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: June 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, 32608-2531
(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 June 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
June 30, 1998
--------------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 27,182
Investments 8,680
Accounts receivable 26,435
Inventory 88,620
Deferred tax asset 10,400
Other current assets 3,295
------------
Total current assets 164,612
------------
PROPERTY AND EQUIPMENT
Furniture and equipment 61,915
Leasehold improvements 24,800
------------
86,715
Less: Accumulated depreciation 62,775
------------
Total property and equipment 23,940
------------
OTHER ASSETS
Deferred offering costs 65,000
Deferred tax asset 238,000
------------
Total other assets 303,000
------------
TOTAL ASSETS $ 491,552
============
</TABLE>
(Continued)
F-1
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
BALANCE SHEET
(Unaudited)
(Concluded)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 1998
--------------
<S> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 45,842
Notes payable 16,501
Payable to officer 13,125
-------------
Total current liabilities 75,468
-------------
COMMON STOCK SUBJECT TO REPURCHASE,
par value $.0001 per share, 100,000 shares
authorized, 8,000 shares issued and outstanding 2,080
-------------
STOCKHOLDERS' EQUITY
Class A common stock, par value $.0001 per share,
9,900,000 shares authorized, 1,220,110 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 120
Additional paid-in capital 1,670,744
Accumulated other comprehensive income (4,156)
Accumulated deficit (1,252,704)
-------------
Total stockholders' equity 414,004
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 491,552
=============
</TABLE>
See Accompanying Notes to Financial Statements
F-2
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ending Six Months Ending
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRODUCT SALES $ 93,123 $ 60,244 $ 137,407 $ 139,854
COST OF PRODUCTS SOLD 33,433 15,941 42,100 37,239
---------- ---------- ---------- ----------
GROSS PROFIT 59,690 44,303 95,307 102,615
---------- ---------- ---------- ----------
OPERATING EXPENSES
Selling, general and
administrative 40,208 93,386 97,737 162,826
Public offering costs 0 131,122 0 131,122
---------- ---------- ---------- ----------
Total operating expenses 40,208 224,508 97,737 293,948
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 19,482 (180,205) (2,430) (191,333)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Investment and other income 10,173 964 12,705 1,621
Gain due to change in redemption
price on common stock subject
to repurchase 0 11,725 0 787
Equity in loss from
unconsolidated joint venture 0 (122) 0 (244)
Interest expense (1,141) (447) (1,994) (1,240)
---------- ---------- ---------- ---------
Total other income 9,032 12,120 10,711 924
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAX 28,514 (168,085) 8,281 (190,409)
INCOME TAX EXPENSE 1,600 24,350 1,600 24,350
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 26,914 $(192,435) $ 6,681 $(214,759)
========== ========== ========== ==========
NET INCOME (LOSS) PER COMMON
SHARE - BASIC AND DILUTIVE $ 0.02 $ (0.16) $ .01 $ (.18)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
- BASIC AND DILUTIVE 1,281,646 1,225,110 1,255,462 1,225,110
========== ========== ========== ==========
</TABLE>
See Accompanying Notes to Financial Statements
F-3
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
Increase in Cash and Cash Equivalents
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ending
June 30,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 6,681 $( 214,759)
------------ ------------
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 7,141 16,291
Gain on sale of investments (510) (1,137)
Deferred compensation earned 0 18,500
Equity in loss of unconsolidated joint venture 0 244
Gain based on redemption price of common
stock subject to repurchase 0 (787)
Stock issued for services 675 0
Decrease in accounts receivable 15,101 64,798
Increase in inventory (1,624) (6,955)
Increase (decrease) in other current assets 958 (7,383)
Decrease in deferred income tax 1,600 24,350
(Increase) decrease in deferred offering costs (30,000) 127,531
Increase in accounts payable and
accrued expenses 14,464 9,420
------------ ------------
Total adjustments 7,805 244,872
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,486 30,113
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and leasehold improvements (3,732) (742)
Loan to employee 0 (1,822)
Repayment of employee loan 1,642 8,354
Proceeds from sale of investment 17,227 22,304
Purchases of investments (8,202) (21,167)
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 6,935 6,927
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Payments on line-of-credit (7,377) (38,199)
Net Payments on investment margin acct. (8,318) 0
Net proceeds on loan payable to officer 13,125 3,253
------------ ------------
NET CASH USED FOR FINANCING ACTIVITIES (2,570) (34,946)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 18,851 2,094
CASH AND CASH EQUIVALENTS, beginning of period 8,331 7,767
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 27,182 $ 9,861
============ ============
</TABLE>
(Continued)
F-4
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
STATEMENTS OF CASH FLOWS
Increase in Cash and Cash Equivalents
(Unaudited)
(Concluded)
<TABLE>
<CAPTION>
Six Months Ending
June 30,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 1,994 $ 1,240
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITY
Equity in loss of unconsolidated joint venture $ 0 $ 244
============ ============
</TABLE>
See Accompanying Notes to Financial Statements
F-5
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
The information presented herein as of June 30, 1998, and for the three and six
months ended June 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 six month period ended June 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
$11,718 and $11,220 for the six months ended June 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 June 30, 1998 the $5,500 prepayment has been expensed and
the Company is under no further obligation to purchase inventory.
