10KSB 1 ctdh10ksb2000final.txt CTD HOLDINGS 2000 10KSB U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-KSB (Mark One) (X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended December 31, 2000 ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from _________ to _________ Commission file number 0-24930 CTD HOLDINGS, INC. (Name of small business issuer in its charter) FLORIDA 59-3029743 State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3713 S. W. 42nd Avenue, Suite 3, Gainesville, FL 32608-6581 (Address of principal executive offices) (Zip Code) Issuer's telephone number: 352-375-6822 Securities registered under Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered None Securities registered under Section 12(g) of the Exchange Act: Class A Common Stock (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No__. Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB ( ) State issuer's revenues for its most recent fiscal year: $384,590. State the aggregate market value of the voting stock held by non-affiliates computed by reference at the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days: $283,507 based on the average high and low price as of March 29, 2001 of $1.45 per share. State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date: 3,991,220 shares of Common Stock as of March 30, 2001. DOCUMENTS INCORPORATED BY REFERENCE None Transitional Small Business Disclosure Format (Check One): Yes No X PART I Item 1. Description of Business CTD Holdings, Inc. ("the Company") was organized as a Florida corporation on August 9, 1990, with operations beginning in July 1992. The Company sells cyclodextrins ("Cyclodextrins" or "CDs") and related products to the food, pharmaceutical and other industries. The Company has recently began growing and selling mushrooms. The Company also provides consulting services. CDs Cyclodextrins are molecules that bring together oil and water and have potential applications anywhere oil and water must be used together. Successful applications have been made in the areas of agriculture, analytical chemistry, biotechnology, cosmetics, diagnostics, electronics, foodstuffs, pharmaceuticals and toxic waste treatment. Stabilization of food flavors and fragrances is the largest current worldwide market for CD applications. The Company and others are already developing CD-based applications in stabilization of flavors for food products; elimination of undesirable tastes and odors; preparation of antifungal complexes for foods and toiletries; stabilization of fragrances and dyes; reduction of foaming in foods; cosmetics and toiletries; and the improvement of quality, stability and storability of foods. CDs can improve the solubility and stability of a wide range of drugs. Many promising drug compounds are unusable or have serious side effects because they are either too unstable or too insoluble in water. Strategies for administering currently approved compounds involve injection of formulations requiring pH adjustment and/or the use of organic solvents. The result is frequently painful, irritating, or damaging. These side effects can be ameliorated by CDs. CDs also have many potential uses in drug delivery for topical applications to the eyes and skin. The Company believes that the application of CDs in both OTC and ethical ophthalmic products provides the greatest opportunity for the successful and timely introduction of CD containing preparations for topical drug use. The Company provides consulting services for the commercial development of new products containing CDs. The Company's revenues are derived from consulting, the distribution of CDs, the manufacturing of selected CD complexes, and sales of its own manufactured and licensed products containing CDs. Mushrooms On May 7, 2000, the Company created Natural Spirit Mushroom Enterprise, Inc., a Florida corporation, for the purpose of growing, developing and marketing mushroom-based products, some of which would be combined with cyclodextrin to be used in herbal, cosmetic and alternative medicines. Natural Spirit acquired the rights to certain proprietary methods of exotic mushroom cultivation from a defunct mushroom producing company. CTD issued 26,500 shares of its common stock to investors and promoters of the defunct company for their rights to certain processes expected to be used by Natural Spirit. 98% of the outstanding shares of Natural Spirit are owned by the Company with 1% being owned by C.E. Rick Strattan and 1% being owned by the Chief Operating Officer of Natural Spirit, John Lindsay. CTD believes that the addition of Natural Spirit to the CTD structure has dual benefits for CTD. The direct benefit comes from the expectation that Natural Spirit 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 Natural Spirit. The exotic mushrooms and the expertise of Natural Spirit 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. In 2000, the revenues obtained from the sale of mushrooms by the Company were $1,582. The Company expects the sales of mushrooms by Natural Spirit to increase to exceed $100,000 in 2000. Natural Spirit's operations have been financed by CTD. CTD made an initial direct investment of approximately $80,000 to acquire approximately 40 acres of land, building and equipment formerly used as a Mushroom Farm. The funds came from profits from operations and $50,000 in new CTD stock sold between March and June of 2000. CD Product Background CDs are donut shaped circles of glucose (sugar) molecules. CDs are formed naturally by the action of bacterial enzymes on starch. They were first noticed and isolated in 1891 by a French scientist, Villiers, as he studied rotting potatoes. The bacterial enzyme naturally creates a mixture of at least three different CDs depending on how many glucose units are included in the molecular circle; six glucose units yield Alpha CD ("ACD"); seven units, beta CD ("BCD"); eight units, gamma CD ("GCD"). The more glucose units in the circle, the bigger the circle, or donut. The inside of this "donut" provides an excellent resting place for "oily" molecules while the outside of the donut is significantly compatible with water enabling clear stable solutions of CDs to exist in aqueous environments even when an "oily" molecule is carried within the donut hole. The net result is a molecular carrier that comes in small, medium, and large sizes with the ability to transport and deliver "oily" materials using water as the primary vehicle. CDs are manufactured in large quantities by mixing appropriate enzymes with starch solutions, thereby reproducing the natural process. ACD, BCD and GCD can be manufactured by an entirely natural process and therefore are considered to be natural products. Additional processing is required to isolate and separate the CDs. The purified ACD, BCD, and GCD are referred to collectively as natural CDs (NCD's). The chemical groups on each glucose unit in a CD molecule provide chemists with ways to modify the properties of the CDs, i.e. to make them more water soluble or less water soluble, thereby making them better carriers for a specific chemical. The CDs that result from chemical modifications are no longer considered "natural" and are referred to as chemically modified CDs ("CMCD's"). Since the property modifications achieved are often so advantageous to a specific application, the Company does not believe the loss of the "natural" product categorization will prevent its ultimate commercial use. It does, however, create a greater regulatory burden. The Company's strategy is to introduce products with little or no regulatory burden in order to minimize product expenses and create profitable revenue. The Company currently sells its products for use in the pharmaceutical, food and industrial chemical industries. CD Market The food additive industry has been experimenting with CDs for many years. Now that commercial supply of these materials can be assured and regulatory approval is imminent, the Company believes that the food additive industry will significantly increase its use of CDs. CDs have been used in a variety of food products in Japan for over 25 years. The market for the use of CDs in food products in 1997 in Japan was estimated at $150 million. Within the last five years, more European countries have approved the use of CDs in food products. In the United States, major starch companies are renewing their earlier interest in CDs as food additives. Oral arguments for regulatory approval by the United States Food and Drug Administration ("FDA") have been accepted. As of November 3, 1997, BCD use as a food additive in 10 categories of food products was confirmed to be GRAS. Applications of CDs in personal products and for industrial uses have appeared in many patents and