Cyclo Therapeutics, Inc. - Quarter Report: 2018 March (Form 10-Q)

 

 

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: March 31, 2018

or

☐ 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

 

CTD HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Florida		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

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 May 14, 2018, the Company had outstanding 73,504,500 shares of its common stock.

 

 

 

TABLE OF CONTENTS

 

	Description		Page
PART I	FINANCIAL INFORMATION		1
Item 1.	Financial Statements.		1
	Consolidated Balance Sheets as of March 31, 2018 (Unaudited) and December 31, 2017.		1
	Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2018 and 2017.		2
	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2018 and 2017.		3
	Notes to Consolidated Financial Statements.		4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		10
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.		14
Item 4.	Controls and Procedures.		14
PART II	OTHER INFORMATION		15
Item 1A.	Risk Factors.		15
Item 6.	Exhibits.		15
SIGNATURES			16

  

 

 

		March 31, 2018				December 31, 2017
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	609,559			$	1,270,973
Accounts receivable			47,682				56,860
Inventory			453,443				471,221
Current portion of mortgage note receivable			35,884				35,884
Other current assets			65,104				60,846
Total current assets			1,211,672				1,895,784
FURNITURE AND EQUIPMENT, NET			24,870				25,736
OTHER ASSETS
Mortgage note receivable, less current portion			164,194				167,128
TOTAL ASSETS		$	1,400,736			$	2,088,648
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	993,079			$	943,030
Advance – private placement			74,983				-
Total current liabilities			1,068,062				943,030
STOCKHOLDERS' EQUITY
Common stock, par value $.0001 per share, 100,000,000 shares authorized, 72,991,361 shares issued and outstanding, at March 31, 2018 and December 31, 2017			7,299				7,299
Preferred stock, par value $.0001 per share, 5,000,000 shares authorized			-				-
Series A – no shares outstanding			-				-
Series B – 50,000 shares designated, convertible, 15,500 shares issued and outstanding at March 31, 2018 and December 31, 2017, liquidation preference $1,550,000			2				2
Additional paid-in capital			14,470,984				14,470,984
Accumulated deficit			(14,145,611	)			(13,332,667	)
Total stockholders' equity			332,674				1,145,618
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,400,736			$	2,088,648

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		Three Months Ended
		March 31,
		2018				2017
REVENUES
Product sales		$	198,069			$	305,057
EXPENSES
Personnel			277,567				334,529
Cost of products sold (exclusive of amortization and depreciation, shown separately below)			23,672				19,378
Research and development			409,198				643,645
Repairs and maintenance			-				2,792
Professional fees			233,976				123,800
Office and other			47,867				132,189
Board of Director fees and costs			15,783				46,807
Depreciation			2,500				2,208
Freight and shipping			1,882				1,461
Gain on disposal of furniture and equipment			-				(1,261	)
			1,012,445				1,295,548
LOSS FROM OPERATIONS			(814,376	)			(990,491	)
OTHER INCOME
Investment and other income			1,432				3,018
Total other income			1,432				3,018
LOSS BEFORE INCOME TAXES			(812,944	)			(987,473	)
Provision for income taxes			-				-
NET LOSS		$	(812,944	)		$	(987,473	)
BASIC AND FULLY DILUTED NET LOSS PER COMMON SHARE		$	(.01	)		$	(.01	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING			72,999,361				69,320,315

