10QSB 1 ctdh10qsb3q2005.txt CTDH FORM 10QSB SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-QSB __X__ Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Quarterly Period Ended: September 30, 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 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ( )Yes (x)No As of November 10, 2005, the Company had outstanding 12,669,465 shares of its common stock. Transitional Small Business Disclosure Format: No. PART I: Financial Information CTD HOLDINGS INC. CONSOLIDATED BALANCE SHEET (Unaudited) ASSETS September 30, 2005 ------------------ CURRENT ASSETS Cash and cash equivalents $ 65,869 Certificate of deposit 130,367 Accounts receivable 57,199 Inventory 55,377 Deferred tax asset 25,000 Loan to shareholder 254 ------------ Total current assets 334,066 ------------ PROPERTY AND EQUIPMENT, net 429,331 ------------ OTHER ASSETS Intangibles, net 11,682 Deferred tax asset 200,000 Sports memorabilia collection 92,402 ------------ Total other assets 304,084 ------------ TOTAL ASSETS $ 1,067,481 ============ (continued) F-1 CTD HOLDINGS, INC. CONSOLIDATED BALANCE SHEET (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY September 30, 2005 ------------------ CURRENT LIABILITIES Accounts payable and accrued expenses $ 26,184 Current portion of long-term debt 8,441 Current portion of shareholder loan 12,713 ------------- Total current liabilities 47,338 ------------- LONG-TERM LIABILITIES Long-term debt, less current portion 146,964 ------------- STOCKHOLDERS' EQUITY Common stock, par value $ .0001 per share, 100,000,000 shares authorized, 13,399,672 shares issued and outstanding; 1,199 Preferred stock, par value $.0001 per share, 5,000,000 shares authorized Series A, 1 share issued and outstanding - Additional paid-in capital 2,773,114 Accumulated deficit (1,901,134) ------------- Total stockholders' equity 873,179 ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,067,481 ============= See Accompanying Notes to Financial Statements F-2 CTD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ---------------------- --------------------- 2005 2004 2005 2004 ---------- ---------- ---------- --------- PRODUCT SALES $ 118,923 $ 134,116 $ 373,123 $ 387,545 COST OF PRODUCTS SOLD 15,415 29,991 44,883 65,613 ---------- ---------- ---------- --------- GROSS PROFIT 103,508 104,125 328,240 321,932 ---------- ---------- ---------- --------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 177,357 112,318 387,378 343,517 ---------- ---------- ---------- --------- SPORTS MEMORABILIA COLLECTION Gain on sales - 12,714 2,902 12,714 Other income (expenses) - 2,000 203,470 (309,250) ---------- ---------- ---------- --------- - 14,714 206,372 (296,536) ---------- ---------- ---------- --------- INCOME (LOSS) FROM OPERATIONS (73,849) 6,521 147,234 (318,121) ---------- ---------- ---------- --------- OTHER INCOME (EXPENSE) Investment and other income 2,286 7,579 10,145 11,732 Interest expense (3,133) (2,804) (10,078) (9,333) ---------- ---------- ---------- --------- Total other income (expense) (847) 4,775 67 2,399 ---------- ---------- ---------- --------- NET INCOME (LOSS) BEFORE INCOME TAXES (74,696) 11,296 147,301 (315,722) Income Taxes - - - - ---------- ---------- ---------- --------- NET INCOME (LOSS) $ (74,696) $ 11,296 $ 147,301 $(315,722) ========== ========== ========== ========= NET INCOME (LOSS) PER COMMON SHARE $ (.01) $ .01 $ .01 $ (.05) ---------- ---------- ---------- --------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 11,836,428 7,519,468 11,462,147 6,925,778 ========== ========== ========== ========= See Accompanying Notes to Financial Statements F-3 CTD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (Unaudited) Nine Months Ended September 30, ------------------------- 2005 2004 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 147,301 $ (315,722) ------------ ----------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 23,980 21,581 Gain on sale of sports memorabilia collection (2,902) (12,714) Stock issued for services 157,929 202,716 Gain on expiration of option -sports memorabilia Collection (203,470) - Call option-sports memorabilia collection - 205,000 Fair value of stock options issued - 4,000 Increase or decrease in: Accounts receivable 1,823 103,777 Inventory (4,378) 5,551 Accounts payable and accrued expenses 2,344 (8,117) ------------ ----------- Total adjustments (24,674) 521,794 ------------ ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 122,627 206,072 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment and building improvements (20,949) (53,551) Purchase of certificate of deposit (90,034) (40,200) Proceeds from sale of collection 4,545 17,294 ------------ ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (106,438) (76,457) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on long-term debt (5,636) (7,269) Payments on loan payable to stockholder (40,885) (27,033) Loan to Shareholder - (3,500) Received from shareholder 1,830 984 ------------ ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (44,691) (36,818) ------------ ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (28,502) 92,797 CASH AND CASH EQUIVALENTS, beginning of period 94,371 7,757 ------------ ----------- CASH AND CASH EQUIVALENTS, end of period $ 65,869 $ 100,554 ============ =========== F-4 CTD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (Unaudited) Nine Months Ended September 30, -------------------------- 2005 2004 ------------ ------------ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 8,863 $ 6,967 ============ ============ Cash paid for income taxes $ - $ - ============ ============ SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES Common stock awarded to officers $ 97,929 $ 