Quarterly Report for Quarter Ending April 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words "believes," "anticipates," "expects," "plans," "intends" and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, those discussed under Item 1A to Part I "Risk Factors" in the 2024 Form 10-K/A. The forward-looking statements are made as of the date of this Quarterly Report, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our reports on Forms 10-Q and 8-K.

The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 1 of this Quarterly Report.

Overview

Rafael Holdings, Inc. ("Rafael Holdings", "Rafael", "we" or the "Company") is a holding company with interests in clinical and early-stage pharmaceutical companies, including (i) Cyclo Therapeutics LLC. ("Cyclo Therapeutics" or "Cyclo"), a wholly-owned clinical stage biotechnology company dedicated to developing Trappsol® Cyclo™, which is being evaluated in clinical trials for the potential treatment of Niemann-Pick Disease Type C1 ("NPC1"), a rare, fatal and progressive genetic disorder, (ii) a majority equity interest in LipoMedix Pharmaceuticals Ltd. ("LipoMedix"), a clinical stage pharmaceutical company, (iii) Barer Institute Inc. ("Barer"), a wholly-owned preclinical cancer metabolism research operation, (iv) and a majority interest in Cornerstone Pharmaceuticals, Inc. ("Cornerstone"), formerly known as Rafael Pharmaceuticals Inc., a cancer metabolism-based therapeutics company. We also hold a majority interest in Rafael Medical Devices, LLC ("Rafael Medical Devices"), an orthopedic-focused medical device company developing instruments to advance minimally invasive surgeries, and a majority interest in Day Three Labs, Inc. ("Day Three"), a company which empowers third-party manufacturers to reimagine their existing cannabis offerings enabling them to bring to market better, cleaner, more precise and predictable versions by utilizing Day Three's technology and innovation like Unlokt™. The Company's primary focus is to invest in and expand our investment portfolio through opportunistic and strategic investments including therapeutics, which address high unmet medical needs. Since the closing, in March 2025, of the Merger, the Company has focused its efforts on making Trappsol^® Cyclo™ its lead clinical program. In light of that change in strategic focus, the Company is currently evaluating its operating entities (and portfolio of assets) to ensure the future focus of its resources on core assets and specifically the Trappsol^® Cyclo™ clinical and development efforts.

Historically, the Company owned real estate assets. As of April 30, 2025, the Company holds a portion of a commercial building in Jerusalem, Israel as its remaining revenue generating real estate asset.

In May 2023, the Company first invested in Cyclo Therapeutics. Cyclo is a clinical-stage biotechnology company that develops cyclodextrin-based products for the potential treatment of neurodegenerative diseases. Cyclo's lead drug candidate is Trappsol® Cyclo™ (hydroxypropyl beta cyclodextrin), a treatment for NPC1. NPC1 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 January 2017, the FDA granted Fast Track designation to Trappsol® Cyclo™ for the treatment of NPC1. Initial patient enrollment in the U.S. Phase I study commenced in September 2017 and in May 2020, Cyclo announced Top Line data showing Trappsol® Cyclo™ was well tolerated in this study. Cyclo is currently conducting a Phase 3 Clinical Trial evaluating Trappsol^® Cyclo™ in Pediatric and Adult Patients with Niemann-Pick Disease, Type C1. On March 25, 2025, the Company consummated a merger with Cyclo whereby Cyclo became a wholly-owned subsidiary of the Company. See Note 3 for more information on the Company's Merger with Cyclo. The Company intends to fund the TransportNPC Phase 3 clinical trial for Trappsol® Cyclo™ for the treatment of Niemann Pick C to its 48-week interim analysis, with results expected later this month, and focus its efforts on Trappsol^® Cyclo™ as its lead clinical program. At that point, the Company will make a determination as to whether or not to file an NDA for Trappsol® Cyclo™.

LipoMedix is a clinical stage Israeli company focused on the development of a product candidate that holds the potential to be an innovative, safe, and effective cancer therapy based on liposome delivery. As of April 30, 2025, the Company's ownership interest in LipoMedix was approximately 95%. LipoMedix has completed various clinical stages of Promitil® including Phase 1A (solid tumors) and 1B (as single agent and in combination with capecitabine and/or bevacizumab in colorectal cancer). A total of 149 patients have been treated with Promitil® as a single agent, or in combination with other anticancer drugs or radiotherapy, under the framework of a phase 1A and two 1B clinical studies and under named patient approval for compassionate use.

