UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2001 Commission File Number 0-109659
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CITA BIOMEDICAL, INC.
(Exact name of registrant as specified in its charter)
COLORADO 93-0962072
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9025 Wilshire Blvd. Suite 301, Beverly Hills, CA 90211
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(Address of principal executive offices) (Zip code)
(310) 550-4965
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report.)
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 _________
-
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.01 par value 37,881,028
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Class Number of shares outstanding at Sep. 30, 2001
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed consolidated balance sheet, September 30, 2001 (Unaudited)......3
Condensed consolidated statements of operations, three and nine months
September 30, 2001 (Unaudited) and 2000 (Unaudited).....................4
Condensed consolidated statements of cash flows, nine months ended
September 30, 2001 (Unaudited) and 2000 (Unaudited).....................5
Notes to condensed consolidated financial statements (Unaudited)..........6
Item 2. Management's Discussion and Analysis.............................8
Part II - Other Information...............................................9
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures...............................................................12
FORM 10-QSB
3RD QUARTER
CITA BIOMEDICAL, INC.
PART I. Item 1. FINANCIAL INFORMATION
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CITA BIOMEDICAL, INC.
Condensed Consolidated Balance sheet
(Unaudited)
September 30, 2001
Assets
Current assets:
Cash............................................. $ 294,970
Employee advances................................ 4,500
Prepaid expenses................................. 19,969
-----------------------------
Total current assets 319,439
Property and equipment, net.......................... 630,809
Intangible assets, net............................... 723,213
Deposits............................................. 35,739
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$ 1,709,200
=============================
Liabilities and Shareholder's Deficit
Current liabilities:
Accounts payable and accrued liabilities......... $ 1,743,154
Line of credit................................... 95,009
Short-term loans................................. 350,804
Advances payable to officer (Note B)............. 142,454
-----------------------------
Total current liabilities 2,331,421
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Shareholder's deficit (Note D):
Preferred stock.................................. 896,444
Common stock..................................... 346,530
Additional paid-in capital....................... 7,077,436
Stock options.................................... 183,770
Deferred compensation............................ (137,979)
Accumulated deficit.............................. (8,988,422)
-----------------------------
Total shareholder's deficit (622,221)
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$ 1,709,200
=============================
See accompanying notes to unaudited
condensed consolidated financial statements
CITA BIOMEDICAL, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
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2001 2000 2001 2000
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Sales and revenues, net $ 96,000 $ 25,250 $ 295,483 $ 238,141
Cost of sales and revenues (58,560) (18,017) (185,245) (160,492)
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Gross profit 37,440 7,233 110,238 77,649
Operating expenses:
General and administrative 507,588 284,962 1,806,170 675,478
Depreciation 107,852 31,711 327,508 92,337
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Total operating expenses 615,440 316,673 2,133,678 767,815
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Loss from operations (578,000) (309,440) (2,023,440) (690,166)
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Interest expense (1,745) - (5,075) -
Gain on accounts payable write off - - 32,233 -
Interest income 1,571 170 14,384 396
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Loss before income taxes (578,174) (309,270) (1,981,898) (689,770)
Provision for income taxes - - - -
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Net loss $ (578,174) (309,270) $(1,981,898) $(689,770)
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Basic and diluted loss per common share $ (0.02) $ (0.03) $ (0.06) $ (0.08)
=================================================================================
Basic and diluted weighted average 35,808,200 10,322,382 32,400,702 8,618,569
common shares outstanding
=================================================================================
See accompanying notes to unaudited
condensed consolidated financial statements
CITA BIOMEDICAL, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
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2001 2000
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Net cash used in operating activities $ (1,110,522) $ (690,655)
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Cash flows from investing activities:
Payments for web site development.. - (232,962)
Patent............................ - -
Equipment purchases................ (4,219) (5,911)
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Net cash used in investing activities (4,219) (238,873)
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Cash flows from financing activities:
Proceeds from line of credit...... 95,009 -
Proceeds from sale of common stock 1,102,735 1,063,607
Repayment of officer's advances (Note
B)........................... (75,647) -
Proceeds from working capital
advances........................... - 413,061
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Net cash provided by financing activities 1,122,097 1,476,668
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Net change in cash................. 7,356 547,140
Cash, beginning of period.......... 287,614 -
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Cash, end of period $ 294,970 $ 547,140
======================================================
Supplemental disclosure of cash flow information: Cash paid during the
period for:
Interest.......................... $ - $ -
======================================================
Income taxes...................... $ - $ -
======================================================
See accompanying notes to unaudited
condensed consolidated financial statements
CITA BIOMEDICAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note A: Basis of presentation
The condensed consolidated financial statements presented herein have been
prepared by the Company in accordance with the accounting policies in its annual
10-KSB report dated December 31, 2000 and should be read in conjunction with the
notes thereto.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary to provide a fair presentation of
operating results for the interim periods presented have been made. The results
of operations for the periods presented are not necessarily indicative of the
results to be expected for the year.
