SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
__X__ Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934 for the Quarterly Period Ended: March 31, 2005.
____ Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Transition Period From ____ to ____
Commission file number: 0-24930
CTD HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Florida 59-3029743
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
27317 N.W. 78th Avenue, High Springs, Florida 32643
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 386-454-0887
Former name, former address and former fiscal year, if changed since last
report: N/A.
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
APPLICABLE ONLY TO CORPORATE ISSUERS
As of May 13, 2005, the Company had outstanding 10,956,517 shares of its common
stock.
Transitional Small Business Disclosure Format: No.
PART I: FINANCIAL INFORMATION
PART I: Financial Information
CTD HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
March 31, 2005
--------------
CURRENT ASSETS
Cash and cash equivalents $ 156,698
Certificate of deposit 40,603
Accounts receivable 22,063
Inventory 67,068
Deferred tax asset 25,000
Loan to shareholder 1,501
--------
Total current assets 312,933
--------
PROPERTY AND EQUIPMENT, NET 441,936
--------
OTHER
Intangibles, net 12,480
Deferred tax asset 200,000
Sports memorabilia collection 92,402
--------
Total other assets 304,882
--------
TOTAL ASSETS $ 1,059,751
=========
(Continued)
F-2
CTD HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 2005
------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 31,458
Customer deposit 38,285
Current portion of long-term debt 8,441
Current portion of stockholder loan 20,000
-----------
Total current liabilities 98,184
-----------
LONG-TERM LIABILITIES
Long-term debt, less current portion 151,056
Due to stockholder, less current portion 19,087
-----------
Total long-term liabilities 170,143
-----------
STOCKHOLDERS' EQUITY
Class A common stock, par value
$.0001 per share, 100,000,000 shares
authorized, 11,294,017 shares
issued and outstanding 1,193
Class B non-voting common stock, par value $.0001
per share, 10,000,000 shares authorized, 0 shares
issued and outstanding -
Additional paid-in capital 2,638,191
Accumulated deficit (1,847,960)
-----------
Total stockholders' equity 791,424
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,059,751
===========
See Accompanying Notes to Financial Statements.
F-3
CTD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
-----------------------------
2005 2004
-------------- ------------
PRODUCT SALES $ 118,544 $ 133,179
COST OF PRODUCTS SOLD 17,474 23,365
----------- -----------
GROSS PROFIT 101,070 109,814
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 105,415 135,702
----------- -----------
SPORTS MEMORABILIA COLLECTION
Gain on sales 2,902 -
Other income 203,470 -
----------- -----------
206,372 -
----------- -----------
OTHER INCOME (EXPENSE)
Investment and other income 1,318 1,719
Interest expense (2,870) (3,193)
----------- -----------
Total other (expense) (1,552) (1,474)
----------- -----------
NET INCOME (LOSS) BEFORE INCOME TAXES 200,475 (27,362)
INCOME TAXES - -
----------- -----------
NET INCOME (LOSS) 200,475 (27,362)
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE .02 (.00)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 11,144,017 5,798,912
=========== ===========
See Accompanying Notes to Financial Statements.
F-4
CTD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Three Months Ended
March 31,
--------------------------
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 200,475 $ (27,362)
------------ ------------
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 7,855 6,983
Stock issued for services - 40,000
Gain on sales of sports memorabilia collection (2,902) -
Stock issued to employees 20,030 15,030
Gain on expiration of option - sports memorabilia
Collection (203,470) -
Decrease in accounts receivable 41,504 86,695
Decrease (Increase) in inventory (16,069) 1,570
Increase in prepaid expenses - (1,530)
Increase in accounts payable and
accrued expenses 7,618 17,278
Increase in customer deposits 38,285 -
----------- -----------
Total adjustments (107,149) 166,026
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 93,326 138,664
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and building improvements (15,257) (23,213)
Purchase of certificate of deposit (270) -
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (15,527) (23,213)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on notes payable (1,544) (2,493)
Payment on stockholder loan (14,511) (11,000)
Loan to shareholder - (3,500)
Received from shareholder 583 139
------------ ------------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (15,472) (16,854)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 62,327 98,597
CASH AND CASH EQUIVALENTS, beginning of period 94,371 7,757
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 156,698 $ 106,354
============ ============
(Continued)
F-5
CTD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(Concluded)
Three Months Ended
March 31,
--------------------------
2005 2004
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 2,870 $ 2,235
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITY
Common stock issued under one year consulting
Contract $ - $ 40,000
============ ============
See Accompanying Notes to Financial Statements.
