SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CTD HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
Florida [2869] 59-3029743
(State or other jurisdiction (Primary and Industrial (I.R.S. Employer
of incorporation or organization classification code number Identification No.)
27317 N.W. 78th Avenue, High Springs FL 32643 (386)454-0887
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
C.E. Rick Strattan, 27317 N.W. 78th Avenue, High Springs FL 32643 (386)454-0887
(Name and address, including zip code, and telephone number, including
area code, of agent for service)
With a copy to:
Bruce Brashear, Brashear & Assoc., P.L.
926 N.W. 13th Street, Gainesville FL 32601 (352) 336-0800
Approximate date of proposed sale to public: As soon as applicable
after this registration statement becomes effective.
If any of these securities being registered on this Form are to be Offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), check the following box. [ x ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration Statement
for the same offering. [
]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of Each Amount to be Proposed Max Proposed Max Amount of
Class of Registered Offering Aggregate Registration
Securities to Price Per Offering Fee
be Registered Unit (1) Price (1)
Common Stock 10,000,000 $0.065 $650,000 $82.35
(1) Estimated solely for the purposes of computing the registration fee pursuant
to Rule 457.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement Shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
Information contained herein is subject to completion or amendment. A
registration statement as contained herein relating to these securities has been
filed with the Securities and Exchange Commission. These securities may not be
sold nor may offers be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
CTD HOLDINGS, INC.
10,000,000 COMMON SHARES
$______ PER SHARE
CTD Holdings, Inc.("We" "Us" or the Company) is a Florida corporation
founded in 1990.
We are offering these shares through the Company without the use of
professional underwriter. We will not pay commissions on sale of the shares.
The shares are being registered as a shelf registration for future
acquisition purposes and to provide services and materials for the Company's
operations.
Our stock (symbol: CTDH) is traded on the Over-the-Counter Bulletin Board
("OTCBB") maintained by NASD.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is complete or accurate. Any representation to the contrary is a
criminal offense.
The date of this prospectus is January __, 2005.
PART I - PROSPECTUS INFORMATION
PAGE
Front Cover Page of Prospectus
Inside Front and Outside Back Cover Pages of Prospectus
Prospectus Summary..................................................... 2
Risk Factors........................................................... 3
Use of Proceeds........................................................ 4
Capitalization......................................................... 5
Determination of Offering Price........................................ n/a
Dividend Policy........................................................ 20
Dilution............................................................... n/a
Selling Securities Holders............................................. n/a
Plan of Distribution................................................... 5
Legal Proceedings...................................................... 6
Directors, Executive Officers, Promoters, and Control Persons.......... 6
Security Ownership of Management and Certain Beneficial Owners......... 8
Description of Securities.............................................. 8
Interest in Named Experts and Counsel.................................. 9
Organization Within the Last Five Years................................ n/a
Description of Business................................................ 10
Management's Discussion and Analysis of Financial Condition and
Plan of Operation..................................... 16
Description of Property............................................... 19
Certain Relationships and Related Transactions........................ 19
Market For Common Equity and Related Stock Matters.................... 20
Executive Compensation................................................ 7
Financial Statements.................................................. F-1
Changes In and Disagreements With Accountants on Accounting
And Financial Disclosure............................................ 20
Disclosure of Commission Position of Indemnification for Securities
Act Liabilities....................................................... 9
Other Expenses of Issuance and Distribution............................ 21
Indemnification of Directors and Officers.............................. 21
Recent Sales of Unregistered Securities................................ 21
Undertakings............................................................ 24
Exhibits and Signatures................................................ 22
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS
OR IN DOCUMENTS REFERRED TO IN THIS PROSPECTUS. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY BEFORE INVESTING IN OUR SECURITIES, INCLUDING THE "RISK
FACTORS", "BUSINESS" AND SELECTED FINANCIAL DATA" SECTIONS.
CTD Holdings, Inc.
The Company is a Florida corporation founded in 1990. The shares are being
registered as a shelf registration for future acquisition purposes and to
provide services and materials for the Company's operations.
SUMMARY OF OFFERING
Common stock outstanding prior
to this offering... 6,484,984
Securities offered by us
in this offering... 10,000,000 shares of common stock
Common stock to be issued and outstanding
after this offering.... 19,978,984 shares of common stock
Use of proceeds..... Acquisitions, services
and equipment
Trading symbol.... OCTBB: CTDH
Summary Financial Data
This summary is derived from financial statements appearing elsewhere in this
prospectus and should be read in conjunction with them and with Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Year Ended 9 Months Ended
December 31, September 30, 2004
2003 2002 (Unaudited)
------------------ -----------
(Statement of Operations Data:
Total revenues $ 394,532 $ 522,372 $ 387,545
Total expenses $ 85,604 $ 356,792 $ 703,267
Net Profit (Loss) $ 271,749 $ 165,580 $ (315,722)
Net Profit per Share (Basic) $ 0.05 $ 0.03 $ (.05)
Weighted Average
Common Shares 5,004,919 4,791,220 6,925,778
Balance Sheet Data: December 31, 2003 September 30, 2004
(audited) (unaudited)
--------- -----------
Cash and cash equivalents $ 7,757 $ 100,554
Total assets $ 839,738 $ 991,493
Total liabilities $ 296,702 $ 496,773
Total capital $ 543,036 $ 494,720
Page 2
RISK FACTORS
We May Not Continue to be Profitable.
While we have reported profits in 2002 and 2003, we expect to report a loss
for 2004. The Company has incurred losses in the past and may in the future.
There can be no assurance that the Company can sustain profitable operations.
Limited Market for Securities of the Company.
Our shares are traded on the over-the-counter market, but as the result of
relatively few shareholders, there have been long periods during which the
market for the Company's shares has not been active. There is, therefore, no
assurance that the shares offered herein may be readily sold at the price for
which they were acquired.
We Do Not Expect to Pay Dividends.
We have never paid any cash dividends on our common stock, and we do not
intend to pay any in the foreseeable future.
Low-Priced ("Penny") Stocks Are Often Difficult to Sell.
The SEC defines a "penny stock" generally as any equity security with a
market price less than $5.00 per share. Our shares have been below $5.00 per
share since 1995. The shares may become subject to Rule 15g-9 under the Exchange
Act. That rule imposes requirements on broker-dealers that sell "penny stocks"
to persons other than established customers and institutional accredited
investors. A broker-dealer must make a special suitability determination and
have received the purchaser's written consent to the transaction prior to the
sale. Consequently, the rule, if applied to us, would affect the ability of
broker-dealers to sell our shares and would affect the ability of holders to
sell our shares in the secondary market. There is no liquidity in our shares
now, but if a public market arose and we became subject to the penny stock
rules, the market liquidity could be adversely affected.
There are many shares in the hands of current shareholders which are available
for sale in the future which might depress the price of your shares.
Sales of substantial amounts of our common stock (including shares issued
upon the exercise of outstanding options and warrants or upon the conversion of
our Unsecured convertible notes) in the public market, if any, after this
offering or the prospect of such sales could adversely affect the market price
of your common stock and may have a material adverse effect on our ability to
raise capital to fund our operations. Upon completion of this offering, assuming
all shares are sold, we will have 16,484,984 shares of common stock outstanding.
The 10,000,000 shares sold in the offering will be freely tradeable under the
Securities Act, except for any shares held by our "affiliates." Affiliates'
shares will be subject to the limitations of Rule 144. The remaining shares are
"restricted" securities that may be sold only if registered under the Securities
Act, or sold in accordance with Rule 144 or Regulation S. The officers and
directors, who together hold 1,909,266 common shares and rights to purchase an
additional 0 shares, of which 0 can be acquired within the next 60 days. We are
unable to predict the effect that sales made under Rule 144 may have on any
market price for our shares should one develop. It is likely that market sales
of large amounts of our shares after this offering, if a market for the shares
develops, would depress the price of the stock.
