SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
MARK ONE
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended April 30, 2004
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _________ to____________
COMMISSION FILE NUMBER: 0-50062
CELL POWER TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Florida 59-1082273
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1428 36TH STREET, SUITE 205, BROOKLYN, NEW YORK 11218
(Address of principal executive offices, including zip code)
(718) 436-7931
(Issuer's telephone number, including area code)
E-THE MOVIE NETWORK, INC.
(Former name,former address and former fiscal year, if changed from 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 | | No| X|
As of June 14, 2004, the small business issuer had outstanding 28,950,000 shares
of common stock.
Transitional Small Business disclosure format (check one) Yes |_| No |X|
INDEX PAGE
PART I -- FINANCIAL INFORMATION
Page Number
Forward Looking Statements 3
Item 1 - Financial Statements
Condensed Consolidated Balance Sheet at April 30, 2004
(Unaudited) 4-5
Condensed Consolidated Statements of Operations for the six and
three months ended April 30, 2004 and for the period from
September 22, 2003 (inception) to April 30, 2004 (Unaudited) 6
Condensed Consolidated Statement of Changes in Stockholders'
Deficiency for the six ended April 30, 2004 and for the period
from September 22, 2003 (inception) through April 30, 2004 7
Condensed Consolidated Statements of Cash Flows for the six
months ended April 30, 2004 and for the period from
September 22, 2003 (inception) through April 30, 2004
(Unaudited) 8-9
Notes to the Condensed Consolidated Financial Statements
(Unaudited) 10-14
Item 2 - Plan of Operation 15
Item 3 - Controls and Procedures 18
PART II--OTHER INFORMATION
Item 1 - Legal Proceedings 19
Item 2 - Changes in Securities and Use of Proceeds 19
Item 3 - Defaults upon Senior Securities 19
Item 4 - Submission of Matters to a Vote of Security Holders 19
Item 5 - Other Information 19
Item 6 - Exhibits and Reports on Form 8-K 19
Signatures 20
2
FORWARD LOOKING STATEMENTS
The following discussion and explanations should be read in conjunction with the
financial statements and related notes contained elsewhere in this Form 10-QSB.
Certain statements made in this discussion are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements can be identified by terminology such as "may",
"will", "should", "expects", "intends", "anticipates", "believes", "estimates",
"predicts", or "continue" or the negative of these terms or other comparable
terminology and include, without limitation, statements below regarding: the
Company's intended business plans; expectations as to product performance;
intentions to acquire or develop other technologies; and belief as to the
sufficiency of cash reserves. Because forward-looking statements involve risks
and uncertainties, there are important factors that could cause actual results
to differ materially from those expressed or implied by these forward-looking
statements. These factors include, but are not limited to, the competitive
environment generally and in the Company's specific market areas; changes in
technology; the availability of and the terms of financing, inflation, changes
in costs and availability of goods and services, economic conditions in general
and in the Company's specific market areas, demographic changes, changes in
federal, state and /or local government law and regulations; changes in
operating strategy or development plans; the ability to attract and retain
qualified personnel; and changes in the Company's acquisitions and capital
expenditure plans. Although the Company believes that expectations reflected in
the forward-looking statements are reasonable, it cannot guarantee future
results, performance or achievements. Moreover, neither the Company nor any
other person assumes responsibility for the accuracy and completeness of these
forward-looking statements. The Company is under no duty to update any
forward-looking statements after the date of this report to conform such
statements to actual results.
3
CELL POWER TECHNOLOGIES, INC. AND SUBSIDIARY
(Formerly e-The Movie Network, Inc.)
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
April 30, 2004
ASSETS
CURRENT ASSETS
Cash $ 19,905
------------
TOTAL CURRENT ASSETS 19,905
INTANGIBLE ASSETS, net of accumulated amortization
of $17,500 262,510
------------
TOTAL ASSETS $ 282,415
============
4
CELL POWER TECHNOLOGIES, INC. AND SUBSIDIARY
(Formerly e-The Movie Network, Inc.)
