10QSB 1 ctdh10qsb1q2005.txt CTD HOLDINGS 2005 1ST QUARTER 10-QSB 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: March 31, 2005. ____ 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 CTD HOLDINGS, 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.) 27317 N.W. 78th Avenue, High Springs, Florida 32643 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: 386-454-0887 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. APPLICABLE ONLY TO CORPORATE ISSUERS As of May 13, 2005, the Company had outstanding 10,956,517 shares of its common stock. Transitional Small Business Disclosure Format: No. PART I: FINANCIAL INFORMATION PART I: Financial Information CTD HOLDINGS, INC. CONSOLIDATED BALANCE SHEET (Unaudited)
ASSETS March 31, 2005 -------------- CURRENT ASSETS Cash and cash equivalents $ 156,698 Certificate of deposit 40,603 Accounts receivable 22,063 Inventory 67,068 Deferred tax asset 25,000 Loan to shareholder 1,501 -------- Total current assets 312,933 -------- PROPERTY AND EQUIPMENT, NET 441,936 -------- OTHER Intangibles, net 12,480 Deferred tax asset 200,000 Sports memorabilia collection 92,402 -------- Total other assets 304,882 -------- TOTAL ASSETS $ 1,059,751 =========
(Continued) F-2 CTD HOLDINGS, INC. CONSOLIDATED BALANCE SHEET (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, 2005 ------------ CURRENT LIABILITIES Accounts payable and accrued expenses $ 31,458 Customer deposit 38,285 Current portion of long-term debt 8,441 Current portion of stockholder loan 20,000 ----------- Total current liabilities 98,184 ----------- LONG-TERM LIABILITIES Long-term debt, less current portion 151,056 Due to stockholder, less current portion 19,087 ----------- Total long-term liabilities 170,143 ----------- STOCKHOLDERS' EQUITY Class A common stock, par value $.0001 per share, 100,000,000 shares authorized, 11,294,017 shares issued and outstanding 1,193 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 2,638,191 Accumulated deficit (1,847,960) ----------- Total stockholders' equity 791,424 ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,059,751 ===========
See Accompanying Notes to Financial Statements. F-3 CTD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, ----------------------------- 2005 2004 -------------- ------------ PRODUCT SALES $ 118,544 $ 133,179 COST OF PRODUCTS SOLD 17,474 23,365 ----------- ----------- GROSS PROFIT 101,070 109,814 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 105,415 135,702 ----------- ----------- SPORTS MEMORABILIA COLLECTION Gain on sales 2,902 - Other income 203,470 - ----------- ----------- 206,372 - ----------- ----------- OTHER INCOME (EXPENSE) Investment and other income 1,318 1,719 Interest expense (2,870) (3,193) ----------- ----------- Total other (expense) (1,552) (1,474) ----------- ----------- NET INCOME (LOSS) BEFORE INCOME TAXES 200,475 (27,362) INCOME TAXES - - ----------- ----------- NET INCOME (LOSS) 200,475 (27,362) =========== =========== NET INCOME (LOSS) PER COMMON SHARE .02 (.00) =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 11,144,017 5,798,912 =========== ===========
See Accompanying Notes to Financial Statements. F-4 CTD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
Three Months Ended March 31, -------------------------- 2005 2004 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 200,475 $ (27,362) ------------ ------------ Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 7,855 6,983 Stock issued for services - 40,000 Gain on sales of sports memorabilia collection (2,902) - Stock issued to employees 20,030 15,030 Gain on expiration of option - sports memorabilia Collection (203,470) - Decrease in accounts receivable 41,504 86,695 Decrease (Increase) in inventory (16,069) 1,570 Increase in prepaid expenses - (1,530) Increase in accounts payable and accrued expenses 7,618 17,278 Increase in customer deposits 38,285 - ----------- ----------- Total adjustments (107,149) 166,026 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 93,326 138,664 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment and building improvements (15,257) (23,213) Purchase of certificate of deposit (270) - ----------- ----------- NET CASH USED FOR INVESTING ACTIVITIES (15,527) (23,213) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Payment on notes payable (1,544) (2,493) Payment on stockholder loan (14,511) (11,000) Loan to shareholder - (3,500) Received from shareholder 583 139 ------------ ------------ NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (15,472) (16,854) ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 62,327 98,597 CASH AND CASH EQUIVALENTS, beginning of period 94,371 7,757 ------------ ------------ CASH AND CASH EQUIVALENTS, end of period $ 156,698 $ 106,354 ============ ============
(Continued) F-5 CTD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (Unaudited) (Concluded)
Three Months Ended March 31, -------------------------- 2005 2004 ------------ ------------ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest $ 2,870 $ 2,235 ============ ============ SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITY Common stock issued under one year consulting Contract $ - $ 40,000 ============ ============
See Accompanying Notes to Financial Statements. F-6 CTD HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) The information presented herein as of March 31, 2005, and for the three months ended March 31, 2005 and 2004, is unaudited. (1) BASIS OF PRESENTATION: The accompanying financial statements include CTD Holdings, Inc. and its subsidiaries. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Rule 10-01 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal required adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. 