SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
__X__ Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934 for the Quarterly Period Ended: September 30, 1998.
____ Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Transition Period From ____ to ____
Commission file number: 0-24930
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
(Exact name of registrant as specified in its charter)
Florida 59-3029743
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
3713 S.W. 42nd Avenue, Suite 3, Gainesville, Florida, 32608-6581
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 352-375-6822
Former name, former address and former fiscal year, if changed since last
report: N/A.
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. No.
Applicable only to corporate issuers
As of September 30, 1998, the Company had outstanding 1,225,110 shares of its
common stock.
Transitional Small Business Disclosure Format
(Check One):
No.
<PAGE>
PART I: Financial Information
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, 1998
------------------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,621
Investments 9,129
Accounts receivable 24,998
Inventory 34,315
Deferred tax asset 12,000
Other current assets 2,051
------------------
Total current assets 86,114
------------------
PROPERTY AND EQUIPMENT
Furniture and equipment 61,915
Leasehold improvements 24,800
------------------
86,715
Less: Accumulated depreciation 66,345
------------------
Total property and equipment 20,370
------------------
OTHER ASSETS
Deferred tax asset 238,000
------------------
TOTAL ASSETS $ 344,484
==================
</TABLE>
(Continued)
F-1
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
BALANCE SHEET
(Unaudited)
(Concluded)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 1998
------------------
<S> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 45,971
Payable to officer 9,467
------------------
Total current liabilities 55,438
------------------
COMMON STOCK SUBJECT TO REPURCHASE,
par value $.0001 per share,
100,000 shares authorized, 8,000
shares issued and outstanding 1,827
------------------
STOCKHOLDERS' EQUITY
Class A common stock, par value
$.0001 per share, 9,900,000 shares
authorized, 1,210,110 shares issued
and outstanding; Class B non-voting
common stock, par value $.0001 per
share, 10,000,000 shares authorized,
0 shares issued and outstanding 119
Additional paid-in capital 1,665,745
Accumulated other comprehensive income (4,098)
Accumulated deficit (1,374,547)
------------------
Total stockholders' equity 287,219
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 344,484
==================
</TABLE>
See Accompanying Notes to Financial Statements
F-2
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ending Nine Months Ending
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRODUCT SALES $ 47,363 $ 51,375 $ 184,770 $ 191,229
COST OF PRODUCTS SOLD 4,371 7,567 46,471 44,807
---------- ---------- ---------- ----------
GROSS PROFIT 42,992 43,808 138,299 146,422
CONSULTING SERVICES 300 43,331 300 43,331
---------- ---------- ---------- ----------
TOTAL OPERATING REVENUE 43,292 87,139 138,599 189,753
---------- ---------- ---------- ----------
OPERATING EXPENSES
Selling, general and
administrative 35,374 100,447 133,111 263,273
Public offering costs 71,347 (1,155) 71,347 129,967
Inventory allowance 57,187 0 57,187 0
---------- ---------- ---------- ----------
Total operating expenses 163,908 99,292 261,645 393,240
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS (120,616) (12,153) (123,046) (203,487)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Investment and other income (2,345) 1,124 10,360 2,745
Gain due to change in redemption
price on common stock subject
to repurchase 254 775 254 1,563
Equity in loss from
unconsolidated joint venture 0 (123) 0 (367)
Interest expense (736) (643) (2,730) (1,883)
---------- ---------- ---------- ----------
Total other income (expense) (2,827) 1,133 7,884 2,058
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAX (123,443) (11,020) (115,162) (201,429)
INCOME TAX BENEFIT (EXPENSE) 1,600 0 0 (24,350)
---------- ---------- ---------- ----------
NET LOSS $(121,843) $ (11,020) $(115,162) $(225,779)
========== ========== ========== ==========
NET LOSS PER COMMON SHARE
- BASIC AND DILUTIVE $ (0.09) $ (0.01) $ (0.09) $ (0.18)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
- BASIC AND DILUTIVE 1,325,089 1,235,110 1,278,927 1,229,615
========== ========== ========== ==========
</TABLE>
See Accompanying Notes to Financial Statements
F-3
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ending
September 30,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (115,162) $ (225,779)
------------ ------------
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 10,711 25,575
Inventory allowance 57,187 0
Public offering costs 71,347 129,967
(Gain) loss on sale of investments 2,019 (2,066)
