U.S. Securities and Exchange Commission

                             Washington, D.C. 20549

                                   Form 10-KSB

(Mark One)

(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (Fee Required)

                   For the fiscal year ended December 31, 1997

( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (No Fee Required)

              For the transition period from _________ to _________

                         Commission file number 0-24930

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                 (Name of small business issuer in its charter)

            FLORIDA                                   59-3029743
     State or other jurisdiction of               (I.R.S. Employer
     incorporation or organization)              Identification No.)

           3713 S. W. 42nd Avenue, Suite 3, Gainesville, FL 32608-6581
               (Address of principal executive offices) (Zip Code)

                     Issuer's telephone number: 352-375-6822

Securities registered under Section 12(b) of the Exchange Act:

         Title of each class          Name of each exchange on which registered

                                      None

Securities registered under Section 12(g) of the Exchange Act:

                                     Common
                                (Title of class)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act 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. Yes X No
----.
     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B is not contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB ( )

     State issuer's revenues for its most recent fiscal year: $370,344.

     State the aggregate market value of the voting stock held by non-affiliates
computed by reference  at the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days:  $348,275  based on the average  high and low price as of March 5, 1998 of
$0.593 per share.

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of the latest practical date: 1,235,110 shares of Common Stock
as of March 5, 1998.
                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None

Transitional Small Business Disclosure Format (Check One): Yes No X



<PAGE>


PART I

Item 1.  Description of Business

     Cyclodextrin Technologies  Development,  Inc. ("the Company") was organized
as a Florida  corporation on August 9, 1990, with  operations  beginning in July
1992.  The  Company  is  engaged  in the  marketing  and  sale of  cyclodextrins
("Cyclodextrins" or "CDs") and related products to the food,  pharmaceutical and
other  industries.  The Company also  provides  consulting  services  related to
cyclodextrin technology.

     Cyclodextrins  are  molecules  that bring  together  oil and water and have
potential applications anywhere oil and water must be used together.  Successful
applications have been made in the areas of agriculture,  analytical  chemistry,
biotechnology,  cosmetics, diagnostics, electronics, foodstuffs, pharmaceuticals
and toxic waste  treatment.  Stabilization of food flavors and fragrances is the
largest current worldwide market for CD applications. The Company and others are
already  developing  CD-based  applications in stabilization of flavors for food
products; elimination of undesirable tastes and odors; preparation of antifungal
complexes  for foods  and  toiletries;  stabilization  of  fragrances  and dyes;
reduction of foaming in foods; cosmetics and toiletries;  and the improvement of
quality, stability and storability of foods.

     CDs can improve the solubility and stability of a wide range of drugs. Many
promising drug compounds are unusable or have serious side effects  because they
are either too unstable or too insoluble in water.  Strategies for administering
currently  approved  compounds  involve  injection of formulations  requiring pH
adjustment and/or the use of organic solvents. The result is frequently painful,
irritating,  or damaging. These side effects can be ameliorated by CDs. CDs also
have many potential uses in drug delivery for topical  applications  to the eyes
and skin.

     The Company  believes that the  application  of CDs in both OTC and ethical
ophthalmic  products  provides the greatest  opportunity  for the successful and
timely  introduction  of CD  containing  preparations  for topical  drug use. To
pursue this  opportunity  the Company has entered  into a joint  venture  with a
small ophthalmic manufacturing company.

     The Company provides consulting services for the commercial  development of
new products containing CDs. The Company's revenues are derived from consulting,
the distribution of CDs, the  manufacturing of selected CD complexes,  and sales
of its own manufactured and licensed products containing CDs.

         Product Background

     CDs are donut shaped circles of glucose (sugar)  molecules.  CDs are formed
naturally by the action of bacterial enzymes on starch.  They were first noticed
and  isolated in 1891 by a French  scientist,  Villiers,  as he studied  rotting
potatoes.  The bacterial  enzyme  naturally  creates a mixture of at least three
different  CDs depending on how many glucose units are included in the molecular
circle; six glucose units yield Alpha CD ("ACD");  seven units, beta CD ("BCD");
eight units, gamma CD ("GCD").  The more glucose units in the circle, the bigger
the circle,  or donut. The inside of this "donut" provides an excellent  resting
place for  "oily"  molecules  while the  outside  of the donut is  significantly
compatible with water enabling clear stable solutions of CDs to exist in aqueous
environments  even when an "oily" molecule is carried within the donut hole. The
net result is a molecular carrier that comes in small,  medium,  and large sizes
with the ability to transport and deliver  "oily"  materials  using water as the
primary vehicle.

     Research  has  established  how to  produce  these  natural  CDs  in  large
quantities  by  mixing  appropriate  enzymes  with  starch  solutions,   thereby
reproducing  the natural  process.  ACD, BCD and GCD can be  manufactured  by an
entirely  natural  process and therefore are considered to be natural  products.
Additional  processing is required to isolate and separate the CDs. The purified
ACD, BCD, and GCD are referred to collectively as natural CDs (NCD's).

     The chemical groups on each glucose unit in a CD molecule  provide chemists
with ways to modify  the  properties  of the CDs,  i.e.  to make them more water
soluble or less  water  soluble,  thereby  making  them  better  carriers  for a
specific chemical. The CDs that result from chemical modifications are no longer
considered  "natural" and are referred to as chemically modified CDs ("CMCD's").
Since  the  property  modifications  achieved  are  often so  advantageous  to a
specific  application,  the Company  does not believe the loss of the  "natural"
product  categorization  will  prevent  its  ultimate  commercial  use. It does,
however, create a greater regulatory burden.

     The  Company's  strategy  is  to  introduce  products  with  little  or  no
regulatory  burden in order to minimize product  expenses and create  profitable
revenue.  The  attached  Table  1  illustrates  the  Company's  approach  to the
introduction of regulated products.

     The Company  currently  sells its products  for use in the  pharmaceutical,
food and industrial chemical industries.

         Industry

     The food additive industry has been  experimenting with CDs for many years.
Now that  commercial  supply of these  materials  can be  assured,  the  Company
believes that the food additive industry will significantly  increase its use of
CDs.

     CDs have  been  used in a  variety  of food  products  in Japan for over 10
years.  The  market  for the use of CDs in food  products  in 1990 in Japan  was
estimated at $100 million.  Within the last five years, many European  countries
have  approved  the use of CDs in food  products.  In the United  States,  major
starch  companies are renewing  their earlier  interest in CDs as food additives
and oral  arguments for  regulatory  approval by the United States Food and Drug
Administration  ("FDA")  were  resumed in  December  1990.  In December of 1990,
American-Maize  Products,  Inc. of Hammond,  Indiana and  Roquette  Freres of Le
Strem,  France  jointly  presented oral arguments to the FDA for the addition of
the natural CD's to the GRAS (Generally  Recognized As Safe) list of excipients.
American-Maize has proceeded alone with a request for a GRAS confirmation letter
from the FDA and/or a request for level 3 approval  for the use of BCD in foods.
As of November 3, 1997,  BCD use as a food  additive  in 10  categories  of food
products was confirmed to be GRAS.

     Applications  of CDs in  personal  products  and for  industrial  uses have
appeared in many patents and patent  applications.  Proctor & Gamble uses CDs in
Bounce(R),  a popular fabric softener.  Avon uses CDs in its dermal preparations
using its Age Protective System APS(R). These uses will grow as the price of the
manufactured  CDs decrease or are  perceived as  acceptable in view of the value
added to the products.

     In Japan at least nine  pharmaceutical  preparations are now marketed which
contain  CDs.  The CDs permit the use of all routes of  administration.  Ease of
delivery and improved bioavailability of such well-known drugs as nitroglycerin,
dexamethasone,  PGE(1&2),  and cephalosporin permit these "old" drugs to command
new market share and sometimes new patent lives. Because of the value added, the
dollar  value  of the  worldwide  market  for  products  containing  CDs and for
complexes of CDs should be 2 to 3 1/2 times that of the CD itself.

     There is little  published  data relating to the production or dollar sales
of CDs worldwide.  The following  estimates are based on the  investigation  and
estimates made by Mr. Strattan, which have included discussions with Dr. Hitoshi
Hashimoto of Ensuiko Sugar Refining Co., Ltd. Mr. Strattan's estimates have been
used by others  including  "April 1993 Food  Processing,"  CDs and Foods by Dean
Ducksbury,  and in "Food in Canada"  edited by Ron Waske in an article  entitled
"CDs for the Food Industry." The Company  believes the annual  worldwide  market
for CDs is $150  million,  which is expected to increase to $800  million by the
year 2000.  Because of the value added, the dollar value of the worldwide market
for products  containing CDs and for complexes of CDs should be 2 to 3 1/4 times
that of the CD itself.



         Products

     The Company's  products include its  Trappsol(TM) and Aquaplex(TM)  product
lines.  The  Trappsol  product  line  consists  of  approximately  15  different
varieties of CDs and the Aquaplex  product line  includes  more than three dozen
different complexes of active ingredients with various CDs. In addition to these
product lines, the Company  introduced  Garlessence(TM) in the fourth quarter of
1995.  Garlessence is the first ingestible product containing CDs to be marketed
in  the  U.S.  The  Company  believes  that  by  marketing  Garlessence  it  has
demonstrated industry leadership. The Company also provides consulting services,
research coordination,  and the use of CD Infobase(TM), a comprehensive database
of CD related information. The Company has protected its service and trade marks
by registering  them with the U.S.  Patent and Trademark  office.  The following
trademarks have been approved:  TrappsolTM,  GarlessenceTM,  and AquaplexTM. The
following U.S.  trademarks and service marks are pending since May, 1995.: CTDSM
,CD InfobaseSM,  CTD ring design(TM),  and Appromote(TM).  There is no assurance
that any of the pending  marks will be  approved.  These  properties  add to the
intangible asset value of the Company.

     CTD  purchases  CD's  from  commercial   manufacturers   around  the  world
including:  Wacker Chemie - Munich, Germany;  Ensuiko Sugar Refining Co., Ltd. -
Yokohama, Japan; Nihon Shokuhin Kako - Tokyo, Japan; Roquette Freres - Le Strem,
France;  American-Maize Products - Hammond IN, USA. CTD purchases specialty CD's
on occasion from Cyclolab R&D Company in Budapest, Hungary. The Company does not
manufacture cyclodextrins.

     The Company's first product,  Garlessence,  is manufactured for the Company
by Herbe Wirkstoffe (GmbH) of Berlin-Zehlendorf, Germany. Under the terms of its
agreements  with  Herbe-Wirkstoffe,  CTD has  rights to sell the  CD/garlic  oil
complex  within the U.S., its  territories  and  possessions  until December 31,
1998.

     The Company has also introduced new products into its basic line of CDs and
CD complexes--liquid preparations of CDs; relatively unprocessed, less expensive
mixtures of the natural CDs; naturally modified CDs (glucosyl and maltosyl); and
finally,  excess  production  of  custom  complexes  when  those  items  are not
proprietary or restricted by the customer.

         Business Strategy

     The  Company's  strategy  has  been  and will  continue  to be to  generate
profitable revenue through sales of CD related goods and services. The long term
success of this strategy  depends on the smooth and continuous  transition  into
CD-related products with increasing value-added attributes.

     From  inception  through the end of 1992,  sales of CDs and CD  derivatives
were enough to provide the necessary profitability to sustain the Company. Since
these materials were simply purchased and resold, they had the least value-added
attributes.  Up until 1990 almost 100% of the  revenue  was  generated  by these
products with the least value-added  attributes.  During the early 90's sales of
complexes increased until they contributed approximately 30% of the revenue.

     Presently,  sales of CD complexes  represent 44% of the  Company's  product
sales  revenues.  This  transition  to the more  value-added  complexes has been
planned and is desirable for increased profitability since higher margins can be
maintained for these products.  However, it appears that the base business of CD
sales has eroded.  Combined with price  reductions  dictated by the market,  the
revenues from the sales of these  products have decreased as much as the revenue
from CD complexes has increased.  The Company is also becoming dependent on just
a few customers for the majority of its revenue.  In response to this  situation
the Company has  expanded  its  original  business  strategy  of  parlaying  its
leadership  position in the  presently  quite small CD industry as a supplier of
CDs, CD derivatives, CD complexes to include:

(1)  Marketing  and  launching a dozen OTC and  naturaceutical  products  (e.g.,
     dietary  supplements)  utilizing  CD delivery  benefits.  For  example,  by
     extracting specific  ingredients from the garlic clove and complexing these
     ingredients with  Trappsol(TM) B (beta  cyclodextrin)  Garlessence(TM)  was
     created.  Similar  products  can be  created  with any of the other  herbal
     ingredients such as ginseng, echinacea, ginkgo, cat's claw, and melatonin.

