U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to _________
Commission file number 0-24930
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
(Name of small business issuer in its charter)
FLORIDA 59-3029743
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3713 S. W. 42nd Avenue, Suite 3, Gainesville, FL 32608-6581
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 352-375-6822
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None
Securities registered under Section 12(g) of the Exchange Act:
Common
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 X
No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB ( )
State issuer's revenues for its most recent fiscal year: $345,137
State the aggregate market value of the voting stock held by non-
affiliates computed by reference at the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date within
the past 60 days: $1,018,965 based on the average high and low price as of
March 25, 1997 of $1.50 per share.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: 1,225,110 shares of Common
Stock as of March 25, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (Check One): Yes No
X
PART I
Item 1. Description of Business
Cyclodextrin Technologies Development, Inc. ("the Company") was organized
as a Florida corporation on August 9, 1990, with operations beginning in July
1992. The Company is engaged in the marketing and sale of cyclodextrins
("Cyclodextrins" or "CDs") and related products to the food, pharmaceutical
and other industries. The Company also provides consulting services related
to cyclodextrin technology.
Cyclodextrins are molecules that bring together oil and water and
have potential applications anywhere oil and water must be used together.
Successful applications have been made in the areas of agriculture, analytical
chemistry, biotechnology, cosmetics, diagnostics, electronics, foodstuffs,
pharmaceuticals and toxic waste treatment. Stabilization of food flavors and
fragrances is the largest current worldwide market for CD applications. The
Company and others are already developing CD-based applications in
stabilization of flavors for food products; elimination of undesirable tastes
and odors; preparation of antifungal complexes for foods and toiletries;
stabilization of fragrances and dyes; reduction of foaming in foods; cosmetics
and toiletries; and the improvement of quality, stability and storability of
foods.
CDs can improve the solubility and stability of a wide range of drugs.
Many promising drug compounds are unusable or have serious side effects
because they are either too unstable or too insoluble in water. Strategies for
administering currently approved compounds involve injection of formulations
requiring pH adjustment and/or the use of organic solvents. The result is
frequently painful, irritating, or damaging. These side effects can be
ameliorated by CDs. CDs also have many potential uses in drug delivery for
topical applications to the eyes and skin.
The Company believes that the application of CDs in both OTC and ethical
ophthalmic products provides the greatest opportunity for the successful and
timely introduction of CD containing preparations for topical drug use. To
pursue this opportunity the Company has entered into a joint venture with a
small ophthalmic manufacturing company.
The Company provides consulting services for the commercial development
of new products containing CDs. The Company's revenues are derived from
consulting, the distribution of CDs, the manufacturing of selected CD
complexes, and sales of its own manufactured and licensed products containing
CDs.
Product Background
CDs are donut shaped circles of glucose (sugar) molecules. CDs are
formed naturally by the action of bacterial enzymes on starch. They were
first noticed and isolated in 1891 by a French scientist, Villiers, as he
studied rotting potatoes. The bacterial enzyme naturally creates a mixture of
at least three different CDs depending on how many glucose units are included
in the molecular circle; six glucose units yield Alpha CD ("ACD"); seven
units, beta CD ("BCD"); eight units, gamma CD ("GCD"). The more glucose units
in the circle, the bigger the circle, or donut. The inside of this "donut"
provides an excellent resting place for "oily" molecules while the outside of
the donut is significantly compatible with water enabling clear stable
solutions of CDs to exist in aqueous environments even when an "oily" molecule
is carried within the donut hole. The net result is a molecular carrier that
comes in small, medium, and large sizes with the ability to transport and
deliver "oily" materials using water as the primary vehicle.
Research has established how to produce these natural CDs in large
quantities by mixing appropriate enzymes with starch solutions, thereby
reproducing the natural process. ACD, BCD and GCD can be manufactured by an
entirely natural process and therefore are considered to be natural products.
Additional processing is required to isolate and separate the CDs. The
purified ACD, BCD, and GCD are referred to collectively as natural CDs
(NCD's).
The chemical groups on each glucose unit in a CD molecule provide
chemists with ways to modify the properties of the CDs, i.e. to make them more
water soluble or less water soluble, thereby making them better carriers for a
specific chemical. The CDs that result from chemical modifications are no
longer considered "natural" and are referred to as chemically modified CDs
("CMCD's"). Since the property modifications achieved are often so
advantageous to a specific application, the Company does not believe the loss
of the "natural" product categorization will prevent its ultimate commercial
use. It does, however, create a greater regulatory burden.
The Company's strategy is to introduce products with little or no
regulatory burden in order to minimize product expenses and create profitable
revenue. The attached Table 1 illustrates the Company's approach to the
introduction of regulated products.
Development
Priority CD's Product Description/Name Regulatory Burden<f*>
1 Natural Dietary Suppl/Garlessence(trademark) 0
1 Natural Contact Lens Soak Solution/Prohibit(trademark) 0
1 Natural OTC Antiseptic/Eye-O-Dine(trademark) 0
1 Derivatized dermal patch/OTC benzocaine/The Bite 0
Patch(trademark)
3 Derivatized Vet euthanasia/Euthacaine(trademark) 1
2 Derivatized Water soluble garlic herbicide/N/A 0
3 Derivatized Chewing gum for removing plaque/N/A 2
[FN]
<f*>0-5, with 5 being greatest burden
While its current applications are concentrated very heavily in the
pharmaceutical area, the Company intends to develop applications in other
markets, namely with food ingredients and industrial chemicals. A market the
Company has had success penetrating already with CD containing products is
natural health. The Company intends to provide many more products for this
market.
The Company's business plan projects it to become a manufacturer of CD
complexes for the research and development market in the short term, a
manufacturer of commercial products by 1996 and a fully integrated CD
applications company with research and development capability by the year
2000.
Industry
The food additive industry has been experimenting with CDs for many
years. Now that commercial supply of these materials can be assured, the
Company believes that the food additive industry will significantly increase
its use of CDs.
CDs have been used in a variety of food products in Japan for over 10
years. The market for the use of CDs in food products in 1990 in Japan was
estimated at $100 million. Within the last five years, many European countries
have approved the use of CDs in food products. In the United States, major
starch companies are renewing their earlier interest in CDs as food additives
and oral arguments for regulatory approval by the United States Food and Drug
Administration ("FDA") were resumed in December 1990. In December of 1990,
American-Maize Products, Inc. of Hammond, Indiana and Roquette Freres of Le
Strem, France jointly presented oral arguments to the FDA for the addition of
the natural CD's to the GRAS (Generally Recognized As Safe) list of
excipients. American-Maize has proceeded alone with a request for a GRAS
confirmation letter from the FDA and/or a request for level 3 approval for the
use of BCD in foods. The Company is not aware of the status of these actions
at this time.
Applications of CDs in personal products and for industrial uses have
appeared in many patents and patent applications. Proctor & Gamble uses CDs
in Bounce(registered trademark), a popular fabric softener. Avon uses CDs
in its dermal preparations using its Age Protective System
APS(registered trademark). These uses will grow as the price of the
manufactured CDs decrease or are perceived as acceptable in view of
the value added to the products.
In Japan at least nine pharmaceutical preparations are now marketed which
contain CDs. The CDs permit the use of all routes of administration. Ease of
delivery and improved bioavailability of such well-known drugs as
nitroglycerin, dexamethasone, PGE(1&2), and cephalosporin permit these "old"
drugs to command new market share and sometimes new patent lives. Based on
the estimates of Dr. Hitoshi Hashimoto of Ensuiko Sugar Refining Co., Ltd. and
its own independent research, the Company believes the annual worldwide market
for CDs is $150 million, which is expected to increase to $800 million by the
year 2000.
There is little published data relating to the production or dollar sales
of CDs worldwide. The following estimates are based on the investigation and
estimates made by Mr. Strattan, which have included discussions with Dr.
Hitoshi Hashimoto of Ensuiko Sugar Refining Co., Ltd. Mr. Strattan's
estimates have been used by others including "April 1993 Food Processing," CDs
and Foods by Dean Ducksbury, and in "Food in Canada" edited by Ron Waske in an
article entitled "CDs for the Food Industry." The Company believes the annual
worldwide market for CDs is $150 million, which is expected to increase to
$800 million by the year 2000. Because of the value added, the dollar value
of the worldwide market for products containing CDs and for complexes of CDs
should be 2 to 3 1/4 times that of the CD market itself.
Products
The Company's products include its Trappsol(trademark) and
Aquaplex(trademark) product lines. The Trappsol product line consists of
approximately 15 different varieties of CDs and the Aquaplex product line
includes more than three dozen different complexes of active ingredients with
various CDs. In addition to these product lines, the Company introduced
Garlessence(trademark) in the fourth quarter of 1995. Garlessence is the
first ingestible product containing CDs to be marketed in the U.S. The
Company believes that by marketing Garlessence it has demonstrated industry
leadership. The Company also provides consulting services, research
coordination, and the use of CD Infobase(trademark), a comprehensive database
of CD related information. The Company has protected its service and trade
marks by registering them with the U.S. Patent and Trademark office. The
following U.S. trademarks and service marks are pending since May, 1995.:
Garlessence(trademark), CTDSM ,CD InfobaseSM, CTD ring design(trademark),
Trappsol(trademark), Appromote(trademark), Aquaplex(trademark). There is no
assurance that any of these marks will be approved. These properties add to
the intangible asset value of the Company.
CTD purchases CD's from commercial manufacturers around the world
including: Wacker Chemie - Munich, Germany; Ensuiko Sugar Refining Co., Ltd. -
Yokohama, Japan; Nihon Shokuhin Kako - Tokyo, Japan; Roquette Freres - Le
Strem, France; American-Maize Products - Hammond IN, USA. CTD purchases
specialty CD's on occasion from Cyclolab R&D Company in Budapest, Hungary.