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 issued Diversified 110,110
shares of the Company's common stock, a quantity equal to 10% of all then
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 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.
F-6
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
(2) COMMITMENTS (Continued):
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.
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 values the shares issued under the plan 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.
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.
The Company has reserved 100,000 of its 10,000,000 voting common stock shares
authorized to be used under this Plan.
1994 Shares
In December 1994, the Company issued 25,000 shares to employees for future
services under this plan. The Company valued the 25,000 shares at $37,500, which
was approximately 50% less than the bid price at the 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.
F-7
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
(3) COMMON STOCK SUBJECT TO REPURCHASE: (Continued)
1998 Shares
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 quarter ended June
30, 1998 and 1997. The Company also recognized a gain of $787 for the six months
ended June 30, 1997, 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 74% and 66% of total
sales for the six months ended June 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 owes approximately
$16,500 at June 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.
(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 June 30, 1998.
F-8
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
(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 June 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. The Company has
paid $40,000 in cash and accrued $20,000 in stock as of June 30, 1998.
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 specifies that if at least $2.5 million in new capital is raised
before July 31, 1998, the consultant will 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.
As the Company is currently 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 have been classified as deferred charges. The total
amount deferred at June 30, 1998, is $65,000. These and any additional deferred
costs will be offset against the net proceeds of the offering or will be
expensed if the Company's efforts are unsuccessful.
(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.
F-9
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
(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 Six Months Ended
June 30, 1998 June 30, 1998
------------------ ------------------
<S> <C> <C>
Net income $ 26,914 $ 6,681
Other comprehensive income
Unrealized loss on investments (1,662) (4,156)
------------------ ------------------
Total comprehensive income $ 25,252 $ 2,525
================== ==================
</TABLE>
There was no other comprehensive income for the three or six months ended June
30, 1997.
F-10
<PAGE>
Item 2. Management Discussion and Analysis or Plan of Operation
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
MANAGEMENT DISCUSSION AND ANALYSIS
AS OF JUNE 30, 1998
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company's working capital was $89,144 compared to
$74,647 at March 31, 1998. This increase is due primarily to the income from
operations recognized in the second quarter.
Total product sales increased during the second quarter of 1998 by $32,879 (55%)
compared to the second quarter of 1997. This increase in sales is due primarily
to general sales volatility as historically experienced by the Company and
continued interest in cyclodextrins by the food and pharmaceutical industries.
Year to date sales remained constant. Selling, General and Administrative
expenses (SG&A) decreased by 57% due principally to reduced personnel costs.
Inventory continues to be dominated (65%) by the Garlessence retail product and
therefore masks the steady movement of the other components of that inventory.
Management has continued to maintain appropriate inventory levels in response to
normal customer sales. Management expects consulting fee revenues to increase
which may offset product sale volatility.
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
and this status expired June 1, 1998. There is no assurance that the license fee
or product investment will be recovered.
The Company continues to seek out distribution arrangements that will allow it
to recover all of its Garlessence licensing fee and inventory costs. In the
second quarter of 1998, the Company sold less than $100 of Garlessence.
Management believes that as a last resort it can recover at least the inventory
value of the Garlessence by selling it to companies that purchase such
inventory. Since the Garlessence inventory has a greater than five year shelf
life, the Company fully expects to recover all of its investment in this
product.
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 June 30, 1998 the outstanding
balance is approximately $13, 125. Management does not expect further funding to
be required to meet the Company's cash needs.
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 large negative impact on the financial results reported for
the year ended December 31, 1997.
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
MANAGEMENT DISCUSSION AND ANALYSIS
AS OF JUNE 30, 1998
(Continued)
The Company currently has a $25,000 credit line with $8,500 available as of June
30, 1998.
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 holds these rights. The
Company feels confident that rights to these inventions can be obtained at least
for sales in the United States. Contingent upon a successful private placement
of the Company's stock in the third quarter of 1998 the Company expects to file
New Drug Applications with the Food and Drug Administration (FDA) for the
licensed ophthalmic products. There is no assurance that the Company will be
able to obtain licenses to the CyC inventions or that the private placement
proposed will raise sufficient capital to undertake the New Drug Applications.
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 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. The Company currently has 1,225,110 shares issued and
outstanding. While this agreement expired in May
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
MANAGEMENT DISCUSSION AND ANALYSIS
AS OF JUNE 30, 1998
(Continued)
of 1997, the Company continues to utilize DCCG's services on a best efforts
basis. Management anticipates benefits will be realized in 1998 from the
retaining of DCCG (now called Genesis Consulting (GCLLC).
Through GCLLC the Company retained the services of Burckhardt & Company, Inc
(B&C) to coordinate the private placement that will make possible the Company's
planned ophthalmic drug applications to the FDA. Planning for this private
placement began in late 1997 and the Company has spent $40,000 and $2,500 in the
form of consulting fees to B&C and Executive Concepts, respectively. The Company
has also recorded $2,500 in stock to be issued to Executive Concepts and $20,000
in stock to be issued to B&C. Since these costs are directly attributable to the
proposed private placement, they have been classified as deferred charges. The
total amount deferred as of June 30, 1998 is $65,000. B&C has advised the
Company that the private placement should be complete in the third quarter of
1998. There is no assurance that the private placement will be completed in the
third quarter 1998 or that finds sufficient to cover the Company's drug
applications to the FDA will be raised.