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, 2004. (2) 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. SFAS 128 eliminated the previous requirement that earnings per share include the effect of any dilutive common stock equivalents in the calculation. (3) INCOME TAXES The Company recorded no income tax expense for the three months ended March 31, 2005 due to its realizing a tax loss for the period and its previous recognition of the benefit of its net operating loss carryforward. (4) CONCENTRATIONS Sales to four major customers were 80% of total sales for the three months ended March 31, 2005. Sales to three major customers were 70% of total sales for the three months ended March 31, 2004. Substantially all 2005 inventory purchases were from two vendors. Substantially all 2004 inventory purchases were from one vendor. The Company has only one source for certain manufactured inventory. However, the Company has manufactured these products in the past and could do so again, if necessary. There are multiple sources for its other inventory products. (5) COMMITMENTS AND CONTINGENCIES The Company has employment agreements with two officers for total monthly salaries of $4,900. In addition, the officers are awarded shares of common stock each month. The number of shares is equal to $6,000 divided by eighty percent of the closing price of the Company's common stock on the last day of each month. The Company recognizes an expense equal to the fair value of the stock determined using the average stock closing trading price for the month multiplied by number of shares awarded for that month. The stock is subject to trading restrictions under Rule 144. For the three months ended March 31, 2005 and 2004, the Company awarded 337,500 and 56,779 shares, respectively, and recognized an expense of $23,000 and $18,000 respectively for stock awarded under these agreements. The stock awarded under these agreements is presented as outstanding in the accompanying financial statements. Both agreements expire December 31, 2005. The Company is required to pay a consultant 7.5% of any capital raised and 5% of any other capital transaction resulting within two years of the introduction by the consultant. No amounts have been paid or are due at March 31, 2005. In March 2004, the Company entered into a one-year agreement with a consultant regarding construction and specialized concrete formulations and issued 100,000 shares of stock valued at $40,000 at the date of issuance, which the Company expensed in the first quarter of 2004. The stock was registered using Form S-8. The consultant is related to the president and majority shareholder of the Company. (6) ACQUISTION OF SPORTS MEMORABILIA COLLECTION In April, 2004, the Company finalized the acquisition of a sports memorabilia collection (Collection), from its President and major shareholder. The Collection was appraised at $400,000. The President was issued 1,029,412 shares of unregistered common stock of the Company for the Collection. Since the acquisition of the Collection was from the Company's President and controlling shareholder, the Company recorded the Collection at $106,000, which is the acquisition cost basis of the President and controlling shareholder. The Company records sales of the Collection as gains or losses from operations. Concurrent with the acquisition of the Collection, the Company entered into a one-year contract with a consultant to liquidate the Collection on a "best efforts" basis. This contract expired in March 2005, and the unsold portion of the Collection was returned to the Company. The Company is currently exploring its options to continue its liquidation of the Collection. The consultant had the option to purchase the Collection at any time during the term of the agreement for $200,000 less any sale proceeds already paid to the Company. The Company computed the fair value of this call option using the Black-Scholes stock option pricing model. The following assumptions were made in estimating fair value: risk-free interest rate of 3.5%; no dividend yield; expected life of one year. The fair value calculated resulting from the issuance of this option was recorded as a liability and the expense was charged operations. The Company recalculated the fair value of the option at the end of each reporting period and recognized any change as through operations and adjust its liability accordingly. The option expired in March 2005, and the Company recorded the expiration of the option liability as a gain in the accompanying statement of operations for the three months ended March 31, 2005. The consultant was issued an option to acquire 100,000 shares of the Company's stock at $.50/share during the one-year term of the agreement. The option expired in March 2005. The consultant was required to maintain adequate insurance and pay for any transportation costs. The consultant was to liquidate the Collection at prices not less than 75% of the values published in auction-house guidebooks and/or reputable trade publications and price guides. The consultant was also required to provide a detailed itemization of sales to the Company on a monthly basis. F-8 Item 2. Management's Discussion and Analysis or Plan of Operation Introduction CTD Holdings, Inc. (referred to as the "Company," "CTD," or in the first person notations of "we," "us," and "our") began operations in 1990. Our revenues are principally derived from retail sales of cyclodextrins and cyclodextrin complexes. Our sales are primarily to major chemical supply houses around the world, pharmaceutical companies, and food companies for research and development and to diagnostics companies. We acquire our products principally from outside the United States, largely from Japan and Hungary, but are gradually finding satisfactory supply sources in the United States. While we enjoy better supply prices from outside the United States, rising shipping costs are making domestic sources more competitively priced. To add value to our products, we maintain a comprehensive database of patented and patent pending uses of cyclodextrins from the United States. We also maintain less comprehensive database that includes patents issued in many other countries including Japan, Gemany and others. This information is available to our customers. We also offer our customers our knowledge of the properties and potential new uses of cyclodextrins and complexes. As most of our customers use our cyclodextrin products in their research and development activities, their ordering from us is unpredictable with