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: March 31, 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, 32608-6581
(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 May 14, 1997, the Company had outstanding 1,225,110 shares of its
common stock.
<PAGE>
PART I: Financial Information
Item 1 - Financial Statement
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
QUARTERLY STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996
CONTENTS PAGE
BALANCE SHEET 1-2
STATEMENTS OF OPERATIONS 3
STATEMENTS OF CASH FLOWS 4-5
NOTES TO FINANCIAL STATEMENTS 6-11
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
BALANCE SHEET
THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
ASSETS
CURRENT ASSETS
Investments $ 14,913
Accounts Receivable 43,174
Inventory 85,995
Deposits and Prepaid Expenses 10,966
Note Receivable - Employee, Current Portion 4,639
Deferred Tax Asset 153,350
________
TOTAL CURRENT ASSETS 313,037
________
PROPERTY AND EQUIPMENT
Furniture and Equipment 48,928
Leasehold Improvements 24,800
________
73,728
Less: Accumulated Depreciation 44,543
________
TOTAL PROPERTY AND EQUIPMENT 29,185
________
OTHER ASSETS
Advances to and Investment in Joint Venture 40,704
License Fee 15,000
Deferred Offering Costs 127,531
Deferred Tax Asset 76,000
________
TOTAL OTHER ASSETS 259,235
________
TOTAL ASSETS $601,457
========
(CONTINUED)
-1-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
BALANCE SHEET
THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
(CONCLUDED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Overdraft $ 6,254
Accounts Payable and Accrued Expenses 16,014
Note Payable on Line-of-Credit 1
___________
TOTAL CURRENT LIABILITIES 22,269
COMMON STOCK SUBJECT TO REPURCHASE
Common Stock, Par Value $.0001 Per Share,
100,000 Shares Authorized, 25,000 Shares
Issued and Outstanding, 18,750
___________
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
Common Stock Issued for Future Services (17,062)
Unrealized Loss on Investments (2,222)
Accumulated Deficit (1,090,832)
___________
TOTAL STOCKHOLDERS' EQUITY 560,438
___________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 601,457
===========
See Accompanying Notes to Financial Statements.
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<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
1997 1996
Product Sales $ 79,610 $ 30,776
Cost of Products Sold 21,298 4,526
_________ _________
GROSS PROFIT 58,312 26,250
_________ _________
OPERATING EXPENSES
Advertising 2,820 3,523
Depreciation and Amortization 8,108 22,002
Consulting Fees -- 4,660
Office Expenses 9,671 7,379
Professional Fees 10,633 18,651
Travel and Entertainment 208 4,002
Rent 5,610 5,373
Research and Development Costs 2,050 1,950
Salaries and Benefits 27,159 28,495
Taxes and Licenses 3,181 4,571
_________ _________
TOTAL OPERATING EXPENSES 69,440 100,606
_________ _________
LOSS FROM OPERATIONS (11,128) (74,356)
_________ _________
OTHER INCOME (EXPENSE)
Investment and Other Income 657 606
Loss Due to Change in Redemption
Price on Common Stock Subject
To Repurchase (10,938) --
Equity in Loss from
Unconsolidated Subsidiary (122) (5,487)
Interest Expense (793) (257)
_________ _________
TOTAL OTHER INCOME (EXPENSE) (11,196) (5,138)
_________ _________
NET LOSS $ (22,324) $ (79,494)
========= =========
LOSS PER COMMON SHARE $ (.02) $ (.07)
========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,225,110 1,099,027
========= =========
See Accompanying Notes to Financial Statements.
