SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For Quarter Ended: September 30, 1996 Commission file number: 0-24930
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
(Exact name of registrant as specified in its charter)
Florida 59-3029743
(State or other jurisdiction IRS Employer Identification No.
of incorporation or organization)
3713 S.W. 42nd Avenue, Suite 3, Gainesville, Florida, 32608-2531
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 904-375-6822
Former name, former address and former fiscal year, if changed since last
report: 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 Securities 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
As of September 30, 1996, the Company had outstanding ***1,225,110*** shares
of its common stock.
<PAGE>
PART I: Financial Information
Item 1 - Financial Statement
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
QUARTERLY STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
CONTENTS PAGE
BALANCE SHEET 1-2
STATEMENTS OF OPERATIONS 3
STATEMENTS OF CASH FLOWS 4-5
NOTES TO FINANCIAL STATEMENTS 6-12
<PAGE>
<TABLE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
BALANCE SHEET
SEPTEMBER 30, 1996
(Unaudited)
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 14,560
Accounts Receivable 28,486
Inventory 78,687
Deposits and Prepaid Expenses 3,367
Note Receivable - Employee, Current Portion 4,633
________
TOTAL CURRENT ASSETS 129,733
________
PROPERTY AND EQUIPMENT
Furniture and Equipment 48,928
Leasehold Improvements 24,800
________
73,728
Less: Accumulated Depreciation 37,206
________
TOTAL PROPERTY AND EQUIPMENT 36,522
________
OTHER ASSETS
Note Receivable - Employee, Less Current Portion 2,207
Deposits and Other 2,599
Advances to and Investment in Joint Venture 40,360
License Fee 25,000
Deferred Offering Costs 127,371
________
TOTAL OTHER ASSETS 197,537
________
TOTAL ASSETS $363,792
========
</TABLE>
(CONTINUED)
-1-
<PAGE>
<TABLE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
BALANCE SHEET
SEPTEMBER 30, 1996
(Unaudited)
(CONCLUDED)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 7,422
Note Payable on Line-of-Credit 52,200
Payable to Officer 1,465
___________
TOTAL CURRENT LIABILITIES 61,087
COMMON STOCK SUBJECT TO REPURCHASE
Common Stock, Par Value $.0001 Per Share,
100,000 Shares Authorized, 25,000 Shares
Issued and Outstanding, 6,250
___________
STOCKHOLDERS' EQUITY
Voting Common Stock, Par Value $.0001 Per Share,
10,000,000 Shares Authorized, 1,225,110 Shares
Issued and Outstanding, Non-Voting Common Stock,
Par Value $.0001 Per Share, 10,000,000 Shares
Authorized, 0 Shares Issued 122
Additional Paid-In Capital 1,670,682
Common Stock Issued for Future Services (19,937)
Accumulated Deficit (1,354,412)
___________
TOTAL STOCKHOLDERS' EQUITY 296,455
___________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 363,792
===========
</TABLE>
See Accompanying Notes to Financial Statements.