patent applications. Proctor & Gamble uses CDs in Bounce(R), a popular fabric softener. Avon uses CDs in its dermal preparations using its Age Protective System APS(R). These uses will grow as the price of the manufactured CDs decrease or are perceived as acceptable in view of the value added to the products. In Japan at least twelve pharmaceutical preparations are now marketed which contain CDs. The CDs permit the use of all routes of administration. Ease of delivery and improved bioavailability of such well-known drugs as nitroglycerin, dexamethasone, PGE(1&2), and cephalosporin permit these "old" drugs to command new market share and sometimes new patent lives. Because of the value added, the dollar value of the worldwide market for products containing CDs and for complexes of CDs can be 2 to 3 to 4 times that of the CD itself. CD Products The Company's CD products include its Trappsol(R), Aquaplex(R), and AP(TM)-Flavor product lines. The Trappsol product line consists of approximately 15 different varieties of CDs and the Aquaplex product line includes more than three dozen different complexes of active ingredients with various CDs. In addition to these product lines, the Company introduced Garlessence(R) in the fourth quarter of 1995. Garlessence is the first ingestible product containing CDs to be marketed in the U.S. The Company believes that by marketing Garlessence it has demonstrated industry leadership. The Company also provides consulting services, research coordination, and the use of CD Infobase(TM), a comprehensive database of CD related information. The Company has protected its service and trade marks by registering them with the U.S. Patent and Trademark office. The following trademarks have been approved: Trappsol(R), Garlessence(R), and Aquaplex (R). These properties add to the intangible asset value of the Company. CTD purchases CD's from commercial manufacturers around the world including: Wacker Chemie - Munich, Germany; Ensuiko Sugar Refining Co., Ltd. - Yokohama, Japan; Nihon Shokuhin Kako - Tokyo, Japan; Roquette Freres - Le Strem, France; American-Maize Products - Hammond IN, USA. CTD purchases specialty CD's on occasion from Cyclolab R&D Company in Budapest, Hungary. The Company does not manufacture cyclodextrins. The Company has also introduced new products into its basic line of CDs and CD complexes--liquid preparations of CDs; relatively unprocessed, less expensive mixtures of the natural CDs; naturally modified CDs (glucosyl and maltosyl); and finally, excess production of custom complexes when those items are not proprietary or restricted by the customer. Business Strategy The Company's strategy has been and will continue to be to generate profitable revenue through sales of CD related goods, natural medicines (using the ingredients found in mushrooms, herbs and other medicinal natural sources) and services. The long term success of this strategy depends on the smooth and continuous transition into CD-related products with increasing value-added attributes and the development of its natural medicinal offerings based on natural sources, especially mushrooms. From inception through the current year, sales of CDs and CD derivatives have been sufficient to provide the necessary operational profitability to sustain the Company. Since these materials were simply purchased and resold, they had the least value-added attributes. Presently, sales of CD complexes represent 31% of the Company's product sales revenues. Transition to the more value-added complexes continues and is desirable for increased profitability since higher margins can be maintained for these products. However, it appears that the distribution oriented business of CD sales has eroded. Combined with price reductions dictated by the market, the revenues from the sales of distributed products have decreased as much as the revenue from CD complexes has increased. The Company continues to be dependent on just a few major customers for the majority of its revenue. In response to this situation the Company has expanded its original business strategy of parlaying its leadership position in the presently quite small CD industry as a supplier of CDs, CD derivatives, CD complexes to include: (1) Marketing and launching a dozen OTC and naturaceutical products (e.g., dietary supplements) utilizing CD delivery benefits. For example, by extracting specific ingredients from the garlic clove and complexing these ingredients with Trappsol(R) B (beta cyclodextrin) Garlessence(R) was created. Similar products can be created with any of the other herbal ingredients such as ginseng, echinacea, ginkgo, cat's claw, and melatonin. (2) Licensing the use of the Trappsol(R)symbol for use by others wishing to use CD delivery technology. This strategy is reflected in the Garlessence package which, in addition to the Garlessence trademark, carries a Trapposol trademark. This symbol will be promoted as an indication that a Trappsol(R)cyclodextrin is used with the product within and thereby assures the user of the quality of the aqueous delivery system. This symbol will be licensed in the same way as the MLB (Major League Baseball) symbol is for baseball related products and the Nutrasweet(R)symbol is for artificially sweetened products containing Nutrasweet(R). (3) Growing mushrooms and other natural medicinal sources to create revenue from direct sales and to create a source of raw materials for its development of enhanced natural medicinals using CD's. The Company intends to increase its business development efforts in the food additive and personal products industries while continuing to build on its successes in the pharmaceutical industry. Business development on behalf of the Company's clients will include the following: (i) negotiation of rights and/or licenses to CD-related inventions; (ii) consultation with manufacturers to establish customized manufacturing specifications; (iii) patentability assessments and strategic planning of patent activities; (iv) trade secret strategies; (v) regulatory interface; and (vi) strategic marketing planning. The Company believes its competitive advantage lies in its experience and know how in the use and application of CDs, areas in which it believes it has a significant lead. In addition to its licensing efforts, the Company intends to coordinate research studies in which it will retain a portion of the rights created as a result of the research work supported. Assuming the availability of funds, the Company will negotiate licensing rights to its own selected inventions. Because of its comprehensive technical and patent database for CD-related inventions, the Company believes it is uniquely positioned to take advantage of constantly evolving licensing situations. Marketing Plan The Company believes that the failure of businesses to exchange information about CD molecules has hindered a more rapid commercialization of CDs as safe excipients. The Company believes that its philosophy of partnering and sharing will act as a catalyst to create momentum overcoming the inertia created by the previous conservatism and secrecy. The Company's sales have always been direct, volatile and driven by the acceptance of CD's as beneficial excipeints. Arrangements with large laboratory supply companies and several diagnostic companies have provided a strong sales base, but at the price of dependency on a few customers. The Company has taken advantage of the propensity of researchers to use the Internet to gather information about new products by establishing a WEB Page and "site" on the world-wide web and obtaining a unique and descriptive domain name: "cyclodex.com". Rather than trying to push companies to introduce CD products, the Company intends to pull them into the market by launching approximately seven new CD containing products of its own into the U.S. market over the next five years. These products will address needs in the relatively unregulated areas of natural medicine, topical OTC (over the counter) preparations, veterinary products, and home gardening. The Company intends to work with clients in countries whose current regulatory views include CDs as natural products acting as excipients to introduce beneficial pharmaceuticals improved by CDs. Along with the new products themselves, the Company has created a licensable mark that may be used by other manufacturers wishing to take advantage of the improved aqueous delivery afforded by Trappsol CDs. This protected mark has the capability of generating revenues in a manner similar to the Nutrasweet(R) (artificial sweetener) and MLB(R) (major league baseball) logos. The Company intends to generate additional revenue through obtaining rights to certain patents that it will sublicense to appropriate