Interim financial data presented herein are unaudited.
The Company emerged from the development stage during the year ended December
31, 2000.
Note B: Related party transactions
During the nine months ended September 30, 2001, the Company repaid an officer
$75,647 related to working capital previously advanced to the Company. As of
September 30, 2001, the remaining balance owed to the officer totaled $142,454,
which is included in the accompanying condensed consolidated balance sheet as
advances payable to officer.
Note C: Income taxes
The Company records its income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". The Company incurred net operating losses during
the nine months ended September 30, 2001 resulting in a deferred tax asset,
which was fully allowed for by a valuation allowance; therefore, the net benefit
and expense resulted in $-0- of income taxes.
Note D: Stockholders' Deficit
During the nine months ended September 30, 2001, the company sold 10,480,335
shares of its $.01 par value common stock for $1,102,735. ($.10 per share).
Note D: Shareholders' Deficit, continued
Preferred Stock Common Stock
--------------- ------------ Paid-in Stock Deferred Accumulated
Shares Amount Shares Par Value Capital Options Compensation Deficit Total
------ ------ ------ --------- ------- ------- ------------ ------- -----
Balance, January
1, 2001........ 1,000 $896,444 24,172,621 $241,727 $6,079,504 $183,770 $(137,979) $(7,006,524) $256,942
Sale of common
stock ($.10 per
share)...... - - 10,480,335 104,803 997,932 - - - 1,102,735
Net loss for
the nine
months ended
Sept. 30,
2001....... - - - - - - - (1,981,898) (1,981,898)
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1,000 $896,444 34,652,956 $346,530 $7,077,436 $183,770 $(137,979) $(8,988,422) $(622,221)
Balance, September
30, 2001
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PART I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001 the Company had cash of $294,970. During the six
months ended September 30, 2001, the Company repaid an officer $75,647 related
to working capital previously advanced to the Company. All of such money was
repaid during the first six months of 2001. The Company anticipates financing
its operations from net cash flow from operations and third party financing. The
Company intends to explore all options available to it with respect to such
potential financing.
RESULTS OF OPERATIONS
Revenue
The Company's net revenues for the nine months ended September 30, 2001
were $295,483 compared to $238,141 for the nine months ended September 30, 2000.
Essentially all of this revenue was derived from procedures performed by
physicians licensed to perform the Company's patented UROD(R) process. Of such
revenue, $96,000, or 32 percent, was derived from operations in the three months
ended September 30, 2001. Net revenues for the three months ended June 30, 2001
were $142,030. Although revenues increased during the third quarter relative to
the same time period in 2000, revenues decreased by 33% between the second and
third quarters of 2001. Although, a portion of this decrease is attributable to
ordinary seasonal decreases such as the Company has experienced annually since
it began licensing the UROD procedure, the bulk of the decrease is due to the
Company's inability to effectively market the UROD procedure resulting from a
severe cash shortage.
