UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
FORM 10-Q
x
Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the quarterly period
ended: September 30, 2015
or
o Transition
Report Pursuant to 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:
Indicated 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. x Yes o
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). x
Yes o 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 o |
Accelerated filer
o |
Non-accelerated filer o |
Smaller reporting company
x |
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act) o Yes
x No
Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable date.
As of November 9, 2015, the Company had outstanding
58,776,820 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 September 30, 2015 and December 31, 2014. |
|
1 |
|
Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September
30, 2015 and 2014. |
|
2 |
|
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 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. |
|
11 |
Item 4. |
Controls and Procedures. |
|
11 |
PART II |
OTHER INFORMATION |
|
11 |
Item 1A. |
Risk Factors. |
|
11 |
Item 6. |
Exhibits. |
|
12 |
|
|
|
|
SIGNATURES |
|
13 |
PART I. FINANCIAL
INFORMATION
Item 1. Financial Statements.
CTD HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| |
September 30, 2015 | | |
December
31, 2014 | |
| |
| | |
| |
ASSETS |
CURRENT ASSETS | |
| | |
| |
Cash and cash equivalents | |
$ | 2,742,417 | | |
$ | 2,380,054 | |
Accounts receivable, net | |
| 114,260 | | |
| 80,981 | |
Inventory | |
| 645,550 | | |
| 575,176 | |
Other current assets | |
| 21,460 | | |
| 13,277 | |
Total current assets | |
| 3,523,687 | | |
| 3,049,488 | |
| |
| | | |
| | |
PROPERTY AND EQUIPMENT, NET | |
| 1,854,761 | | |
| 1,645,703 | |
| |
| | | |
| | |
OTHER ASSETS | |
| | | |
| | |
Property held for sale | |
| 275,000 | | |
| 400,000 | |
Deferred tax asset | |
| 120,000 | | |
| 120,000 | |
Deferred costs, net | |
| 67,291 | | |
| 69,888 | |
Total other assets | |
| 462,291 | | |
| 589,888 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 5,840,739 | | |
$ | 5,285,079 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 289,666 | | |
$ | 120,646 | |
Debt | |
| 750,012 | | |
| 794,496 | |
Total current liabilities | |
| 1,039,678 | | |
| 915,142 | |
| |
| | | |
| | |
STOCKHOLDERS' EQUITY | |
| | | |
| | |
Common stock, par value $.0001 per share,
100,000,000 shares authorized, 58,670,347 and 54,420,882 shares issued and outstanding, respectively | |
| 5,867 | | |
| 5,442 | |
Preferred stock, par value $.0001 per share, 5,000,000
shares authorized; no shares outstanding | |
| - | | |
| - | |
Additional paid-in capital | |
| 9,015,582 | | |
| 7,088,891 | |
Accumulated deficit | |
| (4,220,388 | ) | |
| (2,724,396 | ) |
Total stockholders' equity | |
| 4,801,061 | | |
| 4,369,937 | |
| |
| | | |
| | |
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY | |
$ | 5,840,739 | | |
$ | 5,285,079 | |
See accompanying Notes to Consolidated Financial
Statements.
CTD HOLDINGS, INC.
CONSOLIDATED STATEMENTS
OF OPERATIONS
(Unaudited)
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September
30, | | |
September
30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
REVENUES | |
| | |
| | |
| | |
| |
Product sales | |
$ | 234,660 | | |
$ | 387,500 | | |
$ | 788,198 | | |
$ | 1,121,409 | |
| |
| | | |
| | | |
| | | |
| | |
EXPENSES | |
| | | |
| | | |
| | | |
| | |
Personnel | |
| 222,922 | | |
| 258,134 | | |
| 551,194 | | |
| 495,523 | |
Cost of products sold (exclusive of
depreciation and amortization, shown separately below) | |
| 25,219 | | |
| 46,351 | | |
| 105,091 | | |
| 141,201 | |
Research and development | |
| 221,362 | | |
| 15,000 | | |
| 399,427 | | |
| 94,133 | |
Repairs and maintenance | |
| 7,144 | | |
| 22,852 | | |
| 23,693 | | |
| 61,069 | |
Professional fees | |
| 101,097 | | |
| 109,466 | | |
| 324,005 | | |
| 268,055 | |
Office and other | |
| 85,005 | | |
| 90,623 | | |
| 212,792 | | |
| 188,852 | |
Board advisory | |
| 140,068 | | |
| - | | |
| 391,857 | | |
| - | |
Amortization and depreciation | |
| 44,426 | | |