In 2019, the Company established Barer, a preclinical cancer metabolism research operation, to focus on developing a pipeline of novel therapeutic compounds, including compounds designed to regulate cancer metabolism with potentially broader application in other indications beyond cancer. Barer was comprised of scientists and academic advisors that are experts in cancer metabolism, chemistry, and drug development. In addition to its own internal discovery efforts, Barer pursued collaborative research agreements and in-licensing opportunities with leading scientists from top academic institutions. Barer's majority owned subsidiary, Farber Partners, LLC ("Farber"), was formed around one such agreement with Princeton University's Office of Technology Licensing ("Princeton") for technology from the laboratory of Professor Joshua Rabinowitz, in the Department of Chemistry, Princeton University, for an exclusive worldwide license to its SHMT (serine hydroxymethyltransferase) inhibitor program. In November 2022, the Company resolved to curtail its early-stage development efforts, including pre-clinical research at Barer Institute.Since then, the Company has sought partners for Farber programs and has entered into a license agreement for one of its technologies that is in pre-clinical research stage.

The Company owns a 37.5% equity interest in RP Finance LLC ("RP Finance"), which was, until March 13, 2024 (the date of the RP Finance Consolidation, as described in Note 6 to the Consolidated Financial Statements, accounted for under the equity method. RP Finance is an entity associated with members of the family of Howard S. Jonas (Executive Chairman, Chief Executive Officer, President, Chairman of the Board, and controlling stockholder of the Company) which holds 37.5% equity interest of RP Finance. RP Finance holds debt and equity investments in Cornerstone. In October 2021, Cornerstone received negative results of its Avenger 500 Phase 3 study for devimistat in pancreatic cancer as well as a recommendation to stop its ARMADA 2000 Phase 3 study due to a determination that the trial would unlikely achieve its primary endpoint (the "Data Events"). Due to the Data Events, RP Finance fully impaired its then debt and equity investments in Cornerstone.

On March 13, 2024, Cornerstone consummated a restructuring of its outstanding debt and equity interests (the "Cornerstone Restructuring"). As a result of the Cornerstone Restructuring, Rafael became a 67% owner of the issued and outstanding common stock of Cornerstone (the "Cornerstone Acquisition"), and Cornerstone became a consolidated subsidiary of Rafael. The Cornerstone Acquisition is accounted for as an acquisition of a variable interest entity that is not a business in accordance with U.S. GAAP. The Company was determined to be the accounting acquirer for financial reporting purposes. In conjunction with the Cornerstone Restructuring and Cornerstone Acquisition, the Company reassessed its relationship with RP Finance, and as a result determined that RP Finance is still a variable interest entity and that the Company became the primary beneficiary of RP Finance as the Company now holds the ability to control repayment of the RP Finance Line of Credit which directly impacts RP Finance's economic performance. Therefore, following the Cornerstone Restructuring and Cornerstone Acquisition, the Company consolidated RP Finance (the "RP Finance Consolidation"). See Note 6 to the Consolidated Financial Statements for additional information on the Cornerstone Restructuring, Cornerstone Acquisition, and RP Finance Consolidation. The Company is currently reviewing Cornerstone's current efforts, prospects and available resources to determine the optimal operational direction.

In May 2021, the Company formed Rafael Medical Devices, an orthopedic-focused medical device company developing instruments to advance minimally invasive surgeries. In August 2023, Rafael Medical Devices sold an aggregate 31.6% equity interest to third parties for $925,000. In February 2025, the Company invested approximately $582,000 in cash, and Rafael Medical Devices raised approximately $45,000 from third parties in exchange for Rafael Medical Devices' Class A Units. Following the foregoing financing transactions, the Company holds a 73% equity interest in Rafael Medical Devices. On December 11, 2024, Rafael Medical Devices received a substantial equivalence determination for the VECTR System from the Food and Drug Administration's ("FDA") in response to Rafael Medical Devices' 510(k) premarket notification. The FDA's clearance of the VECTR System is for use in minimally invasive ligament or fascia release surgeries, such as carpal tunnel release in the wrist and cubital tunnel release in the elbow. The VECTR System has been classified into Class II and is subject to special controls (performance standards). The Company's development of future products will depend upon the success of the VECTR System and our Company's ability to identify attractive opportunities in the marketplace.