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
April 30, 2004
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Notes payable - related parties $ 600,000
Note payable 150,000
Accounts payable - related party 140,000
Accounts payable 285
Accrued payroll and related taxes 44,668
Accrued interest - related parties 52,903
Accrued interest 10,184
------------
TOTAL CURRENT LIABILITIES 998,040
------------
COMMITMENTS
STOCKHOLDERS' DEFICIENCY
Common stock, no par value, 100,000,000 shares authorized;
28,950,000 shares issued and outstanding 378,266
Additional paid-in capital (412,801)
Deficit accumulated during the development stage (456,090)
Deferred consulting fees (225,000)
------------
TOTAL STOCKHOLDERS' DEFICIENCY (715,625)
------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 282,415
============
5
CELL POWER TECHNOLOGIES, INC. AND SUBSIDIARY
(Formerly e-The Movie Network, Inc.)
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
- -------------------------------------------------------------------------------
For the
Period from
September 22,
For the Six For the Three 2003 (Inception)
Months Ended Months Ended (Inception) to
April 30, April 30, April 30,
2004 2004 2004
--------------- --------------------------------
REVENUE $ 56,426 $ 14,017 $ 56,426
--------------- --------------- ---------------
OPERATING EXPENSES
Consulting fees - related parties 210,000 105,000 265,000
Consulting fees 140,999 105,999 140,999
Professional fees 30,000 30,000 45,802
Amortization 15,000 7,500 17,500
Payroll and related taxes 67,251 33,570 67,251
Other 8,058 7,325 8,646
--------------- --------------- ---------------
TOTAL OPERATING EXPENSES 471,308 289,394 545,198
--------------- --------------- ---------------
OPERATING LOSS (414,882) (275,377) (488,772)
--------------- --------------- ---------------
OTHER EXPENSES
Interest expense - related parties 35,973 10,910 52,905
Interest expense 5,235 2,617 10,183
--------------- --------------- ---------------
TOTAL OTHER EXPENSES 41,208 13,527 63,088
--------------- --------------- ---------------
NET LOSS $ (456,090) $ (288,904) $ (551,860)
=============== =============== ===============
Basic and diluted net loss per common share ($0.02) ($0.01)
=============== ===============
Weighed-average common shares outstanding 27,050,549 28,477,778
=============== ===============
6
CELL POWER TECHNOLOGIES, INC. AND SUBSIDIARY
(Formerly e-The Movie Network, Inc.)
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
Period from September 22, 2003 (Inception) to April 30, 2004
- -------------------------------------------------------------------------------
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
---------------------
Shares Amount Capital Stage
-------------------------------------------------
BALANCE - September 22, 2003 (Inception) -- $ -- $ -- $ --
Issuance of common stock at inception
for $.00001 per share 22,600,000 226 -- --
Issuance of common stock in connection
with purchase of intangible assets at
October 3, 2003 for $.00001 per share 1,000,000 10 -- --
Collection of stock subscription
receivable on October 24, 2003 -- -- -- --
Net loss -- -- -- (95,770)
----------- -------- ----------- ----------
BALANCE - October 31, 2003 23,600,000 236 -- (95,770)
Effects of reverse merger at November 3,
2003:
Capitalization of LLC's accumulated deficit at
time of recapitalization -- -- (95,770) 95,770
Equity of e-The Movie Networks, Inc. at time of
recapitalization 2,100,000 28,030 (328,030) --
Stock options issued to consultant for services
on January 22, 2004 -- -- 10,999 --
Issuance of common stock at $.10 per share to consultants
for services on February 12, 2004 3,000,000 300,000 -- --
Issuance of common stock for $.20 per share
on March 10, 2004 250,000 50,000 -- --
Collection of stock subscription
receivable on March 15, 2004 -- -- -- --
Net loss -- -- -- (456,090)
----------- -------- ----------- ----------
BALANCE - April 30, 2004 28,950,000 $378,266 $ (412,801) $(456,090)
=========== ======== =========== ==========
Stock Deferred
Subscription Consulting
Receivable Fees Total
