SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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CURRENT REPORT
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from_____ to _____
Commission File Number 0-32117
CYFIT WELLNESS SOLUTIONS, INC.
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(Exact name of registrant as specified in its charter)
Nevada 91-1985634
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(State or other jurisdiction of (I.R.S. Employer
corporation or organization) Identification Number)
225 Oser Drive, Happaugue, NY 11788
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (631) 851-7000
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Seashell Galleries, Inc., N/A and August 31st
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
As of the close of business on August 15, 2001, there were 21,713,700 shares
of the Registrant's Common Stock outstanding.
CYFIT WELLNESS SOLUTIONS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors................................................1
Consolidated Balance Sheet as of March 31, 2001...............................2
Consolidated Statements of Operations for the three months
ended March 31,2001 and March 31,2000 and for the period from
May 28, 1999 (date of inception) to March 31, 2001............................3
Consolidated Statement of Stockholders' Equity for the three
months ended March 31, 2001 ................................................4-5
Consolidated Statements of Cash Flows for the three months ended
March 31, 2001 and March 31, 2000 and for the period from May 28,
1999 (date of inception) to March 31, 2001....................................6
Notes to Consolidated Financial Statements....................................7
INDEPENDENT ACCOUNTANT'S REPORT
To the Stockholders and Board of Directors of
Cyfit Wellness Solutions, Inc.
Hauppauge, New York
We have reviewed the accompanying consolidated balance sheet
of Cyfit Wellness Solutions, Inc. and its subsidiaries (a development stage
company) as of March 31, 2001, the related consolidated statements of operations
and cash flows for the three month periods ended March 31, 2001 and 2000 and for
the cumulative period from May 28, 1999 (date of inception) to March 31, 2001
and the related consolidated statement of stockholders' equity for the three
month period ended March 31, 2001. These consolidated financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying consolidated financial
statements referred to above for them to be in conformity with generally
accepted accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
August 15, 2001
Cyfit Wellness Solutions, Inc. And Subsidiaries
( A Development Stage Company)
Consolidated Balance Sheet (Unaudited)
March 31, 2001
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ASSETS:
Current Assets:
Cash $ 12,543
Note receivable 50,000
Other current assets 38,066
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Total Current Assets 100,609
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Property and equipment -[Net] 1,798,494
Website development costs 860,033
Internet website 150,000
Customer list and other intangibles - [Net] 348,190
Deferred advertising 500,000
Other assets 51,169
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Total Assets $ 3,808,495
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 785,064
Accrued expenses and taxes 402,243
Note payable 300,000
Capital leases payable - current portion 246,842
Deferred revenue 100,200
Due to related party 308,693
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Total current liabilities 2,143,042
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Capital leases payable 146,379
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Total Liabilities 2,289,421
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Commitments and contingencies (Note 7)
Stockholders' Equity:
Preferred stock; par value $.001, 1,000,000 shares
authorized, no shares issued and outstanding
Common stock; par value $.001, 49,000,000 shares
authorized; 20,880,550 shares issued 20,881
Additional paid-in capital 8,297,433
Deferred compensation (194,200)
Deficit accumulated during development stage (6,605,040)
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Total Stockholders' Equity 1,519,074
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Total Liabilities and Stockholders' Equity $ 3,808,495
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See notes to consolidated financial statements
2
Cyfit Wellness Solutions, Inc. And Subsidiaries
(A Development Stage Company)
Consolidated Statement Of Operations (Unaudited)
From
Three Months Ended May 28, 1999
March 31 [Date of Inception]
---------------------------- To March 31,
2001 2000 2001
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Revenues $ 128,397 $ 327,821 $ 1,233,409
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Operating Expenses:
Compensation and related benefits 160,615 229,462 1,288,456
Occupancy cost 72,326 109,909 855,464
Contract work 51,733 57,365 211,121
Consulting fees 24,722 34,822 246,191
Advertising and promotion 54,727 52,471 501,274
Professional fees 47,423 74,976 301,100
General and administrative expenses 110,382 134,729 1,093,087
Asset impairment charge 404,056
Loss on sale of subsidiary 61,995
Research and product development 12,000 42,264 1,387,574
Depreciation and amortization 124,584 170,076 838,279
Reverse acquisition costs under recapitalization 300,000 300,000
Stock based compensation 84,000 250,250
Interest and bank charges 24,975 7,730 99,603
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Total Operating Expenses 1,067,486 913,804 7,838,449
