(

) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of the more significant accounting policies of CTD Holdings, Inc. and subsidiaries (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, 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 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 consolidated financial statements include the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

(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

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

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

December 31, 2018

and

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 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

and

$27,500

December 31, 2018

and

2017,

respectively.

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

(g) 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

five

years for computers and vehicles and

seven

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.

(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 the Company’s revenue recognition as the majority of its revenues continues to be recognized when the customer takes control of the product. As the Company did

not

identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues,

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

Revenues, to these consolidated financial statements.

(i) 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.

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

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

(l) 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.

The Tax Cut and Jobs Act (the “Tax Act”) was enacted on

December 22, 2017.

The Tax Act contains several key provisions including, among other things, reducing the U.S. federal corporate tax rate from

35%

21%.

Changes in tax law are accounted for in the period of enactment. In addition, federal net operating losses (“NOLs”) generated during future periods will be carried forward indefinitely, but will be subject to an

80%

utilization against taxable income. The carryback provision has been revoked for NOLs after

January 1, 2018.

(m) 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 convertible preferred stock and outstanding warrants to purchase

32,192,294

and

28,500,478

common shares were antidilutive for

2018

and

2017,

respectively.

(n) 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.

(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

assets or liabilities that are required to have their fair value measured on a recurring basis at

December

31,

2018

2017.

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

December 31, 2018

and

2017,

the carrying value of the mortgage note receivable approximates fair value.

(p) LIQUIDITY AND GOING CONCERN–– For the year ended

December 31, 2018

and

2017,

the Company incurred net losses of

$4,255,000

and

$3,833,000,

respectively. The Company has an accumulated deficit of approximately

$17,588,000

December 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, 2018,

our operations used approximately

$3,188,000

in cash. This cash was provided primarily by cash on hand and net proceeds of

$4,102,000

from equity issuances. At

December 31, 2018,

the Company had a cash balance of

$2,217,000

and current assets less current liabilities of

$844,000.

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.

The Company has incurred losses from operations in each of the last

five

years. We will need to raise additional capital through the sale of our securities from time to time for the foreseeable future to fund the development of our drug product candidates through clinical development, manufacturing and commercialization. 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.

Our consolidated financial statements for the year ended

December 31, 2018

and

2017

were prepared on the basis of a going concern which contemplates that we will be able to realize assets and discharge liabilities in the normal course of business. We have incurred losses from operations in each of our last

five

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.

(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 that affect the amounts reported in the consolidated financial statements and accompanying notes. 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–– In

August 2016,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2016

15,

“Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).” The amendments in this ASU relate to

eight

specific types of cash receipts and cash payments which current U.S. generally accepted accounting principles (“U.S. GAAP”) either is unclear or does

not

include specific guidance on the cash flow classification issues. The amendments in this ASU are effective for public business entities for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years. The Company adopted this ASU effective

January 1, 2018

and there was

significant impact on its consolidated financial statements and disclosures.

February 2016,

the FASB issued ASU

2016

02,

Leases (Topic

842

), which requires that lessees recognize assets and liabilities for leases with lease terms greater than

months in the statement of financial position. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This update also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The update is effective for fiscal years beginning after

December 15, 2018,

including interim reporting periods within that reporting period. The Company will adopt this ASU effective

January 1, 2019

and does

not

expect a significant impact on its consolidated financial statements and disclosures.

Between

May 2014

and

December 2016,

the FASB issued several ASUs on Revenue from Contracts with Customers (Topic

606

). These updates will supersede nearly all existing revenue recognition guidance under current U.S. GAAP. The core principle is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. A

five

-step process has been defined to achieve this core principle, and, in doing so, more judgment and estimates

may

be required within the revenue recognition process than are required under existing U.S. GAAP. The standards are effective for annual periods beginning after

December 15, 2017,

and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standards in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting the standards recognized at the date of adoption (which includes additional footnote disclosures). 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 the Company’s revenue recognition as the majority of its revenues continues to be recognized when the customer takes control of the product. As the Company did

not

identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues,

adjustment to retained earnings was required upon adoption.