SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

x Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 for the quarterly period ended: June 30, 2014.

 

o 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: N/A.

 

Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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	☐		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) o  Yes x No

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

As of August 12, 2014, the Company had outstanding 54,387,355 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, 2014 and December 31, 2013.	1
	Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2014 and 2013.	2
	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2014 and 2013.	3
	Notes to Consolidated Financial Statements.	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	7
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.	11
SIGNATURES		12

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

CTD HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

		June 30, 2014				December 31, 2013
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	1,491,289			$	268,516
Accounts receivable, net			39,647				99,282
Inventory			278,207				241,005
Other current assets			30,472				10,056
Total current assets			1,839,615				618,859
PROPERTY AND EQUIPMENT, NET			1,654,755				1,627,254
OTHER ASSETS
Property held for sale			400,000				400,000
Deferred tax asset			135,000				120,000
Deferred costs, net			21,621				23,354
Total other assets			556,621				543,354
TOTAL ASSETS		$	4,050,991			$	2,789,467
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	84,676			$	142,607
Current portion of long-term debt			56,318				56,318
Total current liabilities			140,994				198,925
LONG-TERM LIABILITIES
Long-term debt, less current portion			767,061				795,457
STOCKHOLDERS' EQUITY
Common stock, par value $.0001 per share, 100,000,000 shares authorized,     52,455,882 and 37,455,882 shares issued and outstanding, respectively			5,245				3,745
Preferred stock, par value $.0001 per share,5,000,000 shares  authorized;     Series A, 0 and 1 share issued and outstanding			—				—
Additional paid-in capital			5,323,909				3,923,049
Accumulated deficit			(2,186,218	)			(2,131,709	)
Total stockholders' equity			3,142,936				1,795,085
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	4,050,991			$	2,789,467

 

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,
		2014				2013				2014				2013
REVENUES
Product sales		$	173,584			$	708,322			$	733,909			$	1,291,813
EXPENSES
Personnel			122,568				78,862				237,389				159,290
Cost of products sold (exclusive of depreciation and     amortization, shown separately below)			22,962				145,504				94,850				361,329
Research and development			30,614				—				79,133				—
Repairs and maintenance			20,731				10,038				38,217				13,229
Professional fees			77,586				44,564				142,989				87,695
Office and other			69,771				23,484				113,829				49,634
Amortization and depreciation			38,482				35,391				76,301				70,782
Freight and shipping			3,803				1,837				5,896				4,703
			386,517				339,680				788,604				746,662
OPERATING INCOME (LOSS)			(212,933	)			369,642				(54,695	)			545,151
OTHER INCOME (EXPENSE)
Investment and other income			230				270				2,403				985
Interest expense			(8,731	)			(15,211	)			(17,217	)			(32,357	)
			(8,501	)			(14,941	)			(14,814	)			(31,372	)
INCOME (LOSS) BEFORE INCOME TAXES			(221,434	)			353,701				(69,509	)			513,779
Income tax benefit (expense)			70,000				(90,000	)			15,000				(130,000	)
NET INCOME (LOSS)		$	(151,434	)		$	263,701			$	(54,509	)		$	383,779
NET INCOME (LOSS) PER COMMON SHARE		$	(.00	)		$	.01			$	(.00	)		$	.01
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING			52,055,882				36,889,535				47,261,438				36,889,535

 

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,
		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	(54,509	)		$	383,779
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			76,301				70,782
Deferred income taxes			(15,000	)			130,000
Increase or decrease in:
Accounts receivable			59,635				(105,439	)
Inventory			(37,202	)			90,141
Other current assets			(20,416	)			901
Accounts payable and accrued expenses			(57,931	)			28,462
Total adjustments			5,387				214,847
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES			(49,122	)			598,626
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and building improvements			(102,069	)			(1,127	)
NET CASH USED IN INVESTING ACTIVITIES			(102,069	)			(1,127	)
CASH FLOWS FROM FINANCING ACTIVITIES
Loan costs			—				(9,498	)
Principal payments on notes payable			(28,396	)			(70,845	)
Payments on line of credit			—				(7,513	)
Proceeds from sale of common stock			1,402,360				—
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			1,373,964				(87,856	)
NET INCREASE IN CASH AND CASH EQUIVALENTS			1,222,773				509,643
CASH AND CASH EQUIVALENTS, beginning of period			268,516				22,839
CASH AND CASH EQUIVALENTS, end of period		$	1,491,289			$	532,482
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest		$	17,217			$	32,357
Cash paid for income taxes		$	—			$	—

 

See Accompanying Notes to Consolidated Financial Statements.

