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, 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 November 12, 1997, the Company had outstanding 1,235,110 shares of
its common stock.
<PAGE>
PART I: Financial Information
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
QUARTERLY STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
CONTENTS PAGE
BALANCE SHEET 1-2
STATEMENTS OF OPERATIONS 3-4
STATEMENTS OF CASH FLOWS 5-6
NOTES TO FINANCIAL STATEMENTS 7-13
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
BALANCE SHEET
NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 51,778
Investments 8,175
Accounts Receivable 24,110
Inventory 86,013
Deposits and Prepaid Expenses 6,360
Note Receivable - Employee, Current Portion 3,274
Deferred Tax Asset 137,036
________
TOTAL CURRENT ASSETS 316,746
________
PROPERTY AND EQUIPMENT
Furniture and Equipment 57,686
Leasehold Improvements 24,800
________
82,486
Less: Accumulated Depreciation (52,010)
________
TOTAL PROPERTY AND EQUIPMENT 30,476
________
OTHER ASSETS
Advances to and Investment in Joint Venture 40,459
License Fee 5,000
Deferred Tax Asset 67,964
________
TOTAL OTHER ASSETS 113,423
________
TOTAL ASSETS $460,645
========
(CONTINUED)
-1-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
BALANCE SHEET
NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
(CONCLUDED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 41,807
Note Payable on Line-of-Credit 14,001
Payable to Officer 9,045
Unearned Income 8,202
___________
TOTAL CURRENT LIABILITIES 73,055
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,
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 121
Additional Paid-In Capital 1,676,053
Unrealized Loss on Investments (547)
Accumulated Deficit (1,294,287)
___________
TOTAL STOCKHOLDERS' EQUITY 381,340
___________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 460,645
===========
See Accompanying Notes to Financial Statements.
-2-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
Product Sales $ 51,375 $ 53,527 $ 191,229 $ 200,340
Cost of Products Sold 7,567 7,712 44,807 22,252
_________ _________ _________ _________
GROSS PROFIT 43,808 45,815 146,422 178,088
CONSULTING SERVICES AND
OTHER OPERATING REVENUE 43,331 -- 43,331 --
_________ _________ _________ _________
TOTAL OPERATING REVENUE 87,139 45,815 189,753 178,088
OPERATING EXPENSES
Advertising 12,046 1,275 23,060 8,107
Depreciation and Amortization 9,284 9,229 25,575 40,278
Consulting Fees 27,390 -- 27,390 1,501
Office Expenses 5,762 8,396 23,718 25,803
Professional Fees 12,633 4,763 32,922 25,146
Public Offering Costs (1,155) -- 129,967 --
Travel and Entertainment 2,006 1,637 3,675 10,748
Rent 5,610 5,373 16,830 16,119
Research and Development
Costs 2,454 2,050 6,359 5,983
Salaries and Benefits 19,716 37,024 93,563 94,177
Taxes and Licenses 3,546 3,477 10,181 11,019
_________ _________ _________ _________
TOTAL OPERATING EXPENSES 99,292 73,224 393,240 238,881
_________ _________ _________ _________
LOSS FROM OPERATIONS (12,153) (27,409) (203,487) (60,793)
_________ _________ _________ _________
OTHER INCOME (EXPENSE)
Investment and Other Income 1,124 1,024 2,745 1,991
Gain (Loss) Due to Change
in Redemption Price on
Common Stock Subject To
Repurchase 775 3,125 1,563 --
Equity in Loss from
Unconsolidated Subsidiary (123) (35) (367) (9,134)
Interest Expense (643) (1,243) (1,883) (2,515)
_________ _________ _________ _________
TOTAL OTHER INCOME (EXPENSE) 1,133 2,871 2,058 (9,658)
_________ _________ _________ _________
(CONTINUED)
-3-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(Concluded)
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
INCOME (LOSS) BEFORE INCOME
TAX (11,020) (24,538) (201,429) (70,451)
INCOME TAX -- -- (24,350) --
_________ _________ _________ _________
NET INCOME (LOSS) $ (11,020) $ (24,538) $(225,779) $ (70,451)
========= ========= ========= =========
NET INCOME (LOSS) PER
COMMON SHARE $ (.01) $ (.02) $ (.18) $ (.06)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,235,110 1,183,803 1,229,615 1,127,178
========= ========= ========= =========
See Accompanying Notes to Financial Statements.
