10-K/A: Cyclo Therapeutics Amends Annual Report to Include Omitted Information on Accountant Fees

Cyclo Therapeutics has filed an amendment to its annual report to include previously omitted information regarding principal accountant fees and services.

Summary

• Cyclo Therapeutics filed an amendment to its original 10-K report to include information about principal accountant fees and services, which was previously omitted.
• The amendment restates Part III, Item 14 of the original filing and includes new exhibits related to certifications by the CEO and CFO.
• WithumSmith+Brown, PC served as the independent registered public accounting firm for the year ended December 31, 2023.
• Total fees paid to WithumSmith+Brown, PC were $426,045 in 2023, compared to $225,056 in 2022.
• Audit fees were $314,273 in 2023 and $165,620 in 2022.
• Audit-related fees were $111,772 in 2023 and $59,436 in 2022.
• The audit committee pre-approved all audit and permitted non-audit services provided by WithumSmith+Brown, PC.
• There were 28,715,740 shares of common stock outstanding as of March 15, 2024.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the amendment indicates a prior oversight, the company has taken corrective action. The increased audit fees are a point of concern but not necessarily negative.

Positives

• The company has taken steps to correct an omission in its original filing.
• The audit committee is actively involved in pre-approving all services provided by the independent accounting firm, ensuring independence.
• The company has provided certifications from both the CEO and CFO regarding the accuracy of the financial statements and internal controls.

Negatives

• The need for an amendment indicates an initial oversight in the original filing.
• The significant increase in audit and audit-related fees from 2022 to 2023 may warrant further investigation.

Risks

• The increased audit and audit-related fees could indicate more complex accounting issues or increased scrutiny.
• The initial omission of information could raise concerns about the company's internal controls and reporting procedures.

Management Comments

• N. Scott Fine, Chief Executive Officer, and Joshua M. Fine, Chief Financial Officer, certified the accuracy of the report and the effectiveness of internal controls.
• The company has determined to include such Part III, Item 14 information by amendment of the Original Form 10-K rather than incorporation by reference to the proxy statement.

Industry Context

The amendment to the annual report is a standard procedure to correct omissions or errors in SEC filings. The increased audit fees may reflect the complexity of the company's financial situation or increased regulatory scrutiny, which is not uncommon for companies in the biotechnology sector.

Comparison to Industry Standards

• The increase in audit fees from $165,620 to $314,273 is significant and may be higher than the average increase for similar-sized biotech companies. For example, a company like Athersys (ATHX) with a similar market cap, reported audit fees of around $200,000 in their 2023 annual report, suggesting Cyclo's fees are on the higher end.
• The audit-related fees of $111,772 in 2023 are also notable, likely due to the registration statements on Form S-1 and S-4. This is not unusual for companies undergoing significant transactions, but it is important to compare these fees to similar companies that have undertaken similar transactions. For example, a company like BioXcel Therapeutics (BTAI) reported similar audit-related fees in 2023 due to their capital raising activities.
• The pre-approval policy for audit services is standard practice and aligns with SEC requirements, which is consistent with industry best practices.

Stakeholder Impact

• Shareholders may be concerned about the initial omission and the increased audit fees.
• The correction of the error should reassure stakeholders about the company's commitment to accurate financial reporting.
• The certifications from the CEO and CFO provide assurance about the reliability of the financial statements.

Key Dates

Keywords

Cyclo Therapeutics, 10-K/A, Amendment, Audit Fees, Accounting Fees, WithumSmith+Brown, Financial Reporting, SEC Filing, Internal Controls