The Company does not manufacture cyclodextrins.
The Company's first new product, Garlessence, is manufactured for the
Company by Herbe Wirkstoffe (GmbH) of Berlin-Zehlendorf, Germany. Under the
terms of its agreement with Herbe-Wirkstoffe, CTD has exclusive rights to sell
the CD/garlic oil complex within the U.S., its territories and possessions
until December 31, 1997. After December 31, 1997, the Company expects to
negotiate for an extension of the original license, but Herbe-Wirkstoffe has
the right to license the use of the complex to others. At least two other new
products will be manufactured by the Company's joint venture partner, Ocumed,
and sold by the joint venture company, Ocudex. The CDs and CD complexes used
in these products will be purchased from the Company.
The Company has also introduced new products into its basic line of CDs
and CD complexes--liquid preparations of CDs; relatively unprocessed, less
expensive mixtures of the natural CDs; naturally modified CDs (glucosyl and
maltosyl); and finally, excess production of custom complexes when those items
are not proprietary or restricted by the customer.
The Company has funded research to establish the efficacy of one of
its CD complexes as the first non-barbiturate veterinary euthanizing agent.
This research may result in a patented formulation and one of the Company's
first proprietary commercial products. Research moneys have been provided to
the University of Florida Research Foundation, Inc., a direct support
organization of the University of Florida in the amounts and for the
unrestricted use of the scientists below:
Amount Scientist Activity
$10,000 Dr. James Simpkins Extravasation Study
$12,000 Dr. Alistair Webb Benzocaine Complex
Business Strategy
The Company's strategy has been and will continue to be to generate
profitable revenue through sales of CD related goods and services. The long
term success of this strategy depends on the smooth and continuous transition
into CD-related products with increasing value-added attributes.
From inception through the end of 1992, sales of CDs and CD derivatives
were enough to provide the necessary profitability to sustain the Company.
Since these materials were simply purchased and resold, they had the least
value-added attributes. Up until 1990 almost 100% of the revenue was
generated by these products with the least value-added attributes. During the
early 90's sales of complexes increased until they contributed approximately
30% of the revenue.
Presently, sales of CD complexes represent 60 to 75% of the Company's
revenues. This transition to the more value-added complexes has been planned
and is desirable for increased profitability since higher margins can be
maintained for these products. However, it appears that the base business of
CD sales has eroded. Combined with price reductions dictated by the market,
the revenues from the sales of these products have decreased as much as the
revenue from CD complexes has increased. The result is an apparent stalling
of growth. The Company is also becoming dependent on just a few customers for
the majority of its revenue. In response to this situation the Company has
expanded its original business strategy of parlaying its leadership position
in the presently quite small CD industry as a supplier of CDs, CD derivatives,
CD complexes to include:
(1) Marketing and launching a dozen OTC and naturaceutical products
(e.g., dietary supplements) utilizing CD delivery benefits. For
example, by extracting specific ingredients from the garlic clove
and complexing these ingredients with Trappsol(trademark) B (beta
cyclodextrin) Garlessence(trademark) was created. Similar
products can be created with any of the other herbal ingredients
such as ginseng, echinacea, ginkgo, cat's claw, and melatonin.
(2) Licensing the use of the Trappsol(trademark) symbol for use by
others wishing to use CD delivery technology. This strategy is
reflected in the Garlessence package which, in addition to the
Garlessence trademark, carries a Trapposol trademark. This symbol
will be promoted as an indication that a Trappsol(trademark)
cyclodextrin is used with the product within and thereby assures
the user of the quality of the aqueous delivery system. This
symbol will be licensed in the same way as the MLB (Major League
Baseball) symbol is for baseball related products and the
Nutrasweet(registered trademark) symbol is for artificially sweetened
products containing Nutrasweet(registered trademark).
(3) Creating independent pharmaceutical organizations by merging
basic manufacturing capability with the Company's technical
product development and marketing expertise; these stand alone
organizations will be captive purchasers of CD complexes. CTD has
already created one such Joint Venture (JV) between itself and
Ocumed (an ophthalmic manufacturing company located in Roseland,
NJ and Bradenton, FL) called Ocudex Inc. In the case of Ocudex,
CTD is bringing to it licensing rights and technology for the
manufacture of water soluble anti-inflammatory (hydrocortisone and
dexamethasone) and drugs for reducing intra-ocular pressure
(glaucoma). These products are complexes of the drug with a
cyclodextrin. CTD will manufacture and sell these complexes to the
JV. Another JV that currently is being discussed is in the
treatment of waste water; this is being done with a small company
also in Bradenton, FL. Other JV's are being sought with
manufacturing companies that have a line of oncology products
and/or anti-epileptic drugs. The drugs to be complexed are
mitomycin, busulfan, doxorubicin in the oncology area and
carbamazepine and phenytoin in the anti-epileptic area. There is
no assurance that the Company will be able to reach other JV
agreements.
(4) In-licensing and out-licensing basic CD applications technology.
CTD is currently negotiating for licensing rights (in-licensing)
with Cyclops (an Icelandic company) for rights to ophthalmic
products and with Cyclolab (a Hungarian company) for rights to an
antiseptic/antibacterial product based on iodine. CTD is
currently preparing a patent of its own for a veterinary
euthanasia product based on benzocaine. The euthanasia product is
an example of technology resulting from the Company's research and
development which the Company will seek to out-license.
The Company continues to market its comprehensive selection of CDs, CD
derivatives, and CD complexes to scientists and researchers around the world
through print media advertising, trade show participation, and direct mail.
The Company has achieved it gol of generating a million dollars of revenue
through the slae of its products and services by the year 1997 and projects
$1,000,000 revenue from product sales in 1997 alone. In order
to achieve this goal the Company intends to hire a dedicated product manager
and acquire or merge with a qualified technical support laboratory.
The Company also intends to increase its business development efforts in
the food additive and personal products industries while continuing to build
on its successes in the pharmaceutical industry.
Business development on behalf of the Company's clients will include the
following: (i) negotiation of rights and/or licenses to CD-related
inventions; (ii) consultation with manufacturers to establish customized
manufacturing specifications; (iii) patentability assessments and strategic
planning of patent activities; (iv) trade secret strategies; (v) regulatory
interface; and (vi) strategic marketing planning.
Prior to the creation of CTD, Mr. Strattan had negotiated several sub-
licenses to current CD technology (US Patent 4,727,064), owned by the U.S.
Government. Most recently, in July of 1992, Mr. Strattan completed a major CD
licensing arrangement on behalf of Pharmatec, Inc. with Wyeth-Ayerst
Laboratories -- a division of American Home Products. The Company believes
these are the first sub-licenses granting use of the inventions in the above
cited U.S. government patent. While U.S. government ownership of US Patent
4,727,064 is available for licensing to all applicants on a non-exclusive
basis, the Company does not believe that this access to the basic CD
technology presents a competitive risk to the Company because the Company
believes its competitive advantage lies in its experience and know how in the
use and application of CDs, areas in which it believes it has a significant
lead.
In addition to in-licensing and out-licensing efforts, the Company will
coordinate research studies in which it will retain a portion of the rights
created as a result of the research work supported.
Assuming the availability of funds, the Company will negotiate licensing
rights to its own selected inventions. Because of its comprehensive technical
and patent database for CD-related inventions, the Company believes it is
uniquely positioned to take advantage of various licensing situations.
Marketing Plan
While at Pharmatec, Inc. in the late 1980's, Mr. Strattan pioneered the
marketing of derivatized CDs and their drug complexes. Mr. Strattan contended
that commercial use and development of CDs could only begin in earnest as
individuals and organizations became familiar with the truly unique
solubilizing and stabilizing properties of these starch molecules. Mr.
Strattan set about publicizing the benefits of CDs while other companies
continued to hoard new information in hopes of protecting imagined
exclusivity. The Company has continued this effort to market CDs. The
Company believes that the failure of businesses to exchange information about
these exciting molecules has hindered a more rapid commercialization of CDs as
safe excipients. The Company believes that its philosophy of partnering and
sharing will act as a catalyst to create momentum overcoming the inertia
created by the previous conservatism and secrecy.
The Company's sales have always been direct, highly cyclical and driven
by advertising and participation in trade shows. Arrangements with large
laboratory supply companies and several diagnostic companies have provided a
more stable sales base, but at the price of dependency on a few customers.
The objective in this unregulated target market of life science research is to
create and annual sales base of $1,000,000. This growth is forecasted to
occur as a result of the Company's expansion of its product line to include
value-added complexes of chemicals and CDs, increasing promotional efforts and
widespread acceptance of CDs by laboratories through word-of-mouth, white
paper circulation, and hiring of a dedicated product manager and acquisition
or merger with a qualified technical laboratory.
The Company has taken advantage of the propensity of researchers to use
the Internet to gather information about new products by establishing a WEB
Page and "site" on the world-wide web and obtaining a unique and descriptive
domain name: "cyclodex.com".
Historical Analysis
Research Markets
Historically the Company's revenues have been derived from sales to
individuals and companies which use the products in connection with research.