 

 

 

CTD HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The information presented herein as of June 30, 2014 and for the three and six months ended June 30, 2014 and 2013 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, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. 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, 2013.

 

Effects of Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09 (Revenue from Contracts with Customers (Topic 606)), which requires an entity to recognize revenue from the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance addresses in particular contracts with more than one performance obligation as well as the accounting for some costs to obtain or fulfill a contract with a customer and provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers. With respect to public entities, this update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 and early adoption is not permitted. We believe that our implementation of this guidance will have no material impact on our consolidated financial statements.

 

(2) INVENTORY

 

Our inventory includes $72,000 and $137,000 of work-in-process inventory at June 30, 2014 and December 31, 2013, respectively.

 

(3) LONG-TERM DEBT

 

We owed $561,636 and $571,227, at June 30, 2014 and December 31, 2013, respectively, on a mortgage note payable, collateralized by land and a building we acquired in September 2010. We refinanced our mortgage in July 2013. 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 prepayment penalty that starts at 5% within the first year and decreases 1% annually thereafter. There is no prepayment penalty if the loan is repaid with cash on hand. The loan has a covenant requiring our ratio of EBITDA to interest expense and prior period current maturities of long-term debt, measured annually, to not be less than 1.3.

 

We owed $261,743 and $280,548 at June 30, 2014 and December 31, 2013, respectively, under an equipment loan related to the installation of our pulse dryer and related building renovations. We refinanced our equipment note in July 2013, in conjunction with our mortgage refinancing. Monthly payments of $4,051, including principal and interest at 3.99%, are due beginning August 2013 through and including July 2020. The note is collateralized by all of our equipment. The mortgage on our High Springs property was released in connection with the refinancing. There is a prepayment penalty of 2% of the outstanding balance if we refinance the loan with another financial institution within five years. There is no prepayment penalty if the loan is repaid with cash on hand.

 

 

CTD HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Long-term debt obligations for the next five years and thereafter are as follows:

 

Year Ending December 31,				Year
	2014			$	56,318
	2015				59,941
	2016				62,411
	2017				64,982
	2018				67,658
	Thereafter				512,069
				$	823,379

 

(4) LINE OF CREDIT

 

In July 2013, we refinanced our $100,000 line of credit, with interest due monthly at prime plus 1.8%, with a minimum rate of 4.75% (5.05% at June 30, 2014), due in full July 2015, unless further extended. The line of credit is collateralized by our inventory, accounts receivable, equipment, general intangibles and fixtures. The credit line is also cross collateralized with our mortgage and equipment loans. There was no balance outstanding at June 30, 2014 and December 31, 2013, respectively.

 

(5) STOCK TRANSACTIONS:

 

On February 19, 2014, the Company received $500,000 for the issuance of 10,000,000 shares of its common stock, less $37,640 in direct legal expenses.

 

In connection with the closing of the February 2014 common stock transaction, the Company’s Chief Executive Officer, C.E. Rick Strattan, converted his share of Series A Preferred Stock into 1,000,000 shares of the Company’s common stock. The share of Series A Preferred Stock was the only share of Series A Preferred Stock outstanding. Initially issued in 2004 to Mr. Strattan in exchange for the surrender of 1,029,412 shares of common stock then owned by him, the Series A Preferred Stock carried certain voting rights that entitled its holder to cast a number of votes representing a majority of the votes entitled to be cast by all of the Company’s capital stock. It was convertible by its terms into a number of shares of common stock to be agreed mutually by the Company and the holder at the time of conversion. The conversion was effected through a Conversion Agreement, dated as of February 19, 2014, between the Company and Mr. Strattan. The conversion of the Series A Preferred Stock was a condition to the closing of the February 2014 transaction.

 

On April 9, 2014, the Company entered into a Securities Purchase and Collaboration Agreement with Novit, L.P., a Delaware limited partnership and an investment arm of U.S. Pharmacia, and issued 4,000,000 shares of its common stock to Novit for gross proceeds to the Company of $1,000,000.

 

Pursuant to the terms of the Agreement, the Company also agreed to give USP Zdrowie Sp. z o.o. (“USP”), a company organized under the laws of Poland and an affiliated entity of Novit, a “first look” for 60 days from the date of notice to USP by the Company, at any new products involving cyclodextrin technology developed or formulated by the Company for potential use by USP in its own product portfolio in certain Eastern European markets, prior to the Company marketing or selling such products in the same region for use in the over-the-counter pharmaceutical markets, and to explore other ways in which the Company’s cyclodextrin products may offer improvements to USP’s product portfolio.

