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 the transition period from
July 1, 1998 to September 30, 1998 Commission File Number 0-109659
CITA BIOMEDICAL, INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
COLORADO 93-0962072
_______________________________ _________________________________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9025 Wilshire Blvd., Suite 301, Los Angeles, California 90211
_______________________________________________________ __________
(Address of principal executive offices) (Zip code)
(310) 550-4965
____________________________________________________
(Registrant's telephone number, including area code)
Southwestern Environmental Corp. 1801 Century Park East,
25th Floor,Los Angeles, CA 90067
_____________________________________________________
(Former name, former address and
former fiscal year, if changed since last report.)
Indicate by check 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 _____ No __X___
Indicate 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 7,766,662
_____________________________ ______________________________
Class Number of shares outstanding
at April 20, 1999
This document is comprised of 11 pages.
<PAGE>
FORM 10-QSB
TRANSITION PERIOD FROM JULY 1, 1998 TO SEPTEMBER 30, 1998
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements *
Condensed consolidated balance sheet as of
September 30, 1998 (Unaudited) 3
Condensed consolidated statements of operations -
three and nine months ended
September 30, 1998 and 1997 (Unaudited) 4
Condensed consolidated statements of cash flows -
nine months ended September 30, 1998 and 1997 (Unaudited) 5
Notes to condensed consolidated financial statements (Unaudited) 6
Item 2. Plan of operation 10
PART II - OTHER INFORMATION 11
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 11
* The accompanying financial statements are not covered by an independent
Certified Public Accountant's report.
-2-
<PAGE>
Part I. Item 1. Financial information
CITA BIOMEDICAL, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
September 30, 1998
ASSETS
<TABLE>
<S> <C>
CASH ............................................................... $ 5,619
OTHER NON-CURRENT ASSETS .................................................. 13,891
PATENT RIGHTS ............................................................. 2,303,400
-----------
TOTAL ASSETS $ 2,322,910
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued liabilities ............................... 116,245
-----------
TOTAL LIABILITIES 116,245
-----------
SHAREHOLDERS' EQUITY
Preferred stock $.10 par value, convertible
(stated at liquidation preference of $2,200
per share), authorized 4,000,000 shares,
issued 1,000 shares ....................................... 2,200,000
Common stock at $.01 par value
authorized 18,000,000 shares, issued 7,766,662 shares ................. 77,667
Additional paid-in capital ............................................... 3,772,475
Retained deficit ......................................................... (3,843,477)
-----------
TOTAL SHAREHOLDERS' EQUITY 2,206,665
-----------
$ 2,322,910
===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
-3-
<PAGE>
CITA BIOMEDICAL, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------------ -----------------------------------
1998 1997 1998 1997
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUE....................................... $ 60,950 - $ 60,950 -
COST OF REVENUES.............................. 26,685 - 26,685 -
---------------- ---------------- --------------- ---------------
GROSS PROFIT.................................. 34,265 - 34,265 -
Expenses
Officers' compensation...................... 6,000 - 30,000 -
General and administrative.................. 68,839 5,208 70,379 15,623
Interest.................................... 2,781 4,229 7,550 12,687
---------------- ---------------- --------------- ---------------
Net Income (Loss)............................. $ (43,355) $ (9,437) $ (73,664) $ (28,310)
================ ================ =============== ===============
Basic income (loss) per share................. $ (.02) $ (.04) $ (.07) $ (.11)
================ ================ =============== ===============
Basic weighted shares outstanding............. 2,766,662 266,662 1,099,995 266,662
================ ================ =============== ===============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
-4-
<PAGE>
CITA BIOMEDICAL, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 5,619 $ -
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................................... 5,619 -
Cash and cash equivalents,
beginning of period....................................... - -
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,619 $ -
=============== ===============
</TABLE>
Non-cash financing activities:
During the three months ended September 30, 1998 the Company converted a note
payable of $150,000 and related accrued interest of $49,038 to 4,200,000
unrestricted common shares.
See accompanying notes to unaudited condensed consolidated financial statements.
-5-
<PAGE>
CITA BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1998
Note A: Basis of presentation
The financial statements presented herein have been prepared by the Company in
accordance with the accounting policies in its annual 10-KSB report dated
September 30, 1997 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 period 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.
