTION OF BUSINESS: (CONTINUED)

We are also exploring the use of cyclodextrins in the treatment of Alzheimer’s disease. In January 2018, the FDA authorized a single patient IND expanded access program using Trappsol® Cyclo™ for the treatment of Alzheimer’s disease. Based on the data collected from this patient combined with the data from our NPC studies, we prepared a synopsis for an early-stage protocol using Trappsol® Cyclo™ intravenously to treat Alzheimer’s disease that was presented to the FDA in January of 2021. We received feedback from the FDA on this synopsis in April 2021 and incorporated the feedback into an IND for a Phase II study for the treatment of Alzheimer’s disease with Trappsol® Cyclo™ that we submitted to the FDA in November 2021. In December of 2021, we received IND clearance from the FDA, allowing us to proceed with our Phase II study of Trappsol® Cyclo™ for the treatment of Alzheimer’s disease. U.S. sites for the study were activated during the second half of 2022, with patient dosing beginning in the first quarter of 2023.

We also continue to operate our legacy fine chemical business, consisting of the sale of cyclodextrins and related products to the pharmaceutical, nutritional, and other industries, primarily for use in diagnostics and specialty drugs. However, our core business has transitioned to a biotechnology company primarily focused on the development of cyclodextrin- based biopharmaceuticals for the treatment of disease from a business that had been primarily reselling basic cyclodextrin products.

Proposed Acquisition by Rafael Holdings

On August 21, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Rafael Holdings, Inc. (“Rafael”), a Delaware corporation; and Tandem Therapeutics, Inc., a Nevada corporation and a wholly-owned subsidiary of Rafael (“First Merger Sub”); and Tandem Therapeutics, LLC, a Nevada limited liability company and a wholly-owned subsidiary of the Rafael (“Second Merger Sub”). Pursuant to the terms of the Merger Agreement, the Rafael, First Merger Sub and the Company will be merged with and into Rafael (the “First Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Rafael. Immediately following the First Merger, the Company will merge with and into the Second Merger Sub (the “Second Merger”, and together with the First Merger, the “Merger”) with Rafael being the surviving entity of the Second Merger. The name of the Surviving Entity will be changed to Cyclo Therapeutics, LLC.

At the closing of the Merger, each outstanding share of Company common stock will be converted into the right to receive a number of shares of Rafael Class B common stock calculated in accordance with the Merger Agreement (the “Exchange Ratio”). The Exchange Ratio was initially estimated to be 0.3112 shares of Rafael Class B common stock for each share of Company common stock. The actual exchange ratio will be determined at the time of closing based on valuing Company common stock at $0.95 per share and Rafael at the combined value of its cash, cash equivalents, marketable securities, real estate and certain other financial holdings plus amounts loaned by Rafael to the Company between the signing of the Merger Agreement and the closing of the Merger, less certain of Rafael’s current liabilities. In addition, the cash value with take into account the funding of the Company’s operations by Rafael with convertible notes through closing, as discussed at Note (7). Any fractional shares of Rafael Class B common stock will be rounded up to the nearest whole share.

All compensatory options to purchase Company common stock will be converted into an option to acquire Rafael Class B common stock, as described in the Merger Agreement.

Unless otherwise provided for in outstanding warrant agreements, all outstanding warrants to purchase Cyclo common stock (other than those held by Rafael which will be cancelled) will automatically be converted into warrants to purchase a number of shares of Rafael Class B common stock, at an adjusted exercise price per share based upon the Exchange Ratio. Certain holders of Cyclo warrants, representing 5,498,914 Cyclo warrant shares, have the right to elect to receive cash payment in an amount equal to the Black Sholes Value of the unexercised portion of their warrants on the date of consummation of the Merger in lieu of receiving warrants to purchase Rafael Class B common stock.

Holders of Cyclo Public Warrants will receive Rafael Public Warrants in exchange for their Cyclo Public Warrants.

- 7 -

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) ORGANIZATION AND DESCRIPTION OF BUSINESS: (CONTINUED)

The Merger Agreement contains specified termination rights of each of the Company and Rafael. In connection with a termination of the Merger Agreement in specified circumstances, the terminating party will be reimbursed for transaction costs of up to $250,000. If the Merger Agreement is terminated by Company due to the Company’s board of directors making an adverse change recommendation, the Company will be required to pay a $400,000 termination fee to Rafael.

The boards of directors of each of the Company and Rafael have approved the Merger Agreement and the transactions contemplated thereby, subject to the satisfaction or waiver of customary conditions, including the requisite approval by the Company's and Rafael's stockholders and the effectiveness of a registration statement to register the shares of Rafael Class B common stock to be issued in connection with the transaction. The transaction is expected to close in late December.

Although the Company has entered into the Merger Agreement and intends to consummate the proposed Merger, there is no assurance that the Company will be able to successfully consummate the proposed Merger on a timely basis, or at all.