 

The Company entered into an agreement with Scarsdale Equities, LLC (“Scarsdale”) to act as financial advisor and exclusive placement agent. The Company will pay a fee to Scarsdale with respect to any private placement of debt or equity securities of the Company in an amount equal to 6% of the proceeds of any such financing, for a period of one year from April 1, 2014. In addition, Scarsdale will be entitled to receive warrants to purchase 6% of the securities issued as a part of such a financing, with a warrant price equal to 100% of the offering price of the securities sold. The warrants will have a seven (7) year term. N. Scott Fine, a director of the Company, is a principal at Scarsdale. In connection with the April 9, 2014 equity financing, the Company paid $60,000 and issued warrants for 240,000 shares of common stock at an exercise price of $0.25 per share expiring April 2021 to Scarsdale.

 

The Company also has warrants outstanding for 314,465 shares of common stock at an exercise price of $0.25 per share that expire in September 2015.

 

 

CTD HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

(6) INCOME TAXES:

 

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. No change was made in the valuation allowance based on management’s expectation of future taxable income which may not exceed its current deferred tax asset.

 

The Company reported net income for the three and six months ended June 30, 2013 and recorded a $90,000 and $130,000 income tax provision, respectively, which decreased our deferred tax asset.

 

(7) NET INCOME (LOSS) PER COMMON SHARE:

 

Net income (loss) per common share is computed using a simple weighted average of common shares outstanding during the periods presented.

 

(8) CONCENTRATIONS:

 

Sales to two major customers accounted for 75% of gross sales for the six months ended June 30, 2014. Sales to two major customers accounted for 71% of gross sales for the six months ended June 30, 2013.

 

(9) SUBSEQUENT EVENTS:

 

On July 21, 2014, the Company entered into a Securities Purchase Agreement with a group of qualified private investors led by Novit L.P. The Company issued 1,725,000 shares of common stock and received gross proceeds of $1,725,000 prior to commissions and expenses. The Company paid $103,500 and issued warrants for 103,500 shares of common stock with an exercise price of $1.00 per share expiring July 2021 to Scarsdale in connection with the offering.

 

 

 

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, 2013.  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.

 

Introduction

 

CTD Holdings, Inc. (referred to as the "Company," "CTD" or in the first person plural notations of "we," "us," and "our") began operations in 1990.  Our revenues are derived from the sale of our orphan drug product Trappsol® Cyclo™, and resale of cyclodextrins and cyclodextrin complexes manufactured by third parties for us. Due to the success of our Trappsol® Cyclo™ product, we are now developing additional biopharmaceutical products using cyclodextrins.

 

Biopharmaceutical Products and Development

 

Trappsol® Cyclo™

 

At the end of 2008, we provided a Trappsol® product to a customer for a compassionate use Investigational New Drug to treat a set of twins in the US who were diagnosed with Niemann Pick C (“NPC”). NPC is also called Childhood Alzheimer’s. It is a fatal disease caused by a genetic defect that prevents proper handling of cholesterol in the body’s cells. The patients’ treatment with our Trappsol® HPB (now called Trappsol® Cyclo™) proved to provide an ameliorative benefit. On May 17, 2010, the U.S. Food and Drug Administration (the “FDA”) granted orphan drug status to our customer for Trappsol® Cyclo™ for the treatment of Niemann Pick Type C (NPC) disease. Our annual sales of Trappsol® Cyclo™ increased to $875,000 for 2013 from $263,000 for 2012. We expect our 2014 annual sales of this drug product to exceed our 2013 annual sales. Sales for the three months and six months ended June 30, 2014, were $43,000, and $461,000, respectively.

 

We produce our Trappsol® Cyclo™ in a liquid form using a contract manufacturer. This product currently has a six month stability claim and we are implementing an accelerated study to support a twenty-four month stability claim expected to cost $64,000. Once we complete three validation batches of this product, and we assemble the validation data, we plan to increase the quantity of future batches to reduce our unit cost.

 

Other Sterile Liquid Products

 

We have utilized the manufacturing processes developed as part of our Cyclo™ product development to create new sterile liquid solutions of selected Trappsol® and Aquaplex® products for the life science research market. We completed the manufacture of 250 vials of our best-selling research grade Trappsol® products in liquid form to test market acceptance.