Note B: Related party transactions
During the three months ended September 30, the Company issued 2,200,000 shares
of its common stock, valued at $103,400 to the President for payment of finders'
fees related to the acquisition of CITA Americas, Inc. The transaction was
valued based on the conversion rate (.047 cents per share) of the Tanaka Capital
Limited note as described below. The amount has been recorded as part of the
purchase price.
The Board of Directors previously voted to compensate the President and
Secretary $2,000 per month each, commencing December 15, 1997 through the month
in which the Company closed on an acquisition. The Company closed on its
acquisition of CITA Americas, Inc. on August 12, 1998, therefore total accrued
compensation expense totaled $16,000 each. The amounts due to the officers at
August 12, 1998 were satisfied by the issuance of 200,000 shares of the
Company's restricted common stock to each of the officers.
During 1998, an affiliate of the Company acquired the Company's 7% $150,000 note
payable and accrued interest of $49,038 to Tanaka Capital Limited. The Company
converted the note to 4,200,000 shares of the Company's unrestricted common
shares. The shares were issued in two certificates of 2,100,000 shares each to
corporations owned or controlled by affiliates of the Company. One certificate
was issued on August 4, 1998, the other on October 8, 1998, both certificates
were issued on a "post-split" basis.
See Note D - Reverse stock split.
The terms of the promissory note included certain terms for conversion, such as
the conversion being subject to the stock becoming available pursuant to a vote
of the current shareholders to increase the capitalization of the Company.
Further the conversion was to be based on the average of certain market
quotations five days prior to the date of conversion discounted by 60%. To
negotiate the conversion of the note, dated June 21, 1994, which was due and
payable on June 21, 1995, management agreed to convert the note at approximately
.047 cents per share. The Company's common stock had been thinly traded and the
market prices during the period of negotiations were in management's opinion
negligible. The promissory note was originally issued as payment for the
Company's repurchase of 1,000,000 of its common shares that had been sold to
Tanaka Capital Limited for $50,000.
-6-
<PAGE>
CITA BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1998
Note B: Related party transactions continued
On September 20, 1998, the Company issued 200,000 shares of common stock to a
previous officer of the Company, who consulted with the Company on
reorganization and restructuring. The transaction was recorded at the cost of
the services which was $2,000.
On September 20, 1998, the Company issued 500,000 shares of common stock to an
affiliate who consulted with the Company on reorganization, restructuring, and
acquisition strategies and provided investment-banking services. The transaction
was recorded at the cost of the services which were $5,000. The affiliate also
was party to the transaction regarding the conversion of the Tanaka Capital
Limited note as described above.
Note C: Income taxes
The Company records its income taxes in accordance with Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes". Any deferred income
tax asset due to net operating losses is fully allowed for, as there is no
assurance that the Company will have future net income to utilize the operating
losses.
Should the Company undergo an ownership change as defined in Section 382 of the
Internal Revenue Code, the Company's tax net operating loss carryforwards
generated prior to the ownership change will be subject to an annual limitation
which could reduce or defer the utilization of these losses.
Note D: Reverse stock split
On December 15, 1997, the shareholders approved a reverse split of the
outstanding shares of common stock, one existing share for up to twenty new
shares of the Company. The reverse split was effective August 14, 1998, whereby
one share was exchanged for every fifteen shares outstanding. There was no
change in either the par value or the number of authorized common shares of the
Company. - See Note F, Shareholders' Equity
Note E: Acquisition of CITA Americas, Inc.
On August 12, 1998, the Company purchased all of the outstanding shares of
common stock of CITA Americas, Inc. from Aviation Industries, Inc. pursuant to a
Stock Purchase Agreement entered into in July 1998. The purchase was paid
through the issuance of non-voting .10 par value convertible preferred stock of
the Company with a liquidation value of $2,200,000. The president of the Company
received 2.2 million shares of the Company's restricted common stock, valued at
$103,400, in connection with the acquisition. CITA Americas, Inc. is a Nevada
corporation engaged in the investigation and treatment of addiction. In
conjunction with the purchase, the Company changed its name from Southwestern
Environmental Corp. to CITA Biomedical, Inc.
