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, 1997 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: 352-375-6822
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 August 12, 1997, the Company had outstanding 1,235,110 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, 1997 AND 1996
CONTENTS PAGE
BALANCE SHEET 1-2
STATEMENTS OF OPERATIONS 3
STATEMENTS OF CASH FLOWS 4-5
NOTES TO FINANCIAL STATEMENTS 6-12
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
BALANCE SHEET
SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 9,861
Accounts Receivable 41,394
Inventory 83,334
Deposits and Prepaid Expenses 11,396
Note Receivable - Employee, Current Portion 3,217
Deferred Tax Asset 137,036
________
TOTAL CURRENT ASSETS 286,238
________
PROPERTY AND EQUIPMENT
Furniture and Equipment 49,670
Leasehold Improvements 24,800
________
74,470
Less: Accumulated Depreciation (47,726)
________
TOTAL PROPERTY AND EQUIPMENT 26,744
________
OTHER ASSETS
Advances to and Investment in Joint Venture 40,582
License Fee 10,000
Deferred Offering Costs
Deferred Tax Asset 67,964
________
TOTAL OTHER ASSETS 118,546
________
TOTAL ASSETS $431,528
========
(CONTINUED)
-1-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
BALANCE SHEET
SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
(CONCLUDED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 19,962
Note Payable on Line-of-Credit 14,001
Payable to Officer 3,253
___________
TOTAL CURRENT LIABILITIES 37,216
COMMON STOCK SUBJECT TO REPURCHASE
Common Stock, Par Value $.0001 Per Share,
100,000 Shares Authorized, 25,000 Shares
Issued and Outstanding, 7,025
___________
STOCKHOLDERS' EQUITY
Voting Common Stock, Par Value $.0001 Per Share,
9,900,000 Shares Authorized, 1,200,110 Shares Issued
and Outstanding; Non-Voting Common Stock, Par Value
$.0001 Per Share, 10,000,000 Shares Authorized, 0
Shares Issued 120
Additional Paid-In Capital 1,670,434
Accumulated Deficit (1,283,267)
___________
TOTAL STOCKHOLDERS' EQUITY 387,287
___________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 431,528
===========
See Accompanying Notes to Financial Statements.
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<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
Product Sales $ 60,244 $ 116,037 $ 139,854 $ 146,813
Cost of Products Sold 15,941 10,014 37,239 14,540
_________ _________ _________ _________
GROSS PROFIT 44,303 106,023 102,615 132,273
_________ _________ _________ _________
OPERATING EXPENSES
Advertising 8,194 3,309 11,014 6,832
Depreciation and Amortization 8,183 9,047 16,291 31,049
Consulting Fees -- 1,500 -- 1,500
Office Expenses 8,285 10,028 17,956 17,407
Professional Fees 9,656 11,196 20,289 20,384
Public Offering Costs 131,122 -- 131,122 --
Travel and Entertainment 1,462 5,110 1,670 9,112
Rent 5,610 5,373 11,220 10,746
Research and Development Costs 1,855 1,983 3,905 3,933
Salaries and Benefits 46,687 28,658 73,847 57,153
Taxes and Licenses 3,454 2,971 6,634 7,542
_________ _________ _________ _________
TOTAL OPERATING EXPENSES 224,508 79,175 293,948 165,658
_________ _________ _________ _________
LOSS FROM OPERATIONS (180,205) 26,848 (191,333) (33,385)
_________ _________ _________ _________
OTHER INCOME (EXPENSE)
Investment and Other Income 964 362 1,621 967
Gain (Loss) Due to Change in
Redemption Price on Common Stock
Subject To Repurchase 11,725 (3,125) 787 (3,125)
Equity in Loss from
Unconsolidated Subsidiary (122) (3,613) (244) (9,099)
Interest Expense (447) (1,015) (1,240) (1,272)
_________ _________ _________ _________
TOTAL OTHER INCOME (EXPENSE) 12,120 (7,391) 924 (12,529)
_________ _________ _________ _________
INCOME (LOSS) BEFORE INCOME TAX (168,085) 19,457 (190,409) (45,914)
INCOME TAX (24,350) -- (24,350) --
_________ _________ _________ _________
NET INCOME (LOSS) $(192,435) $ 19,457 $(214,759) $(45,914)
========= ========= ========= =========
NET INCOME (LOSS) PER
COMMON SHARE $ (.16) $ .02 $ (.18) $ (.04)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,225,110 1,100,100 1,225,110 1,099,558
========= ========= ========= =========
See Accompanying Notes to Financial Statements.