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Net Loss ($ 939,089) ($ 585,983) ($ 6,605,040)
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Basic and Fully Diluted Loss per Common Share ($ 0.05) ($ 0.03)
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Weighted Average Number of Shares 20,758,050 20,630,550
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See notes to consolidated financial statements
3
Cyfit Wellness Solutions, Inc. And Subsidiaries
(A Development Stage Company)
Statement Of Stockholders' Equity
For The Period Ended March 31, 2001 And
For The Period MAY 28, 1999
(Date Of Inception) T0 March 31, 2001
ADDTL
PREFFERED STOCK COMMON STOCK PAID IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
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BALANCE - DECEMBER 31, 2000 4,125,750 $ 413 13,774,250 $ 1,374 $ 8,423,692
Conversion of preferred
stock into common shares (4,125,750.00) (413.00) 4,125,750.00 413.00
Recapitalization adjustment -- -- 2,730,550 18,844 (320,009)
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Adjusted totals after
recapitalization -- -- 20,630,550 20,631 8,103,683
Stock options granted
for services rendered 100,000
Issuance of common stock
for advertising & promotion 250,000 250 9,750
Issuance of below market
employee stock options 84,000
Amortization of deferred
compensation
Net loss
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BALANCE - MARCH 31, 2001 -- -- 20,880,550 $ 20,881 $ 8,297,433
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DEFICIT
ACCUMULATED
DURING TOTAL
TREASURY DEFERRED DEVELOPMENT STOCKHOLDERS'
STOCK COMPENSATION STAGE EQUITY
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BALANCE - DECEMBER 31, 2000 $ (299,250) $ (215,000) $ (5,665,951) $ 2,245,278
Conversion of preferred
stock into common shares 0
Recapitalization adjustment 299,250 -- -- (1,915.00)
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Adjusted totals after
recapitalization -- (215,000) (5,665,951) 2,243,363
Stock options granted
for services rendered 100,000
Issuance of common stock
for advertising & promotion 10,000
Issuance of below market
employee stock options 84,000
Amortization of deferred
compensation 20,800 20,800
Net loss (939,089) (939,089)
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BALANCE - MARCH 31, 2001 -- $ (194,200) $ (6,605,040) $ 1,519,074
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See notes for consolidated financial statements
5
Cyfit Wellness Solutions, Inc. And Subsidiaries
(A Development Stage Company)
Consolidated Statements Of Cash Flows (Unaudited)
Three Months Ended From May 28,1999
March 31 [Date of Inception]
-------------------------- To March 31,
Operating Activities: 2001 2000 2001
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Net Loss ($ 939,089) ($ 585,983) ($6,605,040)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 124,584 170,076 838,279
Acquisition costs under reverse merger 300,000 300,000
Loss on sale of subsidiary 61,995
Stock based compensation 84,000 250,250
Asset impairment charge 404,056
Other 23,884 128,025
Changes in operating assets and liabilities:
(Increase) decrease in note receivable (50,000)
Decrease in other assets 50,000 (21,131)
Increase in accounts payable 159,214 51,820 760,880
Increase in deferred revenues 100,200
Increase in accrued expenses and taxes 17,240 (27,892) 272,141
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Net Cash - Operating Activities (180,167) (391,979) (3,560,345)
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Investing Activities:
Acquisition of property and equipment (77,993) (2,594,937)
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Financing Activities:
Proceeds from issuance of common and preferred stock, net 374,607 5,541,978
Advances from related parties 175,062 308,693
Proceeds fron note payable 350,000
Payment of capital lease obligations (48,274)
Other 15,427 0 15,427
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Net Cash - Financing Activities 190,489 374,607 6,167,824
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Net Increase (Decrease) In Cash 10,322 (95,369) 12,542
Cash - beginning of periods 2,220 96,670 0
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Cash - end of periods $ 12,542 $ 1,305 $ 12,542
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Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest $ 20,000 $ 7,700 $ 73,000
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Noncash Financing Transactions:
Stock based compensation - website development costs $ 100,000
Assumption of note payable in connection with recapitalization $ 300,000
See notes to consolidated financial statements
6
Cyfit Wellness Solutions, Inc. and Subsidiaries
[A Development Stage Company]
Notes to Consolidated Financial Statements
(1) Description and Nature of Company Operations
Effective March 1, 2001, Sea Shell Galleries, Inc. (the "Registrant") acquired
approximately 85% of the shares of outstanding common stock of Cyfit Wellness
Solutions, Inc. and subsidiaries ("Cyfit") pursuant to a share exchange
agreement dated February 23, 2001 among the Registrant, Cyfit and holders of 85%
of the common stock of Cyfit (the "Agreement"). As a result of the share
exchanges pursuant to the Agreement, the Registrant issued 17,930,550 shares of
its common stock in exchange for a like amount of shares of Cyfit surrendered by
Cyfit shareholders. Prior to the closing, and as a condition there to 11,950,000
shares of common stock of the Registrant were returned to the Registrant for
cancellation, which reduced the number of outstanding shares to 2,700,000. In
addition, all of the Registrant's Class A and Class B warrants were cancelled.
