UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
☒
Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 for the quarterly period ended: June 30,
2015
☐ Transition
Report Under Section 13 or 15(d) of the Exchange Act for the transition period from ____ to ____
Commission file number: 0-25466
CTD HOLDINGS, INC.
(Exact name of registrant as specified in its
charter)
Florida |
|
59-3029743 |
(State or other jurisdiction of incorporation or organization) |
|
(IRS Employer Identification No.) |
14120 N.W. 126th Terrace, Alachua, Florida |
|
32615 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrant's telephone number, including area
code: 386-418-8060
__________________________________________________________________________
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 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 ☐
No
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).☒ Yes ☐
No
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of 'large accelerated filer, 'accelerated filer,' and 'smaller reporting company' in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated
filer
☐
Non-accelerated filer ☐ Smaller
reporting company ☒
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐
Yes ☒ No
As of August 11, 2015, the Company had outstanding
57,476,820 shares of its common stock.
TABLE OF CONTENTS
|
Description |
Page |
PART I |
FINANCIAL INFORMATION |
1 |
Item 1. |
Financial Statements. |
1 |
|
Consolidated Balance Sheets (Unaudited) as of June 30, 2015 and December 31, 2014. |
1 |
|
Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2015 and 2014. |
2 |
|
Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2015 and 2014. |
3 |
|
Notes to Consolidated Financial Statements. |
4 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
6 |
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk. |
10 |
Item 4. |
Controls and Procedures. |
10 |
PART II |
OTHER INFORMATION |
10 |
Item 1A. |
Risk Factors. |
10 |
Item 6. |
Exhibits. |
10 |
|
|
|
SIGNATURES |
|
11 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CTD HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| |
June 30, 2015 | | |
December 31, 2014 | |
| |
| | |
| |
ASSETS | |
CURRENT ASSETS | |
| | | |
| | |
Cash and cash equivalents | |
$ | 1,426,589 | | |
$ | 2,380,054 | |
Accounts receivable, net | |
| 49,297 | | |
| 80,981 | |
Inventory | |
| 608,486 | | |
| 575,176 | |
Other current assets | |
| 29,945 | | |
| 13,277 | |
Total current assets | |
| 2,114,317 | | |
| 3,049,488 | |
| |
| | | |
| | |
PROPERTY AND EQUIPMENT, NET | |
| 1,785,612 | | |
| 1,645,703 | |
| |
| | | |
| | |
OTHER ASSETS | |
| | | |
| | |
Property held for sale | |
| 400,000 | | |
| 400,000 | |
Deferred tax asset | |
| 120,000 | | |
| 120,000 | |
Deferred costs, net | |
| 68,157 | | |
| 69,888 | |
Total other assets | |
| 588,157 | | |
| 589,888 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 4,488,086 | | |
$ | 5,285,079 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 85,130 | | |
$ | 120,646 | |
Debt | |
| 764,934 | | |
| 794,496 | |
Total current liabilities | |
| 850,064 | | |
| 915,142 | |
| |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDERS' EQUITY | |
| | | |
| | |
Common stock, par value $.0001 per share, 100,000,000 shares authorized, 54,455,882 and 54,420,882 shares issued and outstanding, respectively | |
| 5,446 | | |
| 5,442 | |
Preferred stock, par value $.0001 per share, 5,000,000 shares authorized, no shares outstanding | |
| - | | |
| - | |
Additional paid-in capital | |
| 7,105,408 | | |
| 7,088,891 | |
Accumulated deficit | |
| (3,472,832 | ) | |
| (2,724,396 | ) |
Total stockholders' equity | |
| 3,638,022 | | |
| 4,369,937 | |
| |
| | | |
| | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | |
$ | 4,488,086 | | |
$ | 5,285,079 | |
See accompanying Notes to Consolidated Financial
Statements.