In April 2023, the Company first invested in Day Three, a company which empowers third-party manufacturers to reimagine their existing cannabis offerings enabling them to bring to market better, cleaner, more precise and predictable versions by utilizing Day Three's technology and innovation like Unlokt™. In January 2024, the Company entered into a series of transactions with Day Three and certain shareholders, acquiring a controlling interest of Day Three and subsequently consolidating Day Three's results (the "Day Three Acquisition"). On March 14, 2025, Day Three Labs Manufacturing, a majority owned subsidiary of Day Three, entered into an Asset Purchase Agreement and Licensing Agreement (the "DTLM Sale Agreement"), pursuant to which they sold assets and licensed certain applications of their Unlokt™ technology used in their cannabinoid ingredient manufacturing business. See Note 13 to the Consolidated Financial Statements for additional information.

Results of Operations

Our business consists of three reportable segments - Healthcare, Infusion Technology, and Real Estate. We evaluate the performance of our Healthcare segment based primarily on research and development efforts and results of clinical trials, and our Infusion Technology and Real Estate segments based primarily on results of operations. Accordingly, the income and expense line items below loss from operations are only included in the discussion of consolidated results of operations.

Healthcare segment

Results of operations for our Healthcare segment were as follows:

		Three Months Ended April 30,								Change
		2025				2024				$				%
		(in thousands)
Product revenue		$	243			$	-			$	243				100	%
Cost of product revenue			(9	)			-				(9	)			(100	)%
General and administrative			(3,102	)			(1,636	)			(1,466	)			(90	)%
Research and development			(3,003	)			(1,212	)			(1,791	)			(148	)%
IPR&D expense			-				(89,861	)			89,861				100	%
Depreciation and amortization			(13	)			(73	)			60				82	%
Loss from operations		$	(5,884	)		$	(92,782	)		$	86,898				94	%

		Nine Months Ended April 30,								Change
		2025				2024				$				%
		(in thousands)
Product revenue		$	243			$	-			$	243				100	%
Cost of product revenue			(9	)			-				(9	)			(100	)%
General and administrative			(7,794	)			(6,190	)			(1,604	)			(26	)%
Research and development			(5,021	)			(2,313	)			(2,708	)			(117	)%
In-process research and development			-				(89,861	)			89,861				100	%
Depreciation and amortization			(15	)			(112	)			97				87	%
Loss from operations		$	(12,596	)		$	(98,476	)		$	85,880				87	%

The Healthcare segment is comprised of the activities of Barer, LipoMedix, Farber, Cornerstone, Cyclo, and Rafael Medical Devices. As of April 30, 2025, we held a 100% interest in Barer and Cyclo, a 95% interest in LipoMedix, a 93% interest in Farber, a 67% interest in Cornerstone, and a 73% interest in Rafael Medical Devices.

Product revenue. Total revenue for the Healthcare segment for the three and nine months ended April 30, 2025, increased to approximately $243 thousand compared to $0 for the three and nine months ended April 30, 2024. This increase is primarily due to the inclusion of product revenue generated by Cyclo following the Cyclo merger.

General and administrative expenses. General and administrative expenses consist mainly of payroll, stock-based compensation expense, benefits, facilities, consulting and professional fees. The increase in general and administrative expenses during the three and nine months ended April 30, 2025 compared to the three and nine months ended April 30, 2024 are due to an increase in legal and professional fees due to the Cyclo Merger. Additionally, the inclusion of Cyclo's general and administrative expenses following the completion of the Merger which occurred in the three months ended April 30, 2025, contributed to the increase. These costs were partially offset by a decrease in stock-based compensation.

Research and development expenses. Research and development expenses increased for the three and nine months ended April 30, 2025 and 2024 compared to the corresponding periods of the prior fiscal year. Research and development expenses are derived from activity at Cyclo, Barer, LipoMedix, Farber, Cornerstone, and Rafael Medical Devices, with the majority of the expenses in the current year periods from activities at Cyclo. The increases stem primarily from the inclusion of expenses of Cyclo following the Cyclo Merger in March 2025 as well as ongoing research and development activities at Lipomedix and Cornerstone.