(2)  Licensing the use of the  Trappsol(TM)symbol  for use by others  wishing to
     use CD delivery  technology.  This strategy is reflected in the Garlessence
     package  which,  in  addition  to  the  Garlessence  trademark,  carries  a
     Trapposol  trademark.  This symbol will be promoted as an indication that a
     Trappsol(TM)cyclodextrin  is used  with  the  product  within  and  thereby
     assures the user of the quality of the aqueous delivery system. This symbol
     will be licensed in the same way as the MLB (Major League  Baseball) symbol
     is  for  baseball  related  products  and  the  Nutrasweet(R)symbol  is for
     artificially sweetened products containing Nutrasweet(R).

(3)  Creating   independent   pharmaceutical   organizations  by  merging  basic
     manufacturing  capability with the Company's  technical product development
     and marketing  expertise;  these stand alone  organizations will be captive
     purchasers of CD complexes.

(4)  In-licensing and  out-licensing  basic CD applications  technology.  CTD is
     currently preparing a patent of its own for a veterinary euthanasia product
     based on  benzocaine.  The  euthanasia  product is an example of technology
     resulting  from the Company's  research and  development  which the Company
     will seek to out-license.

     The Company  continues  to market its  comprehensive  selection  of CDs, CD
derivatives,  and CD complexes to scientists  and  researchers  around the world
through print media advertising, trade show participation,  and direct mail. The
Company projects an 8-10% growth in revenue from product sales in 1998.

     The Company also intends to increase  its business  development  efforts in
the food additive and personal products  industries while continuing to build on
its successes in the pharmaceutical industry.

     Business  development  on behalf of the Company's  clients will include the
following:  (i) negotiation of rights and/or licenses to CD-related  inventions;
(ii)  consultation  with  manufacturers  to establish  customized  manufacturing
specifications; (iii) patentability assessments and strategic planning of patent
activities;  (iv) trade secret strategies;  (v) regulatory  interface;  and (vi)
strategic marketing planning.

     Prior  to  the  creation  of  CTD,  Mr.  Strattan  had  negotiated  several
sub-licenses to current CD technology (US Patent  4,727,064),  owned by the U.S.
Government.  Most recently,  in July of 1992, Mr. Strattan  completed a major CD
licensing   arrangement   on  behalf  of  Pharmatec,   Inc.  with   Wyeth-Ayerst
Laboratories -- a division of American Home Products. The Company believes these
are the first  sub-licenses  granting use of the  inventions  in the above cited
U.S. government patent.  While U.S. government  ownership of US Patent 4,727,064
is available  for  licensing to all  applicants on a  non-exclusive  basis,  the
Company does not believe that this access to the basic CD technology  presents a
competitive  risk to the Company  because the Company  believes its  competitive
advantage lies in its experience and know how in the use and application of CDs,
areas in which it believes it has a significant lead.

     In addition to in-licensing  and  out-licensing  efforts,  the Company will
coordinate  research  studies  in which it will  retain a portion  of the rights
created as a result of the research work supported.

     Assuming the  availability of funds,  the Company will negotiate  licensing
rights to its own selected  inventions.  Because of its comprehensive  technical
and patent  database  for  CD-related  inventions,  the  Company  believes it is
uniquely positioned to take advantage of various licensing situations.


<PAGE>


         Marketing Plan

     While at Pharmatec,  Inc. in the late 1980's,  Mr.  Strattan  pioneered the
marketing of derivatized  CDs and their drug complexes.  Mr. Strattan  contended
that  commercial  use and  development  of CDs could  only  begin in  earnest as
individuals and organizations became familiar with the truly unique solubilizing
and  stabilizing  properties of these starch  molecules.  Mr. Strattan set about
publicizing  the  benefits of CDs while other  companies  continued to hoard new
information  in  hopes of  protecting  imagined  exclusivity.  The  Company  has
continued  this effort to market CDs. The Company  believes  that the failure of
businesses to exchange information about these exciting molecules has hindered a
more rapid  commercialization  of CDs as safe  excipients.  The Company believes
that its  philosophy of partnering  and sharing will act as a catalyst to create
momentum  overcoming  the  inertia  created  by the  previous  conservatism  and
secrecy.

     The Company's sales have always been direct,  highly cyclical and driven by
advertising and participation in trade shows. Arrangements with large laboratory
supply  companies and several  diagnostic  companies have provided a more stable
sales base, but at the price of dependency on a few customers.  The objective in
this  unregulated  target market of life science  research is to increase annual
sales to $1,000,000  in 1998.  This growth is forecasted to occur as a result of
the Company's expansion of its product line to include value-added  complexes of
chemicals and CDs, increasing  promotional efforts and widespread  acceptance of
CDs by laboratories through word-of-mouth,  white paper circulation,  and hiring
of a  dedicated  product  manager  and  acquisition  or merger  with a qualified
technical laboratory.

     The Company has taken advantage of the propensity of researchers to use the
Internet to gather information about new products by establishing a WEB Page and
"site" on the world-wide web and obtaining a unique and descriptive domain name:
"cyclodex.com".

         Historical Analysis

                  Research Markets

     Historically  the  Company's  revenues  have  been  derived  from  sales to
individuals and companies which use the products in connection with research. In
1995 those sales averaged  approximately  $20,000 per month; in 1994 those sales
averaged just $13,000 per month.  In 1995 the Company looked more closely at the
"research"  business and found that only 28.6% ($72,867) of total sales could be
attributed to the market the Company had originally  called its primary  market.
Sales  to this  market  are  driven  by  trade  shows,  advertisements  in trade
journals, and the Company's web site. Customers typically purchase small amounts
of CDs and complexes at premium prices. The remainder of 1995 sales were divided
between  diagnostics  (30.0%) and complexes for resale (41.4%). In 1996 sales to
the "research" market averaged almost $14,500 per month and accounted for 50% of
total revenues.  In 1997 the research market  averaged  $23,547.  "Research" and
"industrial"  sales revenues are increasing,  the industrial  portion is growing
twice as fast as the research portion.

     The Company  believes the research  market will continue to grow accounting
for 25-30% of the total revenues of the Company.  The Company  expects that such
growth  will  be  stimulated  by the  effect  of  word-of-mouth  within  and the
availability of information  electronically as national advertising reaches more
and more of these  difficult to reach end users.  The Company  believes  current
promotional efforts have reached less than 5% of the potential end users.

     Pharmaceutical Companies

     The  objective  in this target  market has been to promote the  adoption of
CMCDs for those human  health care  compounds  that are either too  insoluble or
unstable in aqueous solutions for use in ethical,  over-the-counter  and generic
pharmaceutical  preparations.  There are a number  of  generic  and  proprietary
"problem"  drugs  where  solubility  has  been  improved  in  the  lab  by  CMCD
complexing.  All  pharmaceutical  companies  have many problem  drugs but cannot
generate  enough  solid   pharmacological  data  (due  to  poor  solubility  and
stability) to justify  extensive  in-house  formulation work. Many companies are
quite willing to contract out such work on their most promising prospects.

     Issues  of   regulatory   requirements,   clinical   testing,   and  patent
restrictions  have made this area of revenue  generation  very difficult for the
Company to break into.

         Current and Near-Term Activity

                  1998

     The Company intends to show by example that products  containing CDs may be
introduced  into the U.S.  market.  Rather  than  trying  to push  companies  to
introduce  CD  products,  the  Company  intends  to pull them into the market by
launching  approximately  seven new CD  containing  products of its own into the
U.S.  market over this time period.  These  products  will address  needs in the
relatively  unregulated  areas of natural  medicine,  topical OTC  preparations,
veterinary products, and home gardening.

     The  Company  intends  to work with  clients  in  countries  whose  current
regulatory  views do not exclude CDs as natural products acting as excipients to
introduce  beneficial  pharmaceuticals  improved by CDs. The terms for the joint
development  of CD  containing  drugs with several  medium-sized  pharmaceutical
companies  in South  America,  Australia  and South Africa are  currently  being
negotiated.

     Along  with  the  new  products  themselves,  the  Company  has  created  a
legitimate,  licensable mark that may be used by other manufacturers  wishing to
take advantage of the improved aqueous  delivery  afforded by Trappsol CDs. This
protected mark has the capability of generating  revenues in a manner similar to
the  Nutrasweet(R)  (artificial  sweetener)  and MLB(R) (major league  baseball)
logos.

     The Company intends to generate additional revenue through obtaining rights
to certain patents that it will sublicense to appropriate  organizations or that
it will use to develop its own  proprietary  products.  Revenue will result from
sub-licensing royalties, sales of CD complexes to be used in the newly developed
pharmaceuticals, and finally from the sales of the products to end users.

     Assuming an ongoing  process of  development,  approval and adoption of CDs
and  CMCDs  for  pharmaceutical  applications,  the  Company's  objective  is to
initiate  dialogue  and be  well  prepared  for  partnerships  with  major  food
companies. Price is a primary concern in this market, but unlike pharmaceuticals
where FDA  permission  for clinical  testing may be obtained  before  actual FDA
product approval,  food companies cannot feed experimental  formulations to test
panels of consumers until the  ingredients,  i.e., the CDs, receive approval for
human consumption.  Therefore, the Company will work with the food companies and
key   university   food  research   groups  to  initially   evaluate   non-taste
applications;  e.g.,  "will CD complexes  allow  microwave  baked  casseroles to
brown?  Will it provide  crispness to certain  microwave foods?" These questions
will  initially be explored  using NCDs since  commercial  adoption  will depend
heavily  upon the price of the CD  selected  and NCDs  will  always be the least
expensive.  However,  the  benefits  derived  from  the use of  other  CDs  with
expensive ingredients (e.g.,  flavors,  fragrances) may justify the use of CMCDs
and/or NMCDs.

     There exist  opportunities  for CD applications in industrial  applications
not  associated  with  pharmaceuticals  or  foods.  The  Company  believes  that
developers of these other industrial  applications  will approach CTD because of
its  leadership  and  partnering  philosophy  to help them  commercialize  their
products. Applications for which the Company has already received such inquiries
are:

                  (1)      Cleaning agent ingredients
                  (2)      Adhesive ingredients
                  (3)      Paint surface finishing product ingredients
                  (4)      Extrusion additives
                  (5)      LED dye ingredients

                  Long Term View (1999-2001)

     The  Company  believes  that  the  sales  of CDs,  CD  derivatives,  and CD
complexes  will always provide  sufficient  revenue to support a business of the
Company's  present size. The Company  intends to test its strategy of augmenting
these R&D derived revenues  through the  introduction of its own products,  e.g.
Garlessence.   Further,   by  allying  itself  with  appropriate   manufacturing
capabilities, the Company intends to introduce products which it manufactures.
Thus, the long-term goals of the Company are to:

(1) Sell CDs and related products and services to the R&D industry (2) Produce a
line of its own products utilizing CDs for unregulated uses;
     e.g. naturaceuticals, geriatric nutriceuticals, naturacides. These products
     will carry a licensable  trade mark that will provide revenue when used on
     other products.
(3)  Own a portion of companies for which it guarantees a significant portion of
     that  JV's  business;  e.g.,  a  marketing/package  design  company,  a  CD
     applications R&D/pilot plant manufacturing company.
(4)  Form and operate joint ventures with companies to jointly develop  specific
     pharmaceutical applications of CDs.

     The Company anticipates that revenues from direct sales of its products and
services along with its portion of the profits of jointly owned  businesses will
create  sufficient  net  worth to permit  the  Company  to move from the  NASDAQ
Bulletin  Board up to the NASDAQ  Small Cap  Market.  With such a  structure  CD
technology  will be  introduced  from the  inside.  It is  anticipated  that the
Company  will  provide the CDs, CD  complexes,  and CD  technology  to its joint
venture companies at a profit.

         Competition

     The  Company is  currently a leading  consultant  in  determining  what the
manufacturing  standards and costs for CDs and CMCDs are, and  believes,  at the
current time, no organization is manufacturing  commercial  quantities of any CD
complex  for  resale.  However,  there  will  always  exist  the  potential  for
competition  in this area since no patent  protection can be  comprehensive  and
forever exclusive.  Nevertheless, there is a perceived barrier to entry into the
CD  industry  because of the lack of  general  experience  with CD  complexation
procedures.  The Company has established a strong business relationship with one
of the  experts in this field --  Cyclolab  in Hungary -- and has  utilized  the
services  and  expertise  of  this   laboratory.   The  Company   believes  this
relationship  provides a significant  marketing  lead time,  and combined with a
strong marketing  presence,  will give the Company a two to three year lead time
advantage over its competitors.