Deferred compensation earned 0 18,500
Equity in loss of unconsolidated joint venture 0 367
Gain based on redemption price of common
stock subject to repurchase (254) (1,563)
Stock issued for services 675 0
Decrease in accounts receivable 16,538 82,082
Increase in inventory (4,506) (9,634)
Increase (decrease) in other current assets 1,377 (2,347)
Decrease in deferred income tax 0 24,350
Increase in deferred offering costs (36,347) (2,436)
Increase in accounts payable and
accrued expenses 16,678 31,265
Increase in unearned income 0 8,202
------------ ------------
Total adjustments 135,425 302,262
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,263 76,483
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and leasehold improvements (3,732) (8,758)
Loan to employee 0 (2,579)
Repayment of employee loan 2,467 9,054
Repurchase of stock (5,000)
Proceeds from sale of investments 19,331 30,090
Purchases of investments (13,227) (36,745)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (161) (8,938)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 0 5,620
Net payments on line-of-credit (23,879) (38,199)
Net payments on investment margin account (10,400) 0
Net proceeds from loan payable to officer 9,467 9,045
------------ ------------
NET CASH USED FOR FINANCING ACTIVITIES (24,812) (23,534)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,710) 44,011
CASH AND CASH EQUIVALENTS, beginning of period 8,331 7,767
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 3,621 $ 51,778
============ ============
</TABLE>
(Continued)
F-4
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(Concluded)
<TABLE>
<CAPTION>
Nine Months Ending
September 30,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 2,730 $ 1,883
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITY
Equity in loss of unconsolidated joint venture $ 0 $ 367
============ ============
Common stock issued for services $ 675 $ 5,620
============ ============
</TABLE>
See Accompanying Notes to Financial Statements
F-5
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
The information presented herein as of September 30, 1998, and for the three and
nine months ended September 30, 1998 and 1997, is unaudited.
(1) BASIS OF PRESENTATION:
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Rule 10-01 of Regulations S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal required
adjustments) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1998, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report of Form 10-KSB for
the year ended December 31, 1997.
(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.
Rent expense under the foregoing lease and all other operating leases was
$17,577 and $16,830 for the nine months ended September 30, 1998 and 1997,
respectively.
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. The license fee was amortized on a straight-line basis over the three year
period of the contract and was fully amortized at December 31, 1997.
Amortization expense in 1997 was $20,000. In January 1998, this agreement was
extended until December 31, 1998, including the right of first refusal to
reobtain its exclusive marketing rights during this period. The Company was
required to order additional inventory of approximately $15,000 by March 31,
1998, under the terms of this agreement extension. This agreement deadline was
further extended on March 23, 1998 to June 1, 1998. The Company paid
approximately $5,500 in January 1998 toward this obligation. As of June 1, 1998,
the Company had not purchased the additional inventory and the right of first
refusal expired. As of September 30, 1998 the $5,500 prepayment has been
expensed and the Company is under no further obligation to purchase inventory.
See also Note 10.
F-6
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
(2) COMMITMENTS (Continued):
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 would commercialize products using those
inventions. In consideration, the Company agreed to share equally with Cyclops
the net profits derived from products commercialized by the Company or
affiliates of the Company that use the inventions. This agreement expired in May
1997.
In April 1997, the Company entered into an agreement with Atlantic Syndication
Network, Inc. (ASNI) for the production of a half hour premier cable program.
The Company paid $2,500 in 1997 to reserve production time and also issued to
ASNI 10,000 shares of the Company's voting common stock. The Company also
granted ASNI an option to purchase up to 25,000 shares of its non-voting common
stock at a purchase price of $1 per share. This option expired June 1, 1998. On
August 10, 1998 the Company repurchased the 10,000 shares for $5,000 and retired
these shares previously issued to ASNI.
The Company has other commitments as discussed in Notes 6 and 7.
(3) COMMON STOCK SUBJECT TO REPURCHASE:
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.