 

For the foreseeable future sterile liquid products, including our Trappsol® Cyclo™ product, will be manufactured at Contract Manufacturing Organizations (CMO’s) that have this specialty manufacturing technology in place. The work will be done using our raw materials. Standard Operation Procedures for the manufacturing will be approved by us.

 

Initiatives for Business and Product Development

 

We believe we have identified an unmet need for commercial quantities of ultra pure cyclodextrins that can be filled using the proprietary manufacturing capabilities of our NanoSonic Products division. Work on qualifying a trade secret purification system is completed.

 

The second generation formulation of Trappsol® Cyclo™, the orphan drug developed by our Sphingo Biotechnology division, is currently being sold. We have identified significant potential for growth in the South American market and are pursuing those opportunities. We are also conducting the validation of manufacturing batches that will be used in on-going stability studies and for the filing of a Drug Master File with U.S. FDA. We are also planning for clinical trials in Europe.

 

Our representatives traveled to Asia in 2014 to meet with suppliers of large quantities of the required raw materials.

 

 

 

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), 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 CDs 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 potentially significant revenue volatility from quarter to quarter and year to year.

 

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. We can give no assurance that these efforts will be successful.

 

Pulse Drying Operations

 

In 2010, we acquired a new building. In 2011, we installed a pulse dryer system to manufacture CD complexes, which we started operating in January 2012 as part of NanoSonic Products, Inc., our wholly owned subsidiary. We currently offer the following pulse drying services: (i) drying customer supplied material that includes cyclodextrins, (ii) drying customer supplied material that does not include cyclodextrins, (iii) drying customer supplied active ingredients in which we will provide cyclodextrins as an added component and (iv) drying in-house complexed raw materials to support our Aquaplex line of API/Cyclodextrin complexes. We intend to use our pulse dryer and a proprietary purification technology to develop our ultrapure cyclodextrin material. We have two prospective clients for this material already and additional customers for ultrapure grades of cyclodextrins 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 are planning our first commercial-scale run of an Aquaplex(R) water soluble complex and continue to develop other business opportunities for the Aquaplex® brand for pharmaceutical, cosmetic and nutritional applications. We view these two lines of business as being compatible. We completed one toll drying contract in the first quarter of 2012. Currently, we do not have any toll drying orders outstanding.

 

In December 2013, our updated eCommerce web site and online catalog of cyclodextrin research fine chemicals was completed for our CTD, Inc. division. This site has been a consistent source of sales and customer contact and will be improved for sales functionality, site security, and SEO parameters.

 

Liquidity and Capital Resources

 

Our cash increased to $1,491,000 as of June 30, 2014, compared to $269,000 as of December 31, 2013. Our working capital was $1,699,000 as of June 30, 2014, compared to $420,000 at December 31, 2013. Our cash flows from operations for the first six months of 2014 were $(49,000) compared to $599,000 for the same period in 2013. Our increase in cash and working capital is due to additional capital from the issuance of common stock. The decrease in cash flow from operations is due primarily to our net loss.

 

On February 19, 2014, we received gross proceeds of $500,000, prior to expenses, and issued 10,000,000 shares of our common stock in a private placement.

 

On April 9, 2014, the Company entered into a Securities Purchase and Collaboration Agreement with Novit, L.P., a Delaware limited partnership and an investment arm of U.S. Pharmacia, to issue 4,000,000 shares of common stock, for gross proceeds of $1,000,000 prior to commissions and expenses.

 

On July 22, 2014, the Company entered into a Securities Purchase Agreement with a group of qualified private investors led by Novit L.P.. The Company issued 1,725,000 shares of common stock and received gross proceeds of $1,725,000 prior to commissions and expenses.

 

 

 

We plan to use these proceeds for business development purposes, including the expansion of our e-commerce sales; production of ultra-pure cyclodextrin derivatives for the research, cosmetic, and medical industries; and for development of the Trappsol® Cyclo™ orphan drug, including submission of a Drug Master File with the U.S. Food and Drug Administration, planning for clinical trials in Europe and other developmental work; as well as for general corporate purposes.

 

We have completed our solar thermal hot water system at a cost of $92,000 and dry air intake conditioning system for our dryer at a cost of $42,000 during the first half of 2014. The Company is conducting due diligence and business analysis on a construction project for a new sales and training center, with an estimated construction cost of approximately $900,000. If constructed, this new building would be used for increased office and meeting space, and a GMP conditioned space warehousing facility for the storage and distribution of bulk cyclodextrins.