-------------------------------------------
BALANCE - September 22, 2003 (Inception) $ -- $ -- $ --
Issuance of common stock at inception
for $.00001 per share (226) -- --
Issuance of common stock in connection
with purchase of intangible assets at
October 3, 2003 for $.00001 per share -- -- 10
Collection of stock subscription
receivable on October 24, 2003 100 -- 100
Net loss -- -- (95,770)
------------ ------------ -------------
BALANCE - October 31, 2003 (126) -- (95,660)
Effects of reverse merger at November 3,
2003:
Capitalization of LLC's accumulated deficit at
time of recapitalization -- -- --
Equity of e-The Movie Networks, Inc. at time of
recapitalization -- -- (300,000)
Stock options issued to consultant for services
on January 22, 2004 -- -- 10,999
Issuance of common stock at $.10 per share to consultants
for services on February 12, 2004 -- (225,000) 75,000
Issuance of common stock for $.20 per share
on March 10, 2004 -- -- 50,000
Collection of stock subscription
receivable on March 15, 2004 126 -- 126
Net loss -- -- (456,090)
------------ ------------ -------------
BALANCE - April 30, 2004 $ -- $ (225,000) $ (715,625)
============ ============ =============
7
CELL POWER TECHNOLOGIES, INC. AND SUBSIDIARY
(Formerly e-The Movie Network, Inc.)
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- -------------------------------------------------------------------------------
For the
Period from
September 22,
For the Six 2003
Months Ended (Inception) to
April 30, April 30,
2004 2004
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (456,090) $ (551,860)
------------- ------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Common stock issued for services 75,000 75,000
Stock options issued for services 10,999 10,999
Amortization 15,000 17,500
Changes in operating assets and liabilities:
Decrease in prepaid expenses - related party 35,000 --
Increase in accounts payable - related party 140,000 140,000
Increase in accounts payable -- 285
Increase in accrued payroll and related taxes 44,668 44,668
Increase in accrued interest - related parties 35,973 52,904
Increase in accrued interest 5,235 10,183
Decrease in deferred revenue (30,000) (30,000)
------------- ------------
TOTAL ADJUSTMENTS 331,875 321,539
------------- ------------
NET CASH USED IN OPERATING
ACTIVITIES (124,215) (230,321)
------------- ------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of intangible assets -- (100,000)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits in escrow -- (300,000)
Advances from related parties -- 300,000
Repayment of advances from related parties -- (300,000)
Proceeds from notes payable - related parties -- 600,000
Proceeds from issuance of common stock 50,000 50,000
Collection of stock subscription receivable 126 226
------------- ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES $ 50,126 $ 350,226
------------- ------------
8
CELL POWER TECHNOLOGIES, INC. AND SUBSIDIARY
(Formerly e-The Movie Network, Inc.)
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(UNAUDITED)
- -------------------------------------------------------------------------------
For the
Period from
September 22,
For the Six 2003
Months Ended (Inception) to
April 30, April 30,
2004 2004
------------------------------------
NET (DECREASE) INCREASE IN CASH $ (74,089) $ 19,905
CASH - Beginning of period 93,994 --
------------- ------------
CASH - Ending of period $ 19,905 $ 19,905
============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the periods for:
Interest $ -- $ --
Non-cash investing and financing activities:
In connection with the purchase of intangible assets:
Deferred revenue assumed $ -- $ 30,000
Note payable assumed $ -- $ 150,000
Common stock issued $ -- $ 10
Issuance of common stock in exchange for services to
to be rendered $ 300,000 $ 300,000
9
CELL POWER TECHNOLOGIES, INC AND SUBSIDIARY
(Formerly e-The Movie Network, Inc.)
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND OPERATIONS OF COMPANY
Pursuant to the terms and conditions of an exchange agreement effective
November 3, 2003 (the "Exchange Agreement"), e-The Movie Network, Inc.