     The  Company  intends  to form a more  formal  business  relationship  with
Cyclolab in Hungary by creating a Cyclolab-USA  laboratory  facility and thereby
strengthen  its  competitive  advantage.  Discussions  between the principals of
Cyclolab  and  CTD  have  been   ongoing  for  more  than  5  years.   Potential
relationships which have been discussed include joint venture arrangements,  the
Company's  outright  acquisition  of  Cyclolab  and the  employment  of Cyclolab
personnel to create Cyclolab-USA. There is no assurance that the Company will be
able to reach a formal business relationship with Cyclolab.

     By copyrighting  and registering  its own name brands,  CD logos,  etc. the
Company intends to create licensable icons much like Nutrasweet and Major League
Baseball have. Such a strategy allows the Company to benefit financially through
licensing royalties from the efforts of its competition.

         Government Regulation

     Under the Federal  Food,  Drug and Cosmetic Act ("Food and Drug Act"),  the
Food  and  Drug  Administration  ("FDA")  is given  comprehensive  authority  to
regulate the development,  production,  distribution,  labeling and promotion of
food and drugs. The FDA's authority  includes the regulation of the labeling and
purity of the Company's  food and drug  products.  In the event the FDA believes
that the  Company  is not in  compliance  with the  law,  the FDA can  institute
proceedings  to detain or seize  products,  enjoin  future  violations or assess
civil and/or criminal penalties against the Company.

     The FDA and comparable  agencies in foreign  countries  impose  substantial
requirements  upon the introduction of therapeutic drug products through lengthy
and detailed laboratory and clinical testing procedures, sampling activities and
other costly and time consuming  procedures.  The extent of potentially  adverse
government   regulations   which  might  arise  from   future   legislation   or
administrative action cannot be predicted.

     Under present FDA regulations,  FDA defines drugs as "articles intended for
use in the diagnosis,  cure,  mitigation,  treatment or prevention of disease in
man."  The  Company's  product  development  strategy  is at first to  introduce
products  that  will not be  regulated  by the FDA as drugs  because  all of its
ingredients are natural products or are generally regarded as safe (GRAS) by the
FDA.  The  Company  is  continually  updated  by  counsel  as to  changes in FDA
regulations that might affect the use of and claims for these products. There is
no assurance that the FDA will not take the position that the Company's food and
nutritional  supplement  products are subject to  requirements  relating to drug
development  and sale.  The  effect of such  determination  could be to limit or
prohibit distribution of such products.

         Employees

     In 1997 the Company  employed 3 persons on a full time  basis.  None of the
Company's  employees belong to a union. The Company believes  relations with its
employees are good.


Item 2.  Description of Properties.

     The Company occupies a 3,000 sq. ft. building at 3713 S.W. 42nd Ave., Suite
3, Gainesville,  Florida 32608, pursuant to a 5-year lease beginning November 1,
1994.  The lease  provides for annual  increases in rent  ($18,000 for the first
year,  $18,900 for the second year,  $19,848 for the third year, $20,844 for the
fourth year and $21,888 for the fifth  year).  The Company also has an option to
lease  an  additional   3,000  sq.  ft.  of  space.   The  Company   houses  its
administrative  offices  in  approximately  1,100  sq.  ft.  of this  space;  an
additional 550 sq. ft. is dedicated to  laboratory/manufacturing  functions. The
remaining  1,350 sq. ft. has been prepared for  additional  laboratory and pilot
plant   manufacturing   use.  This  prepared   space  is  suitable  for  housing
Cyclolab-USA  and the  optioned  3,000  sq.  ft.  of space  can be used to house
graphic design functions and provide space for future expansion of Cyclolab USA.

     The current  marketing and sales activities are implemented from that site.
The entire 6,000 sq. ft. could  support a total of 12 - 15 people and  therefore
is expected to be adequate for the foreseeable future.  Current total office and
laboratory  operating  expenses  excluding  salaries  have  stabilized  at about
$10,000 per month.

Item 3.  Legal Proceedings.
         None

Item 4.  Submission of Matters to a Vote of Security Holders.
         None


<PAGE>


Part II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

     In October 1994, the Company's securities began trading on the OTC Bulletin
Board and in the  over-the-counter  market "pink  sheets" under the symbol CTDI.
Since the commencement of trading of the Company's securities, there has been an
extremely limited market for its securities.  During the fourth quarter of 1995,
one of the Company's  market makers ceased  business.  The following  table sets
forth high and low bid quotations for the quarters  indicated as reported by the
OTC Bulletin Board.

<TABLE>
<S>           <C>                  <C>               <C>
                                    High               Low
1995          First Quarter        $ 7.50            $ 3.00
              Second Quarter       $ 8.50            $ 4.25
              Third Quarter        $ 9.00            $ 4.00
              Fourth Quarter       $ 8.00            $  .50
1996          First Quarter        $ 2.25            $  .50
              Second Quarter       $ 1.0625          $  .75
              Third Quarter        $ 2.25            $  .25
              Fourth Quarter       $ 1.00            $  .625
1997          First Quarter        $ 3.00            $  .75
              Second Quarter       $ 1.50            $  .562
              Third Quarter        $  .562           $  .437
              Fourth Quarter       $ 1.062           $  .531
</TABLE>

     Over-the-counter  market quotations reflect  inter-dealer  prices,  without
retail  mark-up,   mark-down  or  commissions  and  may  not  represent   actual
transactions.

         Holders

     As of  December  31,  1997,  the  number of  holders of record of shares of
common stock,  excluding the number of beneficial  owners whose  securities  are
held in street name was approximately 60.

         Dividend Policy

     The Company  does not  anticipate  paying any cash  dividends on its common
stock in the  foreseeable  future  because it intends to retain its  earnings to
finance the expansion of its business. Thereafter, declaration of dividends will
be determined by the Board of Directors in light of  conditions  then  existing,
including  without  limitation  the  Company's  financial   condition,   capital
requirements and business condition.

     Item 6.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations

         Liquidity and Capital Resources

     As of December  31,  1997,  the  Company's  working  capital  was  $108,781
compared to $293,518 at year end 1996.  The total  reduction in working  capital
was $184,737. However, at the end of 1997 the Company re-evaluated its projected
use of the deferred tax asset which resulted in a  reclassification  of $141,350
to long term assets.  Therefore,  the reduction in real working capital was only
$43,387.  This  reduction is due primarily to the loss from  operations  and the
purchase of $10,000 of laboratory and office equipment.

     Total product sales decreased by $60,391,  however,  excluding an unusually
large sale in 1996, the Company's  normal customer sales  experienced 13% growth
and for the first time, the Company recognized  consulting  revenues of $86,667.
Total  product  and  service  revenues  increased  by 8%.  Selling,  General and
Administrative expenses (SG&A) increased by 16%, however, after removing $83,425
of unusual expenses incurred in 1997, recurring SG&A expenses actually decreased
by 12%.

     Inventory  continues to be  dominated  (68%) by the  Garlessence(R)  retail
product and therefore masks the steady movement of the other  components of that
inventory. While total product sales have decreased since 1996 ($283,677 in 1997
vs. $344,068 in 1996),  Management has continued to maintain inventory levels in
response to the normal customer sales trend recognized above.

     The three  year  period of time  (starting  January  1,  1995) in which the
Company could  recover its original  licensing  fee for  Garlessence  of $60,000
through discounted purchases of raw materials expired at the end of 1997 and the
license fee has been fully  amortized.  The Company has recovered  $9,137 of its
license fee through purchase discounts.  The Company continues to negotiate with
the German  company to maintain  its  exclusivity  in the U.S. As of February of
1998,  the Company  has been  assured  that it still has  right-of-first-refusal
status and may continue to recover its original  licensing fee through  purchase
discounts until December 31, 1998.

     The Company will continue to seek out distribution  arrangements  that will
allow it to  recover  all of its  Garlessence(R)  licensing  prepayment  fee and
inventory  costs  and to meet its  commitments  to the  licensor.  In 1997,  the
Company sold less than $1,000 of  Garlessence.  Management is currently  working
with a small health products  telemarketing company in Arizona, Life Enrichment,
to include Garlessence(R) in its catalog promotions. Management believes that as
a last resort it can recover at least the inventory value of the  Garlessence(R)
by  selling  it  to  companies   that   purchase  such   inventory.   Since  the
Garlessence(R)  inventory  has a greater than five year shelf life,  the Company
fully expects to recover all of its investment in this product.

     To meet the financial needs of expected future growth,  the Company filed a
registration  statement with the SEC to make a public  offering in 1996 and 1997
of 250,000 shares of common stock and 125,000 warrants of the Company. No shares
of stock were sold in this offering.  The offering closed April 30, 1997 and the
Company expensed the previously  capitalized  deferred offering costs ($127,467)
in 1997. While most of these offering costs were non-cash,  the net result was a
large negative impact on the financial results reported for 1997.

     On January  1, 1996 the  Company  resolved  to issue  48,000  shares of its
common stock to various unrelated  parties for services  performed in connection
with the Company's anticipated  self-underwritten stock offering as noted above.
The shares  issued bear a  restrictive  legend.  The  Company  valued the 48,000
shares at $12,000 which is approximately 50% less than the bid price at the date
of issuance.  The quoted  market price was not used to value the stock since the
stock does not qualify as a designated issue.

     Of these  shares,  47,000 were issued on August 15,  1996.  The other 1,000
will not be issued.  Furthermore,  two of these parties acknowledged that in the
event the gross proceeds of the offering were less than $500,000,  then one-half
of their shares  (20,000) would be returned to the Company.  As no proceeds were
recognized from the self-underwritten  offering,  the first party returned their
10,000  shares to the Company to be  canceled.  The second party and the Company
agreed on the  provision  of  services  at no cost to the  Company in return for
their 10,000 shares. No further contingent shares are outstanding.

     On February 1, 1997, the Company paid its outstanding balance of $52,200 on
its $75,000 Line of Credit down to $1 and accepted a new credit line of $25,000.
As of December 31, 1997,  $14,000 has been drawn on this line of credit compared
to $52,200 for the same period in 1996.  The Company also obtained a second Line
of Credit from a local bank in the amount of $25,000.  As of December  31, 1997,
approximately  $9,800 is  outstanding  on this line.  Management  feels that the
decrease in the amount of advances  drawn on the lines of credit during the year
and the addition of a second bank line of credit available reflect the continued
confidence in the financial position of the Company.

     The Company is in the third year of a five-year lease for 3,000 square feet
of space for an office,  laboratory,  and manufacturing plant. The Company moved
into the building  during  October 1994.  Rent payments are $18,000 in year one,
$18,900 in year two, $19,484 in year three, $20,844 in year four, and $21,888 in
year five.  The  Company  also has a purchase  option on this space in which ten
percent of the lease payments may be applied to the purchase price.  The Company
may  exercise an option to lease an  additional  3,000  square feet of adjoining
space.  The  Company  houses  its  administrative   offices,   laboratory,   and
manufacturing facility in this complex,  utilizing an aggregate of approximately
1,650 square feet. This facility has been built, and can be expanded,  according
to "GMP" (good  manufacturing  practices)  specifications in anticipation of the
commercial  needs of the markets the Company serves.  The remaining 1,350 square
feet of space is for pilot plant  manufacturing  and an  analytical  laboratory.
However,  this  expansion  will  require  additional  funding  and  there  is no
assurance  that any  additional  funding will be  available.  Management  has no
immediate plans for this expansion.

     The  Company's  right-of-first-refusal  with Cyclops h.f.  (CyC) to certain
inventions  embodied in patents  owned by Cyclops  expired in September of 1997.
Licenses to specific  ophthalmic drugs benefiting from CyC's inventions will now
have to be  negotiated  with the German  company  that holds these  rights.  The
Company feels confident that rights to these inventions can be obtained at least
for sales in the United States.  Contingent upon a successful  private placement
of the  Company's  stock in the  second  or third  quarter  of 1998 the  Company
expects  to file New  Drug  Applications  with the Food and Drug  Administration
(FDA) for the  licensed  ophthalmic  products.  There is no  assurance  that the
Company  will be able to  obtain  licenses  to the CyC  inventions  or that  the
private  placement  proposed will raise sufficient  capital to undertake the New
Drug Applications.