F-6
CTD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
The information presented herein as of March 31, 2005, and for the three months
ended March 31, 2005 and 2004, is unaudited.
(1) BASIS OF PRESENTATION:
The accompanying financial statements include CTD Holdings, Inc. and its
subsidiaries.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Rule 10-01 of Regulations S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal required
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 2005, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2005. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report of Form 10-KSB for
the year ended December 31, 2004.
(2) NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) per common share is computed in accordance with the
requirements of Statement of Financial Accounting Standards No. 128 (SFAS 128).
SFAS 128 requires net income (loss) per share information to be computed using a
simple weighted average of common shares outstanding during the periods
presented. SFAS 128 eliminated the previous requirement that earnings per share
include the effect of any dilutive common stock equivalents in the calculation.
(3) INCOME TAXES
The Company recorded no income tax expense for the three months ended March 31,
2005 due to its realizing a tax loss for the period and its previous recognition
of the benefit of its net operating loss carryforward.
(4) CONCENTRATIONS
Sales to four major customers were 80% of total sales for the three months ended
March 31, 2005. Sales to three major customers were 70% of total sales for the
three months ended March 31, 2004.
Substantially all 2005 inventory purchases were from two vendors. Substantially
all 2004 inventory purchases were from one vendor.
The Company has only one source for certain manufactured inventory. However, the
Company has manufactured these products in the past and could do so again, if
necessary. There are multiple sources for its other inventory products.
(5) COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with two officers for total monthly
salaries of $4,900. In addition, the officers are awarded shares of common stock
each month. The number of shares is equal to $6,000 divided by eighty percent of
the closing price of the Company's common stock on the last day of each month.
The Company recognizes an expense equal to the fair value of the stock
determined using the average stock closing trading price for the month
multiplied by number of shares awarded for that month. The stock is subject to
trading restrictions under Rule 144. For the three months ended March 31, 2005
and 2004, the Company awarded 337,500 and 56,779 shares, respectively, and
recognized an expense of $23,000 and $18,000 respectively for stock awarded
under these agreements. The stock awarded under these agreements is presented as
outstanding in the accompanying financial statements. Both agreements expire
December 31, 2005.
The Company is required to pay a consultant 7.5% of any capital raised and 5% of
any other capital transaction resulting within two years of the introduction by
the consultant. No amounts have been paid or are due at March 31, 2005.
In March 2004, the Company entered into a one-year agreement with a consultant
regarding construction and specialized concrete formulations and issued 100,000
shares of stock valued at $40,000 at the date of issuance, which the Company
expensed in the first quarter of 2004. The stock was registered using Form S-8.
The consultant is related to the president and majority shareholder of the
Company.
(6) ACQUISTION OF SPORTS MEMORABILIA COLLECTION
In April, 2004, the Company finalized the acquisition of a sports memorabilia
collection (Collection), from its President and major shareholder. The
Collection was appraised at $400,000. The President was issued 1,029,412 shares
of unregistered common stock of the Company for the Collection. Since the
acquisition of the Collection was from the Company's President and controlling
shareholder, the Company recorded the Collection at $106,000, which is the
acquisition cost basis of the President and controlling shareholder.
The Company records sales of the Collection as gains or losses from operations.
Concurrent with the acquisition of the Collection, the Company entered into a
one-year contract with a consultant to liquidate the Collection on a "best
efforts" basis. This contract expired in March 2005, and the unsold portion of
the Collection was returned to the Company. The Company is currently exploring
its options to continue its liquidation of the Collection.
