UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 2004
--------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _____________ to _____________
Commission File Number 000-50531
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CEA Acquisition Corporation
---------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 20-0308891
-------- ----------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
101 East Kennedy Boulevard, Suite 3300, Tampa, Florida 33602
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(Address of Principal Executive Office)
(813) 226-8844
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(Issuer's Telephone Number, Including Area Code)
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
|_|
As of May 14, 2004, 4,900,000 shares of common stock, par value $.0001 per
share, were issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Page
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Part I: Financial Information:
Item 1 -Financial Statements (Unaudited):
Balance Sheets 3
Statements of Operations 4
Statements of Stockholders' Equity 5
Statements of Cash Flows 6
Summary of Significant Accounting Policies 7
Notes to Financial Statements 8
Item 2 - Management's Discussion and Analysis or Plan of Operation 11
Item 3 - Controls and Procedures 12
Part II. Other Information
Item 2 - Changes in Securities and Small Business Issuer Purchases of
Equity Securities 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures and Certifications 15
2
CEA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
March 31, December 31,
2004 2003
(unaudited)
- -------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 677,086 $ 238
U.S. Government Securities held in Trust Fund (Note 2) 20,527,500 --
Accrued interest receivable, Trust Fund (Note 2) 22,191 --
Prepaid expenses 84,656 --
------------ ------------
Total current assets 21,311,433 238
Deferred registration costs -- 97,715
------------ ------------
Total assets $ 21,311,433 $ 97,953
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 19,906 $ --
Note payable, stockholder (Note 4) -- 73,100
------------ ------------
Total current liabilities 19,906 73,100
------------ ------------
Common stock, subject to possible redemption,
804,598 shares at redemption value (Note 2) 4,103,450 --
------------ ------------
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 redemption) and
875,000, respectively 490 87
Additional paid-in capital 17,311,060 24,913
Deficit accumulated during development stage (123,473) (147)
------------ ------------
Total stockholders' equity 17,188,077 24,853
------------ ------------
Total liabilities and stockholders' equity $ 21,311,433 $ 97,953
============ ============
See accompanying summary of significant accounting policies and notes to
unaudited financial statements.
3
CEA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
Period from
Three months October 14, 2003
ended (inception) to
March 31, 2004 March 31, 2004
- --------------------------------------------------------------------------------
Expenses:
General and administrative expenses $ (146,252) $ (146,399)
----------- -----------
Operating loss $ (146,252) $ (146,399)
Other income:
Interest income $ 22,926 $ 22,926
----------- -----------
Net loss $ (123,326) $ (123,473)
----------- -----------
Basic and fully diluted net loss per share $ (.05)
-----------
Weighted average common shares outstanding 2,688,462
-----------
See accompanying summary of significant accounting policies and notes to
unaudited financial statements.
4
CEA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit
accumulated
Preferred Stock Common Stock Additional during the
--------------- ------------ Paid-In development
Shares Amount Shares Amount Capital stage Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, October 14, 2003 (inception) -- $ -- -- $ -- $ --- $ -- $ --
Issuance 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, net of underwriters'
discount and offering expenses (includes
804,598 shares subject to possible -- -- 4,025,000 403 17,286,147 -- 17,286,550
redemption)
Net loss for the period (unaudited) -- -- -- -- -- (123,326) (123,326)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2004 (unaudited) -- -- 4,900,000 $ 490 $ 17,311,060 $ (123,473) $ 17,188,077
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of significant accounting policies and notes to
unaudited financial statements.
5
CEA ACQUISITION CORPORATION
A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------------------------------------------
Three months October 14, 2003
ended (inception) to
March 31, 2004 March 31, 2004
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (123,326) $ (123,473)
Adjustments to reconcile net loss to net cash
used in operating activities:
Increase in accrued interest receivable (22,191) (22,191)
Increase in prepaid expenses (84,656) (84,656)
Increase in accrued expenses 19,906 19,906
------------ ------------
Net cash used in operating activities (210,267) (210,414)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
U.S. Government securities held in Trust Fund (20,527,500) (20,527,500)
------------ ------------
Net cash used in investing activities (20,527,500) (20,527,500)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from public offering of 4,025,000 units net 21,487,715 21,487,715
Deferred registration costs -- (97,715)
Proceeds from issuance 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 21,415,000
------------ ------------
Net increase in cash 676,848 677,086
Cash at beginning of the period 238 --
------------ ------------
Cash at end of the period $ 677,086 $ 677,086
------------ ------------
See accompanying summary of significant accounting policies and notes to
unaudited financial statements
6
CEA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
CASH AND 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 $123,000 available to reduce
any future income taxes. The tax benefit
of this loss, approximately $49,000 has been
fully offset by a valuation allowance due to
the uncertainty of its realization.