-4-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(225,779) $ (70,451)
_________ _________
Adjustments to Reconcile Net Income (Loss) to
Net Cash Used for Operating Activities:
Depreciation and Amortization 25,575 40,278
Gain on Sale of Investments (2,066) --
Stock Issued for Services -- 9,000
Deferred Compensation Earned 18,500 4,312
Equity in Loss of Unconsolidated
Joint Venture 367 9,134
(Gain) Loss Based on Redemption Price of
Common Stock Subject to Repurchase (1,563) --
Decrease (Increase) in Accounts Receivable 82,082 8,342
Increase in Inventory (9,634) (406)
Decrease (Increase) in Deposits
and Prepaid Expenses (2,347) 15,492
Decrease (Increase) in Deferred Costs 127,531 (40,615)
Decrease in Deferred Tax Assets 24,350 --
(Decrease) Increase in Accounts Payable
and Accrued Expenses 31,265 (38,198)
Increase in Unearned Income 8,202 --
_________ _________
Total Adjustments 302,262 7,339
_________ _________
NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES 76,483 (63,112)
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Investments (36,745) --
Proceeds from Sale of Investments 2,066 --
Return of Principal on Investments 28,024 --
Advances to Joint Venture -- (17,000)
Purchase of Equipment and Leasehold
Improvements (8,758) (530)
Repayment of Employee Loan 9,054 5,302
Cash Loan to Employee (2,579) (2,142)
_________ _________
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (8,938) (14,370)
_________ _________
(CONTINUED)
-5-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
(CONCLUDED)
1997 1996
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds From Issuance of Common Stock,
Net of Offering Costs 5,620 3,025
Proceeds from Line-of-Credit 14,000 49,700
Payments on Line-of-Credit (52,199) (2,500)
Proceeds from Loan Payable to Officer 9,045 1,465
Payments on Loan Payable to Officer -- (6,421)
________ _________
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (23,534) 45,269
________ _________
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 44,011 (32,213)
CASH AND CASH EQUIVALENTS, Beginning of Period 7,767 46,773
________ _________
CASH AND CASH EQUIVALENTS, End of Period $ 51,778 $ 14,560
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year For:
Interest $ 1,883 $ 2,515
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCE ACTIVITY
Equity in Loss of Unconsolidated Joint
Venture $ 367 $ 9,134
Common Stock Issued for Services $ 5,620 $ 21,000
Contribution by Stockholder $ -- $ 6,000
See Accompanying Notes to Financial Statements.
-6-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
The information presented herein as of September 30, 1997, and for the three
and nine months ended September 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 nine month period ended September 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 September 30, 1996 was $35,000.
Since $7,200 was recorded as of December 31, 1995, an additional $27,800 was
recognized as amortization expense in the first nine months of 1996.
Amortization expense of $15,000 has been recognized for the nine month period
ended September 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
-7-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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
$16,830 and $16,119 for the nine months ended September 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 relation services. In return, the Company agreed to pay Geller $2,000
per month plus out-of-pocket expenses with the first nine 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 nine months ended September
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 noted below, the total
consulting fees paid to Geller were deferred in 1996 and expensed in 1997.
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 in
1996 and expensed in 1997.
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.
-8-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
(CONTINUED)
NOTE 2 - COMMITMENTS (continued)
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 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
nine months ended September 30, 1996, was $127,371. 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 nine months ended
September 30, 1997, was $129,967.
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.
-9-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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 nine months ended
September 30, 1997, to reserve production time, and also issued to ASNI
10,000 shares of the Company's 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
September 30, 1997, 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 amortized this
amount to expense over five years on the straight-line basis, the estimated
benefit period of the future services, with any unamortized amount to be
charged to expense if an employee terminates employment with the Company.
In September 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 September 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.
-10-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
(CONTINUED)
NOTE 3 - EMPLOYEE STOCK PLANS (concluded)
On 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 $4,313 and $18,500 under the stock issuance plan for the
nine months ended September 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
September 30, 1996, employees had purchased 33,400 shares for $9,953 under
this plan. These shares were all issued on September 6, 1996. No additional
shares were purchased as of September 30, 1997.