The Company reflects its obligation to repurchase the stock as a liability under
the caption Common Stock Subject to Repurchase in the accompanying financial
statements. Any change in the valuation of this account is recorded as a gain or
loss in the accompanying statement of operations. The Company's repurchase
obligation for current employees is valued at 50% of the bid price of the stock
on the balance sheet date. The Company's repurchase obligation for stock held by
former employees is valued at 50% of the bid price on the date of the employee's
termination.
F-7
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
(3) COMMON STOCK SUBJECT TO REPURCHASE: (Continued)
The Company has reserved 100,000 of its 10,000,000 voting common stock shares
authorized to be used under this Plan.
1994 Shares
The Company valued the shares issued under the plan in 1994 at 50% of the bid
price on award date. 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 be accurately established. The amount recorded is
classified as a reduction to stockholders' equity in the accompanying financial
statements. The Company amortizes this amount over the vesting period on the
straight-line basis, the estimated benefit of future services.
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 award date. On June 30,
1997, all of the remaining employees holding stock issued in 1994 under the
employee stock issuance plan noted above, terminated employment with the
Company. At that time, the remaining unamortized amount of the stock issued for
future services was charged to expense. The Company's obligation to repurchase
the remaining 5,000 1994 shares expires in 1999.
1998 Shares
The Company valued the shares issued under the plan in 1998 at an average of the
stock price during the 30 days prior and the 30 days after the award date. 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 be
accurately established. The amount recorded is classified as a reduction to
stockholders' equity in the accompanying financial statements. The Company
amortizes this amount over the vesting period on the straight-line basis, the
estimated benefit of future services.
In April 1998, the Company issued 1,500 shares to employees for future services
under this plan. The Company valued the 1,500 shares at $675, which was
approximately 50% less than the bid price on the effective award date.
The Company expensed $675 and $18,500 under the plan for the nine months ended
September 30, 1998 and 1997. The Company also recognized a gain of $254 and
$1,563 for the same periods, due to a change in the redemption price on common
stock subject to repurchase. No shares have been repurchased under this plan in
1998.
(4) MAJOR CUSTOMERS AND SUPPLIERS:
Sales to the three largest customers were approximately 72% and 69% of total
sales for the nine months ended September 30, 1998 and 1997, respectively.
(5) NOTES PAYABLE:
The Company has a $25,000 line-of-credit with a local bank. The monthly minimum
payment is calculated based on the outstanding balance. The interest rate varies
monthly at prime plus 3% (currently 11.5%). The Company has no outstanding
balance as of September 30, 1998. The credit line can be canceled and payment of
the outstanding amount due can be required on demand by the bank at anytime.
F-8
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
(6) JOINT VENTURES:
Effective May 1, 1995, the Company entered into a joint venture agreement under
the name of Ocudex, Inc. (Ocudex). The Company and Ocumed, Inc., an unrelated
company, each own 50% of Ocudex. The Company has advanced Ocudex $51,000 as of
December 31, 1997. The Company accounts for its investment in the Ocudex joint
venture using the equity method of accounting whereby its investment is carried
at cost, including advances, adjusted for the Company's share of earnings and
losses. The Company reduced its investment in the joint venture to zero at
December 31, 1997, due to uncertainty as to recovery of these amounts.
In March 1997, the Company entered into a joint venture agreement with Jurox PTY
Limited (Jurox), an unrelated company, in order to develop a new product.
According to the agreement, each party shall be separately responsible for their
own costs for the development of the product. The Company has agreed to provide
the developed product to Jurox at the cost to manufacture plus 10%. Jurox agrees
to pay the Company royalties on net sales of the product as follows:
5% of net sales for the first year of sales, 4% of net sales for the
second year of sales, and 3% of net sales for a further 8 years.
No transactions have taken place as of September 30, 1998.
