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 more fully described 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):

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

The Company incurred transaction costs of $1.1 million, of which $0.2 million and $1.0 million were incurred during the three and nine months ended April 30, 2025, 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 NPC1. 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.

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.