CTD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| |
Three Months Ended | | |
Six Months Ended | |
| |
June 30, | | |
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
REVENUES | |
| | | |
| | | |
| | | |
| | |
Product sales | |
$ | 380,340 | | |
$ | 173,584 | | |
$ | 553,538 | | |
$ | 733,909 | |
| |
| | | |
| | | |
| | | |
| | |
EXPENSES | |
| | | |
| | | |
| | | |
| | |
Personnel | |
| 166,641 | | |
| 122,568 | | |
| 328,272 | | |
| 237,389 | |
Cost of products sold (exclusive of depreciation and amortization, shown separately below) | |
| 57,406 | | |
| 22,962 | | |
| 79,872 | | |
| 94,850 | |
Research and development | |
| 110,834 | | |
| 30,614 | | |
| 178,065 | | |
| 79,133 | |
Repairs and maintenance | |
| 7,093 | | |
| 20,731 | | |
| 16,549 | | |
| 38,217 | |
Professional fees | |
| 130,759 | | |
| 77,586 | | |
| 222,908 | | |
| 142,989 | |
Office and other | |
| 85,042 | | |
| 69,771 | | |
| 127,787 | | |
| 113,829 | |
Board advisory | |
| 134,053 | | |
| - | | |
| 251,789 | | |
| - | |
Amortization and depreciation | |
| 39,269 | | |
| 38,482 | | |
| 80,564 | | |
| 76,301 | |
Freight and shipping | |
| 1,604 | | |
| 3,803 | | |
| 3,330 | | |
| 5,896 | |
Gain on disposal of equipment | |
| - | | |
| - | | |
| (700 | ) | |
| - | |
| |
| 732,701 | | |
| 386,517 | | |
| 1,288,436 | | |
| 788,604 | |
| |
| | | |
| | | |
| | | |
| | |
OPERATING LOSS | |
| (352,361 | ) | |
| (212,933 | ) | |
| (734,898 | ) | |
| (54,695 | ) |
| |
| | | |
| | | |
| | | |
| | |
OTHER INCOME (EXPENSE) | |
| | | |
| | | |
| | | |
| | |
Investment and other income | |
| 80 | | |
| 230 | | |
| 2,240 | | |
| 2,403 | |
Interest expense | |
| (7,899 | ) | |
| (8,731 | ) | |
| (15,778 | ) | |
| (17,217 | ) |
| |
| (7,819 | ) | |
| (8,501 | ) | |
| (13,538 | ) | |
| (14,814 | ) |
| |
| | | |
| | | |
| | | |
| | |
LOSS BEFORE INCOME TAXES | |
| (360,180 | ) | |
| (221,434 | ) | |
| (748,436 | ) | |
| (69,509 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income tax benefit | |
| - | | |
| 70,000 | | |
| - | | |
| 15,000 | |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS | |
$ | (360,180 | ) | |
$ | (151,434 | ) | |
$ | (748,436 | ) | |
$ | (54,509 | ) |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS PER COMMON SHARE | |
$ | .00 | | |
$ | .00 | | |
$ | (.01 | ) | |
$ | .00 | |
| |
| | | |
| | | |
| | | |
| | |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | |
| 54,455,882 | | |
| 52,055,882 | | |
| 54,454,132 | | |
| 47,261,438 | |
See Accompanying Notes to Consolidated Financial
Statements.
CTD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
| |
Six Months Ended | |
| |
June 30, | |
| |
2015 | | |
2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net loss | |
$ | (748,436 | ) | |
$ | (54,509 | ) |
| |
| | | |
| | |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 80,564 | | |
| 76,301 | |
Gain on sale of equipment | |
| (700 | ) | |
| - | |
Deferred income taxes | |
| - | | |
| (15,000 | ) |
Increase or decrease in: | |
| | | |
| | |
Accounts receivable | |
| 31,684 | | |
| 59,635 | |
Inventory | |
| (26,877 | ) | |
| (37,202 | ) |
Other current assets | |
| (16,668 | ) | |
| (20,416 | ) |
Accounts payable and accrued expenses | |
| (18,995 | ) | |
| (57,931 | ) |
Total adjustments | |
| 49,008 | | |
| 5,387 | |
| |
| | | |
| | |
NET CASH USED IN OPERATING ACTIVITIES | |
| (699,428 | ) | |
| (49,122 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Purchase of equipment and building improvements | |
| (225,175 | ) | |
| (102,069 | ) |
Proceeds from sale of equipment | |
| 700 | | |
| - | |
NET CASH USED IN INVESTING ACTIVITIES | |
| (224,475 | ) | |
| (102,069 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Principal payments on notes payable | |
| (29,562 | ) | |
| (28,396 | ) |
Proceeds from sale of common stock | |
| - | | |
| 1,402,360 | |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | |
| (29,562 | ) | |
| 1,373,964 | |
| |
| | | |
| | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | |
| (953,465 | ) | |
| 1,222,773 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS, beginning of period | |
| 2,380,054 | | |
| 268,516 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS, end of period | |
$ | 1,426,589 | | |
$ | 1,491,289 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |
| | | |
| | |
Cash paid for interest | |
$ | 15,778 | | |
$ | 17,217 | |
| |
| | | |
| | |
Cash paid for income taxes | |
$ | - | | |
$ | - | |
See Accompanying Notes to Consolidated Financial
Statements.