| 40,772 | | |
| 124,990 | | |
| 117,073 | |
Freight and shipping | |
| 2,599 | | |
| 1,972 | | |
| 5,929 | | |
| 7,868 | |
Gain on disposal of equipment | |
| - | | |
| - | | |
| (700 | ) | |
| - | |
Impairment on assets held for sale | |
| 125,000 | | |
| - | | |
| 125,000 | | |
| - | |
| |
| 974,842 | | |
| 585,170 | | |
| 2,263,278 | | |
| 1,373,774 | |
| |
| | | |
| | | |
| | | |
| | |
OPERATING LOSS | |
| (740,182 | ) | |
| (197,670 | ) | |
| (1,475,080 | ) | |
| (252,365 | ) |
| |
| | | |
| | | |
| | | |
| | |
OTHER INCOME (EXPENSE) | |
| | | |
| | | |
| | | |
| | |
Investment and other income | |
| 375 | | |
| 107 | | |
| 2,615 | | |
| 2,510 | |
Interest expense | |
| (7,749 | ) | |
| (8,344 | ) | |
| (23,527 | ) | |
| (25,561 | ) |
| |
| (7,374 | ) | |
| (8,237 | ) | |
| (20,912 | ) | |
| (23,051 | ) |
| |
| | | |
| | | |
| | | |
| | |
LOSS BEFORE INCOME TAXES | |
| (747,556 | ) | |
| (205,907 | ) | |
| (1,495,992 | ) | |
| (275,416 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income tax benefit (expense) | |
| - | | |
| (15,000 | ) | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS | |
$ | (747,556 | ) | |
$ | (220,907 | ) | |
$ | (1,495,992 | ) | |
$ | (275,416 | ) |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS PER COMMON SHARE | |
$ | (.01 | ) | |
$ | (.00 | ) | |
$ | (.03 | ) | |
$ | (.01 | ) |
| |
| | | |
| | | |
| | | |
| | |
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING | |
| 57,262,835 | | |
| 53,824,771 | | |
| 55,390,366 | | |
| 49,449,215 | |
See Accompanying Notes to Consolidated Financial
Statements.
CTD HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
| |
Nine Months Ended | |
| |
September 30, | |
| |
2015 | | |
2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
| |
Net loss | |
$ | (1,495,992 | ) | |
$ | (275,416 | ) |
Adjustments to reconcile net loss to net cash used in operating
activities: | |
| | | |
| | |
Depreciation and amortization | |
| 124,990 | | |
| 117,073 | |
Gain on disposal of equipment | |
| (700 | ) | |
| - | |
Impairment on assets held for sale | |
| 125,000 | | |
| - | |
Stock compensation to employees | |
| - | | |
| 66,400 | |
Increase or decrease in: | |
| | | |
| | |
Accounts receivable | |
| (33,279 | ) | |
| (73,496 | ) |
Inventory | |
| (63,941 | ) | |
| (187,946 | ) |
Other current assets | |
| (8,183 | ) | |
| (23,878 | ) |
Accounts payable and accrued expenses | |
| 185,541 | | |
| 56,661 | |
Total adjustments | |
| 329,428 | | |
| (45,186 | ) |
| |
| | | |
| | |
NET CASH USED IN OPERATING ACTIVITIES | |
| (1,166,564 | ) | |
| (320,602 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Purchase of equipment and building improvements | |
| (337,884 | ) | |
| (135,484 | ) |
Proceeds from sale of equipment | |
| 700 | | |
| - | |
| |
| | | |
| | |
NET CASH USED IN INVESTING ACTIVITIES | |
| (337,184 | ) | |
| (135,484 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Proceeds from sale of common stock | |
| 1,910,595 | | |
| 3,023,859 | |
Principal payments on notes payable | |
| (44,484 | ) | |
| (42,720 | ) |
Retainer for financial advisor | |
| - | | |
| (50,000 | ) |
| |
| | | |
| | |
Net cash provided by financing
activities | |
| 1,866,111 | | |
| 2,931,139 | |
| |
| | | |
| | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | |
| 362,363 | | |
| 2,475,053 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS, beginning of period | |
| 2,380,054 | | |
| 268,516 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS, end of
period | |
$ | 2,742,417 | | |
$ | 2,743,569 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION | |
| | | |
| | |
Cash paid for interest | |
$ | 23,527 | | |
$ | 25,561 | |
| |
| | | |
| | |
Cash paid for income taxes | |
$ | - | | |
$ | - | |
See Accompanying Notes to Consolidated Financial
Statements.
CTD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
The information presented herein as of
September 30, 2015 and for the three and nine months ended September 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 nine
month periods ended September 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 September 30,
2015 and December 31, 2014.