Cost of Revenue
The Company's cost of revenues for the three months ended September 30,
2001 was $58,560, compared to $88,360 during the second quarter of 2001. The
resulting gross profit for the third quarter was $37,440, for a gross profit
margin of 39 percent. The gross profit for the three months ended June 30, 2001
was $53,670, for a gross profit margin of approximately 38 percent. Despite the
decrease in revenues during the third quarter, the Company was able to maintain
approximately the same gross profit margin relative to the second quarter by
aggressively managing its costs, including staff reductions.
The Company's cost of revenues for the nine months ended September 30,
2001 was $185,245 compared to $160,492 for the nine months ended September 30,
2000. This resulted in a gross profit of $110,238 for the nine months ended
September 30, 2001, for a gross profit margin of approximately 37 percent. The
gross profit for the nine months ended September 30, 2000 was $77,649, for a
gross profit margin of approximately 33 percent.
Other Operating Expenses
General and administrative expenses for the three months ended
September 30, 2001 were $507,588 compared to $728,399 for the three months ended
June 30, 2001. The reduction was due primarily to cost savings achieved by the
Company through staff reductions.
General and administrative expenses for the nine months ended September
30, 2001 were $1,806,170 compared to $675,478 for the nine months ended
September 30, 2000. The increase of $1,130,692 occurred principally as a result
of increases in the Company's employee base in late 2000 and early 2001.
The Company incurred depreciation and amortization expenses of $327,508
for the nine months ended September 30, 2001 as compared to $92,337 for the nine
months ended September 30, 2000. This increase is due primarily to the fact that
the Company commenced amortizing its web site development costs on January 1,
2001. Depreciation and amortization expenses for the three months ended
September 30, 2001 were $107,852, compared to $109,828 for the three months
ended June 30, 2001.
The sum of the above resulted in a net loss of $1,981,898 for the nine
months ended September 30, 2001 as compared to a net loss of $689,770 for the
nine months ended September 30, 2000. The net loss recorded for the third
quarter of 2001 was $578,174, compared to a net loss of $748,284 for the second
quarter of 2001.
FINANCIAL CONDITION
The Company has experienced losses since 1994, and expenses continue to
exceed revenues. Despite additional capital raised through the sale of shares of
the Company's Common Stock, the Company's financial statements show a negative
net worth for the period ended September 30, 2001. Although the Company has
agreed in principle to the terms of an agreement to purchase technology which
will permit the Company to enter new markets, in the aggregate, these financial
indicators raise substantial doubt about the Company's ability to continue as a
going concern.
The Company is actively pursuing new operating centers and alliances
with other organizations in the addiction treatment field, which management
believes will provide positive working capital. In addition, the Company has
settled a longstanding dispute with the previous owners of the UROD technology,
and has negotiated to acquire certain technology for treatment of persons
addicted to nicotine through smoking. The Company believes that these two
factors will make the Company more attractive to prospective investors and
business partners. There is no assurance, however, that outside parties will
share this view, or that the Company will be successful in raising sufficient
additional capital to capitalize on the opportunities presented.
PART II - OTHER INFORMATION
This report contains certain forward-looking statements (as such term is defined
in Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934) with respect to future events, the outcome of which is
subject to certain risks.
Item 1: LEGAL PROCEEDINGS - DISPUTE WITH AVIATION INDUSTRIES, INC.
The Company has settled a dispute arising from the 1998 transaction pursuant to
which the Company acquired its now wholly-owned subsidiary, CITA Americas, Inc.,
together with the UROD process for rapid opiate detoxification. Following
completion of that transaction, the Company learned that certain material
misrepresentations had been made regarding, among other things, the existence of
a patent on the UROD process. Such misrepresentations caused the Company to
expend considerable resources to prosecute the patent, which was ultimately
obtained in August, 2000, and to pursue infringers of the patent.
Pursuant to the 1998 transaction, the seller of CITA Americas, Inc., Aviation
Industries Inc., received 1,000 shares of the Company's Series A Preferred
Stock. Such stock was convertible into up to 2,200,000 shares of Common Stock.
In addition, the holders of such stock had the right to elect two members of the
Company's Board of Directors, although such right was never exercised.