CTD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
The information presented herein as of June
30, 2015 and for the three and six months ended June 30, 2015 and 2014 is unaudited.
(1) BASIS OF PRESENTATION:
The accompanying consolidated financial statements
include CTD Holdings, Inc. and its subsidiaries.
The accompanying consolidated financial statements
have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation 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 recurring adjustments) considered necessary for a fair presentation have been included.
Operating results for the three and six month
periods ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31,
2015. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2014.
(2) INVENTORY
We did not have work-in-process inventory at June 30, 2015 or December
31, 2014.
(3) DEBT
We owed $541,929 and $551,913, at June 30, 2015 and December 31,
2014, respectively, on a mortgage note payable, collateralized by land and a building we acquired in September 2010. Monthly payments
of $3,506, including principal and interest at 3.99%, are due, with a final balloon payment of approximately $350,000 due in July
2023. The note is secured by a mortgage on our Alachua property. The note has a voluntarily prepayment penalty which was 3% of
the principal repaid as of the date of this filing, and which decreases 1% on July 17 of each year. The loan has a covenant requiring
our ratio of EBITDA to interest expense and prior period current maturities of long-term debt to not be less than 1.3, measured
annually. We were not in compliance with this debt coverage ratio covenant for the year ending December 31, 2014. As a result,
we have reclassified principal due in 2016 and beyond as current in the accompanying balance sheet.
We also owed this lender $223,005 and $242,583 at June 30, 2015
and December 31, 2014, respectively, under an equipment loan related to the installation of the pulse dryer and related building
renovations. Monthly payments of $4,051, including principal and interest at 3.99%, are due through and including July 2020. The
note is collateralized by all of our equipment. There is a prepayment penalty of 2% of the outstanding balance if we voluntarily
repay the loan prior to July 17, 2018. Principal due under this loan has also be reclassified as current in the accompanying balance
sheet due to our non-compliance with the loan covenant referred to above.
Scheduled long-term debt obligations over the
next five years and thereafter are as follows, assuming the bank does not call the loan due to the debt covenant non-compliance:
Year Ending December 31, | | |
Year | |
| 2015 | | |
$ | 57,924 | |
| 2016 | | |
| 62,411 | |
| 2017 | | |
| 64,982 | |
| 2018 | | |
| 67,658 | |
| 2019 | | |
| 70,735 | |
| Thereafter | | |
| 441,224 | |
| | | |
$ | 764,934 | |
CTD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
(4) STOCK TRANSACTIONS:
There were no stock transactions during the
quarter ended June 30, 2015. On July 10, 2015, subsequent to the end of the quarter, the Company entered into a Securities Purchase
Agreement under which it issued 2.6 million shares of its common stock in a private placement, at a purchase price of $0.50 per
share, for aggregate gross proceeds to the Company of $1.3 million. Scarsdale Equities, LLC acted as financial advisor to the Company
in connection with the private placement and was paid a cash fee in an amount equal to 6% of the gross proceeds of the private
placement and was issued seven-year warrants to purchase 156,000 shares of Common Stock at an exercise price of $0.50 per share.
N. Scott Fine, a director of the Company, is a principal at Scarsdale.
In addition, on July 28, 2015, the Company
received $78,616 from the exercise of previously outstanding warrants for 314,465 shares of common stock at an exercise price of
$0.25 per share. After giving effect to such exercise, the Company had warrants outstanding to purchase 343,500 shares of common
stock at exercise prices of $0.25 - $1.00 per share that expire in 2021.
(5) INCOME TAXES:
The Company reported a net loss for the three
and six months ended June 30, 2015, and increased its deferred tax asset valuation allowance rather than recognize an income tax
benefit.
