SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-QSB
--------------------
CURRENT REPORT
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended September 30, 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.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 91-1985634
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
corporation or organization) Identification Number)
225 Oser Drive, Happaugue, NY 11788
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (631) 851-7000
--------------
Seashell Galleries, Inc., N/A and August 31st
--------------------------------------------------------------
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 November 15, 2001, there were 22,338,700 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 September 30, 2001........................ 2
Consolidated Statements of Operations for the three months
ended September 30, 2001 and September 30, 2000, the nine months
ended September 30, 2001 and September 30, 2000, and for the period
from May 28, 1999 (date of inception) to September 30, 2001................ 3
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2001 and September 30, 2000 and for the period from
May 28, 1999 (date of inception) to September 30, 2001..................... 4
Statement of Stockholders' Equity for the period ended
September 30, 2001......................................................... 5
Notes to Consolidated Financial Statements................................. 6
Management's Discussion and Analysis of Financial Conditions and
Results of Operations...................................................... 10
Signatures................................................................. 12
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 September 30, 2001, the related consolidated statements of operations and
cash flows for the three month periods ended September 30, 2001 and 2000 and for
the cumulative period from May 28, 1999 (date of inception) to September 30,
2001 and the related consolidated statement of stockholders' equity for the
three month period ended September 30, 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
November 19, 2001
1
Cyfit Wellness Solutions, Inc. And Subsidiaries
( A Development Stage Company)
Consolidated Balance Sheet (Unaudited)
September 30,
2001
-----------
ASSETS:
Current Assets:
Cash $ 81,991
Other current assets 38,141
-----------
Total Current Assets 120,132
-----------
Property and equipment -[Net] 1,756,993
Website development costs 1,410,033
Internet website 150,000
Customer list and other intangibles - [Net] 276,724
Deferred advertising 500,000
Other assets 56,169
-----------
Total Assets $ 4,270,051
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 980,273
Accrued expenses and taxes 497,884
Notes payable 765,000
Capital leases payable - current portion 344,169
Deferred revenue 100,200
Convertible note 60,000
Due to related party 919,312
-----------
Total current liabilities 3,666,838
-----------
Capital leases payable 114,723
-----------
Total Liabilities 3,781,561
-----------
Commitments and contingencies --
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; 22,338,700 shares issued 22,338
Additional paid-in capital 8,395,976
Deferred compensation (152,600)
Deficit accumulated during development stage (7,777,224)
-----------
Total Stockholders' Equity 488,490
-----------
Total Liabilities and Stockholders' Equity $ 4,270,051
-----------
See notes to consolidated financial statements
2
Cyfit Wellness Solutions, Inc. And Subsidiaries
(A Development Stage Company)
Consolidated Statement Of Operations (Unaudited)
From
May 28, 1999
[Date of
Three Months Ended Nine Months Ended Inception] To
September 30 September 30 September 30,
2001 2000 2001 2000 2001
------------ ------------ ------------ ------------ ------------
Revenues $ 50,438 $ 292,084 $ 282,445 $ 899,268 $ 1,387,457
------------ ------------ ------------ ------------ ------------
Operating Expenses:
Compensation and related benefits 67,285 188,482 395,585 610,352 1,523,426
Occupancy cost 124,279 44,331 310,740 309,086 1,093,878
Contract work -- 13,282 122,526 143,088 281,914
Consulting fees 9,799 18,307 60,321 118,593 281,790
Advertising and promotion 122,700 35,849 206,426 195,807 652,973
Professional fees 21,223 20,999 111,789 172,247 365,466
General and administrative expenses 31,972 62,427 284,141 406,264 1,266,846
Asset impairment charge 404,056
Loss on sale of subsidiary 61,995
Research and product development 285 28,418 28,515 380,773 1,404,089
Reverse acquisition costs under recapitalization 300,000 300,000
Depreciation and amortization 125,584 170,076 376,752 510,227 1,090,447
Stock based compensation 121,500 287,750
Interest and bank charges 8,995 5,189 75,423 44,700 150,051