organizations or that it will use to develop its own proprietary products. Revenue would then be expected to result from sub-licensing royalties, sales of CD complexes to be used in the newly developed pharmaceuticals, and finally from the sales of the products to end users. Assuming an ongoing successful process of development, approval and adoption of CDs and CMCDs for pharmaceutical applications, the Company's objective is to initiate dialogue and be well prepared for partnerships with major food companies. Price is a primary concern in this market, but unlike pharmaceuticals where FDA permission for clinical testing may be obtained before actual FDA product approval, food companies cannot feed experimental formulations to test panels of consumers until the ingredients, i.e., the CDs, receive approval for human consumption. Therefore, the Company will work with the food companies and key university food research groups to initially evaluate non-taste applications. These questions will initially be explored using NCDs since commercial adoption will depend heavily upon the price of the CD selected and NCDs will always be the least expensive. The benefits derived from the use of CDs with expensive ingredients (e.g., flavors, fragrances)have already become accepted commercial uses for CMCDs (chemically modified CSk's) and (naturally modified CD's) NMCDs. Competition The Company is currently a leading consultant in determining what the manufacturing standards and costs for CDs and CMCDs are. However, there will always exist the potential for competition in this area since no patent protection can be comprehensive and forever exclusive. Nevertheless, there is a perceived barrier to entry into the CD industry because of the lack of general experience with CD complexation procedures. The Company has established a strong business relationship with one of the experts in this field -- Cyclolab in Hungary -- and has utilized the services and expertise of this laboratory. The Company believes this relationship provides a significant marketing lead time, and combined with a strong marketing presence, will give the Company a two to three year lead time advantage over its competitors. The Company intends to form a more formal business relationship with Cyclolab in Hungary by creating a Cyclolab-USA laboratory facility and thereby strengthen its competitive advantage. Discussions between the principals of Cyclolab and CTD have been ongoing for more than 5 years. Potential relationships which have been discussed include joint venture arrangements, the Company's outright acquisition of Cyclolab and the employment of Cyclolab personnel to create Cyclolab-USA. There is no assurance that the Company will be able to reach a formal business relationship with Cyclolab. Government Regulation Under the Federal Food, Drug and Cosmetic Act ("Food and Drug Act"), the Food and Drug Administration ("FDA") is given comprehensive authority to regulate the development, production, distribution, labeling and promotion of food and drugs. The FDA's authority includes the regulation of the labeling and purity of the Company's food and drug products. In the event the FDA believes that any company is not in compliance with the law, the FDA can institute proceedings to detain or seize products, enjoin future violations or assess civil and/or criminal penalties against that Company. The FDA and comparable agencies in foreign countries impose substantial requirements upon the introduction of therapeutic drug products through lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time consuming procedures. The extent of potentially adverse government regulations which might arise from future legislation or administrative action cannot be predicted. Under present FDA regulations, FDA defines drugs as "articles intended for use in the diagnosis, cure, mitigation, treatment or prevention of disease in man." The Company's product development strategy is at first to introduce products that will not be regulated by the FDA as drugs because all of its ingredients are natural products or are generally regarded as safe (GRAS) by the FDA. The Company is continually updated by counsel as to changes in FDA regulations that might affect the use of and claims for these products. There is no assurance that the FDA will not take the position that the Company's food and nutritional supplement products are subject to requirements relating to drug development and sale. The effect of such determination could be to limit or prohibit distribution of such products. Employees In 2000 the Company employed 9 persons on a full time basis. None of the Company's employees belong to a union. The Company believes relations with its employees are good. Item 2. Description of Properties. The Company occupies a 3,000 sq. ft. building at 3713 S.W. 42nd Ave., Suite 3, Gainesville, Florida 32608, pursuant to a 5-year lease beginning November 1, 1994. In 2000, this lease was extended for an additional two-year period until November 2000, at an annual rent of $21,888. The Company also has an option to lease an additional 3,000 sq. ft. of space. The Company houses its administrative offices in approximately 1,100 sq. ft. of this space; an additional 550 sq. ft. is dedicated to laboratory/manufacturing functions. The remaining 1,350 sq. ft. has been prepared for additional laboratory and pilot plant manufacturing use. The current marketing and sales activities are implemented from that site. The entire 6,000 sq. ft. could support a total of 12 - 15 people and therefore is expected to be adequate for the foreseeable future. Current total office and laboratory operating expenses excluding salaries have increased to about $20,000 per month with the creation of NSME. On June 4, 2000, the Company bought approximately 40 acres in Alachua County, Florida, for a purchase price of $210,000 which was paid for in part by a new first mortgage of $150,000. The property had been developed in part as a mushroom growing facility. Since the purchase of the property, the Company has continued to develop the property and use the property to grow various types of mushrooms. The property contains two grow-houses which the Company believes are adequate to grow approximately 24,000 pounds of mushrooms per year. Two additional grow-houses are under construction. There is a residential building which is being used to house the operations of the Company's mushroom-growing subsidiary. Item 3. Legal Proceedings. None Item 4. Submission of Matters to a Vote of Security Holders. None Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. In October 1994, the Company's securities began trading on the OTC Bulletin Board and in the over-the-counter market "pink sheets" under the symbol CTDI. Since the commencement of trading of the Company's securities, there has been an extremely limited market for its securities. During the fourth quarter of 1995, one of the Company's market makers ceased business. The following table sets forth high and low bid quotations for the quarters indicated as reported by the OTC Bulletin Board. High Low 1995 First Quarter $ 7.50 $ 3.00 Second Quarter $ 8.50 $ 4.25 Third Quarter $ 9.00 $ 4.00 Fourth Quarter $ 8.00 $ .50 1996 First Quarter $ 2.25 $ .50 Second Quarter $ 1.0625 $ .75 Third Quarter $ 2.25 $ .25 Fourth Quarter $ 1.00 $ .625 1997 First Quarter $ 3.00 $ .75 Second Quarter $ 1.50 $ .562 Third Quarter $ .562 $ .437 Fourth Quarter $ 1.062 $ .531 1998 First Quarter $ 0.875 $ 0.375 Second Quarter $ 0.625 $ 0.375 Third Quarter $ 0.500 $ 0.281 Fourth Quarter $ 0.260 $ 0.170 1999 First Quarter $ 0.406 $ 0.115 Second Quarter $ 0.437 $ 0.156 Third Quarter $ 0.25 $ 0.187 Fourth Quarter $ 0.468 $ 0.156 2000 First Quarter $ $ Second Quarter $ 2.34 $ Third Quarter $ .437 $ .203 Fourth Quarter $ .344 .1875
Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions. Holders As of December 31, 2000, the number of holders of record of shares of common stock, excluding the number of beneficial owners whose securities are held in street name was approximately 56. Dividend Policy The Company does not anticipate paying any cash dividends on its common stock in the foreseeable future because it intends to retain its earnings to finance the expansion of its business. Thereafter, declaration of dividends will be determined by the Board of Directors in light of conditions then existing, including without limitation the Company's financial condition, capital requirements and business condition. Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS When used in this report, the words "believes," expects," "anticipates" and similar expressions are intended to identify forward-looking statements. Statements herein regarding sales and research performance, expected financing, and expected regulatory approval of the Company's products further constitute forward-looking statements under federal securities laws. Such statements are subject to certain risks and uncertainties that could cause the actual realization to be delayed or to not occur. Management has made certain assumptions regarding each of the statements which may or may not be accurate. Actual research and development results may vary significantly from the current plans. Actual Company financing activities may vary significantly from the current plans and may result in the Company changing its plan of the use of such proceeds. Liquidity and Capital Resources As of December 31, 2000, the Company's net working capital was $120,186, and $90,093 at the end of 1999; the Company's net working capital steadily grew over the year to this level. Total product sales for 2000 more than doubled ($557,495 vs. $276,325) from the year before. This substantial increase resulted from the anticipated emergence of new users of cyclodextrins (CD) resulting from the greater regulatory acceptance of CD's for use in commercial products. More specifically to the Company, the increase resulted from first time customers in addition to its major customers buying more CD's more frequently during the year. The Company's consulting revenues increased as well over the year before ($9,466 vs. $350), and should continue to increase. Inventory more than doubled from year-end 1999 to 2000 ($85,249 vs. $32,786). These levels were increased in anticipation of the continued strong sales expected for the first quarter of 2000. In 2000, the company obtained $35,000 in a private placement of 70,000 shares of 144 restricted common shares of the company. An additional $15,000 was raised by the sales of 20,000 shares as part of a 505D offering. The Company used these funds and approximately $300,000 of debt equity to purchase 40 acres of land, buildings, and equipment to be used by the Company's new subsidiary, Natural Spirit Mushroom Enterprises, Inc. (Natural Spirit). If the offering is sold out, an additional $1,272,500 from sales of an additional 630,000 shares of the Company's stock is expected to be used in the development and expansion of the Natural Medicinal Project underway at Natural Spirit. The Company currently has a $25,000 credit line with approximately $ 3,000 outstanding balance as of December 31, 2000. The Company also has available approximately $ 50,000 in combined credit card lines with less than $ 8,000 outstanding. The Company's previous 5-year lease for its 3000 square feet of office and laboratory space has been extended two years until November 2001. The company expects to move its offices to its own facility during the year 2000 and will sublet its current space for 2001. The two year lease extension provides the Company considerable flexibility in the timing and expense of its move to new offices. 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 additional human resources to the management, maintenance, and upgrading of its web site. As part of its commitment to its presence on the Internet, the Company intends to allocate in 2000 financial resources for a significant upgrade and expansion of its Web Site. The Company's total assets more than doubled ($766,745 vs. $325,447) from year end 2000 to year end 2000 as a result of its strong sales performance and the acquisition of approximately $330,000 of property and equipment in 2000. In the second quarter of 2000, the Company took its first step into the direct production of a dietary supplement class of products by obtaining the rights to certain trade secret technology, which dramatically improves the production capabilities for mushroom cultivation, and purchased a site to utilize this technology for the production of exotic mushrooms and other medicinal plants. The acquisition marks the beginning of the Company's expansion into a basic manufacturing role for all types of alternative medicines. The immediate strategy is for the Company to grow selected exotic mushrooms in bulk for the edible market, for research, and for its own development of alternative medicines based on the natural ingredients in selected mushrooms. By the end of December 2000 Natural Spirit had produced for sale approximately 1000 lbs. of Shiitake mushrooms and had generated revenue of approximately $1000. Results of Operations Sales for the year ended December 31, 2000 ($557,495) were more than double the sales for the same period in 2000 ($276,352). Sales of CD's and related manufactured complexes have historically been highly volatile. This large increase in 2000 was the result of first time customers and increased sales to existing customers. The average size of the Company's sales increased in 2000 from 2000. These new customers significantly reduced the Company's dependence of the past on just one or two major purchasers. In 2000 one company accounted for 48% of the Company's sales; in 2000 that same company, while buying more, only accounted for 28% of the Company's total product sales in 2000. Management's goal is to continue to diversify its sales base. Sales to three customers represented 58% of 2000 sales while two customers accounted for 59% of 2000 sales. The Company's gross profit margin on product sales increased from 80% (2000) to 86% in 2000. This increase was primarily due to the advancement of projects the Company has been nurturing for several years to stages where a greater volume of CD's is required. The Company sold more of its higher gross margin products in 2000 compared to 2000. Selling, general and administrative (SG & A) expenses for 2000 ($392,492) increased 124% over those of 2000 ($175,427), which doesn't include $127,876 of one-time expenses that were reported in the total expenses of 2000. The Company believes that the increase was due in large part to its acquisition and start up of its subsidiary, Natural Spirit. While a 100% increase in expenses is not unheard of to double sales, the Company's management is examining all aspects of Natural Spirit operations to see that the expenses associated with Natural Spirit are significantly reduced in 2000. One of management's goals is to keep total SG & A expenses below $250,000 for the year 2000. Consulting services were $9,466 in 2000 compared to $350 in 1999. Management expects these revenues to grow slightly in 2000. The Company has unused operating loss carryforwards and deductible temporary differences totaling approximately $1,366,000 at December 31, 2000. If not used, the carryforwards expire in years beginning in 2009. If all the operating loss carryforwards and deductible temporary differences were used, the Company would realize a deferred tax asset of approximately $314,000 based upon expected income tax rates. The Company has previously recognized the benefit of these deferred tax assets. Realization depends on generating sufficient taxable income before the expiration of the loss carryforwards. Although realization is not assured, Management believes that approximately 60% of the deferred tax asset will be realized based upon anticipated profitability in the future. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The Company recorded income tax expense of $20,000 and $35,000 in 1999 and 2000, respectively, although the Company was not required to pay income taxes in these years. The income tax expense in was a result of reporting net income for the year and a change in the deferred tax asset valuation allowance. The income tax expense in was a result of a change in the deferred tax asset valuation allowance. The Company absorbed $150,512 of Natural Spirit start-up expenses (38% of its total SG & A expenses) using operational revenue and still reported a consolidated net income of $69,407 in 2000 compared to a loss of $109,583 in 2000. The Company continues to develop new products, seek additional financing, and implement its strategy of creating operational affiliates that will use CD's in herbal medicines, waste water remediation, and pharmaceuticals. Item 7. Financial Statements [LETTERHEAD OF JAMES MOORE & CO.] INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of CTD Holdings, Inc.: We have audited the accompanying consolidated balance sheet of CTD Holdings, Inc. as of December 31, 2000, and the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for the years ended December 31, 2000 and 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CTD Holdings, Inc. as of December 31, 2000, and the results of its operations and its cash flows for the years ended December 31, 2000 and 1999, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 14 to the consolidated financial statements, the Company has experienced a significant operating loss and has a working capital deficiency. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 14. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/James Moore & Company January 25, 2001 Gainesville, Florida The accompanying notes to financial statements are an integral part of this statement. F - 1 CTD HOLDINGS, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 2000
