Cyclo Therapeutics, Inc. - Quarter Report: 2021 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, 2021

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

 

CYCLO THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		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
Common Stock, par value $.0001 per share	CYTH	The Nasdaq Stock Market LLC
Warrants to purchase Common Stock	CYTHW	The Nasdaq Stock Market LLC

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐   No ☒ 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐   No ☒ 

 

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 May 3, 2021 the Company had outstanding 6,358,661 shares of its common stock.

 

 

 

CYCLO THERAPEUTICS, INC.

FORM 10-Q 

TABLE OF CONTENTS

 

	Description		Page
PART I	FINANCIAL INFORMATION		1
Item 1.	Financial Statements.		1
	Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020.		1
	Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2021 and 2020.		2
	Consolidated Statement of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2021		3
	Consolidated Statement of Stockholders’ Equity (Deficit) (Unaudited) for the Three Months Ended March 31, 2020		4
	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2021 and 2020.		5
	Notes to Consolidated Financial Statements.		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.		17
Item 4.	Controls and Procedures.		17
PART II	OTHER INFORMATION		18
Item 1A.	Risk Factors.		18
Item 6.	Exhibits.		18
SIGNATURES

 

 

		March 31, 2021				December 31, 2020
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	15,506,718			$	12,846,113
Accounts receivable			171,864				71,017
Inventory, net			257,834				237,909
Current portion of mortgage note receivable			48,304				40,772
Prepaid insurance and services			219,752				126,474
Prepaid clinical expenses			1,816,633				727,952
Total current assets			18,021,105				14,050,237
FURNITURE AND EQUIPMENT, NET			50,360				53,910
RIGHT-TO-USE LEASE ASSET, NET			30,862				34,011
MORTGAGE NOTE RECEIVABLE, LESS CURRENT PORTION			38,942				49,806
TOTAL ASSETS		$	18,141,269			$	14,187,964
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of lease liability		$	18,325			$	17,483
Current portion of note payable			60,142				114,029
Accounts payable and accrued expenses			3,628,293				3,541,041
Total current liabilities			3,706,760				3,672,553
LONG-TERM LEASE LIABILITY
Long-term lease liability, less current portion			14,560				18,434
Long-term note payable, less current portion			98,382				44,495
Total long-term liabilities			112,942				62,929
STOCKHOLDERS' EQUITY
Common stock, par value $.0001 per share, 10,000,000 shares authorized, 6,357,596 and 4,770,761 shares issued and outstanding, at March 31, 2021 and December 31, 2020, respectively			635				477
Preferred stock, par value $.0001 per share, 5,000,000 shares authorized			-				-
Additional paid-in capital			52,419,383				44,513,841
Accumulated deficit			(38,098,451	)			(34,061,836	)
Total stockholders' equity			14,321,567				10,452,482
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	18,141,269			$	14,187,964

 

 

		Three Months Ended
		March 31,
		2021				2020
REVENUES
Product sales		$	358,133			$	325,734
EXPENSES
Personnel			559,324				469,705
Cost of products sold (exclusive of direct and indirect overhead and handling costs)			34,596				26,433
Research and development			3,258,115				2,059,606
Repairs and maintenance			1,666				1,802
Professional fees			222,871				219,536
Office and other			313,774				178,362
Board of Director fees and costs			-				7,349
Depreciation			3,550				3,118
Freight and shipping			1,513				1,863
Total operating expenses			4,395,409				2,967,774
LOSS FROM OPERATIONS			(4,037,276	)			(2,642,040	)
OTHER INCOME
Investment and other income			661				8,048
LOSS BEFORE INCOME TAXES			(4,036,615	)			(2,633,992	)
PROVISION FOR INCOME TAXES			-				-
NET LOSS		$	(4,036,615	)		$	(2,633,992	)
BASIC AND DILUTED NET LOSS PER COMMON SHARE		$	(.76	)		$	(2.17	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING			5,333,806				1,215,650

 

		Common Stock								Additional								Total
		Shares				Par Value				Paid-In Capital				Accumulated Deficit				Stockholders’ Equity
Balance, December 31, 2020			4,770,761			$	477			$	44,513,841			$	(34,061,836	)		$	10,452,482
Stock issued to employees			53,938				5				271,303				-				271,308
Stock issued to nonemployees			10,000				1				50,299				-				50,300
Exercise of warrants			1,522,897				152				7,583,940				-				7,584,092
Net loss			-				-				-				(4,036,615	)			(4,036,615	)
Balance, March 31, 2021			6,357,596			$	635			$	52,419,383			$	(38,098,451	)		$	14,321,567