Page 3
We do not know if we will be able to operate profitably following any
acquisition. The shares registered hereunder will be used primarily to acquire
other businesses. The first business identified is Cyclolab in Hungary. While
there is no assurance that we can acquire Cyclolab, there is also no assurance
that Cyclolab (or any other acquisition) could be operated profitably or that
any acquired business would not adversely affect our operations.
WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus and the documents referred to in this prospectus contain
"forward-looking statements."
Forward-looking statements address future events, developments or results
and typically use words such as believe, anticipate, expect, intend, plan or
estimate. For example, our forward-looking statements may include statements
regarding:
- our growth plans, including our plans to acquire an operating business
entities;
- the possible effect of inflation and other economic changes on our costs,
and profitability, including the possible effect of future changes in operating
costs and capital expenditures;
- our expectations regarding competition
For a discussion of the risks, uncertainties, and assumptions that
could affect our future events, developments or results, you should carefully
Review "Risk Factors". In light of these risks, uncertainties and assumptions,
The future events, developments or results described by our forward-looking
statements in this prospectus or in the documents referred in this prospectus
could turn to be materially different from those we discuss or imply. We have no
obligation to publicly update or revise our forward-looking statements after the
date on the front cover of this prospectus and you should not expect us to do
so.
USE OF PROCEEDS
The shares registered hereby will be used to acquire other businesses, to
pay for services or equipment be provided to the Company. No such services or
equipment have been identified. The Company has identified an initial
acquisition, CYCLOLAB, LTD., a Hungarian business specializing in cyclodextrin
research and development. CYCLOLAB, LTD., is located at Budapest, Illatos ut 7,
Hungary. There is no assurance that an agreement to acquire CYCLOLAB, LTD. can
be reached.
Page 4
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 2003.
December 31, 2003
-------------------
Long term liabilities $ 220,970
Stockholders' equity 580
Common stock, $ 0.0001 par value, authorized
100,000,000, issued - 5,791,220
Additional paid-in capital $2,029,398
Accumulated Deficit ($1,486,942)
Total stockholders' equity $ 543,036
Total Capitalization $ 764,006
=======
PLAN OF DISTRIBUTION
This is a self-underwritten offering.
We will pay all of the expenses incident to the registration, offering and
sale of the shares to the public other than commissions or discounts of
underwriters, broker-dealers or agents. The Company has also agreed to indemnify
Mr. Strattan and any directors against specified liabilities including
liabilities under the Securities Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers, and
controlling persons of the Company, we have advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the Securities
Act and is therefore, unenforceable.
We have advised Mr. Strattan that while he is engaged in a distribution of
the shares included in this prospectus he is required to comply with Regulation
M promulgated under the Securities Exchange Act of 1934, as amended. With
certain exceptions, Regulation M precludes Mr. Strattan, any directors,
officers, any affiliated purchasers, and any broker-dealer or other person who
participates in such distribution from bidding for or purchasing, or attempting
to induce any person to bid for or purchase any security which is the subject of
the distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize The price of a
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the shares offered hereby this
prospectus.
Page 5
LEGAL PROCEEDINGS
The Company is currently not a party to any pending legal proceedings and
no such action by, or to the best of its knowledge, against the Company has been
threatened. The Company has been basically inactive from inception through to
the date of this registration statement.
DIRECTORS
Two (2) directors, constituting the entire Board of Directors, serve until
thenext Annual Meeting of shareholders, or until a successor shall be elected
and shall qualify:
Year First Became
Name Age Principal Occupation Director
C.E. Rick Strattan 58 President, CEO and Chairman 1990
George L. Fails 59 Operations Manager 2001
C.E. Rick Strattan has been President, CEO and Chairman since its 1990
start-up. Mr. Strattan 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 served as Director of Marketing and Business
Development for CDs. Mr. Strattan was responsible for CD sales and related
business development efforts. From November, 1985 through May, 1987, Mr.
Strattan 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. Mr. Strattan is a graduate of
the University of Florida receiving a B.S. 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.
George L. Fails, Operations Manager CTD, Inc. since 2000. Mr. Fails currently
serves as Operations Manager for CTD, Inc. Prior to joining the Company, Mr.
Fails served as a Detective Sergeant with the Veterans Administration Hospital
in Gainesville, Florida, with special duties as a Predator Officer with the US
Marshall's Service. From 1965 until his retirement in 1986, Mr. Fails served
with the US Army Special Forces, including several tours in Viet Nam, Salvador,
and Angola. Mr. Fails also served two years with a United States intelligence
arm. Mr. Fails received his BA from the University of the Philippines, and has
also received degrees from 43 Military schools, as well as the Federal police
Academy in Little Rock, Arkansas.
Directors, including directors also serving the Company in another capacity
and receiving separate compensation therefore shall be entitled to receive from
the Company as compensation for their services as directors such reasonable
compensation as the board may from time to time determine, and shall also be
entitled to reimbursements for any reasonable expenses incurred in attending
meetings of directors. To date, the Board of Directors has received no
compensation, and no attendance fees have been paid.
Page 6
SUMMARY COMPENSATION TABLE
(three fiscal years ended December 31,2001, 2002 and 2003)
Annual Long Term
Compensation Compensation
--------------------------------------------------------------------------
Year Salary Bonus Compensation Compensation
Name and Principal
Position
C.E. Rick Strattan 2003 $ 22,977 -0- $50,000 $ -0-(1)
President, CEO 2002 $ 33,346 -0- -0- $ -0-
Chairman 2001 $ 835 -0- -0- $ 59,687(2)
George L. Fails 2003 $ 20,836 -0- -0- $ -0-
Operations Manager 2002 $ 20,000 -0- -0- $ -0-
2001 $ 20,000 -0- -0- $ -0-
(1)Reflects grants of 1,000,000 shares
(2)Reflects grants of 800,000 shares
On October 14, 2003, the Company entered into a one-year Employment
Agreement with C.E. Rick Strattan, the Company's president, with an annual
salary of $36,000 and $5,000 per month in restricted common shares of the
Company based on the closing value of the Company's shares on the last day of
the month in which the shares are awarded. No shares were awarded under the
Employment Agreement in 2003. As of March 1, 2004, 38,267 shares have been
awarded pursuant to the Employment Agreement.
Effective January 1, 2004, the Company entered into a one-year Employment
Agreement with George L. Fails to serve as Operations Manager. Mr. Fails is
compensated $1,900 monthly, plus $1,000 per month in restricted common shares of
the Company, based on 80% of the closing value of the Company's shares on the
last day of the month in which the shares are awarded. As of March 1, 2004,
7,654 shares have been awarded pursuant to the Employment Agreement.
On November 17, 2003, the Company entered into an agreement with Big Apple
Consulting of Longwood, Florida, to provide PR/IR and financial consulting
services. The term of the contract was for six months. Mr. Strattan transferred
500,000 common shares held by him to Big Apple as a consulting fee.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors and persons who own more than 10%
of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (hereinafter referred to as the "Commission")
initial statements of beneficial ownership, reports of changes in ownership and
annual reports concerning their ownership, of Common Stock and other equity
securities of the Company on Forms 3, 4, and 5, respectively. executive
officers, directors and greater than 10% shareholders are required by commission
regulations to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, all officers and directors comprising all of
the Company's executive officers, directors and greater than 10% beneficial
owners of its common stock, will comply with Section 16(a) filing requirements
applicable to them before the end of the Company's current fiscal year.
Page 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Name of Amount and Nature of Percentage Per centage
Beneficial Owner Beneficial Ownership Common Preferred
C.E. Rick Strattan(1) 1,707,344 Common 17.11%
1 Series A Preferred 100%
George L. Fails(2) 201,922 Common 2.02% 0%
All officers and directors 1,909,266 Common 19.13%
as a group (two persons) 1 Series A Preferred 100%
(1) The shares of common stock beneficially owned by Mr. Strattan include
809,611 shares which are issuable to Mr. Strattan pursuant to the terms of his
employment agreement through December 31, 2004.