The Company reported a net loss for the three
and six months ended June 30, 2014, recorded an income tax benefit, and increased its deferred tax asset by $70,000 and $15,000,
respectively.
(6) NET LOSS PER COMMON SHARE:
Net loss per common share is computed using
a simple weighted average of common shares outstanding during the periods presented.
(7) CONCENTRATIONS:
Sales to one major customer accounted for 49%
of gross sales for the six months ended June 30, 2015. Sales to two major customers accounted for 75% of gross sales for the six
months ended June 30, 2014.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following discussion and analysis
provides information to explain our results of operations and financial condition. You should also read our unaudited
consolidated interim financial statements and their notes included in this Form10-Q, and our audited consolidated financial statements
and their notes and other information included in our Annual Report on Form 10-K for the year ended December 31, 2014. This
report may contain forward-looking statements. Forward-looking statements within this Form 10-Q are identified by words such as
“believes,” “anticipates,” “expects,” “intends,” “may,” “will”
“plans” and other similar expressions; however, these words are not the exclusive means of identifying such statements.
In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances
are forward-looking statements. These forward-looking statements are subject to significant risks, uncertainties and
other factors, which may cause actual results to differ materially from those expressed in, or implied by, these forward-looking
statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update
or revise any forward-looking statements to reflect events, circumstances or developments occurring subsequent to the filing of
this Form 10-Q with the U.S. Securities and Exchange Commission (the “SEC”) or for any other reason and you should
not place undue reliance on these forward-looking statements. You should carefully review and consider the various disclosures
the Company makes in this report and our other reports filed with the SEC that attempt to advise interested parties of the risks,
uncertainties and other factors that may affect our business.
Overview
CTD Holdings, Inc. (“we” “our”
“us” or “the Company”) was organized as a Florida corporation on August 9, 1990, with operations beginning
in July 1992. In conjunction with a restructuring in 2000, we changed our name from Cyclodextrin Technologies Development, Inc.,
or CTDI, to CTD Holdings, Inc.; CTDI was then incorporated as a Florida corporation and became a wholly owned subsidiary of CTD
Holdings, Inc.
We are a biotechnology company focused on the
use of cyclodextrins in drug development. We recently filed a Type II Drug Master File with the U.S. Food and Drug Administration
(“FDA”) for our lead drug candidate, Trappsol® Cyclo™. The Company has launched an International Clinical
Program for its Trappsol® Cyclo™ as a treatment for Niemann-Pick Type C disease (“NPC”). We also sell cyclodextrins
and related products to the pharmaceutical, nutritional, and other industries, primarily for use in diagnostics and specialty drugs
with continuing growth in research and new product development.
Our core business has transitioned to a biotechnology
company primarily focused on the development of cyclodextrin-based biopharmaceuticals for the treatment of disease from a business
which had been primarily reselling basic cyclodextrin products. Our strategy going forward is to pursue biopharmaceutical
opportunities in healthcare where we believe cyclodextrin applications have maximum value, while continuing to sell our cyclodextrin
products and services.
Substantially all of our revenues are derived
from the sale of cyclodextrins, including bio-pharmaceuticals containing cyclodextrins, cyclodextrin complexes, resale of cyclodextrins
manufactured by others for our clients to their specifications, and our own licensed cyclodextrin products. We have
trademarked certain products under our Trappsol®, Aquaplex®, and AP™-Flavor product lines. We currently
sell our products directly to customers in the diagnostics, pharmaceutical, and industrial chemical industries, and to chemical
supply distributors. In addition, in 2012, we began offering pulse drying services for the production of raw materials
used primarily in industrial and consumer products.
We continue to pursue mutually beneficial
relationships with major cyclodextrin manufacturers and specialty cyclodextrin labs to distribute their products. We are a distributor
in North America of the cyclodextrin products that are manufactured by Cyclodextrin Research & Development Laboratory and Chiroquest,
Kft. both of Budapest, Hungary.
We use the internet to advertise and sell
our products, and have increased our presence through our e-commerce website, www.cyclodex.com. We also maintain a corporate website,
www.ctd-holdings.com.