45,310 ============ ============ Common stock issued for consulting services $ 60,000 $ 57,157 ============ ============ Stock issued in acquisition of sports memorabilia collection $ - $ 106,000 ============ ============ Common stock issued in connection with liquidation of sports memorabilia collection $ - $ 100,250 ============ ============ See Accompanying Notes to Financial Statements F-5 CTD HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2005 (Unaudited) The information presented herein as of September 30, 2005,and for the three and nine months ended September 30, 2005 and 2004,is unaudited. (1) BASIS OF PRESENTATION: The accompanying financial statements include CTD Holdings, Inc. and its wholly owned 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 and nine month periods ended September 30, 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. Certain amounts in the 2004 financial statements have been reclassified to conform to the 2005 presentation. (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 For 2005, no income tax expense or benefit was reported for the three and nine month periods ended September 30, 2005 due to its realizing a tax loss for the periods. The gain recognized by the Company on the expiration of the call option on the Sports Memorabilia Collection is not taxable for income tax purposes. The Company increased its deferred tax asset valuation allowance for the increase in the deferred tax asset as a result of its tax loss. For 2004, no income tax expense or benefit was reported for the three and nine month periods ended September 30, 2004 due to its net loss for the periods. The expense recognized by the Company on the issuance of the call option on the Sports Memorabilia Collection is not deductible for income tax purposes. The Company increased its deferred tax asset valuation allowance for the increase in the deferred tax asset as a result of its tax loss. F-6 (4) CONCENTRATIONS Sales to 4 major customers were 72% of total sales for the nine months ended September 30, 2005. Sales to five major customers were 73% of total sales for the nine months ended September 30, 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 nine months ended September 30, 2005 and 2004, the Company awarded approximately 943,000 and 603,000 shares, respectively, and recognized an expense of $68,000 and $54,000, 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. In August 2005, the Company issued 1,000,000 shares of common stock registered under Form S-8 to financial consultants and charged expense for $60,000 the fair value of the stock for the three and nine month periods ended September 30, 2005. The Company also issued 500,000 shares of common stock registered under Form S-8 to its President and majority shareholder and charged expense for $30,000 the fair value of the stock for the three and nine month periods ended September 30, 2005. In December 2004, the Company issued 3,500,000 shares of its common stock for $3,500 to a financial consultant. The Company 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. The Company 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 statement is not filed and effective by the dated indicated, the Company was required by the agreement 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. The Company believes the financial consultant has breeched the conditions of the sale which restricted the financial consultant's sale of the stock. Management believes it is no longer subject to the terms of the agreement and does not intend to file the registration statement and also believes the penalty provisions of the agreement are no longer effective. The Company entered into an agreement with two financial consultants in May 2004. The Company issued 343,137 shares of common stock registered under Form S-8 to the consultants under terms of the agreement and charged expense for $17,157 the fair value of the stock for the nine months ended September 30, 2004. 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. F-7 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 September 30, 2005. The Company's Series A Preferred Stock has significant rights including the right to vote together with the holders of the common stock on all matters submitted to a vote of Company shareholders, with the share of Series A Preferred Stock being entitled to one vote more than one-half of all votes entitled to be cast by all holders of voting capital stock of CTD Holdings on any matter submitted to common shareholders so as to ensure that the votes entitled to be cast by the holder of the Series A Preferred Stock are equal to at least a majority of the total of all votes entitled to be cast by the common shareholders. Each Series A Preferred Stock share has a liquidation preference of $.0001. There is one share of the Series A Preferred Stock outstanding. Effective August 11, 2005, the outstanding share of the Company's Series A Preferred Stock was acquired by Eline Entertainment Group, Inc. (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. The number of shares was determined using 70% of the appraised value ($280,000) divided by 80% of the average of the bid and ask price for the Company's stock on April 14, 2004. Since the acquisition of the Collection was from the Company's President and controlling shareholder, the Company recorded the Collection at $106,000, which was the acquisition cost basis of the President and controlling shareholder. The Company recorded sales of the Collection as gains or losses from operations as Collection pieces are sold. 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. The Company issued the consultant 250,627 shares of common stock registered on Form S-8 valued at $100,250 on the date the contract was executed. The Company expensed the $100,250 for the nine months ended September 30, 2004. 