Cyclo Therapeutics, Inc. - Quarter Report: 2019 June (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: June 30, 2019

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

  

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

 

 

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 every Interactive Data File required to be submitted 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 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 August 13, 2019, the Company had outstanding 121,034,463 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 June 30, 2019 (Unaudited) and December 31, 2018.		1
	Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2019 and 2018.		2
	Consolidated Statement of Stockholders’ Equity (Unaudited) for the Six Months Ended June 30, 2018		3
	Consolidated Statement of Stockholders’ Equity (Unaudited) for the Six Months Ended June 30, 2019		4
	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2019 and 2018.		5
	Notes to Consolidated Financial Statements.		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.		16
Item 4.	Controls and Procedures.		16
PART II	OTHER INFORMATION		17
Item 1A.	Risk Factors.		17
Item 6.	Exhibits.		17
SIGNATURES			18

  

 

 

		June 30, 2019				December 31, 2018
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	6,607,613			$	2,217,412
Accounts receivable			154,110				80,044
Inventory, net			397,584				416,531
Current portion of mortgage note receivable			37,439				37,439
Prepaid insurance			28,489				18,185
Prepaid expenses			178,200				-
Total current assets			7,403,435				2,769,611
FURNITURE AND EQUIPMENT, NET			16,926				18,571
RIGHT-TO-USE LEASE ASSET, NET			59,519				-
MORTGAGE NOTE RECEIVABLE, LESS CURRENT PORTION			111,144				129,674
TOTAL ASSETS		$	7,591,024			$	2,917,856
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of lease liability		$	14,182			$	-
Accounts payable and accrued expenses			2,690,632				1,925,332
Total current liabilities			2,704,814				1,925,332
LONG-TERM LEASE LIABILITY			46,201				-
STOCKHOLDERS' EQUITY
Common stock, par value $.0001 per share, 500,000,000 shares authorized 120,529,324 and 90,759,324 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively			12,052				9,075
Preferred stock, par value $.0001 per share, 0 and 5,000,000 shares			-				-
Additional paid-in capital			25,687,834				18,701,211
Stock subscription receivable			-				(130,062	)
Accumulated deficit			(20,859,877	)			(17,587,700	)
Total stockholders' equity			4,840,009				992,524
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	7,591,024			$	2,917,856

 

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		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2019				2018				2019				2018
REVENUES
Product sales		$	273,095			$	349,415			$	493,921			$	547,484
EXPENSES
Personnel			311,077				287,776				721,076				565,343
Cost of products sold (exclusive of depreciation, shown separately below)			16,309				54,040				36,859				77,712
Research and development			786,811				844,376				2,129,574				1,253,574
Repairs and maintenance			1,299				1,271				2,983				1,271
Professional fees			246,276				297,308				461,251				531,284
Office and other			247,495				127,982				350,137				175,849
Board of Director fees and costs			31,611				27,233				64,696				43,016
Depreciation			1,485				2,526				2,969				5,026
Freight and shipping			1,016				1,643				2,450				3,525
Total operating expenses			1,643,379				1,644,155				3,771,995				2,656,600
LOSS FROM OPERATIONS			(1,370,284	)			(1,294,740	)			(3,278,074	)			(2,109,116	)
OTHER INCOME
Investment and other income			2,273				5,511				5,897				6,943
LOSS BEFORE INCOME TAXES			(1,368,011	)			(1,289,229	)			(3,272,177	)			(2,102,173	)
PROVISION FOR INCOME TAXES			-				-				-				-
NET LOSS		$	(1,368,011	)		$	(1,289,229	)		$	(3,272,177	)		$	(2,102,173	)
BASIC AND FULLY DILUTED NET LOSS PER COMMON SHARE		$	(.01	)		$	(.02	)		$	(.03	)		$	(.03	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING			101,013,435				78,853,583				95,886,380				75,926,472

 

