| þ | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| o | Transition report under Section 13 or 15(d) of the Exchange Act |
| Delaware | 20-0308891 | |
| (State or other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| Page | ||||||||
| Part I: Financial Information: | ||||||||
| Item 1 –Financial Statements (Unaudited): | ||||||||
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| Ex-31.1 Section 302 CEO Certification | ||||||||
| Ex-31.2 Section 302 CFO Certification | ||||||||
| Ex-32.1 Section 906 CEO Certification | ||||||||
| Ex-32.2 Section 906 CFO Certification | ||||||||
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| June 30, | December 31, | |||||||
| 2005 | 2004 | |||||||
| (unaudited) | ||||||||
Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 297,474 | $ | 512,299 | ||||
| U.S. Government Securities held in Trust Fund (Note 2) | 20,937,550 | 20,694,933 | ||||||
| Accrued interest receivable, Trust Fund (Note 2) | 62,901 | 51,064 | ||||||
| Prepaid expenses | 33,750 | 6,750 | ||||||
| Total current assets | 21,331,675 | 21,265,046 | ||||||
| Total assets | $ | 21,331,675 | $ | 21,265,046 | ||||
Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accrued expenses | $ | 29,561 | $ | 31,827 | ||||
| Common stock, subject to possible conversion, 804,598 shares at conversion value (Note 2) | 4,197,993 | 4,147,127 | ||||||
| Commitment (Note 5) | ||||||||
| Stockholders’ equity (Notes 2, 3, 6 and 7) | ||||||||
| Preferred stock, $.0001 par value, Authorized 1,000,000 shares; none issued | ||||||||
| Common stock, $.0001 par value Authorized 20,000,000 shares | ||||||||
| Issued and outstanding 4,900,000 shares (which includes 804,598 subject to possible conversion) | 490 | 490 | ||||||
| Additional paid-in capital | 17,216,617 | 17,267,483 | ||||||
| Deficit accumulated during development stage | (112,986 | ) | (181,881 | ) | ||||
| Total stockholders’ equity | 17,104,121 | 17,086,092 | ||||||
| Total liabilities and stockholders’ equity | $ | 21,331,675 | $ | 21,265,046 | ||||
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| Period from | ||||||||||||||||||||
| Three months | Three months | Six months | Six months | October 14, 2003 | ||||||||||||||||
| ended | ended | ended | ended | (inception) to | ||||||||||||||||
| June 30, 2005 | June 30, 2004 | June 30, 2005 | June 30, 2004 | June 30, 2005 | ||||||||||||||||
| Expenses: | ||||||||||||||||||||
| General and administrative expenses (Note 5) | $ | (127,627 | ) | $ | (77,229 | ) | $ | (185,138 | ) | $ | (223,481 | ) | $ | (594,106 | ) | |||||
| Operating loss | $ | (127,627 | ) | $ | (77,229 | ) | $ | (185,138 | ) | $ | (223,481 | ) | $ | (594,106 | ) | |||||
| Interest income | $ | 134,996 | $ | 72,985 | $ | 254,033 | $ | 95,911 | $ | 481,120 | ||||||||||
| Net income (loss) | $ | 7,369 | $ | (4,244 | ) | $ | 68,895 | $ | (127,570 | ) | $ | (112,986 | ) | |||||||
| Accretion of Trust Fund relating to common stock subject to possible conversion | 26,841 | 18,667 | 50,866 | 23,103 | ||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | (19,472 | ) | $ | (22,911 | ) | $ | 18,029 | $ | (150,673 | ) | |||||||||
| Basic and fully diluted income (loss) per share | $ | (.00 | ) | $ | (.00 | ) | $ | .00 | $ | (.04 | ) | |||||||||
| Weighted average common shares outstanding | 4,900,000 | 4,900,000 | 4,900,000 | 3,804,306 | ||||||||||||||||
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| Additional | Deficit accumulated | |||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | during the | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | development stage | Total | ||||||||||||||||||||||
| Balance, October 14, 2003 (inception) | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Sale of 875,000 shares of common stock to initial stockholders | — | — | 875,000 | 87 | 24,913 | — | 25,000 | |||||||||||||||||||||
| Net loss for the period | — | — | — | — | — | (147 | ) | (147 | ) | |||||||||||||||||||
| Balance, December 31, 2003 | — | — | 875,000 | 87 | 24,913 | (147 | ) | 24,853 | ||||||||||||||||||||
| Sale of 4,025,000 units and underwriter option, net of underwriters’discount and offering expenses (includes 804,598 shares subject to possible conversion) | — | — | 4,025,000 | 403 | 17,286,247 | — | 17,286,650 | |||||||||||||||||||||
| Accretion of Trust Fund relating to common stock subject to possible conversion | — | — | — | — | (43,677 | ) | — | (43,677 | ) | |||||||||||||||||||
| Net loss for the period | — | — | — | — | — | (181,734 | ) | (181,734 | ) | |||||||||||||||||||
| Balance, December 31, 2004 | — | — | 4,900,000 | 490 | 17,267,483 | (181,881 | ) | 17,086,092 | ||||||||||||||||||||
| Accretion of Trust Fund relating to common stock subject to possible conversion (unaudited) | — | — | — | — | (50,866 | ) | — | (50,866 | ) | |||||||||||||||||||
