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, 1999.
____ 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 August 13, 1999, the Company had outstanding 1,550,110 shares of its
common stock.
Transitional Small Business Disclosure Format
(Check One):
No.
<PAGE>
PART I: Financial Information
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
June 30, 1999
______________
CURRENT ASSETS
Cash and cash equivalents $ 39,043
Accounts receivable 115,429
Inventory 64,720
Deferred tax asset 34,000
Other current assets 9,010
____________
Total current assets 262,202
____________
PROPERTY AND EQUIPMENT 296,685
____________
OTHER ASSETS
Goodwill 31,000
Deferred tax asset 164,000
Loan Costs 4,222
____________
Total other assets 199,222
____________
TOTAL ASSETS $ 758,109
============
(Continued)
F-1
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(Concluded)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 1999
______________
<S> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 89,271
Current portion of long-term debt 43,086
____________
Total current liabilities 132,357
____________
Long-Term debt, less current portion 198,386
____________
COMMON STOCK SUBJECT TO REPURCHASE, par value $.0001 per share,
100,000 shares authorized,11,000 shares issued and outstanding 1,660
____________
Minority interest in consolidated subsidiary (319)
____________
STOCKHOLDERS' EQUITY
Class A common stock, par value $.0001 per share,
9,900,000 shares authorized, 1,530,110 shares
issued and outstanding; Class B non-voting common
stock, per value $.0001 per share, 10,000,000 shares
authorized, 0 shares issued and outstanding 153
Additional paid-in capital 1,742,978
Accumulated deficit (1,317,106)
____________
Total stockholders' equity 426,025
____________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 758,109
============
</TABLE>
See Accompanying Notes to Financial Statements
F-2
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
______________________ ______________________
1999 1998 1999 1998
__________ __________ __________ __________
PRODUCT SALES $ 181,120 $ 93,123 $ 273,250 $ 137,407
COST OF PRODUCTS SOLD 13,512 33,433 25,785 42,100
__________ __________ __________ __________
GROSS PROFIT 167,608 59,690 247,465 95,307
CONSULTING SERVICES AND OTHER 1,290 10,000 7,790 10,000
OPERATING REVENUE
SELLING, GENERAL AND 68,660 40,208 182,833 97,737
ADMINSISTRATIVE EXPENSE _________ _________ _________ _________
INCOME FROM OPERATIONS 100,238 29,482 72,422 7,570
_________ _________ _________ _________
OTHER INCOME (EXPENSE)
Investment and other income(loss) 75 173 (3003) 2,705
Interest expense (608) (1,141) (874) (1,994)
_________ _________ _________ _________
Total other income (expense) (533) (968) (3,877) 711
MINORITY INTERESTS IN LOSS OF 319 0 319 0
SUBSIDIARY _________ _________ _________ _________
100,024 28,514 68,864 8,281
INCOME BEFORE INCOME TAX
INCOME TAX EXPENSE 17,000 1,600 17,000 1,600
_________ _________ _________ _________
NET INCOME $ 83,024 $ 26,914 $ 51,864 $ 6,681
========= ========= ========= =========
NET INCOME PER COMMON
SHARE $ 0.05 $ 0.02 $ 0.04 $ 0.01
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,522,175 1,225,110 1,383,269 1,225,462
========== ========== ========== ==========
See Accompanying Notes to Financial Statements
F-3
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
__________________________
1999 1998
____________ ____________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 51,864 $ 6,681
____________ ____________
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,756 7,141
Minority interests in subsidiary (319) -
Loss (gain)on sale of investments 3,122 (510)
Stock issued for services 23,656 675
Decrease (increase)in accounts receivable (103,734) 15,101
Decrease (increase)in inventory (31,934) (1,624)
(Increase) in other current assets (5,945) 958
Decrease in deferred income taxes 17,000 1,600
Increase in deferred offering costs - (30,000)
Increase in accounts payable and
accrued expenses 52,214 14,464
____________ ____________
Total adjustments (40,184) 7,805
____________ ____________
NET CASH PROVIDED BY OPERATING
ACTIVITIES 11,680 14,486
____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (80,886) (3,732)
Repayment of employee loan - 1,642
Proceeds from sale of investment 10,261 17,227
Purchases of investments - (8,202)
____________ ____________
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (70,625) 6,935
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt 32,494 -
Net payments on line-of-credit - (7,377)
Payments on investment margin account - (8,318)
Proceeds from loan payable to stockholder - 13,125
Proceeds from sales of stock 35,000 -
Stock repurchase (6,389) -
____________ ____________
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 61,105 (2,570)
____________ ____________
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,160 18,851
CASH AND CASH EQUIVALENTS, beginning of period 36,883 8,331
____________ ____________
CASH AND CASH EQUIVALENTS, end of period $ 39,043 $ 27,182
============ ============
</TABLE>
(Continued)
F-4
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(Concluded)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
__________________________
1999 1998
____________ ____________
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 874 $ 1,994
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Purchase of Land, building and equipment with
debt financing $ 204,756 $ -
=========== ===========
Purchase of goodwill with obligation to issue
common stock $ 31,000 $ -
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-5
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
The information presented herein as of June 30, 1999, and for the six and three
months ended June 30, 1999 and 1998, is unaudited.