Trappsol® Cyclo™
At the end of 2008, we provided Trappsol®
Cyclo™ to a customer for compassionate use as an Investigational New Drug to treat a set of twins in the U.S. who were diagnosed
NPC, also known as Childhood Alzheimer’s. NPC is a fatal disease caused by a genetic defect that prevents proper handling
of cholesterol in the body’s cells. The patient’s treatment with our Trappsol® Cyclo™ product proved to provide
an ameliorative benefit. On May 17, 2010, the FDA granted orphan drug status to our customer for Trappsol® Cyclo™ for
the treatment of NPC. Our annual sales of Trappsol® Cyclo™ increased to $901,000 for 2014 from $875,000 for 2013. Sales
of Trappsol® Cyclo™ were $240,000 and $310,000 for the three and six months ended June 30, 2015, respectively. In 2012,
we began to offer 100ml vials of Trappsol® Cyclo™ in a liquid form from a contract manufacturer. In 2014, we completed
validation of the Trappsol® Cyclo™ manufacturing process and submitted a Type II Drug Master File to the FDA. In 2015
we established an International Clinical Program that includes a team of experienced drug development companies and individuals.
We have also obtained Orphan Drug Designation for Trappsol® Cyclo™ in both the U.S. and Europe.
Other Sterile Liquid Products
We have utilized the manufacturing processes
developed as part of our Trappsol® Cyclo™ product development to create new sterile liquid solutions of selected Trappsol®
and Aquaplex® products for the life science research market. We contract manufactured 250 sterile reagent bottles of our best-selling
research grade Trappsol® product in liquid form in 2014. For the foreseeable future, we expect that our sterile liquid products,
including our Trappsol® Cyclo™ product, will be manufactured at Contract Manufacturing Organizations (CMOs) that have
this specialty manufacturing technology in place. The work will be done using our raw materials with standard operation procedures
for the manufacturing approved by us.
Pulse Drying Services
In 2011, we installed a pulse dryer system
on our premises to manufacture cyclodextrin complexes. We started operating the pulse dryer in January 2012 through our wholly
owned subsidiary, NanoSonic Products, Inc. We intend to use our pulse dryer as a proprietary purification technology to develop
our UltraPure™ line of cyclodextrin material. We have prospective clients for this material and potential additional customers
for other UltraPure™ grades of other cyclodextrins that include cell culture supply producers, medical diagnostic test kit
manufacturers and pharmaceutical formulation developers. This technology can be easily modified to include other cyclodextrins
in our product catalog. We also offer third parties the use of our pulse dryer for the manufacture of products to their specification
but have not generated any revenues to date from this service.
Resale of Cyclodextrin and Cyclodextrin Complexes
Our sales of cyclodextrins and cyclodextrin
complexes are primarily to chemical supply houses around the world, to pharmaceutical companies, to food companies for research
and development and to diagnostics companies.
We acquire our products principally from outside
the United States, including from Wacker Biosolutions, a division of Wacker Chemie AG (Germany), with a production facility located
in Adrian, Michigan and Hangzhou Pharma and Chem Co. (China), Quian Hui (China), and Cyclodextrin Research & Development Laboratory
(Hungary), but are gradually finding satisfactory supply sources in the United States. While we enjoy lower supply prices from
outside the United States, changes in shipping costs for our current order quantities and currency exchange rates are making domestic
sources more competitively priced. We make patent information about cyclodextrins 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, the timing, product mix, and volume of their orders from us are unpredictable.
We also have four large customers (each of whom has historically purchased from us annually and, depending upon the year, may account
for greater than 10% of our annual revenues) who have a significant effect on our revenues when they increase or decrease their
research and development activities that use cyclodextrins. We keep in constant contact with these customers as to their cyclodextrin
needs so we can maintain the proper inventory composition and quantity in anticipation of their needs. The sales to large customers
and the product mix and volume of products sold has a significant effect on our revenues and product margins. These factors contribute
to our revenue volatility from quarter to quarter and year to year.
Other Initiatives
We continue to pursue projects in environmental
remediation through our Ferrazo Environmental Technology division. We are also investigating the establishment of a Foreign Trade
Zone at our Alachua site that would be sponsored by the Port of Jacksonville, FL. A Foreign Trade Zone may have the benefit of
reducing tariff costs when importing and converting large quantities of cyclodextrin raw materials from Asia.