ASSETS CURRENT ASSETS Cash and cash equivalents $ 16,690 Accounts receivable 8,725 Inventory 56,318 Current portion of note receivable 9,435 Other current assets 7,098 ------------- Total current assets 98,266 ------------- PROPERTY AND EQUIPMENT 417,668 ------------- OTHER ASSETS Note receivable, less current portion 10,708 Intangibles 25,141 ------------- Total other assets 35,849 ------------- TOTAL ASSETS $ 551,783 =============
The accompanying notes to financial statements are an integral part of this statement. F-2 CTD HOLDINGS, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 2000 (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 182,417 Current portion of long term debt 19,407 Line of credit 25,192 ------------- Total current liabilities 227,016 ------------- LONG TERM LIABILITIES Long term debt, less current portion 178,836 Due to shareholder 57,419 ------------- Total long-term liabilities 236,255 ------------- STOCKHOLDERS' EQUITY Class A common stock, par value $.0001 per share, 9,900,000 shares authorized, 3,991,220 shares issued and outstanding; 398 Class B non-voting common stock, par value $.0001 per share, 10,000,000 shares authorized, 0 shares issued and outstanding - Additional paid-in capital 1,898,503 Accumulated deficit (1,810,389) ------------- Total stockholders' equity 88,512 ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 551,783 =============
The accompanying notes to financial statements are an integral part of this statement. F-3 CTD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999 ------------- ------------- PRODUCT SALES $ 384,590 $ 557,495 COST OF PRODUCTS SOLD 125,635 74,832 ------------- ------------- GROSS PROFIT 258,955 482,663 CONSULTING SERVICES AND OTHER OPERATING REVENUE - 9,466 ------------- ------------- TOTAL OPERATING REVENUE 258,955 492,129 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 548,793 392,492 ------------- ------------- INCOME (LOSS) FROM OPERATIONS (289,838) 99,637 ------------- ------------- OTHER INCOME (EXPENSE) Investment and other income (expense) 2,304 (792) Gain due to change in redemption price on common stock subject to repurchase - 1,660 Interest expense (28,294) (11,098) ------------- ------------- Total other income (expense) (25,990) (10,230) ------------- ------------- INCOME (LOSS) BEFORE INCOME TAXES (315,828) 89,407 INCOME TAX EXPENSE, net (195,000) (20,000) ------------- ------------- NET INCOME (LOSS) $ (510,828) $ 69,407 ============= ============= NET INCOME(LOSS)PER COMMON SHARE $ (.14) $ .05 ============= ============= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 3,702,203 1,539,377 ============= =============
The accompanying notes to financial statements are an integral part of these statements. F-4 CTD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999 ------------- ------------- NET INCOME (LOSS) $ (510,828) $ 69,407 ------------- ------------- OTHER COMPREHENSIVE INCOME, NET OF TAX Reclassification adjustment for previous unrealized losses included in net income - 4,164 ------------- ------------- OTHER COMPREHENSIVE INCOME - 4,164 ------------- ------------- COMPREHENSIVE INCOME (LOSS) $ (510,828) $ 73,571 ============= =============
The accompanying notes to financial statements are an integral part of these statements. F-5
CTD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 COMMON STOCK ADDITIONAL ACCUM. OTHER TOTAL PAID-IN COMPREHENSIVE ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL INCOME (LOSS) DEFICIT EQUITY ----------- ----------- ------------ ------------- ------------ ------------ Balance, December 31, 1998 2,633,168 $ 260 $ 1,690,604 $ (4,164) $ (1,368,968) $317,732 Shares issued for services 506,000 52 23,604 - - 23,656 Shares repurchased and retired (212,948) (18) (6,371) - - (6,389) Shares issued to acquire rights 53,000 4 13,246 - - 13,250 Shares sold 180,000 18 44,702 - - 44,720 Expiration of repurchase obligation 16,000 - - - - - Other comprehensive income - - - 4,164 - 4,164 Net income - - - - 69,407 69,407 ----------- ----------- ----------- ----------- ----------- ------------ Balance, December 31, 1999 3,175,220 316 1,765,785 - (1,299,561) 466,540 Shares issued for services 736,000 74 92,726 - - 92,800 Shares sold 40,000 4 29,996 - - 30,000 Shares issued to acquire rights 40,000 4 9,996 - - 10,000 Net loss - - - - (510,828) (510,828) ------------ ------------ ------------ ------------ ------------ ----------- Balance, December 31, 2000 3,991,220 $ 398 $ 1,898,503 $ - $(1,810,389) $ 88,512 ============ ============ ============= ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements. F-6 CTD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS DECEMBER 31, 2000 AND 1999 Increase (decrease) in Cash and Cash Equivalents 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (510,828) $ 69,407 ----------- ----------- Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 26,414 18,684 Loss on disposal of equipment 425 - Valuation allowance - other 4,111 - Valuation allowance deferred income taxes 195,000 20,000 Loss on sale of investments - 3,122 Gain based on redemption price of common stock subject to repurchase - (1,660) Stock issued for services 78,330 23,656 Decrease (increase) in accounts receivable 12,539 (9,569) Decrease (increase) in inventory 28,931 (52,463) Decrease (increase)in other current assets 5,593 (2,956) Increase in accounts payable and accrued expenses 130,783 52,710 Increase in common stock payable - 7,800 ----------- ----------- Total adjustments 482,126 59,324 ----------- ----------- Net cash provided by (used for) operating activities (28,702) 128,731 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (97,007) (127,710) Loans to employees (910) (41,603) Repayment of loans to employee 19,259 5,614 Purchase of intangible assets - (5,722) Proceeds from sale of investments - 10,261 ------------ ----------- Net cash used for investing activities (78,658) (159,160) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds on line-of-credit 21,898 3,294 Proceeds from loan payable to stockholder 32,096 21,589 Payment to stockholder on loan (8,372) (1,639) Proceeds from sale of stock 30,000 50,000 Offering costs of sale of stock - (5,279) Repurchase of stock - (6,389) Proceeds from debt - 36,472 Payment on debt (24,997) (31,077) ----------- ----------- Net cash provided by financing activities 50,625 66,971 ------------ ----------- The accompanying notes to financial statements are an integral part of these statements. F-7 CTD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS DECEMBER 31, 2000 AND 1999 Increase (decrease) in Cash and Cash Equivalents (Continued) 2000 1999 ------------ ------------ Net increase (decrease)in cash and cash equivalents (56,735) 36,542 CASH AND CASH EQUIVALENTS, beginning of year 73,425 36,883 ------------ ------------ CASH AND CASH EQUIVALENTS, end of year $ 16,690 $ 73,425 ============ ============ 2000 1999 ------------ ------------ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest $ 28,294 $ 11,098 ============ ============ Cash paid for income taxes - - ============ ============ SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITY Common stock issued for services $ 78,330 $ 23,656 ============ ============ Common stock issued to acquire rights $ 10,000 $ 13,250 ============ ============ Acquisition of property and equipment with debt $ 12,845 $ 205,000 ============ ============ The accompanying notes to financial statements are an integral part of these statements. F-8 CTD HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The following is a summary of the more significant accounting policies of CTD Holdings, Inc. and Subsidiary (the Company) (formerly known as Cyclodextrin Technologies Development, Inc.) which affect the accompanying consolidated financial statements: (a) ORGANIZATION AND OPERATIONS - The Company was incorporated in August 1990, as a Florida corporation with operations beginning in July 1992. The Company is engaged in the marketing and sale of cyclodextrins and related products to food, pharmaceutical and other industries. The Company also provides consulting services related to cyclodextrin technology. In 1999, the Company formed Nature Spirit Mushroom Enterprises, Inc. (NSME), a 99% owned subsidiary, to grow mushrooms and to develop and market a line of mushroom based products. The Company's current market is primarily within the