In 1995 those sales averaged approximately $20,000 per month; in 1994 those
sales averaged just $13,000 per month. In 1995 the Company looked more
closely at the "research" business and found that only 28.6% ($72,867) of
total sales could be attributed to the market the Company had originally
called its primary market. Sales to this market are driven by trade shows and
advertisements in trade journals. Customers typically purchase small amounts
of CDs and complexes at premium prices. The remainder of 1995 sales were
divided between diagnostics (30.0%) and complexes for resale (41.4%). In 1996
sales to the "research" market averaged almost $14,500 per month and accounted
for 50% of total revenues. As expected, while both the "research" and
"industrial" sales revenues are increasing, the industrial portion is growing
twice as fast (24.3%) as the research portion (11.5%). In 1997 the Company
expects sales to increase as a result of anticipated sales to related joint
venture organizations.
The Company believes the research market will continue to grow
accounting for 25-30% of the total revenues of the Company. The Company
expects that such growth will be stimulated by the effect of word-of-mouth
within and the availability of information electronically as national
advertising reaches more and more of these difficult to reach end users. The
Company believes current promotional efforts have reached less than 5% of the
potential end users.
Diagnostic Test Kits
CDs have proven useful in suspending the various immunochemical
components and extending the shelf life of many types of test kits. Initial
sales of $100,000 in 1993 were obtained by business development contacts with
research directors and formulation scientists. The Company had no sales in
this market in 1994,1995 or 1996. Sales to this market are especially
volatile with single orders ranging between $100 and $50,000. The Company
expects more diagnostic manufacturers to use these materials to remain
competitive, providing more reliable sales projections.
Pharmaceutical Companies
The objective in this target market has been to promote the adoption of
CMCDs for those human health care compounds that are either too insoluble or
unstable in aqueous solutions for use in ethical, over-the-counter and generic
pharmaceutical preparations. There are a number of generic and proprietary
"problem" drugs where solubility has been improved in the lab by CMCD
complexing. All pharmaceutical companies have many problem drugs but cannot
generate enough solid pharmacological data (due to poor solubility and
stability) to justify extensive in-house formulation work. Many companies are
quite willing to contract out such work on their most promising prospects.
Without a qualified technical laboratory of its own, the Company has not
been able to create a revenue stream from this important component of its
marketing plan. By merger with or acquisition of a suitable laboratory the
Company feels that this component will significantly contribute to the
projected $1,000,000 revenue goal in 1997.
Issues of regulatory requirements, clinical testing, and patent
restrictions have made this area of revenue generation very difficult for the
Company to break into.
Current and Near-Term Activity
1997
The Company intends to show by example that products containing CDs
may be introduced into the U.S. market. Rather than trying to push companies
to introduce CD products, the Company intends to pull them into the market by
launching approximately seven new CD containing products of its own into the
U.S. market over this time period. These products will address needs in the
relatively unregulated areas of natural medicine, topical OTC preparations,
veterinary products, and home gardening.
The Company intends to work with clients in countries whose current
regulatory views do not exclude CDs as natural products acting as excipients
to introduce beneficial pharmaceuticals improved by CDs. The terms for the
joint development of CD containing drugs with several medium-sized
pharmaceutical companies in South America, Australia and South Africa are
currently being negotiated.
Along with the new products themselves, the Company is creating a
legitimate, licensable mark that may be used by other manufacturers wishing to
take advantage of the improved aqueous delivery afforded by Trappsol CDs.
This protected mark has the capability of generating revenues in a manner
similar to the Nutrasweet(registered trademark) (artificial sweetener) and
MLB(registered trademark) (major league baseball) logos.
The Company intends to generate additional revenue through obtaining
rights to certain patents that it will sublicense to appropriate organizations
or that it will use to develop its own proprietary products. Revenue will
result from sub-licensing royalties, sales of CD complexes to be used in the
newly developed pharmaceuticals, and finally from the sales of the products to
end users.
Assuming an ongoing process of development, approval and adoption of CDs
and CMCDs for pharmaceutical applications, the Company's objective is to
initiate dialogue and be well prepared for partnerships with major food
companies. Price is a primary concern in this market, but unlike
pharmaceuticals where FDA permission for clinical testing may be obtained
before actual FDA product approval, food companies cannot feed experimental
formulations to test panels of consumers until the ingredients, i.e., the CDs,
receive approval for human consumption. Therefore, the Company will work with
the food companies and key university food research groups to initially
evaluate non-taste applications; e.g., "will CD complexes allow microwave
baked casseroles to brown? Will it provide crispness to certain microwave
foods?" These questions will initially be explored using NCDs since
commercial adoption will depend heavily upon the price of the CD selected and
NCDs will always be the least expensive. However, the benefits derived from
the use of other CDs with expensive ingredients (e.g., flavors, fragrances)
may justify the use of CMCDs and/or NMCDs.
There exist opportunities for CD applications in industrial applications
not associated with pharmaceuticals or foods. The Company believes that
developers of these other industrial applications will approach CTD because of
its leadership and partnering philosophy to help them commercialize their
products. Applications for which the Company has already received such
inquiries are:
(1) Cleaning agent ingredients
(2) Adhesive ingredients
(3) Paint surface finishing product ingredients
(4) Extrusion additives
(5) LED dye ingredients
Long Term View (1998-2000)
The Company believes that the sales of CDs, CD derivatives, and CD
complexes will always provide sufficient revenue to support a business of the
Company's present size. The Company intends to test its strategy of
augmenting these R&D derived revenues through the introduction of its own
products, e.g. Garlessence. Further, by allying itself with appropriate
manufacturing capabilities, the Company intends to introduce products which it
manufactures. Thus, the long-term goals of the Company are to:
(1) Sell CDs and related products and services to the R&D
industry
(2) Produce a line of its own products utilizing CDs for
unregulated uses; e.g. - naturaceuticals, geriatric
nutriceuticals, naturacides. These products will carry a
licensable trade mark that will provide revenue when used on
other products.
(3) Own a portion of companies for which it guarantees a
significant portion of that JV's business; e.g., a
marketing/package design company, a CD applications
R&D/pilot plant manufacturing company.
(4) Form and operate joint ventures with companies to jointly
develop specific pharmaceutical applications of CDs.
The Company anticipates that revenues from direct sales of its products
and services along with its portion of the profits of jointly owned businesses
will create sufficient net worth to permit the Company to move from the NASDAQ
Bulletin Board up to the NASDAQ Small Cap Market. With such a structure CD
technology will be introduced from the inside. It is anticipated that the
Company will provide the CDs, CD complexes, and CD technology to its joint
venture companies at a profit.
Competition
The Company is currently a leading consultant in determining what the
manufacturing standards and costs for CDs and CMCDs are, and believes, at the
current time, no organization is manufacturing commercial quantities of any CD
complex for resale. However, there will always exist the potential for
competition in this area since no patent protection can be comprehensive and
forever exclusive. Nevertheless, there is a perceived barrier to entry into
the CD industry because of the lack of general experience with CD complexation
procedures. The Company has established a strong business relationship with
one of the experts in this field -- Cyclolab in Hungary -- and has utilized
the services and expertise of this laboratory. The Company believes this
relationship provides a significant marketing lead time, and combined with a
strong marketing presence, will give the Company a two to three year lead time
advantage over its competitors.
The Company intends to form a more formal business relationship with
Cyclolab in Hungary by creating a Cyclolab-USA laboratory facility and thereby
strengthen its competitive advantage. Discussions between the principals of
Cyclolab and CTD have been ongoing for more than 5 years. The current foreign
ownership of Cyclolab increases the difficulty of reaching a formal
arrangement. Potential relationships which have been discussed include joint
venture arrangements, the Company's outright acquisition of Cyclolab and the
employment of Cyclolab personnel to create Cyclolab-USA. There is no
assurance that the Company will be able to reach a formal business
relationship with Cyclolab.
By copyrighting and registering its own name brands, CD logos, etc. the
Company intends to create licensable icons much like Nutrasweet and Major
League Baseball have. Such a strategy allows the Company to benefit
financially through licensing royalties from the efforts of its competition.
The Company intends to also benefit from competitors' efforts by having
ownership in the graphic design agency that is currently setting the standard
for the promotion and packaging of CD containing products. Because this
agency would also have access to the licensable CTD logos and icons, it should
enjoy a competitive advantage as well.
Government Regulation
Under the Federal Food, Drug and Cosmetic Act ("Food and Drug Act"), the
Food and Drug Administration ("FDA") is given comprehensive authority to
regulate the development, production, distribution, labeling and promotion of
food and drugs. The FDA's authority includes the regulation of the labeling
and purity of the Company's food and drug products. In the event the FDA
believes that the Company is not in compliance with the law, the FDA can
institute proceedings to detain or seize products, enjoin future violations or
assess civil and/or criminal penalties against the Company.
The FDA and comparable agencies in foreign countries impose substantial
requirements upon the introduction of therapeutic drug products through
lengthy and detailed laboratory and clinical testing procedures, sampling
activities and other costly and time consuming procedures. The extent of
potentially adverse government regulations which might arise from future
legislation or administrative action cannot be predicted.
Under present FDA regulations, FDA defines drugs as "articles intended
for use in the diagnosis, cure, mitigation, treatment or prevention of disease
in man." The Company's product development strategy is at first to introduce
products that will not be regulated by the FDA as drugs because all of its
ingredients are natural products or are generally regarded as safe (GRAS) by
the FDA. The Company is continually updated by counsel as to changes in FDA
regulations that might affect the use of and claims for these products. There
is no assurance that the FDA will not take the position that the Company's
food and nutritional supplement products are subject to requirements relating
to drug development and sale. The effect of such determination could be to
limit or prohibit distribution of such products.
Employees
In 1996 the Company employed 4 persons on a full time basis. None of the
Company's employees belong to a union. The Company believes relations with
its employees are good.
Item 2. Description of Properties.