-7-
<PAGE>
CITA BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1998
Note E: Acquisition of CITA Americas, Inc. continued
The acquisition has been accounted for as a purchase. The only asset of CITA
Americas, Inc. as of the date of purchase were the pending patent rights to use
and exploit the CITA Method worldwide and all servicemarks used in connection
therewith, including UROD, CITA. The Company anticipates successful defense and
receipt of the patent. The purchase price of $2,200,000 along with the
acquisition costs of $103,400 have been fully allocated to the patent rights.
The costs assigned to the patent rights will be amortized on a straight-line
basis over the estimated useful life of the rights, which are approximately
seventeen years. The Company regularly reviews the recoverability of intangible
assets based on estimated undiscounted future cash flows from operating
activities compared with the carrying values of the intangibles. There can be no
certainty that the full amount of the recorded assets may be recovered.
CITA Americas, Inc. had received a total of approximately $61,500 of working
capital advances from the prior owner. Other than the $61,500 liability, no
other liabilities were known to management at the date of the Company's
acquisition of the outstanding stock of CITA Americas, Inc. The previous owner
of the CITA name, license and patent rights acquired by CITA Americas, Inc. had
incurred significant liabilities during the period prior to the patents rights
transfer to CITA Americas, Inc. The Company believes it has no legal
responsibility for those obligations, however in order to continue to do
business in good faith with certain vendors and medical facilities to whom the
previous owner was indebted, the Company may agree to pay certain liabilities
for which the Company anticipates reimbursement from the previous owner.
The Company has made no estimates with respect to future amounts that will be
due from the previous owner for payment of past-due obligations. As of September
30, 1998, the Company has paid approximately $5,300 of these prior obligations.
Those payments were charged against the amount due to the previous owner. The
net amount due to the previous owner of $56,300 is included in accounts payable.
Management anticipates reducing this amount as the Company pays prior
obligations of the previous owner.
In the event that any reimbursements, in excess of the $56,300 due to the
previous owner at September 30, 1998, are not made, the Company believes that a
re-negotiation of the $2,200,000 purchase price can be made.
-8-
<PAGE>
CITA BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1998
Note F: Shareholders' equity
The following is a summary of significant transactions and changes in
shareholders' equity at September 30, 1998.
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------- ----------------------- Additional Total
Liquidation Par Paid-in Retained (Deficit)
Shares Value Shares Value Capital Deficit Equity
-------- ----------- ---------- ------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, 6/30/98 - $ - 3,999,929 $40,000 $ 3,468,704 $(3,800,122) $ (291,418)
======== =========== ========== ======= ============ ============ =============
Restated for effect of
15:1 Reverse split - - 266,662 2,667 3,506,037 (3,800,122) (291,418)
Debt conversion 4,200,000 42,000 157,038 - 199,038
Acquisition of
CITA Americas 1,000 2,200,000 2,200,000 22,000 81,400 - 2,303,400
Issued for services - - 1,100,000 11,000 28,000 - 39,000
Net loss for three
Months ended
9/30/98 - - - - - (43,355) (43,355)
-------- ----------- ---------- ------- ------------ ------------ -------------
Balance, 9/30/98 1,000 $2,200,000 7,766,662 $77,667 $ 3,772,475 $(3,843,477) $ 2,206,665
======== =========== ========== ======= ============ ============ =============
</TABLE>
The 1,000 preferred shares have no voting rights, however they have a
liquidation preference of $2,200,000. The shares are convertible, at the option
of the holder, within one year of August 12, 1998 to common shares of the
Company valued at $2,200,000. Depending on the prevailing market value at the
time of conversion, such conversion could be substantially dilutive to current
shareholders.
Note G: Change in year-end
In conjunction with the Company's acquisition of CITA Americas, Inc., the board
of directors approved the change in the Company's fiscal year-end from September
30 to a calendar year end.
-9-
<PAGE>
Part I. Item 2. Plan of operation
CITA BIOMEDICAL, INC.