Infusion Technology segment

Results of operations for our Infusion Technology segment were as follows:

		Three Months Ended April 30,								Change
		2025				2024				$				%
		(in thousands)
Infusion Technology revenue			42				262				(220	)			84	%
Cost of Infusion Technology revenue			(31	)			(85	)			54				64	%
General and administrative			(37	)			(225	)			188				84	%
Research and development			-				(314	)			314				(100	)%
Depreciation and amortization			(34	)			-				(34	)			(100	)%
Loss from operations			(60	)			(362	)			302				83	%

		Nine Months Ended April 30,								Change
		2025				2024				$				%
		(in thousands)
Infusion Technology revenue		$	93			$	262			$	(169	)			(65	)%
Cost of Infusion Technology revenue			(106	)			(85	)			(21	)			(25	)%
Loss on impairment of goodwill			(3,050	)			-				(3,050	)			(100	)%
General and administrative			(292	)			(225	)			(67	)			(30	)%
Research and development			(255	)			(314	)			59				19	%
Depreciation and amortization			(177	)			-				(177	)			(100	)%
Loss from operations		$	(3,787	)		$	(362	)		$	(3,425	)			(946	)%

The Infusion Technology segment is comprised of our majority equity interest in Day Three, which was acquired in January 2024. Revenues associated with the Infusion Technology segment consist of Infusion Technology revenue derived from Day Three's Unlokt technology. Cost of Infusion Technology revenue includes supplies, materials, production labor, and travel costs. General and administrative expenses for the Infusion Technology segment consist mainly of payroll, insurance, software, and licenses. Research and development expenses for the Infusion Technology segment include costs related to the development of new products and services.

Due to reductions in certain operations including a layoff within the Company's Infusion Technology segment, we concluded that a triggering event occurred during November 2024 under ASC 350 and ASC 360 that required us to assess if there was an impairment. We completed an analysis pursuant to ASC 360 and determined that the expected undiscounted cash flows of the asset group exceeded its carrying amount, indicating that the long-lived assets were not impaired. In accordance with ASC 350, we performed a quantitative goodwill impairment test, which indicated that the carrying amount of the reporting unit exceeded the estimated fair value of the reporting unit, indicating that the goodwill of the reporting unit was impaired. We recorded an impairment charge of $3.1 million related to the Infusion Technology segment's goodwill during the nine months ended April 30, 2025.

On March 14, 2025, Day Three Labs Manufacturing entered into the DTLM Sale Agreement, pursuant to which they sold assets and licensed certain applications of their Unlokt™ technology used in Infusion Technology services (see Note 13 to the accompanying consolidated financial statements).

Real Estate segment

The Real Estate segment consists of a portion of a commercial building in Israel. Consolidated revenue, expenses and loss for our Real Estate segment were as follows:

		Three Months Ended April 30,								Change
		2025				2024				$				%
		(in thousands)
Rental - Third Party		$	49			$	47			$	2				4	%
Rental - Related Party			28				27				1				4	%
General and administrative			(31	)			(62	)			31				50	%
Depreciation and amortization			(15	)			(29	)			14				48	%
Income (loss) from operations		$	31			$	(17	)		$	48				282	%

		Nine Months Ended April 30,								Change
		2025				2024				$				%
		(in thousands)
Rental - Third Party		$	147			$	129			$	18				14	%
Rental - Related Party			84				81				3				4	%
General and administrative			(198	)			(109	)			(89	)			(82	)%
Depreciation and amortization			(46	)			(45	)			(1	)			(2	)%
(Loss) income from operations		$	(13	)		$	56			$	(69	)			(123	)%

Consolidated Operations

Our consolidated income and expense line items below loss from operations were as follows:

		Three Months Ended April 30,								Change
		2025				2024				$				%
		(in thousands)
Loss from operations		$	(5,913	)		$	(93,161	)		$	87,248				94	%
Interest income			472				502				(30	)			6	%
Realized gain on available-for-sale securities			-				945				(945	)			(100	)%
Unrealized loss on investment - Cyclo			(1,393	)			(4,395	)			3,002				(68	)%
Unrealized gain on convertible notes receivable, due from Cyclo			383				-				383				100	%
Unrealized loss on investment - Hedge Funds			-				(3	)			3				(100	)%
Recovery of receivables from Cornerstone			-				31,305				(31,305	)			(100	)%
Interest expense			(165	)			(85	)			(80	)			94	%
Other income, net			154				-				154				100	%
Loss before income taxes			(6,462	)			(64,892	)			58,430				90	%
Benefit from income taxes			2,411				2,599				(188	)			7	%
Consolidated net loss			(4,051	)			(62,293	)			58,242				93	%
Net income (loss) attributable to noncontrolling interests			728				(29,942	)			30,670				102	%
Net loss attributable to Rafael Holdings, Inc.		$	(4,779	)		$	(32,351	)		$	27,572				85	%