-2-
<PAGE>
<TABLE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Product Sales $ 53,527 $ 16,082 $ 200,340 $199,580
Cost of Products Sold 7,712 8,940 22,252 38,045
_________ _________ _________ ________
GROSS PROFIT 45,815 7,142 178,088 161,535
_________ _________ _________ ________
OPERATING EXPENSES
Advertising 1,275 16,050 8,107 37,449
Depreciation and Amortization 9,229 4,350 40,278 13,051
Consulting Fees -- -- 1,501 6,000
Office Expenses 8,396 8,822 25,803 31,486
Professional Fees 4,763 23,810 25,146 76,725
Travel and Entertainment 1,637 1,566 10,748 6,291
Rent 5,373 5,148 16,119 15,789
Research and Development Costs 2,050 1,850 5,983 15,430
Salaries and Benefits 37,024 27,690 94,177 109,977
Taxes and Licenses 3,477 2,722 11,019 11,096
Bad Debts -- -- -- 48
_________ _________ _________ ________
TOTAL OPERATING EXPENSES 73,224 92,008 238,881 323,342
_________ _________ _________ ________
INCOME (LOSS) FROM OPERATIONS (27,409) (84,866) (60,793) (161,807)
_________ _________ _________ ________
OTHER INCOME (EXPENSE)
Investment and Other Income 1,024 2,285 1,991 9,104
Gain Due to Change in
Redemption Price on Common
Stock Subject to Repurchase 3,125 -- -- --
Equity in Loss from
Unconsolidated Subsidiary (35) (5,046) (9,134) (15,014)
Interest Expense (1,243) (44) (2,515) (44)
_________ _________ _________ ________
TOTAL OTHER INCOME (EXPENSE) 2,871 (2,805) (9,658) (5,954)
_________ _________ _________ ________
NET INCOME (LOSS) $ (24,538) $ (87,671) $ (70,451) $(167,761)
========= ========= ========= =========
NET INCOME (LOSS) PER
COMMON SHARE $ (.02) $ (.09) $ (.06) $ (.17)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,183,803 1,008,700 1,127,178 1,013,096
========= ========= ========= =========
</TABLE>
See Accompanying Notes to Financial Statements.
-3-
<PAGE>
<TABLE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
<CAPTION>
Nine Months
Ended September 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(70,451) $(167,761)
________ _________
Adjustments to Reconcile Net Loss to Net
Cash Used for Operating Activities:
Depreciation and Amortization 40,278 13,051
Deferred Compensation Earned 4,312 --
Equity in Loss of Unconsolidated
Joint Venture 9,134 15,014
Stock Issued for Services 9,000 18,375
Decrease in Accounts Receivable 8,342 115
Increase in Inventory (406) (9,003)
Decrease in Deposits and Prepaid
Expenses 15,492 1,863
Increase in Deferred Costs (40,615) --
Decrease in Accounts Payable and
Accrued Expenses (38,198) (8,300)
________ _________
Total Adjustments 7,339 31,115
________ _________
NET CASH USED FOR OPERATING ACTIVITIES (63,112) (136,646)
________ _________
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to Joint Venture (17,000) (32,000)
Repayment of Employee Loan 5,302 --
Purchase of Equipment and Leasehold
Improvements (530) (26,837)
Cash Paid for License -- (47,976)
Cash Loan to Employee (2,142) (11,018)
________ _________
NET CASH USED IN INVESTING ACTIVITIES (14,370) (117,831)
________ _________
</TABLE>
(CONTINUED)
-4-
<PAGE>
<TABLE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
(CONCLUDED)
<CAPTION>
Nine Months
Ended September 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds From Issuance of Common Stock,
Net of Offering Costs 3,025 --
Cash Paid for Treasury Stock -- (10,417)
Proceeds from Line-of-Credit 49,700 2,000
Proceeds from Loan Payable to Officer 1,465 --
Payments on Line-of-Credit (2,500) --
Payment to Stockholder on Loan (6,421) --
________ _________
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 45,269 (8,417)
NET DECREASE IN CASH AND CASH EQUIVALENTS (32,213) (262,894)
CASH AND CASH EQUIVALENTS, Beginning of Period 46,773 390,396
________ _________
CASH AND CASH EQUIVALENTS, End of Period $ 14,560 $ 127,502
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Paid During the Period For:
Interest $ 2,515 $ 44
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITY
Common Stock Issued for Services $ 21,000 $ --
Contribution by Stockholder $ 6,000 $ --
</TABLE>
See Accompanying Notes to Financial Statements.
-5-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The information presented herein as of September 30, 1996, and for the
three and nine months ended September 30, 1996 and 1995, is unaudited.
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulations 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 required adjustments)
considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1996,
are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. For further information, refer to the
financial statements and footnotes thereto included in the Company's
annual report on Form 10-KSB for the year ended December 31, 1995.