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		Common Stock								Preferred Stock								Additional												Total
		Shares				Par Value				Units				Par Value				Paid-In Capital				Subscription Receivable				Accumulated Deficit				Stockholders’ Equity
Balance, December 31, 2017			72,999,361			$	7,299				15,500			$	2			$	14,470,984			$	-			$	(13,332,667	)		$	1,145,618
Net loss			-				-				-				-				-				-				(812,944	)			(812,944	)
Balance, March 31, 2018			72,999,361				7,299				15,500				2				14,470,984				-				(14,145,611	)			332,674
Sale of preferred stock, net of issuance fees			-				-				20,100				2				1,959,998				-				-				1,960,000
Conversion of preferred stock to common stock			14,240,000				1,424				(35,600	)			(4	)			(1,420	)			-				-				-
Net loss			-				-				-				-				-				-				(1,289,229	)			(1,289,229	)
Balance, June 30, 2018			87,239,361			$	8,723				-			$	-			$	16,429,562			$	-			$	(15,434,840	)		$	1,003,445

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		Common Stock								Preferred Stock								Additional												Total
		Shares				Par Value				Units				Par Value				Paid-In Capital				Subscription Receivable				Accumulated Deficit				Stockholders’ Equity (Deficit)
Balance, December 31, 2018			90,759,324			$	9,075				-			$	-			$	18,701,211			$	(130,062	)		$	(17,587,700	)		$	992,524
Collection of subscription receivable			-				-				-				-				-				130,062				-				130,062
Net loss			-				-				-				-				-				-				(1,904,166	)			(1,904,166	)
Balance, March 31, 2019			90,759,324				9,075				-				-				18,701,211				-				(19,491,866	)			(781,580	)
Sale of common stock, net of issuance fees			29,770,000				2,977				-				-				6,986,623				-				-				6,989,600
Net loss			-				-				-				-				-				-				(1,368,011	)			(1,368,011	)
Balance, June 30, 2019			120,529,324			$	12,052				-			$	-			$	25,687,834			$	-			$	(20,859,877	)		$	4,840,009

 

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		Six Months Ended
		June 30,
		2019				2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(3,272,177	)		$	(2,102,173	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			2,969				5,026
Accrued stock compensation to employees			13,100				6,500
Accrued stock compensation to non-employees			54,830				21,450
Increase or decrease in:
Accounts receivable			(74,066	)			(34,567	)
Inventory			18,947				63,635
Prepaid expenses			(178,200	)			-
Other current assets			(10,304	)			16,023
Other			864				-
Accounts payable and accrued expenses			697,370				318,038
Total adjustments			525,510				396,105
NET CASH USED IN OPERATING ACTIVITIES			(2,746,667	)			(1,706,068	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment			(1,324	)			(1,634	)
Proceeds from mortgage note receivable			18,530				17,759
NET CASH PROVIDED BY INVESTING ACTIVITIES			17,206				16,125
CASH FLOWS FROM FINANCING ACTIVITIES
Collection of subscription receivable			130,062				-
Net proceeds from sale of common and preferred stock and warrants, net of issue costs			6,989,600				1,960,000
NET CASH PROVIDED BY FINANCING ACTIVITIES			7,119,662				1,960,000
NET INCREASE IN CASH AND CASH EQUIVALENTS			4,390,201				270,057
CASH AND CASH EQUIVALENTS, beginning of period			2,217,412				1,270,973
CASH AND CASH EQUIVALENTS, end of period		$	6,607,613			$	1,541,030
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest		$	-			$	-
Cash paid for income taxes		$	-			$	-
NON-CASH INVESTING AND FINANCING ACTIVITIES
Capitalization of right-to-use asset and lease liability		$	60,383			$	-

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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 (“we”, “our”, “us” or 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, lungs, liver, spleen, and other organs. The FDA 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 I study commenced in September 2017. We have also filed Clinical Trial Applications with several European regulatory bodies, including those in the United Kingdom, Sweden and Italy, and in Israel, 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. 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 and six month periods ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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, 2018, as filed with the Securities and Exchange Commission on March 15, 2019.

 

(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 are 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 June 30, 2019 and December 31, 2018.

 

(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 net 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 $39,700 at June 30, 2019 and December 31, 2018.

 

(f) PREPAID EXPENSES – Prepaid expenses consist of our pharmaceutical drug Trappsol® Cyclo™ expected to be used in our clinical trial program recorded at cost.

 

(g) EQUIPMENT––Equipment is recorded at cost, less accumulated depreciation. Depreciation on equipment 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).