-3-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(214,759) $(45,914)
_________ _________
Adjustments to Reconcile Net Income (Loss) to
Net Cash Used for Operating Activities:
Depreciation and Amortization 16,291 31,049
Gain on Sale of Investments (1,137) --
Deferred Compensation Earned 18,500 2,875
Equity in Loss of Unconsolidated
Joint Venture 244 9,099
(Gain) Loss Based on Redemption Price of
Common Stock Subject to Repurchase (787) 3,125
Decrease (Increase) in Accounts Receivable 64,798 (6,781)
Increase in Inventory (6,955) (598)
Decrease (Increase) in Deposits
and Prepaid Expenses (7,383) 8,535
Decrease (Increase) in Deferred Costs 127,531 (24,510)
Decrease in Deferred Tax Assets 24,350 --
(Decrease) Increase in Accounts Payable
and Accrued Expenses 9,420 (36,682)
_________ _________
Total Adjustments 244,872 (13,888)
_________ _________
NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES 30,113 (59,802)
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Investments (21,167) --
Proceeds from Sale of Investments 1,137 --
Return of Principal on Investments 21,167 --
Advances to Joint Venture -- (17,000)
Purchase of Equipment and Leasehold
Improvements (742) (530)
Repayment of Employee Loan 8,354 2,819
Cash Loan to Employee (1,822) (962)
_________ _________
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 6,927 (15,673)
_________ _________
(CONTINUED)
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<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
(CONCLUDED)
1997 1996
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds From Issuance of Common Stock,
Net of Offering Costs -- 3,025
Proceeds from Line-of-Credit 14,000 39,700
Payments on Line-of-Credit (52,199) (1,000)
Proceeds from Loan Payable to Officer 3,253 --
Payments on Loan Payable to Officer -- (6,421)
________ _________
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (34,946) 35,304
________ _________
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,094 (40,171)
CASH AND CASH EQUIVALENTS, Beginning of Period 7,767 46,773
________ _________
CASH AND CASH EQUIVALENTS, End of Period $ 9,861 $ 6,602
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year For:
Interest $ 1,240 $ 1,272
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCE ACTIVITY
Equity in Loss of Unconsolidated Joint Venture $ 244 $ 9,099
Common Stock Issued for Services $ -- $ 12,000
Contribution by Stockholder $ -- $ 6,000
See Accompanying Notes to Financial Statements.
-5-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
The information presented herein as of June 30, 1997, and for the three and
six months ended June 30, 1997 and 1996, 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, 1997, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. 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, 1996.
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
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 under the straight-line method since the inception of
the contract through June 30, 1996 was $30,000. Since $7,200 was recorded as
of December 31, 1995, an additional $17,800 was recognized as amortization
expense in the first six months of 1996. Amortization expense of $10,000 has
been recognized for the six month period ended June 30, 1997.
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
-6-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
(CONTINUED)
NOTE 2 - COMMITMENTS (continued)
Company with all related rights. In return, the Company agreed to pay Yellen
$2,000 per month for nine months. In May 1996, 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 November 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
$11,220 and $10,746 for the six months ended June 30, 1997 and 1996,
respectively.
In January 1996, the Company entered into an agreement with Geller
International Associates (Geller), an unrelated company, to provide various
public relations services. In return, the Company agreed to pay Geller $2,000
per month plus out-of-pocket expenses with the first six months being
guaranteed. In addition, the Company agreed to pay Geller 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 is $10,461. Of this
amount, $0 and $10,461 were paid during the six months ended June 30, 1997 and
1996, respectively.