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		Three Months Ended
		March 31,
		2018				2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(812,944	)		$	(987,473	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			2,500				2,208
Gain on disposal of furniture and equipment			-				(1,261	)
Accrued stock compensation to employees			3,300				11,500
Accrued stock compensation to non-employees			10,890				10,000
Increase or decrease in:
Accounts receivable			9,178				(133,031	)
Inventory			17,778				(2,621	)
Other current assets			(4,258	)			(8,033	)
Accounts payable and accrued expenses			35,859				(75,955	)
Total adjustments			75,247				(197,193	)
NET CASH USED IN OPERATING ACTIVITIES			(737,697	)			(1,184,666	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment			(1,634	)			(1,605	)
Proceeds from sale of property, net of closing costs			-				4,650
Proceeds from mortgage note receivable			2,934				8,466
NET CASH PROVIDED BY INVESTING ACTIVITIES			1,300				11,511
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock and warrants, net of issue costs			-				1,851,055
Advance – private placement			74,983				-
NET CASH PROVIDED BY FINANCING ACTIVITIES			74,983				1,851,055
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(661,414	)			677,900
CASH AND CASH EQUIVALENTS, beginning of period			1,270,973				960,197
CASH AND CASH EQUIVALENTS, end of period		$	609,559			$	1,638,097
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest		$	-			$	-
Cash paid for income taxes		$	-			$	-

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(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

The following is a summary of the more significant accounting policies of CTD Holdings, Inc. and subsidiaries (the “Company”) that affect the accompanying consolidated financial statements.

 

(a) ORGANIZATION AND OPERATIONS––The Company was incorporated in August 1990, as a Florida corporation with operations beginning in July 1992. We are a biotechnology company that develops cyclodextrin-based products for the treatment of disease. We have filed a Type II Drug Master File with the U.S. Food and Drug Administration (“FDA”) for our lead drug candidate, Trappsol® Cyclo™ as a treatment for Niemann-Pick Type C disease (“NPC”), a rare and fatal cholesterol metabolism disease that impacts the brain, lung, liver, spleen, and other organs. The FDA recently approved our Investigational New Drug application (IND) which describes our Phase I clinical plans in the U.S. for Trappsol® Cyclo™ 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 1 study commenced in September 2017. We have also filed Clinical Trial Applications with several European regulatory bodies, including those in the United Kingdom, Sweden, Israel and Italy, all of which have approved our applications. The first patient was dosed in our European study in July 2017.

 

We also sell cyclodextrins and related products to the pharmaceutical, nutritional, and other industries, primarily for use in diagnostics and specialty drugs with continuing growth in research and new product development. 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 which had been primarily reselling basic cyclodextrin products. 

 

(b) BASIS OF PRESENTATION––The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

 

Operating results for the three month period ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on April 16, 2018.

 

(c) CASH AND CASH EQUIVALENTS––Cash and cash equivalents consist of cash and any highly liquid investments with an original maturity of three months or less.

 

(d) ACCOUNTS RECEIVABLE––Accounts receivable are unsecured and non-interest bearing and stated at the amount we expect to collect from outstanding balances. Based on our assessment of the credit history with customers having outstanding balances and current relationships with them, an allowance for uncollectible accounts was not deemed necessary at March 31, 2018 and December 31, 2017.

 

(e) INVENTORY AND COST OF PRODUCTS SOLD––Inventory consists of our pharmaceutical drug Trappsol® Cyclo™, cyclodextrin products and chemical complexes purchased for resale recorded at the lower of cost (first-in, first-out) or 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 reserve for obsolete inventory was $27,500 at March 31, 2018 and December 31, 2017. 

 

 

CTD HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

 

(f) EQUIPMENT––Equipment is recorded at cost, less accumulated depreciation. Depreciation on property is computed using primarily the straight-line method over the estimated useful lives of the assets (generally three to five years for computers, and seven to ten years for equipment and office furniture).

 

(g) REVENUE RECOGNITION––Effective January 1, 2018, the Company adopted the provisions of ASC 606 using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change our revenue recognition as the majority of our revenues continue to be recognized when the customer takes control of our product. As we did not identify any accounting changes that impacted the amount of reported revenues with respect to our product revenues, no adjustment to retained earnings was required upon adoption.

 

Under the new revenue standards, 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 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

In the U.S. we sell our products to the end user or 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.

 

Reserves for Discounts and Allowances

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers, health care providers or payors, including those associated with the implementation of pricing actions in certain of the international markets in which we operate. Our process for estimating reserves established for these variable consideration components do not differ materially from our historical practices.

 

Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the following categories: discounts, contractual adjustments and returns.