NOTE 2 - COMMITMENTS
Effective January 1, 1995, the Company obtained an exclusive right to
market a dietary supplement in the United States for three years. The
Company agreed to pay approximately $60,000 for this right. The
agreement allows the Company to recover this fee through discounts on
inventory purchased through December 31, 1997. Prior to December 31,
1995, the amortization of this license fee was recognized as discounts
were received. However, after consultation with the Securities and
Exchange Commission, the license fee is now being amortized on a
straight-line basis over the three year period of the contract. The
total accumulated amortization expense under the straight line method
since the inception of the contract is $35,000. Since $7,200 had been
recorded as of December 31, 1995, the remaining $27,800 has been
recognized as amortization expense for the nine month period ended
September 30, 1996.
On August 1, 1994, the Company entered into a five year consulting
agreement (renewable annually by mutual agreement) with Yellen
Associates (Yellen), an unrelated company. Yellen agreed to provide
ideas for new products in the nutritional, geriatric, and related
health fields; to find companies and/or products suitable for
acquisition; to find products suitable for manufacture and/or
-6-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(CONTINUED)
NOTE 2 - COMMITMENTS (continued)
distribution; and to secure customers for Company products. All
products offered by Yellen and accepted by the Company will belong
exclusively to the Company with all related rights. In return, the
Company agreed to pay Yellen $2,000 per month for nine months. In May
1995, the Company discontinued its monthly payment to Yellen in
accordance with the agreement. Additionally, the Company will pay
Yellen royalties of up to 5% of sales for products acquired through
Yellen, or Cyclodextrin sales made by Yellen for three to five years.
The Company also agreed to sell to Yellen over a period of three years
from August 1, 1994, up to 30,000 shares of Company stock at a
discount of 50% of the market price quoted at the time of purchase,
contingent upon the amount of commissions and royalties. The conditions
were not met, therefore, the Company is not obligated to sell shares to
Yellen at the agreed upon discount.
On July 7, 1994, the Company entered into a five year noncancelable
operating lease for office space, commencing October 1994. The Company
has an option to rent additional space and a purchase option in which
ten percent of the lease payments may be applied to the purchase price.
Rent expense under the foregoing lease and all other operating leases
was $5,373 and $5,148 for the three months ended September 30, 1996 and
1995, respectively, and was $16,119 and $15,789 for the nine months
ended September 30, 1996 and 1995, respectively.
In July of 1996, the Company registered Form SB-2 with the Securities and
Exchange Commission for a proposed securities offering of 250,000 shares of
common stock and 125,000 common stock purchase warrants with a combined
proposed maximum aggregate offering price of $1,250,500.
On January 1, 1996, the Company resolved to issued 48,000 shares of its
common stock to various unrelated parties for services performed in
connection with the Company's anticipated self-underwritten stock
offering as noted above. Furthermore, two of these parties acknowledge
that in the event the gross proceeds of the offering are less than
$500,000, then one-half of their shares (20,000) shall be returned to
the Company. The shares issued will bear a restrictive legend. The Company
valued the 48,000 shares at $12,000 which is approximately 50%
-7-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(CONTINUED)
NOTE 2 - COMMITMENTS (continued)
less than the bid price at the date of issuance. The quoted market price was
not used to value the stock since the stock does not trade freely in an
established market. Of these shares, $47,000 were issued on August 19, 1996.
The other 1,000 shares will not be issued.
For the three month period ended March 31, 1996, which was previously
reported, only $5,000 of the total cost of these professional fees was
deferred. Since all the costs associated with these shares are directly
attributable to the proposed offering, the remaining $7,000 was reclassified
as a deferred charge in the three month period ended September 30, 1996. In
addition, all other specific incremental professional fees incurred in the
second and third quarters of 1996 which are clearly and directly attributable
to the Company's effort to obtain equity financing have been deferred. Of
these additional fees, $5,135 was reported as an expense for the three months
ended March 31, 1996. This amount was reclassed as a deferred charge in the
second quarter. The total amount of professional fees deferred for the three
months ended September 30, 1996 is $16,104. The total amount deferred for the
nine months ended September 30, 1996 is $42,153. These deferred professional
costs will be offset against the net proceeds of the offering.