(2) The shares of common stock beneficially owned by Mr. Fails includes 161,922
shares which are issuable to Mr. Fails pursuant to the terms of his 2004
employment agreement through December 31, 2004.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 100,000,000 shares of Class A common
stock, par value $.0001 of which 9,978,984 shares are issued and outstanding as
of the date hereof. All shares of common stock have equal rights and privileges
with respect to voting, liquidation and dividend rights. Each share of Common
Stock entitles the holder thereof to (i) one non-cumulative vote for each share
held of record on all matters submitted to a vote of the stockholders; (ii) to
participate equally and to receive any and all such dividends as may be declared
by the Board of Directors out of funds legally available therefor; and (iii) to
participate pro rata in any distribution of assets available for distribution
upon liquidation of the Company. Stockholders of the Company have no pre-emptive
rights to acquire additional shares of Common Stock or any other securities. The
Common Stock is not subject to redemption and carries no subscription or
conversion rights. All outstanding shares of common stock are fully paid and
non-assessable.
Page 8
Preferred Shares
The Company is authorized to issue 5,000,000 shares of preferred stock, par
value $0.001 per share.
The Company's Articles of Corporation authorized our Board of Directors to
create and issue up to 5,000,000 shares of preferred stock in one or more series
with such limitations and restrictions as to preferences, conversion rights,
voting rights and other rights as may be determined in the sole discretion of
the Board of Directors, with no further authorization by shareholders required
for the creation and issuance of the preferred stock.
The Series A Preferred Stock
One share of preferred stock as Series A Preferred Stock has been issued
to Mr. Strattan. The designations, rights and preferences of the Series A
Preferred Stock include:
* the stated value of the share is equal to its par value of
$0.001;
* the share does not pay any dividends,
* the share is likewise not entitled to any dividend rights in the
future;
* in the case of a liquidation or winding up of CTD Holdings, the
holder of the share of Series A Preferred Stock is entitled to a
liquidation preference of $0.001 per share;
* the share is not redeemable by us without the consent of the
holder;
* the share is convertible into shares of our common stock at our sole
option based upon a conversion ratio to be determined by CTD
Holdings and the holder at the time of conversion; and
* the share votes together with the holders of the common stock on
all matters submitted to a vote of our 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 Holding on any matter submitted to
our 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 51% of the total of all votes entitled to be cast by our
shareholders.
INTEREST OF NAMED EXPERTS AND COUNSEL
There are no experts, professional advisers, or attorneys who have an
interest in the Company.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Regarding indemnification for liabilities arising under the Securities Act
of 1933, which may be permitted to directors or officers under Florida law, we
are informed that, in the opinion of the Securities and Exchange Commission,
indemnification is against public policy, as expressed in the Act and is,
therefore, unenforceable.
Page 9
THE COMPANY
INTRODUCTION
Cyclodextrins are molecules that bring together oil and water and
havepotential applications anywhere oil and water must be used together.
Successfulapplications 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 have developed 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.
We believe that the application of CDs in both OTC and ethical
ophthalmicproducts provides the greatest opportunity for the successful and
timelyintroduction of CD containing preparations for topical drug use.
We provide consulting services for the commercial development of new
products containing CDs. Our 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.
Page 10
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 (NCDs).
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 ("CMCDs").
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.
Our strategy is to sell CDs and to introduce products with little or no
regulatory burden in order to minimize product expenses and create profitable
revenue.
We currently sell our products for use in the pharmaceutical, food and
industrial chemical industries.
Page 11
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 in place, the Company believes that the food additive industry will
continue to increase its use of CDs.
CDs have been used in a variety of food products in Japan for over 25
years. In 1999 the economic impact of CD's on the Japanese economy was reported
to be $2.6 billion. 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 generally
recognized as safe (GRAS).
Applications of CDs in personal products and for industrial uses have
appeared in many patents and patent applications. Procter & Gamble uses CDs in
Bounce(R), a popular fabric softener and Febreze(R). 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 2001 Janssen Pharmaceutica, a subsidiary of
Johnson & Johnson received approval to market Sporanox(r), an oral and
injectable formulation containing hydroxypropyl BCD.
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 100 times that of the CD itself.
CD Products
Our CD products include Trappsol(R), Aquaplex(R), and AP(TM)-Flavor product
lines. The Trappsol product line consists of approximately 200 different
varieties of CDs and the Aquaplex product line includes more than 60 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 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 and are in use: Trappsol(R), and Aquaplex (R). These properties add to
the intangible asset value of the Company. Since 2000, our Web Site at
http://www.cyclodex.com, a major tangible asset has grown to be a leading
Cyclodextrin information site on the Internet.
Page 12
CTD purchases CD's from commercial manufacturers around the world
including: Wacker Chemie - Munich, Germany; Nihon Shokuhin Kako - Tokyo, Japan;
Roquette Freres - Le Strem, France; Cerestar Inc. - Hammond IN, USA. At the end
of 2002, CTD became the exclusive distributor in North America of the CD
products manufactured by Cyclolab R&D Labs in Budapest, Hungary. The Company
does not manufacture cyclodextrins.
We have introduced many new products into our 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
Our strategy has been and will continue to be to generate profitable
revenue through sales of CD related goods and services.
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 a majority 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. While the bulk price of commercialized CD's has
gone down, it appears that our strategy of expanding the CD product line has
compensated for the necessary competitive price reductions. We have doubled our
list of major customers from 3 to 6 thereby reducing our dependency on sales to
a very small core of repeat purchases.
We intend to increase our business development efforts in the food additive
and personal products industries while continuing to build on our 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
few equals.
Page 13
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
We believe that the failure of businesses to exchange information about CD
molecules has hindered a more rapid commercialization of CDs as safe excipients.
We believe that our philosophy of partnering and sharing will act as a catalyst
to create momentum overcoming the inertia created by the previous conservatism
and secrecy.
Our sales have always been direct, volatile and driven by the acceptance of
CD's as beneficial excipients. Arrangements with large laboratory supply
companies and several diagnostic companies have provided a strong sales base,
that continues to diversify.
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".
We intend 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.
We intend to generate additional revenue through obtaining rights to
certain patents that we will sublicense to appropriate organizations or that we
will use to develop our 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 CDs) and (naturally
modified CD's) NMCDs.
Page 14
Competition
The Company is currently a leading consultant in determining manufacturing
standards and costs for CDs and CMCDs. 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.
In 2002 we became the exclusive North American distributor of the CD
products manufactured by Cyclolab. We intend to form additional business
relationships with Cyclolab in Hungary by creating a Cyclolab-USA laboratory
facility and thereby strengthen our 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
The Company employed three 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.
Page 15
Management's Discussion and Analysis of Financial Discussion and Results of
Operations
Liquidity and Capital Resources
Our cash and cash equivalents decreased to approximately $8,000 as of
December 31, 2003 compared to approximately $46,000 as of December 31, 2002.
This decrease was simply a timing issue around the receipt of a large receivable
payment as reflected in the $134,000 accounts receivable balance. Current assets
as of December 31, 2003 were actually 50% higher than the year before.
Our cash and short-term investments increased to approximately $141,000 as
of September 30, 2004 compared to approximately $57,000 as of June 30, 2004.
This increase was primarily due to an increase in product sales and proceeds
from the sales of sports memorabilia.
As of December 31, 2003, our net working capital was approximately $170,000
compared to approximately $115,000 at the end of 2002. The improvement in
working capital resulted from net income for the year and $25,000 in a current
deferred tax asset.