(3) ASSETS HELD FOR SALE
We periodically review our property held
for sale to determine if the carrying value of assets may not be recoverable. If we identify impairment, a loss is recognized
for the difference between the carrying amount and the estimated market value of the assets. During the three months ended September
30, 2015, we determined the fair value of our High Springs location is less than our carrying value and therefore recorded an
impairment loss of $125,000 to adjust the carrying value to $275,000. No impairments were identified or recorded in 2014.
(4) DEBT
We owed $536,921 and $551,913, at September
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 voluntary 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 $213,091 and
$242,583 at September 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 been 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 for
the next five years and thereafter, assuming payment of debt is not accelerated due to noncompliance with debt covenant, are as
follows:
Year
Ending December 31, | |
Year | |
2015 | |
$ | 57,924 | |
2016 | |
| 62,411 | |
2017 | |
| 64,982 | |
2018 | |
| 67,658 | |
2019 | |
| 69,821 | |
Thereafter | |
| 427,216 | |
| |
$ | 750,012 | |
CTD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
(5) STOCK TRANSACTIONS:
On July 10, 2015, 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.
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.
On August 20, 2015, the Company issued
1.3 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 $650,000. 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 78,000 shares of common stock at an exercise price of $0.50 per share.
As of November 9, 2015, the Company had warrants outstanding to
purchase 577,500 shares of common stock at exercise prices of $0.25 - $1.00 per share that expire in 2021 and 2022.
(6) INCOME TAXES:
The Company reported a net loss for the three
and nine months ended September 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 nine months ended September 30, 2014. For the three months ended September 30, 2014,
the Company reported income tax expense of $15,000, increasing the deferred tax asset valuation allowance. For the nine months
ended September 30, 2014, the Company did not report income tax expense or a benefit.
(7) 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.
(8) CONCENTRATIONS:
Sales to one major customer accounted for
34% of gross sales for the nine months ended September 30, 2015. Sales to two major customers accounted for 64% of gross sales
for the nine months ended September 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 Form 10-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 $19,000 and $329,000 for the three and nine months ended September 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.
Liquidity and Capital Resources
Our cash increased to $2,742,000 as of
September 30, 2015, compared to $2,380,000 as of December 31, 2014. Our working capital was $2,484,000 as of September 30, 2015,
compared to $2,134,000 at December 31, 2014. All of our debt has been classified as current at both September 30, 2015 and December
31, 2014 due to our non-compliance with a loan covenant as described below. We owed $536,921 at September 30, 2015 on a secured
mortgage note and $213,091 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 nine
months of 2015 was $(1,167,000) compared to cash used in operations of $(321,000) 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, 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. 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. On August 20, 2015, we issued
1.3 million shares of common stock in a private placement, at a purchase price of $0.50 per share, for aggregate gross proceeds
to the Company of $650,000. Scarsdale Equities, LLC acted as our financial advisor 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 78,000 shares of common stock at an exercise price of $0.50 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 September 30, 2015.
Results of Operations
We reported a net loss of $(748,000) and $(1,496,000)
for the three and nine months ended September 30, 2015, respectively, compared to a net loss of $(221,000) and $(275,000)
for the three and nine months ended September 30, 2014, respectively.
Results of Operations - Three and Nine
Months Ended September 30, 2015 Compared to Three and Nine Months Ended September 30, 2014
Total revenues for the three month period
ended September 30, 2015 decreased 39% to $235,000 compared to $388,000 for the same period in 2014. Total revenues for the nine
month period ended September 30, 2015 decreased 30% to $788,000 compared to $1,121,000 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 nine months ended September 30, 2015 and 2014 follows:
Trappsol® Cyclo™
Our sales of Trappsol® Cyclo™ for
the three months ended September 30, 2015 decreased 82%, to $19,000 from $106,000 for the three months ended September 30 2014.
Our sales of Trappsol® Cyclo™ for the nine months ended September 30, 2015 decreased 42%, to $329,000 from $567,000
for the nine months ended September 30 2014. We had no sales to a customer who exports Trappsol® Cyclo™ to South America
for the three months ended September 30, 2015, compared to $102,000 (96% of total sales of Trappsol® Cyclo™) for the
three months ended September 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 September 30, 2015 decreased by 43%, to $125,000 from $218,000 for the three months ended September 30, 2014. Our
sales of Trappsol® HPB for the nine months ended September 30, 2015 decreased by 38%, to $278,000 from $448,000 for the nine
months ended September 30, 2014.
Trappsol® other products
Our sales of other Trappsol® products
for the three months ended September 30, 2015 increased to $55,000 from $40,000 for the three months ended September 30, 2014.