(7) DEFERRED OFFERING COSTS:
On October 14, 1997, the Company entered into a financial services agreement
with an unrelated company for financial consulting services related to raising
additional capital. Under this agreement, the Company issued an option for
600,000 shares of the Company's common stock with an exercise price of $.25 per
share, which is approximately 50% of the market price on the date the parties
agreed to the terms of the agreement. 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 also
agreed to pay the consultant $85,000 in installments of $20,000 in October 1997,
and $5,000 each month thereafter until November 1998. Beginning in March 1998
the agreement was amended to provide payment of the remaining installments
through the future issuance of the Company's common stock. The Company has
accrued all earned but unpaid amounts at September 30, 1998. The number of
shares to be issued is determined monthly by dividing $5,000 by 50% of the
average market price of the stock during the month the compensation is earned.
As of September 30, 1998 the Company has paid $40,000 in cash and accrued
$25,000, the value of 106,474 shares of common stock, to be issued.
On April 30, 1998 the Company gave sixty days notice to terminate the financial
services agreement and cancel the option for 600,000 shares of the Company's
common stock in favor of a new agreement. The Company agreed to continue the
$5,000 monthly payments for service in stock through July 31, 1998. The new
agreement specified that if at least $2.5 million in new capital was raised
before July 31, 1998, the consultant would be issued 50,000 shares of common
stock, plus an amount of stock equal to $25,000 divided by the lowest monthly
average stock value during the months of March through July 1998 and a monthly
retainer of $2,500 through December 31, 1998. No new capital was raised by July
31, 1998 and the new agreement terminated.
F-9
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
(7) DEFERRED OFFERING COSTS (Continued):
As the Company was preparing for a private placement to raise additional capital
in 1998, the costs under this agreement and the direct costs of preparing a
business plan were classified as deferred charges. These deferred costs were to
be offset against the net proceeds of the offering. Since no new capital was
raised under this agreement and the agreement was
terminated effective July 31, 1998, deferred offering costs in the amount of
$71,347 were expensed.
(8) EARNINGS PER COMMON SHARE:
Net income (loss) per common share is computed in accordance with the new
requirements of Statement of Financial Accounting Standards No. 128. SFAS 128
requires earnings per share information to be computed using a simple weighted
average of common shares outstanding during the periods presented. SFAS 128
eliminated the previous requirement that earnings per share include the effect
of any dilutive common stock equivalents in the calculation. There was no effect
on the 1998 or previously reported 1997 per share amounts as a result of this
change in accounting method.
The stated earnings per share amounts do not include any potential dilutive
effect if certain options issued in 1997 to purchase an additional 10,000 shares
of the Company's common stock were exercised because the exercise price
currently exceeds market value and the effect would be anti-dilutive for all
periods presented.
(9) COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income." This statement established standards for
reporting and display of comprehensive income and its components. Comprehensive
income is net income, plus certain other items that are recorded directly to
shareholders' equity, bypassing net income. The only such item currently
applicable to the Company was the unrealized loss on investments.
The Company's comprehensive income was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Net loss $ (121,843) $ (115,162)
Other comprehensive income
Unrealized gain (loss) on investments 51 (343)
------------------ ------------------
Total comprehensive income (loss) $ (121,792) $ (115,505)
================== ==================
</TABLE>
There was no other comprehensive income for the three or nine months ended
September 30, 1997.
(10) INVENTORY ALLOWANCE
During the third quarter 1998 the Company determined that its quantity of
Garlessence inventory was in excess of current requirements and provided an
allowance in the amount of $57,187.
See also Note 2.
F-10
<PAGE>
Item 2. Management Discussion and Analysis or Plan of Operation
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
MANAGEMENT DISCUSSION AND ANALYSIS
AS OF SEPTEMBER 30, 1998
Except for the historical information contained herein, this document contains
forward-looking statements, subject to uncertainties and risks, including the
demand for the Company's products and services, the ability of the Company to
successfully attract and retain personnel, competition, uncertainties regarding
its dealing with key customers, regulatory uncertainties, as well as the
Company's ability to begin operations in additional markets and raise capital to
meet its operational requirements and expansion plans.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company's working capital was $30,676 compared to
$89,144 at June 30, 1998. The most significant change in working capital is due
to an allowance of $57,187 provided for Garlessence inventory in excess of
current requirements.