As of September 30, 2004, we had a working capital deficit of ($759)
compared to working capital deficit of approximately ($30,000) at the end of the
second quarter. Working capital improved significantly this quarter due to our
net income and increased cash flows from operations. Our working capital
continues to be negatively impacted by the call option liability of more than
$200,000 on our recently acquired sports memorabilia collection. The call option
expires in the first quarter of 2005 and or be settled with the remaining cost
of the sports memorabilia collection asset ($101,000 at September 30, 2004) at
the option of the holder. Absent the call option liability, our working capital
would be more than $204,000. Inventory remained constant from the previous
quarter at approximately $57,000.
Our cash flow from operations through September 30, 2004 was approximately
$223,000 compared to $85,000 through September 30, 2003. This increase is due
primarily to increased revenues in 2004.
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 financial performance like that of the recent past.
Our cash SG&A expenses, as a percentage of sales, have decreased from 2003.
In April 2004, we entered into a one-year consulting agreement as part of a
package designed to create additional revenue. We acquired a collection of
sports memorabilia from our majority shareholder and President for 1,029,412
shares of common stock. While we received a $400,000 appraisal on the
collection, we recorded this asset for $106,000, which represents our majority
shareholder's cost basis. We also engaged a consultant to liquidate that
collection for not less than 75% of its book value. The consultant was issued
250,627 share of common stock valued at $100,250, which we expensed. We agreed
to an option whereby the consultant may acquire the entire collection for
$200,000. We recorded the fair value of this option ($205,000) as a liability
and a charge to operations.
Page 16
During 2003, we began improvements and renovations of our corporate office
and have invested $100,000 through September 30, 2004. We are committed to a
Research Park facility for the 40-acre site. The office renovations will be
followed by improved security operations and modest guest facilities. 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 May 2004, we entered into a three-month agreement with a consultant
regarding capital raising and strategic options to modify the Company's capital
structure in order to expedite planned acquisitions. The agreement automatically
renews monthly unless canceled by either party with 30 days notice. We paid
$15,000 upon entering the agreement and will pay $3,500 per month, for each
month the contract is in force, which we expensed when paid. We are required to
pay the consultant 7.5% of any capital raised and 5% of any other capital
transaction resulting within two years of the introduction by the consultant.
Results of Operations
Sales of Cyclodextrins and related manufactured complexes are historically
highly volatile. In efforts to offset this volatility, we continue to expand our
revenue producing activities in Cyclodextrin related research and development
services for unrelated companies while expanding our line of distributed
products. Our product sales are primarily to large pharmaceutical, food, and
diagnostics companies for research and development purposes.
Total product sales for 2003 were approximately $395,000, a 24% decrease
over 2002 sales of $522,000. This change can be attributed to the normal
volatility of our sales. Our major customers continue to buy products
consistently. In 2002, 4 companies accounted for 75% of our business. In 2003, 3
companies accounted for 74% of our sales revenues; one company alone accounted
for 43% of sales. These major companies continue to buy from us and they're
continuing to buy more. This growing business from repeat customers occurred
with the smaller volume customers as well. In 2003, more than 50% of the
Company's customers either increased or maintained their purchase levels.
Total product sales for the third quarter 2004 were approximately $134,000
compared to approximately $120,000 in second quarter of 2004 and approximately
$86,000 in the third quarter of 2003. While our third quarter 2004 sales were
only slightly higher compared to the second quarter of 2004, the nine-month 2004
sales of $388,000 were more than 1.5 times that of the 2003 sales of $226,000.
Gain from the sales of the sports memorabilia of approximately $13,000
contributed to improving our net income for the quarter.
Our gross profit margin of more than 88% remained consistently strong for
2003 compared to 84% for 2002. Our gross profit margin in the third quarter of
2004 of 78% is considerably lower than the 90% enjoyed in the second quarter of
2004 and lower than the 90% for the third quarter of 2003; however, compared to
the 83% for the nine months of 2004 and 85% for the same period of 2003, the
drop is not so significant. One factor in the decrease in gross profit in the
third quarter were discounts given by the Company to induce timely payments from
one large customer. We expect our gross profit level to remain in the 80% range
over time, however quarterly amounts are affected by sales to this customer and
other product mix variations.
Page 17
Our SG&A expenses increased to approximately $287,000 in 2003 from
approximately $240,000 in 2002 primarily as a result of the issuance of a stock
bonus of $50,000 to the President/CEO and the one-time expenses of approximately
$35,000 for PR/IR services, partially offset by further reductions in overhead.
Our SG&A expenses for the third quarter 2004 increased to approximately $112,000
from approximately $96,000 in the prior quarter, and $46,000 for the third
quarter of 2003. Our SG&A expenses year to date for 2004 were $346,000 compared
to $141,000 for 2003. The substantial increase is due to increased consulting,
legal, and accounting fees incurred as a result of the Company's increased
merger and acquisitions activity.
Total other expenses decreased to approximately $17,000 in 2003 compared to
approximately $32,000 in 2002. This decrease due to our refinancing our mortgage
during 2003 and reducing our interest expense. We also had a loss on equipment
disposals in 2002 that did not reoccur in 2003.
Based on our profitability for 2003 and 2002, we revaluated our valuation
allowance on our deferred tax asset. Our deferred tax asset is based on our net
operating loss carryforward. We determined that our valuation allowance should
be reduced form 100% to 35%, resulting in an income tax benefit of $225,000 for
2003.
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. The consultant was issued 250,627 shares of common stock valued
at $100,250, which was expensed. We also issued the consultant an option to
acquire the entire collection for $200,000. We recorded the fair value of this
option ($207,000) as a charge to operations during the quarter. We may be
required to pay the consultant $50,000 after three months and an additional
$50,000 after six months - both payments contingent upon the Company receiving
cumulative payments from the sales of the Collection totaling $150,000. The
Company has the option of paying the additional compensation, if any, by issuing
additional common stock to the consultant. If the target sales amounts are met,
the Company will value the stock when earned and record an expense through
operations. The Company recorded approximately $13,000 in sales of the
collection in the third quarter.
As a result of an agreement in May 2004 with two financial consultants
advising us on corporate structure matters, the Company issued 343,137 shares of
common stock to the consultants under the terms of the agreement and charged
operations for the fair value of the stock issued ($17,157).
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 approximately $11,000 for the three months
ending September 30, 2004, compared to a loss of $300,000 for the previous
quarter and $28,000 net income for the third quarter of 2003. Our net loss was
($316,000) for the nine months ending September 30, 2004, compared to net income
of $37,000 for the same period of 2003.
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. In 2002, we became the exclusive distributor in North America of the
CD products manufactured by Cyclolab Research Laboratories in Budapest, Hungary.
Page 18
We will continue to utilize the CTD Website to emphasize the Company's
unmatched knowledge of the emerging CD industry; in it we will be explaining
more about how CTD's customers are using CD's and what evidence we have that
major industries have focused on CD's because of their great commercial
diversity. We will continue to identify new products and new uses for CD's. We
intend to explore even closer ties with our European partner, Cyclolab; in 2004
management intends to aggressively pursue an even more formal relationship that
may include ownership. We are also focusing on asset enhancement through merger
and acquisition strategies.
DESCRIPTION OF PROPERTY
In 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
anew first mortgage of $150,000. The property had been developed in part asa
mushroom growing facility. The Company has discontinued mushroom growing
operations, but continues to use the property as its corporate headquarters. Its
present 6,000 sq.ft. facility is expected to be adequate to house the Company's
operations for the foreseeable future.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 14, 2003, the Company entered into a one-year
EmploymentAgreement with C.E. Rick Strattan, the Company's president, with an
annualsalary of $36,000 and $5,000 per month in restricted common shares of the
Company based on 80% of the closing value of the Company's shares on the last
day of the month in which the shares are awarded. No shares were awarded under
the Employment Agreement in 2003. As of September 30, 2004, 502318 shares have
been awarded pursuant to the Employment Agreement. The term of Mr. Strattan's
employment contract has been extended through December 31, 2005.