 

		Common Stock								Additional								Total
		Shares				Par Value				Paid-In Capital				Accumulated Deficit				Stockholders’ Equity (Deficit)
Balance, December 31, 2019			1,215,650			$	122			$	26,056,093			$	(25,120,233	)		$	935,982
Net loss			-				-				-				(2,633,992	)			(2,633,992	)
Balance, March 31, 2020			1,215,650			$	122			$	26,056,093			$	(27,754,225	)		$	(1,698,010	)

 

		Three Months Ended
		March 31,
		2021				2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(4,036,615	)		$	(2,633,992	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			3,550				3,118
Accrued stock compensation to employees			-				2,470
Accrued stock compensation to non-employees			-				4,750
Issuance of stock based compensation			50,300				-
Increase or decrease in:
Accounts receivable			(100,847	)			(25,394	)
Inventory			(19,925	)			13,859
Prepaid clinical expenses			(1,088,681	)			59,096
Prepaid insurance and services			(93,278	)			(37,013	)
Other current assets			-				(9,615	)
Other			117				226
Accounts payable and accrued expenses			358,560				803,630
Total adjustments			(890,204	)			824,742
NET CASH USED IN OPERATING ACTIVITIES			(4,926,819	)			(1,809,250	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture and equipment			-				(50,627	)
Proceeds from mortgage note receivable			3,332				9,615
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES			3,332				(41,012	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from exercise of warrants			7,584,092				-
NET CASH PROVIDED BY FINANCING ACTIVITIES			7,584,092				-
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			2,660,605				(1,850,262	)
CASH AND CASH EQUIVALENTS, beginning of period			12,846,113				2,783,719
CASH AND CASH EQUIVALENTS, end of period		$	15,506,718			$	933,457
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest		$	-			$	-
Cash paid for income taxes		$	-			$	-

 

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

The following is a summary of the more significant accounting policies of Cyclo Therapeutics, Inc. (the “Company,” “we,” “our” or “us”) that affect the accompanying consolidated financial statements:

 

(a) ORGANIZATION AND OPERATIONS––The Company was incorporated in August 1990 as a Florida corporation, under the name Cyclodextrin Technologies Development, Inc. with operations beginning in July 1992. In conjunction with a restructuring in 2000, we changed our name to CTD Holdings, Inc. We changed our name to Cyclo Therapeutics, Inc. in September 2019 to better reflect our current business, and on November 6, 2020, we reincorporated from the State of Florida to the State of Nevada.

 

We are a clinical stage 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”) in 2014 for our lead drug candidate, Trappsol® Cyclo™ as a treatment for Niemann-Pick Type C disease (“NPC”). NPC is a rare and fatal cholesterol metabolism disease that impacts the brain, lungs, liver, spleen, and other organs. In 2015, we launched an International Clinical Program for Trappsol® Cyclo™ as a treatment for NPC. In 2016, we filed an Investigational New Drug application (“IND”) with the FDA, which described our Phase I clinical plans for a randomized, double blind, parallel group study at a single clinical site in the U.S. The Phase I study evaluated the safety of Trappsol® Cyclo™ along with markers of cholesterol metabolism and markers of NPC during a 14-week treatment period of intravenous administration of Trappsol® Cyclo™ every two weeks to participants 18 years of age and older. The IND was approved by the FDA in September 2016, 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. Enrollment in this study was completed in October 2019, and in May 2020 we announced Top Line data showing a favorable safety and tolerability profile for Trappsol® Cyclo™ in this study. In October 2020 we received a “Study May Proceed” notification from the FDA with respect to the proposed Phase III clinical trial.

 

We have also filed Clinical Trial Applications for a Phase I/II clinical study 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 Phase I/II study is evaluating the safety, tolerability and efficacy of Trappsol® Cyclo™ through a range of clinical outcomes, including neurologic, and respiratory, in addition to measurements of cholesterol metabolism and markers of NPC. The first patient was dosed in this study in July 2017, and in February 2020, we announced completion of enrollment of 12 patients in this study. In September 2020, we released positive data from the seven patients who completed the trial, supporting the efficacy of Trappsol® Cyclo™ in treating NPC patients.