     On May 1,  1995 the  Company  entered  into a joint  venture  operating  as
Ocudex, Inc. The Company and Ocumed, Inc., an unrelated company, each own 50% of
Ocudex.  The Company had agreed to provide  funds on a best efforts basis of not
more than  $10,000 per month for up to 12 months.  As of  December  31, 1997 the
Company had  advanced a total of $51,000 and realized a loss of $11,094 to date.
Since  there was no  activity  at Ocudex  during all of 1997 and the Company was
unable to acquire the assets of its joint venture partner,  Ocumed,  the Company
has provided an allowance in 1997 for the remaining  investment in the amount of
$40,406. The corporate shell will remain available for future use as the Company
will continue to work with its joint venture partner to bring  ophthalmic  drugs
using cyclodextrins to the market.

     In May of 1996  the  Company  entered  into a  contractual  agreement  with
Diversified  Corporate  Consulting  Group,  LLC  (DCCG),   whereby  the  Company
transferred  110,010  shares of CTD's voting  common stock to DCCG in return for
future  financial  services  related to business and financial  public relations
improvement as defined in its agreement. Management anticipates benefits will be
realized  in 1998 from the  retaining  of DCCG (now  called  Genesis  Consulting
(GCLLC)).

     Through  GCLLC the Company  retained the services of  Burckhardt & Company,
Inc (B&C).  to  coordinate  the private  placement  that will make  possible the
Company's planned ophthalmic  Investigational New Drug (IND) applications to the
FDA.  Planning for this private  placement began in late 1997 which required the
Company to spend  $30,000 and $2,500 in the form of  consulting  fees to B&C and
Executive Concepts,  respectively.  The Company also recorded $2,500 in stock to
be issued to Executive Concepts.  Since these costs are directly attributable to
the proposed private  placement,  they have been classified as deferred charges.
The total amount  deferred for the year ended December 31, 1997 is $35,000.  The
Company  believes the private  placement will be completed in the second quarter
of 1998.

     The  private  placement  is  expected  to raise  $2,000,000;  to be used as
follows:
<TABLE>
<S>                                                                           <C>

    Initial costs to secure Licenses and Intellectual Property                $   250,000
    File IND                                                                       50,000
    Complete IND studies                                                          300,000
    Working Capital for completing Phase I & II studies                           850,000
    Working Capital for Administering IND through Phase II applications           400,000
    Private Placement Costs                                                       150,000
    Total                                                                     $ 2,000,000

</TABLE>


     The Company expects the IND application  process to be completed  within 12
months of an initial IND application;  such application  could occur as early as
the end of June  1998.  Management  expects to be able to move  several  related
ophthalmic drug products  through the above process at much reduced  incremental
costs. Using this strategy, the Company anticipates licensing one or more of the
drugs  that  have   completed   phase  II  studies  to   interested   ophthalmic
manufacturing  companies,  thereby creating revenue from these licenses early in
1999.  These licensing  arrangements  provide a proof of concept and thereby are
expected to provide credibility for a possible future public offering. Using the
licensing  revenues and/or the proceeds of such a public  offering,  the Company
expects to take drugs not out-licensed, completely through marketing approval by
the FDA (Phase III).

     The Company's drug  applications  have been structured so that even if only
50%  ($1,000,000)  of the private  placement  proceeds  become  available to the
Company,  the Company will be able to complete  phase II studies on at least one
of the  ophthalmic  drugs to be  submitted;  however  the planned  economies  of
multiple,  related  drug  applications  will be lost.  Once  the  phase I and II
studies  are  complete,  Management  believes  it  can  approach  investors  for
additional funding based on the phase I and II data.  Additional capital will be
required if the Company is to complete the phase III approvals  itself.  Without
additional  capital,  the  Company  could  license  the  phase I and II data and
through royalties over time generate revenue.

     There are no assurances  that the above  private  placement or other future
financing  activities will generate enough resources to accomplish the Company's
financial  or  regulatory   goals.   Factors  which  can  adversely  affect  the
realization of the Company's  goals as stated in this report include  dependence
on  continued  growth  of  the  CD  market,  the  success  of  future  financing
activities,  the  ability of the  Company to  continue  the  development  of its
products and services,  and the uncertainties  regarding  regulatory approval of
the Company's products.

     In the case that less than the  $1,000,000  is  raised,  the  Company  will
allocate  funds between doing an IND for the best  pharmaceutical  candidate and
creating  retail  over-the-counter  products  that  require  minimal  regulatory
intervention   such  as  contact  lens  soak  solutions,   benzocaine   patches,
plaque-softening chewing gum, etc to be marketed or sub-licensed by the Company.
In the event that no further funding is available,  Management  believes that it
can sub-license its secured  licensing  rights along with the completed IND to a
large ophthalmic company to recover its costs and generate revenues.

     In the  second  quarter  of 1996,  the  Company  amended  its  Articles  of
Incorporation  increasing the number of voting shares  authorized from 5,000,000
to 10,000,000.  In addition,  non-voting  common shares were created.  The total
amount of non-voting common shares authorized is 10,000,000.

     In continuing to implement its strategic  plan of acquiring and  developing
new products  through  licensing and joint ventures,  the Company,  on March 10,
1997,  entered  into a  royalty-bearing  agreement  with  Jurox  Pty,  Ltd.,  an
Australian  company  manufacturing and selling  veterinary  pharmaceuticals,  to
jointly develop a  cyclodextrin/alfaxalone  veterinary anesthetic product. As of
December 31, 1997 no sales of these products have occurred.

     During 1997 CTD was awarded a  judgement  in the amount of $50,000  against
WTDT, a production company and television  station in South Florida,  for breach
of  contract  to  provide  services  related  to  the  marketing  and  sales  of
Garlessence(R).  The Company paid WTDT $22,000 in 1995 to secure their  services
and was awarded additional  compensatory  costs and damages.  WTDT has filed for
protection  under  Chapter 11  bankruptcy  rules.  No amount is  expected  to be
recovered  from this  judgement  and the  Company  has not  recorded  any amount
related to this judgement in its financial statements.

     In a  continuing  effort  to let the  public  know  about the  benefits  of
cyclodextrins,  the Company accepted the opportunity to appear on the premier of
a proposed new television show called The Stock Show. The purpose of this weekly
series was to bring to the attention of its viewers OTC bulletin board companies
that  presented  significant  growth  opportunities.  In April of 1997,  Company
management  entered into an agreement with Atlantic  Syndication  Network,  Inc.
(ASNI),  a Las Vegas based production  company,  to contribute to the production
fees necessary to produce the first show as follows:

         (a)      $2,500.00  cash
         (b)      10,000 shares of common stock of CTD
         (c )     options to purchase 25,000 shares of non-voting common stock
                  of CTD for $1.00/share.

     In return,  CTD would be  guaranteed  at least two  airings of the 1/2 hour
show on television and satellite networks as ASNI could secure the air-time.  At
least two airings of the show  occurred on KDOC,  a Los Angeles TV station;  and
LVTN (Las Vegas TV Network),  a satellite TV network.  The Company also received
tapes of the show for its own  promotional  uses.  As of  December  31, 1997 the
agreement with ASNI has been completed and no further events are expected.

     In  response  to the  need  for  consulting  services  by  major  companies
commercializing  CD  applications,  the Company  entered into an agreement  with
NuPharm,  Inc., a Canadian company manufacturing metered dose inhalants (MDI's).
The Company agreed to provide  research and development  services for NuPharm on
cyclodextrin/respiratory  drug complexes for potential use in MDI's. CTD expects
to recognize  increasing revenues from these services and other similar services
provided by the Company.

     Management  has evaluated the Company's  computer  systems to determine the
impact  of the Year  2000  (Y2K) on the  Company's  operations.  Management  has
completed its evaluation and determined that both the hardware and software used
by the Company are Y2K capable and no additional cost or impact on operations is
expected.

         Results of Operations

     Prior to 1995 sales of  cyclodextrins  and related  manufactured  complexes
were  highly  volatile.  In  efforts  to offset  this  volatility,  the  Company
continues  to expand its  revenue  producing  activities  to  include  providing
research and development services for unrelated companies and its inventory line
to include more routinely purchased products. Total product and service revenues
were  $370,344  and  $344,068  for  the  years   December  31,  1997  and  1996,
respectively.  With the above  expansions  and the normal  customer  sales,  the
volatility  of the Company's  revenues  appears to have  stabilized  into steady
growth and the  revenues  are expected to continue to grow through the year 2000
and beyond.

     Total product  sales for 1997 were $283,677  compared to $344,068 for 1996.
However,  1996 sales are  supplemented  by $92,500  due to an unusual  sale that
occurred in December of 1996.  By removing  that amount,  the  Company's  normal
customer sales ($283,677 vs. 251,568)  resulted in 13% growth.  The Company also
experienced  the  emergence  of  consulting  revenue as a new revenue  category.
During 1997 the Company realized  consulting  revenues for the first time in the
amount of $86,667.

     Product sales are primarily to large  pharmaceutical and food companies for
research and development purposes. Sales of both products and services have been
concentrated among a few large customers.

     The Company's  gross profit margin on product sales  decreased from 87% for
1996 to 75% for 1997, due primarily to increasing  inventory  replacement costs.
Future retail sales of Garlessence at a gross profit of  approximately  25% will
contribute to overall  profitability,  but at a  substantial  reduction in gross
profit percentage. Therefore, the Company expects this trend of decreasing gross
profit margins to continue as the replacement cost of cyclodextrins continues to
rise and the retail sales of Garlessence and other lower margin products occur.

     In efforts to minimize expenses,  Management  constantly reviews efficiency
and  productivity.  Total  personnel  was reduced from 5 employees to 3 in 1997.
This  reduction in personnel  costs (from  $121,575 in 1996 to $112,062 in 1997)
will provide the Company with a significant  improvement in the product sales to
salary  ratio  in 1998 and  reduce  personnel  expenses  to 1994  levels.  While
Management  continues to monitor company  operations,  it is anticipated that no
further personnel changes will be required for the immediate future.

     Selling, General and Administrative (SG&A) expenses ($347,685 vs. $300,599)
increased  16%.  The  increase  stems in large part from  certain  non-recurring
activities. While the Company reduced personnel costs, it experienced an unusual
expense in the amount of $15,625 due to the write off of the remaining  deferred
employee  stock  compensation.  The Company also incurred  $52,800 in additional
outside  consulting  services related to the revenues created by providing those
consulting  services.  Future consulting services are not expected to incur such
expenses.  Lastly,  in efforts to promote  Garlessence,  the  Company  increased
spending on  advertising  by more than  $15,000.  Taking into  account the above
items, recurring operating SG&A expenses actually decreased by $36,339.

     The  Company  recorded  in 1997 a net  income  tax  benefit  of  $20,650 as
compared  to  $229,350  in 1996.  However,  the amount  recorded in 1996 was the
cumulative  benefit of all prior years' net  operating  losses,  as 1996 was the
first year such a benefit was  recognized.  The current year's benefit  resulted
from changes in the effective tax rate and the valuation allowance,  and the tax
benefit from the current year loss.

     The total loss from operations in 1997 was $(176,035)  compared to $(1,885)
in 1996. However, over 70% of that loss stems primarily from the public offering
costs  expensed in 1997. By removing  those  expenses  ($127,467)  the loss from
operations was only $(48,568).  Taking into account the unusual sale in 1996 and
the  unusual  expenses  in  1997  for  deferred  compensation,  advertising  and
consulting; Management feels that the results in 1997 are comparable to 1996 and
that the operating health of the Company is sound.  Management has held the line
on recurring  operating  expenses,  increased normal customer sales and expanded
the Company's revenues base even while developing new products, and implementing
its  strategy of creating  operational  affiliates  that will use CD's in herbal
medicines, wastewater remediation, and pharmaceuticals.

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     When used in this report, the words "believes," expects," "anticipates" and
similar  expressions  are  intended  to  identify  forward-looking   statements.
Statements herein regarding sales and research performance,  expected financing,
and expected  regulatory  approval of the Company's  products further constitute
forward-looking  statements  under federal  securities laws. Such statements are
subject  to  certain  risks  and  uncertainties  that  could  cause  the  actual
realization  to  be  delayed  or to  not  occur.  Management  has  made  certain
assumptions  regarding each of the statements  which may or may not be accurate.
Actual research and development  results may vary significantly from the current
plans.  Actual  Company  financing  activities may vary  significantly  from the
current plans and may result in the Company changing its plan of the use of such
proceeds.


Item 7.  Financial Statements

     Financial  statements  are submitted as an exhibit under Items 13(a)(1) and
(2) on this Form 10-KSB.

     Item 8. Changes in and  Disagreements  With  Accountants  on Accounting and
Financial Disclosure.