Effective January 1, 2004, the Company entered into a one-year Employment
Agreement with George L. Fails to serve as Operations Manager. Mr. Fails is
compensated $1,900 monthly, plus $1,000 per month in restricted common shares of
the Company, based on 80% of the closing value of the Company's shares on the
last day of the month in which the shares are awarded. As of September 30, 2004,
100,464 shares have been awarded pursuant to the Employment Agreement.
Mr. Strattan periodically advances the Company short-term loans and
defersreceipt of salary. The Company owes the shareholder $79,967 at December
31,2003. The loan is unsecured, long-term, and interest accrues at 5%. Interest
expense related to the loans totaled $9,127 and $11,263 for the years ended
December 31, 2003 and 2002, respectively.
Effective December 29, 2004, we sold 3,500,000 common shares to Aspatuck
Holdings, Ltd. for a purchase price of $3,500 for cash. The share will be issued
pursuant to Section 4(2) of the Securities Act of 1933 and will bear a
restrictive legend. The Registrant has agreed to register the shares purchased.
Page 19
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In October 1994, the Company's Class A common shares began trading on the
OTC Bulletin Board and in the over-the-counter market "pink sheets" under the
symbol CTDI. In 2000, CTDI split its common shares on a 2 for 1 basis,
increasing the total number of issued shares from approximately 2.3 million to
4.6 million issued and outstanding. In conjunction with that restructuring, we
changed the name of CTDI to CTD Holdings, Inc; CTDI was then incorporated as a
Florida corporation and became a wholly owned subsidiary of CTD Holdings, Inc.
Since the commencement of trading of the Company's securities, there has been an
extremely limited market for its securities. The following table sets forth high
and low bid quotations for the quarters indicated as reported by the OTC
Bulletin Board.
High Low
2001 First Quarter $ 0.141 $ 0.141
Second Quarter $ 0.15 $ 0.11
Third Quarter $ 0.15 $ 0.07
Fourth Quarter $ 0.11 $ 0.10
2002 First Quarter $ 0.086 $ 0.086
Second Quarter $ 0.082 $ 0.076
Third Quarter $ 0.065 $ 0.065
Fourth Quarter $ 0.049 $ 0.047
2003 First Quarter $ 0.070 $ 0.085
Second Quarter $ 0.050 $ 0.050
Third Quarter $ 0.050 $ 0.050
Fourth Quarter $ 0.730 $ 0.050
2004 First Quarter $ 0.530 $ 0.025
Second Quarter $ 0.249 $ 0.229
Third Quarter $ 0.095 $ 0.086
Fourth Quarter $ 0.061 $ 0.057
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 1, 2003, 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 66.
Dividend Policy
The Company will not pay 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.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There have been no changes in accountants or disagreements with present
accountants on financial disclosure.
Page 20
FINANCIAL STATEMENTS
The financial statements shown are for the years ended December 31,
2003(audited)and for the nine month period ended Spetember 30, 2004 (unaudited).
[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. and subsidiaries as of December 31, 2003, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 2003 and 2002. 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 the auditing standards generally
accepted in the United States of America. 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 audits 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.
and subsidiaries as of December 31, 2003, and the results of its operations and
its cash flows for the years ended December 31, 2003 and 2002, in conformity
with accounting principles generally accepted in the United States of America.
As described in Note 1(n) to the consolidated financial statements, the
accompanying consolidated financial statements of CTD Holdings, Inc. as of
December 31, 2003 and for the year then ended, have been restated.
/s/James Moore & Company
January 14, 2004 (August 19, 2004, as to the effects of the restatements
described in Note 1).
Gainesville, Florida
F - 1
CTD HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,757
Accounts receivable 134,022
Inventory 79,183
Deferred tax asset 25,000
-------------
Total current assets 245,962
-------------
PROPERTY AND EQUIPMENT, NET 379,300
-------------
OTHER
Intangibles, net 14,476
Deferred tax asset 200,000
-------------
Total other assets 214,476
-------------
TOTAL ASSETS $ 839,738
=============
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-2
CTD HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2003
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 45,791
Current portion of long-term debt 9,941
Current portion of stockholder loan 20,000
-------------
Total current liabilities 75,732
-------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 161,003
Due to stockholder, less current portion
59,967
-------------
Total long-term liabilities 220,970
-------------
STOCKHOLDERS' EQUITY
Class A common stock, par value $.0001 per share, 100,000,000 shares
authorized, 5,791,220 shares issued
and outstanding 580
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 2,029,398
Accumulated deficit (1,486,942)
-------------
Total stockholders' equity 543,036
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 839,738
=============
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-3
CTD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
------------- -------------
PRODUCT SALES $ 394,532 $ 522,372
COST OF PRODUCTS SOLD 45,433 84,483
------------- -------------
GROSS PROFIT 349,099 437,889
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 286,724 240,536
------------- -------------
INCOME FROM OPERATIONS 62,375 197,353
------------- -------------
OTHER INCOME (EXPENSE)
Investment and other income 6,973 23,251
Interest expense (22,599) (30,924)
Loss on disposal of equipment - (24,100)
------------- -------------
Total other income (expense) (15,626) (31,773)
------------- -------------
INCOME BEFORE INCOME TAXES 46,749 165,580
INCOME TAXES 225,000 -
------------- -------------
NET INCOME $ 271,749 $ 165,580
============= ============
NET INCOME PER COMMON SHARE: $ .05 $ .03
------------ ------------
Weighted average number of
common shares outstanding 5,004,919 4,791,220
============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
CTD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
COMMON STOCK ADDITIONAL TOTAL
PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
----------- ----------- ------------ ------------- ------------
Balance, December 31, 2001 4,791,220 $ 480 $ 1,954,498 $ (1,924,271) $ 30,707
Net Income - - - 165,580
165,580
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2002 4,791,220 480 1,954,498 (1,758,691) 196,287
Shares issued for services 1,000,000 100 49,900 - 50,000
Company expenses paid by
Stockholder - - 25,000 - 25,000
Net Income - - - 271,749 271,749
------------ ------------ ------------- ------------ ------------
Balance, December 31, 2003 5,791,220 $ 580 $ 2,029,398 $(1,486,942) $ 543,036
============ ============ ============= ============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
CTD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 2003 AND 2002
Increase (Decrease) in Cash and Cash Equivalents
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 271,749 $ 165,580
----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 28,543 24,190
Deferred income taxes (225,000) -
Loss on disposal of equipment - 24,100
Valuation allowance - 12,907
Stock issued for services 50,000 -
Company expenses paid by Shareholder 25,000 -
Bad debts 4,854 -
Increase in accounts receivable (97,741) (18,575)
Increase in inventory (15,037) (32,181)
Decrease (Increase) in other current assets ( - ) 1,305
Increase (decrease) in accounts payable
and accrued expenses 22,596 (129,195)
---------- ----------
Total adjustments (206,785) (117,449)
---------- ----------
Net cash provided by operating activities 64,964 48,131
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (54,716) (17,877)
Purchase of intangibles (11,174) -
Other - 748
----------- ---------
Net cash used for investing activities (65,890) (17,129)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on long-term debt (8,628) (8,199)
Payments on loan from stockholder, net (28,933) 13,005
Proceeds from sale of equipment - 21,877
Net payments on line of credit - (19,631)
---------- --------
Net cash provided (used for) by financing
activities (37,561) 7,052
---------- --------
Net increase (decrease) in cash and cash equivalents (38,487) 38,054
CASH AND CASH EQUIVALENTS, beginning of year 46,244 8,190
------------ ---------
CASH AND CASH EQUIVALENTS, end of year $ 7,757 $ 46,244
=========== ==========
F-6
CTD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 2003 AND 2002
Increase (Decrease) in Cash and Cash Equivalents
(Continued)
2003 2002
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 13,472 $ 30,924
=========== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITY
Vehicle acquired with debt financing $ 14,881 $ -
=========== ============
Common stock issued for services $ 50,000 $ -
=========== ============
Company expenses paid by shareholder $ 25,000 $ -
=========== ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
CTD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
(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) that 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.