		Nine Months Ended April 30,								Change
		2025				2024				$				%
		(in thousands)
Loss from operations		$	(16,396	)		$	(98,782	)		$	82,386				83	%
Interest income			1,529				1,777				(248	)			(14	)%
Loss on initial investment in Day Three upon acquisition			-				(1,633	)			1,633				(100	)%
Realized gain on available-for-sale securities			178				1,521				(1,343	)			(88	)%
Realized loss on investment in equity securities			-				(46	)			46				(100	)%
Realized gain on investment - Cyclo			-				424				(424	)			(100	)%
Unrealized (loss) gain on investment - Cyclo			(5,144	)			3,199				(8,343	)			(261	)%
Unrealized loss on convertible notes receivable, due from Cyclo			(719	)			-				(719	)			100	%
Unrealized loss on investment - Hedge Funds			-				(118	)			118				(100	)%
Recovery of receivables from Cornerstone			-				31,305				(31,305	)			(100	)%
Interest expense			(490	)			(85	)			(405	)			(476	)%
Other income, net			74				118				(44	)			(37	)%
Loss before income taxes			(20,968	)			(62,320	)			41,352				66	%
Benefit from income taxes			2,379				2,593				(214	)			(8	)%
Equity in loss of Day Three			-				(422	)			422				(100	)%
Consolidated net loss			(18,589	)			(60,149	)			41,560				69	%
Net loss attributable to noncontrolling interests			(163	)			(30,207	)			30,044				99	%
Net loss attributable to Rafael Holdings, Inc.		$	(18,426	)		$	(29,942	)		$	11,516				38	%

Interest income. We recorded interest income of $0.5 million for the three months ended April 30, 2025 and 2024, respectively, and interest income of $1.5 million and $1.8 million for the nine months ended April 30, 2025 and 2024, respectively. In November 2024, we sold our investments in available-for-sale securities and cash equivalents to reallocate assets to better align with our strategic goals. Accordingly, interest income has decreased due to a lower interest rate earned on these assets.

Realized gain on available-for-sale securities. We recognized a realized gain of $0.2 million for the nine months ended April 30, 2025 related to the maturity of certain available-for-sale securities and the sale of our available-for-sale securities in November 2024. We did not recognize a realized gain on available-for-sale securities during the three months ended April 30, 2025 due to the sale of our available-for-sale securities in November 2024. We recognized a realized gain on available-for-sale securities of $0.9 million and $1.5 million for the three and nine months ended April 30, 2024, respectively, related to the sale and maturity of available-for-sale securities.

Unrealized (loss) gain on investment - Cyclo. Unrealized gains and losses on investment - Cyclo are recognized as a result of changes in the fair value of our investments in Cyclo common stock and warrants which fluctuate due to the volatility of the market price of Cyclo common stock leading up to the Cyclo Merger. We recorded an unrealized loss of $1.4 million and $5.1 million for the three and nine months ended April 30, 2025, respectively. We recorded an unrealized loss of $4.4 million and an unrealized gain of $3.2 million for the three and nine months ended April 30, 2024, respectively.

Unrealized gain (loss) on convertible notes receivable, due from Cyclo. We recorded an unrealized gain of $0.4 million and an unrealized loss of $0.7 million for the three and nine months ended April 30, 2025, respectively, on our convertible notes receivable, due from Cyclo. The outstanding principal and accrued interest on the Cyclo Convertible Notes were forgiven in the Cyclo Merger.

Unrealized loss on investment - Hedge Funds. We recorded an unrealized loss of $3 thousand and $118 thousand for the three and nine months ended April 30, 2024, respectively. During the nine months ended April 30, 2025,we requested a withdrawal of our remaining balance in Hedge Fund Investments, and no longer hold any hedge fund investments.

Interest expense. Interest expense was $0.2 million and $0.5 million for the three and nine months ended April 30, 2025, respectively, which is attributable to liabilities assumed in the Cornerstone Acquisition in March 2024.Interest expense was $0.1 million for the three and nine months ended April 30, 2024.