 

These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer). Our estimates of reserves established for variable consideration typically utilize the most likely method and reflect our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment.

 

For additional information on our revenues, please read Note 6, Revenues, to these condensed consolidated financial statements.

 

 

 CTD HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

 

(h) RESEARCH AND DEVELOPMENT COSTS––Research and development costs are expensed as incurred.

 

(i) 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.

  

(j) 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 28,500,478 and 15,085,787 common shares were antidilutive for the three months ended March 31, 2018 and 2017, respectively, and have been excluded from the calculation of loss per common share.

 

(k) STOCK BASED COMPENSATION––The Company periodically awards stock to employees, directors, and consultants. An expense is recognized equal to the fair value of the stock determined using the closing trading price of the stock on the award date.

 

(l) LIQUIDITY AND GOING CONCERN––For the three months ended March 31, 2018 and 2017, the Company incurred net losses of $812,944 and $987,473, respectively. The Company has an accumulated deficit of $14,145,611 at March 31, 2018. Our recent losses have predominantly resulted from research and development expenses for our Trappsol® Cyclo™ product and other general operating expenses, including board advisory fees. We believe our expenses will continue to increase as we conduct clinical trials and continue to seek regulatory approval for the use of Trappsol® Cyclo™ in the treatment of NPC.

 

For year ended December 31, 2017, our operations used approximately $3,062,000 in cash. This cash was provided primarily by cash on hand and net proceeds of $3,341,000 from equity issuances. At December 31, 2017, the Company had a cash balance of approximately $1,271,000 and current assets less current liabilities of $953,000. At March 31, 2018, the Company had a cash balance of $609,559 and its current assets less current liabilities (excluding a $74,983 advance received from the private placement of stock that closed in April 2018) were $218,593. In April 2018, the Company generated additional net proceeds of $1,985,000, including the $74,983 received in March 2018, from the sale of equity securities in a private placement.  We will need additional capital to maintain our operations, continue our research and development programs, conduct clinical trials, seek regulatory approvals and manufacture and market our products.

 

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, 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.

 

 

CTD HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

 

We have incurred losses from operations in each of our last four fiscal years. Our ability to continue as a going concern is dependent upon the availability of equity financing as noted above. We will need to raise additional capital to support our ongoing operations and continue our clinical trials. These factors raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

(m) USE OF ESTIMATES––The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes, including contingencies. Although management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, actual results could significantly differ from these estimates.

 

(2) MORTGAGE NOTE RECEIVABLE

 

On January 21, 2016, we sold our real property located in High Springs, Florida to an unrelated party. Pursuant to the terms of the sale, at the closing, the buyer paid $10,000 in cash, less selling costs and settlement charges, and delivered to us a promissory note in the principal amount of $265,000, and a mortgage in our favor securing the buyer’s obligations under the promissory note. The promissory note provides for monthly payments of $3,653, including principal and interest at 4.25%, over a seven-year period that commenced March 1, 2016, with the unpaid balance due in February 2023.

 

(3) EQUITY TRANSACTIONS:

 

The Company expensed $14,190 and $21,500 in employee and board member stock compensation for the three months ended March 31, 2018 and 2017, respectively. The Company accrues stock compensation expense over the period earned for employees and board members. On March 31, 2017, the Company issued 172,000 shares of common stock valued at $67,100 to eight board members and the Company’s secretary as settlement of accrued stock compensation for prior service.

 

In April 2018, the Company completed a private placement of 20,350 “Units”, at a price of $100 per Unit, resulting in gross proceeds to the Company of $2,035,000. Each Unit consisted of one share of Series B Convertible Preferred Stock (“Series B Preferred Stock”) convertible into 400 shares of Common Stock, and seven-year warrants to purchase 400 shares of Common Stock at an exercise price of $0.25 per share. Prior to March 31, 2018, the Company received $74,983 in advance from these investors, which has been recorded as a current liability in the accompanying consolidated balance sheet. Upon the closing of the private placement subsequent to March 31, 2018, the Company reclassified the advance to stockholders’ equity. Scarsdale acted as financial advisor to the Company in connection with the private placement and was paid a cash fee of $50,000.