(b) BASIS OF PRESENTATION - The consolidated financial statements include
the Company and its wholly 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) ACCOUNTS RECEIVABLE - Accounts receivable are stated at the amount
management expects to collect from outstanding balances. Based on management's
assessment of the credit history with customers having outstanding balances and
current relationships with them, it has concluded that realization losses on
balances outstanding at year-end will be immaterial.
(e) 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. In accordance with Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," the Company periodically reviews its
long-lived assets to determine if the carrying value of assets may not be
recoverable. If an impairment is identified, the Company recognizes a loss for
the difference between the carrying amount and the estimated value of the asset.
(f) INVENTORY - Inventory consists of cyclodextrin products purchased for
resale and chemical complexes. Inventory is recorded at the lower of cost
(first-in, first-out) or market.
(g) INTANGIBLES - Intangible assets consist of loan costs and other
intangibles recorded at cost. Intangible are amortized using the straight-line
method over their respective estimated useful lives.
(h) REVENUE RECOGNITION - Revenues are recognized when products are
shipped.
(i) ADVERTISING - Advertising costs are charged to operations when
incurred.
(j) START-UP COSTS - Start-up costs are expensed as incurred.
(k) 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.
F-8
CTD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
(l) RECLASSIFICATIONS - Certain amounts in the 2002 financial
statements have been reclassified for comparative purposes to conform with the
2003 presentation.
(m) USE OF ESTIMATES - The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
(n) RESTATEMENT - In August 2004, the Company restated its 2003
financial statements to write off previously deferred consulting fees in the
amount of $23,229. As a result, net income decreased by $23,229 and net income
per share decreased $.01 for the year ended December 31, 2003.
(2) COMMITMENTS:
Rent expense under all operating leases was $6,345 and $11,251 for 2003 and
2002, respectively.
(3) PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2003, consists of:
Land $ 80,000
Buildings and improvements 211,606
Machinery and equipment 84,704
Office furniture and equipment 49,738
------------
426,048
Less: accumulated depreciation 97,564
------------
328,484
Construction in progress 50,816
------------
Property and equipment, net $ 379,300
============
The carrying value of remaining idle long-lived assets related to a former
mushroom farming operation was approximately $ 120,000 at December 31, 2003.
(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 a financial
institution that are insured by the Federal Deposit Insurance Corporation up to
$100,000. At December 31, 2003, the bank balance was $8,444. 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 and the United Kingdom. One major customer accounted for
90% of the accounts receivable balance at December 31, 2003. The Company has no
policy requiring collateral or other security to support its accounts
receivable.
F-9
CTD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
(5) MAJOR CUSTOMERS AND SUPPLIERS:
Sales to three customers (Sigma Chemical Company, Dade Behring and AstraZeneca,
Inc.) in 2003 represented approximately 74% of total sales. Sales to four
customers (Ben Venue Laboratories, Sigma Chemical Company, Dade Behring and
AstraZeneca, Inc.) in 2002 represented approximately 75% of total sales.
Purchases from two suppliers in 2003 represented approximately 80% of total
costs of products sold. Purchases from four suppliers in 2002 represented
approximately 69% of total costs of products sold.
(6) LONG-TERM DEBT:
Long-term debt consists of the following as of December 31, 2003:
Mortgage note payable to bank, payments of $1,263 due monthly including
principal and interest at 5%, collateralized by land and buildings
with a cost of $210,000 $ 157,796
Note payable to financing company, payments of
$288 due monthly, including principal and interest,
at 6%, collateralized by vehicle with a cost
of $14,881 13,148
-----------
Total long-term debt 170,944
Less current portion 9,941
-----------
Long-term debt, less current portion $ 161,003
===========
Maturities on long-term debt as of December 31, 2003 over the next five years
are as follows:
Year ending
December 31, Amount
2004 $ 9,941
2005 10,713
2006 11,294
2007 11,907
2008 10,504
2009 and thereafter 116,585
---------
$ 170,944
=========
(7) RELATED PARTY TRANSACTIONS:
The majority stockholder periodically advances the Company loans. The Company
owes the stockholder $79,967 at December 31, 2003. The loan is unsecured and
interest accrues at 5%. Interest expense related to the loan totaled $9,127 and
$11,263 for the years ended December 31, 2003 and 2002, respectively. Principal
payments are $5,000 per quarter.
F-10
CTD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" requires disclosure of fair value to the extent
practicable for financial instruments, which are recognized or unrecognized in
the consolidated 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,
2003:
CARRYING FAIR
AMOUNT VALUE
---------- ---------
FINANCIAL ASSETS
Cash and cash equivalents $ 7,757 $ 7,757
Accounts receivable 134,022 134,022
---------- ---------
Total financial assets $ 141,779 $ 141,779
========== =========
FINANCIAL LIABILITIES
Accounts payable and accrued expenses $ 45,791 $ 45,791
Long-term debt 170,944 170,944
Due to stockholder 79,967 79,967
---------- ---------
Total financial liabilities $ 296,702 $ 296,702
========== =========
The fair value of all financial instruments approximates carrying value due to
the short-term maturity of the instruments.
(9) INCOME TAXES:
The Company follows the provisions of Statement of Financial Accounting Standard
No. 109 "Accounting for Income Taxes." Differences between accounting rules and
tax laws cause differences between the basis of certain assets and liabilities
for financial reporting purposes and tax purposes. The tax effect of these
differences, to the extent they are temporary, is recorded as deferred tax
assets and liabilities. Income tax expense is the tax payable or refundable for
the period plus or minus the change during the period in deferred assets and
liabilities. Temporary differences which give rise to deferred tax assets and
liabilities consist of net operating loss carryforwards, accelerated
depreciation methods for income tax purposes and interest accrued to related
parties but not for tax purposes until paid.
The Company has available at December 31, 2003, unused operating loss
carryforwards totaling approximately $ 1,483,000 that may be applied against
future taxable income. If not used, the carryforwards will expire as follows:
Year Ending
December 31, Amount
----------------- -----------------
2009 $ 730,000
2010 195,000
2017 206,000
2020 281,000
2021 71,000
-----------------
Total $ 1,483,000
=================
F-11
CTD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
If all of the operating loss carryforwards and temporary deductible differences
were used, the Company would realize a deferred tax asset of approximately $
350,000 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.
At December 31, 2002, management determined that a 100% valuation allowance was
appropriate. For 2003 and 2002, the Company realized net income and utilized
approximately $260,000 of its net operating loss carryforward to offset its
current income tax liabilities. Management expects to maintain continued
profitability in the future and realize additional benefits of its net operation
loss carryforwards. At December 31, 2003 Management determined that a reduction
in the valuation allowance to 35% from 100% of the future tax benefit is
appropriate. Accordingly, the Company has recognized a $225,000 deferred tax
asset and the resulting income tax benefit in 2003 to reflect this change in
estimate. Because of the inherent uncertainties in estimating the valuation
allowance on the deferred tax asset, it is at least reasonably possible that the
Company's estimated deferred tax asset will change in the near term and be
material to the financial statements.
2003 2002
----------- ------------
Current income tax expense $ (17,000) $ (53,000)
Tax benefit of temporary differences - 5,000
Tax benefit of operating loss carryforwards 17,000 48,000
Effect of decrease in valuation allowance 225,000 -
----------- ------------
Total net tax benefit (expense) $ 225,000 $ -
=========== ============
(10) SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 2003, the Company determined its valuation
allowance on its deferred tax asset resulting from net operating loss
carryforwards to be lower than previously recorded and reduced the valuation
allowance from 100% to 35%, resulting in an income tax benefit of $225,000 in
the fourth quarter of 2003.
