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: June 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 June 30, 1996, the Company had outstanding ***1,100,000*** shares of
its common stock.
<PAGE>
PART I: Financial Information
Item 1 - Financial Statement
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
QUARTERLY STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 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
JUNE 30, 1996
(Unaudited)
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 6,602
Accounts Receivable 43,609
Inventory 78,879
Deposits and Prepaid Expenses 5,410
Note Receivable - Employee, Current Portion 4,633
________
TOTAL CURRENT ASSETS 139,133
________
PROPERTY AND EQUIPMENT
Furniture and Equipment 48,928
Leasehold Improvements 24,800
________
73,728
Less: Accumulated Depreciation 32,977
________
TOTAL PROPERTY AND EQUIPMENT 40,751
________
OTHER ASSETS
Note Receivable - Employee, Less Current Portion 3,510
Deposits and Other 7,513
Advances to and Investment in Joint Venture 40,395
License Fee 30,000
Deferred Offering Costs 42,510
________
TOTAL OTHER ASSETS 123,928
________
TOTAL ASSETS $303,812
========
</TABLE>
<PAGE>
<TABLE>
(CONTINUED)
-1-
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
BALANCE SHEET
JUNE 30, 1996
(Unaudited)
(CONCLUDED)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 8,938
Note Payable on Line-of-Credit 43,700
___________
TOTAL CURRENT LIABILITIES 52,638
COMMON STOCK SUBJECT TO REPURCHASE
Common Stock, Par Value $.0001 Per Share,
100,000 Shares Authorized, 25,000 Shares
Issued and Outstanding, 9,375
___________
STOCKHOLDERS' EQUITY
Voting Common Stock, Par Value $.0001 Per Share,
10,000,000 Shares Authorized, 993,700 Shares
Issued and Outstanding, 81,400 Shares Subscribed;
Non-Voting Common Stock, Par Value $.0001 Per
Share, 10,000,000 Shares Authorized, 0 Shares
Issued 108
Additional Paid-In Capital 1,592,940
Common Stock Issued for Future Services (21,375)
Accumulated Deficit (1,329,874)
___________
TOTAL STOCKHOLDERS' EQUITY 241,799
___________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 303,812
===========
</TABLE>
See Accompanying Notes to Financial Statements.
-2-
<PAGE>
<TABLE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Product Sales $ 116,037 $ 48,370 $ 146,813 $183,498
Cost of Products Sold 10,014 7,489 14,540 29,106
_________ _________ _________ ________
GROSS PROFIT 106,023 40,881 132,273 154,392
_________ _________ _________ ________
OPERATING EXPENSES
Advertising 3,309 18,677 6,832 21,399
Depreciation and Amortization 9,047 5,145 31,049 8,702
Consulting Fees 1,500 -- 1,500 6,000
Office Expenses 10,028 21,375 17,407 36,244
Professional Fees 11,196 11,330 20,384 52,915
Travel and Entertainment 5,110 1,808 9,112 4,724
Rent 5,373 5,163 10,746 10,641
Research and Development Costs 1,983 -- 3,933 --
Salaries and Benefits 28,658 48,652 57,153 82,286
Taxes and Licenses 2,971 3,571 7,542 8,375
Bad Debts -- 48 -- 48
_________ _________ _________ _________
TOTAL OPERATING EXPENSES 79,175 115,769 165,658 231,334
_________ _________ _________ _________
INCOME (LOSS) FROM OPERATIONS 26,848 (74,888) (33,385) (76,942)
_________ _________ _________ _________
OTHER INCOME (EXPENSE)
Investment and Other Income 362 3,431 967 6,819
Loss Due to Change in
Redemption Price on Common
Stock Subject to Repurchase (3,125) -- (3,125) --
Equity in Loss from
Unconsolidated Subsidiary (3,613) (9,968) (9,099) (9,968)
Interest Expense (1,015) -- (1,272) --
_________ _________ _________ __________
TOTAL OTHER INCOME (EXPENSE) (7,391) (6,537) (12,529) (3,149)
_________ _________ _________ __________
NET INCOME (LOSS) $ 19,457 $ (81,425) $ (45,914) $ (80,091)
========= ========= ========= =========
NET INCOME (LOSS) PER
COMMON SHARE $ .02 $ (.08) $ (.04) $ (.08)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,100,100 1,015,403 1,099,558 1,017,043
========= ========= ========= =========
</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>
Six Months
Ended June 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(45,914) $ (80,091)
________ _________
Adjustments to Reconcile Net Loss to Net
Cash Used for Operating Activities:
Depreciation and Amortization 31,049 8,702
Deferred Compensation Earned 2,875 --
Increase in Market Value of Common
Stock Subject to Repurchase 3,125 --
Equity in Loss of Unconsolidated
Joint Venture 9,099 9,968
Stock Issued for Services -- 17,500
Increase in Accounts Receivable (6,781) (31,468)
Increase Decrease in Inventory (598) 4,131
Decrease in Deposits and Prepaid
Expenses 8,535 1,319
Increase in Deferred Costs (24,510) --
Decrease in Accounts Payable and
Accrued Expenses (36,682) (8,911)
________ _________
Total Adjustments (13,888) 1,241
________ _________
NET CASH USED FOR OPERATING ACTIVITIES (59,802) (78,850)
________ _________
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to Joint Venture (17,000) (30,000)
Repayment of Employee Loan 2,819 --
Purchase of Equipment and Leasehold
Improvements (530) (26,837)