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 to operations. The amount charged to expense for the nine month period ended September 30, 2004 was $207,000. The Company recalculated the fair value of the option at the end of each reporting period and recognized any change through operations and adjusted its liability accordingly. The option expired in March 2005, and the Company recorded the expiration of the option liability as a $203,470 gain in the first quarter of 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 Company follows SFAS 123 in accounting for stock options issued to nonemployees. The fair value of each option granted is estimated 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; standard deviation of historical stock returns 44.03%. The fair value calculated resulting from the issuance of this option was determined to be $4,000, which was expensed for the nine month period ended September 30, 2004. The Company recorded gross receipts of $4,545 and $17,294 from sales of the Collection for the nine months ended September 30, 2005 and 2004, respectively. 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 the 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 a less comprehensive database that includes patents issued in many other countries including Japan and Germany. 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 who have a significant effect on our revenues when they increase or decrease their research and development activities that use cyclodextrins. 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 revenue volatility from quarter to quarter and year to year. Liquidity and Capital Resources Our cash and certificate of deposit increased to $196,000 as of September 30, 2005 from $94,000 at December 31, 2004 and $178,000 as of June 30, 2005. Our cash flow from operations was $123,000 compared to $206,000 for the nine months ended September 30, 2005 and 2004, respectively. Our cash increase is due to normal operations. As of September 30, 2005, our working capital was $287,000 compared to $16,000 at December 31, 2004 and $243,000 at June 30, 2005. Our increase in working capital from December 31, 2004 is due to the expiration of a $200,000 call option liability in March 2005 and our positive cash flow from normal operations. We believe our working capital is sufficient to run our operations at current 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. We have signed a letter of intent to acquire at least 51% of CycloLab Research and Development, Ltd. located in Budapest, Hungary, for a combination of cash and common stock, which will require approximately a $750,000 cash outlay. 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 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. The Company incurred a $60,000 non-cash expense for common stock issued to consultants in the third quarter for such consulting help. The President/CEO also received a $30,000 non-cash stock bonus. We are working hard to increase revenues to balance these new expenses, but cannot be sure such effort will be enough in the short term to sustain profitable reporting performance. Our cash SG&A expenses for 2005, as a percentage of sales, continue to decrease compared to 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. No additional income or cash flow is expected from liquidation of the collection in 2005. We are currently exploring options 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 $145,000 through September 30, 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 are reallocating monies intended for corporate renovations to the completion of the Cyclolab acquisition. No costs were incurred in the third quarter of 2005 on corporate renovations. 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 statement is not filed and effective by the dated indicated, the Company was required by the agreement 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. The Company believes the financial consultant has breeched the conditions of the sale which restricted the financial consultant's sale of the stock. Management believes it is no longer subject to the terms of the agreement and does not intend to file the registration statement and also believes the penalty provisions of the agreement are no longer effective. 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 evaluating our options whether or not to proceed with this filing. We have no off-balance sheet arrangements at September 30, 2005. Results of Operations Total product sales for the third quarter 2005 were $119,000 compared to $134,000 in the third quarter of 2004. Our major customers continue to be repeat purchasers. In 2004, four of our major customers accounted for 72% of our sales. In 2005, five major customers accounted for 73% of our sales. Our gross profit margin of 87% remains consistently strong for the third quarter 2005 compared to 91% for the second quarter of 2005. Changes in the product mix of sales has a significant effect on our overall gross profit percentage, but management expects our gross profit to remain above 80% for the remainder of 2005. Our SG&A expenses were $177,000 for the third quarter of 2005 compared to $112,000 for the third quarter of 2004. This increase is primarily due to stock issued to consultants and a stock bonus to the Company's president totaling $60,000 in 2005 and increased investor relations expenses. 