The consultant had the option to purchase the Collection at any time during the
term of the agreement for $200,000 less any sale proceeds already paid to the
Company. The Company computed the fair value of this call option using the
Black-Scholes stock option pricing model. The following assumptions were made in
estimating fair value: risk-free interest rate of 3.5%; no dividend yield;
expected life of one year. The fair value calculated resulting from the issuance
of this option was recorded as a liability and the expense was charged
operations. The Company recalculated the fair value of the option at the end of
each reporting period and recognized any change as through operations and adjust
its liability accordingly. The option expired in March 2005, and the Company
recorded the expiration of the option liability as a gain in the accompanying
statement of operations for the three months ended March 31, 2005.
The consultant was issued an option to acquire 100,000 shares of the Company's
stock at $.50/share during the one-year term of the agreement. The option
expired in March 2005.
The consultant was required to maintain adequate insurance and pay for any
transportation costs. The consultant was to liquidate the Collection at prices
not less than 75% of the values published in auction-house guidebooks and/or
reputable trade publications and price guides. The consultant was also required
to provide a detailed itemization of sales to the Company on a monthly basis.
F-8
Item 2. Management's Discussion and Analysis or Plan of Operation
Introduction
CTD Holdings, Inc. (referred to as the "Company," "CTD," or in the first person
notations of "we," "us," and "our") began operations in 1990. Our revenues are
principally derived from retail sales of cyclodextrins and cyclodextrin
complexes. Our sales are primarily to major chemical supply houses around the
world, pharmaceutical companies, and food companies for research and development
and to diagnostics companies. We acquire our products principally from outside
the United States, largely from Japan and Hungary, but are gradually finding
satisfactory supply sources in the United States. While we enjoy better supply
prices from outside the United States, rising shipping costs are making domestic
sources more competitively priced. To add value to our products, we maintain a
comprehensive database of patented and patent pending uses of cyclodextrins from
the United States. We also maintain less comprehensive database that includes
patents issued in many other countries including Japan, Gemany and others. This
information is available to our customers. We also offer our customers our
knowledge of the properties and potential new uses of cyclodextrins and
complexes.
As most of our customers use our cyclodextrin products in their research and
development activities, their ordering from us is unpredictable with regard to
timing, product mix and volume. We also have four major customers whom have a
significant effect on our revenues when they increase or decrease their research
and development activities that use cycldextrins. We keep in constant contact
with these customers as to their cyclodextrin needs so we can maintain the
proper inventory composition and quantity in anticipation of their needs. The
sales to major customers and the product mix and volume of products sold has a
significant effect on our revenues and gross profit. These factors contribute to
our significant revenue volatility from quarter to quarter and year to year.
Liquidity and Capital Resources
Our cash and certificate of deposit increased to $197,000 as of March 31, 2005
compared to $135,000 as of December 31, 2004. This increase was primarily due to
an increase in customer deposits in the first quarter of 2005.
As of March 31, 2005, our working capital was $215,000 compared to $16,000 at
December 31, 2004 and $169,000 at March 31, 2004. This increase in working
capital from December 31, 2004 is due to the expiration of a $200,000 call
option liability in March 2005.
Our cash flow from operations was $93,000 compared to $139,000 a year ago. This
decrease was due primarily to decreased sales in the first quarter of 2005
compared to 2004.
We believe our working capital is sufficient to run our operations at current
and expected future operating levels into the near future. We do not require
capital in the next twelve months for normal operations. However, we require
additional funding to implement our acquisition strategy. Our acquisition
strategy includes raising $1,500,000 in the next twelve months. Our first
acquisition will require approximately $500,000. We believe we can fund the
initial costs of raising capital and start our acquisition strategy from
existing working capital.
Controlling cash expenses continues to be management's primary fiscal tool.
However, growth requires increased expenditures and we feel that it is
appropriate during the current growth stage to engage consultants that can help
the Company in financial areas outside its expertise, accepting that these fees
will act to reduce profitability. We are working hard to increase revenues to
balance these new expenses, but cannot be sure that such effort will be enough
in the short term to sustain profitable financial performance. Our cash SG&A
expenses for 2005, as a percentage of sales, have decreased from 2004.