| Net income for the period (unaudited) | — | — | — | — | — | 68,895 | 68,895 | |||||||||||||||||||||
| Balance, June 30, 2005 (unaudited) | — | $ | — | 4,900,000 | $ | 490 | $ | 17,216,617 | $ | (112,986 | ) | $ | 17,104,121 | |||||||||||||||
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| Six months | Six months | October 14, 2003 | ||||||||||
| ended | ended | (inception) to | ||||||||||
| June 30, 2005 | June 30, 2004 | June 30, 2005 | ||||||||||
Cash Flows from Operating Activities | ||||||||||||
| Net income (loss) | $ | 68,895 | $ | (127,570 | ) | $ | (112,986 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||||||
| Gain on maturity of U.S. Government Securities held in Trust Fund | (239,588 | ) | — | (410,530 | ) | |||||||
| Changes in operating assets | (170,693 | ) | (127,570 | ) | (523,516 | ) | ||||||
| Increase in prepaid expenses | (27,000 | ) | (63,964 | ) | (33,750 | ) | ||||||
| Increase in accrued interest receivable | (11,837 | ) | (93,634 | ) | (62,901 | ) | ||||||
| Increase (decrease) in accrued expenses | (2,266 | ) | 776 | 29,561 | ||||||||
| Net cash used in operating activities | (211,796 | ) | (284,392 | ) | (590,606 | ) | ||||||
Cash Flows from Investing Activities | ||||||||||||
| Purchase of U.S. Government Securities held in Trust Fund | (41,743,029 | ) | (20,527,250 | ) | (103,591,020 | ) | ||||||
| Maturity of U.S. Government Securities held in Trust Fund | 41,740,000 | — | 83,064,000 | |||||||||
| Net cash used in investing activities | (3,029 | ) | (20,527,250 | ) | (20,527,020 | ) | ||||||
Cash Flows from Financing Activities | ||||||||||||
| Proceeds from public offering of 4,025,000 units, net | — | 21,487,715 | 21,487,815 | |||||||||
| Deferred registration costs | — | — | (97,715 | ) | ||||||||
| Proceeds from sale of shares of common stock to initial stockholders | — | — | 25,000 | |||||||||
| Proceeds from note payable, stockholder | — | 21,200 | 94,300 | |||||||||
| Repayment of note payable, stockholder | — | (94,300 | ) | (94,300 | ) | |||||||
| Net cash provided by financing activities | — | 21,414,615 | 21,415,100 | |||||||||
| Net increase (decrease) in cash and cash equivalents | (214,825 | ) | 602,973 | 297,474 | ||||||||
| Cash and cash equivalents at beginning of the period | 512,299 | 238 | — | |||||||||
| Cash and cash equivalents at end of the period | $ | 297,474 | $ | 603,211 | $ | 297,474 | ||||||
| Supplemental disclosure of non-cash activity: | ||||||||||||
| Accretion of Trust Fund relating to common stock subject to possible conversion | $ | 50,866 | $ | 23,103 | $ | 94,543 | ||||||
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| Three months | Three months | |||||||
| ended | ended | |||||||
| June 30, 2005 | June 30, 2004 | |||||||
Cash Flows from Operating Activities | ||||||||
| Net income (loss) | $ | 7,369 | $ | (4,244 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Gain on maturity of U.S. Government Securities held in Trust Fund | (131,521 | ) | — | |||||
| Changes in operating assets | (124,152 | ) | (4,244 | ) | ||||
| Decrease in prepaid expenses | 13,500 | 20,692 | ||||||
| Increase in accrued interest receivable | (2,199 | ) | (71,443 | ) | ||||
| Increase (decrease) in accrued expenses | 12,273 | (19,130 | ) | |||||
| Net cash used in operating activities | (100,578 | ) | (74,125 | ) | ||||
Cash Flows from Investing Activities | ||||||||
| Purchase of U.S. Government Securities held in Trust Fund | (20,937,550 | ) | — | |||||
| Maturity of U.S. Government Securities held in Trust Fund | 20,937,000 | — | ||||||
| Net cash used in investing activities | (550 | ) | — | |||||
Cash Flows from Financing Activities | ||||||||
| Proceeds from public offering of 4,025,000 units, net | — | — | ||||||
| Deferred registration costs | — | — | ||||||
| Proceeds from sale of shares of common stock to initial stockholders | — | — | ||||||
| Proceeds from note payable, stockholder | — | — | ||||||
| Repayment of note payable, stockholder | — | — | ||||||
| Net cash provided by financing activities | — | — | ||||||
| Net increase (decrease) in cash and cash equivalents | (101,128 | ) | (74,125 | ) | ||||
| Cash and cash equivalents at beginning of the period | 398,602 | 677,336 | ||||||
| Cash and cash equivalents at end of the period | $ | 297,474 | $ | 603,211 | ||||
| Supplemental disclosure of non-cash activity: | ||||||||
| Accretion of Trust Fund relating to common stock subject to possible conversion | $ | 26,841 | $ | 18,667 | ||||
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Cash & Cash Equivalents | The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. | |