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 nine months ended September 30, 2005, we recognized a $200,000 gain on the expiration of a call option liability previously issued to the consultant. There were no gains or losses recognized in the quarter ended September 30, 2005. No further gains or losses in 2005 are expected from sales associated with the collection. We expect significant increases in future legal, accounting, and auditing fees as the result of implementing the ongoing acquisition of Cyclolab. We recognized a net loss of $75,000 for the three months ended September 30, 2005 compared to a net income of $11,000 for the three months ended September 30, 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 September 30, 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 (3-i) Articles of Incorporation ** (3-ii) Bylaws ** (4) Instruments defining the Rights of Security Holders None (10) Material Contracts 10.1 Share Exchange Agreement *** 10.2 Addendum to Share Exchange Agreement **** (11) Statement re: Computation of Per Share Earnings Note 2, Financial Statements (15) Letter re: Unaudited Interim Financial Information None (16) Letter on Change in Certifying Accountant 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 (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. ** Incorporated by reference to the Company's Form 10-SB filed with the Securities and Exchange Commission on February 1, 1994. *** Previously filed with the Securities and Exchange Commission on August 15, 2005 as an exhibit to Form 8-K. **** Previously filed with the Securities and Exchange Commission on September 21, 2005 as an exhibit to Form 8-K. (b) Reports on Form 8-K: i) Item 5.01 in Form 8-K: Changes in Control of Registrant. A Share Exchange Agreement between Registrant and Eline Entertainment Group, Inc. ("Eline") was filed as an Exhibit to the Company's Form 8-K filed with the Securities and Exchange Commission on August 15, 2005. According to the terms of the Share Exchange Agreement, (the "Agreement") C.E. Rick Strattan agreed to transfer his Series A Preferred Share to Eline Entertainment Group, Inc. ("Eline") in consideration of Eline's transfer of 200,000 of its restricted common shares to Mr. Strattan. The Agreement entered into by Mr. Strattan, Eline and the Registrant provides that closing will occur within 90 days. The Agreement also provides that following closing, Mr. Strattan will have autonomous control over the Registrant and that Eline, at its discretion, will advance to the Registrant at various times and in various amounts, an aggregate of up to one million five hundred thousand dollars ($1,500,000) to be used for the acquisition of Cyclolab R&D Labs of Budapest, Hungary subject to Eline's satisfactory due diligence. In the event of a sale of the Registrant's assets or subsidiaries, Eline would first be repaid the amount of sums advanced, with Eline receiving 20% and Mr. Strattan receiving 80% of any amount received in excess of the sums advanced. The Agreement further provides in the event Eline or CTDH do not acquire any cyclodextrin or biotech businesses within one year following the date of closing, Mr. Strattan shall exchange his 100,000 Eline common shares for the Series A Preferred Share, and the business of the Registrant would be spun off to the shareholders of the Registrant with Eline retaining 20% of the outstanding common stock of the Registrant on a fully diluted basis. ii) Item 1.01 on Form 8-K: Entry Into a Material Definitive Agreement. An Addendum to Share Exchange Agreement (the "Addendum") between Registrant and Eline Entertainment Group, Inc. ("Eline") was filed as an Exhibit to the Company's Form 8-K filed with the Securites and Exchange Commission on September 21, 2005. In substantial part, the Addendum 1) clarified Rick Strattan's role as principal executive officer in Registrant by substituting new agreed language for the provisions in Paragraph 7 of the Agreement, and 2) clarified the distribution of Registrant's business operations in the event Eline or Registrant are unable to consummate the acquisition of cyclodextrin and bio-tech industries within one year of the date after the closing on the transfer of certain shares from Rick Strattan to Eline (the "Closing Date"). The Addendum provides Rick Strattan will maintain autonomous control over Registrant's operating subsidiaries, acquisitions expanding the cyclodextrin business (in consultation with Eline), and the day to day operations thereof. Furthermore, the Addendum provides, in the event Eline or Registrant are unable to consummate the acquisition of cyclodextrin and bio-tech industries within one year after the Closing Date, Eline may, in its sole discretion, distribute the business of Registrant to Registrant's stockholders via one of two methods. Using the first method, Eline may trade its one share of Series A preferred stock in Registrant, which represents controlling interest in Registrant, to Rick Strattan in exchange for 100,000 shares of Eline common stock presently held by Rick Strattan. Using the second method, Eline may create a new entity with a capital structure identical to Registrant (the "Mirror Entity") which is publicly traded on the OTC Bulletin Board; distribute the Mirror Entity's shares to Registrant's shareholders on the basis of one Mirror Entity share for each outstanding share of Registrant; and distribute to Rick Strattan shares of a Mirror Entity preferred stock granting him the same rights, preferences, and controlling interest granted holders of Registrant's Series A preferred stock. Under this method, Eline would retain for itself a twenty (20) percent interest in the common stock of the Mirror Entity. 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. /s/ C.E. "Rick" Strattan Date: November 14, 2005 ----------------------------- C.E. Rick Strattan, President Chief Executive Officer, Chief Operating Officer and Chief Financial Officer