(1) BASIS OF PRESENTATION:
The accompanying consolidated financial statements include the accounts of
Cyclodextrin Technologies Development, Inc. and its subsidiary and 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 recurring adjustments) considered necessary
for a fair presentation have been included.
Operating results for the six and three month periods ended June 30, 1999, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. 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, 1998.
(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
$12,224 and $11,718 for the six months ended June 30, 1999 and 1998,
respectively.
The Company has other commitments as discussed in Note 6.
F-6
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
(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 has reserved 100,000 of its 10,000,000 voting common stock shares
authorized to be used under this Plan.
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
JUNE 30, 1999
(Unaudited)
(4) MAJOR CUSTOMERS AND SUPPLIERS:
Sales to the three largest customers were approximately 58% and 67% of total
sales for the six months ended June 30, 1999 and 1998, respectively.
(5)LONG TERM DEBT:
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 3.5% (currently 11.25%). The credit line can be
canceled and payment of the outstanding amount due can be required on demand by
the bank at anytime.
The Company purchased land, buildings and equipment with a cost of $265,000 on
June 4, 1999. The purchase was financed with a mortgage in the amount of
$186,472 and a note payable to the seller in the amount of $50,000. The
mortgage is payable over fifteen years at a monthly payment of $1,782 including
interest at 7.95%. The note payable to the seller is payable over two years at
a monthly payment of $1,591, including interest at 8.5%, with a $20,000 payment
due before August 4, 1999.
F-8
<PAGE>
CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
(6) INCOME TAXES:
The current tax provision is the amount of income taxes for the periods
presented expected to be reported on the Company's tax return. The Company has
net operating loss carryforwards sufficient to offset current income taxes due.
However, the future benefit of these net operating loss carryforwards was
recognized in a previous period. Therefore, no benefit has been recognized for
the periods presented.
(7) NET INCOME PER COMMON SHARE:
Net income per common share is computed in accordance with the requirements
of Statement of Financial Accounting Standards No. 128 (SFAS 128) at June 30,
1999 and 1998. SFAS 128 requires net income 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. Common shares outstanding do not include common stock
subject to repurchase.
(8) SUBSIDIARY:
The Company owns 98% of Natural Spirit Mushroom Enterprise, Inc. (NSME), which
was incorporated on May 7, 1999. All intercompany amounts have been eliminated
in consolidation. The Company has offered 62,000 shares of its common stock to
investors and promoters of a predecessor company for their rights to certain
processes expected to be used by NSME. This offer expires on September 1, 1999,
and converts to an option for the same number of common shares at $.50 per
share until December 31, 1999.
The Company has recorded goodwill and a liability in the amount of $31,000 for
this obligation.
NSME had no sales for the six months ended June 30, 1999. On June 4, 1999, the
Company purchased land, buildings and equipment with a cost of $265,000 to
operate a mushroom farm and for Corporate offices. NSME had not commenced
operations as of June 30, 1999.