Income Taxes | The Company follows Statement of Financial Accounting Standards No. 109 (“SFAS No. 109”), “Accounting for Income Taxes” which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. The Company has a net operating loss carryforward of approximately $113,000 available to reduce any future income taxes. The tax benefit of this loss, approximately $44,000, has been fully offset by a valuation allowance due to the uncertainty of its realization. | |
Net Income/(Loss ) Per Share | Basic net income/(loss) per share is calculated by dividing net income/(loss) by the weighted average number of common shares outstanding during each period. No effect has been given to potential issuances of common stock from warrants or the underwriter option in the diluted computation as the effect would not be dilutive. | |
Use of Estimates | The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. | |
Reclassification | Certain items have been reclassified from prior periods to conform with the current period presentation. |
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1. | Basis of Presentation | The accompanying financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-QSB. Accordingly, certain information and footnote disclosures normally included in audited financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements that were included in the Company’s Form 10-KSB for the year ended December 31, 2004. | ||
| In the opinion of management, all adjustments (consisting primarily of normal accruals) have been made that are necessary to present fairly the financial position of the Company. Operating results for the interim periods presented are not necessarily indicative of the results to be expected for a full year. | ||||
2. | Organization and Business Operations | The Company was incorporated in Delaware on October 14, 2003 as a blank check company, the objective of which is to acquire an operating business in the entertainment, media and communications industry. The Company’s initial stockholders purchased 875,000 common shares, $.0001 par value, for $25,000 on October 23, 2003. On February 19, 2004, the Company consummated an Initial Public Offering (“Offering”) and raised net proceeds of $21,390,100 which is discussed in Note 3. The Company’s management has broad discretion with respect to the specific application of the net proceeds of this Offering, although substantially all of the net proceeds of this Offering are intended to be generally applied toward consummating a business combination with a operating business in the entertainment, media and communications industry (“Business Combination”). Furthermore, there is no assurance that the Company will be able to successfully effect a Business Combination. An amount of $21,000,451 (which includes accrued interest of $62,901) is being held in an interest bearing trust account (“Trust Fund”) until the earlier of (i) the consummation of its first Business Combination or (ii) liquidation of the Company. Under the agreement governing the Trust Fund, funds will only be invested in United Stated government securities (treasury bills) with a maturity of 180 days or less. The remaining net proceeds (not held in trust) may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. |
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| The Company, after signing a definitive agreement for the acquisition of a target business, will submit such transaction for stockholder approval. In the event that public stockholders owning 20% or more of the shares sold in the Offering vote against the Business Combination and exercise their conversion rights described below, the Business Combination will not be consummated. All of the Company’s stockholders prior to the Offering, including all of the officers and directors of the Company (“Initial Stockholders”), have agreed to vote their 875,000 founding shares of common stock in accordance with the vote of the majority in interest of all other stockholders of the Company (“Public Stockholders”) with respect to any Business Combination. After consummation of the Company’s Business Combination, these voting safeguards will no longer be applicable. | ||||
| With respect to a Business Combination which is approved and consummated, any Public Stockholder who voted against the Business Combination may demand that the Company convert his shares. The per share conversion price will equal the amount in the Trust Fund as of the record date for determination of stockholders entitled to vote on the Business Combination divided by the number of shares of common stock held by Public Stockholders at the consummation of the Offering. Accordingly, Public Stockholders holding 19.99% of the aggregate number of shares owned by all Public Stockholders may seek conversion of their shares in the event of a Business Combination. Such Public Stockholders are entitled to receive their per share interest in the Trust Fund computed without regard to the shares held by Initial Stockholders. In this respect, $4,197,993 and $4,147,127 (which includes accretion of Trust Fund) has been classified as common stock subject to possible conversion at June 30, 2005 and December 31, 2004, respectively. | ||||