 

In October 2017, the Company completed a private placement of 15,500 Units at a purchase price of $100 per Unit, each Unit consisting of one share of Series B Preferred Stock, and seven-year warrants to purchase 400 shares of Common Stock at an exercise price of $0.25 per share. Scarsdale acted as financial advisor to the Company in connection with the private placement and was paid a cash fee of $60,000, and it and its designees were issued seven-year warrants to purchase 600 Units at an exercise price of $100 per Unit.

 

The Series B Preferred Stock will automatically convert into Common Stock on the date the Company effects an increase of its authorized shares of Common Stock and/or a reverse stock split of its Common Stock, so that the Company has a sufficient number of authorized and unissued shares of Common Stock to permit the conversion or exercise, as applicable, of all outstanding shares of preferred stock, warrants and other convertible securities. The Series B Preferred Stock has a liquidation preference of $100 per share, is not redeemable, and does not entitle the holder to special dividends. In the event the Company were to pay dividends on its Common Stock, holders of Series B Preferred Stock would receive dividends based on the number of shares of Common Stock into which their shares of Series B Preferred Stock are then convertible.

 

 

CTD HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

 

On February 23, 2017, the Company issued 5,754,832 units (“Units”) at a purchase price of $0.35 per Unit in a private placement, each Unit consisting of one share of its common stock, and a seven-year warrant to purchase an additional share of common stock at an exercise price of $0.35, for aggregate gross proceeds to the Company of $2 million. Scarsdale Equities LLC acted as financial advisor to the Company in connection with the private placement and was paid a cash fee of approximately $153,000, and it and its designees were issued seven-year warrants to purchase 164,074 Units at an exercise price of $0.35 per Unit.

 

As of March 31, 2018, the Company had warrants outstanding to purchase 20,532,331 shares of common stock at exercise prices of $0.25 - $1.00 per share that expire at various dates through 2024. In addition, there are seven-year warrants outstanding at March 31, 2018 to purchase 480,000 Units sold in our May 2016 private placement at an exercise price of $0.25 per Unit, 164,074 Units sold in our February 2017 private placement at an exercise price of $0.35 per Unit, and 600 Units sold in our October 2017 private placement at an exercise price of $100 per Unit. In April 2018, the Company issued additional warrants to purchase 8,140,000 shares of common stock at an exercise price of $0.25 in the private placement discussed above.

 

(4) INCOME TAXES:

 

The Company reported a net loss for the three months ended March 31, 2018 and 2017, respectively. The Company increased its deferred tax asset valuation allowance rather than recognize an income tax benefit.

 

(5) SALES CONCENTRATIONS:

 

Sales to four major customers accounted for 76% of total sales for the three months ended March 31, 2018. Sales to one major customer accounted for 52% of total sales for the three months ended March 31, 2017. A loss of one of these customers could have a significant adverse effect on the Company’s financial condition, results of operations and cash flows.

 

(6) REVENUES:

 

The Company operates in one business segment, which primarily focuses on the development and commercialization of innovative cyclodextrin-based products for the treatment of people with serious and life threatening rare diseases and medical conditions. The Company considers there to be revenue concentration risks for regions where net product revenues exceed 10% of consolidated net product revenues. The concentration of the Company’s net product revenues within the regions below may have a material adverse effect on the Company’s revenues and results of operations if sales in the respective regions experience difficulties. The Company adopted the requirements of ASC 606 on January 1, 2018 using the modified retrospective method. See Note 1(g) – Revenue Recognition for additional discussion.

 

Revenues by product are summarized as follows:

 

Substantially all of our sales of Trappsol® Cyclo™ for the three months ended March 31, 2018 were to a particular customer who exports the drug to South America. We had no sales to this customer for the three months ended March 31, 2017. Substantially all of our Aquaplex sales are to one customer.

 

 

CTD HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2018

 

(7) SUBSEQUENT EVENT:

 

In April 2018, the Company completed the private placement disclosed in Note 3.

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