NSME adopted a stock bonus plan whereby an officer of NSME can receive NSME
common stock owned by the Company if certain financial targets are met. The
stock bonus plan terminates June 1, 2001 unless extended by both the officer
and NSME. The stock bonus is contingent on the Company fully completing its
current private placement of 650,000 shares of common stock and the officer
being in the employ of the Company for a minimum of two years and at the end of
each calendar year for which a stock bonus is due. The officer will be awarded
100 shares of NSME stock owned by the Company for each $12,500 of net income
earned by NSME, in excess of net income required to repay intercompany loans
due to the Company. Up to 2,000 shares (20% of NSME: outstanding stock) can be
awarded per year and the award is made annually for the prior year. There were
no shares earned or due at June 30, 1999.
(9) STOCK REPURCHASE:
In April 1999, the Company repurchased 106,474 shares of its outstanding common
stock for $6,389. These shares will be retired. The Company has no plans to
repurchase additional shares.
(10) SEGMENTS:
During the second quarter of 1999, the Company began farming mushrooms. The
Company now has two segments, Cyclodextrin products and mushroom products.
Total assets related to the mushroom farm were approximately $320,000 at June
30, 1999. There were no sales of mushrooms and the net loss from the mushroom
operations was approximately $16,000 for the six months ended June 30, 1999.
F-9
<PAGE>
Item 2. Management Discussion and Analysis or Plan of Operation
(MD&A) Management Discussion & Analysis
As of 3/31/99
CTD, Inc.
Management Discussion and Analysis
Liquidity and Capital Resources
As of June 30, 1999, the company's working capital was $ 129,845, compared to
($116,579) at the end of the first quarter. This increase is due to increased
sales and $10,000 additional capital from the stock offering less expansion
costs as described below.
Total product sales for the second quarter 1999 ($181,120) doubled the sales of
the first quarter of 1999 ($92,130), and also doubled the sales of the same
period in 1998 ($93,123). While general sales volatility as experienced
historically by the company is still a large contributor to these increases,
management believes that the increase is also due to the broadening of the
company's customer base and increased purchases by old customers in response to
the greater acceptance of CD's by US regulatory agencies.
The company's 5-year lease for its 3000 square feet of office and laboratory
space will expire in the fourth quarter of this year. Management is considering
its options to roll-over the lease, purchase the space, as well as moving to
space it already owns.
The company's Web site (cyclodex.com) has contributed to the company's increase
in CD product sales by providing companies and universities in the US and the
rest of the world a way to easily locate a source of CD supplies and technology.
The company has received limited response to its subscription service for its
patent database. As the company's financial resources grow, management will
allocate much needed additional human resources to the management, maintenance,
and upgrading of its Web Site. Management is firmly committed to an improved and
growing presence on the Internet.
The Company's total assets approximately doubled ($378,624-$758,109) from the
first quarter of 1999 as a result of strong sales performance and an acquisition
of property and equipment ($296,685).
In mid 1997, the company identified mushrooms as a natural product that could be
combined with its CD's to meet the need of consumers for natural medical
remedies. The Company has since begun to lay the groundwork for such a class of
products called alternative medicines, utilizing natural ingredients.
In the second quarter of 1999, CTD took another step in the implementation of
its strategy of growth and acquisition into complimentary market lines. Natural
Spirit Mushroom Enterprise, Inc. (NSME) incorporated in Florida and is 98% owned
by CTD. CTD made a direct investment of approximately $80,000 into NSME, with
funds coming from profits from operations and $50,000 in new CTD stock sold
between March and June of 1999 as part of an ongoing Regulation 505D offering.
The offering, if completely sold, will result in the issuance of 700,000 shares
of new CTD stock and the receipt by the Company of $1,312,500. As of June 30,
1999, $35,000 has been received pursuant to the offering. CTD plans continued
investment into NSME by loans for operating capital and by allowing NSME to
occupy real property acquired by CTD without payment. To this end, CTD purchased
real estate suitable for mushroom farming and for offices.
NSME acquired the rights to certain proprietary methods of exotic mushroom
cultivation, and will be operated as a mushroom production company. NSME
obtained these rights from a defunct mushroom producing company from CTD. The
investors and promoters of the predecessor company are expected to receive
62,000 shares of CTD stock. The Company expects to spend an additional $70,000
to $100,000 by year end to get NSME up to commercial production status. This
additional money is expected to come from continued operational profits and from
the proceeds of the ongoing Section 505D offering.