NET LOSS PER SHARE Net loss per share is computed on the basis
of the weighted average number of common
shares outstanding during the period,
including common stock equivalents (unless
anti-dilutive) which would arise from the
exercise of stock warrants.
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.
7
CEA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION The financial statements are
unaudited and include the accounts
of CEA Acquisition Corporation (a
corporation in the development
stage) ("Company").
In the opinion of management, all
adjustments (consisting of normal
accruals) have been made that are
necessary to present fairly the
financial position of the Company as
of March 31, 2004 and the results of
its operations and its cash flow for
the three months ended March 31,
2004. Operating results for the
interim period presented are not
necessarily indicative of the
results to be expected for a full
year.
The statements and related notes
have been prepared pursuant to the
rules and regulations of the U.S.
Securities and Exchange Commission.
Accordingly, certain information and
footnote disclosures normally
included in financial statements
prepared in accordance with
generally accepted accounting
principles have been omitted
pursuant to such rules and
regulations. These financial
statements should be read in
conjunction with the financial
statements that were included in the
Company's Annual Report on Form
10-KSB for the fiscal year ended
December 31, 2003.
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 $21,390,000 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
$20,527,500 of the net proceeds 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 proceeds may be used to
pay for business, legal and
accounting due diligence on
prospective acquisitions and
continuing general and
administrative expenses.
8
CEA ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 stockholders owning 20% or more
of the outstanding stock excluding,
for this purpose, those persons who
were stockholders prior to the
Offering, vote against the Business
Combination, 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 first
Business Combination, all of these
voting safeguards will no longer be
applicable.
With respect to the first Business
Combination which is approved and
consummated, any Public Stockholder
who voted against the Business
Combination may demand that the
Company redeem his shares. The per
share redemption 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 Proposed
Offering. Accordingly, Public
Stockholders holding 19.99% of the
aggregate number of shares owned by
all Public Stockholders may seek
redemption 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, $4,103,450 has been
classified as common stock subject
to possible redemption.
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, or 24
months from the consummation of the
Offering if certain extension
criteria have been satisfied. 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
initial public Offering price per
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 On February 19, 2004, 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
9
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 date of the prospectus. 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. This note was 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 an Initial Stockholder.
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 is
obligated to pay such affiliate
$7,500 per month for such services
commencing on February 19, 2004, the
effective date of the Offering and
$10,086 with respect to such
services is included in accrued
expenses at March 31, 2004.
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 March 31, 2004, there were
9,100,000 shares of common stock
reserved for issuance upon exercise
of redeemable warrants and
underwriters' unit purchase option.
10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and footnotes thereto contained in this
report.
FORWARD LOOKING STATEMENTS
The statements discussed in this Report include forward looking
statements that involve risks and uncertainties, including the timely delivery
and acceptance of the Company's products and the other risks detailed from time
to time in the Company's reports filed with the Securities and Exchange
Commission.
We were formed on October 14, 2003 to serve as a vehicle to effect a
merger, capital stock exchange, asset acquisition or other similar business
combination with a company in the entertainment, media and communications
industry. We intend to utilize cash derived from the proceeds of our recently
completed public offering, our capital stock, debt or a combination of cash,
capital stock and debt, in effecting a business combination.
We consummated our initial public offering on February 19, 2004. Net
loss of $123,326 reported for the quarter consists of $97,336 excess offering
expenses, $10,086 expense for a monthly administrative services agreement,
$10,315 for professional fees, $9,000 expense for officer liability insurance,
$8,861 for travel expenses, and $10,654 for other expenses. Interest income on
the Trust Fund investment was $22,191 along with $735 of other interest income.