regard to timing, product mix and volume. We also have four major customers whom have a significant effect on our revenues when they increase or decrease their research and development activities that use cycldextrins. We keep in constant contact with these customers as to their cyclodextrin needs so we can maintain the proper inventory composition and quantity in anticipation of their needs. The sales to major customers and the product mix and volume of products sold has a significant effect on our revenues and gross profit. These factors contribute to our significant revenue volatility from quarter to quarter and year to year. Liquidity and Capital Resources Our cash and certificate of deposit increased to $197,000 as of March 31, 2005 compared to $135,000 as of December 31, 2004. This increase was primarily due to an increase in customer deposits in the first quarter of 2005. As of March 31, 2005, our working capital was $215,000 compared to $16,000 at December 31, 2004 and $169,000 at March 31, 2004. This increase in working capital from December 31, 2004 is due to the expiration of a $200,000 call option liability in March 2005. Our cash flow from operations was $93,000 compared to $139,000 a year ago. This decrease was due primarily to decreased sales in the first quarter of 2005 compared to 2004. We believe our working capital is sufficient to run our operations at current and expected future operating levels into the near future. We do not require capital in the next twelve months for normal operations. However, we require additional funding to implement our acquisition strategy. Our acquisition strategy includes raising $1,500,000 in the next twelve months. Our first acquisition will require approximately $500,000. We believe we can fund the initial costs of raising capital and start our acquisition strategy from existing working capital. Controlling cash expenses continues to be management's primary fiscal tool. However, growth requires increased expenditures and we feel that it is appropriate during the current growth stage to engage consultants that can help the Company in financial areas outside its expertise, accepting that these fees will act to reduce profitability. We are working hard to increase revenues to balance these new expenses, but cannot be sure that such effort will be enough in the short term to sustain profitable financial performance. Our cash SG&A expenses for 2005, as a percentage of sales, have decreased from 2004. During 2004, we acquired a sports memorabilia collection from our President. We obtained an appraisal on the collection for $400,000. We also engaged a third party consultant to liquidate the Collection, which has provided us with additional cash flow with minimal associated cash expenses. During March 2005, this agreement expired. We are currently exploring our options to continue to liquidate the Collection, but there are no assurances we will be able to successfully or profitably do so. During 2003, we began improvements and renovations of our corporate office and have invested $140,000 through March 31, 2005. We are committed to a Research Park facility for the 40-acre site. Contingent on the Company's ability to financially support modest expansions that will lead to a formal site plan, we anticipate spending at least another $100,000 over the next four quarters to put the Company in a position to initiate a 5-year plan for a new Cyclodextrin Research Park. In December 2004, the Company issued 3,500,000 shares of its common stock for $3,500 to a financial consultant. We recognized an expense of $206,500, which is the difference between the amount paid and the fair value of the stock issued based on the trading price on the date of the stock purchase. We have agreed to register the stock by filing a registration statement by June 19, 2005 with an effective date no later than August 19, 2005. If the registration is not filed and effective by the dates indicated, we are required to issue an additional 175,000 shares of common stock for each month or part thereof until the registration statement is filed or becomes effective. We are currently in the process of preparing a registration statement to be filed. We have filed Form S-1 with the U.S. Securities and Exchange Commission for a shelf registration of 10,000,000 shares of common stock to be used for business acquisition purposes. We are currently preparing our response to comments received from the Securities and Exchange Commission review process. We have no off-balance sheet arrangements at March 31, 2005. Results of Operations Total product sales for the first quarter 2005 were $119,000 compared to $133,000 in the first quarter of 2004. Our major customers continue to be repeat purchasers. In 2004, three of our major customers accounted for 70% of our sales. In 2005, three of our major customers accounted for 69% of our sales. This size of the major customer sales decreased from 2004 to 2005. Our gross profit margin of 85% remains consistently strong for the first quarter 2005 compared to 83% for the year ended December 31, 2004. Changes in the product mix in sales has a significant effect on our overall gross profit percentage, but management expects our gross profit to remain in the 80% range. Our SG&A expenses decreased to approximately $105,000 from approximately $136,000 for the three months ended March 31, 2004. This decrease is due to $40,000 in consulting fees related to a potential acquisition incurred in 2004 but not incurred in 2005. In April 2004, we acquired a collection of sports memorabilia from our majority shareholder and President. We also engaged a consultant to liquidate the collection. This agreement expired in March 2005. For the three months ended March 31, 2005, we recognized a gain on sale of Collection items of $3,000 and recognized a $200,000 gain on the expiration of a call option liability previously issued to the consultant. We are currently exploring our options to continue to liquidate the Collection, but there are no assurances we will be able to successfully or profitably do so. We expect significant increases in future legal and accounting fees