Total product sales decreased during the third quarter of 1998 by $4,012 (8%)
compared to the third quarter of 1997. This decrease in sales is due primarily
to general sales volatility as historically experienced by the Company. Year to
date sales remained stable, only 3% lower than the year before. Management
expects consulting fee revenues to be much less than last year's, but to
increase in the fourth quarter over previous quarters in 1998. Selling, General
and Administrative expenses (SG&A) decreased by 65% during the third quarter
1998 compared to the same period in 1997 due to a reduction in outside
consulting, advertising and personnel costs.
Inventory decreased by 61% compared to the second quarter 1998. The reduction in
inventory is due primarily to an allowance provided in the third quarter of 1998
for Garlessence inventory in excess of current requirements. Management has
continued to maintain appropriate cyclodextrin inventory levels in response to
normal customer sales.
The three year period of time (starting January 1, 1995) in which the Company
could recover its original licensing fee for Garlessence of $60,000 through
discounted purchases of raw materials expired at the end of 1997 and the license
fee has been fully amortized. The Company has recovered $9,137 of its license
fee through purchase discounts. The Company did not purchase additional
inventory in the second quarter necessary to maintain the right-of-first-refusal
extension through 1998; this status expired June 1, 1998. There is no assurance
that the license fee or product investment will be recovered, or that an
exclusive license can be obtained.
While the Company continues to enjoy non-exclusive selling rights, combined
sales of Garlessence in 1997 and 1998 were less than $1,000. Due to the reduced
sales levels, the Company has provided an allowance for the inventory in excess
of current requirements in the amount of $57,187. However, Management believes
that Garlessence is a viable product and continues to seek out distribution
arrangements that will allow it to recover its licensing fees and inventory
costs. The Company may be able to recover at least the inventory value of the
Garlessence by selling it to companies that purchase excess inventory. The
Garlessence product has a greater than five year shelf life.
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
MANAGEMENT DISCUSSION AND ANALYSIS
AS OF SEPTEMBER 30, 1998
(Continued)
In order to alleviate a potential short term cash shortage resulting from the
reduced sales levels in December 1997 and early in 1998, Rick Strattan,
President, made a shareholder's loan to the Company in March of approximately
$16,800. The loan is being amortized over a 12 month period at 8% interest with
payments due the first of each month. As of September 30, 1998 the outstanding
balance is approximately $9,467. Management does not expect further funding to
be required to meet the Company's cash needs.
In 1997, the Company entered into a financial consulting agreement to raise
equity capital for new drug applications. As of July 31, 1998 no new capital was
raised, the agreement was terminated, and the previously capitalized deferred
offering costs ($71,347) were expensed. While some of these costs were paid out
of operations, almost 40% were paid by the issuance of stock. The Company still
expects to benefit from the continued efforts of these financial consultants
through ongoing negotiations and growing interest by other companies.
To meet the financial needs of expected future growth, the Company filed a
registration statement with the SEC to make a public offering in 1996 and 1997
of 250,000 shares of common stock and 125,000 warrants of the Company. No shares
of stock were sold in this offering. The offering closed April 30, 1997 and the
Company expensed the previously capitalized deferred offering costs ($127,467)
in the second quarter of 1997. While most of these offering costs were non-cash,
the net result was a loss in the financial results reported for the year ended
December 31, 1997.
The Company currently has a $25,000 credit line with no outstanding balance as
of September 30, 1998. The Company reduced its interest expense by taking
advantage of its $91,000 combined credit card borrowing limits and paying off
its $14,700 credit line balance with lower interest credit card transfers.
The Company is in the fourth year of a five-year lease for 3,000 square feet of
space for an office, laboratory, and manufacturing plant. The Company moved into
the building during October 1994. Rent payments are $18,000 in year one, $18,900
in year two, $19,484 in year three, $20,844 in year four, and $21,888 in year
five. The Company also has a purchase option on this space in which ten percent
of the lease payments may be applied to the purchase price. The Company may
exercise an option to lease an additional 3,000 square feet of adjoining space.
The Company houses its administrative offices, laboratory, and manufacturing
facility in this complex, utilizing an aggregate of approximately 1,650 square
feet. This facility has been built, and can be expanded, according to "GMP"
(good manufacturing practices) specifications in anticipation of the commercial
needs of the markets the Company serves. The remaining 1,350 square feet of
space is for pilot plant manufacturing and an analytical laboratory. However,
this expansion will require additional funding and there is no assurance that
any additional funding will be available. Management has no immediate plans for
this expansion.