During 2004, we acquired a sports memorabilia collection from our President. We
obtained an appraisal on the collection for $400,000. We also engaged a third
party consultant to liquidate the Collection, which has provided us with
additional cash flow with minimal associated cash expenses. During March 2005,
this agreement expired. We are currently exploring our options to continue to
liquidate the Collection, but there are no assurances we will be able to
successfully or profitably do so.
During 2003, we began improvements and renovations of our corporate office and
have invested $140,000 through March 31, 2005. We are committed to a Research
Park facility for the 40-acre site. Contingent on the Company's ability to
financially support modest expansions that will lead to a formal site plan, we
anticipate spending at least another $100,000 over the next four quarters to put
the Company in a position to initiate a 5-year plan for a new Cyclodextrin
Research Park.
In December 2004, the Company issued 3,500,000 shares of its common stock for
$3,500 to a financial consultant. We recognized an expense of $206,500, which is
the difference between the amount paid and the fair value of the stock issued
based on the trading price on the date of the stock purchase. We have agreed to
register the stock by filing a registration statement by June 19, 2005 with an
effective date no later than August 19, 2005. If the registration is not filed
and effective by the dates indicated, we are required to issue an additional
175,000 shares of common stock for each month or part thereof until the
registration statement is filed or becomes effective. We are currently in the
process of preparing a registration statement to be filed.
We have filed Form S-1 with the U.S. Securities and Exchange Commission for a
shelf registration of 10,000,000 shares of common stock to be used for business
acquisition purposes. We are currently preparing our response to comments
received from the Securities and Exchange Commission review process.
We have no off-balance sheet arrangements at March 31, 2005.
Results of Operations
Total product sales for the first quarter 2005 were $119,000 compared to
$133,000 in the first quarter of 2004. Our major customers continue to be repeat
purchasers. In 2004, three of our major customers accounted for 70% of our
sales. In 2005, three of our major customers accounted for 69% of our sales.
This size of the major customer sales decreased from 2004 to 2005.
Our gross profit margin of 85% remains consistently strong for the first quarter
2005 compared to 83% for the year ended December 31, 2004. Changes in the
product mix in sales has a significant effect on our overall gross profit
percentage, but management expects our gross profit to remain in the 80% range.
Our SG&A expenses decreased to approximately $105,000 from approximately
$136,000 for the three months ended March 31, 2004. This decrease is due to
$40,000 in consulting fees related to a potential acquisition incurred in 2004
but not incurred in 2005.
In April 2004, we acquired a collection of sports memorabilia from our majority
shareholder and President. We also engaged a consultant to liquidate the
collection. This agreement expired in March 2005. For the three months ended
March 31, 2005, we recognized a gain on sale of Collection items of $3,000 and
recognized a $200,000 gain on the expiration of a call option liability
previously issued to the consultant. We are currently exploring our options to
continue to liquidate the Collection, but there are no assurances we will be
able to successfully or profitably do so.
We expect significant increases in future legal and accounting fees as the
result of implementing our planned merger and acquisition strategy.
We recognized net income of $200,000 for the three months ended March 31, 2005
compared to a net loss of ($27,000) for the three months ended March 31, 2004.
We will continue to introduce new products that will increase sales revenue and
implement a strategy of creating or acquiring operational affiliates and/or
subsidiaries that will use CD's in herbal medicines, waste-water remediation,
pharmaceuticals, and foods. We also intend to pursue exclusive relationships
with major CD manufacturer(s) and specialty CD labs to distribute their
products. We continue to be the exclusive distributor in North America of the CD
products manufactured by Cyclolab Research Laboratories in Budapest, Hungary.
In keeping with its commitment to use the internet as a major advertising and
public relations outlet, the Company continues to maintain its web site. This
asset has been instrumental in creating and maintaining a worldwide leadership
role for us in the implementation of research and commercialization of CD
applications. We believe that the maintenance and growth of our web site will
return that investment many times.