The Company entered into an agreement with Cyclop h.f. (Cyclops), a company
located in Reykjavik, Iceland, in May 1996 to secure limited exclusivity to
certain inventions embodied in patents owned by Cyclops for the purpose of
creating an organization that will commercialize products using those
inventions. In consideration, the Company agrees to share equally with
Cyclops the net profits derived from products commercialized by CTD or
affiliates of the Company that use the inventions. Further, contingent on the
successful completion of equity financing in the amount of at least
$5,000,000, the Company agrees to pay Cyclops $30,000 per month. This
agreement may be cancelled by Cyclops at any time after September 1, 1996 with
30 day notification. As of September 30, 1996, no cancellation notice was
received by CTD.
In January 1996, the Company entered into an agreement with Geller
International Associates (Geller), an unrelated company, to provide various
public relation services. In return, the Company agreed to pay Geller $2,000
per month plus out-of-pocket expenses with the first three months being
guaranteed. In addition, the Company agreed to pay Geller
-8-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(CONTINUED)
NOTE 2 - COMMITMENTS (concluded)
1% of net moneys received as a result of Geller's efforts to secure funding
for the current public offering. The total amount paid to Geller to date was
$10,461 of which $4,660 was recorded as a consulting fee during the first
quarter of 1996.
Since all the services performed by Geller to date represent activities for
the purpose of promoting the current public offering, the total consulting
fees paid to Geller to date were deferred in the second quarter of 1996. In
addition, Rick Stratton, president of CTD, gave Geller $6,000 worth of CTD
stock on behalf of the Company to provide the above mentioned services. The
value of the stock given was recorded as a contribution to the Company and the
related expense to Geller was deferred.
The agreement was cancelled at the end of the initial three months.
In January 1996, the Company entered into an agreement with Diversified
Corporate Consulting Group, L.C., an unrelated company, to provide consulting
services to be completed within 12 months. In return, the Company agreed to
pay Diversified a) a $10,000 non-refundable initial fee, and b) common stock
of the Company, in a quantity equal to 10% of all outstanding common stock, in
lieu of document licensing fees and of required cash payments for up to an
aggregate of 260 hours of hourly consulting and licensing fees. The common
stock issued to Diversified on July 29, 1996, under this agreement was 110,010
shares.
NOTE 3 - COMMON STOCK TRANSACTIONS
During 1994, the Company adopted a non-qualified employee stock plan and
in December 1994 issued 25,000 shares to employees for future services.
The shares are nontransferable by the employees for five years. During
years three through five, the employee may request the Company to
purchase all or part of the shares at 50% of the current market price
of the stock at that date.
The Company valued the 25,000 shares at $37,500, which is approximately
50% less than the bid price at the date of issuance. The quoted market
price was not used to value the stock since the stock does not trade
freely in an established market and, thus, a market price could not
accurately be established. The Company recorded the $37,500 as stock
issued for future services, which is classified as a reduction to
stockholders' equity in the accompanying financial statements. The
-9-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(CONTINUED)
NOTE 3 - COMMON STOCK TRANSACTIONS (concluded)
Company is amortizing this amount to expense over five years on the
straight-line basis, the estimated benefit period of the future
services. Any unamortized amount will be charged to expense if an
employee terminates their employment with the Company. The Company
expensed $1,438 and $875 under this plan for the three months ended
September 30, 1996 and 1995, respectively, and expensed $4,312 and
$18,375 for the nine months ended September 30, 1996 and 1995.
In June 1995, the Company purchased 10,000 shares of its own common
stock for $25,000 from a former employee, payable over the next twelve
months. This stock was held in treasury and reissued under the employee
stock plan as noted above. As of September 30, 1996, all amounts have
been paid and no further payable is due.
Effective November 15, 1995, the Company adopted an employee stock purchase
plan. Under this plan, employees may purchase shares of Company stock up to
the amount of their gross pay for the period. These shares will be restricted
from sale for two years, therefore they will be sold to employees at 50% of
the most recent trading price at the date of purchase. This plan will expire
at the next private/public offering of Company stock. As of September 30,
1996, employees had purchased 33,400 shares for $9,953 under this plan. These
shares were issued on September 6, 1996.