 

In January 2018, the FDA authorized a single patient IND expanded access program using Trappsol® Cyclo™ for the treatment of Alzheimer’s disease. We prepared a synopsis for an early stage protocol using Trappsol® Cyclo™ intravenously to treat Alzheimer’s disease that was presented to the FDA in January of 2021. We received feedback from the FDA on this synopsis in April 2021 and have incorporated the feedback into our development strategy for the filing of an IND for a Phase II program.  We intend to submit this IND to the FDA in the second half of 2021.

 

We also continue to operate our legacy fine chemical business, consisting of the sale of 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 that had been primarily reselling basic cyclodextrin products.

 

(b) BASIS OF PRESENTATION––The consolidated financial statements include the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The interim consolidated financial statements of the Company included in this Quarterly Report on Form 10-Q, including these notes, are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements have been included. Such adjustments are of a normal, recurring nature. The consolidated financial statements, and these notes, have been prepared in accordance with GAAP and do not contain certain information included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The consolidated financial statements should be read in conjunction with that Annual Report on Form 10-K. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year.

 

 

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  (CONTINUED)

 

(c) CASH AND CASH EQUIVALENTS––Cash and cash equivalents consist of cash and any highly liquid investments with an original purchased 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. Customer account balances with invoices dated over 90 days old are considered past due. The Company does not accrue interest on past due accounts. Customer payments are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, applied to the oldest unpaid invoices.

 

The carrying amount of accounts receivable are reduced by an allowance for credit losses that reflects management’s best estimate of the amounts that will not be collected. The Company reviews each customer balance where all or a portion of the balance exceeds 90 days from the invoice date. Based on the Company’s assessment of the customer's current creditworthiness, the Company estimates the portion, if any, of the balance that will not be collected, and writes off receivables as a charge to the allowance for credit losses when, in management’s estimation, it is probable that the receivable is worthless. Based on management’s assessment of the credit history with customers having outstanding balances and current relationships with them, an allowance for doubtful accounts was not deemed necessary at March 31, 2021 and December 31, 2020.

 

(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. The Company records a specific reserve for inventory items that are determined to be obsolete. The reserve for obsolete inventory was $52,922 at March 31, 2021 and December 31, 2020, respectively. The Company’s reserve for obsolete inventory is based on the Company’s best estimates of product sales and customer demands. It is reasonably possible that the estimates used by the Company to determine its provisions for inventory write-downs will be materially different from actual write-downs. These differences could result in materially higher than expected inventory provisions and related costs, which could have a materially adverse effect on the Company’s results of operations and financial condition in the near term. Cost of products sold includes the acquisition cost of the products sold and does not include any allocation of outbound freight charges, indirect overhead expenses, warehouse and distribution expenses, or depreciation and amortization expense.

 

(f) PREPAID CLINICAL EXPENSES––Prepaid clinical expenses consist of our pharmaceutical drug Trappsol® Cyclo™ expected to be used in our clinical trial program recorded at cost. Prepaid clinical expenses represent valid future economic benefits based on our contracts with our vendors, and will be realized in the ordinary course of business.

 

(g) MORTGAGE NOTE RECEIVABLE––The mortgage note receivable is stated at amortized value, which is the amount we expect to collect. 

 

(h) FURNITURE AND EQUIPMENT––Furniture and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed using primarily the straight-line method over the estimated useful lives of the assets (generally three to five years for computers and vehicles and seven to ten years for machinery, equipment and office furniture). We periodically review our long-lived assets to determine if the carrying value of assets may not be recoverable. If an impairment is identified, we recognize a loss for the difference between the carrying amount and the estimated fair value of the asset. 

 

 

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  (CONTINUED)

 

(i) REVENUE RECOGNITION––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 Accounting Standard Update (“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 2, Revenues, to these consolidated financial statements.

 

(j) SHIPPING AND HANDLING FEES––Shipping and handling fees, if billed to customers, are included in product sales. Shipping and handling costs associated with inbound and outbound freight are expensed as incurred and included in freight and shipping expense.

 

(k) ADVERTISING––Advertising costs are charged to operations when incurred. We incur minimal advertising expenses.

 

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

 

(m) 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.

 

 

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  (CONTINUED)

 

(n) 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 2,130,268 common shares were antidilutive for the three months ended March 31, 2021 and the year ended December 31, 2020.

 

(o) STOCK BASED COMPENSATION––The Company periodically awards stock to employees, directors, and consultants. In the case of employees 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. With respect to directors, the Company accrues stock compensation expense on a quarterly basis based on the Company’s historical director compensation policies, and each quarter recognizes such expense based on the trading price of the common stock during such quarter. This expense is then trued up at the time the shares are issued to directors based on the trading price at the time of issuance.