Forward-looking Statements
All statements other than statements of historical fact in this report are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995, and are based on management's current expectations of the
Company's near term results, based on current information available and
pertaining to the Company. The Company assumes no obligation to update publicly
any forward-looking statements. Actual results may differ materially from those
projected in the forward-looking statements. These forward-looking statements
involve risks and uncertainties, including, but not limited to, the following:
demand for Cyclodextrin; changes in governmental laws and regulations
surrounding various matters, such as labeling disclosures; delays in the
development, production, testing and marketing of products; product margins and
customer product acceptance.
Item 3. Controls And Procedures
(a) Evaluation of disclosure controls and procedures.
The Company's management, recognizes its responsibility for establishing and
maintaining internal control over financial reporting for the Company. After
evaluating the effectiveness of our "disclosure controls and procedures" (as
defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as
of March 31, 2005 (the "Evaluation Date"), the Company's management has
concluded, as of the Evaluation Date, the Company's disclosure controls and
procedures were adequate and designed to ensure the information required to be
disclosed in the reports filed or submitted by us under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported with in the
requisite time periods. The Company's management acknowledges a material
weakness exists in its controls and procedures, in that i) the accountant
employed by the Company, while a third year student pursuing a degree in
accounting at the University of Florida has no training regarding financial
reporting and presentation rules and regulations of the SEC; and ii) the
Company's President/CEO, who oversees all the accountants' work and provides all
internal control functions, while possessing a MBA from the University of
Florida, has no training in matters of accounting, financial reporting, or
presentation rules and regulations of the SEC.
(b) Effectiveness of Internal Control
The Company's management is reviewing the Company's internal controls over
financial reporting to determine the most suitable recognized control framework.
The Company will give great weight and deference to the product of the
discussions of the SEC's Advisory Committee on Smaller Public Companies (the
"Advisory Committee") and the Committee of Sponsoring Organizations' task force
entitled Implementing the COSO Control Framework in Smaller Businesses (the
"Task Force"). Both the Advisory Committee and the Task Force are expected to
provide practical, needed guidance regarding the applicability of Section 404 of
the Sarbanes-Oxley Act to small business issuers. The Company's management
intends to perform the evaluation required by Section 404 of the Sarbanes-Oxley
Act at such time as a framework is adopted by the Company. For the same reason,
the Company's registered accounting firm has not issued an "attestation report"
on the Company management's assessment of internal controls. The Company's
management acknowledges a material weakness exists in its controls and
procedures, in that i) the accountant employed by the Company, while a third
year student pursuing a degree in accounting at the University of Florida has no
training regarding financial reporting and presentation rules and regulations of
the SEC; and ii) the Company's President/CEO, who oversees all the accountants'
work and provides all internal control functions, while possessing a MBA from
the University of Florida, has no training in matters of accounting, financial
reporting, or presentation rules and regulations of the SEC.
(c) Changes in internal controls.
After evaluation by the Company's management, the Company's management has
determined there were no significant changes in the Company's internal controls
or in other factors that could significantly affect the Company's internal
controls subsequent to the Evaluation Date.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
NONE
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Description Page
----------- ----
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession None
(4) Instruments defining the Rights of Security Holders None
(10) Material Contracts None
(11) Statement re: Computation of Per Share Earnings Note 2,
Financial
Statements
(15) Letter re: Unaudited Interim Financial Information None
(18) Letter re: Change in Accounting Principles None
(19) Report Furnished to Security Holders None
(22) Published Report re: Matters Submitted to Vote of
Security Holders None
(23) Consents of Experts and Counsel None
(24) Power of Attorney None
(27) Financial Data Schedule
(31) Certification of Chief Executive
Officer and Chief Financial Officer *
(32) Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 *
(99) Additional Exhibits None
* Filed Herewith
(b) Reports on Form 8-K:
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CTD HOLDINGS, INC.
DATE
/s/ C.E. "Rick" Strattan May 13, 2005
-----------------------------
C.E. Rick Strattan, President
Chief Executive Officer,
Chief Operating Officer and
Chief Financial Officer