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<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(22,324) $ (79,494)
________ _________
Adjustments to Reconcile Net Income (Loss) to
Net Cash Used for Operating Activities:
Depreciation and Amortization 8,108 22,002
Gain on Sale of Investments (368) --
Deferred Compensation Earned 1,438 1,437
Equity in Loss of Unconsolidated
Joint Venture 122 5,487
Loss Based on Redemption Price of
Common Stock Subject to Repurchase 10,938 --
Stock Issued for Services -- 7,000
Decrease in Accounts Receivable 63,018 26,185
Decrease (Increase) in Inventory (9,616) 1,812
Decrease (Increase) in Deposits
and Prepaid Expenses (6,953) 150
(Decrease) Increase in Accounts Payable
and Accrued Expenses 5,472 (17,001)
________ _________
Total Adjustments 72,159 47,072
________ _________
NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES 49,835 (32,422)
________ _________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Investments (21,167) --
Proceeds from Sale of Investments 368 --
Return of Principal on Investments 4,032 --
Advances to Joint Venture -- (10,000)
Purchase of Equipment and Leasehold
Improvements -- (130)
Repayment of Employee Loan 5,889 1,203
Cash Loan to Employee (779) --
________ _________
NET CASH USED IN INVESTING ACTIVITIES (11,657) (8,927)
________ _________
(CONTINUED)
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<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
(CONCLUDED)
1997 1996
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds From Issuance of Common Stock,
Net of Offering Costs -- 3,025
Payments on Line-of-Credit (52,199) --
________ _________
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (52,199) 3,025
________ _________
NET DECREASE IN CASH AND CASH EQUIVALENTS (14,021) (38,324)
CASH AND CASH EQUIVALENTS, Beginning of Period 7,767 46,773
________ _________
CASH AND CASH EQUIVALENTS (OVERDRAFT),
End of Period $ (6,254) $ 8,449
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Paid During the Year For:
Interest $ 793 $ 257
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCE ACTIVITY
Equity in Loss of Unconsolidated
Joint Venture $ 122 $ 5,487
Common Stock Issued for Services $ -- $ 12,000
See Accompanying Notes to Financial Statements.
-5-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
The information presented herein as of March 31, 1997, and for the three
months ended March 31, 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 three month period ended March 31, 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 - MARKETABLE EQUITY SECURITIES
Pursuant to the provisions of SFAS No. 115, all equity securities with readily
determinable fair values are classified as "available for sale" and are
reported in the financial statements at fair value. Unrealized holding gains
and losses are excluded from earnings and reported as a separate component of
stockholders' equity. Realized gains and losses are determined using the
specific identification method and are reported in earnings.
Investments in equity securities with readily determinable fair values at
March 31, 1997, are summarized below:
Cost $17,135
Unrealized Losses 2,222
_______
Fair Value $14,913
=======
There were no investments in equity securities at March 31, 1996.
NOTE 3 - COMMITMENTS
Effective January 1, 1996, 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
-6-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
(CONTINUED)
NOTE 3 - COMMITMENTS (continued)
purchased through December 31, 1997. Prior to December 31, 1996, 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 March 31,
1996 was $25,000. Since $7,200 was recorded as of December 31, 1995, an
additional $17,800 was recognized as amortization expense in the first quarter
of 1996. Amortization expense of $5,000 has been recognized in the first
quarter of 1997.
August 1, 1994, the Company entered into a new products development and
acquisition consulting agreement (renewable annually by mutual agreement)
with Yellen Associates (Yellen), an unrelated company. In May, 1995, the
Company discontinued its monthly payment of $2,000 to Yellen for his services
in accordance with the agreement. The Company's only remaining obligation
under this agreement expires on August 1, 1997, until which time Yellen may
purchase 10,000 shares of Company stock at a discount of 50% of the market
price quoted at the time of purchase. 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 $1,252,500. This
offering expired April 30, 1997.
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
$5,610 and $5,373 for March 31, 1997 and 1996, respectively.
-7-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
(CONTINUED)
NOTE 3 - COMMITMENTS (concluded)
In January 1996, the Company entered into a 6-month agreement
(renewable monthly by mutual 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 1% of net moneys
received as a result of Geller's successful efforts to secure funding. The
total amount paid to Geller was $10,461.
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.
On May 1, 1995, the Company entered into a joint venture operating under the
name of Ocudex, Inc.. The Company and Ocumed, Inc. and unrelated company,
each own 50% of Ocudex. The Company has agreed to fund on a best efforts
basis up to $10,000 per moth for not more than 12 months. CTD had advanced
Ocudex $34,000 in 1995 on which it realized an operating loss of $1,505, but a
$17,000 and has realized a loss of $9,169 for 1996. The Company intends to
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
initial and immediate benefit for 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 December 31, 1996 there have been no sales recorded by
Ocudex for these products.
NOTE 4 - 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
he 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.
-8-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
(CONTINUED)
NOTE 4 - EMPLOYEE STOCK PLANS (concluded)
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 March 31, 1997 and 1996, $0 and $6,421 was still due to
the former employee. 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.