 

 

CTD HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

 

(h) 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, we recognize revenues 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.

 

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

 

 

 

CTD HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

 

(j) 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.

 

(k) 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. Outstanding warrants to purchase 63,321,294 and 44,580,478 common shares were antidilutive for the three and six months ended June 30, 2019 and 2018, respectively, and 1,768,147 common shares that may be issued under warrants to purchase units sold in the Company’s private placements, were antidilutive for the three and six months ended June 30, 2019 and 2018, and have been excluded from the calculation of loss per common share.

 

(l) 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.

 

(m) LIQUIDITY––While the Company presently believes it has sufficient cash to meet its anticipated operating costs and capital expenditure requirements through August 2020, it expects to continue to raise additional capital through the sale of securities from time to time for the foreseeable future to fund the development of its drug product candidates through clinical development, manufacturing and commercialization. The Company’s ability to obtain such additional capital will likely be subject to various factors, including its overall business performance and market conditions.

 

(n) 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.

 

(o) FAIR VALUE MEASUREMENTS AND DISCLOSURES -The Fair Value Measurements and Disclosures topic of the Accounting Standards Codification (“ASC”) requires companies to determine fair value based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. The Fair Value Measurements and Disclosures topic emphasizes that fair value is a market-based measurement, not an entity-specific measurement.

 

The guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

 

●            Level 1: Quoted market prices in active markets for identical assets or liabilities.       

                            

●            Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.       

                            

●            Level 3: Unobservable inputs that are not corroborated by market data.         

 

We have no assets or liabilities that are required to have their fair value measured on a recurring basis at June 30, 2019 or December 31, 2018.  Long-lived assets are measured at fair value on a non-recurring basis and are subject to fair value adjustments when there is evidence of impairment. 

 

For short-term classes of our financial instruments which are not reported at fair value, the carrying amounts approximate fair value due to their short-term nature.  The fair value of the mortgage note receivable is estimated based on the present value of the underlying cash flows discounted at current rates. At June 30, 2019 and December 31, 2018, the carrying value of the mortgage note receivable approximates fair value. 

 

 

CTD HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

 

(p) Accounting Standards Adopted––

 

●

Leases - In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” (“ASU 2016-02”), which amends leasing guidance by requiring companies to recognize a right-of-use asset and a lease liability for all operating and financing leases with lease terms greater than twelve months.  The lease liability is equal to the present value of lease payments. The lease asset is based on the lease liability, subject to adjustment for prepaid and deferred rent and tenant incentives.  For income statement purposes, leases will continue to be classified as operating or financing with lease expense in both cases calculated substantially the same as under the prior leasing guidance. The Company adopted Topic 842 as of January 1, 2019 (the first day of fiscal 2019).  See Note 7.

 

(q) Accounting Standards to be Adopted in Future Periods––There are no outstanding accounting standards to be adopted that will have a material effect on the Company’s financial position and operations.

 

 

(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 $36,540 and $67,930 in employee and board member stock compensation for the three and six months ended June 30, 2019, respectively. The Company expensed $13,760 and $27,950 in employee and board member stock compensation for the three and six months ended June 30, 2018, respectively. The Company accrues stock compensation expense over the period earned for employees and board members.

 

On May 31, 2019, the Company completed a private placement of its securities to a group of accredited investors that included several directors of the Company and members of management, pursuant to a Securities Purchase Agreement between the Company and the investors, dated as of May 30, 2019. Investors in the private placement purchased a total of 29,770,000 units at a price per unit of $0.25, each unit consisting of one share of common stock and one warrant to purchase a share of common stock, resulting in gross proceeds to the Company of $7,442,500, before deducting placement agent fees and offering expenses. The warrants are exercisable immediately upon issuance at an exercise price of $0.30 per share and expire on the 66^th month anniversary of the issuance date.  The Company paid a cash fee to its placement agent of $452,900 and issued warrants to its placement agent and its designees to purchase an aggregate of 1,359,000 shares of common stock with the same terms as the warrants issued to the investors.  The Company filed a registration statement with the Securities and Exchange Commission to register the resale of the outstanding common stock and the shares of common stock underlying the warrants and the warrants issued to the placement agent which was declared effective on July 12, 2019. In addition, the Company’s directors and officers entered into Lock-Up Agreements at the closing under which they have agreed not to sell any of their securities of the Company until the earliest of (i) 270 days after the effective date of the Registration Statement, (ii) 365 days after the closing, and (iii) 120 days after the listing of Company’s common stock on a national securities exchange.