 

In 2012, we began to sell our liquid form of Trappsol® Cyclo™. We believe this product provides patients with a more easily usable and thereby more economical form of our Cyclo™ product. We maintain a larger inventory of THPB based on our estimate of future industry purchase trends and recent product inquiries from our larger customers. This product has a three week or more lead time to acquire from our regular foreign suppliers in bulk quantities. Because we maintain a larger inventory of these products in stock, we have an increased opportunity to fill any large orders we may receive. Due to increased shipping costs, it is also less costly to buy and ship larger quantities from our suppliers. If these large orders do not materialize, we believe we can sell this product in the normal course of business.

 

We maintain a $100,000 line of credit, with interest due monthly at prime plus 1.8%, with a minimum rate of 4.75%. There was no balance outstanding at June 30, 2014 and December 31, 2013, respectively.

 

Our High Springs property is currently classified as available for sale.

 

We have no off-balance sheet arrangements at June 30, 2014.

 

Results of Operations - Three and Six Months Ended June 30, 2014 Compared to 2013

 

We reported a net loss of $(151,000) and $(55,000) for the three and six months ended June 30, 2014, respectively, compared to net income of $264,000 and $384,000 for the three and six months ended June 30, 2013, respectively.

 

Total product sales for the three month period ended June 30, 2014 decreased 75% to $174,000 compared to $708,000 for the same period in 2013. Total product sales for the six month period ended June 30, 2014 decreased 43% to $734,000 compared to $1,292,000 for the same period in 2013. This decrease is due primarily to an overall decrease in sales of all products. Substantially all of our product sales consisted of Trappsol® products for these periods.

 

Our change in the mix of our product sales for the three and six months ended June 30, 2014 and 2013 follows:

 

Trappsol® HPB

Our sales of Trappsol® HPB decreased 12%, to $109,000 from $124,000 for the three months ended June 30, 2014 and 2013, respectively. Our sales of Trappsol® HPB decreased by 23%, to $231,000 from $298,000 for the six months ended June 30, 2014 and 2013, respectively. We have experienced steady interest in this product and expect our 2014 annual sales to exceed our 2013 annual sales.

 

Trappsol ® Cyclo™

Our sales of Trappsol® Cyclo™ decreased 92%, to $43,000 from $563,000 for the three months ended June 30, 2014 and 2013, respectively. Our sales of Trappsol® Cyclo™ decreased 41%, to $461,000 from $776,000 for the six months ended June 30, 2014 and 2013, respectively.  Substantially all of our current Trappsol® Cyclo™ sales are to a distributor who exports to South America. Our annual 2013 sales to this customer were $835,000. 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 the drug for use other than research is severely constrained by regulatory restrictions in the applicable jurisdictions. We developed a liquid form of Trappsol® Cyclo™, which eliminated the need for a compounding pharmacist to create a solution for infusion of Trappsol® Cyclo™ into NPC patients. In the second quarter of 2014, we began an accelerated stability study of the liquid form of Trappsol® Cyclo™ to extend the stability claim from six months to two years.

 

Trappsol® other products

Our sales of other Trappsol® products decreased by 15%, to $15,000 from $17,000 for the three months ended June 30, 2014 and 2013, respectively. Our sales of other Trappsol® products decreased by 87%, to $29,000 from $214,000 for the six months ended June 30, 2014 and 2013, respectively. We expect 2014 annual sales of these products to be consistent with 2013 annual sales.

 

 

 

Aquaplex®

Our sales of Aquaplex® increased to $5,000 from $4,000 for the three months ended June 30, 2014 and 2013, respectively. Our sales of Aquaplex® increased to $10,000 from $5,000 for the six months ended June 30, 2014 and 2013, respectively. Our pattern of sales is representative of the periodic purchasing pattern of our primary Aquaplex® customer.

 

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, 2014, our three largest customers accounted for 82% of our sales; the largest accounted for 62% of sales. During the six months ended June 30, 2013, our three largest customers accounted for 77% of our sales; the largest accounted for 58% 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. We have not experienced significant price resistance for our products. We believe that our annual sales will remain at historical levels due to continued customer demand for our products. In addition, we added additional inventory of our most frequently ordered products to better take advantage of sales opportunities as they arise, which also hedges our product costs against short-term price increases.