Other income, net. Other income, net was $0.2 million and $0.1 million for the three and nine months ended April 30, 2025, respectively, due to the gain on sale related to the DTLM Sale Transactions and gain on sale of Cornerstone's IPR&D. Other income, net was $0 and $0.1 million for the three and nine months ended April 30, 2024, respectively, related to the dissolution of a majority owned subsidiary.

Equity in loss of Day Three. We recognized a loss of $0.4 million from our ownership interest in Day Three due to operating results for the nine months ended April 30, 2024. As of January 2, 2024, Day Three is a majority-owned subsidiary which is consolidated.

Net loss attributable to noncontrolling interests. The change in the net loss attributable to noncontrolling interests is primarily attributed to acquisition of Cornerstone and Day Three and the consolidation of their activity.

Liquidity and Capital Resources

		April 30,				July 31,				Change
		2025				2024				$				%
Balance Sheet Data:		(in thousands)
Cash and cash equivalents		$	37,936			$	2,675			$	35,261				1318	%
Convertible notes receivable classified as available-for-sale			1,719				1,146				573				50	%
Installment note payable			-				1,700				(1,700	)			(100	)%
Working capital			31,413				64,988				(33,575	)			(52	)%
Total assets			108,096				96,832				11,264				12	%
Total equity attributable to Rafael Holdings, Inc.			80,578				82,185				(1,607	)			(2	)%
Noncontrolling interests			3,940				4,073				(133	)			3	%
Total equity			84,518				86,258				(1,740	)			(2	)%

		Nine Months Ended April 30,								Change
		2025				2024				$				%
Cash flows (used in) provided by:		(in thousands)
Operating activities		$	(8,547	)		$	(4,913	)		$	(3,634	)			(74	)%
Investing activities			43,872				(8,946	)			52,818				590	%
Financing activities			(64	)			(155	)			91				59	%
Effect of exchange rates on cash and cash equivalents			-				(48	)			48				100	%
Increase (decrease) in cash and cash equivalents		$	35,261			$	(14,062	)			49,323				(351	)%

Capital Resources

As of April 30, 2025, we held cash and cash equivalents of approximately $37.9 million. We expect the balance of cash and cash equivalents to be sufficient to meet our obligations for at least the next 12 months from the filing of this Quarterly Report on Form 10-Q.

Operating Activities

Cash used in operating activities increased by $3.6 million from cash used of $4.9 million for the nine months ended April 30, 2024 to cash used of $8.5 million for the nine months ended April 30, 2025, primarily due to an increase of operating activity following the Cyclo Merger offset by the changes in operating assets and liabilities.

Investing Activities

Cash provided by investing activities for the nine months ended April 30, 2025 was primarily due to proceeds of $80.7 million from sales and maturities of available-for-sale securities and $2.3 million in proceeds from hedge funds, partially offset by purchases of available-for-sale securities of approximately $16.9 million and payments of $19.5 million for convertible notes due from Cyclo.

Cash used in investing activities for the nine months ended April 30, 2024 was primarily due to purchases of available-for-sale securities of approximately $133.7 million and the investment in Cyclo of $6.8 million, partially offset by proceeds of $129.0 million from sales and maturities of available-for-sale securities and $2.5 million in proceeds from hedge funds.

Financing Activities

Cash used in financing activities for the nine months ended April 30, 2025 was related to a payment for taxes related to shares withheld for employee taxes of $108 thousand and offset by proceeds from sale of RMD membership units of $44 thousand.

Cash provided by financing activities for the nine months ended April 30, 2024 was primarily related to proceeds from sale of RMD membership units of $0.9 million, partially offset by principal payments on our installment note payable of $0.8 million.

We do not anticipate paying dividends on our common stock until we achieve sustainable profitability and retain certain minimum cash reserves. The payment of dividends in any specific period will be at the sole discretion of our Board of Directors.

Critical Accounting Estimates

We have chosen accounting policies that we believe are appropriate to accurately and fairly report our operating results and financial condition in conformity with U.S. GAAP. We apply these accounting policies in a consistent manner. Our significant accounting policies are discussed in Note 2, "Summary of Significant Accounting Policies", in our accompanying consolidated financial statements.