------------ ------------ ------------ ------------ ------------
Total Operating Expenses 512,122 587,360 2,393,718 2,891,137 9,164,681
------------ ------------ ------------ ------------ ------------
Net Loss ($ 461,684) ($ 295,276) ($ 2,111,273) ($ 1,991,869) ($ 7,777,224)
------------ ------------ ------------ ------------ ------------
Basic and Fully Diluted Loss per Common Share ($ 0.02) ($ 0.01) ($ 0.10) ($ 0.09)
------------ ------------ ------------ ------------
Weighted Average Number of Shares 22,591,300 21,213,700 22,215,400 21,213,700
------------ ------------ ------------ ------------
See notes to consolidated financial statements
3
Cyfit Wellness Solutions, Inc. And Subsidiaries
(A Development Stage Company)
Consolidated Statements Of Cash Flows (Unaudited)
From
May 28, 1999
[Date of
Nine Months Ended Inception] To
September 30 September 30
2001 2000 2001
----------- ----------- -----------
Operating Activities:
Net Loss ($2,111,273) ($1,991,869) ($7,777,224)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 376,352 510,227 1,090,047
Reverse acquisition costs under reverse merger 300,000 300,000
Loss on sale of subsidiary 61,995
Stock based compensation 184,000 350,250
Asset impairment charge 404,056
Other (90,915) 13,226
Changes in operating assets and liabilities:
(Increase) decrease in note receivable 50,000 (50,000) 0
(Increase) decrease in other assets 39,925 21,184 (31,206)
Increase in accounts payable 354,423 163,275 956,089
Increase in deferred revenues 125,000 100,200
Increase (decrease) in accrued expenses and taxes 112,881 (8,083) 367,782
----------- ----------- -----------
Net Cash - Operating Activities (784,607) (1,230,266) (4,164,785)
----------- ----------- -----------
Investing Activities:
Acquisition of property and equipment (827,401) (1,031,048) (3,422,338)
----------- ----------- -----------
Financing Activities:
Proceeds from issuance of common and preferred stock, net 1,803,684 5,541,978
Advances from related parties 785,681 60,000 919,312
Proceeds from convertible note 60,000 60,000
Increase in notes payables, net 765,000 350,000 1,115,000
Increase (decrease) of capital lease obligations 81,098 (30,487) 32,824
Net Cash - Financing Activities 1,691,779 2,183,197 7,669,114
----------- ----------- -----------
Net Increase (Decrease) In Cash 79,771 (78,117) 81,991
Cash - beginning of periods 2,220 96,670 0
----------- ----------- -----------
Cash - end of periods $ 81,991 $ 18,553 $ 81,991
----------- ----------- -----------
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest $ 50,000 $ 32,900 $ 103,000
----------- ----------- -----------
Noncash Financing Transactions:
Stock based compensation $ 210,000
Capitalized lease obligations incurred $ 215,000
See notes to consolidated financial statements
4
Cyfit Wellness Solutions, Inc. And Subsidiaries
(A Development Stage Company)
Statement Of Stockholders' Equity
For The Period Ended September 30, 2001
PREFFERED STOCK COMMON STOCK PAID IN TREASURY DEFERRED
----------------------------------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK COMPENSATION
----------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 2000 4,125,750 $ 413 13,774,250 $ 1,374 $ 8,423,692 ($299,250) ($ 215,000)
Conversion of preferred stock into
common shares (4,125,750) (413) 4,125,750 413
Recapitalization adjustment (See Note 1) -- -- 3,313,700 19,426 (320,591) 299,250 --
----------- ----------- ----------- ----------- -----------
Adjusted totals after recapitalization -- -- 21,213,700 21,213 8,103,101 -- (215,000)
Stock options granted for services
rendered 100,000
Stock based compensation 1,125,000 1,125 108,875
Issuance of below market employee stock
options 84,000
Amortization of deferred compensation 62,400
Net loss
BALANCE - September 30, 2001 22,338,700 $ 22,338 $ 8,395,976 -- $ (152,600)
----------- ----------- ----------- ----------- -----------
DEFICIT ACCUMULATED
DURING
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY
------------------- -------------
BALANCE - DECEMBER 31, 2000 ($ 5,665,951) $ 2,245,278
-----------
Conversion of preferred stock into
common shares 0
Recapitalization adjustment (See Note 1) -- (1,915)
------------ -----------
Adjusted totals after recapitalization (5,665,951) 2,243,363
Stock options granted for services
rendered 100,000
Stock based compensation 110,000
Issuance of below market employee stock
options 84,000
Amortization of deferred compensation 62,400
Net loss (2,111,273) (2,111,273)
-----------
BALANCE - September 30, 2001 $ (7,777,224) $ 488,490
------------ -----------
See notes for consolidated financial statements
5
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 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 therefore.