The Company's right-of-first-refusal (ROFR) with Cyclops h.f. (CyC) to certain
inventions embodied in patents owned by Cyclops expired in September of 1997.
Licenses to specific ophthalmic drugs benefiting from CyC's inventions will now
have to be negotiated with the German company that
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
MANAGEMENT DISCUSSION AND ANALYSIS
AS OF SEPTEMBER 30, 1998
(Continued)
purchased these rights. The Company feels confident that rights to these
inventions can be obtained at least for sales in the United States. There is no
assurance that the Company will be able to obtain licenses to the CyC
inventions.
On May 1, 1995 the Company entered into a joint venture operating as Ocudex,
Inc. The Company and Ocumed, Inc., (Ocumed) an unrelated company, each own 50%
of Ocudex. The Company had agreed to provide funds on a best efforts basis of
not more than $10,000 per month for up to 12 months. As of December 31, 1997 the
Company had advanced a total of $51,000 and realized losses of $11,094 to date.
Since there was no activity at Ocudex during all of 1997 and the Company's
efforts to acquire the assets of Ocumed, did not materialize, the Company
provided an allowance in the fourth quarter of 1997 for the remaining investment
in the amount of $40,406. The Ocudex corporate shell will remain available for
future use as the Company will continue to work with Ocumed to bring ophthalmic
drugs using cyclodextrins to the market.
In May of 1996 the Company entered into a contractual agreement with Diversified
Corporate Consulting Group, LLC (DCCG), whereby the Company
transferred 110,010 shares of CTD's voting common stock to DCCG in return for
future financial services related to business and financial public relations
improvement as defined in its agreement. While this agreement expired in May of
1997, the Company continues to utilize DCCG's services on a best efforts basis.
During the eight years of its existence the Company has created a most
comprehensive database on patents involving cyclodextrins. Currently, management
is in the process of adding this database to the Company's existing web site.
Customers will have access to the patent database through a subscription service
with a monthly fee. The cost of the database is expected to be less than $5,000
and is being paid out of operations. However, the subscriptions fee revenue will
provide continuing income at little or no cost to the company with the original
$5,000 expense recovered within the first year of operation. The Company plans
to add additional subscription databases in the future at minimal cost.
Management has evaluated the Company's computer systems to determine the impact
of the Year 2000 (Y2K) on the Company's operations. Management has completed its
evaluation and determined that both the hardware and software used by the
Company are Y2K capable and no additional cost or impact on operations is
expected.
RESULTS OF OPERATIONS
Sales of cyclodextrins and related manufactured complexes are historically
highly volatile. In efforts to offset this volatility, the Company continues to
expand its revenue producing activities to include providing research and
development services for unrelated companies, creating proprietary databases on
its web site that will generate subscription revenues and expanding its
inventory line to include more routinely purchased products. While sales are
still volatile, Management feels that these efforts will reduce the volatility
and that product and service sales will be augmented by profitable web-site
subscription services.
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
MANAGEMENT DISCUSSION AND ANALYSIS
AS OF SEPTEMBER 30, 1998
(Continued)
Total product sales for the quarter ended September 30, 1998 were $47,363
compared to $51,375 for the same period in 1997. Sales for the nine months ended
September 30, 1998 and 1997 remained constant. Management expects cyclodextrin
sales to continue at historical levels in the near term.
Product sales are primarily to large pharmaceutical and food companies for
research and development purposes. Sales of both products and services have been
concentrated among a few large customers. For 1998, one customer has been
responsible for 55% of total sales and over the past three years has averaged
40% of total sales.
The Company's gross profit margin on product sales increased from 85% to 91% for
the third quarter of 1997 and 1998, respectively. This increase in gross profit
margin is due to sales in the third quarter 1998 of inventory items obtained at
no cost to the Company. Occasionally, the Company is able to obtain quantities
of product free or at a reduced cost from the manufacturer for sampling
purposes. The Company is often able to sell portions of this product to its
customers resulting in unusually high gross margins due to the low acquisition
costs. Future sales of these low cost products, while not assured, will continue
to positively affect the Company's future gross profit and net income when they
occur.