On April 26, 1996, the Company resolved to authorize the issuance of 16,000
shares of voting common stock to Rick Stratton, President, as a bonus for
services rendered to the Company. These shares were issued on August 15,
1996.
In the second quarter of 1996, the Company amended its Articles of
Incorporation whereby the number of voting shares authorized was increased
from 5,000,000 to 10,000,000. In addition, non-voting common shares were
created. The total amount of non-voting common shares authorized is
10,000,000.
NOTE 4 - COMMON STOCK SUBJECT TO REPURCHASE
As detailed in Note 3 above, the Company established a nonqualified
employee stock plan in 1994, and issued shares under this plan in
December, 1994. Also, as noted above, the stock issued under this
Plan is redeemable by the Company at the option of the employee, at
-10-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(CONTINUED)
NOTE 4 - COMMON STOCK SUBJECT TO REPURCHASE (concluded)
50% of the then current market value. The employee can demand
redemption at any time beginning on the first day of the third year
after issuance ending five years after issuance.
The Company has reserved 100,000 of its common shares authorized of
5,000,000 to be used under this Plan.
The common stock subject to repurchase is reflected on the balance sheet
at 50% of the market value as of the balance sheet date. Changes in the
redemption amount are recognized in the accompanying statement of operations
as "Gain due to change in redemption price on common stock subject to
repurchase."
Common stock subject to repurchase are redeemable by the holder as follows:
Year Ending Shares Amount
1996 -- $ --
1997 15,000 5,625
1998 10,000 3,750
______ ______
Total 25,000 $9,375
====== ======
NOTE 5 - MAJOR CUSTOMERS
Sales to four customers for the nine months ended September 30, 1996,
comprised approximately 70% of total sales. Sales to four customers were 85%
of total sales for the nine months ended September 30, 1995.
NOTE 6- LINE OF CREDIT
The Company has a $75,000 line of credit with a bank. Interest is due
monthly at prime plus 2%. Any outstanding principal and interest is
due on October 31, 1996. The line is collateralized by accounts receivable and
inventory. As of September 30, 1996, there is $52,200 outstanding on this
line-of-credit. Total interest expense of $2,398 was recorded related to this
line-of-credit for the nine months ended September 30, 1996.
-11-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(CONCLUDED)
NOTE 7 - JOINT VENTURE
Effective May 1, 1995, the Company entered into a joint venture
agreement with Ocumed, Inc. (Ocumed), an unrelated company. The joint
venture is organized as Ocudex, Inc. (Ocudex) with the Company and
Ocumed each owning 50% of Ocudex. The Company has committed to funding
Ocudex up to $120,000 over the next twelve months. The Company has
advanced Ocudex $51,000 as of September 30, 1996.
The Company accounts for its investment in the Ocudex joint venture
using the equity method of accounting whereby its investment is
carried at cost, including advances, adjusted for the Company's share
of earnings and losses. The Company experienced a realized loss
associated with this investment of $35 and $9,134 for the three and nine
months ended September 30, 1996, respectively.
-12-
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
Management Discussion and Analysis
Liquidity and Capital Resources
As of September 30, 1996 the Company's liquidity as measured by its total
current assets leveled off at $125,100; down by 7% from the previous quarter
and 32% for the same 9 month period in 1995. The difference from the same
period in 1995 is clearly attributable to the reduction in cash and cash
equivalents while the 2Q/96 to 3Q/96 drop is simply part of the volatility of
the company's A/R. Two -thirds of current assets is in inventory; while this
inventory is quite stable in terms of shelf-life, the Company has not been
successful in establishing distribution channels for its sale. It is the
movement of this inventory that will determine whether the company is
profitable for the year. Cash available was $14,560, compared to $6,602 at the
end of the second quarter, 1996.