("ETMV"), now known as Cell Power Technologies, Inc. ("Cell Power"), a
Florida Corporation, acquired all the outstanding membership interests of
Cell Power Technologies LLC ("Cell Power LLC"), a Delaware limited
liability company engaged in the marketing and distribution of portable
cell phone batteries. As Cell Power did not have any meaningful
operations prior to the consummation of the Exchange Agreement, the
transaction was treated as a recapitalization, and accounted for, on a
historical cost basis, for all periods presented. Moreover, the financial
statements set forth in this report for all periods, prior to the
recapitalization, are the financial statements of Cell Power LLC and the
membership interests of Cell Power LLC have been retroactively restated
to give effect to the exchange for Cell Power common stock. Cell Power
and its subsidiary, Cell Power LLC, are collectively referred to as the
"Company". For further information on the Exchange Agreement, please
refer to the Current Report on Form 8-K filed by the Company with the
Securities and Exchange Commission on November 6, 2003, and as amended by
the Current Report on Form 8-K/A filed by the Company on April 5, 2004.
On April 29, 2004, ETMV changed its name to Cell Power in order to better
reflect its current business.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The condensed consolidated financial statements contained herein have
been prepared in accordance with generally accepted accounting principles
for interim financial statements, the instructions to Form 10-QSB and
Item 310 of Regulation S-B. Accordingly, these financial statements do
not include all the information and footnotes required by generally
accepted accounting principles for annual financial statements. In the
opinion of management, the accompanying condensed consolidated financial
statements contain all the adjustments necessary (consisting only of
normal recurring accruals) to make the financial position of the Company
at April 30, 2004, and its results of operations and cash flows for the
six months ended April 30, 2004 not misleading. Operating results for the
six months ended April 30, 2004 are not necessarily indicative of the
results that may be expected for the fiscal year ending October 31, 2004.
The Company's condensed consolidated financial statements have been
prepared assuming the Company will continue as a going concern. The
Company has incurred a net loss of $551,860 since its inception, has a
10
CELL POWER TECHNOLOGIES, INC AND SUBSIDIARY
(Formerly e-The Movie Network, Inc.)
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
working capital deficiency of $978,135, has a stockholders' deficiency of
$715,625 and has entered into consulting and other contractual
commitments. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The condensed consolidated
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Management expects to incur additional losses for the foreseeable future
and recognizes the need to raise capital in order to develop a viable
business. There can be no assurances that the Company can obtain the
additional financing necessary to fund its operations. On June 11, 2004,
the Company raised gross proceeds of $648,000 through the private
placement of its securities. The funds raised followed an initial closing
by the Company on a private placement that it commenced in May 2004 to
raise up to $3 million. See Note 7 "Subsequent Events". The Company is
entitled to conduct subsequent closings on funds raised. However, no
assurance can be given that the Company will be able to close on
additional funds.
PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and its subsidiary. All significant
intercompany balances and transactions have been eliminated.
REVENUE RECOGNITION
The Company generates revenue from two specific sources: (a) royalties on
the sale of individual Cellboost units generated by other entities in
certain markets; and (b) Cellboost product sales generated by the
Company. Revenues generated from either royalty rights or Company product
sales are recognized when the product is shipped and collectibility is
probable.
EMPLOYEE STOCK OPTIONS
As of April 30, 2004, the Company had stock options outstanding to its
Chief Executive Officer granted in November 2003. The options are for
500,000 shares of the Company's common stock, have an exercise price of
$0.50 per share and vest ratably over 5 years beginning two years from
the date of grant. As permitted under SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," which amended SFAS
No. 123 ("SFAS 123"), "Accounting for Stock Based Compensation," the
Company has elected to continue to follow the intrinsic value method in
accounting for its stock-based employee compensation arrangements, as
defined by Accounting Principles Board Opinion ("APB") No. 25, Accounting
for Stock Issued to Employees," and related interpretations including
Financial Accounting Standards Board Interpretations No. 44, "Accounting
for Certain Transactions Involving Stock Compensation," an interpretation
of APB No. 25. The following table illustrates the effect on net loss and
11
CELL POWER TECHNOLOGIES, INC AND SUBSIDIARY
(Formerly e-The Movie Network, Inc.)