Thus as of March 1, 2001 there were 20,630,550 shares of common stock of the
Registrant outstanding. Management believes that most if not all of the
remaining shareholders of Cyfit will exchange their shares, for shares of the
Registant in the near future. If all the remaining outstanding shares of Cyfit
are exchanged by their holders, an additional 2,469, 450 will be issued by the
Registrant in exchange therefor.
For accounting purposes, the agreement is being recorded as a recapitalization
of Cyfit, with Cyfit as the acquirer. The shares issued are treated as being
issued for cash and are shown as outstanding for all periods presented in the
same manner as a stock split.
The consolidated financial statements prior to March 1, 2001 reflect the results
of operations and financial position of Cyfit.Pro forma information on this
transaction is not presented as, at the date of this transaction, Sea Shell
Galleries is considered a public shell and accordingly, the transaction will not
be considered a business combination. On June 21, 2001 Sea Shell Galleries, Inc.
amended its articles of incorporation to change its name to Cyfit Wellness
Solutions, Inc. The Registrant's OTCBB trading symbol was changed to CYFT.
The Company is engaged in providing internet health and wellness services to
improve its members fitness, diet and wellness of the body. The Company's
business model anticipates recurring revenue with low fixed costs through a
subscription based membership. The Company plans on providing precedent-setting
Internet services to its customer base [corporations, unions, associations] and
end-user subscriber base in a "real-time", online, interactive environment.
Since its inception, the Company has devoted substantially all of its efforts to
business planning, website development, recruiting management and technical
staff and raising capital. Accordingly, the Company is considered to be in the
development stage as defined in Statement of Financial Accounting Standards
("SFAS") No.7.
In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the financial position of the Company as of March 31, 2001 and
the results of its operations for the three months ended March 31, 2001 and
2000. These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes contained in the Company's Form
8-K for the year ending December 31, 2000. The results of operations for the
three months ended March 31,2001 are not necessarily indicative of the results
for the entire year or any future interim period.
(2) Summary of Significant Accounting Policies
The accounting policies followed by the Company are set forth in Note 2 to the
Company's consolidated financial statements included in the Company's Form 8-K
for the year ended December 31, 2000.
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Earnings per share is based on the weighted average number of shares outstanding
for the periods presented, reflecting the shares issued under the Agreement as
outstanding for all periods presented.
(3) Note Payable
On January 27, 2001 the Company assumed a promissory note in the amount of
$300,000 as part of the consideration under the recapitalization (see Note 1).
The Note bears interest at a rate of 8 percent per annum and matures on June
30,2001. Management is negotiating to extend the repayment terms to a later
date.
These recapitalization costs have been expensed as part of the consolidated
statement of operations for the three months ended March 31, 2001.
(4) Sale of Subsidiary
On December 7, 2000 the Company sold one of its two health club facilities to a
stockholder of the Company. The consideration under the contract aggregated
approximately $650,000 which included the assumption of certain liabilities of
approximately $260,000 by the buyer and the forgiveness of a promissory note in
the amount of $350,000. The Company realized a loss on the disposal of the
subsidiary of approximately $62,000.
During the three and twelve months ended March 31,2000 and December 31, 2000 the
Company recorded revenues of of approximately $233,000 and $800,000,
respectively, from this health club facility which is included as part of the
consolidated statement of operations.
(5) Stock Based Compensation
On March 23, 2001 the Company granted 400,000 of stock options to certain key
employees. The exercise price is $0.10 and is discounted from a fair market
value of approximately $0.31 at the date of grant. The Company recorded a stock
based compensation charge in the first quarter of 2001 of $84,000 attributable
to the stock option discount.
During the year ended December 31, 2000, the Company entered into various
consulting agreements to render services principally related to ("the
Agreement") the completion of its subscription based website. For stock options
as defined under the Agreement, the Company had to adopt the stock option plan,
on or before March 31, 2001, which the Company did. These options will expire,
five years from the signing of the Agreement. The estimated fair value of the
options amounted to approximately $100,000, determined using the Black Scholes
Model, for services rendered during the three months ended March 31, 2001. These
costs have been capitalized as part of website development costs in the balance
sheet at March 31, 2001.