The Company has established substantial inventory of Garlessence and does not
expect to expend more than an additional $10,000 in incidental costs to
distribute the product before substantial distributor sales are realized. In
the first nine months of 1996 the company sold directly less than $1,000 of
Garlessence. Before the end of the year the Company is looking to move the
Garlessence in bulk to overseas bulk purchasers or in a U.S. promotion with a
local start-up multi-level marketing organization. The Company has postponed
purchasing additional inventory of Garlessence until sales reach levels to
support such purchases. Therefore, no new expenditures are anticipated for
Garlessence(trademark) or Appromote(trademark) until sales revenue is
generated to cover such expenditures.
However, should the rate of expansion and volume of sales increase
substantially, the Company would require additional funds to finance inventory
and accounts receivable and to fund increased costs of advertising and
marketing, among other things. To meet the financial needs of expected future
growth, the Company has registered with the SEC to sell in a public offering
in 1996 and 1997. $1.25 million worth of common shares and warrants of the
company. In addition, in June of 1995, the Company obtained a $75,000 line of
credit from a commercial bank. As of September 30, 1996, there is a $52,200
outstanding balance on this line of credit.
On January 1, 1996, the Company resolved to issue 48,000 shares of its common
stock to various unrelated parties for services performed in connection with
the Company's anticipated self-underwritten stock offering as noted above.
Furthermore, two of these parties acknowledge that in the event the gross
proceeds of the offering are less than $500,000, then one-half of their shares
(20,000) shall be returned to the Company. The shares issued will bear a
restrictive legend. The Company valued the 48,000 shares at $12,000 which is
approximately 50% less than the bid price at the date of issuance. The quoted
market price was not used to value the stock since the stock does not trade
freely in an established market. Of these shares, 47,000 were issued on
August 15, 1996. The other 1,000 will not be issued.
On July 7, 1994 the Company entered into a five-year lease for 3,000 square
feet of space for an office, laboratory, and manufacturing plant. The Company
moved into the building during October 1994. Rent payments are $18,000 in
year one, $18,900 in year two, $19,484 in year three, $20,844 in year four,
and $21,888 in year five. Rent for year two has been prepaid and earns
interest at 9% on the balance not yet applied each month. The Company also
has a purchase option on this space in which ten percent of the lease payments
may be applied to the purchase price. The Company may exercise an option to
lease an additional 3,000 square feet of adjoining space. The Company houses
its administrative offices, laboratory, and manufacturing facility in this
complex, utilizing an aggregate of approximately 1,650 square feet. This
facility has been built, and can be expanded, according to "GMP" (good
manufacturing practices) specifications in anticipation of the commercial
needs of the markets the Company serves. During 1994 and 1995, the Company
expended significant effort and $65,000 in capital improvements to complete
the facility. The remaining 1,350 square feet of space is for pilot plant
manufacturing and an analytical laboratory. However, this expansion will
require additional funding and there is no assurance that any additional
funding will be available. Management has no immediate plans for this
expansion.
On August 1, 1994, the Company entered into a five-year consulting agreement
(renewable annually by mutual agreement) with Yellen Associates ("Yellen"), an
unrelated company. Yellen agreed to provide ideas for new products in the
nutritional, geriatric, and related health fields; to find companies and/or
products suitable for acquisition; to find products suitable for manufacture
and/or distribution; and to secure customers for Company products. All
products offered by Yellen and accepted by the Company will belong exclusively
to the Company with all related rights. The conditions of that agreement
remaining at this time are that the Company will pay Yellen royalties of up to
5% of sales for products acquired through Yellen, or cyclodextrin sales made
by Yellen. The Company also agreed to sell to Yellen over a period of three
years from August 1, 1994, up to 30,000 shares of Company stock at a discount
of 50% of the market price quoted at the time of purchases, contingent upon
the amount of commissions and royalties. The conditions were not met,
therefore the company is no longer obligated to sell shares to Yellen at the
agreed upon discount.