(11) CAPITAL TRANSACTIONS
The Company engaged a consultant to perform services over a six month period.
The majority stockholder (and President) transferred 500,000 shares of CTDH
stock valued at $25,000 to the consultant on behalf of the Company. The
consulting fee was recorded by the Company as an other current asset and a
capital contribution by the stockholder. The consulting fee is expensed over the
life of the contract.
The Company issued 1,000,000 shares registered under Form S-8 to its President
as a bonus. The stock was valued at $50,000 when awarded and was expensed.
F-12
CTD HOLDINGS INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
September 30, 2004
--------------
CURRENT ASSETS
Cash and cash equivalents $ 100,554
Certificate of deposit 40,200
Accounts receivable 30,245
Inventory 57,122
Deferred tax asset 25,000
Loan to shareholder 2,516
------------
Total current assets 255,637
------------
PROPERTY AND EQUIPMENT, net 421,158
------------
OTHER ASSETS
Intangibles, net 13,278
Deferred tax asset 200,000
Sports memorabilia collection 101,420
------------
Total other assets 314,698
------------
TOTAL ASSETS $ 991,493
============
(continued)
F-13
CTD HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 2004
------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 21,164
Current portion of long-term debt 10,232
Current portion of shareholder loan 20,000
Call option on sports memorabilia collection 205,000
-------------
Total current liabilities 256,396
-------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 153,443
Due to Stockholder, less current portion 32,934
-------------
Total long-term liabilities 186,377
-------------
Common stock payable 54,000
-------------
STOCKHOLDERS' EQUITY
Common stock, par value $ .0001 per share, 100,000,000
shares authorized, 6,484,984 shares issued
and outstanding; 649
Preferred stock, par value $.0001 per share,
5,000,000 share authorized
Series A, 1 share issued and outstanding -
Additional paid-in capital 2,296,735
Accumulated deficit (1,802,664)
--------------
Total stockholders' equity 494,720
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 991,493
==============
See Accompanying Notes to Financial Statements
F-14
CTD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
PRODUCT SALES $ 134,116 $ 85,516 $ 387,545 $ 225,545
COST OF PRODUCTS SOLD 29,991 8,816 65,613 33,954
---------- ---------- ---------- ----------
GROSS PROFIT 104,125 76,700 321,932 191,591
---------- ---------- ---------- ----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 112,318 45,507 343,517 141,494
---------- ---------- ---------- ----------
SPORTS MEMORABILIA COLLECTION
Gain on sales 12,714 - 12,714 -
Other income (expenses) 2,000 - (309,250) -
---------- ---------- ---------- ----------
14,714 - (296,536) -
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 6,521 31,193 (318,121) 50,097
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest expense (2,804) (4,697) (9,333) (17,456)
Investment and other income 7,579 1,146 11,732 4,203
---------- ---------- ---------- ----------
Total other income (expense) 4,775 (3,551) 2,399 (13,253)
----------- ---------- ---------- ----------
NET INCOME (LOSS) BEFORE INCOME
TAXES 11,296 27,642 (315,722) 36,844
Income Taxes - - - -
----------- ---------- ---------- ----------
NET INCOME (LOSS) $ 11,296 $ 27,642 $ (315,722) $ 36,844
=========== ========== ========== ==========
NET INCOME (LOSS) PER COMMON
SHARE $ .01 $ .01 $ (.05) $ .01
----------- ---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,519,468 4,791,220 6,925,778 4,791,220
=========== ========== ========== ==========
See Accompanying Notes to Financial Statements
F-15
CTD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Nine Months Ended
September 30,
--------------------------
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (315,722) $ 36,844
------------ ------------
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Bad debt expense - 4,854
Depreciation and amortization 21,581 18,939
Stock issued for services 157,406 -
Call option-sports memorabilia collection 205,000 -
Fair value of stock options issued 4,000 -
Cost of memorabilia collection sold 4,580 -
Increase or decrease in:
Accounts receivable 103,777 20,730
Inventory 5,551 (10,678)
Accounts payable and accrued expenses (8,117) 14,166
Common stock payable 45,310 -
------------ ------------
Total adjustments 539,088 48,011
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 223,366
84,855 ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and building improvements (53,551) (54,927)
Purchase of certificate of deposit (40,200) -
------------ -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (93,751) (54,927)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on long-term debt - 14,881
Payments on long-term debt (7,269) (7,666)
Payments on loan payable to stockholder (27,033) (20,000)
Loan to Shareholder (3,500) -
Received from shareholder 984 -
------------ ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (36,818) (12,785)
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 92,797 17,143
CASH AND CASH EQUIVALENTS, beginning of period 7,757 46,244
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 100,554 $ 63,387
============ ============
(Continued)
F-16
CTD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Nine Months Ended
September 30,
--------------------------
2004 2003
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 6,967 $ 9,777
============ ============
Cash paid for income taxes $ - $ -
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Stock issued in acquisition of sports
memorabilia collection $ 106,000 $ -
============ ============
Common stock issued for consulting services $ 57,157 $ -
============ ============
Common stock issued in connection with
liquidation of sports memorabilia collection $ 100,250 $ -
============ ============
Purchase of vehicle with note payable $ - $ 14,881
============ ============
See Accompanying Notes to Financial Statements
F-17
CTD HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2004(Unaudited)
The information presented herein as of September 30, 2004, and for the three and
nine months ended September 30, 2004 and 2003, 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 and nine month periods ended September 30, 2004,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2004. 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, 2003.
(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 and nine months ended
September 30, 2004 due to its net loss for the periods.
4) CONCENTRATIONS
Sales to five major customers were 73% of total sales for the nine months ended
September 30, 2004. Sales to three major customers were 64% of total sales for
the nine months ended September 30, 2003.
Substantially all 2004 inventory purchases were from one vendor. Substantially
all 2003 inventory purchases were from three vendors.
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.
F-18
(5) EMPLOYMENT AGREEMENTS
The Company has employment agreements with two employees for total monthly
salaries of $4,900. In addition, the employees are issued the stock equivalent
of $6,000 each month computed based on eighty percent of the average bid and ask
price on the last day of the month for the Company's stock for the preceding
month. The stock is subject to trading restrictions under Rule 144.
Approximately 603,000 shares of common stock were due under these agreements at
September 30, 2004.
(6) CONSULTING AGREEMENTS
The Company entered into an agreement with two financial consultants in May
2004. Upon amending the Articles of Incorporation for Series A Preferred Stock
as described in Note 8, 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 when earned.
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.
The Company entered into a three-month agreement with a consultant regarding
capital raising and strategic options. The agreement automatically renews for
three-month successive terms unless canceled by either party with 30 days
notice. The Company paid $15,000 upon entering the agreement and will pay $3,500
per month, for each month the contract is in force, which it expenses when paid.
The Company is required to pay the consultant 7.5% of any capital raised and 5%
of any other capital transaction resulting within two years of the introduction
by the consultant.
(7) ACQUISITION 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 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. 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 through operations in the accompanying
statement of operations.
The consultant has 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 determined to be $205,000 at September 30, 2004, which is
recorded as a liability in the accompanying balance sheet and charged operations
in the accompanying statement of operations. The Company recalculates the fair
value of the option at the end of each reporting period and recognize any change
as through operations and adjust its liability accordingly.
F-20
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 charged through operations in the accompanying statement of
operations.