We consummated our initial public offering on February 19, 2004. Gross
proceeds from our initial public offering, including the full exercise of the
underwriters' over-allotment option, were $24,150,000. After deducting offering
expenses of $1,069,500 including $724,500 evidencing the underwriters'
non-accountable expense allowance of 3% of the gross proceeds, and underwriting
discounts of $1,690,500, net proceeds were $21,390,000. Of this amount,
$20,527,500 is held in trust and the remaining proceeds are available to be used
to provide for business, legal and accounting due diligence on prospective
acquisitions and continuing general and administrative expenses. We will use
substantially all of the net proceeds of this offering to acquire a target
business, including identifying and evaluating prospective acquisition
candidates, selecting the target business, and structuring, negotiating and
consummating the business combination. To the extent that our capital stock is
used in whole or in part as consideration to effect a business combination, the
proceeds held in the trust fund as well as any other net proceeds not expended
will be used to finance the operations of the target business. We believe that
we have sufficient available funds outside of the trust fund to operate through
February 18, 2006, assuming that a business combination is not consummated
during that time. Over this time period, we anticipate $180,000 for the
administrative fee payable to CEA Group LLC ($7,500 per month for two years),
approximately $150,000 of expenses for legal, accounting and other expenses
related to the due diligence investigations, structuring and negotiating of a
business combination, $50,000 of expenses for the due diligence and
investigation of a target business, $40,000 of expenses in legal and accounting
fees relating to our SEC reporting obligations and $285,000 for general working
capital that will be used for miscellaneous expenses and reserves, including
approximately $60,000 for director and officer liability insurance premiums. We
do not believe we will need to raise additional funds following this offering in
order to meet the expenditures required for operating our business. However, we
may need to raise additional funds through a private offering of debt or equity
securities if such funds are required to consummate a business combination that
is presented to us. We would only consummate such a fund raising simultaneously
with the consummation of a business combination.
We are obligated, commencing February 12, 2004, to pay to CEA Group,
one of our initial stockholders and an affiliate of J. Patrick Michaels, Jr., a
monthly fee of $7,500 for general and administrative services. In addition, in
October 2003 and January 2004, CEA Group, LLC advanced an
11
aggregate of $94,300 to us, on a non-interest bearing basis, for payment of
offering expenses on our behalf. These amounts were repaid in March 2004 out of
proceeds of our initial public offering.
ITEM 3. CONTROLS AND PROCEDURES.
An evaluation of the effectiveness of our disclosure controls and
procedures as of March 31, 2004 was made under the supervision and with the
participation of our management, including our chief executive officer and chief
financial officer. Based on that evaluation, they concluded that our disclosure
controls and procedures are effective as of the end of the period covered by
this report to ensure that information required to be disclosed by us in reports
that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. During the most recently
completed fiscal quarter, there has been no significant change in our internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
12
PART II.
OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES
On February 19, 2004, we closed our initial public offering of
3,500,000 Units, with each unit consisting of one share of our common stock and
two warrants, each to purchase one share of our common stock at an exercise
price of $5.00 per share. The managing underwriter in the offering was
EarlyBirdCapital, Inc. The securities sold in the offering were registered under
the Securities Act of 1933 on a registration statement on Form S-1 (No.
333-110365). The Securities and Exchange Commission declared the registration
statement effective on February 12, 2004.
On February 12, 2004, the underwriters exercised their over-allotment
option to purchase 525,000 Units at the initial public offering price of $6.00
per share. With the over-allotment option, the aggregate initial offering
proceeds totaled $24,150,000.
We paid a total of $1,690,500 in underwriting discounts and
commissions, and approximately $1,069,500 has been paid for costs and expenses
related to the offering, including $724,500 for the underwriters'
non-accountable expense allowance of 3% of the gross proceeds.
After deducting the underwriting discounts and commissions and the
offering expenses, the total net proceeds to us from the offering were
$21,390,000, of which $20,527,500 was deposited into a trust fund and the
remaining proceeds are available to be used to provide for business, legal and
accounting due diligence on prospective business combinations and continuing
general and administrative expenses. Through March 31, 2004, we have used
approximately $210,000 of cash for operating expenses and $94,300 to repay
advances made to us by one of our initial stockholders.
ITEM 5: OTHER INFORMATION
In April 2004, our board of directors adopted a code of ethics that
applies to our directors, officers and employees as well as those of our
subsidiaries. A copy of our code of ethics has been filed as an exhibit to this
Quarterly Report on Form 10-QSB.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
14 - Code of Ethics
31.1 - Section 302 Certification by CEO
31.2 - Section 302 Certification by CFO
32.1 - Section 906 Certification by CEO
32.2 - Section 906 Certification by CFO
(b) Reports on Form 8-K:
13
Date Items Financial Statements
---- ----- ---------------------
February 19, 2004 5, 7 Audited Financial Statements for the periods from October 14,
2003 (inception) to February 19, 2004, January 1, 2004 to
February 19, 2004, October 14, 2003 (inception) to December 31
and October 14, 2003 (Inception) to October 31, 2003
14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CEA ACQUISITION CORPORATION
Dated: May 14, 2004
/s/ J. Patrick Michaels, Jr.
--------------------------------------------------
J. Patrick Michaels, Jr.
Chairman of the Board and Chief Executive Officer
/s/ Brad Gordon
--------------------------------------------------
Brad Gordon
Chief Financial Officer
15