Cash Paid for License -- (38,742)
Cash Loan to Employee (962) (12,018)
________ _________
NET CASH USED IN INVESTING ACTIVITIES (15,673) (107,597)
________ _________
</TABLE>
(CONTINUED)
-4-
<PAGE>
<TABLE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
(CONCLUDED)
<CAPTION>
Six Months
Ended June 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 -- (4,167)
Proceeds from Line-of-Credit 39,700 --
Payments on Line-of-Credit (1,000) --
Payment to Stockholder on Loan (6,421) --
________ _________
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 35,304 (4,167)
NET DECREASE IN CASH AND CASH EQUIVALENTS (40,171) (190,614)
CASH AND CASH EQUIVALENTS, Beginning of Period 46,773 390,396
________ _________
CASH AND CASH EQUIVALENTS, End of Period $ 6,602 $ 199,782
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Paid During the Period For:
Interest $ 1,272 $ --
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITY
Common Stock Issued for Services $ 12,000 $ --
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 June 30, 1996, and for the
three and six months ended June 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 six month period ended June 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 $30,000.
Since $7,200 has been recorded as of December 31, 1995, the remaining $22,800
has been recognized as amortization expense for the six month period ended
June 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,
with the option remaining (exercisable) of 20,000 shares within the
next two years, reducing to 10,000 shares in the third year. Consulting
expense will be recognized during the period in which Yellen elects to
acquire shares of the Company's common stock based on the difference
between the market price and the sales price of the Company's common
stock. As of June 30, 1996, no options have yet been exercised.
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 $5,163 for the three months ended June 30, 1996 and 1995,
respectively, and was $10,746 and $10,641 for the six months ended June 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. These shares had not been issued as of June 30, 1996, and
are reflected as common stock subscribed in the accompanying financial
statements.
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 June 30, 1996. In addition, all other
specific incremental professional fees incurred in the second quarter 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 June 30, 1996 is
$21,049. The total amount deferred for the six months ended June 30, 1996 is
$26,049. 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
inventories. 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.
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 monies 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.
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
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 $15,625 under this plan for the three months ended
June 30, 1996 and 1995, respectively, and expensed $2,875 and $17,500 for the
six months ended June 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
-9-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(CONTINUED)
NOTE 3 - COMMON STOCK TRANSACTIONS (concluded)
months. This stock was held in treasury and reissued under the
employee stock plan as noted above. As of June 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 June 30, 1996,
employees had purchased 33,400 shares for $9,953 under this plan. These
shares had not been issued as of June 30, 1996, and are reflected as common
stock subscribed in the accompanying financial statements.
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. As of June 30, 1996, these shares have not
been issued.
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
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.
-10-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(CONTINUED)
NOTE 4 - COMMON STOCK SUBJECT TO REPURCHASE (concluded)
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 "Loss 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 six months ended June 30, 1996, comprised
approximately 74% of total sales. Sales to four customers were 76% of total
sales for the six months ended June 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 in June 1997. The line is collateralized by accounts receivable
and inventory. As of June 30, 1996, there is $43,700 outstanding on this
line-of-credit. Total interest expense of $1,272 was recorded related to this
line-of-credit for the six months ended June 30, 1996.
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 June 30, 1996.
-11-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(CONCLUDED)
NOTE 7 - JOINT VENTURE (concluded)
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 $3,612 and $9,099 for the three and six
months ended June 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 June 30, 1996 the Company's liquidity as measured by its total current
assets improved from the first quarter by 28% ($108,535 to $139,133).