 

In April 2018, the Company completed a private placement resulting in gross proceeds to the Company of $2,010,000. Prior to March 31, 2018, the Company received $74,983 in advance from these investors, which has been recorded as an advance -- private placement in the accompanying statement of cash flows.

 

 

CTD HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

 

As of June 30, 2019, the Company had warrants outstanding to purchase 63,321,294 shares of common stock at exercise prices of $0.25 - $1.00 per share that expire in various years until 2025.  In addition, at June 30, 2018, there are warrants outstanding to purchase 480,000 Units sold in the Company’s May 2016 private placement at an exercise price of $0.25 per Unit, 164,074 Units sold in the Company’s February 2017 private placement at an exercise price of $0.35 per Unit, and 600 Units sold in the Company’s October 2017 private placement at an exercise price of $100 per Unit. 

 

(4) INCOME TAXES:

 

The Company reported a net loss for the three and six months ended June 30, 2019 and 2018, 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 65% of total sales for the six months ended June 30, 2019. Sales to five major customers accounted for 81% of total sales for the six months ended June 30, 2018. 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 and six months ended June 30, 2019 and June 30, 2018 were to a particular customer who exports the drug to South America. Substantially all of our Aquaplex sales are to one customer.

 

 

(7) LEASES:

 

The Company adopted ASU 2016-02 “Leases (Topic 842)” along with related clarifications and improvements effective at the beginning of fiscal 2019, using the modified retrospective transition method.  There was no cumulative-effect adjustment to the Company's Consolidated Balance Sheet as of December 31, 2018. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods, as the Company has elected the package of practical expedients permitted under the transition guidance, which among other things, allows us to carryforward our prior lease classifications under ASC 840, “Leases.”

 

 

CTD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2019

 

Under the new guidance, right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease terms at the commencement dates.  The Company uses its incremental borrowing rates as the discount rate for its leases, which is equal to the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The incremental borrowing rate for all existing leases as of the opening balance sheet date was based upon the remaining terms of the leases; the incremental borrowing rate for all new or amended leases is based upon the lease terms.  The lease terms for all the Company’s leases include the contractually obligated period of the leases, plus any additional periods covered by a Company options to extend the leases that the Company is reasonably certain to exercise

 

The Company has elected the package of practical expedients permitted under the transition guidance, which among other things, allows us to carryforward our prior lease classifications under ASC 840, “Leases.”

 

Adoption of Topic 842 did not have a material impact on our annual operating results or cash flows. Operating lease expense is recognized on a straight-line basis over the lease term and is included in operating costs or General and administrative expense.  Variable lease payments are expensed as incurred.

 

The effects of the changes made to the Company’s Consolidated Balance Sheet as of December 31, 2018 for the adoption of Topic 842 is as follows:

 

The Company determines if an arrangement is or contains a lease at contract inception and recognizes a right-of-use asset and a lease liability at the lease commencement date.  Leases with an initial term of 12 months or less but greater than one month are not recorded on the balance sheet for select asset classes.  The lease liability is measured at the present value of future lease payments as of the lease commencement date, or the opening balance sheet date for leases existing at adoption of Topic 842.  The right-of-use asset recognized is based on the lease liability adjusted for prepaid and deferred rent and unamortized lease incentives. 

 

Certain leases provide that the lease payments may be increased annually based on the fixed rate terms or adjustable terms such as the Consumer Price Index.  Future base rent escalations that are not contractually quantifiable as of the lease commencement date are not included in our lease liability. 

 

The Company has one office lease, which is as an operating lease and included in the right-of-use asset, current portion of lease liability, and long-term lease liability captions on the Company’s consolidated balance sheet.

 

Operating lease assets are recorded net of accumulated amortization of $8,502 as of June 30, 2019.

 

Lease expense for lease payments are recognized on a straight-line basis over the lease term.   Lease expense for the three and six months ending June 30, 2019 was $8,045 and $11,376 respectively.

 

 

 

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