The Company occupies a 3,000 sq. ft. building at 3713 S.W. 42nd Ave.,
Suite 3, Gainesville, Florida 32608, pursuant to a 5-year lease beginning
November 1, 1994. The lease provides for annual increases in rent ($18,000
for the first year, $18,900 for the second year, $19,848 for the third year,
$20,844 for the fourth year and $21,888 for the fifth year). The Company also
has an option to lease an additional 3,000 sq. ft. of space. The Company
houses its administrative offices in approximately 1,100 sq. ft. of this
space; an additional 550 sq. ft. is dedicated to laboratory/manufacturing
functions. The remaining 1,350 sq. ft. has been prepared for additional
laboratory and pilot plant manufacturing use. This prepared space is suitable
for housing Cyclolab-USA and the optioned 3,000 sq. ft. of space can be used
to house graphic design functions and provide space for future expansion of
Cyclolab USA.
The current marketing and sales activities are implemented from that
site. The entire 6,000 sq. ft. could support a total of 12 - 15 people and
therefore is expected to be adequate for the foreseeable future. Current
total office and laboratory operating expenses excluding salaries have
stabilized at about $10,000 per month.
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
On January 28, 1997, the Company held its annual shareholder's meeting at
the Company's offices, in Gainesville, Florida. At that meeting, the
shareholders elected one (1) director for a term of one (1) year and until the
election and qualification of their successors. C.E. "Rick" Strattan was
elected as the Company's Director at the meeting. The votes cast at the
meeting were as follows:
Broker
For Against Abstain Non-Votes
C.E. "Rick" Strattan 684,300 -0- -0- -0-
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
In October 1994, the Company's securities began trading on the OTC
Bulletin Board and in the over-the-counter market "pink sheets" under the
symbol CTDI. Since the commencement of trading of the Company's securities,
there has been an extremely limited market for its securities. During the
fourth quarter of 1995, one of the Company's market makers ceased business.
The following table sets forth high and low bid quotations for the quarters
indicated as reported by the OTC Bulletin Board. At March 1, 1995, the average
per share bid and ask price of the Company's common stock was $4.50 and $7.50,
The following table set forth the high and low sales prices for the periods
since October, 1994
High Low
1994 Fourth Quarter $ 6.00 $ 3.00
1995 First Quarter $ 7.50 $ 3.00
Second Quarter $ 8.50 $ 4.25
Third Quarter $ 9.00 $ 4.00
Fourth Quarter $ 8.00 $ .50
1996 First Quarter $ 2.25 $ .50
Second Quarter $ 1.0625 $ .75
Third Quarter $ 2.25 $ .25
Fourth Quarter $ 1.00 $ .625
Over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not represent actual
transactions.
Holders
As of March 25, 1997, the number of holders of record of shares of common
stock, excluding the number of beneficial owners whose securities are held in
street name was approximately 1,225,110.
Dividend Policy
The Company does not anticipate paying any cash dividends on its common
stock in the foreseeable future because it intends to retain its earnings to
finance the expansion of its business. Thereafter, declaration of dividends
will be determined by the Board of Directors in light of conditions then
existing, including without limitation the Company's financial condition,
capital requirements and business condition.
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
As of December 31, 1996 the Company's liquidity as measured by its total
current assets was $202,910 - up by more than 19% from year-end 1995. The
improvement in the 1996 value resulted from a large accounts receivable
($92,500) created by an order shipped in December. Inventory did not change
significantly while cash available was $7,767 at December 31, 1996 compared to
$46,773 at December 31, 1995.
The Company has established substantial inventory of Garlessence and
does not expect to expend more than an additional $10,000 in incidental costs
to distribute the product before distributor sales are realized. In of 1996
the company sold directly less than $1,000 of Garlessence. By the end of the
year the Company had expected to move at least half the Garlessence in bulk to
overseas bulk purchasers or in a U.S. promotion with a local start-up multi-
level marketing organization. Those transactions are still anticipated but
have not occurred as of December 31, 1996. The Company postponed purchasing
additional inventory of Garlessence in 1996 since sales did not reach levels
to support such purchases.
However, should the rate of expansion and volume of sales increase
substantially, the Company would require additional funds to finance inventory
and accounts receivable and to fund increased costs of advertising and
marketing, among other things. To meet the financial needs of expected future
growth, the Company 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 December 31, 1996 no sales of these equity instruments have
been realized. To further buffer cash flow, in June of 1995, the Company
obtained a $75,000 line of credit from a commercial bank. In October 1996
this credit line was reduced to $52,200. As of December 31, 1996, there is a
$52,200 outstanding balance on this line of credit. On February 6, 1997 the
company paid down the line of credit to $1.
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. Rent for year two was prepaid and earned
interest at 9% on the balance not yet applied each month. The balance was
fully applied in November 1996. The Company also has a purchase option on this
space in which ten percent of the lease payments may be applied to the
purchase price. The Company may exercise an option to lease an additional
3,000 square feet of adjoining space. The Company houses its administrative
offices, laboratory, and manufacturing facility in this complex, utilizing an
aggregate of approximately 1,650 square feet. This facility has been built,
and can be expanded, according to "GMP" (good manufacturing practices)
specifications in anticipation of the commercial needs of the markets the
Company serves. During 1994 and 1995, the Company expended significant effort
and $65,000 in capital improvements to complete the facility. The remaining
1,350 square feet of space is for pilot plant manufacturing and an analytical
laboratory. However, this expansion will require additional funding and there
is no assurance that any additional funding will be available. Management has
no immediate plans for this expansion.
On August 1, 1994, the Company entered into a five-year consulting
agreement (renewable annually by mutual agreement) with Yellen Associates
("Yellen"), an unrelated company. Yellen agreed to provide ideas for new
products in the nutritional, geriatric, and related health fields; to find
companies and/or products suitable for acquisition; to find products suitable
for manufacture and/or distribution; and to secure customers for Company
products. All products offered by Yellen and accepted by the Company will
belong exclusively to the Company with all related rights. The conditions of
that agreement remaining at this time are that the Company will pay Yellen
royalties of up to 5% of sales for products acquired through Yellen, or
cyclodextrin sales made by Yellen. The Company also agreed to sell to Yellen
over a period of three years from August 1, 1994, up to 30,000 shares of
Company stock at a discount of 50% of the market price quoted at the time of
purchases, contingent upon the amount of commissions and royalties. The
conditions were not met, therefore the company is no longer obligated to sell
shares to Yellen at the agreed upon discount.
Effective January 1, 1995, the Company obtained an exclusive right to
market a dietary supplement in the United States for three years. The Company
agreed to pay approximately $60,000 for this right. The agreement allows the
Company to recover this fee through discounts on inventory purchased through
December 31, 1997. Prior to December 31, 1995, the amortization of this
license fee was recognized as discounts were received. However, after
consultation with the Securities and Exchange Commission, the license fee is
now being amortized on a straight-line basis over the three year period of the
contract. The total accumulated amortization expense under the straight line
method since the inception of the contract is $40,000. Since $7,300 had been
recorded as of December 31, 1995, the remaining $32,700 has been recognized as
amortization expense in 1996.
On May 1, 1995 the Company entered into a joint venture operating as
Ocudex, Inc. The Company and Ocumed, Inc., an unrelated company, each own 50%
of Ocudex. The Company has agreed to fund on a best efforts basis up to
$10,000 per month for not more than 12 months. CTD had advanced Ocudex
$34,000 in 1995 on which it realized an operating loss of $1,505, but a
taxable profit of $63. In 1996 the Company advanced Ocudex an additional
$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
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 December 31, 1996 there have been no sales recorded by
Ocudex of these products.
The Company entered into an agreement with Cyclops h.f. (Cyclops), a
company located in Reykjavik, Iceland, in May 1996 to secure limited
exclusivity to certain inventions embodied in patents owned by Cyclops for the
purpose of creating an organization that will commercialize products using
those inventions. In consideration, the Company agrees to share equally with
Cyclops the net profits derived from products commercialized by CTD or
affiliates of the Company that use the inventions. Further, contingent on the
successful completion of equity financing in the amount of at least
$5,000,000, the Company agrees to pay Cyclops $30,000 per month. This
agreement may be canceled by Cyclops at any time after September 1, 1996 with
30 day notification. No notification of cancellation has been received as of
December 31, 1996.
In January 1996, the Company entered into an agreement with Geller
International Associates (Geller), an unrelated company, to provide various
public relation services. In return, the Company agreed to pay Geller $2,000
per month plus out-of-pocket expenses with the first three months being
guaranteed. In addition, the Company agreed to secure funding for the current
public offering. The total amount paid to Geller for the six months ending
June 30, 1996 was $10,461. The agreement was canceled in May 1996, with no
further amounts paid or due to Geller.
The Company purchased 10,000 shares of its own common stock for $25,000
from a former employee on May 3, 1995, payable over the following 12 months.
As of June 30, 1996, that obligation had been paid in full.
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 common stock to DCCG in return for future
services to:
1. Recruit and retain at least five market makers for the
Company's common stock.
2. Recruit and supervise a financial public relations firm
acceptable to the Company's Board of Directors, to assist the
Company to disseminate information required in order to permit its
securities to realize their proper trading value.
3. Use best efforts to introduce the Company to at least two
journalistic publications in multiple media, and to encourage such
publications to feature the Company's progress in communications
to subscribers.
4. (a) Assist the Company to raise required debt or
equity capital through introductions to
investment banking firms and individual
investors, when and if necessary; and
(b) Assist the Company to list its securities, if eligible, for
trading on either one or more national securities exchanges
or on the NASDAQ inter dealer quotation system.
5. Use best efforts to induce retail securities brokerage firms to
consider the Company's securities as appropriate investments for
their retail clients.