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
loss per share if the Company had applied the fair value recognition
provisions of SFAS 123 to stock-based employee compensation for the six
and three months ended April 30, 2004:
Six Months Ended Three Months Ended
April 30, April 30,
2004 2004
------------------ ----------------
Net loss as reported $ (456,090) $ (288,904)
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects (4,514) (2,168)
----------- -------------
Pro forma net loss $ (460,604) $ (291,072)
=========== =============
Net loss per share, basic and diluted
as reported $ (0.02) $ (0.01)
=========== =============
Pro forma net loss per share,
basic and diluted $ (0.02) $ (0.01)
=========== =============
STOCK OPTIONS, continued
The fair value of employee stock options at date of grant was estimated
using the Black-Scholes fair value-based method with the following
weighted average assumptions:
Expected Life (Years) 6.0
Interest Rate 3.33%
Annual Rate of Dividends --%
Volatility 96%
The weighted average fair value of options at date of grant using the
fair value-based method is estimated at $0.06.
12
CELL POWER TECHNOLOGIES, INC AND SUBSIDIARY
(Formerly e-The Movie Network, Inc.)
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 3 - LOSS PER SHARE
Basic net loss per share is computed based on the weighted average shares
of common stock outstanding and excludes any potential dilution. Diluted
net loss per share reflects the potential dilution from the exercise or
conversion of all dilutive securities, such as stock options, into common
stock. The Company's outstanding stock options are not included in the
computation of basic or diluted net loss per share since they are
anti-dilutive. Potentially dilutive securities consist of 1,014,000
options at April 30, 2004.
NOTE 4 - SIGNIFICANT CUSTOMER
All of the Company's revenue has been generated by one customer.
NOTE 5 - COMMITMENTS
CONSULTING SERVICES CONTRACTS
In January 2004, the Company entered into a consulting contract for
operational and financial services. The contract provides for monthly
payments of $5,000 for six months and an option to purchase common stock
of the Company. The option, which expires January 2014, provides for the
purchase of 514,000 shares of the outstanding common stock of the Company
at the time of exercise for $0.75 per share. The fair value of the
options amounted to $10,999 and is included in consulting fees in the
accompanying condensed consolidated statement of operations for the six
and three months ended April 30, 2004.
In February 2004, the Company entered into two one-year consulting
agreements each in exchange for 1.5 million shares of the Company's
common stock. The fair value of the common stock issued amounted to
$300,000 and is being amortized over the term of the agreement.
Amortization for the six and three months ended April 30, 2004 amounted
to $75,000 and is included in consulting fees in the accompanying
condensed consolidated statement of operations for the six and three
months ended April 30, 2004.
EMPLOYMENT AGREEMENT
The Company entered into a three-year employment agreement, effective
November 1, 2003, with the Company's Chief Executive Officer and
President. The agreement provides for a salary of $120,000 per annum,
incentive bonuses and options to purchase 500,000 shares of the Company's
common stock, pursuant to terms in the Agreement.
13
CELL POWER TECHNOLOGIES, INC AND SUBSIDIARY
(Formerly e-The Movie Network, Inc.)
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 6 - STOCKHOLDERS EQUITY
In March 2004, the Company issued 250,000 shares of common stock for $50,000.
NOTE 7 - SUBSEQUENT EVENTS
INITIAL CLOSING ON PRIVATE PLACEMENT
In May 2004, the Company commenced a private placement (the "Private Placement")
to certain private and institutional investors of up to $3 million by the sale
of units of its securities, with each unit (hereinafter a "Unit") comprised of
(i) 32,000 shares of Common Stock and (ii) five year warrants to purchase up to
an additional 32,000 shares of common stock at a per share exercise price of
$1.25 (the "Warrants"), provided that the exercise period may be reduced under
certain conditions (primarily relating to the effectiveness of the Registration
Statement and the closing bid price of the Company's Common Stock exceeding
$2.75 for each of 10 consecutive trading days). The per Unit Price is $24,000.
Under the Private Placement, subscription amounts are deposited into an escrow
account and the Company is authorized to conduct an initial closing upon its
acceptance of subscriptions for a minimum of 21 Units for $504,000.