Management believes that the addition of NSME to the CTD structure has dual
benefits for the company. The direct benefit comes from the expectation that
NSME will become fully operational by year end, and will provide a less volatile
source of income from its sales of exotic mushrooms. The indirect benefit lies
complimentary nature of the respective products of CTD and NSME. The exotic
mushrooms and the expertise of NSME provide an excellent opportunity for CTD to
expand its own product line into dietary supplements utilizing the active
ingredients from the mushrooms and the cyclodextrins of CTD.
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 expanding its inventory line to
include more routinely purchased products. To further dampen the volatility, the
company is also evaluating suitable acquisitions of companies that are
manufacturers of raw materials that can be combined with CD's to create
alternative medicines. While sales will continue to be volatile in the near
term, Management feels that these efforts will reduce the experienced volatility
and that total revenues will continue to grow.
Total product sales for the quarter ended June 30, 1999 were $181,120 compared
to $93,123 for the same period in 1998. The Company believes that such a large
increase in sales has resulted from a burst of demand created by recent
favorable regulatory rulings in the Food and Pharmaceutical industries.
Management expects the food industry's interest in cyclodextrins to continue due
to the Food and Drug Administration's (FDA) announcement in 1998 that Beta
cyclodextrin is now Generally Recognized as Safe (GRAS) in certain food related
applications. Product sales are primarily to large pharmaceutical and food
companies for research and development purposes. The Company cannot predict the
continued effect of this momentum, but sales to date continue strong.
Sales of both products and services continue to be concentrated among a few
large customers.
The Company's gross profit margin on product sales increased from 64% to 93% for
the second quarter of 1998 and 1999, respectively. This increase in gross profit
margin is due to the sale of more products with lower raw material costs than is
historically experienced by the Company. Management expects future gross profit
margins to return to historical levels.
Selling, general and administrative (SG&A) expenses for the second quarter 1999
($68,660 vs. $40,208) increased from the second quarter 1998. Such an increase
is to be expected to support increased sales activities. Also contributing to
the increase were expenses associated with professional fees incurred to
implement the property acquisition and expansion into the mushroom farming
operation. Management expects SG&A expenses to increase in the future in
response to the growth the Company is undergoing. Management intends to monitor
these "growth" expenses most carefully.
The Company reported a net profit from operations for the three months ended
June 30, 1999 of $83,024 versus $26,914 for the same period in 1998; the
increase is due to a substantial increase in sales and gross profit margin and
only a small increase in 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.
Year 2000
Management has completed its evaluation of Year 2000 (y2k) issues on internal
computer systems. Management has also completed its initial assessment of y2k
issues related to the Company's external vendors and suppliers. The Company
relies on a few large customers and suppliers outside the United States, which
are believed to be at greater y2k risk than domestic companies with which the
Company does business. While there are no assurances that y2k issues will not
affect the Company, Management does not believe its internal or external y2k
issues, if any, will have a material effect on the Company's business, results
of operations, or financial condition. Although management has sought and
obtained assurances from its major suppliers and customers regarding operational
continuity in light of y2k problems, supply or demand interruptions in these key
relationships would cause a resulting interruption in the business of the
Company.
PART II: Other Information
Item 2. Changes in Securities and Use of Proceeds
The Company issued shares to finance the startup of Natural Spirit Mushroom
Enterprises, Inc. (NSME). NSME is a 98%-owned subsidiary of the Company.
These shares were sold pursuant to the exemptions from registration under
Regulation D and Section 4(2) of the Securities Act. As of August 13, 1999,
the Company has raised $50,000 during this offering. 70,000 shares were sold
at $0.50 per share, and 20,000 shares were sold at $0.75 per share.
The Company purchased 106,474 shares of its outstanding common stock from Herman
Burkhardt in April 1999 for $6,389. These shares will be retired.
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
(10.1) Employment Agreement between NSME and John Lindsay
dated June 1, 1999
(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
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(Registrant) CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
By (Signature and Title) /S/ C.E. Rick Stratton
C.E. RICK STRATTON, President
Chief Executive Officer, Chief Financial Officer
Date: August 13, 1999
EMPLOYMENT AGREEMENT
AGREEMENT dated as of June 1, 1999 between NATURAL SPIRIT MUSHROOM
ENTERPRISE, INC. a Florida corporation having its principal place of business
located at 27317 N.W. 78th Avenue, High Springs, Florida 32643 ("NSME"), and
JOHN LINDSAY, whose address is __________________________________________
("Lindsay").