Going Concern and Liquidity

For the three and nine months ended September 30, 2024, the Company incurred a net loss of $8,832,944 and $19,157,261, respectively. The Company has an accumulated deficit of $103,013,942 at September 30, 2024. Our recent losses have predominantly resulted from research and development expenses for our Trappsol® Cyclo™ product and other general operating expenses, including personnel expenses and board advisory fees. We believe our expenses will continue to increase as we continue to conduct clinical trials and seek regulatory approval for the use of Trappsol® Cyclo™ in the treatment of NPC and Alzheimer’s disease.

For the nine months ended September 30, 2024, the Company’s operations used $18,222,671 in cash, and at September 30, 2024, the Company had a cash and cash equivalents balance of $928,010 and negative working capital of $15,463,491. We will need to raise additional capital in the foreseeable future to fund the development of our drug product candidates through clinical development, manufacturing and commercialization.

Rafael has agreed to fund the Company through the earlier of the consummation of the Merger or termination of the Merger Agreement in such amounts as may be necessary for the Company to operate its business and pay its debts and obligations as they become due, provided that the Company is not in active discussions regarding an acquisition proposal and is being operated in a manner consistent with the terms of the Merger Agreement and the financial forecast previously shared with Rafael. As discussed in Note 7, the Company has borrowed $15,000,000 from Rafael through November 12, 2024.

We intend to continue to borrow from Rafael through the consummation of the Merger or termination of the Merger Agreement. If the Merger Agreement is terminated, we intend to continue to raise such capital through the sale of equity securities from time to time, the issuance of debt securities, the sale or licensing of existing assets or assets in development, or from other non-dilutive funding mechanisms. Our ability to obtain such additional capital will likely be subject to various factors, including our overall business performance and market conditions. If we cannot raise the additional funds required for our anticipated operations, we may be required to reduce the scope of or eliminate our research and development programs, delay our clinical trials and the ability to seek regulatory approvals, downsize our general and administrative infrastructure, and/or seek alternative measures to avoid insolvency. If we raise additional funds through future offerings of shares of our common stock or other securities, such offerings would cause dilution of current stockholders’ percentage ownership in the Company, which could be substantial. Future offerings also could have a material and adverse effect on the price of our common stock.

Our condensed consolidated financial statements for the three and nine months ended September 30, 2024, were prepared on the basis of a going concern, which contemplates that we will be able to realize assets and discharge liabilities in the normal course of business. Our ability to continue as a going concern is dependent upon the availability of equity or debt financing as noted above, including from Rafael. Various factors including our overall business performance and market conditions raise substantial doubt about our ability to continue as a going concern. The condensed and consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

- 8 -

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of the more significant accounting policies of the Company that affect the accompanying condensed consolidated financial statements:

(a) BASIS OF PRESENTATION––The condensed consolidated financial statements include the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The interim condensed consolidated financial statements of the Company included in this Quarterly Report on Form 10-Q, including these notes, are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. Such adjustments are of a normal, recurring nature. The condensed consolidated financial statements, and these notes, have been prepared in accordance with generally accepted accounting principles and do not contain certain information included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The condensed consolidated financial statements should be read in conjunction with that Annual Report on Form 10-K. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year.

(b) CASH AND CASH EQUIVALENTS––Cash and cash equivalents consist of cash and any highly liquid investments with an original purchased maturity of three months or less. The Company maintains deposits in financial institutions in excess of federally insured limits of $250,000, in the amount of $928,010 at September 30, 2024.

(c) ACCOUNTS RECEIVABLE––Accounts receivable are unsecured and non-interest bearing and stated at the amount we expect to collect from outstanding balances. Customer account balances with invoices dated over 90 days old are considered past due. The Company does not accrue interest on past due accounts. Customer payments are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, applied to the oldest unpaid invoices.

The carrying amount of accounts receivable is reduced by an allowance for credit losses that reflects management’s best estimate of expected credit losses. The Company reviews each customer balance where all or a portion of the balance exceeds 90 days from the invoice date. Based on the Company’s assessment of the customer's current and forecasted creditworthiness, the Company estimates the portion, if any, of the balance that will not be collected, and writes off receivables as a charge to the allowance for credit losses when, in management’s estimation, it is probable that the receivable is worthless. The Company determined an allowance for credit losses was not necessary as of September 30, 2024. The allowance for credit losses at December 31, 2023 approximated $10,000.

The Company develops and documents its allowance for credit losses on its trade receivables based on portfolio segments, which include domestic and international customers. The determination of portfolio segments is based primarily on the customers’ geographical location. Our quantitative allowance for credit loss estimates was determined using the method that uses an aging schedule. The Company also considers qualitative adjustments that may relate to unique risks, changes in current economic conditions that may not be reflected in quantitatively derived results, or other relevant factors to further inform our estimate of the allowance for credit losses.

(d) INVENTORY AND COST OF PRODUCTS SOLD––Inventory consists of cyclodextrin products and chemical complexes purchased for resale recorded at the lower of cost (first-in, first-out) or net realizable value. Cost of products sold includes the acquisition cost of the products sold and does not include any allocation of inbound or outbound freight charges, indirect overhead expenses, warehouse and distribution expenses, or depreciation and amortization expense. The Company records a specific reserve for inventory items that are determined to be obsolete. The Company determined no reserve for obsolete inventory was necessary as of September 30, 2024 and December 31, 2023.