Our sales of other Trappsol® products for the nine months ended September 30, 2015 increased to $109,000 from $69,000 for
the nine months ended September 30, 2014.
Aquaplex®
Our sales of Aquaplex® were $32,000 for
the three months ended September 30, 2015 compared to $22,000 for the three months ended September 30, 2014. Our sales of Aquaplex®
were $63,000 for the nine months ended September 30, 2015 compared to $31,000 for the nine months ended September 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. For the
nine months ended September 30, 2015, our three largest customers accounted for 50% of our sales; the largest accounted for 34%
of our sales. For the nine months ended September 30, 2014, our three largest customers accounted for 72% of our sales; the largest
accounted for 53% of sales. Historically, our usual smaller sales of HPB occur more frequently throughout the year compared to
our large orders 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 11% for the three months ended September 30,
2015 compared to 11% for the three months ended September 30, 2014. Our cost of products sold (excluding any allocation of direct
and indirect overhead and handling costs) as a percentage of sales was 13% for the nine months ended September 30, 2015 compared
to 13% for the nine months ended September 30, 2014. Historically, the timing and product mix of sales to our large customers
has had a significant effect on our sales, cost of product 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 fluctuations 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 decreased 13% to $223,000
for the three months ended September 30, 2015 from $258,000 for the three months ended September 30, 2014. Personnel expenses
increased 11% to $551,000 for the nine months ended September 30, 2015 from $496,000 for the nine months ended September 30, 2014.
This change is due to increasing our executive compensation and the number of employees. 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
additional employees and our International Clinical Program product development activities.
Research and development expenses were $223,000
and $399,000 for the three and nine months ended September 30, 2015, respectively, as compared to $15,000 and $94,000 for the
three and nine months ended September 30, 2014, respectively. 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 September 30, 2015 from $23,000 for the three months ended September 30, 2014. Repairs and
maintenance expenses decreased to $24,000 for the nine months ended September 30, 2015 from $61,000 for the nine months ended
September 30, 2014. We expect our 2015 repairs and maintenance costs to increase with the increased operation of the dryer.
Professional fees decreased 8% to $101,000
for the three months ended September 30, 2015, compared to $110,000 for the three months ended September 30, 2014. Professional
fees increased 21% to $324,000 for the nine months ended September 30, 2015, compared to $268,000 for the nine months ended September
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 decreased 7% to
$85,000 for the three months ended September 30, 2015 compared to $91,000 for the three months ended September 30, 2014. Office
and other expenses increased 13% to $213,000 for the nine months ended September 30, 2015 compared to $189,000 for the nine months
ended September 30, 2014.
Board advisory expenses increased to $140,000
and $392,000 for the three and nine months ended September 30, 2015, respectively, with minimal board advisory expenses for the
three and nine months ended September 30, 2014. This increase is due to compensation of our corporate and scientific advisory
board members and related expenses.
Amortization and depreciation increased 7%
to $44,000 for the three months ended September 30, 2015, compared to $41,000 for the three months ended September 30, 2014. Amortization
and depreciation increased 7% to $125,000 for the nine months ended September 30, 2015, compared to $117,000 for the nine months
ended September 30, 2014.
Interest expense was $8,000 for the three
months ended September 30, 2015 and the three months ended September 30, 2014. Interest expense decreased 8% to $24,000 for the
nine months ended September 30, 2014 compared to $26,000 for the nine months ended September 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 three and nine months ended September 30, 2015.
We recorded income tax expense of $15,000
for the three months ended September 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 nine months ended September
30, 2014.
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. |
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DESCRIPTION |
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31.1 |
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Certification of Principal Executive and Principal Financial Officer pursuant to Exchange
Act rule 13(a)-14(a) (under Section 302 of the Sarbanes-Oxley Act of 2002). |
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32.1 |
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Certification of Principal Executive and Principal Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. |
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.
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CTD HOLDINGS, INC. |
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Date: November 12, 2015 |
/s/ N. Scott Fine |
|
N. Scott Fine |
|
Chief Executive Officer |
|
(principal executive, financial and accounting officer) |
- 13 -
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, N. Scott Fine, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q
of CTD Holdings, Inc.; |
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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; |
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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; |
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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: |
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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; |
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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; |
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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 |
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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 |
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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): |
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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 |
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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: November 12, 2015 |
By: |
/s/ N. Scott Fine |
|
|
N. Scott Fine
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 September 30, 2015, as filed with the Securities and Exchange Commission
on the date hereof (the “Report”), I, N. Scott Fine, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company. |
Date: November 12, 2015 |
/s/ N. Scott Fine |
|
N. Scott Fine |
|
Chief Executive Officer |
|
(principal executive, financial and accounting officer) |