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 $3,750
1998 10,000 2,500
______ ______
Total 25,000 $6,250
====== ======
-11-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
(CONTINUED)
NOTE 5 - MAJOR CUSTOMERS
Sales to three customers for the nine months ended September 30, 1997
consisted of approximately 69% of total sales. Sales to four customers were
approximately 70% of total sales for the nine months ended September 30,
1996.
NOTE 6- LINE-OF-CREDIT
The Company had a $75,000 line of credit with a bank as of September 30,
1996. That line-of-credit was reduced to $25,000 as of September 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 September 30, 1997, there is $14,001
outstanding on this line-of-credit. Total interest expense of $1,146 was
recorded related to this line-of-credit for the nine months ended September
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 committed to funding Ocudex up to $120,000 during
the first twelve months. The Company advanced Ocudex $51,000 as of September
30, 1997 and 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
$367 and $9,134 for the nine months ending September 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 September 30, 1997.
-12-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
(CONCLUDED)
NOTE 8 - INCOME TAXES
During the nine months ended September 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 nine months ended September
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.
-13-
<PAGE>
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.
<PAGE>
Item 2. Management's discussion and Analysis of Financial Condition and
Results of Operation.
Liquidity and Capital Resources
As of September 30, 1997, the Company's operating (tax deferred asset
removed) liquidity as measured by its total current assets was $179,710
compared to $202,910 at year end 1996, and $149,202 at June 30, 1997. The
increase from the second quarter in 1997 is largely attributable to a deposit
for services received by the Company on a new Product Development study begun
in the third quarter. The operating history of the company has shown that
current assets decrease during the first, second and/or third 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 during the year. These assets are actually up more than 38%
(179,710 vs $129,733) from this point last year. At September 30, 1996 the
company had recovered 76% of its total current asset value as of the previous
year end ($129,733 of $170,400 - Note: This figure did not include a deferred
tax asset) and in 1997 has recovered 88% ($179,710 of $202,910 - Note: For
comparison the deferred tax asset is removed) of the 1996 year end value.
Even though management used current assets in the second and third quarters
to maintain operations, the Company has increased the rate at which it has
recovered current assets (76% in 1996 vs. 88% in 1997). This increase
indicates the growth in the operating health of the company. By year end
management expects an increase in total current assets over the previous year
end current assets.
Total product and service sales ($234,560 vs $200,340) for the first nine
months of 1997 have increased over 17% when compared to the first nine months
of 1996, while real operating expenses ($262,118 deferred offering expense
removed vs 238,881) have increased less than 10%, showing that the company's
revenue flow is increasing.
Inventory continues to be dominated (68.5%) by the unsold Garlessence(r) and
therefore masks the steady movement of the other components of that
inventory. Inventory has increased from December 31, 1996 ($76,379) to
September 30, 1997 ($86,013) reflecting purchases of cyclodextrins in
response to anticipated increased demand for the Company's cyclodextrin
products. Even though product sales have decreased over the comparable nine
month periods ($191,229 - nine months of 1997 vs $200,340 - nine months of
1996), management believes the inventory purchases are prudent.
In management's continuing efforts to keep expenses down, personnel are
evaluated for productivity. In the second quarter, effective June 15, one
laboratory person was replaced and in the third quarter, effective July 15,
one administration position was terminated and one administration person was
replaced. These changes in personnel provide the company with a significant
improvement in the product sales to salary ratio. As of September 30, it is
anticipated that no further personnel changes will be made for the year 1997
as the Company is operating efficiently.
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 September 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 September 30, 1997, is $55,000.
The company will continue to seek out distribution arrangements that will
allow it to recover all of its Garlessence(r) licensing prepayment fee and to
meet its commitments to the licensor. As of September 30, the company has
instituted a program of television advertisements and has contracted a
fulfillment company to handle these sales of Garlessence(r) resulting in an
additional advertising expense of $11,506 in 1997. Management is optimistic
that these advertisements will increase consumer awareness and sales of
Garlessence(r). Since the Garlessence(r) inventory has a greater than five
year shelf life, the Company expects to eventually recover all of its
investment in this material, but does not expect 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 April 30, 1997, no
sales of these equity instruments had occurred. Since this offering closed
April 30, 1997, the Company expensed in the second quarter the previously
capitalized deferred offering costs ($131,122). While most of these offering
costs were non-cash, the net result was 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 September 30, 1997, $14,000 has been drawn on this line of
credit compared to $52,200 for the same period in 1996. In the third
quarter, the Company also obtained a Line of Credit from a second local bank
in the amount of $25,000. As of September 30, 1997, no advances have been
drawn on this line. Management feels that this decrease in the amount of
advances drawn on the line of credit and the increase in the lines of credit
available reflect the stronger cash flow position of the Company.