     On December 23, 1997,  the Company  engaged  James Moore & Co., P.L. as its
independent  accountants for 1997. The work of Davis,  Monk & Co. was terminated
on December 23, 1997.  The dismissal of Davis,  Monk & Co. and the engagement of
James Moore & Co., P.L. was approved by the Company's Board of Directors.

     On December 5, 1996, the Company engaged the accounting firm of Davis, Monk
& Co. as independent  accountants for the Registrant for 1996. The work of James
Moore & Co..,  P.L. was  terminated on December 5, 1996.  The dismissal of James
Moore & Co., P.L. and the  engagement  of Davis,  Monk & Co. was approved by the
Company's Board of Directors.

     During  fiscal years ended  December 31, 1995 and December 31, 1996,  there
have been no disagreements  with James Moore & Co., P.L. or Davis, Monk & Co. on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure or any reportable events.

     The reports on the financial statements performed by James Moore & Co., P.L
and Davis, Monk & Co. for the past two years ended December 31, 1996,  contained
no adverse opinion or disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles.


<PAGE>



PART III.

     Item 9.  Directors,  Executive  Officers,  Promoters  and Control  Persons;
Compliance with Section 16(a) of the Exchange Act.

<TABLE>
<S>                      <C>    <C>                       <C>
Name                     Age    Position                  Since
C.E. Rick Strattan       52     President/CEO, Director   August, 1990
</TABLE>



     C.E. Rick Strattan,  has been President and a Director of the Company since
its formation.  He served as treasurer of the Company from August,  1990 to May,
1995.  From November 1987 through July 1992,  Mr.  Strattan was with  Pharmatec,
Inc. where he became its Director of Marketing and Business Development for CDs.
He was responsible for CD sales and related business development  efforts.  From
November,  1985  through  May,  1987 he served as Chief  Technical  Officer  for
Boots-Celltech  Diagnostics,  Inc. He also served as Product  Sales  Manager for
American  Bio-Science  Laboratories,  a Division  of  American  Hospital  Supply
Corporation.  He is a graduate of the  University of Florida with a BS degree in
chemistry and mathematics and has also received an MS degree in Pharmacology and
an  MBA  degree  in  Marketing/Computer   Information  Sciences  from  the  same
institution. Mr. Strattan has written and published numerous articles and a book
chapter  on the  subject  of  Cyclodextrins.  Mr.  Strattan's  professional  and
technical experience are deemed highly important to the Company. See "Business -
General."

Compliance with Section 16(a) of the Securities Exchange Act of 1934

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers,  directors and persons who beneficially own more than 10% of
the Company's  Common Stock to file initial  reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission  ("SEC").  Such
persons are  required by SEC  regulations  to furnish the Company with copies of
all Section 16(a) forms filed by such persons.

     Based solely on the Company's review of such forms furnished to the Company
and written  representation from certain reporting persons, the Company believes
that during the fiscal year ended  December  31, 1997,  all filing  requirements
applicable  to the  Company's  executive  officers,  directors and more than 10%
shareholders were complied with.



<PAGE>


Item 10. Executive Compensation

     Executive  compensation  is  determined  by the  Board  of  Directors.  All
compensation  paid by the Company for services  rendered during the three fiscal
years ended December 31, 1995,  1996 and 1997 for each executive  officer is set
forth in the following table: <TABLE> <CAPTION>

                                            SUMMARY  COMPENSATION  TABLE  (three
                            fiscal years ended December 31, 1995, 1996 and 1997)

                                                                  Annual                     Long Term
                                                               Compensation                Compensation
                                                  ---------------------------------------------------------


                                                                             Other              All
                                                                             Annual            Other
Name and Principal Position                Year    Salary      Bonus      Compensation      Compensation
<S>                                        <C>     <C>          <C>           <C>             <C>

C.E. Rick Strattan                         1997    $34,750      -0-           -0-               -0-
    Chief Executive Officer, President     1996    $24,000      -0-           -0-               -0-
                                           1995    $36,000      -0-           -0-               -0-

Steve Herschleb                            1997      -0-        -0-           -0-               -0-
    Vice President                         1996      -0-        -0-           -0-               -0-
                                           19951   $12,500      -0-           -0-             $25,000(1)

David L. Southworth(3)                     1997    $15,686      -0-           -0-               -0-
    Treasurer/Chief Financial Officer      1996    $21,550      -0-           -0-               -0-
                                           1995    $27,550      -0-           -0-             $ 2,501(2)

</TABLE>

     1 On May 1, 1995, Mr.  Herschleb left CTD due to ill health and the Company
repurchased his shares for $2.50 per share.

     2 On November 11, 1995 Mr.  Southworth  received 4,000 shares of CTD common
stock  having a value of $2,501  based on the market price of the shares at that
time.

     3  On  June  30,  1997,  Mr.  Southworth   resigned  from  the  Company  as
Treasurer/Chief Financial Officer.

     On November 15, 1995, the Company  adopted a  non-qualified  employee stock
purchase plan pursuant to which employees may purchase  restricted shares of the
Company's  common stock at a price of 50% of the current bid price of the shares
in  amounts  not to exceed  the  employee's  gross  pay.  Pursuant  to the plan,
employees have elected to purchase  33,400  shares,  of which 15,800 shares have
been purchased by Mr. Strattan.

Performance-Based Stock Compensation

     The Company has adopted a  resolution  whereby up to 100,000  shares may be
transferred to Mr.  Strattan  based on his  performance in the discretion of the
Board of Directors which is solely comprised of Mr. Strattan.

Item 11.  Security Ownership of Certain Beneficial Owners and Management.

     The following  table shows the ownership of the Common Stock of the Company
on March 17, 1998,  by each person who, to the  knowledge of the Company,  owned
beneficially  more than five (5%) of such stock, the ownership of each director,
and the  ownership of all directors  and officers as a group.  Unless  otherwise
noted,  shares  are  subject  to the sole  voting  and  investment  power of the
indicated person.
<TABLE> <CAPTION>

Names and Address of Individual or .........Amount and Nature of   Approximate %
Identity of Group ..........................Beneficial Ownership     of Class
<S>                                               <C>                 <C>
C.E. Rick Strattan(1).......................      531,800             43.06%
4123 N.W. 46th Avenue
Gainesville, FL 32606

Diversified Corporate Consulting Group .....      116,000              9.39%
11355 S.E. 54th Avenue
Belleview, FL 34420


All Officers and Directors as a group ......      531,800             43.06%

</TABLE>


     1 Held by Strattan  Associates,  Ltd., of which Mr. Strattan is the general
partner.  Strattan Associates,  Ltd. is a limited partnership established by Mr.
Strattan  for estate tax  purposes  and is not  otherwise  engaged in  business.
Strattan  Associates,  Ltd. is the owner of the 500,000 shares of CTD stock. Mr.
Stratton is the President/CEO and Director of the Company.

Item 12.  Certain Relationships and Related Transactions.

     .........In  November 1993, the Company entered into a Business  Consulting
Agreement with Garrison  Enterprises,  Inc.  ("Garrison") to provide  consulting
services to the Company in the areas of the evaluation of managerial,  marketing
and sales requirements; reviewing and analyzing proposed business opportunities;
consulting  with the  Company on  strategic  corporate  planning  and  long-term
investment  policies;  and rendering  advice with respect to future fund raising
and other financial arrangements.  As compensation for its services Garrison was
issued 300,000 shares of the Company's  Common Stock and after completion of the
Company's  private  placement  offering in May, 1994,  Garrison began  receiving
$7,000 per month for a period of 3 years and $10,000 per month for the  two-year
period thereafter.

     .........In  November  1993,  C.E.  Rick  Strattan,  the  President  of the
Company, and Garrison entered into a Shareholder's Agreement.  Pursuant to which
Mr. Strattan and Garrison (the "Shareholders") agreed to vote their shares so as
to provide that the  Directors of the Company  shall be C.E.  Rick  Strattan and
Michael A. Schub ("Schub").  In addition,  the Shareholders  agreed to an annual
salary to the  President  of the Company of $7,000 per month for the three years
after the  closing of the stock  offering,  increasing  to $10,000  per month in
years four and five.

     .........Subsequently,  on  June  16,  1994,  Mr.  Schub  resigned  as Vice
President,  Secretary  and Director of the Company.  On June 23, 1994,  Barry R.
Klein became Secretary and a Director of the Company. In addition, Mr. Schub was
president and a director of Garrison from  inception to June 23, 1994,  when Mr.
Schub resigned.

     .........Upon  Mr.  Schub's  resignation  as an officer and director of the
Company and Garrison,  the Company entered into a retainer  agreement with Schub
thereby  retaining  Schub as special  counsel,  at a monthly  retainer of $1,750
commencing July 1, 1994 and continuing  until March 31, 1997. From April 1, 1997
to March 31,  1999,  said  retainer  was to be  increased  to $2,500  per month.
Garrison  thereafter  agreed to reduce its  compensation  from the Company in an
amount equal to the monthly retainer paid to Schub.

     .........On August 1, 1994, the Company entered into a five-year consulting
agreement  (renewable  annually  by mutual  agreement)  with  Yellen  Associates
("Yellen").  Yellen agreed to provide ideas for new products in the nutritional,
geriatric, and related health fields; to find companies and/or products suitable
for acquisition;  to find products suitable for manufacture and/or distribution;
and to secure customers for Company products. All products offered by Yellen and
accepted by the Company will belong  exclusively to the Company with all related
rights.  In return,  the Company  agreed to pay Yellen $2,000 per month for nine
months.  If sales of Yellen  products had been at least $200,000 per year,  this
monthly  payment  would have  automatically  continued  for one year.  Any other
continuance of the payment would be negotiated.  Additionally, the Company would
pay Yellen  royalties  of up to 5% of sales for three to five years for products
acquired through Yellen or cyclodextrin  sales made by Yellen.  The Company also
agreed to sell to Yellen over a period of three years from August 1, 1994, up to
30,000  shares of Company  stock at a discount of 50% of the market price quoted
at the time of purchase.  Having satisfied the guaranteed  minimum payments part
of the agreement in April,  1995, the Company chose to  discontinue  the monthly
payments.

     .........In  September 1994, the Company prepaid its consulting  agreements
with Garrison and Schub for an amount equal to $180,000.  Garrison and Schub are
no longer  providing  services  to the  Company.  The Company  terminated  these
agreements  because it believed that the  marketing  and  financial  services of
Schub and  Garrison  would not be needed for the  remaining  term of five years.
Thus,  the Company  bought out of these  agreements  at a discount of  $270,000.
Under  the  terms  of  the  contracts,  the  Company  was  obligated  to  expend
approximately $450,000 over the next year term of the agreement.

     .........On  December 12, 1994,  the Company  adopted a stock issuance plan
pursuant to which  employees  named by the board of directors  receive shares in
amounts  determined by the board.  Shares received pursuant to the 1994 plan are
vested after five years.  During the third,  fourth and fifth years the stock is
held by an employee,  the employee may cause the Company to repurchase the stock
at 50% of the then current market value.  Since its inception 35,000 shares have
been issued pursuant to the plan, of which 10,000 have been repurchased.

     .........On  May  l,  1995,  the  Company  agreed  to  purchase  all of Mr.
Herschleb's common shares of the Company (10,000 shares) at a price of $2.50 per
share payable in 12 monthly installments without interest.

     .........On May 1, 1995, the Company entered into a Joint Venture Agreement
with Ocumed,  Inc. Under the terms of the Agreement,  the parties have created a
separate  entity called  Ocudex,  Inc. for the purpose of developing and selling
ophthalmic  products  manufactured  by Ocumed and  developed  by the Company for
which the Company will provide funding of up to $120,000 over a 12-month period.
The Company and Ocumed each own 50% of Ocudex, Inc.

     On  June  30,  1997,   Mr.   Southworth   resigned   from  the  Company  as
Treasurer/Chief Financial Officer.

     On March 10, 1998, the Company  adopted a resolution  whereby 10,000 shares
of the  Company's  common  stock,  issued in the name of Gregory V.  DeLong,  be
returned to the  Company's  treasury  stock as authorized  but unissued  shares,
pursuant to a Stock Power retained by the Company.

     The Company has adopted a  resolution  whereby up to 100,000  shares may be
transferred to Mr.  Strattan  based on his  performance in the discretion of the
Board of Directors which is solely comprised of Mr. Strattan.




<PAGE>


PART IV.

Item 13.  Exhibits and Reports on Form 8-K.