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 have been deferred. In addition, Rick Strattan,
president of the Company, gave Geller $6,000 worth of the Company 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 with Geller was cancelled at the end of the initial six months.
Effective February 5, 1996, the Company filed Form SB-2 Registration Statements
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. This
offering expired in April 1997.
-7-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
(CONTINUED)
NOTE 2 - COMMITMENTS (continued)
One 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
19, 1996. The other 1,000 shares, valued at $250, will not be issued.
Since all the costs associated with these shares were directly attributable to
the proposed offering, they were classified as deferred charges. In addition,
all other specific incremental professional fees incurred in 1996 and 1997
which were clearly and directly attributable to the Company's effort to obtain
equity financing were deferred. The total amount deferred for the six months
ended June 30, 1996, was $42,510. These deferred professional costs were to be
offset against the net proceeds of the offering. Since no proceeds were
received from the offering, all of the deferred offering costs were expensed
upon expiration of the offering. The amount of public offering costs expensed
during the six months ended June 30, 1997, was $131,122.
In May 1996, the Company entered into an agreement with Diversified Corporate
Consulting Group, L.C. (Diversified), an unrelated company, to provide
consulting services to be completed within 12 months. In return, the Company
agreed to pay Diversified 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 130 hours of hourly
consulting and licensing fees. The common stock issued to Diversified on July
29, 1996, under this agreement was 110,010 shares.
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 the Company or
affiliates of the Company that use the inventions. This agreement expired in
May 1997.
-8-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
(CONTINUED)
NOTE 2 - COMMITMENTS (concluded)
On April 22, 1997, the Company entered into an agreement with Atlantic
Syndication Network, Inc. (ASNI) for the production of a five-minute interview
segment. The Company paid $2,500 during the six months ended June 30, 1997, to
reserve production time, and committed to provide ASNI with 10,000 shares of
the Company's non-voting common stock. The Company also granted ASNI an option
to purchase up to 25,000 shares of its non-voting common stock at a purchase
price of $1 per share, within one year of May 31, 1997. As of June 30, 1997,
the videotaping of the interview segment had not yet taken place, no shares
had been provided to ASNI, and no stock options had been exercised.
NOTE 3 - EMPLOYEE STOCK PLANS
During 1994, the Company adopted a nonqualified employee stock issuance plan
to provide incentives to employees. Stock issued under this plan is at the
discretion of the Board of Directors of the Company and bears a restrictive
legend. All shares issued pursuant to this Plan must be held for a minimum of
two years and become fully vested after five years. During the three year
period beginning on the first day of the third year after issuance and ending
five years after issuance, the Company shall purchase all or any part of the
shares from the employee upon the employee's written request; the purchase
price of the shares shall be 50% of the then current market value of the
shares.
In December 1994, the Company issued 25,000 shares to employees for future
services under this plan. The Company valued the 25,000 shares at $37,500,
which was 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 employment with the Company.
In June 1995, the Company purchased 10,000 shares of its own common stock,
issued under the employee stock issuance plan as noted above, and originally
valued at $15,000, for $25,000 from a former employee, payable over the next
twelve months. As of June 30, 1996, the former employee had been fully paid.
This stock was held in treasury and reissued under the employee stock plan,
valued at $6,250, which was 50% less than the market price at the date of
issuance.
-9-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
(CONTINUED)
NOTE 3 - EMPLOYEE STOCK PLANS (concluded)
As of June 30, 1997, all of the remaining employees holding stock issued under
the employee stock issuance plan noted above, terminated employment with the
Company. At that time, the remaining unamortized amount of the stock issued
for future services was charged to expense.
The Company expensed $2,875 and $18,500 under the stock issuance plan for the
six months ended June 30, 1997 and 1996, respectively.
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 were all issued on September 6, 1996.