United States. (b) BASIS OF PRESENTATION - The consolidated financial statements include the Company and its 99% owned subsidiary. All intercompany accounts and transactions have been eliminated. (c) CASH AND CASH EQUIVALENTS - For the purposes of reporting cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. (d)PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost. Depreciation on property and equipment is computed using primarily the straight-line method over the estimated useful lives of the assets, which range from three to forty years. Depreciation on leasehold improvements is computed on the straight-line method over the lesser of the term of the related lease or the estimated useful lives of the assets. (e) INVENTORY - Inventory consists of cyclodextrin products purchased for resale and chemical complexes manufactured in-house and raw mushrooms in process. Inventory is recorded at the lower of cost (first-in, first-out) or market. (f) INTANGIBLES - Intangible assets consist of loan costs and goodwill recorded at cost. Intangible assets are amortized using the straight-line method over their respective estimated useful lives. (g) REVENUE RECOGNITION - Revenues are recognized when products are shipped. (h) ADVERTISING - Advertising costs are charged to operations when incurred. (i) START - UP COSTS - The initial costs incurred to organize the Company's subsidiary were expensed as incurred. (j) NET INCOME (LOSS) PER COMMON SHARE - Net income (loss) per common share is computed in accordance with the requirements of Statement of Financial Accounting Standards No. 128 (SFAS 128). SFAS 128 requires net income (loss) per share information to be computed using a simple weighted average of common shares outstanding during the periods presented. The accompanying notes to financial statements are an integral part of this statement. F-9 CTD HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (k) USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. (2) COMMITMENTS: The Company's noncancelable operating lease for office space expires October 31, 2001. The Company has a purchase option in which ten percent of the lease payments may be applied to the purchase price. The future minimum lease payments under all operating leases for the next five years are as follows: YEAR ENDING DECEMBER 31, AMOUNT ------------ ----------- 2001 25,348 2002 7,108 2003 3,947 2004 - 2005 - ----------- Total $ 36,403 =========== Rent expense under the foregoing lease and all other operating leases was $28,606 and $27,315 for 2000 and 1999, respectively. 1994 Employee Stock Option Plan The Company adopted a nonqualified employee stock issuance plan to provide incentives to employees. The Company has reserved 100,000 shares of voting common stock under this Plan. 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 no longer has an obligation to repurchase the stock. Prior to December 31, 1999, any change in the valuation of this account was recorded as a gain or loss in the accompanying statement of operations. The Company's repurchase obligation for stock held by former employees was valued at 50% of the bid price on the date of the employee's termination. The Company recorded a gain of $1,660 in 1999 from the expiration of the repurchase obligation of 8,000 shares issued in 1994. There are no shares subject to repurchase at December 31, 2000. The accompanying notes to financial statements are an integral part of this statement. F-10 CTD HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (2) COMMITMENTS: (Continued) 1999 Incentive Stock Option Plan The Company adopted a nonqualified employee stock option plan to provide incentives to directors, employees and consultants. Up to 79,000 shares may be issued under this plan. Options and condition of exercise are at the discretion of the Board of Directors. The option price can be no less than fair market value of the underlying stock on the date of award. On June 1, 1999, the Company awarded an option to an employee for 20,000 shares under the plan. The option price of $.50 per share is equal to private stock sales of unregistered shares during 1999 which was deemed to be fair value. Therefore, no compensation expense was recorded at issuance. During 2000, the option was cancelled in accordance with its terms. NSME Stock Bonus Plan 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 officer is no longer in the employ of the Company and there were no shares earned or due under this plan at December 31, 2000. The Company awarded 200,000 shares of common stock to its President in 1999. These shares were not issued at December 31, 1999. The Company valued these shares at $7,800, approximately 50% less than the bid price on the award date. The Company has recorded an expense and a liability to issue common stock of $7,800, at December 31, 1999 and issued these shares in 2000. On March 1, 2000, the Company entered into a one year public relations contract with a consultant. The Company issued the consultant 200,000 shares of common stock. The Company valued the shares at $40,000, approximately 50% less than the bid price on the contract date. The Company recorded a prepaid asset of $40,000, which is being amortized over one year, the life of the contract. On April 1, 2000, the Company adopted a stock bonus plan for the Company's president. The amount of stock due each month is equal to $5,000 divided by 50% of the lowest stock trade amount for that month. The Company issued 75,566 shares and expensed $45,000 during 2000. (3) PROPERTY AND EQUIPMENT Property and equipment as of DECEMBER 31, 2000, consists of: Land $ 80,000 Buildings and improvements 240,310 Machinery and equipment 113,421 Office furniture and equipment 77,597 Vehicle 12,845 ------------ 524,173 Less: accumulated depreciation 106,505 ------------ Property and equipment, net $ 417,668 ============= The accompanying notes to financial statements are an integral part of this statement. F-11 CTD HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (4) CONCENTRATIONS OF CREDIT RISK: Significant concentrations of credit risk for all financial instruments owned by the Company, are as follows: (a) DEMAND DEPOSITS - The Company has demand deposits in two local branch banks which are insured by the Federal Deposit Insurance Corporation up to $100,000. At December 31, 2000, the bank balance was $16,363. The Company has no policy of requiring collateral or other security to support its deposits. (b) ACCOUNTS RECEIVABLE - The Company's accounts receivable consist of amounts due primarily from food and pharmaceutical companies located primarily in the United States. The Company has no policy requiring collateral or other security to support its accounts receivable. (5) MAJOR CUSTOMERS: Sales to one customer in 2000 represented approximately 52% of total sales. Sales to three customers in 1999 represented approximately 58% of total sales. Of this, sales to the largest major customer was approximately 28% of sales. (6) LONG TERM DEBT: Long term debt consists of the following: Mortgage note payable to bank, payments of $1,782 due monthly including principal and interest at 7.95%, collateralized by land and buildings with a cost of $210,000 $ 176,570 Loan payable to individual, payments of $1,591 due including principal and interest at 8.5%, collateralized by equipment with a cost of $35,000 9,313 Note payable to individual, payments of $300 due monthly including principal and interest at 13.08%, collateralized by a vehicle with a cost of $12,845 12,360 ----------- 198,243 Less current portion 19,407 ----------- Long - term debt, less current portion $ 178,836 ===========
Maturities on long-term debt as of December 31, 2000 over the next five years are as follows: Year ending December 31, Amount 2001 $ 19,407 2002 10,705 2003 11,726 2004 12,851 2005 11,937 =======