(a) Exhibits                                                                Page

    (1) Reports of Independent Certified Accountants                        F-1

    (2) Financial Statements                                                F-2

    Exhibits required by Item 601, Regulation S-B:

    (3) Articles of incorporation and by-laws

       (a) Articles of Incorporation filed August 9, 1990 *                 None

       (b) By-Laws. *                                                       None

       (c)    Certificates of Amendment to the Articles of  Incorporation
              filed November 18, 1993 and September 24, 1993. *             None

         (4) Instruments defining the rights of security holders,
              including indentures

              (a) Specimen Share Certificate for Common Stock. *            None

    (9)  Voting Trust Agreement                                             None

    (10)  Material Contracts

        (10.1)  Agreement of Shareholders dated November 11, 1993
                by and among C.E. Rick Strattan, Garrison Enterprises,
                Inc. and the Company. *                                     None

        (10.2)  Lease Agreement dated July 7, 1994**.                       None

        (10.3)  Consulting Agreement dated July 29, 1994 between
                the Company and Yellen Associates. *                        None

        (10.4)  License Agreement dated December 20, 1994 between
                the Company and Herbe Wirkstoffe GmbH. *                    None

        (10.5)  Joint Venture Agreement between the Company and
                Ocumed, Inc. dated May 1, 1995, incorporated by
                reference to the Company's Form 10-QSB for the q
                uarter ended June 30, 1995.**                               None

        (10.6)  Extension of Agreement between the Company and Herbe
                         Wirkstoffe GmbH                                     40

    (11)  Statement re: Computation of Per Share Earnings             Note 1 to
                                                                      Financial
                                                                      Statements

    (16)  Letter on changes in certifying accountant                         41

    (18)  Letter on change in accounting principles                         None

    (22)  Subsidiaries of Registrant                                        None

    (23)  Published Report re:  Matters Submitted to Vote of
          Security Holders                                                  None

    (24)  Consents of Experts and Counsel                                   None

    (25)  Power of Attorney                                                 None

    (27)  Financial Data Schedule                                            43

    (28)  Additional Exhibits                                               None

    (29)  Information from reports furnished to state insurance
          regulatory authorities                                            None


(b) Reports on Form 8-K:

         Form 8-K, filed December 23, 1997 regarding item 4.

     *  Incorporated  by  reference to the  Company's  Form 10-SB filed with the
  Securities and Exchange Commission on February 1, 1994.
     **  Incorporated  by reference to the Company's  Form 10-KSB filed with the
  Securities and Exchange Commission on March 29, 1997.



                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


(Registrant)      CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.


                                /S/
By (Signature and Title)_______________________________________
                                    C.E. RICK STRATTAN, President,
                                    Chief Executive Officer, Chief
                                    Operating Officer and
                                    Director

Date: March 28, 1998

<PAGE>
                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders of
Cyclodextrin Technologies Development, Inc.:



     We have audited the accompanying balance sheet of Cyclodextrin Technologies
Development,  Inc. as of  December  31,  1997,  and the  related  statements  of
operations,  stockholders'  equity and cash flows for the year then ended. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit. The financial  statements of Cyclodextrin  Technologies  Development,
Inc. for the year ended December 31, 1996,  were audited by other auditors whose
report  dated  February  21, 1997,  expressed  an  unqualified  opinion on those
statements.

     We conducted  our audit in  accordance  with  generally  accepted  auditing
standards Those  standards  require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the financial  position of Cyclodextrin  Technologies
Development, Inc. as of December 31, 1997, and the results of its operations and
its cash flows for the year then ended in  conformity  with  generally  accepted
accounting principles.

    /s/

February 3, 1998
Gainesville, Florida

                                     F - 1
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                                  BALANCE SHEET
                                DECEMBER 31, 1997
<TABLE>
<CAPTION>

                                     ASSETS

<S>                                                               <C>
CURRENT ASSETS
 Cash and cash equivalents                                        $      8,331
 Investments                                                            17,596
 Accounts receivable                                                    41,536
 Inventory                                                              86,996
 Deferred tax asset                                                     12,000
 Other current assets                                                    5,894
     Total current assets                                               72,353

PROPERTY AND EQUIPMENT
 Furniture and equipment                                                58,182
 Leasehold improvements                                                 24,800
                                                                        82,982
 Less: Accumulated depreciation                                         55,634
     Total property and equipment                                       27,348

OTHER ASSETS
 Deferred offering costs                                                35,000
 Deferred tax asset                                                    238,000
     Total other assets                                                273,000
TOTAL ASSETS                                                      $    472,701
</TABLE>

               Theaccompanying  notes to  financial  statements  are an integral
                  part of these statements.

                                     F-2
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                                  BALANCE SHEET
                                DECEMBER 31, 1997
                                   (Continued)
<TABLE>
<CAPTION>

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<S>                                                               <C>
CURRENT LIABILITIES
 Accounts payable and accrued expenses                            $      39,693
 Notes payable                                                           23,879
     Total current liabilities                                           63,572

COMMON STOCK SUBJECT TO REPURCHASE,  par value $.0001 per share,
 100,000 shares authorized, 5,000 shares issued and outstanding           1,405

STOCKHOLDERS' EQUITY
 Class A common stock, par value $.0001 per share,  9,900,000
  shares authorized, 1,220,110 shares issued and outstanding;
 Class B non-voting common stock, par value $.0001 per share,
  10,000,000 shares authorized, 0 shares issued and outstanding            120
 Additional paid-in capital                                          1,670,744
 Unrealized loss on investments                                         (3,755)
 Accumulated deficit                                                (1,259,385)
     Total stockholders' equity                                        407,724

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        $    472,701
</TABLE>

         The accompanying notes to financial statements are an integral
                            part of these statements.

                                     F-3
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                            STATEMENTS OF OPERATIONS
                   THE YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                            1997           1996
<S>                                                  <C>            <C>
PRODUCT SALES .......................................$   283,677    $   344,068

COST OF PRODUCTS SOLD ...............................     71,227         45,354

GROSS PROFIT ........................................    212,450        298,714

CONSULTING SERVICES AND OTHER OPERATING REVENUE .....     86,667           --

TOTAL OPERATING REVENUE .............................    299,117        298,714

OPERATING EXPENSES
 Selling, general and administrative ................    347,685        300,599
 Public offering expenses ...........................    127,467           --
     Total operating expenses .......................    475,152        300,599

LOSS FROM OPERATIONS ................................   (176,035)        (1,885)

OTHER INCOME (EXPENSE)
 Investment and other income ........................      1,654          2,632
 Gain (loss) due to change in redemption price
  on common stock subject to repurchase .............      6,408         (1,563)
 Equity in loss from unconsolidated joint venture ...       (420)        (9,169)
 Allowance for loss from unconsolidated joint venture    (40,406)          --
 Interest expense ...................................     (2,727)        (3,914)
     Total other income (expense) ...................    (35,491)       (12,014)

LOSS BEFORE INCOME TAXES ............................   (211,526)       (13,899)

INCOME TAX BENEFIT, net .............................     20,650        229,350

NET INCOME (LOSS) ...................................$  (190,876)   $   215,451

NET INCOME (LOSS) PER COMMON SHARE ..................$      (.15)   $       .19

WEIGHTED AVERAGE NUMBER OF COMMON
 SHARES OUTSTANDING .................................  1,230,973      1,151,794
</TABLE>

         The accompanying notes to financial statements are an integral
                            part of these statements.

                                     F-4
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                        STATEMENT OF STOCKHOLDERS' EQUITY
                   THE YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                COMMON STOCK                                       TOTAL
                                               ADDITIONAL        ISSUED FOR     UNREALIZED        RETAINED         STOCK-
                       COMMON STOCK              PAID-IN           FUTURE         LOSS ON         EARNINGS        HOLDERS'
                   SHARES       AMOUNT           CAPITAL          SERVICES      INVESTMENTS       (DEFICIT)        EQUITY
<S>              <C>          <C>             <C>               <C>             <C>            <C>             <C>
BALANCE,
 December
 31, 1995        1,023,300    $        102    $    1,571,921    $    (24,250)   $    -         $ (1,283,960)   $   263,813

Shares issued
 under employee
 temporary
 purchase
 plan                3,800            -                3,025            -            -                 -             3,025

Shares issued
 for services      157,010              16            86,490            -            -                 -            86,506

Shares issued
 as bonus           16,000               2             8,998            -            -                 -             9,000

Compensation
 earned               -               -                 -              5,750         -                 -             5,750

Net income            -               -                 -               -            -              215,451        215,451

BALANCE,
 December
 31, 1996        1,200,110             120         1,670,434         (18,500)        -           (1,068,509)       583,545

Shares issued
 for services       10,000               1             2,809            -            -                 -             2,810

Shares returned,
 originally
 issued in 1996
 for services      (10,000)             (1)           (2,499)           -            -                 -            (2,500)

Compensation
 earned               -               -                 -             18,500         -                 -            18,500


Expiration of
 repurchase
 obligation on
 common stock       20,000            -                 -               -            -                 -              -

Change in
 unrealized
 loss on
 investments          -               -                 -               -          (3,755)             -            (3,755)

Net loss              -               -                 -               -            -             (190,876)      (190,876)

BALANCE,
 December
 31, 1997        1,220,110    $        120    $    1,670,744    $       -       $  (3,755)    $  (1,259,385)   $   407,724
</TABLE>

         The accompanying notes to financial statements are an integral
                            part of these statements.

                                     F-5
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                            STATEMENTS OF CASH FLOWS
                           DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                        1997          1996
<S>                                                     <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income (loss) .................................... $(190,876)   $ 215,451
 Adjustments to reconcile net income (loss) to net
  cash provided by (used for) operating activities:
   Depreciation and amortization ......................    34,200       49,507
   Loss on currency conversion ........................      --            175
   Gain on sale of investments ........................      (702)        --
   Deferred compensation earned .......................    18,500        5,750
   Equity in loss of unconsolidated joint venture .....       420        9,169
   Allowance for loss from unconsolidated joint venture    40,406         --
   (Gain) loss based on redemption price of common
     stock subject to repurchase ......................    (6,408)       1,563
   Stock issued for services ..........................       310        9,000
   (Increase) decrease in accounts receivable .........    64,656      (69,540)
   (Increase) decrease in inventory ...................   (10,617)       1,902
   Decrease in other current assets ...................       585       17,445
   Increase in deferred income taxes ..................   (20,650)    (229,350)
   (Increase) decrease in deferred offering costs .....    92,531      (41,025)
   Increase (decrease) in accounts payable and
    accrued expenses ..................................    18,752      (35,578)
        Total adjustments .............................   231,983     (280,982)

    Net  cash  provided by (used for) operating
     activities .......................................    41,107      (65,531)

CASH FLOWS FROM INVESTING ACTIVITIES
 Advances to joint venture ............................      --        (17,000)
 Purchase of equipment and leasehold improvements .....    (9,255)        (530)
 Loan to employee .....................................    (4,000)      (4,000)
 Repayment of employee loan ...........................    11,283        4,251
 Proceeds from sale of investment .....................    43,756         --
 Purchases of investments .............................   (64,405)        --
    Net cash used in investing activities .............   (22,621)     (17,279)

CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds from issuance of common stock,
  net of offering costs ...............................      --          3,025
 Cash paid for treasury stock obligation ..............      --         (6,421)
 Net proceeds (payments) on line-of-credit ............   (28,322)      47,200
 Proceeds from investment margin account ..............    10,400         --
 Proceeds from loan payable to stockholder ............     9,090        1,751
 Payment to stockholder on loan .......................    (9,090)      (1,751)
    Net cash provided by (used for) financing
     activities .......................................   (17,922)      43,804

Net increase (decrease) in cash and cash equivalents ..       564      (39,006)

CASH AND CASH EQUIVALENTS, beginning of period ........     7,767       46,773

CASH AND CASH EQUIVALENTS, end of period .............. $   8,331    $   7,767
</TABLE>

         The accompanying notes to financial statements are an integral
                            part of these statements.

                                     F-6
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                             STATEMENTS OF CASH FLOWS
                           DECEMBER 31, 1997 AND 1996
                                   (Continued)

<TABLE>
<CAPTION>
                                                              1997         1996
<S>                                                            <C>       <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest ..................    $2,727    $ 3,914

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
 FINANCING ACTIVITY
  Common stock issued for services ........................    $  310    $95,506
  Contribution by stockholder .............................      --        6,000
  Acquisition of stock of unconsolidated joint venture ....      --          500

</TABLE>

         The accompanying notes to financial statements are an integral
                            part of these statements.