6. Assist the Company to effect corporate restructuring designed to
maximize its operational efficiency, initiate an acquisitions
program, and develop programs to assure compliance with applicable
securities laws.
7. If required, train Company personnel and consultants in proper
procedures for regulatory compliance and to effect its various
strategic and tactical plans.
8. Develop programs to assist it to comply with the electronic filing
requirements of Securities and Exchange Commission Regulation ST.
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.
The Company continues to explore the acquisition and development of new
products through licensing and joint ventures with and without cyclodextrins
to increase sales. In an agreement with Cyclops h.f. of Reykjavik, Iceland,
effective May 22, 1996 and continuing for not more than 12 continuous months,
the Company has obtained a Right of First Refusal (ROFR) to the ophthalmic
inventions in U.S. Patent 5,472,959. CTD intends to secure the rights to such
products for Ocudex, Inc - its first joint venture company.
Results of Operations
Sales of cyclodextrins and related manufactured complexes have
historically been volatile. Sales are primarily to large pharmaceutical and
food companies for research and development purposes. Sales have also been
concentrated among a few large customers. Total revenues were $346,700 and
$278,600 for the year ended December 31, 1996 and 1995, respectively. The
Company's revenues grew more than 24% in 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 expects to increase sales of Garlessence in 1997. Although sales
have been much slower developing than anticipated, as they grow, they will
provide not only a substantial increase in sales revenues but stability as
well.
The Company was able to increase its gross profit margin from 82.8% for
1995 to 87.6% for 1996. 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 trend of increasing gross profit margins to
continue.
During 1996, the Company achieved an overall decrease in operating
expenses of almost 30% over 1995. This reduction was achieved by reducing
salary expenses, office expenses, professional fees, and advertising expenses
across the board. These expense reductions were implemented while still
expanding 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.
Item 7. Financial Statements
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
DECEMBER 31, 1996 AND 1995
CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Balance Sheet 2-3
Statements of Operations 4
Statements of Stockholders' Equity 5
Statements of Cash Flows 6-7
Notes to Financial Statements 8-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Cyclodextrin Technologies Development, Inc.
Gainesville, Florida
We have audited the accompanying balance sheet of Cyclodextrin Technologies
Development, Inc. as of December 31, 1996, and the related statements of
operations, stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit. The financial statements of Cyclodextrin Technologies
Development, Inc. for the year ended December 31, 1995, were audited by other
auditors whose report dated February 5, 1996, expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cyclodextrin Technologies
Development, Inc. as of December 31, 1996, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
Davis, Monk & Company.
February 21, 1997
Gainesville, Florida
-1-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Cyclodextrin Technologies Development, Inc.:
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of Cyclodextrin Technologies Development, Inc. for
the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, Cyclodextrin Technologies Development, Inc.'s
results of operations and cash flows for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
/s/
James Moore & Co.
Gainesville, Florida
February 5, 1996
<PAGE>
<TABLE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
BALANCE SHEET
DECEMBER 31, 1996
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 7,767
Accounts Receivable 106,192
Inventory 76,379
Deposits and Prepaid Expenses 4,013
Notes Receivable - Employees, Current Portion 8,559
Deferred Tax Asset 153,350
________
TOTAL CURRENT ASSETS 356,260
________
PROPERTY AND EQUIPMENT
Furniture and Equipment 48,928
Leasehold Improvements 24,800
________
73,728
Less: Accumulated Depreciation 41,435
________
TOTAL PROPERTY AND EQUIPMENT 32,293
________
OTHER ASSETS
Notes Receivable - Employees, Less Current Portion 1,190
Advances to and Investment in Joint Venture 40,826
License Fee 20,000
Deferred Offering Costs 127,531
Deferred Tax Asset 76,000
________
TOTAL OTHER ASSETS 265,547
________
TOTAL ASSETS $654,100
========
</TABLE>
(CONTINUED)
-2-
<PAGE>
<TABLE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
BALANCE SHEET
DECEMBER 31, 1996
(CONCLUDED)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 10,542
Note Payable on Line-of-Credit 52,200
___________
TOTAL CURRENT LIABILITIES 62,742
___________
COMMON STOCK SUBJECT TO REPURCHASE 7,813
___________
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 (18,500)
Accumulated Deficit (1,068,509)
___________
TOTAL STOCKHOLDERS' EQUITY 583,545
___________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 654,100
===========
</TABLE>
The accompanying "Notes to Financial Statements"
form an integral part of this statement.
-3-
<PAGE>
<TABLE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
<S> <C> <C>
PRODUCT SALES $ 344,068 $ 253,634
COST OF PRODUCTS SOLD 45,354 43,560
_________ _________
GROSS PROFIT 298,714 210,074
_________ _________
OPERATING EXPENSES
Advertising 9,273 73,396
Depreciation and Amortization 49,507 17,220
Consulting Fees 1,500 6,000
Office Expenses 32,673 39,777
Professional Fees 29,673 87,951
Travel and Entertainment 10,649 8,596
Rent 21,650 21,087
Research and Development Costs 8,033 17,988
Personnel Costs 121,575 137,994
Taxes and Licenses 16,066 16,690
Bad Debts -- 304
_________ _________
TOTAL OPERATING EXPENSES 300,599 427,003
_________ _________
LOSS FROM OPERATIONS (1,885) (216,929)
_________ _________
OTHER INCOME (EXPENSE)
Investment and Other Income 2,632 12,465
Gain (Loss) Due to Change in Redemption Price
on Common Stock Subject to Repurchase (1,563) 12,500
Equity in Loss from Unconsolidated Joint Venture (9,169) (1,506)
Interest Expense (3,914) (139)
_________ _________
TOTAL OTHER INCOME (EXPENSE) (12,014) 23,320
_________ _________
LOSS BEFORE INCOME TAXES (13,899) (193,609)
INCOME TAX BENEFIT, NET 229,350 --
_________ _________
NET INCOME (LOSS) $ 215,451 $(193,609)
========= =========
NET INCOME (LOSS) PER COMMON SHARE $ .19 $ (.19)
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 1,151,794 1,020,957
========= =========
</TABLE>
The accompanying "Notes to Financial Statements"
form an integral part of this statement.
-4-
<PAGE>
<TABLE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<CAPTION>
COMMON STOCK TOTAL
ADDITIONAL ISSUED FOR RETAINED STOCK-
COMMON STOCK PAID-IN FUTURE EARNINGS HOLDERS'
SHARES AMOUNT CAPITAL SERVICES (DEFICIT) EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1994 993,700 $ 99 $1,564,996 $(37,500) $(1,090,351) $ 437,244
Shares Subscribed;
Issued in 1996
Under Employee
Temporary
Purchase Plan 29,600 3 6,925 -- -- 6,928
Compensation
Earned -- -- -- 19,500 -- 19,500
Shares Issued
Under Employee
Stock Plan -- -- -- (6,250) -- (6,250)
Net Loss -- -- -- -- (193,609) (193,609)
_________ ____ __________ ________ ___________ _________
Balance, December
31, 1995 1,023,300 102 1,571,921 (24,250) (1,283,960) 263,813
Shares Issued
Under Employee
Temporary
Purchase Plan 3,800 -- 3,025 -- -- 3,025
Shares Issued
For Services 157,010 16 86,490 -- -- 86,506
Shares Issued
As Bonus 16,000 2 8,998 -- -- 9,000
Compensation
Earned -- -- -- 5,750 -- 5,750
Net Income -- -- -- -- 215,451 215,451
_________ ____ __________ ________ ___________ _________
Balance, December
31, 1996 1,200,110 $120 $1,670,434 $(18,500) $(1,068,509) $ 583,545
========= ==== ========== ======== =========== =========
</TABLE>
The accompanying "Notes to Financial Statements"
form an integral part of this statement.
-5-
<PAGE>
<TABLE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 215,451 $(193,609)
________ _________
Adjustments to Reconcile Net Loss to Net
Cash Used for Operating Activities:
Depreciation and Amortization 49,507 17,220
Loss on Currency Conversion 175 --
Deferred Compensation Earned 5,750 19,500
Equity in Loss of Unconsolidated
Joint Venture 9,169 1,505
(Gain) Loss Based on Redemption Price
of Common Stock Subject to Repurchase 1,563 (12,500)
Stock Issued for Services 9,000 --
Increase in Accounts Receivable (69,540) (27,746)
(Increase) Decrease in Inventory 1,902 (42,176)
Decrease in Deposits and Prepaid
Expenses 17,445 3,057
Increase in Deferred Offering Costs (41,025) --
Increase (Decrease) in Accounts Payable and
Accrued Expenses (35,578) 18,216
Increase in Deferred Income Taxes (229,350) --
________ _________
Total Adjustments (280,982) (22,924)
________ _________
NET CASH USED FOR OPERATING ACTIVITIES (65,531) (216,533)
________ _________
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to Joint Venture (17,000) (34,000)
Purchase of Equipment and Leasehold
Improvements (530) (28,017)
Proceeds from Sale of Equipment -- 1,180
Cash Paid for License -- (49,602)
Cash Loan to Employee (4,000) (13,000)
Repayment of Employee Loan 4,251 3,000
________ _________
NET CASH USED IN INVESTING ACTIVITIES (17,279) (120,439)
________ _________
</TABLE>
(CONTINUED)
-6-
<PAGE>
<TABLE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
DECEMBER 31, 1996 AND 1995
(CONCLUDED)
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds From Issuance of Common Stock,
Net of Offering Costs $ 3,025 $ 6,928
Cash Paid for Treasury Stock Obligation (6,421) (18,579)
Proceeds from Line-of-Credit 49,700 5,000
Proceeds from Loan Payable to Officer 1,751 --
Payments on Line-of-Credit (2,500) --
Payment to Stockholder on Loan (1,751) --
________ _________
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 43,804 (6,651)
________ _________
NET DECREASE IN CASH AND CASH EQUIVALENTS (39,006) (343,623)
CASH AND CASH EQUIVALENTS, Beginning of Period 46,773 390,396
________ _________
CASH AND CASH EQUIVALENTS, End of Period $ 7,767 $ 46,773
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period For:
Interest $ 3,914 $ 139
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIY
Common Stock Issued for Services $ 95,506 $ 6,250
Contribution by Stockholder $ 6,000 $ --
Equity in Loss of Unconsolidated Joint Venture $ 9,169 $ 1,505
Acquisition of Stock of Unconsolidated Joint
Venture $ 500 $ --
</TABLE>
The accompanying "Notes to Financial Statements"
form an integral part of this statement.