The accompanying notes to financial statements are an integral part of this statement. F-12 CTD HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 The Company has a $25,000 unsecured line of credit with a local bank. The monthly minimum payment is calculated based on the outstanding balance. The interest rate is variable (12.50 % at December 31, 2000). The credit line can be canceled and payment of the outstanding amount due can be required on demand by the bank at any time. At December 31, 2000 the entire $ 25,000 was outstanding and owed to the bank. (7) RELATED PARTY TRANSACTIONS: The Company has the following note receivable due from an employee at December 31, 2000: Mortgage receivable, payments of $454 due semi-monthly including principal and interest at 8%, collateralized by a personal residence $ 20,143 Less current portion 9,435 --------- Note receivable, less current portion $ 10,708 ========= The majority shareholder periodically advances the Company short term loans and defers receipt of salary. The balance due is $57,419 at December 31, 2000. The loans are due on demand, include interest at 8%, and are unsecured. Interest expense related to the loans total $1,637 for the year ended December 31, 2000. Subsequent to December 31, 2000, the stockholder agreed to enter into a long-term debt obligation related to this $57,419. The new note bears interest at 10%. Interest and principal are due April 15, 2002. Accordingly the $57,419 has been classified as a long term debt at December 31,2000. (8) FAIR VALUE OF FINANCIAL INSTRUMENTS: Statement of Financial Accounting Standards No. 107 requires disclosure of fair value to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement. The following table summarizes financial instruments by individual balance sheet account as of December 31, 2000: CARRYING FAIR AMOUNT VALUE ---------- --------- FINANCIAL ASSETS Cash and cash equivalents $ 16,690 $ 16,690 Accounts receivable 8,725 8,725 Notes Receivable 20,143 20,143 ---------- --------- Total financial assets $ 45,558 $ 45,558 ========== ========= FINANCIAL LIABILITIES Accounts payable and accrued expenses 182,417 182,417 Line of credit 25,192 25,192 Long-term debt 198,243 198,243 Due to shareholder 57,419 57,419 ---------- --------- Total financial liabilities $ 463,271 $ 463,271 ========== =========
The accompanying notes to financial statements are an integral part of this statement. F-13 CTD HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 The fair value of all financial instruments classified as current assets or liabilities approximates carrying value due to the short-term maturity of the instruments. (9) INCOME TAXES: The Company has available at December 31, 2000, unused operating loss carryforwards totaling approximately $ 1,690,000 that may be applied against future taxable income. If not used, the carryforwards will expire as follows: Year Ending December 31, Amount ----------------- ----------------- 2009 $ 965,000 2010 195,000 2017 206,000 2019 324,000 ----------------- Total $ 1,690,000 =================
The Company also has deductible temporary difference resulting from the difference between financial and tax bases of inventory and stock issued for services totaling approximately $20,000 at December 31, 2000. If all of the operating loss carryforwards and temporary deductible differences were used, the Company would realize a deferred tax asset of approximately $391,000 based upon expected income tax rates. Under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, the deferred tax asset should be reduced by a valuation allowance if it is likely that all or a portion of it will not be realized. Realization depends on generating sufficient taxable income before the expiration of the loss carryforwards. Management has established a valuation allowance equal to the amount of the deferred tax asset due to uncertainty of realization of the benefit of the net operating losses against future taxable income. Therefore, the Company has established a valuation allowance of $391,000 at December 31, 2000. The Company recorded income tax expense of $195,000 as a result of an increase in the valuation allowance on the deferred tax asset less the tax benefit of temporary differences at December 31, 2000. The Company has previously recognized the benefits of its net operating loss carryforward. 2000 1999 ----------- ------------ Current income tax expense $ - $ 31,000 Tax benefit of temporary differences (71,000) - Effect of increase (decrease) in valuation allowance 266,000 (11,000) ----------- ------------ The accompanying notes to financial statements are an integral part of this statement.Total net tax expense $ 195,000 $ 20,000 =========== ============
The accompanying notes to financial statements are an integral part of this statement. F-14 CTD HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (10) PRIVATE PLACEMENT OF STOCK: Beginning in 1999, the Company began offering a total of 1,300,000 shares of common stock under a private placement memorandum that expired on September 30, 2000. In 1999, 40,000 shares were sold for $15,000, less direct offering costs of $5,279. During 2000, 40,000 shares were sold for $30,000. In 1999, the Company also sold 140,000 of common stock for $35,000. (11) CORPORATE CHANGES: In April 2000, the Company changed its name to CTD Holdings, Inc. from Cyclodextrin Technologies Development, Inc. Also in April 2000, the Company effected a 2 for 1 stock split of its outstanding common stock effective May 1,2001. The accompanying financial statements and notes have been restated for all periods presented to reflect these changes. (12) STOCK REPURCHASE: In April 1999, the Company repurchased 212,948 shares of its outstanding common stock for $6,389. These shares will be canceled. The Company has no plans to repurchase additional shares. (13) SEGMENTS: During 1999, the Company began cultivating exotic mushrooms and herbs. The Company now has two segments, Cyclodextrin products and mushroom products. Information specific to these two segments follows: Year Ended December 31,2000 --------------------------------------------------------------- 2000 1999 ----------------------------- -------------------------------- Cyclodextrins Mushrooms Cyclodextrins Mushrooms ------------- --------- ------------- --------- Sales $ 347,201 $ 37,389 $ 565,379 $ 1,582 Income (loss) from operations $ (20,058) $(269,780) $ 245,781 $(146,144) December 31, 2000 ------------------- Cyclodextrins Mushrooms ------------- --------- Total assets $ 248,681 $ 303,102
Income (loss) from operations by segment include intercompany allocations of administrative expenses. The accompanying notes to financial statements are an integral part of this statement. F-15 (14) CONTINGENCIES: As shown in the accompanying financial statements, the Company incurred a net loss of $510,828 during the year ended December 31, 2000, and as of that date, the Company's current liabilities exceeded its current assets by $128,750. Those factors, create an uncertainty about the Company's ability to continue as a going concern. Management of the Company is reducing expenses and attempting to increase revenues to return the Company to a profitable position. Additionally, management is working with creditors to work out agreeable payment plans, until the cash flow position improves. The ability of the Company to continue as a going concern is dependent on the Company achieving these plans. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. New disclosure PART III. Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. Name Age Position Since C.E. Rick Strattan 54 President/CEO, Director August, 1990
C.E. Rick Strattan, has been President and a Director of the Company since its formation. He served as treasurer of the Company from August, 1990 to May, 1995. From November 1987 through July 1992, Mr. Strattan was with Pharmatec, Inc. where he became its Director of Marketing and Business Development for CDs. He was responsible for CD sales and related business development efforts. From November, 1985 through May, 1987 he served as Chief Technical Officer for Boots-Celltech Diagnostics, Inc. He also served as Product Sales Manager for American Bio-Science Laboratories, a Division of American Hospital Supply Corporation. He is a graduate of the University of Florida with a BS degree in chemistry and mathematics and has also received an MS degree in Pharmacology and an MBA degree in Marketing/Computer Information Sciences from the same institution. Mr. Strattan has written and published numerous articles and a book chapter on the subject of Cyclodextrins. Mr. Strattan's professional and technical experience are deemed highly important to the Company. See "Business - General." Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors and persons who beneficially own more than 10% of the Company's Common Stock to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission ("SEC"). Such persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms filed by such persons. Based solely on the Company's review of such forms furnished to the Company and written representation from certain reporting persons, the Company believes that during the fiscal year ended December 31, 2000, all filing requirements applicable to the Company's executive officers, directors and more than 10% shareholders were complied with. The accompanying notes to financial statements are an integral part of this statement. F-16 Item 10. Executive Compensation Executive compensation is determined by the Board of Directors. All compensation paid by the Company for services rendered during the three fiscal years ended December 31, 1997, 2000 and 2000 for each executive officer is set forth in the following table:
SUMMARY COMPENSATION TABLE (three fiscal years ended December 31, 1997, 2000 and 2000) Annual Long Term Compensation Compensation --------------------------------------------------------------- Other All Annual Other Name and Principal Position Year Salary Bonus Compensation Compensation C.E. Rick Strattan 2000 $32,918 -0- -0- $40,000(1) Chief Executive Officer, President 1999 $42,000 -0- -0- $ 7,800(2) 1998 $15,500 $10,000 -0- -0- Lisa Stephens(3) 2000 -0- -0- -0- -0- Chief Financial Officer 1999 -0- -0- -0- -0- 1998 $25,000 $ 500 -0- -0-
(1) Reflects grants of 336,000 shares (2) Reflects grants of 200,000 shares (3) Ms. Stephens resigned in 1999. On November 15, 1995, the Company adopted a non-qualified employee stock purchase plan pursuant to which employees may purchase restricted shares of the Company's common stock at a price of 50% of the current bid price of the shares in amounts not to exceed the employee's gross pay. Pursuant to the plan, employees have elected to purchase 33,400 shares, of which 15,800 shares have been purchased by Mr. Strattan. Natural Spirit adopted a stock bonus plan whereby an officer of Natural Spirit can receive Natural Spirit 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 Natural Spirit. 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 Natural Spirit stock owned by the Company for each $12,500 of net income earned by Natural Spirit, in excess of net income required to repay intercompany loans due to the Company. Up to 2,000 shares (20% of Natural Spirit: 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 December 31, 2000. The accompanying notes to financial statements are an integral part of this statement. F-17 Performance-Based Stock Compensation On January 28, 1999, the Board of Directors authorized a bonus of $10,000 and 250,000 common shares to Mr. Strattan and 1,500 shares to Lisa Stephens for their work in 1999. The Company believes Ms. Stephens shares were issued in error. On April 5, 1999, the Board of Directors approved the repurchase of 106,474 common shares from Burckhardt and Company for a total consideration of $6,388.44. On November 3, 1999, the Board of Directors authorized a payment of 100,000 common shares to C.E. Rick Strattan in consideration of his work in 2000. These shares were issued in 2000. During 2000, the Company compensated Mr. Strattan in part by the transfer of a total of 336,000 common shares throughout the course of the year. Item 11. Security Ownership of Certain Beneficial Owners and Management. The following table shows the ownership of the Common Stock of the Company on March 30, 2001, by each person who, to the knowledge of the Company, owned beneficially more than five (5%) of such stock, the ownership of each director, and the ownership of all directors and officers as a group. Unless otherwise noted, shares are subject to the sole voting and investment power of the indicated person. Names and Address of Individual or .........Amount and Nature of Approximate % Identity of Group ..........................Beneficial Ownership of Class C.E. Rick Strattan(1)....................... 2,036,000 50.01% 4123 N.W. 46th Avenue Gainesville, FL 32606 All Officers and Directors as a group ...... 2,036,000 50.01% (1) Held by Strattan Associates, Ltd., of which Mr. Strattan is the general partner. Strattan Associates, Ltd. is a limited partnership established by Mr. Strattan for estate tax purposes and is not otherwise engaged in business. Strattan Associates, Ltd. is the owner of the 500,000 shares of CTD stock. Mr. Strattan is the President/CEO and Director of the Company. Item 12. Certain Relationships and Related Transactions. On March 10, 1999, the Company adopted a resolution whereby 10,000 shares of the Company's common stock, issued in the name of Gregory V. DeLong, be returned to the Company's treasury stock as authorized but unissued shares, pursuant to a Stock Power retained by the Company. On August 10, 1998, the Company purchased 10,000 shares of common stock from Atlanta Syndication Network, Inc. for $5,000. The shares were originally issued in April 1997. The shares were canceled after the Company bought them. On November 24, 1998, the Company issued 106,474 shares to Burckhardt and Co. for its services performed in 2000. On January 28, 1999, the Board of Directors authorized a bonus of $10,000 and 250,000 common shares to Mr. Strattan and 1,500 shares to Lisa Stephens for their work in 2000. On April 5, 1997, the Board of Directors approved the repurchase of 106,474 common shares from Burckhardt and Company for a total consideration of $6,388.44. On November 3, 1999, the Board of Directors authorized a payment of 100,000 common shares to C.E. Rick Strattan in consideration of his work in 2000. These shares were issued in 2000. On November 3, 2000, the Board of Directors authorized a bonus of 100,000 common shares to C.E. Rick Strattan in consideration of his work in 2000. These shares were issued in 2000. On June 1, 2000, Natural Spirit entered into an employment agreement with John Lindsay. Under the terms of the agreement, Mr. Lindsay will be able to purchase 79% of the shares of Natural Spirit if a certain net annual profit is obtained each year while he is still employed as President ( 1% of the shares of Natural Spirit for every $12,500 in net profit). According to the schedule upon which Mr. Lindsay's share rights may vest, CTD may lose control of Natural Spirit within four years of its creation. Mr. Lindsay will also receive a salary of $1,000 per month. On October 1, 2000, Mr. Lindsay's salary increased to $2,000 per month. His salary will be $3,000 per month through the year 2,000 and then increase to $4,000 the following year. Mr. Lindsay and Mr. Strattan are the sole directors of Natural Spirit. CTD has certain buy-out rights with regard to a possible spin-off of Natural Spirit. Neither John Lindsay nor Mr. Strattan will receive compensation for their positions as directors of Natural Spirit. On March 13, 2000, CTD entered into an agreement with Randy "Lazarus" McAtee d/b/a "Small Potatoes" to provide financial public relations services for CTD for one year. CTD has compensated Mr. McAtee by the transfer of 100,000 restricted shares. During 2000, the Company compensated Mr. Strattan in part by the transfer of a total of 336,000 common shares throughout the course of the year. PART IV. Item 13. Exhibits and Reports on Form 8-K. (a) Exhibits Page (1) Reports of Independent Certified Accountants F-1 (2) Financial Statements F-2 Exhibits required by Item 601, Regulation S-B: (3) Articles of incorporation and by-laws (a) Articles of Incorporation filed August 9, 1990 * None (b) By-Laws. * None (c) Certificates of Amendment to the Articles of Incorporation filed November 18, 1993 and September 24, 1993. * None (4) Instruments defining the rights of security holders, including indentures None (a) Specimen Share Certificate for Common Stock. * None (9) Voting Trust Agreement None (10) Material Contracts (10.1) Extension of Agreement between the Company and Herbe Wirkstoffe GmbH.*** None (10.2) Lease Extension dated October 7, 1999 None (10.3) Loan Agreement with John Lindsay dated August 14, 1999 None (10.4) Public Relations Services Agreement - Small Potatoes Contract dated March 1, 2000 None (11) Statement re: Computation of Per Share Earnings Note 1 to Financial Statements (16) Letter on changes in certifying accountant*** None (18) Letter on change in accounting principles None (22) Subsidiaries of Registrant None (23) Published Report re: Matters Submitted to Vote of Security Holders None (24) Consents of Experts and Counsel None (25) Power of Attorney None (27) Financial Data Schedule None (28) Additional Exhibits None (29) Information from reports furnished to state insurance regulatory authorities None (b) Reports on Form 8-K: No Form 8-K was filed for the quarter ended December 31, 2000. * Incorporated by reference to the Company's Form 10-SB filed with the Securities and Exchange Commission on February 1, 1994. ** Incorporated by reference to the Company's Form 10-KSB filed with the Securities and Exchange Commission on March 29, 1997. *** Incorporated by reference to the Company's Form 10-KSB filed with the Securities and Exchange Commission on March 28, 2000. **** Incorporated by reference to the Company's Form 10KSB filed with the Securities and Exchange Commission March 30,2000. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) CTD HOLDINGS, INC. /S/ C.E. Rick Strattan By (Signature and Title) _______________________________________ C.E. RICK STRATTAN, President, Chief Executive Officer, Chief Operating Officer and Director Date: March 8, 2001