NOTE 4 - COMMON STOCK SUBJECT TO REPURCHASE
As detailed in Note 3 above, the Company established a nonqualified employee
stock issuance plan in 1994, and issued shares under this plan in December,
1995 and 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 10,000,000 voting common stock shares
authorized 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. Change in the redemption
amount are recognized in the accompanying Statement of Operations as "Gain
(Loss) Due to Change in Redemption Price on Common Stock Subject to
Repurchase." Common stock subject to repurchase is redeemable by the holders
as follows:
Year Ending Shares Amount
1997 15,000 $4,215
1998 10,000 2,810
______ ______
Total 25,000 $7,025
====== ======
-10-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
(CONTINUED)
NOTE 5 - MAJOR CUSTOMERS
Sales to three customers for the six months ended June 30, 1997 consisted of
approximately 66% of total sales. Sales to four customers were approximately
74% of total sales for the six months ended June 30, 1996.
NOTE 6- LINE-OF-CREDIT
The Company had a $75,000 line of credit with a bank as of June 30, 1996.
That line-of-credit was reduced to $25,000 as of June 30, 1997. Interest is
due monthly at prime plus 2%. Any outstanding principal and interest is due in
March 1998. The line is collateralized by accounts receivable and inventory.
As of June 30, 1997, there is $14,001 outstanding on this line-of-credit.
Total interest expense of $770 was recorded related to this line-of-credit for
the six months ended June 30, 1997.
NOTE 7 - JOINT VENTURES
Effective May 1, 1996, 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 advanced Ocudex $51,000 as of June 30, 1997 and
1996, respectively.
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
$244 and $9,099 for the six months ending June 30, 1997 and 1996,
respectively. In March 1997, the Company entered into a joint venture
agreement with Jurox PTY Limited (Jurox), an unrelated company, in order to
develop a new product. According to the agreement, each party shall be
separately responsible for their own costs for the development of the product,
then the Company agrees to provide the developed product to Jurox at the cost
to manufacture plus 10%. Jurox agrees to pay the Company royalties on net
sales of the product as follows:
5% of net sales for the first year of sales,
4% of net sales for the second year of sales, and
3% of net sales for a further 8 years.
No transactions have taken place as of June 30, 1997.
-11-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
(CONCLUDED)
NOTE 8 - INCOME TAXES
During the six months ended June 30, 1997, the Company determined that the
valuation allowance related to the deferred tax asset should be increased from
50% to 60%. This increase in the valuation allowance, netted with the
additional net operating loss experienced for the six months ended June 30,
1997, resulted in additional income tax expense of $24,350, which decreased
the deferred tax asset computed as follows:
Income Tax Benefit From Additional Loss $ 25,840
Change in Deferred Taxes Due to Increase in
Deferred Tax Allowance From 50% to 60% (50,190)
________
Net Income Tax Expense $(24,350)
========
NOTE 9 - 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.
-12-
<PAGE>
Management Discussion and Analysis
Liquidity and Capital Resources
As of June 30, 1997, the Company's operating (tax deferred asset removed)
liquidity as measured by its total current assets was $149,202 compared to
$194,351 at year end 1996, and $139,133 as of June 30, 1996. The reduction
from year end 1996 is largely attributable to the $52,200 pay off of the line
of credit in the first quarter of 1997. The operating history of the company
has shown that current assets decrease during the first 2 or 3 quarters of
each year to finance operations. Management monitors the operating health of
the company by the percentage reduction of these assets and the rate at which
they recover. Operating current assets are actually up more than 7% (149,202
vs $139,133) from last year. At June 30, 1996 the company had recovered 82%
of its total current asset value as of the previous year end ($139,133 of
$170,400 - Note: This figure did not include a deferred tax asset) and this
year has recovered 73% ($149,202 of $202,910 - Note: For comparison the
deferred tax asset is removed) of the 1996 year end value. Accordingly,
management has used and expects to use current assets to maintain operations
during the second and third quarters of 1997. The rate at which these current
assets recover is a measure of the operating health of the company; by year
end management expects another increase in this parameter over the previous
year.