-7-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the more significant accounting policies of
Cyclodextrin Technologies Development, Inc. (the Company) which affect the
accompanying financial statements:
(a) ORGANIZATION AND OPERATIONS--The Company was incorporated in August
1990, as a Florida corporation with operations beginning in July 1992. The
Company is engaged in the marketing and sale of cyclodextrins and related
products to food, pharmaceutical and other industries. The Company also
provides consulting services related to cyclodextrin technology. The Company's
current market is primarily within the United States.
(b) CASH AND CASH EQUIVALENTS--For the purposes of reporting cash flows,
the Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
(c) PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost.
Depreciation on equipment is computed using primarily accelerated methods over
the estimated useful lives of the assets, which are either five or seven years.
Depreciation on leasehold improvements is computed on the straight-line method
over the lesser of the term of the related lease or the estimated useful lives
of the assets.
(d) INVENTORY--Inventory consists of products purchased for resale and
chemical complexes manufactured in-house, and is recorded at the lower of
cost (first-in, first-out) or market.
(e) REVENUE RECOGNITION--Revenues are recorded when products are shipped.
(f) ADVERTISING--The Company expenses the production costs of advertising
the first time the advertising takes place.
(g) NET LOSS PER COMMON SHARE--Net loss per common share is computed based
on the weighted average number of common shares outstanding during the period,
less treasury stock owned by the Company. Common shares include common stock
subject to repurchase. Those stock options outstanding that are dilutive have
been considered in determining net loss per share and the weighted average
number of shares outstanding.
(h) USE OF ESTIMATES--The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could vary from the estimates
that were used.
-8-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
NOTE 2 - COMMITMENTS
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. The future minimum lease
payments under operating leases as of December 31, 1996, are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
1997 $20,014
1998 21,018
1999 18,240
Thereafter --
_______
TOTAL $59,272
=======
Rent expense under the foregoing lease and all other operating leases was
$19,058 and $18,150 for 1996 and 1995, respectively.
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/distribution; and to secure customers for Company products. All products
offered by Yellen and accepted by the Company will belong exclusively to the
Company with all related rights. In return, the Company agreed to pay Yellen
$2,000 per month for nine months. In May 1995, the Company discontinued its
monthly payment to Yellen in accordance with the agreement. Additionally, the
Company will pay Yellen royalties of up to 5% of sales for products acquired
through Yellen, or Cyclodextrin sales made by Yellen for three to five years.
The Company also agreed to sell to Yellen over a period of three years from
August 1, 1994, up to 30,000 shares of Company stock at a discount of 50% of
the market price quoted at the time of purchase, contingent upon the amount
of commissions and royalties. The conditions were not met, therefore, the
Company is not obligated to sell shares to Yellen at the agreed upon discount.
Effective January 1, 1995, the Company obtained an exclusive right to market
a dietary supplement in the United States for three years. The Company agreed
to pay approximately $60,000 for this right. The agreement allows the Company
to recover this fee through discounts on inventory purchased through
December 31, 1997. Prior to December 31, 1995, the amortization of this
license fee was
-9-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
NOTE 2 - COMMITMENTS (continued)
recognized as discounts were received. However, after consultation with the
Securities and Exchange Commission, the license fee is now being amortized on
a straight-line basis over the three year period of the contract. The total
accumulated amortization expense under the straight line method since the
inception of the contract is $40,000. Since $7,300 had been recorded as of
December 31, 1995, the remaining $32,700 has been recognized as amortization
expense for the year ended December 31, 1996.
In July of 1996, the Company registered Form SB-2 with the Securities and
Exchange Commission for a proposed securities offering of 250,000 shares of
common stock and 125,000 common stock purchase warrants with a combined
proposed maximum aggregate offering price of $1,250,500. This offering expires
in April 1997.
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 are directly attributable to
the proposed offering, they have been classified as deferred charges. In
addition, all other specific incremental professional fees incurred in 1996
which are clearly and directly attributable to the Company's effort to obtain
equity financing have been deferred. The total amount deferred for the year
ended December 31, 1996 is $127,531. These deferred professional costs will
be offset against the net proceeds of the offering or will be expensed upon
expiration of the offering.
In January 1996, the Company entered into an agreement with Geller
International Associates (Geller), an unrelated company, to provide various
public relation services. In return, the Company agreed to pay Geller
$2,000 per month plus out-of-pocket expenses with the first three
months being guaranteed. In addition, the Company agreed to pay Geller
1% of net moneys received as a result of Geller's efforts to secure funding
for the current public offering. The total amount paid to Geller to date
was $10,461.
-10-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
NOTE 2 - COMMITMENTS (concluded)
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 three months.
In May 1996, the Company entered into an agreement with Diversified Corporate
Consulting Group, L.C., an unrelated company, to provide consulting services
to be completed within 12 months. In return, the Company agreed to pay
Diversified 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. Further, contingent on
the successful completion of equity financing in the amount of at least
$5,000,000, the Company agrees to pay Cyclops $30,000 per month. This
agreement may be cancelled by Cyclops at any time after September 1, 1996
with 30 day notification. As of December 31, 1996, no cancellation notice was
received by the Company.
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.
-11-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
NOTE 3 - EMPLOYEE STOCK PLANS (concluded)
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 December 31, 1996, all amounts have been paid and no
further payable is due. 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 $5,750 and $19,500 under the stock issuance plan for
the years ended December 31, 1996 and 1995, 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. Under the plan, the
Company sold 29,600 shares and 3,800 shares to employees in 1995 and 1996,
respectively. These shares were all issued on September 6, 1996.
Had compensation cost for the Company's employee stock purchase plan and
stock-based compensation plan been determined based on a fair value at the
grant dates for awards under this plan consistent with the method of FASB
Statement 123, the Company's net income (loss) and net income (loss) per share
would have been the proforma amounts indicated below:
1996 1995
Net Income (Loss) As Reported $215,451 $(193,609)
Proforma $206,176 $(223,037)
Net Income (Loss)
Per Share As Reported $ .19 $ (.19)
Proforma $ .18 $ (.22)
-12-
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
NOTE 4 - OTHER COMMON STOCK TRANSACTIONS
On April 26, 1996, the Company resolved to authorize the issuance of 16,000
shares of voting common stock to Rick Strattan, President, as a bonus for
services rendered to the Company. These shares were issued on August 15, 1996,
and valued at $9,000, which was 50% less than the market 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.
On April 21, 1996, the Company amended its Articles of Incorporation whereby
the number of voting shares authorized was increased from 5,000,000 to
10,000,000. In addition, non-voting common shares were created. The total
amount of non-voting common shares authorized is 10,000,000.
NOTE 5 - COMMON STOCK SUBJECT TO REPURCHASE
As described in Note 3 above, the Company established a nonqualified employee
stock issuance plan in 1994, and issued shares under this plan in
December, 1994. Also, as noted above, the stock issued under this Plan is
redeemable by the Company at the option of the employee, at 50% of the
then current market value. The employee can demand redemption at any time
during a three year period beginning on the first day of the third year
after issuance and 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. Changes 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
Common Stock Redeemed -- (25,000)
Market Changes in Redemption Price 1,563 (12,500)
______ ________
Balance, End of Year $7,813 $ 6,250
====== ========
-13-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
NOTE 5 - COMMON STOCK SUBJECT TO REPURCHASE (concluded)
Common stock subject to repurchase is redeemable by the holder as follows:
Year Ending Shares Amount
1997 15,000 $4,688
1998 10,000 3,125
______ ______
Total 25,000 $7,813
====== ======
NOTE 6 - CONCENTRATIONS OF CREDIT RISK
Significant concentrations of credit risk for all financial instruments
owned by the Company, are as follows:
(a) ACCOUNTS RECEIVABLE - The Company's accounts receivable consist
of amounts due primarily from food and pharmaceutical companies located
primarily in the United States. The Company has no policy requiring collateral
or other security to support its accounts receivable.
(b) NOTES RECEIVABLE-EMPLOYEES - The Company's notes receivable from
employees are uncollateralized. The Company's policy of requiring collateral
on loans made to employees is determined on a case-by-case basis.
NOTE 7 - NOTES RECEIVABLE - EMPLOYEES
In March 1995, the Company loaned $13,000 to an employee. A payroll deduction
is made each month, which includes principal and interest. Interest is 7%.
The final payment is due in March 1998.
In November 1996, the Company loaned $4,000 to another employee. Interest
is 8%. The principal and interest is all due January 31, 1997.
NOTE 8 - MAJOR CUSTOMERS AND SUPPLIERS
Sales to four customers in 1996 consisted of approximately 71% of total sales.