Effective January 1, 1995, the Company obtained an exclusive right to market a
dietary supplement in the United States for three years. The Company agreed to
pay approximately $60,000 for this right. The agreement allows the Company to
recover this fee through discounts on inventory purchased through December 31,
1997. Prior to December 31, 1995, the amortization of this license fee was
recognized as discounts were received. However, after consultation with the
Securities and Exchange Commission, the license fee is now being amortized on
a straight-line basis over the three year period of the contract. The total
accumulated amortization expense under the straight line method since the
inception of the contract is $35,000. Since $7,200 had been recorded as of
December 31, 1995, the remaining $27,800 has been recognized as amortization
expense in the first nine months of 1996.
On May 1, 1995 the Company entered into a joint venture operating as Ocudex,
Inc. The Company and Ocumed, Inc., an unrelated company, each own 50% of
Ocudex. The Company has agreed to fund on a best efforts basis up to $10,000
per month for not more than 12 months. CTD had advanced Ocudex $34,000 in
1995 on which it realized an operating loss of $1,505, but a taxable profit of
$63. As of September 30, 1996, the Company advanced Ocudex an additional
$17,000 and has realized a loss of $9,134 for the first nine months of 1996.
The Company intends to apply additional funds during 1996 to be used for
inventory and production costs and also to defray the costs of raising equity
capital that will allow Ocudex to obtain FDA approval for proprietary
cyclodextrin-improved generic ophthalmic drugs using cyclodextrin complexes
brought to it by CTD. The initial and immediate benefit of successfully
obtaining such funding will be to allow CTD to book a net asset value that
will qualify it for NASDAQ small cap listing. As of September 30, 1996 there
have been no sales recorded by Ocudex of these products.
The Company entered into an agreement with Cyclops h.f. (Cyclops), a company
located in Reykjavik, Iceland, in May 1996 to secure limited exclusivity to
certain inventions embodied in patents owned by Cyclops for the purpose of
creating an organization that will commercialize products using those
inventions. In consideration, the Company agrees to share equally with
Cyclops the net profits derived from products commercialized by CTD or
affiliates of the Company that use the inventions. Further, contingent on the
successful completion of equity financing in the amount of at least
$5,000,000, the Company agrees to pay Cyclops $30,000 per month. This
agreement may be canceled by Cyclops at any time after September 1, 1996 with
30 day notification. No notification of cancellation has been received as of
September 30, 1996.
In January 1996, the Company entered into an agreement with Geller
International Associates (Geller), an unrelated company, to provide various
public relation services. In return, the Company agreed to pay Geller $2,000
per month plus out-of-pocket expenses with the first three months being
guaranteed. In addition, the Company agreed to secure funding for the current
public offering. The total amount paid to Geller for the six months ending
June 30, 1996 was $10,461. The agreement was cancelled in May 1996, with no
further amounts paid or due to Geller.
The Company purchased 10,000 shares of its own common stock for $25,000 from a
former employee on May 3, 1995 payable over the following 12 months. As of
June 30, 1996, that obligation has been paid in full.
In the second quarter of 1996, the Company amended its Articles of
Incorporation whereby the number of voting shares authorized was increased
from 5,000,000 to 10,000,000. In addition, non-voting common shares were
created. The total amount of non-voting common shares authorized is
10,000,000.
In 1995, the Company sponsored validation testing at the University of Florida
on a new cyclodextrin-based veterinary euthanasia product; approximately
$12,500 has been spent in the initial studies required to test this new
product. No additional expenses were incurred for the new cyclodextrin-based
veterinary euthanasia product in the first quarter. Additional formulation
work and efficacy validation will be done along with the writing and
submission of the patent protecting the invention. The Company spent $1,375
on this work in the second quarter of 1996. No expenses were incurred during
the third quarter for this work.
The Company continues to explore the acquisition and development of new
products through licensing and joint ventures with and without cyclodextrins
to increase sales. In an agreement with Cyclops h.f. of Reykjavik, Iceland,
effective May 22, 1996 and continuing for not more than 12 continuous months,
the Company has obtained a Right of First Refusal (ROFR) to the ophthalmic
inventions in U.S. Patent 5,472,959. CTD intends to secure the rights to such
products for Ocudex, Inc - its first joint venture company.