For accounting purposes, the Agreement is being recorded as a recapitalization
of Cyfit, with Cyfit as the acquirer. The 20, 630,550 shares issued on March 1,
2000 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.
6
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 September 30,
2001and the results of its operations for the three and nine months ended
September 30, 2001 and 2000. These consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
together with management's discussion and analysis of financial condition and
results of operations contained in the Company's Form 8-K for the year ending
December 31, 2000. The results of operations for the three and nine months ended
September 30,2001 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.
(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 nine months ended June 30, 2001.
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.
(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.
7
During the nine and twelve months ended September 30,2000 and December 31, 2000
the Company recorded revenues of of approximately $350,000 and $432,000,
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 term of the issued stock
options are for a period of five years. The term of the issued stock options are
for a period of five years. 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. The estimated fair value of
the options amounted to approximately $100,000, determined using the Black
Scholes Model, for services rendered during the six months ended September 30,
2001. These costs have been capitalized as part of website development costs in
the balance sheet at September 30, 2001.
(6) Going Concern
The Company's consolidated financial statements are prepared in conformity with
generally accepted accounting principles 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 latter stage of the fourth quarter of year 2001.
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
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.
8
(7) Capital Raising
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.
9
Cyfit Wellness Solutions, Inc.
Management's Discussion and Analysis of Financial Conditions and Results of
Operations
Three Months Ended September 30, 2001 and 2000
The Company's revenues, derived from its Health and Fitness Center, during the
three-month period ended September 30, 2001 amounted to approximately $50,400
versus $292,100 for the same period in the prior year. The decrease of $241,700
from revenues primarily results from the sale of one of two Health and Fitness
Centers in December 2000. Total operating expenses decreased by approximately
$75,300 from $587,400 to $512,100, due to various efforts by management, off-set
by higher advertising and promotion fees.
As a result of the foregoing, the Company incurred a net loss of approximately
$461,700 or $0.02 per share (basic and fully diluted) for the three-month period
ended September 30, 2001 compared to a net loss of $295,300 or $0.01 per share
(basic and fully diluted) for the three-month period ended September 30, 2000.
Nine Months Ended September 30, 2001 and 2000
The Company's revenues, derived from its Health and Fitness Center, during the
nine-month period ended September 30, 2001 amounted to approximately $282,400
versus $899,300 for the same period in 2000. The decline in revenues of
approximately $497,460 primarily resulted from the sale of one of two Health and
Fitness Centers in December 2000. Total operating expenses decreased by
approximately $497,400 from $2,891,100 to $2,393,700 due to lower costs
previously discussed offset by one-time merger-related costs of $300,000 related
to the Company's recapitalization, effective March 1, 2001.
As a result of the foregoing, the Company incurred a net loss of approximately
$2,111,300 or $0.10 per share (basic and fully diluted) for the nine-month
period ended September 30, 2001 compared to a net loss of $1,991,900 or $0.09
per share (basic and fully diluted) for the nine-month period ended September
30, 2000.
Liquidity and Capital Resources
During the nine months ended September 30, 2001, cash used by operating
activities approximated $785,000. 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 fourth quarter 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 money. The
Company signed a contract with a major NYSE investment firm to raise $2.5
million in a private placement to be completed within 90-120 days of September
30, 2001.
10
The Company is continuing to negotiate repayment terms with various debtors and
vendors until such time as the Company obtains its capital needs. In the
interim, management continues to principally fund the day-to-day operations.
While currently in the final stages of implementation of its wellness product,
the Company's management has completed quality assurance testing in the third
quarter and anticipates launching in the fourth quarter of 2001. Management
expects sales of the wellness product to commence in the fourth quarter 2001. At
the time of launch, the Company intends to finalize pending sales contracts,
which will generate revenues that the Company has been securing over the past
year. The Company also intends to implement marketing programs to promote the
awareness of its wellness services.
11
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.
November 19, 2001 By: /s/ EUGENE FERNANDEZ
-------------------------------
Eugene Fernandez
President
12