Liquidity and Capital Resources
Our cash decreased to $1,427,000 as of June
30, 2015, compared to $2,380,000 as of December 31, 2014. Our working capital was $1,264,000 as of June 30, 2015, compared to $2,134,000
at December 31, 2014. All of our debt has been classified as current at both June 30, 2015 and December 31, 2014 due to our non-compliance
with a loan covenant as described below. We owed $541,929 at June 30, 2015 on a secured mortgage note and $223,005 under an equipment
loan, with a bank that has a covenant requiring our ratio of EBITDA to interest expense and prior period current maturities of
long term debt to be not less than 1.3, measured annually. We were not in compliance with this debt service coverage covenant for
the year ending December 31, 2014. If we are unable to have the debt covenant modified, or we are unable to refinance the
indebtedness, we may be required to use our cash on hand to repay the indebtedness, which will have a material adverse effect on
our financial condition by diverting cash intended for use in our development of a clinical trial program or for other business
development efforts.
Cash used in operations for the first six months
of 2015 was $(699,000) compared to cash used in operations of $(49,000) for the same period in 2014. This additional use of cash
was due to lower sales and increased research and development and administrative expenses associated with our International Clinical
Program for our Trappsol Cyclo product in 2015.
On July 10, 2015, subsequent to the end of the quarter ended June
30, 2015, we issued 2.6 million shares of common stock in a private placement at a purchase price of $0.50 per share, for aggregate
gross proceeds of $1.3 million. Scarsdale Equities, LLC acted as our financial advisor in connection with the private placement
and was paid a cash fee in an amount equal to 6% of the gross proceeds of the private placement and was issued seven-year warrants
to purchase 156,000 shares of Common Stock at an exercise price of $0.50 per share. In addition, on July 28, 2015, we received
$78,616 from the exercise of previously outstanding warrants for 314,465 shares of common stock at an exercise price of $0.25 per
share.
We plan to use the proceeds of our recent stock
transactions for the development of the our Trappsol® Cyclo™ orphan drug product, implementation of our International
Clinical Program and development of the third-generation Trappsol® Cyclo™ product; as well as business development
purposes, including the expansion of our e-commerce sales; production of UltraPure™ cyclodextrin derivatives for the research,
cosmetic, and medical industries; and other general corporate purposes.
Our High Springs property is currently classified
as available for sale.
We have no off-balance sheet arrangements at
June 30, 2015.
Results of Operations
We reported a net loss of $(360,000) and $(748,000)
for the three and six months ended June 30, 2015, respectively, compared to a net loss of $(151,000) and $(55,000) for the three
and six months ended June 30, 2014, respectively.
Results of Operations - Three and Six Months
Ended June 30, 2015 Compared to Three and Six Months Ended June 30, 2014
Total revenues for the three month period ended
June 30, 2015 increased 119% to $380,000 compared to $174,000 for the same period in 2014. Total revenues for the six month period
ended June 30, 2015 decreased 25% to $553,000 compared to $734,000 for the same period in 2014. Substantially all of our revenues
consisted of Trappsol® product sales for these periods.
Our change in the mix of our product sales
for the three and six months ended June 30, 2015 and 2014 follows:
Trappsol® Cyclo™
Our sales of Trappsol® Cyclo™ for
the three months ended June 30, 2015 increased 459%, to $240,000 from $43,000 for the three months ended June 30 2014. Our sales
of Trappsol® Cyclo™ for the six months ended June 30, 2015 decreased 33%, to $310,000 from $461,000 for the six months
ended June 30 2014. Our sales to a customer who exports Trappsol® Cyclo™ to South America were $213,000 (89%
of total sales of Trappsol® Cyclo™) for the three months ended June 30, 2015, compared to $40,000 (93% of
total sales of Trappsol® Cyclo™) for the three months ended June 30, 2014. Our 2014 sales to this
customer were $893,000 (99% of total 2014 sales of Trappsol® Cyclo™). This product is designated
as an orphan drug; the population of patients is small and while we expect our future sales to increase, the timing of sales will
be unpredictable and our ability to market this product as a drug (in contrast to a research product) is severely constrained by
regulatory restrictions in the applicable jurisdictions.