The Company expensed $1,437 and $1,437 under the stock issuance plan for the
quarters ended March 31, 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 March 31, 1996,
employees had purchased 33,400 shares for $9,953 under this plan. These
shares were all issued on September 6, 1996
NOTE 5 - COMMON STOCK SUBJECT TO REPURCHASE
As detailed in Note 4 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 activity comprises the following:
1996 1995
Balance, Beginning of Year $6,250 $ 37,500
Common Stock Issued -- 6,250
Commmon Stock Redeemed -- (25,000)
Market Changes in Redemption Price 1,563 (12,500)
_______ ________
Balance, End of Year $7,813 4 6,250
-9-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
(CONTINUED)
NOTE 5 - COMMON STOCK SUBJECT TO REPURCHASE (concluded)
Common stock subject to repurchase is redeemable by the holders as follows:
Year Ending Shares Amount
1997 15,000 $ 4,688
1998 10,000 3,125
______ _______
Total 25,000 $ 7,813
====== =======
NOTE 6 - MAJOR CUSTOMERS
Sales to three customers for the three months ended March 31, 1997, consisted
of approximately 73% of total sales. Sales to the three customers were 56% of
total sales for the three months ended March 31, 1996.
NOTE 7- LINE-OF-CREDIT
The Company had a $75,000 line of credit with a bank as of March 31, 1996.
That line-of-credit was reduced to $25,000 as of March 31, 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.
NOTE 8 - 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 and $44,000 as of March 31,
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 $122 and $5,487 for the quarters ending March 31, 1997 and
1996, respectively.
-10-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
(CONCLUDED)
NOTE 8 - JOINT VENTURES (concluded)
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 had taken place as of March 31, 1997.
-11-
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
PART II: Other Information
Liquidity and Capital Resources
As of March 31, 1997 the Company's liquidity as measured by its total current
assets was $148,794 compared to $194,351 at year end 1996, and $104,209 as of
March 31, 1996. The trend from year to year is probably a more accurate
indicator of the Company's financial health. The year-end value to first
quarter end decrease reflects the drop in receivable ($62,018) for one large
($92,500) year-end order. Given the 31% reduction in operating expenses from
the first quarter 1996 to the first quarter 1997 ($100,606 to $69,440) and the
substantial increase in revenues for the same period ($30,776 to $79,610) the
Company does not expect to experience any significant reduction in current
assets as it did from the first quarter to fourth quarter of 1996.
Inventory continues to be dominated by the unsold Garlessence(r) and therefore
seems stagnant. However, the slight increase from December 31, 1996 ($76,379)
to March 31, 1997 ($85,995) reflects, in part, purchases of cyclodextrins in
response to greater demand for different cyclodextrins and the Company's
building of inventory of AP-Flavors, a line of cyclodextrin encapsulated
flavors to be introduced in the second quarter of 1997.
The plans of the Company to sell $35,000 of the Garlessence inventory to a
local start-up, multi-level marketing organization did not materialize and
will not occur.
In anticipation of future Garlessence sales through the above multi-level
marketing organization and to honor a commitment made by the Company to its
licensor, the Company purchased an additional $7,000 of Garlessence.
The three year period of time (starting January 1, 1995) in which the Company
can recover its licensing prepayment of $60,000 through discounted purchases
of raw materials will expire at the end of this year. As of March 31, 1997
the Company has recovered $9,137 of that prepayment through discounts. For
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 March 31, 1997 is $45,000.
The company will continue to solicit 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 Garlessence(r) 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 March 31, 1997 no sales
of these equity instruments have been realized. The original offering has
been extended to April 30, 1997. With the Company's improved reported
financial status, it expects to amend the current offering and request a new
offering period.
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.
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 qualify
as a designated issue. Of these shares, 47,000 were issued on August 15,
1996. The other 1,000 will not be issued.
On July 7, 1994 the Company entered into a five-year lease for 3,000 square
feet of space for an office, laboratory, and manufacturing plant. The Company
moved into the building during October 1994. Rent payments are $18,000 in
year one, $18,900 in year two, $19,484 in year three, $20,844 in year four,
and $21,888 in year five. 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.
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
submitting New Drug Applications to the FDA for products using those
inventions. In consideration, the Company agreed 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 agreed to pay Cyclops $30,000 per month. As of March
31, 1997 no such equity funding has been obtained and the agreement with
Cyclops has been changed to a first-come, first-served arrangement.