The Company’s reserve for obsolete inventory is based on the Company’s best estimates of product sales and customer demands. It is reasonably possible that the estimates used by the Company to determine its provisions for inventory write-downs will be materially different from actual write-downs. These differences could result in materially higher than expected inventory provisions and related costs, which could have a material adverse effect on the Company’s results of operations and financial condition in the near term.

- 9 -

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

(e) PREPAID CLINICAL EXPENSES––Prepaid clinical expenses consist of our active pharmaceutical ingredients and other raw materials for our pharmaceutical drug Trappsol® Cyclo™ expected to be used in our clinical trial program recorded at cost. In addition, advance payments for goods or services for future research and development activities are included as prepaid clinical expenses. Prepaid clinical expenses are expensed as research and development costs as the goods are delivered or the related services are performed. Prepaid clinical expenses expected to be utilized beyond one year from the balance sheet date are classified as non-current assets.

(f) FURNITURE AND EQUIPMENT––Furniture and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed using primarily the straight-line method over the estimated useful lives of the assets (generally three to five years for computers and vehicles and seven to ten years for machinery, equipment and office furniture). We periodically review our long-lived assets to determine if the carrying value of assets may not be recoverable. If an impairment is identified, we recognize a loss for the difference between the carrying amount and the estimated fair value of the asset.

(g) LEASES––The Company leases office and warehouse space. The Company determines if an arrangement is a lease at inception. Contracts containing a lease are further evaluated for classification as an operating or finance lease where the Company is a lessee, or as an operating, sales-type or direct financing lease where the Company is a lessor, based on their terms. Operating leases are included in right-of-use ("ROU") lease assets and lease liabilities on the Company’s condensed consolidated balance sheets. The Company subleases office space under one existing lease to a third party. Sublease income is reported as other income in the condensed consolidated statements of operations.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

In evaluating contracts to determine if they qualify as a lease, the Company considers factors such as if the Company has obtained substantially all of the rights to the underlying asset through exclusivity, if it can direct the use of the asset by making decisions about how and for what purpose the asset will be used and if the lessor has substantive substitution rights. This evaluation may require significant judgment.

(h) REVENUE RECOGNITION––Revenues are recognized when our customer obtains control of promised goods or services in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. We recognize revenues following the five step model prescribed under Accounting Standard Update (“ASU”) No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.

Product revenues

The majority of our revenue is garnered in North America from companies in the pharmaceutical industry that are manufacturing or conducting research with our fine chemical products. In other countries, we sell our products primarily to wholesale distributors and other third-party distribution partners.

- 10 -

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial. We treat shipping and handling costs performed after a customer obtains control of the product as a fulfillment cost. We have identified one performance obligation in our contracts with customers which is the delivery of product to our customers. The transaction price is recognized in full when we deliver the product to our customer, which is the point at which we have satisfied our performance obligation.

For additional information on our revenues, please read Note 3, Revenues, to these condensed consolidated financial statements.

(i) SHIPPING AND HANDLING FEES––Shipping and handling fees, if billed to customers, are included in product sales. Shipping and handling costs associated with inbound and outbound freight are expensed as incurred and included in freight and shipping expense.

(j) ADVERTISING––Advertising costs are charged to operations when incurred. We incur minimal advertising expenses.

(k) RESEARCH AND DEVELOPMENT COSTS––Research and development costs are expensed as incurred. The Company records amounts paid in advance of the service being rendered as a prepaid asset, and the expense recognized when the service is performed. Research and development costs are primarily comprised of materials used in our clinical trials, personnel-related expenses and external research and development expenses incurred under arrangements with third parties, such as contract research organizations and consultants. At the end of each reporting period, the Company compares the payments made to each service provider to the estimated progress towards completion of the related project. Factors that the Company considers in preparing these estimates include the number of patients enrolled in studies, milestones achieved, and other criteria related to the efforts of its vendors. These estimates will be subject to change as additional information becomes available. Depending on the timing of payments to vendors and estimated services provided, the Company will record net prepaid or accrued expenses related to these costs. Prepaid clinical expenses represent valid future economic benefits based on our contracts with our vendors and are realized in the ordinary course of business.

(l) INCOME TAXES––Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In addition, tax benefits related to positions considered uncertain are recognized only when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. As of September 30, 2024 and December 31, 2023, the Company has recorded a full valuation allowance against its deferred tax assets.

(m) NET LOSS PER COMMON SHARE–– Basic and fully diluted net loss per common share is computed using a simple weighted average of common shares outstanding during the periods presented, as outstanding warrants to purchase 15,686,916 shares of common stock were antidilutive for the three and nine months ended September 30, 2024, and warrants to purchase 13,733,117 shares of common stock were antidilutive for the three and nine months ended September 30, 2023. Additionally, outstanding options to purchase 1,779,161<

SEC Form 10-Q filed by Cyclo Therapeutics Inc.