The application of critical accounting policies requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. We evaluate these estimates and assumptions on an ongoing basis and may retain outside consultants to assist in our evaluation. If actual results ultimately differ from previous estimates, the revisions are included in results of operations in the period in which the actual amounts become known. The critical accounting policies that involve the most significant management judgments and estimates used in preparation of our consolidated financial statements, or are the most sensitive to change from outside factors, are discussed in the Critical Accounting Estimates section in Item 7 of the Annual Report on Form 10-K/A for fiscal 2024. There were no material changes during the nine months ended April 30, 2025 to the Critical Accounting Estimates previously disclosed except as follows:

Impairment of Long-Lived Assets

In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 360, Property, Plant, and Equipment ("ASC 360"), the Company assesses the recoverability of long-lived assets, which include property and equipment, intangible assets, in-process research and development and patents, whenever significant events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset group are compared to its carrying amount to determine whether the asset group's carrying value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results.

Due to reductions in certain operations including a layoff within the Company's Infusion Technology segment, the Company concluded that a triggering event occurred during November 2024 under ASC 360 that required the Company to evaluate long-lived assets within the Infusion Technology segment for potential impairment. Accordingly, the Company completed an analysis pursuant to ASC 360, wherein the income approach utilized an undiscounted cash flow model, considering projected future cash flows (including timing and profitability) and perpetual growth rate, and determined that the expected undiscounted cash flows of the asset group exceeded its carrying amount, indicating that the long-lived assets were not impaired.

For the three and nine months ended April 30, 2025 and 2024, the Company determined there was no impairment of its long-lived assets.

Goodwill

The Company assesses goodwill for impairment on an annual basis or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. The Company regularly monitors current business conditions and other factors including, but not limited to, adverse industry or economic trends and lower projections of profitability that may impact future operating results. The process of evaluating the potential impairment of goodwill requires significant judgment. In performing the Company's annual goodwill impairment test, the Company is permitted to first assess qualitative factors to determine whether it is more likely than not that the fair value of any of the Company's reporting units is less than its carrying amount, including goodwill. In performing the qualitative assessment, the Company considers certain events and circumstances specific to the reporting unit and the entity as a whole, such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value of any of the reporting units is less than its carrying amount. The Company is also permitted to bypass the qualitative assessment and proceed directly to the quantitative test. If the Company chooses to undertake the qualitative assessment and concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would then proceed to the quantitative impairment test. In the quantitative assessment, the Company compares the fair value of the reporting unit to its carrying amount, which includes goodwill. If the fair value exceeds the carrying value, no impairment loss exists. If the fair value is less than the carrying amount, a goodwill impairment loss is measured and recorded.

The Company assesses goodwill for impairment on an annual basis as of May 31 or more frequently when events and circumstances occur indicating that recorded goodwill may be impaired.

Due to reductions in certain operations including a layoff within the Company's Infusion Technology segment, the Company concluded that a triggering event occurred during November 2024 under ASC 350 that required the Company to assess if there was an impairment. In accordance with ASC 350, the Company performed a quantitative goodwill impairment test that utilized a combination of an income and market approach to assess the fair value of the reporting unit as of November 30, 2024. The income approach utilized a discounted cash flow model, considering projected future cash flows (including timing and profitability), discount rate reflecting the risk inherent in future cash flows, and perpetual growth rate, while the guideline public company market approach used guideline public company revenue multiples from a selection of comparable public companies. The quantitative goodwill impairment test indicated that the carrying amount of the reporting unit exceeded the estimated fair value of the reporting unit, indicating that the goodwill of the reporting unit was impaired. The Company recorded an impairment charge of $3.1 million related to the Infusion Technology segment's goodwill during the nine months ended April 30, 2025.

Product Revenues

In the U.S. we sell our products directly to end users or through wholesale distributors. In other countries, we sell our products primarily to wholesale distributors and other third-party distribution partners. These customers subsequently resell our products to health care providers and patients.

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.

Inventory and Cost of Goods 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. Included in inventory is inventory acquired in the Cyclo Merger that was recognized at its fair value of $270 thousand on the date of the Merger. Cost of products sold includes the acquisition cost of the products sold. 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 April 30, 2025. The Company did not have any inventory as of July 31, 2024.

Prepaid Clinical Expenses

Prepaid clinical expenses consist of the Company's active pharmaceutical ingredients and other raw materials for Trappsol® Cyclo™, that is expected to be used in its 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.

Off-Balance Sheet Arrangements

We do not have any "off-balance sheet arrangements", as defined in relevant SEC regulations, that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.