The Company may be required to pay the consultant $50,000 after three months and
an additional $50,000 after six months - both payments contingent upon the
Company receiving cumulative payments from the sales of the Collection totaling
$150,000. The Company has the option of paying the additional compensation, if
any, by issuing additional common stock to the consultant. The Company is
required to register the stock, if issued. If the target sales amounts are met,
the Company will value the stock when earned and record an expense through
operations. As of September 30, 2004, the Company recorded gross receipts of
approximately $17,000 from sales of the Collection.
The consultant is required to maintain adequate insurance and pay for any
transportation costs. The consultant is 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 is also required
to provide a detailed itemization of sales to the Company on a monthly basis.
(8) CORPORATE CHANGES
The Company amended its Articles of Incorporation authorizing a class of "blank
check" preferred stock consisting of 5,000,000 shares and creating a series of
Series A Preferred Stock and set forth its designations, rights and preferences.
The more significant right is the share votes together with the holders of the
common stock on all matters submitted to a vote of our 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
Holding 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 share of series A Preferred Stock has a
liquidation preference of $.0001. The Company issued one share of the Series A
Preferred Stock to its majority shareholder in exchange for 1,029,412 shares of
common stock held by the majority stockholder, surrendered to the Company and
canceled. See note 6.
F-21
PART II - INFORMATION NOT REQUIRED IN THE PROSPECTUS
--------------------------------------------------------
Item 13. Other Expenses of Issuance and Distriubtion
SEC registration fee...................................$ 82.35
Fees and expenses of counsel.................. ........ 25,000.00
Fees and expenses of accountants....................... 15,000.00
Miscellaneous.......................................... 3,000.00
Total.............................................$ 43,082.35
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0850 of the Florida Business Corporation Act ("Section 607.0850")
permits indemnification of directors, officers, employees and agents of a
corporation under certain conditions and subject to certain limitations. Section
607.0850 empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a part to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director, officer or agent of
the corporation. Depending on the character of the proceeding, a corporation may
indemnify against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person indemnified acted in good faith
and in a manner the person reasonably believed to be in or not opposed to, the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. In the case of an action by or in the right of the corporation, no
indemnification may be made with respect to any claim, tissue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine that despite the adjudication of liability such person
is fairly and reasonable entitled to indemnity for such expenses that the court
shall deem proper. Section 607.0850 further provides that to the extent a
director or officer of a corporation has been successful in the defense of any
action, suit or proceeding referred to above or in defense or any claim, issue
or matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually or reasonably incurred by such person in connection
therewith.
Item 15. RECENT SALES OF UNREGISTERED SECURITIES
Number Common Per Share
Name Shares Purchased Date Price
C.E. Rick Strattan 1,029,412 04-28-04 **
Aspatuck Holdings, Ltd. 3,500,000 12-29-04 $3,500
Both sale were made pursuant to Section 4(2) of the 1933 Act.
** Shares given in exchange for sports card and memorabilia collection. Said
shares have subsequently been transferred to the Registrant.
Page 21
Item 16. EXHIBITS
The following exhibits are filed with this Registration Statement:
Exhibit No. Exhibit Name
(a) Exhibits
Page
(1) Underwriting Agreement None
(2) Plan of acquisition, reorganization, arrangement,
liquidation, or succession None
(3) (i) Articles of incorporation
(3.1) Certificates of Amendment to the Articles of
Incorporation filed November 18, 1993 and
September 24, 1993.*
(3.2) Certificates of Amendment to the Articles of
Incorporation filed September 27, 2004 x
(3.3) (ii) By-laws* None
(4) Instruments defining the rights of security holders,
including indentures None
(5) Opinion re legality x
(8) Opinion re tax matters None
(9) Voting trust agreement None
(10) Material Contracts
(10.1) Agreement of Shareholders dated November 11, 1993
by and among C.E. Rick Strattan, Garrison Enterprises,
Inc. and the Company. *
(10.2) Lease Agreement dated July 7, 1994**.
(10.3) Consulting Agreement dated July 29, 1994 between the Company and
Yellen Associates. *
(10.4) License Agreement dated December 20, 1994 between the Company
and Herbe Wirkstoffe GmbH. *
(10.5) Joint Venture Agreement between the Company and
Ocumed, Inc. dated May 1, 1995, incorporated by
reference to the Company's Form 10-QSB for the
quarter ended June 30, 1995.**
(10.6) Extension of Agreement between the Company and Herbe
Wirkstoffe GmbH.***
(10.7) Lease Extension+
Page 22
(10.8) Loan Agreement with John Lindsay+
(10.9) Small Potatoes Contract+
(10.10) Employment Agreement with C.E. Rick Strattan dated
May 30, 2001++
(10.11) Employment Agreement of C.E. Rick Strattan dated
October 14, 2003+++
(10.12) Employment Agreement of George L. Fails dated
October 14, 2003****
(11) Statement re: computation of per share earnings Note 2 to
Financial Statements
(12) Statements re computation of ratios None
(13) Annual report to security holders, Form 10-Q and Form 10-QSB, or
quarterly report to security holders None
(15) Letter re unaudited interim financial information None
(16) Letter re change in certifying accountant ***
(21) Subsidiaries of the registrant None
(23) Consents of experts and counsel x
(24) Power of attorney x
(25) Statement of eligibility of trustee None
(26) Invitations for competitive bids None
(99) Additional Exhibits None
* 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 10-KSB filed with the
Securities and Exchange Commission on March 30, 2004.
+ Incorporated by reference to the Company's Form 10-KSB filed with the
Securities and Exchange Commission on April 2, 2001.
++ Incorporated by reference to the Company's Form 10-KSB filed with the
Securities and Exchange Commission on April 1, 2002.
+++ Incorporated by reference to Form S-8 filed December 1, 2003.
X Filed herewith
Page 23
Item 17. UNDERTAKINGS
The Company undertakes in connection with Rule 415 of the Securities Act of
1933 to file during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to include any
prospectus as required by Section 10(a)(3) of the Securities Act of 1933 and to
reflect in a post-effective amendment any material changes that may effect this
registration statement subsequently, including the naming of its underwriters in
connection with at the market offerings.
The Company also undertakes notwithstanding the foregoing, any increase or
decrease in volume of securities offered(if the total dollar value of securities
would not exceed that which was registered) any deviation from the low or high
end of the estimated maximum offering range to reflect in the prospectus as
filed with the Commission pursuant to Rule 424(b), if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
The Company also undertakes for determining liability under the Securities
Act, to treat each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at that time to be
the initial bona fide offering.
The Company further undertakes to file a post-effective amendment to remove
from registration any of the securities that remain unsold at the end of the
offering.
If in the future the Company decides to offer the securities to existing
security holders under warrants and rights and if any securities are reoffered
to the public and/or underwriters with modification, the Company will also
undertake to file a post-effective amendment.
If the offering is to be done in the future with competitive bidding, the
Company will use its best efforts to distribute to prospective bidders,
underwriters, and dealers, a reasonable number of copies of a prospectus as
contained in the registration statement, together with any supplements and file
an amendment to the registration statement reflecting the result of the bidding,
the terms of the reoffering and related matters, unless we decide that there
will be no further public offering of such securities.
Page 24
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing Form S-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of High
Springs, in the State of Florida.
CTD Holdings, Inc.
By: /s/ C.E. Rick Strattan
-------------------------------
C.E. Rick Strattan, C.E.O., President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacity and
on the date stated:
/S/ C.E. Rick Strattan
----------------------
President and Director
/s/ George L. Fails
----------------------
Director
Dated: January 3, 2005
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints C.E. Rick Strattan his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this registration
statement (and any registration statement filed pursuant to Rule 462 under the
Securities Act of 1933, as amended, for the offering which this registration
statement relates) and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming that said attorney-in-fact and agent
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Signature Title Date
/s/ C.E. RICK STRATTAN President, C.E.O. January 3, 2005
---------------------- Director
/s/ GEORGE L. FAILS Director January 3, 2005
----------------------------