as the result of implementing our planned merger and acquisition strategy. We recognized net income of $200,000 for the three months ended March 31, 2005 compared to a net loss of ($27,000) for the three months ended March 31, 2004. We will continue to introduce new products that will increase sales revenue and implement a strategy of creating or acquiring operational affiliates and/or subsidiaries that will use CD's in herbal medicines, waste-water remediation, pharmaceuticals, and foods. We also intend to pursue exclusive relationships with major CD manufacturer(s) and specialty CD labs to distribute their products. We continue to be the exclusive distributor in North America of the CD products manufactured by Cyclolab Research Laboratories in Budapest, Hungary. In keeping with its commitment to use the internet as a major advertising and public relations outlet, the Company continues to maintain its web site. This asset has been instrumental in creating and maintaining a worldwide leadership role for us in the implementation of research and commercialization of CD applications. We believe that the maintenance and growth of our web site will return that investment many times. Forward-looking Statements All statements other than statements of historical fact in this report are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, and are based on management's current expectations of the Company's near term results, based on current information available and pertaining to the Company. The Company assumes no obligation to update publicly any forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. These forward-looking statements involve risks and uncertainties, including, but not limited to, the following: demand for Cyclodextrin; changes in governmental laws and regulations surrounding various matters, such as labeling disclosures; delays in the development, production, testing and marketing of products; product margins and customer product acceptance. Item 3. Controls And Procedures (a) Evaluation of disclosure controls and procedures. The Company's management, recognizes its responsibility for establishing and maintaining internal control over financial reporting for the Company. After evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of March 31, 2005 (the "Evaluation Date"), the Company's management has concluded, as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and designed to ensure the information required to be disclosed in the reports filed or submitted by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported with in the requisite time periods. The Company's management acknowledges a material weakness exists in its controls and procedures, in that i) the accountant employed by the Company, while a third year student pursuing a degree in accounting at the University of Florida has no training regarding financial reporting and presentation rules and regulations of the SEC; and ii) the Company's President/CEO, who oversees all the accountants' work and provides all internal control functions, while possessing a MBA from the University of Florida, has no training in matters of accounting, financial reporting, or presentation rules and regulations of the SEC. (b) Effectiveness of Internal Control The Company's management is reviewing the Company's internal controls over financial reporting to determine the most suitable recognized control framework. The Company will give great weight and deference to the product of the discussions of the SEC's Advisory Committee on Smaller Public Companies (the "Advisory Committee") and the Committee of Sponsoring Organizations' task force entitled Implementing the COSO Control Framework in Smaller Businesses (the "Task Force"). Both the Advisory Committee and the Task Force are expected to provide practical, needed guidance regarding the applicability of Section 404 of the Sarbanes-Oxley Act to small business issuers. The Company's management intends to perform the evaluation required by Section 404 of the Sarbanes-Oxley Act at such time as a framework is adopted by the Company. For the same reason, the Company's registered accounting firm has not issued an "attestation report" on the Company management's assessment of internal controls. The Company's management acknowledges a material weakness exists in its controls and procedures, in that i) the accountant employed by the Company, while a third year student pursuing a degree in accounting at the University of Florida has no training regarding financial reporting and presentation rules and regulations of the SEC; and ii) the Company's President/CEO, who oversees all the accountants' work and provides all internal control functions, while possessing a MBA from the University of Florida, has no training in matters of accounting, financial reporting, or presentation rules and regulations of the SEC. (c) Changes in internal controls. After evaluation by the Company's management, the Company's management has determined there were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls subsequent to the Evaluation Date. Part II. OTHER INFORMATION Item 1. Legal Proceedings. NONE Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. NONE Item 3. Defaults Upon Senior Securities NONE Item 4. Submission of Matters to a Vote of Security Holders NONE Item 5. Other Information NONE Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Description Page ----------- ---- (2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession None (4) Instruments defining the Rights of Security Holders None (10) Material Contracts None (11) Statement re: Computation of Per Share Earnings Note 2, 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 (31) Certification of Chief Executive Officer and Chief Financial Officer * (32) Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * (99) Additional Exhibits None * Filed Herewith (b) Reports on Form 8-K: None SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CTD HOLDINGS, INC. DATE /s/ C.E. "Rick" Strattan May 13, 2005 ----------------------------- C.E. Rick Strattan, President Chief Executive Officer, Chief Operating Officer and Chief Financial Officer