Furthermore, those assets were distributed more evenly between Accounts
Receivable and Inventory (31%, $43,609, and 57%, $78,879 respectively) than in
the first quarter (10% and 71% respectively). Cash available stayed about the
same at $6,602 compared to $8,449 at the end of the first 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 six months of 1996 the company sold directly more than $1,000 of
Garlessence and Appromote at substantial gross profit. 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 July of 1996 $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. The Company expects to use this line of credit
to purchase inventory needed to support the launch of Garlessence and for
other short term production working capital. As of June 30, 1996, there is a
$43,700 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. These shares had not been issued as of June
30, 1996.
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 purchase with the option
remaining (exercisable) of 20,000 shares within the next two years, reducing
to 10,000 shares in the third year. The sale of this stock is not contingent
upon meeting any given sales amount. Mr. Yellen has until August 2, 1996 to
exercise this option on 20,000 shares or until August 2, 1997 for 10,000
shares.
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 $30,000. Since $7,200 has been recorded as of
December 31, 1995, the remaining $22,800 has been recognized as amortization
expense in the first half 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 has advanced Ocudex $34,000 in
1995 on which it realized an operating loss of $1,505, but a taxable profit of
$63. As of June 30, 1996, the Company advanced Ocudex an additional $17,000
and has realized a loss of $9,099 for the first half 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 June 30, 1996 there have been no sales recorded by
Ocudex of these products.
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
inventories. 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.
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 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 expenses for this work
will be spread out over the remainder of the year with the greatest impact to
be felt in the third and fourth quarter of 1996. The Company spent $1,375 on
this work in the second quarter of 1996.
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 $116,037 and $48,370 for the
three months ended June 30, 1996 and 1995, respectively and were $146,813 and
$183,498 for the six months ended June 30, 1996 and 1995. This increase in
the second quarter is primarily due to the ordering patterns of these few
customers. With this increase in sales the Company is still almost 20% below
the sales levels achieved for the same six month period in 1995, however the
company expects to exceed in the last half of 1996 the $70,000 sales done for
the last six months of 1995, thereby achieving an increase in sales for the
year. The sales for the first six months of 1996 projected annually puts CTD
at 84% of its expected annual sales of $350,000 for 1996. 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.
In view of the Company's success in reducing expenses and producing a profit
for the second quarter, management feels that its goals of achieving positive
EPS numbers and strong growth for 1996 are readily achievable.
The Company was able to increase its gross profit margin for the first six
months of 1996 to more than 90%, compared to 84% for the same period in 1995.
The gross profit for the three months ended March 31, 1996 was approximately
85%. The increase in gross profit margin is primarily attributable to the
decrease in certain fixed expenses such as laboratory salaries and supplies
which are included in cost of sales.
During the first six months of 1996, the Company achieved an overall decrease
in expenses of 28% from the comparable first six month period of 1995. This
reduction was achieved by reducing salary expenses 31%, office expenses 52%,
professional fees 61%, and advertising expenses 68%. During 1995, costs
associated with the promotion and approval of Garlessence as well as costs
associated with moving into the Company's current location were incurred.
These costs were not expected during 1996. These 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.
The Company's second quarter performance has brought the Company back to its
budgeted levels of earnings and reduced the rate at which cash is being
consumed.
<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: August 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 income (loss) per common share is based on the weighted average
number of shares outstanding during the periods. Those stock options
outstanding that are dilutive have been considered in determining net income
(loss) per share and the weighted average number of shares outstanding.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from Financial Statements for the three (3) months ended June 30, 1996, and is
qualified in its entirety by reference to such form 10QSB for quarterly period
ended June 30, 1996.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Jun-30-1996
<CASH> 6,602
<SECURITIES> 0
<RECEIVABLES> 43,609
<ALLOWANCES> 0
<INVENTORY> 78,879
<CURRENT-ASSETS> 139,133
<PP&E> 73,728
<DEPRECIATION> 32,977
<TOTAL-ASSETS> 303,812
<CURRENT-LIABILITIES> 52,638
<BONDS> 0
<COMMON> 108
0
0
<OTHER-SE> 241,691
<TOTAL-LIABILITY-AND-EQUITY> 303,812
<SALES> 146,813
<TOTAL-REVENUES> 146,813
<CGS> 14,540
<TOTAL-COSTS> 165,658
<OTHER-EXPENSES> 12,529
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (45,914)
<INCOME-TAX> 0
<INCOME-CONTINUING> (45,914)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,914)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