Of this, sales to one major customer were approximately $80,000 or 23% of
sales, and sales to another major customer were approximately $120,000 or
35% of sales. The aggregate accounts receivable balances at December 31,
1996 for the four major customers were $98,250. Sales to four customers
in 1995 consisted of approximately 84% of total sales.
The Company currently purchases all its inventory of Garlessence, a dietary
supplement, from one supplier.
-14-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
NOTE 9- LINE-OF-CREDIT
In June 1995, the Company entered into a $75,000 line-of-credit with a bank.
This was renewed upon maturity in June 1996 and again in October 1996. In
October 1996, the credit limit was lowered to $52,200. Interest is due monthly
at prime plus 2%. Any outstanding principal and interest is currently due
on February 1, 1997. The line is collateralized by accounts receivable
and inventory. As of December 31, 1996, there is $52,200 outstanding on this
line-of-credit. Total interest expense of $3,506 and $139 was recorded related
to this line-of-credit for the years ended December 31, 1996 and 1995,
respectively. The interest rates at December 31, 1996 and 1995 were 10.25%
NOTE 10 - JOINT VENTURE
Effective May 1, 1995, the Company entered into a joint venture agreement
with Ocumed, Inc. (Ocumed), an unrelated company. The joint venture is
organized as Ocudex, Inc. (Ocudex) with the Company and Ocumed each owning 50%
of Ocudex. The Company has committed to funding Ocudex up to $120,000 over
the next twelve months. The Company has advanced Ocudex $51,000 as of
December 31, 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.
Following is a summary of the financial position and results of operations
of Ocudex:
1996 1995
Cash $ 719 $ 1,777
Equipment 28,000 28,000
Other Assets 1,932 1,212
________ _______
Total Assets $ 30,651 $30,989
======== =======
Advances From Stockholder $ 51,000 $34,000
Common Stock 1,000 --
Stockholders' Deficit (21,349) (3,011)
________ _______
Total Liabilities and Stockholders' Deficit $ 30,651 $30,989
======== =======
Sales $ -- $ --
======== =======
Net Loss $ 18,338 $ 3,011
======== =======
Company's Proportionate Share of Loss $ 9,169 $ 1,506
======== =======
-15-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure of fair
value to the extent practicable for financial instruments which are recognized
or unrecognized in the balance sheet. The fair value of the financial
instruments disclosed herein is not necessarily representative of the amount
that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement. The following
table summarizes financial instruments by individual balance sheet account
as of December 31, 1996:
CARRYING FAIR
AMOUNT VALUE
FINANCIAL ASSETS:
Cash and Cash Equivalents $ 7,767 $ 7,767
Accounts Receivable 106,192 106,192
Notes Receivable - Employees 9,749 9,749
________ ________
TOTAL FINANCIAL ASSETS $123,708 $123,708
======== ========
FINANCIAL LIABILITIES:
Note Payable on Line-of-Credit $ 52,200 $ 52,200
Accounts Payable and Accrued Expenses 10,042 10,042
________ ________
TOTAL FINANCIAL LIABILITIES $ 62,242 $ 62,242
======== ========
The fair value of financial instruments classified as current assets or
liabilities approximates carrying value due to the short-term maturity of
the instruments. The fair value of the notes receivable-employees was
estimated using current interest rates.
NOTE 12 - INCOME TAXES
At December 31, 1995, the Company has a net operating loss carryforward
totaling approximately $1,322,000 that may be offset against future taxable
income through 2011. No tax benefit was reported in the 1995 financial
statements, however, because the Company believed there was greater than
a 50% chance that the carryforward would expire unused. Accordingly, the
expected tax benefit of the loss carryforward was offset by a valuation
allowance.
-16-
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(CONCLUDED)
NOTE 12 - INCOME TAXES (concluded)
During the current year, the Company had taxable income after considering
non-deductible expenses that utilized approximately $4,000 of the carryforward
from prior years. Because of the current year performance 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
has recognized an income tax benefit in the current year to reflect this change
in estimate in accordance with SFAS No. 109.
The income tax benefit consists of the following components:
1996 1995
Current Taxes $ 650 $ --
Tax Benefit from Change in Deferred
Tax Asset Valuation Allowance
Related to Prior Years Net Operating
Loss Carryforward (230,000) --
_________ ______
$(229,350) $ --
========= ======
NOTE 13 - SUBSEQUENT EVENTS
On February 6, 1997, the Company paid down the line-of-credit, as described
in Note 9 above, to $1. It was renewed with a credit limit of $25,000.
Interest will be due monthly at prime plus 2%. Any outstanding principal and
interest will be due on March 1, 1998.
-17-
<PAGE>
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
On December 5, 1996, Registrant engaged the accounting firm of Davis,
Monk & Co. as independent accountants for the Registrant for 1996. The work
of James Moore & Co.., P.L. was terminated on December 5, 1996. The
termination of James Moore & Co., P.L. and the engagement of Davis, Monk & Co.
was approved by the Company's Board of Directors.
During the two most recent fiscal years ended December 31, 1996, there have
been no disagreements with James Moore & Co. on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure or any reportable events.
James Moore & Co., P.L.'s report on the financial statements for the
past two years ended December 31, 1995, contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principles.
PART III.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Name Age Position Since
C.E. Rick Strattan 50 President/CEO, Director August, 1990
David L. Southworth 48 Treasurer/CFO May, 1995
C.E. Rick Strattan, has been President and a Director of the Company
since its formation. He served as treasurer of the Company from August, 1990
to May, 1995. From November 1987 through July 1992, Mr. Strattan was with
Pharmatec, Inc. where he became its Director of Marketing and Business
Development for CDs. He was responsible for CD sales and related business
development efforts. From November, 1985 through May, 1987 he served as Chief
Technical Officer for Boots-Celltech Diagnostics, Inc. He also served as
Product Sales Manager for American Bio-Science Laboratories, a Division of
American Hospital Supply Corporation. He is a graduate of the University of
Florida with a BS degree in chemistry and mathematics and has also received an
MS degree in Pharmacology and an MBA degree in Marketing/Computer Information
Sciences from the same institution. Mr. Strattan has written and published
numerous articles and a book chapter on the subject of Cyclodextrins. Mr.
Strattan's professional and technical experience are deemed highly important
to the Company. See "Business - General."
David L. Southworth, has served as Treasurer and Chief Financial Officer
of the Company since May, 1995. Mr. Southworth joined the Company in February
1994. From mid-1992 until January 1994, Mr. Southworth served as Controller
for GCA Chemical Corporation in Bradenton, Florida. He retired from the
United States Air Force in 1992 after 20 years of active duty, mostly in
Europe and Southeast Asia, serving in various management and financial
budgeting positions. Mr. Southworth was Assistant Controller of Tropical
Garment Manufacturing Company from May 1979 to June, 1983. Tropical Garment
Manufacturing, a Tampa, Florida, manufacturer of men's clothing, employs over
1,000 employees. Mr. Southworth graduated from the University of South
Florida in 1981 with a BS degree in Business Finance. He received AA degrees
from the University of Maryland (foreign languages) and the State University
of New York (math and sciences).
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership
and reports of changes in ownership with the Securities and Exchange
Commission ("SEC"). Such persons are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the
Company and written representation from certain reporting persons, the Company
believes that during the fiscal year ended December 31, 1996, all filing
requirements applicable to the Company's executive officers, directors and
more than 10% shareholders were complied with except the following
transactions were not reported on a timely basis: for C.E. "Rick" Strattan:
purchase 8,000 shares on January 30, 1996, transfer of 500,000 shares on March
14, 1996 to a family limited partnership for estate planning purposes, receipt
of 16,000 bonus shares on August 15, 1996 and the purchase 15,800 shares on
September 6, 1996; for David L. Southworth the award of 4,000 shares on
December 12, 1995.
Item 10. Executive Compensation
Executive compensation is determined by the Board of Directors. All
compensation paid by the Company for services rendered during the three fiscal
years ended December 31, 1994, 1995 and 1996 for each executive officer is set
forth in the following table:
SUMMARY COMPENSATION TABLE
(three fiscal years ended December 31, 1994, 1995 and 1996)
Annual Long Term
Compensation Compensation
_________________________ _____________
Other All
Name and Annual Other
Principal Position Year Salary Bonus Compensation Compensation
[S] [C] [C] [C] [C] [C]
C.E. Rick Strattan 1996 $30,750 $9,000 -0- -0-
Chief Executive 1995 $36,000 -0- -0- -0-
Officer, President 1994 $60,000 -0- -0- $500
Steve Herschleb 1996<F1> -0- -0- -0- -0-
Vice President 1995 $12,500 -0- -0- $25,000<F1>
1994 $18,750 -0- -0- -0-
David L. Southworth 1996 $29,025 -0- -0- -0-
Treasurer/Chief 1995 $27,550 -0- -0- $2,501<F2>
Financial Officer
[FN]
<F1> On May 1, 1995, Mr. Herschleb left CTD due to ill health and the Company
repurchased his shares for $2.50 per share.
<F2> On November 11, 1995 Mr. Southworth received 4,000 shares of CTD common
stock having a value of $2,501 based on the market price of the shares at that
time.
On November 15, 1995, the Company adopted a non-qualified employee stock
purchase plan pursuant to which employees may purchase restricted shares of
the Company's common stock at a price of 50% of the current bid price of the
shares in amounts not to exceed the employee's gross pay. Pursuant to the
plan, employees have elected to purchase 33,400 shares, of which 15,800 shares
have been purchased by Mr. Strattan.