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 September 30, 1997 the Company
has advanced a total of $51,000 and realized a loss of $11,041 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 September 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.
In a continuing effort to let the public know about the benefits of
cyclodextrins, the Company accepted the opportunity to appear on the premier
of a proposed new television show called The Stock Show. The purpose of this
weekly series was to bring to the attention of its viewers NASDAQ bulletin
board companies that presented significant growth opportunities. In April of
1997, Company management entered into an agreement with Atlantic Syndication
Network, Inc. (ASNI), a Las Vegas based production company, to contribute to
the production fees necessary to produce the first show as follows:
(a) $2,500.00 cash
(b) 10,000 shares of freely trading, voting common stock of CTD
(c ) options to purchase 25,000 shares of non-voting common stock of
CTD for $1.00/share
In return, CTD would be guaranteed at least two airings of the 1/2 hour show
on television and satellite networks as ASNI could secure the air-time. At
least two airings of the show occurred on KDOC, a Los Angeles TV station; and
LVTN (Las Vegas TV Network), a satellite TV network. The Company also
received tapes of the show for its own promotional uses.
In an effort to expand the revenue base through service oriented products,
the Company entered into an agreement with NuPharm, Inc.,a Canadian company
manufacturing metered dose inhalants (MDI's). The Company agreed to provide
research and development services for NuPharm on cyclodextrin/respiratory
drug complexes for potential use in MDI's. CTD expects to recognize
increasing revenues from these services and other similar services provided
by the 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. In efforts to offset this
volatility, the Company has expanded its revenue producing activities to
include providing research and development services for unrelated companies.
Sales of both products and services have been concentrated among a few large
customers. Total product and service revenues were $234,560 and $200,340 for
the nine months ended September 30, 1997 and 1996, respectively. The
volatility of the Company's revenues appears to have stabilized and the
revenues are expected to continue to grow through the year 2000. In addition
to offering more service oriented products, the Company introduced a new
product line of cyclodextrin complexes called AP(r)-Flavors and AP(r)-
Fragrances at the International Food Technology show in Orlando, Florida, in
June of this year.
The Company's gross profit margin on product sales decreased from 88.8% for
the first nine months of 1996 to 76.6% for the first nine months of 1997, due
primarily to two large sales in the second quarter totaling approximately
$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 the 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 1997
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 nine months
of 1996 ($238,881) to the first nine months of 1997 ($262,118 - deferred
offering expense removed). The Company kept the increase in real operating
expenses to less than 10% even while 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. However, if one chooses to include the
public offering costs, then the statement of operations shows a 65% increase
in operating expenses from the first nine months of 1996 ($238,881) to the
same period in 1997 ($393,240), 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 was recognized in the second
quarter. 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. 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: November 14, 1997
/s/ C. E. RICK STRATTAN
C. E. RICK STRATTAN
President, Chief Executive Officer,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from Financial Statements for the 9 months ended September 30, 1997, and is
qualified in its entirety by reference to such form 10QSB for nine months
ended September 30, 1996.
<MULTIPLIER> 1
<S> <C>
<PERIOD-START> JAN-01-1997
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 51,778
<SECURITIES> 8,175
<RECEIVABLES> 24,110
<ALLOWANCES> 0
<INVENTORY> 86,013
<CURRENT-ASSETS> 316,746
<PP&E> 82,486
<DEPRECIATION> (52,010)
<TOTAL-ASSETS> 460,645
<CURRENT-LIABILITIES> 73,055
<BONDS> 0
<COMMON> 121
0
0
<OTHER-SE> 381,219
<TOTAL-LIABILITY-AND-EQUITY> 460,645
<SALES> 191,229
<TOTAL-REVENUES> 234,560
<CGS> 44,807
<TOTAL-COSTS> 393,240
<OTHER-EXPENSES> (3,941)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,883
<INCOME-PRETAX> (201,429)
<INCOME-TAX> 24,350
<INCOME-CONTINUING> (225,779)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (225,779)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