(6) Going Concern
The Company's consolidated financial statements are prepared in conformity with
generally accepted accounting principles, which contemplates the realization of
assets and settlements of liabilities in the normal course of business and
continuation of the Company as a going concern. The Company has incurred a net
loss of approximately $3.9 and $1.7 million for the year ended December 31, 2000
and for the period May 28, 1999 [date of inception] to December 31, 1999. The
Company has utilized approximately $2.0 million and $1.4 million in cash during
operations for the year ended December 31, 2000 and for the period May 28, 1999
[ date of inception] to December 31, 1999. It is anticipated this trend will
continue since minimal revenue recognition is planned to be realized until the
internet web site is completed. During the fourth quarter of year 2001, the
Company's business model anticipates minimal subscription based revenue derived
from the use of its web site.
The inability of the Company to generate cash from operations, considering
currently available funds, creates uncertainty about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern. The Company plans to raise additional capital proceeds to fund
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the completion of its website, general working capital purposes and sustain
development stage operations during the year 2001. In addition, management
continues to implement various cost savings programs. The continuation of the
Company as a going concern is dependant upon the success of these plans.
(7) Subsequent Events
(A) On May 29, 2001, the Company executed a promissory note (the "Note") in the
amount of $500,000 for services rendered in years 2000 and 2001 related to the
development of its website. The principal and interest shall be due as follows:
(i) $150,000 plus accrued interest due and payable on June 30, 2001, (ii)
$200,000 plus accrued interest shall be due and payable on July 31,2001 and
(iii) $150,000 plus accrued interest shall be due and payable on August 15,2001.
The Company has not made any payments under the terms of the Agreement and as
such is in default. Interest accrues at the rate of 10 percent per annum.
Substantially all property and equipment has been pledged under the Agreement.
Management is negotiating to extend the repayment terms of the Note until such
time as additional capital proceeds are raised.
(B) On July 26, 2001 the Company entered into an investment advisory services
agreement with an investment banking firm (the "Agreement") for a three year
period. Under the Agreement , the parties agree that the investment banking firm
shall act as the selected dealer in organizing a private placement on behalf of
the Company in an aggregate amount of $2.5 million which shall be set forth in a
selling agreement to be completed within forty five days from the execution of
this Agreement.
As an inducement to enter into the Agreement the Company agrees to pay certain
quarterly fees as defined and to issue certain warrants at an exercise price of
$0.10 per share for a period of five years commencing on the date of issuance.
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Cyfit Wellness Solutions, Inc.
Management's Discussion and Analysis of Financial Conditions and Results of
Operations
Three Months Ended March 31, 2001 and 2000
The Company's revenues, derived from its Health & Fitness Center, during the
three-month period ended March 31, 2001 totaled approximately $128,400. This
reflected a decrease of approximately $199,400 from the revenues earned in the
three-month period ended March 31, 2000. This decrease was a result of the sale
of one of its two Health & Fitness Centers in December 2000. Total operating
expenses increased by approximately $153,700, from $913,800 to $1,067,500, due
to the absorption of one-time merger costs ($300,000) related to the Company's
recapitalization, effective March 1, 2001. These merger costs were offset by
lower operating costs that resulted from the sale of the fitness center and
other cost-containment measures implemented by management.
As a result of the foregoing, the Company incurred a net loss of approximately
$939,000 or $0.05 per share (basic and diluted) for the three-month period ended
March 31, 2001 compared to a net loss of $586,000 or $0.03 per share (basic and
diluted) for the three-month period ended March 31, 2000.
Liquidity and Capital Resources
During the three months ended March 31, 2001, cash used by operating activities
approximated $180,200. Due to the difficult capital market conditions, the
Company is continually seeking various sources of capital to complete the final
stage of its product development and fund day-to-day operations. The Company
anticipates that it will continue to incur losses during the second and third
quarters of 2001. If the Company is unable to find additional capital sources,
it may have to further reduce its operations or cease operations.
Management is in negotiations with various underwriters to raise $2.5 million.
The Company is in the process of negotiating repayment terms with various
debtors and vendors until such time as a capital infusion occurs.
While currently in the process of building its wellness product, the Company's
management anticipates the launch of its product in the fourth quarter of 2001.
It expects sales of the wellness product to commence early in the fourth
quarter. At the time of launch, management will also be able to execute existing
sales contracts, which will bring in additional revenues that the company has
been securing over the past year.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CYFIT WELLNESS SOLUTIONS, INC.
August 17, 2001 By: /s/ EUGENE FERNANDEZ
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Eugene Fernandez
President
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