W I T N E S S E T H:
WHEREAS, the Company desires to employ Lindsay, and Lindsay desires
to accept such employment.
NOW, THEREFORE, the parties hereto agree as follows:
1. TERM. This Agreement shall commence on June 1, 1999 (the "effective
date"), and shall terminate as of June 1, 2001, unless extended in writing and
signed by both parties. Lindsay shall remain in the employment of the Company
for a minimum of two (2) years or the terms of the stock option set forth
herein, and in the Stock Option Agreement attached, are null and void and all
shares previously purchased by Lindsay will be repurchased by the Company at the
original purchase price.
2. COMPENSATION. For all services rendered under this Agreement during the
Employment Term:
(a) The Company shall pay Lindsay the following salary: One Thousand Dollars
($1,000) per month in accordance with the standard bookkeeping policies of
the Company from the effective date of this Agreement through September 30,
1999. From October 1 through January 1, 2000, Lindsay's salary shall be Two
Thousand Dollars ($2,000) per month. Commencing January 1, 2001, Lindsay's
salary shall be Three Thousand Dollars ($3,000) per month as long as sales
continue to increase until the termination of this Agreement.
(i) In the event that the gross sales in the Company reach Ten Thousand
Dollars ($10,000) per month by the end of September, 1999, then a
salary of $2,000 per month shall be applied retroactively and be
effect until December 31, 1999.
(ii) In the event that the gross sales in the Company reach Fifty Thousand
Dollars ($50,000) per month by December 31, 1999, Lindsay's salary
shall be Three Thousand Dollars ($3,000) per month applied
retroactively from the effective date of this Agreement through
December 31, 2000 after which it shall be Four Thousand Dollars
($4,000) per month annually as long as quarterly sales continue to
increase.
(iii) After Lindsay's salary reaches $4,000 per month annually, it will
remain at the level as long as sales increase. If sales do not
increase, then Lindsay's salary shall be decreased each quarter by the
percentage sales in comparison with the previous quarter's sales, but
in no case below $3,000.
(b) In addition, Cyclodextrin Technologies Development, Inc. ("CTD") shall
transfer to Employee common stock not to exceed 7,900 shares of the total
outstanding stock in NSME according to the following terms:
(i) No more than two thousand shares may be transferred in any year. A
year for the purposes of this Agreement begins on the effective date
above. Employee shall have no rights as a shareholder as to
transferred shares until the date of transfer.
(ii) The number of shares available for purchase each year, up to 2,000,
shall be according to the following formula: 1% of the Common Stock of
the Company for each $12,500 in net profit received by CTD per year
from the Company. For the purposes of this agreement, net profit
cannot exist for NSME until all loans and obligations to CTD are paid
in full. The calculation shall be made following the end of each
calendar year and shall be conclusively determined by the audited
financial statements of CTD. All calculations shall be rounded down to
the nearest whole percentage point.
(iii) The stock transfers are contingent upon Employee being employed by
NSME as of the last day of each calendar year and the successful
completion of CTD's private placement as set forth in the private
placement memorandum dated June 1, 1999, "Successful completion" shall
be when the total funds of that private placement are raised. In the
event that all of the funds are not raised, all stock transfers
contemplated by this instrument shall be deemed null and void unless
otherwise renewed in writing by CTD.
3. DUTIES. So long as the Company has not notified Lindsay of his
disability pursuant to Section 4 hereof and this Agreement has not been
terminated, Lindsay shall be engaged by the Company as President and Chief
Operating Officer and shall perform and discharge well and faithfully all
aspects of operations management and the other duties which may be assigned to
him from time to time by the Board of Directors in connection with the conduct
of its business.
4. DISABILITY AND DEATH.
(a) If Lindsay shall be unable substantially to perform the duties required
of him pursuant to his position and the provisions of this Employment Agreement
due to any disability preventing him from such services for either a period of
two (2) consecutive months or for any four (4) months in a one (1) year period,
Employer shall have the right to terminate Lindsay's employment hereunder on ten
(10) days' written notice. Notwithstanding any such termination, Lindsay shall
be entitled to receive any compensation accrued or accruable to Lindsay at the
time of such termination pursuant to the provisions of Article 2 hereof.