Selling, general and administrative (SG&A) expenses for the third quarter 1998
decreased 65% from the third quarter 1997 ($35,374 vs. $100,447). However, SG&A
expenses for the third quarter 1997 included $26,920 of outside consulting
services related to the research and development project ongoing in the third
quarter 1997. These expenses are unusual and are not expected to recur.
Excluding this amount, normal SG&A expenses decreased by $38,153 (35,374 vs.
$73,527). This decrease is the result of a reduction in personnel and related
costs made in 1997 as well as a decrease in advertising, amortization and
professional fees. Management continues to manage SG&A expenses in efforts to
keep expenses in line with revenues thereby assuring operational profitability.
Consulting services in the third quarter 1998 were $300 compared to $43,331 in
the same period 1997. Consulting sales in 1997 resulted from a research and
development project conducted in the third and fourth quarters.
The Company experienced two large expenses in the third quarter of 1998: the
Garlessence inventory allowance and the public offering expenses. Combined,
these two items total $128,524. The effect of expensing these items is to create
a swing of $0.10 (from $0.01 to ($0.09)) in the EPS reported by the company for
the three and nine months ended September 30, 1998. However, these items did not
result from normal operations of the Company.
The Company's loss from operations for the nine months ended September 30, 1998
was $(123,046). However, the Company's net income from operations for the nine
months ended September 30, 1998 was $7,918 before the expenses for the inventory
allowance and the public offering costs.
The Company's net loss from operations for the nine months ended September 30,
1997 was ($73,520) before the public offering expenses. Comparing the results of
operations before the inventory allowance and public offering
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
MANAGEMENT DISCUSSION AND ANALYSIS
AS OF SEPTEMBER 30, 1998
(Continued)
costs for the nine months ended September 30, 1998 and 1997, there is a $81,438
improvement in operating results from 1997 to 1998. Operationally, the above
expenses removed, the Company was profitable for the nine months ended September
30, 1998. This improvement in operating results is due primarily to the reduced
SG&A expenses.
The Company continues to develop new products, and implement its strategy of
creating operational affiliates that will use CD's in herbal medicines,
wastewater remediation, and pharmaceuticals.
<PAGE>
PART II: Other Information
Item 6. Exhibits and Reports on Form 8-K
None.
(a) Exhibits
Exhibit Description Page
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession None
(4) Instruments defining the Rights of Security Holders None
(10) Material Contracts None
(11) Statement re: Computation of Per Share Earnings Note 8,
Financial
Statements
(15) Letter re: Unaudited Interim Financial Information None
(18) Letter re: Change in Accounting Principles None
(19) Report Furnished to Security Holders None
(22) Published Report re: Matters Submitted to Vote of
Security Holders None
(23) Consents of Experts and Counsel None
(24) Power of Attorney None
(27) Financial Data Schedule
(99) Additional Exhibits None
(b) Reports on Form 8-K None
None.
<PAGE>
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: November 13, 1998
/s/ C. E. RICK STRATTAN
C. E. RICK STRATTAN
President, Chief Executive Officer,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Financial Statements for the 9 months ended September 30, 1998, and is qualified
in its entirety by reference to such form 10QSB for nine months ended September
30, 1998.
<MULTIPLIER> 1
<PERIOD-START> JAN-01-1998
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,621
<SECURITIES> 9,129
<RECEIVABLES> 24,998
<ALLOWANCES> 0
<INVENTORY> 34,315
<CURRENT-ASSETS> 86,114
<PP&E> 86,715
<DEPRECIATION> 66,345
<TOTAL-ASSETS> 344,484
<CURRENT-LIABILITIES> 55,438
<BONDS> 0
<COMMON> 119
0
0
<OTHER-SE> 287,100
<TOTAL-LIABILITY-AND-EQUITY> 344,484
<SALES> 184,770
<TOTAL-REVENUES> 195,684
<CGS> 4,371
<TOTAL-COSTS> 308,116
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,730
<INCOME-PRETAX> (115,162)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (115,162)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