On June 11, 2004, the Company conducted an initial closing with respect to the
sale of 27 units for gross proceeds of $648,000 (the "Initial Closing").
Thereafter, the Company can conduct additional closings. The Private Placement
is scheduled to terminate on July 31, 2004, provided that the Company is
entitled, at its option, to extend the termination for an additional 60 day
period.
The Company received net proceeds of approximately $583,000 from the proceeds of
the Initial Closing, following the repayment of offering related expenses. The
Company expects to use approximately $200,000 of these proceeds to retire
outstanding debt in the approximate amount of $750,000 that bacame due in May
2004 and continues to accrue interest. Additional amounts raised from the
Private Placement will be used in part to retire this debt.
14
ITEM 2. PLAN OF OPERATION
The following analysis of the financial condition of the Company should be read
in conjunction with the financial statements for the period September 22, 2003
(inception) to October 31, 2003 and notes thereto contained in the Report on
Form 8-K of Cell Power Technologies, Inc. ("Cell Power"), formerly known as "e
the Movie Network, Inc." These financial statements reflect the consolidated
operations of Cell Power and its consolidated subsidiary for the six and three
months ended April 30, 2004.
OVERVIEW
Cell Power was incorporated in the State of Florida in January 2001 under the
name "e-The Movie Network, Inc." to sell movie videos over the internet. On
April 29, 2004, the Company name was changed to Cell Power. Cell Power's
original plan never materialized and, in November 2003, Cell Power entered into
an agreement with the holders of the membership interests in Cell Power
Technologies LLC. ("Cell Power LLC"), a Delaware limited liability company, to
issue shares of Cell Power for outstanding membership interests in Cell Power
LLC. Cell Power LLC was organized under Delaware law in September 2003 and is
engaged in the marketing and sale of a portable cell phone battery known as
"Cellboost". Following the transaction, Cell Power LLC became a wholly owned
subsidiary of Cell Power.
Cell Power and Cell Power LLC are collectively referred to as the "Company".
CRITICAL ACCOUNTING POLICIES
The Company's condensed consolidated financial statements and accompanying notes
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires the Company's management to make estimates, judgments and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses.
The Company continually evaluates the accounting policies and estimates it uses
to prepare the consolidated financial statements. The Company bases its
estimates on historical experiences and assumptions believed to be reasonable
under current facts and circumstances. Actual amounts and results could differ
from these estimates made by management.
The Company does not participate in, nor has it created, any off-balance sheet
special purpose entities or other off-balance sheet financing. In addition, the
Company does not enter into any derivative financial instruments for speculative
purposes and uses derivative financial instruments primarily for managing its
exposure to changes in interest rates.
CELLBOOST PRODUCT
The Cellboost battery is a patented disposable power source encased in a hard
plastic shell with a cell phone-specific plug providing talk time. The device
attaches to the charger port of a cell phone and delivers enough energy to
enable up to 60 minutes of talk time. The battery has a non-degenerating three
year shelf life. Cellboost is intended to supply a needed energy source for
built-in phone batteries. Smaller than a matchbook, Cellboost comes in phone
specific models to fit most cell phones. Cellboost was developed by Jumpit AS, a
private company based in Oslo, Norway ("Jumpit"). In December 2001, Jumpit
applied for patent protection in respect of a backup battery for a rechargeable
phone. In March 2004, the United States Patent Office granted patent protection.
Patent applications are pending Europe and other parts of the world.
In February 2003, E & S International Enterprises, Inc. ("ESI"), a California
based electronics distributor, entered into a worldwide exclusive license
agreement (the "Main Agreement") with Jumpit for the distribution of the
15
Cellboost battery. As part of the Main Agreement, Global Link Technologies, Inc.
("Global"), a distributor for Jumpit in North and South America, was given
royalty rights for all sales in North America and other parts of the world and
was granted exclusive sub-distribution rights in Latin and South America.
Global's rights under the Main Agreement expire in February 2013. ESI
subsequently trademarked the name Cellboost. Under the Main Agreement, ESI must
meet certain financial commitments and performance targets on an annual basis in
order to maintain exclusive distribution rights thereunder.