Neither total product sales ($146,813 vs $139,854) nor total operating
expenses ($165,658 vs $162,826 Note: For comparison the public offering costs
have been removed) for the first six months of 1996 compared to the first six
months of 1997 differ by more than 5%, showing that the company's revenue flow
is becoming less volatile.
Inventory continues to be dominated (61%) by the unsold Garlessencer and
therefore masks the steady movement of the other components of that inventory.
However, the slight increase from December 31, 1996 ($76,379) to June 30, 1997
($83,334) reflects purchases of cyclodextrins in response to demand for the
Company's cyclodextrin products (product sales of $139,854 vs $146,813 in the
first six months) and the Company's building of inventory of APT-Flavors, a
line of cyclodextrin encapsulated flavors.
In management's continuing efforts to keep expenses down, personnel are
evaluated for productivity. In the second quarter, effective June 15, 1997,
one laboratory person was replaced. The replacement provides the company with
a significant improvement in the product sales to salary ratio. It is
anticipated in the third quarter that similarly advantageous economizing will
take place.
The three year period of time (starting January 1, 1995) in which the Company
can recover its licensing prepayment for Garlessence of $60,000 through
discounted purchases of raw materials will expire at the end of this year. As
of June 30, 1997 the Company has recovered $9,137 of that prepayment through
discounts. In 1996 the Securities and Exchange Commission recommended that
the license fee be amortized on a straight line basis retroactive to the
beginning of the licensing agreement; therefore the total accumulated
amortization expense through June 30, 1997 is $50,000.
The company will continue to seek out the distribution arrangements that will
allow it to recover all of its licensing prepayment fee and to meet its
commitments to the licensor. Since the Garlessencer inventory has a greater
than five year shelf life, the Company expects to eventually recover its
investment in this material, but is not optimistic that this will happen in
calendar year 1997.
To meet the financial needs of expected future growth, the Company 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. As of June 30, 1997 no sales of
these equity instruments have occurred. Since this offering closed April 30,
1997 the Company is expensing this quarter the previously capitalized deferred
offering costs ($131,122). While most of these offering costs were non-cash,
the net result is a large negative impact on the financial results reported in
the second quarter.
On February 1, 1997, the Company paid its outstanding balance of $52,200 on
its $75,000 Line of Credit down to $1 and accepted a new credit line of
$25,000. As of June 30, 1997, $14,000 has been drawn on this line of credit
compared to $43,700 for the same period in 1996.
The Company is in the third year of 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. 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. 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 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. As of June 30, 1997 the Company has
advanced a total of $51,000 and realized a loss of $10,918 to date. The
Company has advanced no additional funds to Ocudex in 1997. The Company may
apply additional funds during 1997 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, 1997 there have been no sales recorded by Ocudex
of any products.
In May of 1996 the Company entered into a contractual agreement with
Diversified Corporate Consulting Group, LLC (DCCG), whereby the Company agreed
to transfer 110,010 shares of CTD's voting common stock to DCCG in return for
future financial services related to business and financial public relations
improvement.
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 continuing to implement its strategic plan of acquiring and developing new
products through licensing and joint ventures, the Company, on March 10, 1997,
entered into a royalty-bearing agreement with Jurox Pty, Ltd, an Australian
company manufacturing and selling veterinary pharmaceuticals, to jointly
develop a cyclodextrin/alfaxalone veterinary anesthetic product.
In the second quarter CTD was awarded a judgement against WTDT, a production
company and television station in South Florida, for breach of contract to
provide services related to the marketing and sales of Garlessence. The
Company spent $22,000 to secure these services and has requested $50,000 in
compensatory costs and damages. WTDT has filed for protection under Chapter
11 bankruptcy rules. Since the expectation of receiving any revenue from this
judgement is very low, the Company will wait until year end to decide how this
will be treated in its financial statements.