 

Cost of products sold (excluding any allocation of direct and indirect overhead and handling costs) as a percentage of sales was 13% for the three months ended June 30, 2014 compared to 21% for the three months ended June 30, 2013. 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 six months ended June 30, 2014 compared to 28% for the six months ended June 30, 2013. This change is the result of the product mix and certain large orders.

 

Research and development expenses were $31,000 and $79,000 for the three and six months ended June 30, 2014, respectively. We have not financially sponsored research and development activities prior to 2014. We expect research and development costs to increase in 2014 as part of our product development plan.

 

Personnel expenses increased 55% to $123,000 for the three months ended June 30, 2014 from $79,000 for the three months ended June 30, 2013. Personnel expenses increased 49% to $237,000 for the six months ended June 30, 2014 from $159,000 for the six months ended June 30, 2013. We expect personnel costs to increase in 2014 as the result of increasing our operation time of the pulse dryer and the addition of sales personnel.

 

Repairs and maintenance expenses increased to $21,000 for the three months ended June 30, 2014 from $10,000 for 2013. Repairs and maintenance expenses increased to $38,000 for the six months ended June 30, 2014 from $13,000 for 2013. The increase is due to our preparing the dryer for production and modifying the system for the installation of a HEPA filtration and air dryer system, which was completed in May 2014. We expect our 2014 repairs and maintenance costs to increase with the increased operation of the dryer.

 

Professional fees increased 74% to $78,000 for the three months ended June 30, 2014, compared to $45,000 for the three months ended June 30, 2013.  Professional fees increased 63% to $143,000 for the six months ended June 30, 2014, compared to $88,000 for the six months ended June 30, 2013.  This increase is due to the legal costs of capital raising activities in 2014. We expect our normal recurring professional fees for 2014 to be comparable to 2013 amounts. However, professional fees may further increase due to new initiatives in raising capital or compliance for developing new products.

 

Office and other expenses increased 197% to $70,000 for the three months ended June 30, 2014 compared to $23,000 for the three months ended June 30, 2013.  Office and other expenses increased 129% to $114,000 for the six months ended June 30, 2014 compared to $50,000 for the six months ended June 30, 2013.  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 to increase sales, marketing, travel and other general expenses to create a sales and marketing department, add independent sales representatives, and attend various industry trade shows to promote our new pulse drying capabilities and new products.

 

Amortization and depreciation increased 9% to $38,000 for the three months ended June 30, 2014, compared to $35,000 for the three months ended June 30, 2013. Amortization and depreciation increased 8% to $76,000 for the six months ended June 30, 2014, compared to $71,000 for the six months ended June 30, 2013. The increase is due to continued capital improvements to our spray dryer and facility. We expect our depreciation expense for 2014 will increase from our 2013 expense.

 

Freight and shipping increased to $4,000 for the three months ended June 30, 2014 compared to $2,000 for the three months ended June 30, 2013. Freight and shipping increased to $6,000 for the six months ended June 30, 2014 compared to $5,000 for the six months ended June 30, 2013. Freight and shipping is dependent on frequency and quantity of products ordered for inventory and frequency of sales. We have also experienced volatility in overall shipping costs due to changes in related energy costs and overall demand for shipping services.

 

 

Interest expense decreased 43% to $9,000 for the three months ended June 30, 2014, compared to $15,000 for the three months ended June 30, 2013.  Interest expense decreased 47% to $17,000 for the six months ended June 30, 2014 compared to $32,000 for the six months ended June 30, 2013. This decrease is due to our refinancing all of our debt in July 2013, resulting in lower interest rates and expense. We expect our interest expense to be constant for the remainder of 2014.

 

We recorded an income tax benefit of $70,000 compared to an expense of $(90,000) for the three months ended June 30, 2014, and 2013, respectively.  We recorded an income tax benefit of $15,000 compared to an expense of $(130,000) for the six months ended June 30, 2014 and 2013. We have unused net operating loss carryforwards totaling approximately $882,000 at December 31, 2013 that may be applied against 2014 and future taxable income.

 

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, 2013.  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
10.1		Securities Purchase Agreement dated as of April 9, 2014 between and among CTD Holdings, Inc. and Novit, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 15, 2014).
31.1		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).
32.1		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.

 

	CTD HOLDINGS, INC.
Date: August 14, 2014	/s/ Jeffrey L. Tate
	Jeffrey L.Tate
	Chief Executive Officer
	(principal executive, financial and accounting officer)

 

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