                                     F-7
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     The following is a summary of the more significant  accounting  policies of
Cyclodextrin  Technologies  Development,  Inc.  (the  Company)  which affect the
accompanying financial statements:

     (a)  ORGANIZATION  AND  OPERATIONS--The  Company was incorporated in August
     1990, as a Florida corporation with operations  beginning in July 1992. The
     Company is engaged in the marketing and sale of  cyclodextrins  and related
     products to food,  pharmaceutical  and other  industries.  The Company also
     provides  consulting  services  related  to  cyclodextrin  technology.  The
     Company's current market is primarily within the United States.

     The Company's  financial  statements  have been prepared in conformity with
     principles of accounting  applicable to a going concern.  These  principles
     contemplate the realization of assets and liquidation of liabilities in the
     normal  course of business.  During the last several  years the Company has
     sustained  substantial  net  losses.  These net  losses  have  reduced  the
     Company's working capital available for operations as of December 31, 1997,
     below the level of its 1997 operating expenses. The Company plans a private
     placement of additional common stock expected to raise  approximately $1.85
     million in the second  quarter of 1998.  Additionally,  management's  plans
     include  continuing  cost  reduction  measures to mitigate  future  losses.
     Management  also  believes  it has  the  ability  to  reduce  expenses,  if
     necessary, to achieve profitable operations.

     (b) CASH AND CASH  EQUIVALENTS--For  the purposes of reporting  cash flows,
     the  Company  considers  all highly  liquid  investments  with an  original
     maturity of three months or less to be cash equivalents.

     (c) PROPERTY AND  EQUIPMENT--Property  and  equipment are recorded at cost.
     Depreciation on equipment is computed using primarily  accelerated  methods
     over the  estimated  useful  lives of the assets,  which are either five or
     seven  years.  Depreciation  on leasehold  improvements  is computed on the
     straight-line  method over the lesser of the term of the  related  lease or
     the estimated useful lives of the assets.

     (d)  INVENTORY--Inventory  consists  of products  purchased  for resale and
     chemical complexes  manufactured  in-house, and is recorded at the lower of
     cost (first-in, first-out) or market.

     At December 31, 1997, some portion of approximately $60,000 in inventory of
     one of the Company's products is in excess of current requirements based on
     the recent  level of sales.  Management  has  developed a program to reduce
     inventory to desired levels over the near term and believes no loss will be
     incurred on its disposition.  No estimate can be made of a range of amounts
     of loss that are reasonably possible should the program not be successful.

     (e) INVESTMENTS--The Company's investments are marketable equity securities
     held for an indefinite period and are classified as available for sale. Net
     unrealized  holding losses on such  securities  were $3,755 at December 31,
     1997, and are charged to stockholders' equity.  Realized gains were $702 in
     1997 using the specific identification method.

     (f) REVENUE RECOGNITION--Revenues are recorded when products are shipped.

     (g)  ADVERTISING--The  Company expenses the production costs of advertising
     the first time the advertising takes place.

                                     F-8
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  (Continued)

(h)  LICENSE FEE--The license fee for a dietary  supplement  product is recorded
     at cost.  Amortization  expense is computed using the straight-line  method
     over  the  term  of the  license,  which  was  three  years.  Periodically,
     management  evaluates the estimated useful life of the license to determine
     whether  intervening  economic  events an  circumstances  have affected the
     remaining useful life.

     (i) DEFERRED OFFERING  COSTS--Expenses  directly attributable to a proposed
     stock offering are recorded at cost as deferred offering costs as discussed
     in Note 12.

     (j) RECLASSIFICATIONS--Certain  amounts from 1996 have been reclassified to
     conform to the 1997 presentation.

     (k) NET INCOME (LOSS) PER COMMON  SHARE--Net income (loss) per common share
     is  computed  in  accordance  with the new  requirements  of  Statement  of
     Financial  Accounting Standards No. 128 (SFAS 128) at December 31, 1997 and
     1996.  SFAS 128  requires net income per share  information  to be computed
     using a simple  weighted  average of common shares  outstanding  during the
     periods  presented.  SFAS 128  eliminated  the  previous  requirement  that
     earnings  per  share  include  the  effect  of any  dilutive  common  stock
     equivalents in the calculation.  Common shares outstanding  includes common
     stock subject to repurchase.  There was no effect on the 1997 or previously
     reported  1996 net  income  per  common  share  amounts as a result of this
     change in accounting method.

     The stated net income (loss) per share amounts do not include any potential
     dilutive  effect if certain  options  issued in 1997 to purchase an 625,000
     additional shares of the Company's common stock were exercised.

     (l) USE OF ESTIMATES--The preparation of financial statements in conformity
     with generally accepted  accounting  principles requires management to make
     estimates  and  assumptions   that  affect  certain  reported  amounts  and
     disclosures. Accordingly, actual results could differ from those estimates.


(2) COMMITMENTS:

     On July  7,  1994,  the  Company  entered  into a five  year  noncancelable
operating lease for office space,  commencing  November 1994. The Company has an
option to rent  additional  space and a purchase  option in which ten percent of
the lease  payments may be applied to the  purchase  price.  The future  minimum
lease payments under operating leases as of December 31, 1997, are as follows:

<TABLE>
<CAPTION>
                    YEAR ENDING
                    DECEMBER 31,                     AMOUNT
                       <S>                         <C>
                       1998                        $    21,018
                       1999                             18,240
                       Total                       $    39,258
</TABLE>

     Rent expense under the foregoing lease and all other  operating  leases was
$20,014 and $19,058 for 1997 and 1996, respectively.

                                     F-9
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

(2) COMMITMENTS:  (Continued)

     Effective  January 1, 1995,  the  Company  obtained an  exclusive  right to
market a dietary  supplement in the United  States for three years.  The Company
agreed to pay  approximately  $60,000 for this right.  The agreement  allows the
Company to recover this fee through  discounts on  inventory  purchased  through
December 31, 1997. The license fee was amortized on a  straight-line  basis over
the three year period of the  contract  and was fully  amortized at December 31,
1997.   Amortization  expense  in  1997  and  1996,  was  $20,000  and  $32,700,
respectively.  In January 1998,  this  agreement was extended until December 31,
1998,  including the right of first refusal to reobtain its exclusive  marketing
rights during this period. The Company is required to order additional inventory
of  approximately  $15,000 by March 31, 1998,  under the terms of this agreement
extension.  The Company  paid  approximately  $5,500 in January 1998 toward this
obligation.

     In May  1996,  the  Company  entered  into an  agreement  with  Diversified
Corporate  Consulting Group, L.C., an unrelated  company,  to provide consulting
services  to be  completed  within 12 months.  In  return,  the  Company  issued
Diversified  110,110  shares of the Company's  common stock, a quantity equal to
10% of all then outstanding common stock, in lieu of document licensing fees and
of  required  cash  payments  for up to an  aggregate  of 130  hours  of  hourly
consulting and licensing fees.

     The Company  entered into an  agreement  with  Cyclops h. f.  (Cyclops),  a
company located in Reykjavik, Iceland, in May 1996 to secure limited exclusivity
to certain  inventions  embodied in patents  owned by Cyclops for the purpose of
creating  an  organization  that  would   commercialize   products  using  those
inventions.  In consideration,  the Company agreed to share equally with Cyclops
the  net  profits  derived  from  products  commercialized  by  the  Company  or
affiliates of the Company that use the inventions. This agreement expired in May
1997.

     In  April  1997,  the  Company  entered  into an  agreement  with  Atlantic
Syndication Network, Inc. (ASNI) for the production of a half hour premier cable
program.  The Company  paid $2,500 in 1997 to reserve  production  time and also
issued to ASNI 10,000 shares of the Company's  voting common stock.  The Company
also  granted ASNI an option to purchase up to 25,000  shares of its  non-voting
common  stock at a purchase  price of $1 per  share,  within one year of May 31,
1997. As of December 31, 1997, no stock options had been exercised.

     The Company has other  commitments  related to various  stock  offerings as
discussed in Note 12.

(3) EMPLOYEE STOCK PLANS:

     During 1994,  the Company  adopted a  nonqualified  employee stock issuance
plan to provide incentives to employees.  Stock issued under this plan is at the
discretion  of the Board of  Directors  of the Company  and bears a  restrictive
legend.  All shares  issued  pursuant to this Plan must be held for a minimum of
two years and become fully vested after five years. During the three year period
beginning  on the first day of the third year  after  issuance  and ending  five
years after  issuance,  the Company shall purchase all or any part of the shares
from the employee upon the employee's written request; the purchase price of the
shares shall be 50% of the then current market value of the shares.

                                     F-10
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

(3) EMPLOYEE STOCK PLANS:  (Continued)

     In December  1994, the Company issued 25,000 shares to employees for future
services under this plan. The Company valued the 25,000 shares at $37,500, which
was  approximately  50% less  than the bid  price at the date of  issuance.  The
quoted  market  price was not used to value the stock  since the stock  does not
trade  freely in an  established  market  and,  thus,  a market  price could not
accurately be established.  The Company recorded the $37,500 as stock issued for
future services,  which was classified as a reduction to stockholders' equity in
the accompanying  financial  statements.  The Company amortized this amount over
five years on the  straight-line  basis,  the  estimated  benefit  period of the
future services.

     On June 30, 1997, all of the remaining employees holding stock issued under
the employee stock  issuance plan noted above,  terminated  employment  with the
Company. At that time, the remaining  unamortized amount of the stock issued for
future services was charged to expense.

     The Company  expensed  $18,500 and $5,750 under the stock issuance plan for
the years ended December 31, 1997 and 1996, respectively.

     Effective November 15, 1995, the Company adopted an employee stock purchase
plan. Under this plan,  employees may purchase shares of Company stock up to the
amount of their gross pay for the period.  These shares will be restricted  from
sale for two years; therefore, they will be sold to employees at 50% of the most
recent  trading price at the date of purchase.  Under the plan, the Company sold
3,800 shares to employees in 1996.  These shares were all issued on September 6,
1996 and the plan was terminated.

     Had  compensation  cost for the Company's  employee stock purchase plan and
stock-  based  compensation  plan been  determined  based on a fair value at the
grant dates for awards under this plan  consistent  with the method  outlined in
FASB  Statement No. 123, the Company's  1996 net income and net income per share
would have been the proforma amounts indicated below:

<TABLE>
<CAPTION>
                                                              1996
           <S>                 <C>                         <C>
           Net income          As reported                 $    215,451
                               Proforma                    $    206,176

           Net income
           Per share           As reported                 $        .19
                               Proforma                    $        .18
</TABLE>

                                     F-11
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

(4) OTHER COMMON STOCK TRANSACTIONS:

     On April 26, 1996, the Company resolved to authorize the issuance of 16,000
shares  of  voting  common  stock to Rick  Strattan,  President,  as a bonus for
services  rendered to the Company.  These shares were issued on August 15, 1996,
and  valued at $9,000,  which was 50% less than the market  price at the date of
issuance.  The  quoted  market  price was not used to value the stock  since the
stock does not trade freely in an  established  market and, thus, a market price
could not accurately be established.

     On April 21,  1996,  the  Company  amended its  Articles  of  Incorporation
whereby the number of voting shares  authorized  was increased from 5,000,000 to
10,000,000. In addition, non-voting common shares were created. The total amount
of non- voting common shares authorized is 10,000,000.

(5) COMMON STOCK SUBJECT TO REPURCHASE:

     As  described  in Note 3 above,  the  Company  established  a  nonqualified
employee  stock  issuance  plan in 1994,  and issued  shares  under this plan in
December,  1994.  Also,  as noted  above,  the stock  issued  under this Plan is
redeemable  by the  Company  at the option of the  employee,  at 50% of the then
current market value or the employees  termination date. The employee can demand
redemption at any time during a three year period  beginning on the first day of
the third year after issuance and ending five years after issuance.

     The Company has  reserved  100,000 of its  10,000,000  voting  common stock
shares authorized to be used under this Plan.

     The common stock subject to repurchase is reflected on the balance sheet at
50% of  the  market  value  as of  the  balance  sheet  date  or  the  employees
termination  date.  Changes  in the  redemption  amount  are  recognized  in the
accompanying Statement of Operations as "Gain (loss) due to change in redemption
price on common stock subject to repurchase."

     Common stock subject to repurchase activity comprises the following:

<TABLE>
<CAPTION>
                                                        1997           1996
          <S>                                        <C>            <C>
          Balance, beginning of year                 $    7,813     $    6,250
          Common stock issued                              -              -
          Common stock redeemed                            -              -
          Expiration of repurchase obligation            (6,250)          -
          Market changes in redemption price               (158)         1,563
          Balance, end of year                       $    1,405     $    7,813
</TABLE>

     No shares have been  repurchased by the Company through  December 31, 1997.
The  Company's  obligation to  repurchase  the remaining  5,000 shares of common
stock expires in 1999.