Trappsol® HPB
Our sales of Trappsol® HPB for
the three months ended June 30, 2015 decreased by 24%, to $83,000 from $109,000 for the three months ended June 30, 2014. Our sales
of Trappsol® HPB for the six months ended June 30, 2015 decreased by 34%, to $153,000 from $231,000 for the six
months ended June 30, 2014.
Trappsol® other products
Our sales of other Trappsol®
products for the three months ended June 30, 2015 increased to $31,000 from $15,000 for the three months ended June 30, 2014. Our
sales of other Trappsol® products for the six months ended June 30, 2015 increased to $54,000 from $29,000 for the
six months ended June 30, 2014.
Aquaplex®
Our sales of Aquaplex® were
$23,000 for the three months ended June 30, 2015 compared to $5,000 for the three months ended June 30, 2014. Our sales of
Aquaplex® were $31,000 for the six months ended June 30, 2015 compared to $10,000 for the three months ended June
30, 2014.
Our largest customers continue to follow historical
product ordering trends by placing periodic large orders that represent a significant share of our annual sales volume. During
the six months ended June 30, 2015, our three largest customers accounted for 65% of our sales, and the largest accounted for 49%
of sales. During the six months ended June 30, 2014, our largest three customers accounted for 82% of our sales, and the largest
accounted for 62% of sales. Historically, our usual smaller sales of HPB occur more frequently throughout the year compared to
our large sales that we receive periodically. The timing of when we receive and are able to complete these two kinds of sales has
a significant effect on our quarterly revenues and operating results and makes period to period comparisons difficult.
Cost of products sold (excluding any allocation
of direct and indirect overhead and handling costs) as a percentage of sales was 15% for the three months ended June 30, 2015 compared
to 13% for the three months ended June 30, 2014. Our cost of products sold (excluding any allocation of direct and indirect overhead
and handling costs) as a percentage of sales was 14% for the six months ended June 30, 2015 compared to 13% for the six months
ended June 30, 2014. Historically, the timing and product mix of sales to our large customers has had a significant effect on our
sales, cost of products sold (excluding any allocation of direct and indirect overhead and handling costs) and the related margin.
We did not experience any significant increases in material costs during 2015 or 2014.
As we buy inventory from foreign suppliers,
the change in the value of the U.S. dollar in relation to the Euro, Yen and Yuan has an effect on our cost of inventory. Our main
supplier of specialty cyclodextrins and complexes, Cyclodextrin Research & Development Laboratory, is located in Hungary and
its prices are set in Euros. The cost of our bulk inventory often changes due to fluctuations in the U.S. dollar. The cost of shipping
from outside the U.S. also has a significant effect on our inventory acquisition costs. When we experience short-term increases
in currency fluctuation or supplier price increases, we are often not able to raise our prices sufficiently to maintain our historical
margins. Therefore, our margins on these sales may decline.
Personnel expenses increased 36% to $167,000
for the three months ended June 30, 2015 from $123,000 for the three months ended June 30, 2014. Personnel expenses increased 38%
to $328,000 for the six months ended June 30, 2015 from $237,000 for the six months ended June 30, 2014. This increase in personnel
expense is due to increasing our executive compensation and the number of employees during 2014. We also capitalized some of our
personnel costs into our construction in progress during 2015. We expect personnel costs to continue to increase in 2015 as the
result of our International Clinical Program product development activities, and when we increase the operation time of our pulse
dryer.
Research and development expenses were $111,000
and $178,000 for the three and six months ended June 30, 2015, respectively, as compared to $30,614 and $79,133 for the three and
six months ended June 30, 2014. We expect research and development costs to increase in 2015 as part of our product development
plan.
Repairs and maintenance expenses decreased
to $7,000 for the three months ended June 30, 2015 from $21,000 for the three months ended June 30, 2014. Repairs and maintenance
expenses decreased to $17,000 for the six months ended June 30, 2015 from $38,000 for the six months ended June 30, 2014. The decrease
is due to normal fluctuations in the periodic scheduled and unscheduled maintenance of our dryer and facilities. We expect our
2015 repairs and maintenance costs to increase with the expected increase operation of the dryer.
Professional fees increased 68% to $131,000
for the three months ended June 30, 2015, compared to $78,000 for the three months ended June 30, 2014. Professional
fees increased 56% to $223,000 for the six months ended June 30, 2015, compared to $143,000 for the six months ended June 30, 2014.