Performance-Based Stock Compensation
The Company has adopted a resolution whereby up to 100,000 shares may be
transferred to Mr. Strattan based on his performance in the discretion of the
Board of Directors which is solely comprised of Mr. Strattan.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table shows the ownership of the Common Stock of the
Company on March 25, 1997, by each person who, to the knowledge of the
Company, owned beneficially more than five (5%) of such stock, the ownership
of each director, and the ownership of all directors and officers as a group.
Unless otherwise noted, shares are subject to the sole voting and investment
power of the indicated person.
Names and Address of Amount and Nature Approximate % of Class
Individual or of Beneficial Ownership
Identity of Group
C.E. Rick Strattan<F1> 515,800<F2> 42.10%
4123 N.W. 46th Avenue
Gainesville, FL 32606
Diversified Corporate 75,000 6.12%
Consulting Group
11355 S.E. 54th Avenue
Belleview, FL 34420
David L. Southworth 14,000 1.14%
3142 N. E. 13th Street
Gainesville, FL 32609
All Officers and 529,800 43.25%
Directors as a group
(2 Persons)
[FN]
<F1> Held by Strattan Associates, Ltd., of which Mr. Strattan is the general
partner. Strattan Associates, Ltd. is a limited partnership established by
Mr. Strattan for estate tax purposes and is not otherwise engaged in business.
Strattan Associates, Ltd. is the owner of the 500,000 shares of CTD stock.
<F2> Includes 15,800 issuable to Mr. Strattan pursuant to employee stock
purchase plan.
Item 12. Certain Relationships and Related Transactions.
In November 1993, the Company entered into a Business Consulting
Agreement with Garrison Enterprises, Inc. ("Garrison") to provide consulting
services to the Company in the areas of the evaluation of managerial,
marketing and sales requirements; reviewing and analyzing proposed business
opportunities; consulting with the Company on strategic corporate planning and
long-term investment policies; and rendering advice with respect to future
fund raising and other financial arrangements. As compensation for its
services Garrison was issued 300,000 shares of the Company's Common Stock and
after completion of the Company's private placement offering in May, 1994,
Garrison began receiving $7,000 per month for a period of 3 years and $10,000
per month for the two-year period thereafter.
In November 1993, C.E. Rick Strattan, the President of the Company, and
Garrison entered into a Shareholder's Agreement. Pursuant to which Mr.
Strattan and Garrison (the "Shareholders") agreed to vote their shares so as
to provide that the Directors of the Company shall be C.E. Rick Strattan and
Michael A. Schub ("Schub"). In addition, the Shareholders agreed to an annual
salary to the President of the Company of $7,000 per month for the three years
after the closing of the stock offering, increasing to $10,000 per month in
years four and five.
Subsequently, on June 16, 1994, Mr. Schub resigned as Vice President,
Secretary and Director of the Company. On June 23, 1994, Barry R. Klein
became Secretary and a Director of the Company. In addition, Mr. Schub was
president and a director of Garrison from inception to June 23, 1994, when Mr.
Schub resigned.
Upon Mr. Schub's resignation as an officer and director of the Company
and Garrison, the Company entered into a retainer agreement with Schub thereby
retaining Schub as special counsel, at a monthly retainer of $1,750 commencing
July 1, 1994 and continuing until March 31, 1997. From April 1, 1997 to March
31, 1999, said retainer was to be increased to $2,500 per month. Garrison
thereafter agreed to reduce its compensation from the Company in an amount
equal to the monthly retainer paid to Schub.
On August 1, 1994, the Company entered into a five-year consulting
agreement (renewable annually by mutual agreement) with Yellen Associates
("Yellen"). Yellen agreed to provide ideas for new products in the
nutritional, geriatric, and related health fields; to find companies and/or
products suitable for acquisition; to find products suitable for manufacture
and/or distribution; and to secure customers for Company products. All
products offered by Yellen and accepted by the Company will belong exclusively
to the Company with all related rights. In return, the Company agreed to pay
Yellen $2,000 per month for nine months. If sales of Yellen products had been
at least $200,000 per year, this monthly payment would have automatically
continued for one year. Any other continuance of the payment would be
negotiated. Additionally, the Company would pay Yellen royalties of up to 5%
of sales for three to five years for products acquired through Yellen or
cyclodextrin sales made by Yellen. The Company also agreed to sell to Yellen
over a period of three years from August 1, 1994, up to 30,000 shares of
Company stock at a discount of 50% of the market price quoted at the time of
purchase. Having satisfied the guaranteed minimum payments part of the
agreement in April, 1995, the Company chose to discontinue the monthly
payments.
In September 1994, the Company prepaid its consulting agreements with
Garrison and Schub for an amount equal to $180,000. Garrison and Schub are no
longer providing services to the Company. The Company terminated these
agreements because it believed that the marketing and financial services of
Schub and Garrison would not be needed for the remaining term of five years.
Thus, the Company bought out of these agreements at a discount of $270,000.
Under the terms of the contracts, the Company was obligated to expend
approximately $450,000 over the next year term of the agreement.
On December 12, 1994, the Company adopted a stock issuance plan pursuant
to which employees named by the board of directors receive shares in amounts
determined by the board. Shares received pursuant to the 1994 plan are vested
after five years. During the third, fourth and fifth years the stock is held
by an employee, the employee may cause the Company to repurchase the stock at
50% of the then current market value. Since its inception 35,000 shares have
been issued pursuant to the plan, of which 10,000 have been repurchased.
On May l, 1995, the Company agreed to purchase all of Mr. Herschleb's
common shares of the Company (10,000 shares) at a price of $2.50 per share
payable in 12 monthly installments without interest.
On May 1, 1995, the Company entered into a Joint Venture Agreement with
Ocumed, Inc. Under the terms of the Agreement, the parties have created a
separate entity called Ocudex, Inc. for the purpose of developing and selling
ophthalmic products manufactured by Ocumed and developed by the Company for
which the Company will provide funding of up to $120,000 over a 12-month
period. The Company and Ocumed each own 50% of Ocudex, Inc.
The Company has adopted a resolution whereby up to 100,000 shares may be
transferred to Mr. Strattan based on his performance in the discretion of the
Board of Directors which is solely comprised of Mr. Strattan.
PART IV.
Item 13. Exhibits and Reports on From 8-K.
(a) Exhibits Page
1. Financial Statements
(1) Reports of Independent Certified Accountants
(2) Financial Statement Schedules None
3. Exhibits required by Item 601, Regulation S-B
Exhibit No. Page
(3) Articles of incorporation and by-laws
(a) Articles of Incorporation filed August 9, 1990 *
(b) By-Laws. *
(c) Certificates of Amendment to the Articles of
Incorporation filed November 18, 1993 and September 24,
1993. *
(4) Instruments defining the rights of security holders,
including indentures
(a) Specimen Share Certificate for Common Stock. *
(9) Voting Trust Agreement None
(10) Material Contracts
(a) Agreement of Shareholders dated November 11, 1993 by and among C.E.
Rick Strattan, Garrison Enterprises, Inc. and the Company. *
(b) Lease Agreement dated July 7, 1994**.
(c) Consulting Agreement dated July 29, 1994 between the Company and
Yellen Associates. *
(d) License Agreement dated December 20, 1994 between the Company and
Herbe Wirkstoffe GmbH. *
(e) Joint Venture Agreement between the Company and Ocumed, Inc. dated
May 1, 1995, incorporated by reference to the Company's Form 10-QSB for
the quarter ended June 30, 1995.**
(11) Statement re: Computation of Per Share Earnings Note 1 to
Financial Statements
(22) Subsidiaries of Registrant None
(23) Published Report re: Matters Submitted to Vote of Security
Holders None
(24) Consents of Experts and Counsel None
(25) Power of Attorney None
(27) Financial Data Schedule
(28) Additional Exhibits None
(29) Information from reports furnished to state insurance regulatory
authorities None
(b) Reports on Form 8-K None
Form 8-K, filed December 12, 1996 regarding item 4.
* Incorporated by reference to the Company's Form 10-SB filed with the
Securities and Exchange Commission on February 1, 1994.
** Incorporated by reference to the Company's Form 10-KSB filed with the
Securities and Exchange Commission on March 29, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant) CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
By (Signature and Title) __________________/S/__________________
C.E. RICK STRATTAN, President,
Chief Executive Officer, Chief Operating Officer
and Director
Date: March 28, 1997
By (Signature and Title) ________________/S/_____________________
DAVID L. SOUTHWORTH, Treasurer and
Chief Financial Officer
Date: March 28, 1997
[ARTICLE] 5
[LEGEND] This schedule contains summary financial information extracted
from Financial Statements for the 12 months ended December 31, 1996, and is
qualified in its entirety by reference to such form 10KSB for year ended
December 31, 1996.
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] 12 MOS
[FISCAL-YEAR-END] Dec-31-1996
[PERIOD-END] Dec-31-1996
[CASH] 7,767
[SECURITIES] 0
[RECEIVABLES] 106,192
[ALLOWANCES] 0
[INVENTORY] 76,379
[CURRENT-ASSETS] 356,260
[PP&E] 73,728
[DEPRECIATION] 41,435
[TOTAL-ASSETS] 654,100
[CURRENT-LIABILITIES] 62,242
[BONDS] 0
[COMMON] 120
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 583,425
[TOTAL-LIABILITY-AND-EQUITY] 654,100
[SALES] 344,068
[TOTAL-REVENUES] 346,700
[CGS] 45,354
[TOTAL-COSTS] 300,599
[OTHER-EXPENSES] 14,646
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] (13,899)
[INCOME-TAX] 229,350
[INCOME-CONTINUING] 215,451
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 215,451
[EPS-PRIMARY] .19
[EPS-DILUTED] .19
</TABLE>