 

(p) 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 March 31, 2021 and December 31, 2020.  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 include cash, accounts receivable and accounts payable, and 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 March 31, 2021 and December 31, 2020, the carrying value of the mortgage note receivable approximates fair value.

 

(q) 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, including regarding contingencies, that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company’s most significant estimate relates to inventory obsolescence. 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.

 

(r) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS––Management does not believe any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.

 

(s) UNCERTAINTY––The recent outbreak of the COVID-19 coronavirus is impacting worldwide economic activity. COVID-19 poses the risk that we or our employees, CROs, suppliers, manufacturers and other partners may be prevented from conducting business activities for an indefinite period of time, including due to the spread of the disease or shutdowns that may be requested or mandated by governmental authorities.  While it is not possible at this time to estimate the full impact that COVID-19 could have on our business, the continued spread of COVID-19 could disrupt our clinical trials, supply chain and the manufacture or shipment of our cyclodextrin products, and other related activities, which could have a material adverse effect on our business, financial condition and results of operations. While we have not yet experienced any disruptions in our business or other negative consequences relating to COVID-19, the extent to which the COVID-19 pandemic impacts our results will depend on future developments that are highly uncertain and cannot be predicted.

 

 

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  (CONTINUED)

 

(2) 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. However, substantially all of the Company’s revenues are derived from the sale of cyclodextrins and related products to the pharmaceutical, nutritional, and other industries, primarily for use in diagnostics and specialty drugs. Currently, a small portion of the Company’s revenues are also generated by sales of Trappsol® Cyclo™ to South America (Brazil) for the treatment of NPC patients.

 

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.

 

Revenues by product are summarized as follows:

 

 

Substantially all of our sales of Trappsol® Cyclo™ for the three months ended March 31, 2021 and year ended December 31, 2020 were to a single customer who exports the drug to South America. Substantially all of our Aquaplex® sales for the three months ended March 31, 2021 and year ended December 31, 2020 were to one customer.

 

(3) MAJOR CUSTOMERS AND SUPPLIERS:

 

Our revenues are derived primarily from chemical supply and pharmaceutical companies located primarily in the United States. For the three months ended March 31, 2021 five major customers accounted for 77% of total revenues. For the three months ended March 31, 2020, four major customers accounted for 70% of total revenues.

 

Substantially all inventory purchases were from three vendors in 2021 and 2020. These vendors are located primarily outside the United States.

 

We have three sources for our Aquaplex® products. There are multiple sources for our Trappsol® products.

 

For the three months ended March 31, 2021, the product mix of our revenues consisted of 1% biopharmaceuticals, 96% basic natural and chemically modified cyclodextrins and 3% cyclodextrin complexes. For the three months ended March 31, 2020 the product mix of our revenues consisted of 9% biopharmaceuticals and 91% basic natural and chemically modified cyclodextrins.

 

 

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(4) 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.

 

(5) NOTE PAYABLE:

 

On May 4, 2020, the Company’s wholly-owned subsidiary Cyclodextrin Technologies Development, Inc., borrowed $158,524 from BBVA USA under the Paycheck Protection Program which was established under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The loan matures on May 4, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on September 5, 2021. Under the Paycheck Protection Program, the loan may be partially or wholly forgiven if the loan is used to fund certain qualifying expenses as described in the CARES Act. The Company believes it has used all of the loan proceeds for qualifying expenses, and plans to apply for forgiveness of the loan in accordance with the terms of the CARES Act.

 

(6) EQUITY TRANSACTIONS:

 

On December 8, 2020, the Company effected a 1-for-100 reverse split of its authorized and issued and outstanding shares of common stock. All share references have been restated for this reverse split to the earliest period presented. As a result of the split, the authorized shares of the Company’s common stock decreased to 10,000,000 shares.

 

The Company expensed $0 and $7,220 in employee and board member stock compensation for the three months ended March 31, 2021 and 2020, respectively. These shares were valued using quoted market values. The Company accrues stock compensation expense over the period earned for employees and board members. Stock compensation expense for board members is included in “Board of Directors fees and costs” on our statement of operations, and stock compensation expense for officers and employees that are not board members is included in “Personnel” on our statement of operations. In 2020, the Company did not issue shares of common stock for compensation. The Company issued 53,938 shares to employees in January 2021 with a value of $271,308 at the time of issuance, with respect to which compensation expense in that amount had been accrued as of December 31, 2020.