This increase is due to additional financial advisory, public relations, and other consulting services. Professional fees may further
increase due to new initiatives in raising capital or compliance for developing new products.
Office and other expenses increased 21% to
$85,000 for the three months ended June 30, 2015 compared to $70,000 for the three months ended June 30, 2014. Office
and other expenses increased 12% to $128,000 for the six months ended June 30, 2015 compared to $114,000 for the six months ended
June 30, 2014. This increase is due primarily to increased consulting, property taxes, insurance and utilities for our pulse dryer,
as well as capital raising activities. We expect our normal recurring office expenses for 2015 to be comparable with 2014 amounts.
Board advisory expenses increased to $134,000
and $252,000 for the three and six months ended June 30, 2015, respectively, with minimal board advisory expenses for the three
and six months ended June 30, 2014. This increase is due to compensation of our corporate and scientific advisory board members
and related expenses.
Amortization and depreciation increased 3%
to $39,000 for the three months ended June 30, 2015, compared to $38,000 for the three months ended June 30, 2014. Amortization
and depreciation increased 7% to $81,000 for the six months ended June 30, 2015, compared to $76,000 for the six months ended June
30, 2014. The increase is due to continued capital improvements to our dryer and facility.
Interest expense decreased 11% to $8,000 for the three months
ended June 30, 2015, compared to $9,000 for the three months ended June 30, 2014. Interest decreased 6% to $16,000 for the six
months ended June 30, 2015 compared to $17,000 for the six months ended June 30, 2014.
We increased our valuation allowance to offset the increase
in our deferred tax asset from our net operating loss and did not recognize an income benefit or provision during the six months
ended June 30, 2015. We recorded an income tax benefit of $70,000 and $15,000 for the three and six months ended June 30, 2014,
respectively.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
a. Evaluation of Disclosure Controls and
Procedures.
Our management, with the participation
of our principal executive and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures
(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) as of the end of the period covered by this quarterly report (the "Evaluation Date"). Based on such evaluation,
our principal executive and principal financial officer has concluded that, as of the Evaluation Date, our disclosure controls
and procedures are effective.
b. Changes in Internal Control.
We made no changes in our internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the
evaluation of our internal controls that occurred during our last fiscal quarter that has materially affected, or which is reasonably
likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A. Risk Factors.
We have identified no additional risk factors
other than those included in Part I, Item 1A of our Form 10-K for the fiscal year ended December 31, 2014. Readers are
urged to carefully review our risk factors because they may cause our results to differ from the "forward-looking" statements
made in this report. Additional risks not presently known to us or other factors not perceived by us to present significant risks
to our business at this time also may impair our business, financial condition and results of operations. We do not
undertake to update any of the "forward-looking" statements or to announce the results of any revisions to these "forward-looking"
statements except as required by law.
Item 6. Exhibits.
EXHIBIT NO. |
|
DESCRIPTION |
|
|
|
31.1 |
|
Certification of Principal Executive and Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a) (under Section 302 of the Sarbanes-Oxley Act of 2002). |
|
|
|
32.1 |
|
Certification of Principal Executive and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS |
|
XBRL Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
SIGNATURES
Pursuant to the requirements of the Exchange
Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
CTD HOLDINGS, INC. |
|
|
Date: August 14, 2015 |
/s/ Jeffrey Tate |
|
Jeffrey Tate |
|
Chief Executive Officer |
|
(principal executive, financial and accounting officer) |
-11-
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Jeffery Tate, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of CTD Holdings, Inc.; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c. |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
d. |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
|
|
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
|
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
|
|
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 14, 2015 |
By: |
/s/ Jeffrey Tate |
|
|
Jeffrey Tate
Chief Executive Officer
(principal executive, financial and accounting officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with this Form 10-Q of CTD Holdings,
Inc. (the “Company”) for the fiscal quarter ended June 30, 2015, as filed with the Securities and Exchange Commission
(the “Report”), I, Jeffrey Tate, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
|
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 14, 2015 |
|
/s/ Jeffrey Tate |
|
|
Jeffrey Tate |
|
|
Chief Executive Officer |
|
|
(principal executive, financial and accounting officer) |