Pursuant to the settlement agreement, the parties have agreed that the Company
will cancel the shares of Series A Preferred Stock issued to Aviation
Industries, and will issue to Aviation Industries 400,000 shares of the
Company's Common Stock. The parties further released one another from all
further liabilities, known and unknown, relating to the sale of CITA Americas,
Inc. and the UROD technology.
The Company believes that resolution of this dispute will free it to pursue new
business opportunities more easily. In particular, the settlement resolves
lingering questions as to the potential dilution to shareholders resulting from
conversion to Common Stock of the Series A Preferred Stock held by Aviation
Industries. The settlement will also permit the Company to propose persons for
election by shareholders to the Board of Directors without concern for the Board
of Director seats formerly reserved for election by the Series A Preferred
Stock.
Item 2. Sales of Securities.
During the nine months ended September 30, 2001, the Company sold 10,480,335
shares of its Common Stock for an aggregate price of $1,207,539.
The securities were offered and sold pursuant to Regulation S under Section 4(2)
of the Securities Act of 1933, as amended, to private individuals outside the
United States. No underwriter was engaged in connection with the offer or sale
of the securities.
Item 3 - 4: No response required.
Item 5: Other Information
ACQUISITION OF ALTERNATIVE TOBACCO PRODUCTS, INC.
The Company has reached an agreement in principle to acquire
Alternative Tobacco Products, Inc. ("AltPro"), a developer of products to assist
individuals addicted to nicotine from cigarettes and other tobacco-related
products. The acquisition will expand the Company's range of substance
dependence treatments into the area of nicotine dependence. The company
anticipates that AltPro's current nicotine treatments and tobacco alternatives
will, subject to the Company's ability to obtain sufficient capital to promote
the AltPro products, have an impact on the Company's revenues while
simultaneously giving the Company an entree into a vast new market for
tobacco-cessation products. The U.S. market for nicotine dependence treatments
and products is currently estimated at $5 Billion. Worldwide, the Company
estimates that the market could exceed $25 Billion.
Founded in 1985 and incorporated in 2000, AltTPro is a provider of innovative,
patented proprietary treatments for nicotine dependence. AltTPro currently
offers products under the names CigArrest(R) and Smokers Choice(R), and has
treated over 3.5M users worldwide.
The Company will continue to offer AltPro products through existing sales
channels as well as CubeCentral.com, CITA's Web-based community portal. The
portal was created to provide a host of products, support and services designed
to aid addicts and recovering addicts, as well as family, friends and
professionals, who may be affected by addiction and addiction recovery. AltPro's
President and CEO, John Bancroft, will become an employee of the Company, and
will lead the Company's efforts in the nicotine addiction treatment market.
The Company will need to obtain significant outside capital in order to market
the AltPro products to any significant degree, or to develop additional products
based on AltPro's proprietary technology. The Company is currently in discussion
with potential funding sources, and although there can be no guarantee that any
of these discussions will result in funding to the Company sufficient to support
development of the opportunities presented by the AltPro acquisition, the
Company is hopeful that the AltPro acquisition will enhance the Company's
prospects and facilitate capital raising activities.
The Company and AltPro are currently working to complete certain administrative
measures prior to closing the transaction, and estimate that the transaction
should be complete within 90 days. The parties believe that all necessary
actions will be completed in timely fashion, and intend to proceed in the
interim as if the transaction had been completed.
Item 6 - Exhibits and reports on Form 8-K.
(a) No exhibits provided.
(b) The Company filed no reports on Form 8-K during the nine months ended
September 30, 2001.
SIGNATURES
The financial information furnished herein has not been audited by an
independent accountant; however, in the opinion of management, all adjustments
(only consisting of normal recurring accruals) necessary for a fair presentation
of the results of operations for the three and nine months ended September 30,
2001 and 2000 have been included.
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITA Biomedical, Inc.
(Registrant)
DATE: November 19, 2001 BY:/s/Joseph Dunn
---------------------------
Joseph Dunn
President, Chief Executive Officer
and Chief Financial Officer