Results of Operations
Sales of cyclodextrins and related manufactured complexes have historically
been volatile. Sales are primarily to large pharmaceutical and food companies
for research and development purposes. Sales have also been concentrated
among a few large customers. Product sales were $54,317 and $16,082 for the
three months ended September 30, 1996 and 1995, respectively and were $200,340
and $199,580 for the nine months ended September 30, 1996 and 1995. The
Company is now reproducing the sales levels of a year ago. Such volatility
will continue to make the Company's cash use planning from quarter to quarter
difficult. The Company is making consistent progress to moderate the
volatility by expanding its product line to more routinely purchased products.
The Company expects to increase sales of Garlessence in 1996. Although sales
have been much slower developing than anticipated, as they grow, they will
provide not only a substantial increase in sales revenues but stability as
well.
The Company was able to increase its gross profit margin for the first nine
months of 1996 to 89%, compared to 81% for the same period in 1995. The future
sales of Garlessence at a gross profit of approximately 25% will contribute to
overall profitability, but at a substantial reduction in gross profit
percentage for the year.
During the first nine months of 1996, the Company achieved an overall decrease
in expenses of 27% from the comparable first nine month period of 1995. This
reduction was achieved by reducing salary expenses, office expenses,
professional fees, and advertising expenses across the board. These expense
reductions were implemented while still expanding our sales base, developing
new products, and implementing our strategy of creating operational affiliates
that will use cyclodextrins in herbal medicines and wastewater remediation.
<PAGE>
PART II: Other Information
Item 6. Exhibits and Reports on Form 8-K
None.
(a) Exhibits
Exhibit Description Page
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession None
(3) Articles of Incorporation and By-Laws:
(i) Certificate of Incorporation filed August 9, 1990,
incorporated by reference to the Company's Form 10-SB
filed with the U.S. Securities and Exchange Commission
February 1, 1994.
(ii) By-Laws incorporated by reference to the Company's
Form 10-SB filed with the U.S. Securities and Exchange
Commission February 1, 1994.
(iii) Certificates of Amendment to the Articles of
Incorporation filed November 18, 1993, and September 24,
1993, incorporated by reference to the Company's Form 10-SB
filed with the U.S. Securities and Exchange Commission
February 1, 1994.
(4) Instruments defining the Rights of Security Holders None
(10) Material Contracts None
(12) Statement re: Computation of Per Share Earnings
(15) Letter re: Unaudited Interim Financial Information None
(18) Letter re: Change in Accounting Principles None
(19) Report Furnished to Security Holders None
(22) Published Report re: Matters Submitted to Vote of
Security Holders None
(23) Consents of Experts and Counsel None
(24) Power of Attorney None
(27) Financial Data Schedule
(99) Additional Exhibits None
(b) Reports on Form 8-K None
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 14, 1996
C. E. RICK STRATTAN
C. E. RICK STRATTAN
President, Chief Executive Officer,
Chief Financial Officer
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Net loss per share is based on the weighted average number of shares
outstanding during the periods, less treasury stock owned by the Company.
Those stock options outstanding that are dilutive have been considered in
determining net loss per share and the weighted average number of shares
outstanding.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from Financial Statements for the three (3) months ended September 30, 1996,
and is qualified in its entirety by reference to such form 10QSB for quarterly
period ended September 30, 1996.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sept-30-1996
<CASH> 14,560
<SECURITIES> 0
<RECEIVABLES> 28,486
<ALLOWANCES> 0
<INVENTORY> 78,687
<CURRENT-ASSETS> 129,733
<PP&E> 73,728
<DEPRECIATION> 37,206
<TOTAL-ASSETS> 363,792
<CURRENT-LIABILITIES> 61,087
<BONDS> 0
<COMMON> 122
0
0
<OTHER-SE> 296,333
<TOTAL-LIABILITY-AND-EQUITY> 363,792
<SALES> 200,340
<TOTAL-REVENUES> 200,340
<CGS> 22,252
<TOTAL-COSTS> 238,881
<OTHER-EXPENSES> 9,658
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (70,451)
<INCOME-TAX> 0
<INCOME-CONTINUING> (70,451)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70,451)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