PLAN OF OPERATION
CITA Biomedical, Inc., (the "Registrant") the Center for the Investigation and
Treatment of Addiction, owns worldwide rights to its proprietary procedure
(patent pending) known as UROD or Ultra Rapid Opiate Detox ("UROD"). With UROD,
a person addicted to heroin, other opiate based drugs including narcotic
painkillers or methadone may be detoxified in a matter if 4 to 7 hours while
under a general anesthetic. The procedure is performed by CITA certified
anesthesiologists in a CITA approved and licensed hospital. Following the CITA
UROD procedure the patient embarks on a six-month medication and therapy regimen
that is the key to the 55 to 70% long-term success of remaining free of opiate
addiction. Traditional detox has a 7 to 15% long-term rate of success.
The plan of the Registrant's management, for the next twelve months, is to
operate its newly acquired subsidiary corporation, CITA Americas, Inc.,
profitably. In addition, management plans to seek additional operating centers
for its CITA method. As of April 28, 1999, the Registrant has signed agreements
with three centers. There is no assurance that the Registrant will be successful
in obtaining additional operating centers. Also, there is no assurance that the
merger with CITA Americas, Inc. will result in profitable operations.
RESULTS OF OPERATIONS
From December 1994 to August 12, 1998, the Company had been an inactive shell
company. Expenses incurred during that period have been related to legal,
accounting and stock transfer agent fees in order to provide stock transfer
services to current shareholders and to comply with reporting as required by the
Securities Exchange Act of 1934.
On August 12, 1998, The Company acquired all of the outstanding stock of an
operating company. The transaction was accounted for as a "Purchase". Under the
Purchase method, the operations of the Company and its newly acquired subsidiary
were consolidated beginning on the date of purchase.
Revenue from the Company's subsidiary CITA Americas, Inc. totaled $60,950 for
the period from August 12, 1998 through September 30, 1998, with related cost of
services of $26,685. The Company had no operations prior to August 12, 1998
FINANCIAL CONDITION
During the period from July 1 through September 30, 1998, the Registrant
liquidated certain liabilities with the issuance of common stock. The Registrant
converted a 7% $150,000 note payable and related accrued interest totaling
$49,038 to 4.2 million shares of unrestricted common stock. In addition, the
Company issued 400,000 shares of restricted common stock to its officers in
satisfaction of deferred compensation obligations totaling $32,000.
The Registrant has experienced losses since 1994 as a result of efforts to find
a suitable merger or acquisition candidate. Since its acquisition of CITA
Americas, Inc., and the commencing of operations, the Registrant has continued
to incur operating losses, and negligible cash flow from operations. Due to
liquidity problems, the Registrant has been unable to make timely payments to
certain creditors. As of September 30, 1998, the Company had past due trade
payables totaling $59,945. In the aggregate, these indicators raise substantial
doubt about the Registrant's ability to continue as a going concern.
Deferred payments have been negotiated with certain creditors and the Registrant
is actively pursuing new operating centers which management believes will
provide positive working capital. There is no assurance that new centers will be
obtained, or if acquired, that they will provide sufficient working capital.
-10-
<PAGE>
PART II - OTHER INFORMATION
Items 1 through 5 - No response required.
Item 6 - Exhibits and reports on Form 8-K.
(a) Exhibits
27* Financial Data Schedule.
(b) The Company filed no reports on Form 8-K during the three months
ended September 30, 1998.
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,
1998 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: April 30,1999 BY: /s/ Joseph Dunn
________________ _______________________________
Joseph Dunn
President, Chief Executive Officer and
Chief Financial Officer
DATE: April 30,1999 BY: /s/ Michael C. Hinton
________________ _______________________________
Michael C. Hinton
Secretary and Director
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CITABIOMEDICAL, INC. UNAUDITED BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND THE
RELATED STATEMENT OF INCOME FOR THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000700890
<NAME> CITA BIOMEDICAL, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 5,619
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,322,910
<CURRENT-LIABILITIES> 116,245
<BONDS> 0
0
2,200,000
<COMMON> 77,667
<OTHER-SE> (71,002)
<TOTAL-LIABILITY-AND-EQUITY> 2,322,910
<SALES> 60,950
<TOTAL-REVENUES> 60,950
<CGS> 26,685
<TOTAL-COSTS> 127,064
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,550
<INCOME-PRETAX> (73,664)
<INCOME-TAX> 0
<INCOME-CONTINUING> (73,664)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (73,664)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