(b) The term "disability" shall mean the inability of Lindsay to perform
his duties under this Employment Agreement due to injury, illness or disease as
determined by an independent physician acceptable to the Employer.
(c) In the event of Lindsay's death during the Employment Period, Lindsay's
legal representatives shall be entitled to receive his salary at the rate
provided in Article 2 to the day of the Employer's payroll on which his death
shall occur.
5. EXTENT OF SERVICES. So long as the Company has not notified Lindsay of
his disability pursuant to Section 4 hereof and this Agreement has not been
terminated, Lindsay shall devote such time as is necessary to discharge the
duties of his office.
6. INVENTIONS. Employee agrees for no additional consideration to assign to
CTD, immediately upon the execution of this Employment Agreement and thereafter
immediately upon making or acquiring them, as the case may be, any and all
inventions, patent rights, letters patent, copyrights, trademarks, trade names,
and applications therefor, in the United States and all other countries, and any
and all rights and interests in, to and under the same which Employee may
legally transfer, now possessed by him (including the Lindsay Grow System and
other technologies and products developed by Lindsay or which are currently
being developed for the growth, development and marketing of mushrooms and
mushroom-based products) or acquired by him during the period of his employment
hereunder, relating in any way to the business and activities of, or the
equipment, devices, processes and formulas connected with, NSME's business or
any other business conducted by CTD and any subsidiaries as may be established
from time to time and agrees that, upon request, Employee will promptly make all
disclosures, execute all instruments and papers and perform all acts reasonably
necessary or desired by CTD to vest and confirm in it, its successors, assigns
and nominees, fully and completely, all rights created or contemplated by this
paragraph 6 and which may be necessary to enable CTD, its successors, assigns
and nominees to secure and enjoy the full benefits and advantages thereof.
7. DISCLOSURE OF INFORMATION.
(a) Lindsay hereby represents and warrants to the Company that Lindsay
currently has no rights, or interests in any inventions, ideas, disclosures or
improvements used by the Company.
(b) Lindsay recognizes and acknowledges that the Company's trade secrets
and proprietary information and processes, as they may exist from time to time,
are valuable, special and unique assets of the Company's business, access to and
knowledge of which are essential to the performance of Lindsay's duties
hereunder. Lindsay will not, during or after the term of his employment by, or
consultation with, the Company, in whole of in part, disclose such secrets,
information or processes to any person, firm, corporation, association or other
entity for any reason or purpose whatsoever (except as may be required to
perform Lindsay's duties hereunder) regardless of the confidentiality of such
information, nor shall Lindsay make use of any such property for his own
purposes or for the benefit of any person, firm, corporation or other entity
(except the Company) under any circumstances during or after the term of his
employment, provided that after the term of his employment these restrictions
shall not apply to such secrets, information and processes which are then in the
public domain (provided that Lindsay was not responsible, directly or
indirectly, for such secrets, information or processes entering the public
domain without the Company's consent.) Lindsay agrees to hold as the Company's
property, all memoranda, books, papers, letters, customer lists, formulas and
other data, and all copies thereof and therefrom, in any way relating to the
Company's business and affairs, whether made by his or otherwise coming into his
possession, and on termination of his employment, or on demand of the Company,
at any time, to deliver the same to the Company.
8. COVENANT NOT TO COMPETE.
(a) During the term hereof and, unless this Agreement is terminated
pursuant to Section 4 or 11 hereof, for a period of two (2) years thereafter,
Lindsay shall not compete, directly or indirectly, with the Company, interfere
with, disrupt or attempt to disrupt the relationship, contractual or otherwise,
between the Company and any customer, client, supplier, consultant or employee
of the Company, including, without limitation, employing or being an investor
(representing more than a 5% equity interest) in, or officer, director or
consultant to, any person or entity which employs any former key or technical
employee whose employment with the Company was terminated after the date which
is one (1) year prior to the date of termination of Lindsay's employment
therewith. An activity competitive with an activity engaged in by the Company
shall mean performing services (whether as an employee, officer, consultant,
director, partner or sole proprietor) for any person or entity engaged in the
business then engaged in by the Company.
(b) It is the desire and intent of the parties that the provisions of this
section shall be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular portion of this section shall be adjudicated to
be invalid or unenforceable, this section shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
deletion to apply only with respect to the operation of this Section in the
particular jurisdiction in which such adjudication is made.
