(

) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following is a summary of the more significant accounting policies of Cyclo Therapeutics, 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, 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. 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.

More recently, we began exploring the use of cyclodextrins in the treatment of Alzheimer's disease, and in

October 2019

entered into an agreement with a Contract Research Organization to conduct a clinical trial to evaluate the safety and efficacy of Trappsol® Cyclo™ for the treatment of this disease.

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

-Q and Rule

of Regulation S-

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

nine

month periods ended

September

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

-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

September

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

September 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

five

years for computers, and

seven

ten

years for equipment and office furniture).

(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,

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 condensed consolidated financial statements.

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

(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

30,440,478

common shares were antidilutive for the

three

and

nine

months ended

September 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

nine

months ended

September 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––For the

nine

month period ended

September 30, 2019,

the Company had a net loss of $(

4,898,000

) and utilized cash from operating activities of approximately

$4.4

million, and at

September 30, 2019,

the Company had an accumulated deficit of approximately

$22.5

million. The Company will need to raise additional capital to support ongoing operations and continue its clinical trials.. While the Company presently believes it has sufficient cash to meet its anticipated operating costs and capital expenditure requirements through

November 2020,

the Company will continue its efforts 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 capital will likely be subject to various factors, including its overall business performance and market conditions. There can be

guarantee that the Company will be successful in its ability to raise capital to fund future operational and development initiatives when needed.

(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. 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

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

September 30, 2019

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

September 30, 2019

and

December 31, 2018,

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

(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

(q) ACCOUNTING STANDARDS TO BE ADOPTED IN FUTURE PERIODS––There are

outstanding accounting standards to be adopted that will have a material effect on the Company’s financial position and operations.