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. Total revenues were $139,854 and $146,813 for
six months ended June 30, 1997 and 1996, respectively. The volatility of the
Company's revenues appear to have stabilized and are expected to continue to
grow through the year 2000. However, sales volatility will continue to make
the Company's cash use planning from quarter to quarter difficult. The
Company is making consistent progress to moderate this volatility by expanding
its product line to more routinely purchased products. The company introduced
a new product line of cyclodextrin complexes called APT-Flavors and APT-
Fragrances at the International Food Technology show in Orlando, Florida in
June of this year.
The Company's gross profit margin decreased from 90.0% for the first six
months of 1996 to 73% for the first six months of 1997, due primarily to two
large sales totaling approx. $41,000 at less than
10% gross profit. 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; therefore the
Company does not expect this past trend of increasing gross profit margins to
continue.
Taking into account that the costs of the Public offering ($131,122) appeared
in the financial statements for the first time in the second quarter of '97 as
a result of adherence to accounting rules and the fact that they consisted
mostly of non-cash items (stock issuance), management feels that it has held
the line on real operating expenses when one compares the first 6 months of
1996 ($165,658) to the first 6 months of 1997 ($162,826 - deferred offering
expense removed). This small reduction in real operating expenses was
implemented while still expanding the Company's sales base, developing new
products, and implementing its strategy of creating operational affiliates
that will use CD's in herbal medicines, wastewater remediation, and
pharmaceuticals. If one chooses to include the public offering costs, then
the statement of operations shows a 77% increase in operating expenses from
the first six months of 1996 ($165,658) to the same period in 1997 ($293,948),
entirely fueled by the largely non-cash public offering expenses.
At December 31, 1995, the Company had a net operating loss carryforward
totaling approximately $1,322,000 that may be offset against future taxable
income through the year 2011. No tax benefit had been reported in the 1995 or
prior year financial statements, however, because the Company believed there
was greater than 50% chance that the carryforward would expire unused. During
1996 the Company had taxable income after considering non-deductible expenses
that utilized approximately $4,000 of the carryforward from prior years.
Because a portion of the tax loss carryover was used and anticipated
profitability in the future, the Company determined that a valuation allowance
of 50% of the future tax benefit was appropriate. Accordingly the Company
recognized an income tax benefit in 1996 to reflect this change in accordance
with SFAS No. 109. Because of the additional losses incurred during the first
six months of 1997 the company has determined that a valuation allowance of
60% would be more appropriate. Accordingly, additional income tax expense of
$24,350 has been recognized. The tax benefit from the change in deferred tax
asset valuation allowance related to the net operating loss carryforward is
$205,000. The current portion of this deferred tax asset is valued at
$137,036 and represents all of the increase in the value of total assets from
June 30, 1996 ($303,811) to June 30, 1997 ($431,528). Note that in the
preceding discussion of total current assets this deferred tax asset has been
removed uniformly from all the financial comparisons in order to more
accurately reflect the day to day operating status of the company.
<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 Note 9,
Financial Statements
(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 13, 1997
/s/ C. E. RICK STRATTAN
C. E. RICK STRATTAN
President, Chief Executive Officer,
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Financial Statements for the 3 months ended June 30, 1997, and is qualified in
its entirety by reference to such form 10QSB for period ended June 30, 1997.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,861
<SECURITIES> 0
<RECEIVABLES> 41,394
<ALLOWANCES> 0
<INVENTORY> 83,334
<CURRENT-ASSETS> 286,238
<PP&E> 74,470
<DEPRECIATION> (47,726)
<TOTAL-ASSETS> 431,528
<CURRENT-LIABILITIES> 37,216
<BONDS> 0
0
0
<COMMON> 120
<OTHER-SE> 387,167
<TOTAL-LIABILITY-AND-EQUITY> 431,528
<SALES> 139,854
<TOTAL-REVENUES> 141,475
<CGS> 37,239
<TOTAL-COSTS> 293,948
<OTHER-EXPENSES> 697
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (190,409)
<INCOME-TAX> 24,350
<INCOME-CONTINUING> (214,759)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (214,759)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.17)
</TABLE>