                                     F-12
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

(6) CONCENTRATIONS OF CREDIT RISK:

     Significant  concentrations  of credit risk for all  financial  instruments
owned by the Company, are as follows:

(a)  DEMAND DEPOSITS--The  Company has demand deposits in two local branch banks
     which are  insured  by the  Federal  Deposit  Insurance  Corporation  up to
     $100,000.  At December 31, 1997, the bank balance was $14,219.  The Company
     has no policy of  requiring  collateral  or other  security  to support its
     deposits.

(b)  ACCOUNTS  RECEIVABLE--The  Company's accounts receivable consist of amounts
     due primarily from food and  pharmaceutical  companies located primarily in
     the United States. The Company has no policy requiring  collateral or other
     security to support its accounts receivable.

(7) MAJOR CUSTOMERS AND SUPPLIERS:

     Sales to two  customers  in 1997  consisted of  approximately  58% of total
sales. Of this, sales to one major customer were  approximately  $130,000 or 35%
of sales, and sales to another major customer were approximately  $87,000 or 23%
of sales. The aggregate  accounts  receivable  balances at December 31, 1997 for
the two major customers were $16,400.  Sales to four customers in 1996 consisted
of  approximately  71% of total sales. Of this, sales to one major customer were
approximately  $80,000 or 23% of sales, and sales to another major customer were
approximately $120,000 or 35% of sales.

     The Company currently purchases all its inventory of Garlessence, a dietary
supplement, from one supplier.

(8) NOTES PAYABLE:

     The Company currently has a $25,000  line-of-credit  with a bank, which was
reduced from $52,500, the limit at December 31, 1996. Interest is due monthly at
prime plus 2%  (currently  10.5%).  The Company  owes  approximately  $14,000 at
December  31,  1997,  which  is due in  full  on  March  1,  1998.  The  line is
collateralized by accounts receivable and inventory.

     The Company also entered  into a $25,000  line-of-credit  with another bank
during 1997. The monthly minimum payment is calculated  based on the outstanding
balance.  The interest rate varies  monthly at prime plus 3% (currently  11.5%).
The Company owes approximately $10,000 at December 31, 1997. The credit line can
be canceled and payment of the outstanding  amount due can be required on demand
by the bank at anytime.

                                     F-13
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

(9) JOINT VENTURES:

     In March 1997,  the Company  entered into a joint  venture  agreement  with
Jurox PTY  Limited  (Jurox),  an  unrelated  company,  in order to develop a new
product.  According to the agreement, each party shall be separately responsible
for their own costs for the development of the product,  then the Company agrees
to provide the developed  product to Jurox at the cost to manufacture  plus 10%.
Jurox  agrees  to pay the  Company  royalties  on net  sales of the  product  as
follows:

          5% of net sales for the first  year of sales,  4% of net sales for the
          second year of sales, and 3% of net sales for a further 8 years.

No transactions have taken place as of December 31, 1997.

     Effective May 1, 1995, the Company  entered into a joint venture  agreement
with Ocumed, Inc. (Ocumed), an unrelated company. The joint venture is organized
as Ocudex,  Inc. (Ocudex) with the Company and Ocumed each owning 50% of Ocudex.
The Company has advanced  Ocudex  $51,000 as of December  31, 1997.  The Company
accounts for its  investment in the Ocudex joint venture using the equity method
of accounting  whereby its  investment is carried at cost,  including  advances,
adjusted for the Company's share of earnings and losses. The Company reduced its
investment in the joint venture to zero at December 31, 1997, due to uncertainty
as to recovery of these amounts.

     Following is a summary of the financial  position and results of operations
of Ocudex:

<TABLE>
<CAPTION>
                                                         1997          1996
         <S>                                          <C>           <C>
         Cash                                         $       160   $     719
         Equipment                                         28,000      28,000
         Other assets                                       1,652       1,932
         Total assets                                 $    29,812   $  30,651

         Advances from stockholder                    $    51,000   $  51,000
         Common stock                                       1,000        1,000
         Stockholders' deficit                            (22,188)     (21,349)
         Total liabilities and stockholders' deficit  $    29,812   $   30,651

         Sales                                        $     -       $     -

         Net loss                                     $      (840)  $  (18,338)

         Company's proportionate share of loss        $      (420)  $   (9,169)
</TABLE>
                                     F-14
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

(10) FAIR VALUE OF FINANCIAL INSTRUMENTS:

     Statement of Financial  Accounting Standards No. 107 requires disclosure of
fair  value to the  extent  practicable  for  financial  instruments  which  are
recognized or unrecognized in the balance sheet. The fair value of the financial
instruments  disclosed  herein is not necessarily  representative  of the amount
that could be realized or settled,  nor does the fair value amount  consider the
tax  consequences of realization or settlement.  The following table  summarizes
financial  instruments  by  individual  balance sheet account as of December 31,
1997:

<TABLE>
<CAPTION>
                                                       CARRYING         FAIR
                                                        AMOUNT          VALUE
         <S>                                          <C>            <C>
         FINANCIAL ASSETS:
          Cash and cash equivalents                   $    8,331     $    8,331
          Investments                                     17,596         17,596
          Accounts receivable                             41,536         41,536
              Total financial assets                  $   67,463     $   67,463

          FINANCIAL LIABILITIES:
           Lines of credit                            $   23,879     $   23,879
           Accounts payable and accrued expenses          39,693         39,693
               Total financial liabilities            $   63,572     $   63,572
</TABLE>

     The fair value of investments  are determined  from quoted market prices at
year  end.  The fair  value of all other  financial  instruments  classified  as
current assets or liabilities  approximates carrying value due to the short-term
maturity of the instruments.

(11) INCOME TAXES:

     At December 31, 1995,  the Company had a net  operating  loss  carryforward
totaling  approximately  $1,322,000 to be offset  against  future taxable income
through  2010.  However,  no tax benefit was  recognized  in the 1995  financial
statements because  management  believed there was greater than a 50% chance the
carryforward would expire unused.  Accordingly,  the expected tax benefit of the
loss carryforward was offset by a 100% valuation allowance.

     In 1996, the Company had taxable income that utilized  approximately $4,000
of the carryforward  from prior years.  Because of the Company's  performance in
1996 and  anticipated  profitability  in the  future,  management  determined  a
valuation  allowance  equal to 50% of the future tax  benefit  was  appropriate.
Accordingly,  an income tax benefit in the net amount of $229,350 was recognized
to reflect this change in the allowance.

     During  1997,  management  reevaluated  the  effective  tax  rate  used  to
calculate the Company's  deferred tax asset and determined that 15%, rather than
34%, was a more appropriate  effective tax rate. Management also reevaluated its
valuation  allowance and  determined a valuation  allowance of 10% of the future
tax  benefit  was  appropriate.  The net  result  of these  reevaluations  was a
reduction of the income tax benefit in the amount of $12,325.

                                     F-15
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

(11)    INCOME TAXES:  (Continued)

     The  Company  recorded  an income tax benefit of $32,975 for the year ended
December  31,  1997,  reflecting  the  future  benefit of the  current  year net
operating  loss,  net of the 10%  valuation  allowance.  The  valuation  account
decreased $166,925 during 1997 as a result of the above changes.

     At  December  31,  1997,  the Company  has  recorded  $250,000 in total net
deferred tax assets  reflecting the benefit of  approximately  $1,475,000 in net
operating  loss  carryforwards  that may be offset against future taxable income
through 2012. Realization depends on generating sufficient taxable income before
the expiration of the loss carryforwards.  Although  realization is not assured,
management  believes  it is more  likely  than not that  ninety  percent  of the
deferred  tax asset will be  realized  based on prior  results  and  anticipated
profitability  in the future.  The amount of the deferred  tax asset  considered
realizable,  however,  could be reduced in the near term if  estimates of future
taxable income during the carryforward period are reduced.

The income tax benefit consists of the following components:

<TABLE>
<CAPTION>
                                                        1997          1996
      <S>                                            <C>           <C>
      Current income taxes                           $     -       $       650

      Effect of decrease in effective tax rate          183,325           -
      Effect of decrease in valuation allowance        (171,000)          -
      Tax benefit of current year loss                  (37,050)          -
      Increase in valuation allowance                     4,075           -
      Tax benefit from change in deferred tax
       asset valuation allowance related to
      prior years net operating loss carryforward          -          (230,000)

      Total net benefit                             $   (20,650)  $   (229,350)
</TABLE>

(12) DEFERRED OFFERING COSTS:

     The  Company has  deferred  certain  costs  associated  with the  following
offerings of common stock:

PROPOSED 1996 STOCK OFFERING

     Effective  February  5,  1996 the  Company  filed  Form  SB-2  Registration
Statements with the Securities and Exchange Commission for a proposed securities
offering of 250,000  shares of common stock and 125,000  common  stock  purchase
warrants  with  a  combined  proposed  maximum   aggregate   offering  price  of
$1,250,500. This offering expired in April 1997.

     In  January  1996,  the  Company  entered  into an  agreement  with  Geller
International  Associates  (Geller),  an unrelated  company,  to provide various
public relation services. In return, the Company agreed to pay Geller $2,000 per
month plus out-of-pocket  expenses with the first three months being guaranteed.
In  addition,  the Company  agreed to pay Geller 1% of net moneys  received as a
result of Geller's  efforts to secure funding for the current  public  offering.
The

                                     F-16
<PAGE>

                   CYCLODEXTRIN TECHNOLOGIES DEVELOPMENT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

(12) DEFERRED OFFERING COSTS:  (Continued)

     total amount paid to Geller under this agreement was $10,461.  In addition,
Rick Strattan, president of the Company, gave Geller $6,000 worth of the Company
stock on behalf of the  Company to provide  the above  mentioned  services.  The
value of the stock given was recorded as a  contribution  to the Company.  Since
all of the services performed by Geller  represented  activities for the purpose
of promoting the 1996 public offering,  the total consulting fees paid and stock
issued to Geller in 1996 were deferred at December 31, 1996.  These amounts were
expensed  in 1997.  The  agreement  with  Geller was  canceled at the end of the
initial three months.

     On January 1, 1996,  the  Company  resolved to issue  48,000  shares of its
common stock to various unrelated  parties for services  performed in connection
with the Company's anticipated selfunderwritten stock offering. Furthermore, two
of these  parties  acknowledged  that in the  event the  gross  proceeds  of the
offering were less than $500,000,  then one-half of their shares  (20,000) would
be returned to the Company.  The shares were issued with a  restrictive  legend.
The Company valued the 48,000 shares at $12,000 which is approximately  50% less
than the bid price at the date of issuance. The quoted market price was not used
to value the  stock  since the  stock  does not trade  freely in an  established
market. Of these shares,  47,000 were issued on August 19, 1996. The other 1,000
shares, valued at $250, were not issued.

     Since all the costs associated with these shares were directly attributable
to the proposed  offering,  they were classified as deferred charges at December
31, 1996. In addition, all other specific incremental professional fees incurred
in 1996 which were clearly and directly  attributable to the Company's effort to
obtain equity financing were deferred. The total amount deferred during 1996 was
$127,531.  These deferred  professional  costs were to be offset against the net
proceeds of the  offering.  Since no proceeds  were  received from the offering,
these deferred  offering costs and any additional 1997 offering costs related to
this offering were expensed  during the year ended December 31, 1997. The amount
expensed  was reduced by $2,500 for the value of 10,000  shares of common  stock
returned by an advisor as described above.

PROPOSED 1998 STOCK OFFERING

     On  October  14,  1997,  the  Company  entered  into a  financial  services
agreement with an unrelated company for financial consulting services related to
raising additional capital.  Under this agreement,  the Company issued an option
for 600,000 shares of the Company's  common stock with an exercise price of $.25
per share,  which is less than 50% of the market  price on the date the  parties
agreed to the terms of the  agreement.  The quoted  market price was not used to
value the stock since the stock does not trade freely in an  established  market
and, thus, a market price could not accurately be established.  The Company also
agreed to pay the consultant $85,000 in installments of $20,000 in October 1997,
and $5,000  each month  thereafter  until  November  1998.  The Company had paid
$30,000 as of December 31, 1997.  The agreement is cancelable by either party by
giving sixty days notice.

     As the Company is  currently  preparing  for a private  placement  to raise
additional  capital in 1998, the costs under this agreement and the direct costs
of preparing a business plan have been classified as deferred charges. The total
amount  deferred at December  31,  1997,  is $35,000.  These and any  additional
deferred  costs will be offset  against the net proceeds of the offering or will
be expensed upon the expiration of the offering.

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