| The Company’s Certificate of Incorporation provides for mandatory liquidation of the Company, without stockholder approval, in the event that the Company does not consummate a Business Combination within 18 months from the date of the consummation of the Offering (such date would be August 19, 2005), or 24 months from the consummation of the Offering (such date would be February 19, 2006) if certain extension criteria have been satisfied. The Company signed two separate letters of intent with companies for a Business Combination and anticipate signing a definitive agreement with one of those two companies. As a result of having signed these letters of intent, the Company has satisfied the extension criteria and now has until February 19, 2006 to complete a Business Combination. In the event of liquidation, it is likely that the per share value of the residual assets remaining available for distribution (including Trust Fund assets) will be less than the Offering price per |
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| share in the Offering due to costs related to the Offering (assuming no value is attributed to the warrants contained in the Units in the Offering discussed in Note 3). | ||||
3. | Offering | The Company sold 4,025,000 units (“Units”) in the offering, which includes all of the 525,000 Units subject to the underwriters’ over allotment option. Each Unit consists of one share of the Company’s common stock, $.0001 par value, and two Redeemable Common Stock Purchase Warrants (“Warrants”). Each Warrant will entitle the holder to purchase from the Company one share of common stock at an exercise price of $5.00 commencing the later of the completion of a Business Combination with a target business or one year from the effective date of the Offering and expiring four years from the effective date of the Offering. The Warrants will be redeemable at a price of $.01 per Warrant upon 30 days notice after the Warrants become exercisable, only in the event that the last sale price of the common stock is at least $8.50 per share for any 20 trading days within a 30 trading day period ending on the third day prior to date on which notice of redemption is given. In connection with this Offering, the Company issued an option for $100 to the representative of the underwriters to purchase 350,000 units at an exercise price of $9.90 per Unit. In addition, the warrants underlying such Units are exercisable at $6.40 per share. | ||
4. | Note Payable, Stockholder | The Company issued a $60,000 unsecured non-interest bearing promissory note to a stockholder on October 22, 2003. The stockholder advanced additional amounts aggregating $34,300 through January 31, 2004. The note and advance were paid in full on March 3, 2004 from the net proceeds of the Offering. | ||
5. | Commitment | The Company presently occupies office space provided by an affiliate of one of the Initial Stockholders. Such affiliate has agreed that, until the acquisition of a target business by the Company, it will make such office space, as well as certain office and secretarial services, available to the Company, as may be required by the Company from time to time. The Company pays such affiliate $7,500 per month for such services commencing from February 19, 2004, the effective date of the Offering. Amounts of $45,000 for the six month period ended June 30, 2005, $32,586 for the six months ended June 30, 2004 and $122,586 for the period from October 14, 2003 (inception) to June 30, 2005 are included in general and administrative expenses for such services. |
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6. | Preferred Stock | The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. | ||
7. | Common Stock | In January 2004, the Company’s Board of Directors authorized 1.666666 to one forward stock split of its common stock. All references in the accompanying financial statements to the numbers of shares have been retroactively restated to reflect the transaction. | ||
| At June 30, 2005, there were 9,100,000 shares of common stock reserved for issuance upon exercise of redeemable warrants and underwriters’ unit purchase option. |
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14
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| CEA ACQUISITION CORPORATION | ||
| Dated: August 10, 2005 | ||
| /s/ J. Patrick Michaels, Jr. | ||
| Chairman of the Board and Chief Executive Officer | ||
| /s/ Brad Gordon | ||
| Chief Financial Officer |
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