 

On April 24, 2020, the Company completed a private placement of common stock to a group of accredited investors that included several directors of the Company and members of management. Investors in the private placement purchased a total of 200,000 shares of common stock at a price of $10 per share, resulting in gross proceeds to the Company of $2,000,000.

 

On August 27, 2020, 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. Investors in the private placement purchased a total of 283,111 units at a price of $10 per unit, resulting in gross proceeds to the Company of $2,831,114. Each unit consisted of one share of common stock and a seven-year warrant to purchase one share of common stock at an exercise price of $15 per share.

 

On December 11, 2020, the Company sold an aggregate of 2,500,000 units at a price to the public of $5.00 per unit (the “Public Offering”), each unit consisting of one share of common stock, and a warrant to purchase one share of common stock at an exercise price of $5.00 per share (the “Warrants”), pursuant to an Underwriting Agreement we entered into with Maxim Group LLC (“Maxim”). In addition, pursuant to the Underwriting Agreement, the Company granted Maxim a 45-day option to purchase up to 375,000 additional shares of common stock, and/or 375,000 additional Warrants, to cover over-allotments in connection with the Offering, which Maxim partially exercised to purchase 375,000 Warrants on the closing date.

 

 

CYCLO THERAPEUTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(6) EQUITY TRANSACTIONS: (CONTINUED)

 

The Company received gross proceeds of $12,503,750 upon the initial closing of the Public Offering, before deducting underwriting discounts and commissions of eight percent (8%), and expenses. On December 22, 2020, the Company sold an additional 375,000 shares of common stock to Maxim upon its exercise of the balance of its over-allotment option, and received additional gross proceeds of $1,871,250 from such sale, bringing the total gross proceeds of the Public Offering to $14,375,000. The total expenses of the Public Offering were approximately $1,703,000 which included Maxim’s expenses relating to the offering.

 

Pursuant to the Underwriting Agreement, we issued warrants (the “Underwriter’s Warrants”) to Maxim to purchase 57,500 shares of common stock (2% of the shares of common stock sold in the Public Offering). The Underwriter’s Warrants are exercisable at $6.25 per share of common stock and have a term of five years.

 

Subsequent to the closing of the Public Offering through December 31, 2020, Warrants to purchase an aggregate of 197,000 shares of common stock were exercised, resulting in gross proceeds to the Company of $985,000.

 

In January 2021, 10,000 shares of common stock with a value of $50,300 were issued to a nonemployee for services.

 

In February and March 2021 warrants issued in our December 2020 Public Offering were exercised to purchase an aggregate of 1,519,984 shares of common stock, resulting in gross proceeds to the Company of $7,599,920. 

 

In March 2021, warrants totaling 9,436 were exercised in a net share settlement. This resulted in the issuance of 2,913 shares of common stock and the expiration of 6,523 in warrants.

 

As of March 31, 2021, the Company had warrants outstanding to purchase 2,130,268 shares of common stock at exercise prices of $5.00 - $100.00 per share that expire at various dates through 2027. In addition, there are seven-year warrants outstanding at March 31, 2021 to purchase 4,800 Units sold in our May 2016 private placement at an exercise price of $25.00 per Unit, 1,641 Units sold in our February 2017 private placement at an exercise price of $35.00 per Unit, and 2,400 Units sold in our October 2017 private placement at an exercise price of $25.00 per Unit. 

 

(7) INCOME TAXES:

 

The Company reported a net loss for the three months ended March 31, 2021 and 2020, respectively. The Company increased its deferred tax asset valuation allowance rather than recognize an income tax benefit.

 

(8) EQUITY INCENTIVE PLAN:

 

On August 29, 2019, the Company’s stockholders approved the Company’s 2019 Omnibus Equity Incentive Plan at a special meeting of stockholders (the “Incentive Plan”). The Incentive Plan provides for the issuance of up to 68,437 shares of common stock pursuant to the grant of shares of common stock, stock options or other awards, to employees, officers or directors of, and consultants to, the Company and its subsidiaries. Options granted under the Incentive Plan may either be intended to qualify as incentive stock options under the Internal Revenue Code of 1986, or may be non-qualified options, and are exercisable over periods not exceeding ten years from date of grant. As of March 31, 2021, we had awarded 68,437 shares of common stock as awards under the Incentive Plan, with no shares of common stock remaining available for future awards under the Incentive Plan.

 

(9) SUBSEQUENT EVENTS:

 

The Company has evaluated subsequent events through the date these financial statements were issued and filed with the Securities and Exchange Commission, and has determined that except as set forth below, there were no such events that warrant disclosure or recognition in the financial statements