8-K: Cyclo Therapeutics Secures $2.5 Million in Convertible Note Financing from Rafael Holdings

Cyclo Therapeutics entered into a Ninth Amended and Restated Note Purchase Agreement with Rafael Holdings, issuing a $2.5 million convertible promissory note.

Summary

• Cyclo Therapeutics, Inc. entered into a Ninth Amended and Restated Note Purchase Agreement with Rafael Holdings, Inc. on March 6, 2025.
• Under the agreement, Cyclo Therapeutics issued and sold a convertible promissory note with a principal amount of $2,500,000 to Rafael Holdings.
• This note is the latest in a series of amended and restated agreements between the two companies.
• The note matures on March 31, 2025, and bears interest at a rate of 5% per annum, payable upon maturity.
• The company may prepay the note in full at any time.
• Rafael has the option to convert the principal amount of the note into shares of Cyclo Therapeutics' common stock.
• Conversion is automatic if the company enters into a Qualified Financing and at the option of Rafael if a Sale Transaction occurs prior to repayment of the Note.
• The company intends to use the proceeds from the note for working capital and general corporate purposes.
• Rafael Holdings holds approximately 39.5% of Cyclo Therapeutics' common stock.
• Cyclo Therapeutics and Rafael Holdings have an existing merger agreement, which is subject to stockholder approval and other conditions.

Sentiment

Score: 5

Explanation: Neutral sentiment. The company secures funding, but it comes in the form of debt and continued reliance on a major shareholder. The ongoing merger adds uncertainty.

Positives

• Cyclo Therapeutics secures additional funding for working capital and general corporate purposes.
• The company has the option to prepay the note at any time.
• The agreement provides flexibility for Rafael Holdings through conversion options.

Negatives

• The company is incurring additional debt, which could increase its financial risk.
• The conversion of the note could dilute existing shareholders' equity.
• The company's reliance on Rafael Holdings for financing may limit its strategic options.

Risks

• Failure to meet the obligations of the note could lead to acceleration of debt payments.
• The merger with Rafael Holdings is subject to stockholder approval and other conditions, which may not be met.
• The company's financial performance may not improve sufficiently to repay the note or attract additional investment.

Future Outlook

The company intends to use the proceeds of the note for working capital and general corporate purposes, and the merger with Rafael Holdings is pending stockholder approval.

Industry Context

Biopharmaceutical companies often rely on debt financing, particularly convertible notes, to fund ongoing research and development and operations, especially when pursuing regulatory approvals or clinical trials.

Comparison to Industry Standards

• Many small-cap biotech companies use convertible notes as a bridge to equity financing or potential M&A.
• The 5% interest rate is within the typical range for convertible notes issued by similar companies.
• The conversion features are standard, providing the investor with potential upside while offering the company flexibility.

Related Party Transactions

• The agreement is with Rafael Holdings, which holds approximately 39.5% of the company's common stock.
• The company has an existing merger agreement with Rafael Holdings.
• The company has entered into a series of amended and restated note purchase agreements with Rafael Holdings.

Stakeholder Impact

• Shareholders may experience dilution if the note is converted into common stock.
• Employees benefit from the company's ability to fund operations and continue business activities.
• Customers and suppliers are indirectly impacted by the company's financial stability.

Next Steps

• The company will use the proceeds for working capital and general corporate purposes.
• The company will seek stockholder approval for the proposed merger with Rafael Holdings.
• Rafael Holdings may elect to convert the note into common stock under certain conditions.

Key Dates