The private placement is expected to raise $2,000,000; to be used as follows:
<TABLE>
<S> <C>
Initial costs to secure Licenses and
Intellectual Property $ 250,000
File IND 50,000
Complete IND studies 300,000
Working Capital for completing Phase I & II studies 850,000
Working Capital for Administering IND through Phase II
applications 400,000
Private Placement Costs 150,000
-------------
Total $ 2,000,000
</TABLE>
The Company expects the above process to be completed within 12 months of an
initial IND application; such application could occur as early as the end of
1998. Management expects to be able to move several related ophthalmic drug
products through the above process at much reduced incremental costs. Using this
strategy, the Company anticipates licensing one or more of the drugs that have
completed phase II studies to interested ophthalmic manufacturing companies,
thereby creating revenue from these licenses in 1999. These licensing
arrangements provide a proof of concept and thereby are expected to provide
credibility for a possible future public offering. Using the licensing revenues
and/or the proceeds of such a public offering, the Company expects to take drugs
not out-licensed, completely through marketing approval by the FDA (Phase III).
While there are no assurances that the above private placement can be completed,
both B&C and GCLLC have committed considerable resources to its accomplishment.
Management has structured the drug applications so that even if only 50%
($1,000,000) of the private placement proceeds become available
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
MANAGEMENT DISCUSSION AND ANALYSIS
AS OF JUNE 30, 1998
(Continued)
to the Company, the Company will be able to complete phase II studies on at
least one of the ophthalmic drugs to be submitted; however the planned economies
of multiple, related drug applications will be lost. Once the phase I and II
studies are complete, Management believes it can approach investors for
additional funding based on the phase I and II data. Additional capital will be
required if the Company is to complete the phase III approvals itself. Without
additional capital, the Company could license the phase I and II data and
through licensing royalties over time generate revenue.
In the case that less than the $1,000,000 is raised, the Company will allocate
funds between doing an IND for the best pharmaceutical candidate and creating
retail over-the-counter products that require minimal regulatory intervention
such as contact lens soak solutions, benzocaine patches, plaque-softening
chewing gum, etc to be marketed or sub-licensed by the Company. In the event
that no further funding is available, Management believes that it can
sub-license its secured licensing rights along with the completed IND to a large
ophthalmic company to recover its costs and generate revenues.
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 and 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 total product and
service sales will continue to grow.
Total product sales for the quarter ended June 30, 1998 were $93,123 compared to
$60,244 for the same period in 1997. Total sales between these two periods
increased 55%. However, sales for the six months ended June 30, 1998 and 1997
remain 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, averaging 40% of total sales over the
past three years. Over the past six months, one customer has been responsible
for 57% of total sales.
The Company's gross profit margin on product sales decreased from 74% to 64% for
the second quarter of 1997 and 1998, respectively. The Company expects the trend
of decreasing gross profit margins to continue as the cost of cyclodextrins
rises.
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
MANAGEMENT DISCUSSION AND ANALYSIS
AS OF JUNE 30, 1998
(Continued)
Selling, general and administrative (SG&A) expenses for the second quarter 1998
($40,208 vs. $93,386) decreased 57% from the second quarter 1997. This decrease
is the result of a reduction in personnel and related costs made in 1997 as well
as a decrease in advertising and a general reduction in office expenses.
Management continues to monitor SG&A expenses in efforts to keep these expenses
minimized.
The Company's net income from operations for the six months ended June 30, 1998
was $6,681 versus a net loss of ($214,759) for the same period in 1997.
Comparing net income (loss) before income taxes for the six months ended June
30, 1998 and 1997 and excluding the $131,122 public offering costs in 1997,
shows a $67,568 improvement in net operating results from 1997 to 1998. This
improvement is due primarily to reduced personnel and advertising costs and a
general reduction in other expenses.
The Company will continue 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: June 30, 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 6 months ended June 30, 1998, and is qualified in
its entirety by reference to such form 10QSB for six months ended June 30, 1998.
<MULTIPLIER> 1
<PERIOD-START> APR-01-1998
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 27,182
<SECURITIES> 8,680
<RECEIVABLES> 26,435
<ALLOWANCES> 0
<INVENTORY> 88,620
<CURRENT-ASSETS> 164,612
<PP&E> 86,715
<DEPRECIATION> 62,775
<TOTAL-ASSETS> 491,552
<CURRENT-LIABILITIES> 75,468
<BONDS> 0
<COMMON> 120
0
0
<OTHER-SE> 413,884
<TOTAL-LIABILITY-AND-EQUITY> 491,552
<SALES> 93,123
<TOTAL-REVENUES> 103,296
<CGS> 33,433
<TOTAL-COSTS> 73,641
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,141
<INCOME-PRETAX> 28,514
<INCOME-TAX> 1,600
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 26,914
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