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 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. The Company spent $1,375 on the new cyclodextrin-based veterinary
euthanasia product in 1996. Additional formulation work and efficacy
validation will be done along with the writing and submission of the patent
protecting the invention. No expenses have been incurred during the first
quarter of 1997 for development of this product.
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.
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 $79,610 and $30,776 for the
quarter ended March 31, 1997 and 1996, respectively. The Company's revenues
grew more than 158% from the first quarter 1996 and are expected to continue
to grow significantly 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 plans to introduce in 1997 a new product line based on flavor
complexes of cyclodextrins. The Company expects the significant revenue
created by the sales of AP(tm)-Flavors to further moderate the large revenue
fluctuations from quarter to quarter.
The Company's gross profit margin decreased from 85.3% for the first quarter
1996 to 73.2% for the first quarter 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.
During the first quarter 1997, the Company achieved an overall decrease in
operating expenses of almost 31% from first quarter 1996 ($100,606 to
$69,440). This reduction was achieved by reducing salary expenses, travel
expenses, professional and consulting fees, and advertising expenses across
the board. Approximately 40% ($12,800) of this reduction resulted from an
accounting change suggested by the SEC for amortizing the Garlessence(R)
licensing fee; in effect, this redistribution caused the first quarter 1996
expenses to be increased from what were previously reported and only the
straight-line amount of $5,000 to be expensed in the first quarter of 1997.
These expense reductions were implemented while still expanding the Company's
sales base, developing new products, and implementing its strategy of creating
operational affiliates that will use cyclodextrins in herbal medicines,
wastewater remediation, and pharmaceuticals.
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 is expected in the future, the Company determined that a
valuation allowance of 50% of the future tax benefit was appropriate.
Accordingly the Company has recognized an income tax benefit
in 1996 to reflect this change in accordance with
SFAS No. 109. The tax benefit from the change in deferred tax asset
valuation allowance related to prior years net operating loss carryforward is
$229,350. The current portion of this deferred tax asset is valued at
$153,350 and represents 44% of the increase in the value of total assets from
March 31, 1996 ($247,072) to March 31, 1997 ($595,203).
The Company intends to use its favorable 1996 financial performance showing a
$0.19 EPS to yield a P/E of 5 to create more opportunities to raise equity
capital that will make it possible to achieve the Company's business plan goal
of revenues in excess of $1,000,000 in 1997. While first quarter revenues of
"only" $80,000 and an EPS of ($0.02) make that million dollar number seem
unattainable, a strong and increasing stock price make increased revenues
available through acquisitions and licensing revenues more plausible.
Item 5. Other Information
On May 12, 1997, the Company registered 10,000 common shares for transfer
to Atlantic Syndication Network, Inc. in partial payment for video consulting
services pursuant to Form S-8.
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: May 15, 1997
/s/ C. E. RICK STRATTAN
C. E. RICK STRATTAN
President, Chief Executive Officer,
Chief Financial Officer
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Net loss per share is based on the weighted average number of shares
outstanding during the periods, less treasury stock owned by the Company.
Those stock options outstanding that are dilutive have been considered in
determining net loss per share and the weighted average number of shares
outstanding.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from Financial Statements for the three (3) months ended March 31, 1997
and is qualified in its entirety by reference to such form 10QSB for quarterly
period ended March 31, 1997.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3 MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> (6,254)
<SECURITIES> 14,913
<RECEIVABLES> 43,174
<ALLOWANCES> 0
<INVENTORY> 85,995
<CURRENT-ASSETS> 306,783
<PP&E> 73,728
<DEPRECIATION> 44,543
<TOTAL-ASSETS> 595,203
<CURRENT-LIABILITIES> 16,015
<BONDS> 0
<COMMON> 120
0
0
<OTHER-SE> 560,318
<TOTAL-LIABILITY-AND-EQUITY> 595,203
<SALES> 79,610
<TOTAL-REVENUES> 79,610
<CGS> 21,298
<TOTAL-COSTS> 69,440
<OTHER-EXPENSES> 11,853
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (22,324)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,324)
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<EXTRAORDINARY> 0
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<NET-INCOME> (22,324)
<EPS-PRIMARY> (0.02)
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