9. SPIN OFF. At such time as Lindsay has obtained eight thousand (8,000)
shares in NSME and is an employee of NSME, he may elect to purchase from CTD the
remaining outstanding shares in NSME. The purchase price for those shares shall
be the greater of (i) 110% of the fair market value of NSME as determined by an
independent appraisal by an appraiser knowledgeable about the type of business
in which the Company engages; or, (ii) the expenses incurred by CTD for
creation, development and maintenance of NSME up until the purchase date plus
interest at a rate of 5% per year.
10. REMEDIES. If there is a breach of the provisions of this Agreement, the
Company shall be entitled to an injunction restraining Lindsay from such breach.
Nothing herein shall be construed as prohibiting the Company from pursuing any
other remedies for such breach or threatened breach. In the event of litigation
arising in connection with this Agreement, the prevailing party shall be
entitled to recover its reasonable attorney's fees.
11. TERMINATION. The Company shall have just legal cause to terminate the
employment of Lindsay under this Employment Agreement only upon a good faith
determination of the Company that the termination of such employment is
necessary and in the best interests of the Company or in the event of breach of
any of the terms hereof.
12. INSURANCE. The Company may, at its election and for its benefit, insure
Lindsay against accidental loss or death and Lindsay shall submit to such
physical examination and supply such information as may be required in
connection therewith.
13. ASSIGNMENT. This Agreement may not be assigned by any party hereto;
provided that the Company may assign this Agreement: (a) to an affiliate so long
as such affiliate assumes the Company's obligations hereunder; provided that no
such assignment shall discharge the Company of its obligations herein, or (b) in
connection with a merger or consolidation involving the Company or a sale of
substantially all its assets to the surviving business or purchaser, as the case
may be, so long as such assignee assumes the Company's obligations thereunder.
14. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered mail to
Lindsay at 27317 NW 78th Avenue, High Springs, Florida, 32643 or the Company at
its address set forth above, Attention: President.
15. WAIVER OF BREACH. A waiver by the Company or Lindsay of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach by the other party.
16. APPLICABLE LAW. This contract shall be governed by the laws of the
State of Florida applied to contracts entered into within Florida by residents
of the State of Florida without regard to choice of law provisions.
17. ENTIRE AGREEMENT. This instrument contains the entire agreement of the
parties. It may be changed only by an agreement in writing signed by a party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
18. CONTINGENT. The Agreement is contingent upon NSME securing sufficient
funds for the execution of its business plan, which includes the successful
completion of the Company's private offering commenced on June 1, 1999. The
sufficiency of such funds shall be at the discretion of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first hereinabove written.
NATURAL SPIRIT MUSHROOM
ENTERPRISE, INC. EMPLOYEE
By: /s/ C.E. Rick Stratton /s/ John Lindsay
C.E. "Rick" Strattan, JOHN LINDSAY
Director, Treasurer, Secretary
8/14/99 amended
CYCLODEXTRIN TECHNOLOGIES
DEVELOPMENT, INC.
As to paragraphs 2, 6 and 9.
By: /s/ C.E. Rick Stratton
C.E. "Rick" Strattan
President, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Financial Statements for the 6 months ended June 30, 1999, and is qualified
in its entirety by reference to such form 10QSB for six months ended June
30, 1999.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-START> JAN-01-1999
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 39,043
<SECURITIES> 0
<RECEIVABLES> 115,429
<ALLOWANCES> 0
<INVENTORY> 64,720
<CURRENT-ASSETS> 262,202
<PP&E> 372,356
<DEPRECIATION> 75,672
<TOTAL-ASSETS> 758,109
<CURRENT-LIABILITIES> 132,357
<BONDS> 0
<COMMON> 153
0
0
<OTHER-SE> 425,572
<TOTAL-LIABILITY-AND-EQUITY> 758,109
<SALES> 273,250
<TOTAL-REVENUES> 278,037
<CGS> 25,785
<TOTAL-COSTS> 25,785
<OTHER-EXPENSES> 182,833
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 874
<INCOME-PRETAX> 68,864
<INCOME-TAX> 17,000
<INCOME-CONTINUING> 51,864
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,864
<EPS-BASIC> .04
<EPS-DILUTED> .04
</TABLE>