In October 2003, Cell Power LLC entered into an asset purchase agreement with
Global wherein Cell Power LLC purchased Global's royalty rights under the Main
License Agreement with respect to sales in North America, Mexico, Puerto Rico,
the US Virgin Islands, the Caribbean and Israel. In December 2003, Cell Power
LLC entered into a subsequent agreement with Global for exclusive
sub-distribution rights in Latin and South America, comprised of Global's rights
under the Main Agreement as they relate to the sale and distribution of the
Cellboost product in Latin and/or South America (which is defined as those
countries and territories south of Mexico and north of Tierra Del Fuego).
These rights entitle the Company to receive royalties on the net number of units
sold by ESI in North America, Mexico, Puerto Rico, the US Virgin Islands, the
Caribbean and Israel. The royalty payments are divided between two categories,
sales to retailers and sales to distributors. Royalty rates per unit payable to
the Company with respect to sales by ESI to retailers and distributors are $0.5
and $0.10, respectively.
If the Main Agreement were to be terminated for whatever reason, the Company's
rights acquired from Global would also be terminated.
COMPANY'S STRATEGY
The Company's objective is to accelerate the development of new markets for
Celboost in Latin and South America. The Company's immediate objective is to
implement a dual-pronged marketing plan in an effort to establish markets for
the Cellboost in Latin and South American markets. The first prong of the
Company's marketing plan is, marketing and sales to wireless phone carriers in
the region through industry specific print advertising and active marketing at
trade, in an effort to begin the process of introducing Cellboost to carriers
and their distributors. As this market segment grows, the Company intends to
actively market the Products to regional distributors and retailers in order to
broaden Product availability.
The second prong of the marketing plan consists of, marketing and sales to
consumers. Experience in North America has shown that education of consumers to
the benefits of the product leads directly to increased sales. However, the
Company believes that this prong of the marketing plan cannot commence until
there is sufficient availability of product in the market to satisfy consumer
demand. The Company anticipates that it will rollout this segment of the plan on
a regional basis.
The Company has engaged several consultants in order to design an appropriate
marketing plan for the penetration of the South and Latin American markets.
These consultants have prepared budgets and financials indicating what the cost
of the marketing plan will be. Management has approved the marketing plan and
intends to raise the funds needed to implement the plan through offerings of the
Company's securities. However, the Company currently has no funding commitments
and no assurance can be provided that the Company will be able to raise funds on
commercially acceptable terms.
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FINANCIAL CONDITION
The Company is considered a development stage company and has a limited
operating history upon which an evaluation of its prospects can be made. The
Company's prospects must therefore be evaluated in light of the problems,
expenses, delays and complications associated with a development stage company.
The Company expects to incur significant additional expenditures in implementing
its marketing plan and operating losses are expected for the foreseeable future.
There can be no assurance that the Company can be operated profitably in the
future.
The Company's continuation as a going concern is dependent upon, among other
things, its ability to obtain additional financing when and as needed, and to
generate sufficient cash flow to meet its obligations on a timely basis. No
assurance can be given that the Company will be able to obtain such financing on
terms acceptable to it. Cell Power LLC's auditors' report on the financial
statements for the period September 22, 2003 (inception) to October 31, 2003
indicated that substantial doubt exists regarding Cell Power LLC's ability to
continue as a going concern. Such indication may make it more difficult for the
Company to raise funds.
The Company has had limited revenues to date and has an accumulated deficit of
approximately $456,000 as of April 30, 2004. This revenue is attributable to
royalty income earned as a result of the royalty stream from Global.
The Company has notes payable, that became due in May 2004, resulting from the
acquisition of Cell Power LLC in the approximate amount of $750,000 and
continues to accrue interest. The Company expects to pay approximately $200,000
of this debt from the proceeds of the Initial Closing referred to below and from
any additional proceeds (if any) from the Private Placement referred to below.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2004, the Company had approximately $20,000 in available cash
resources. In March 2004, the Company raised $50,000 from the issuance of
250,000 shares of Common Stock to an investor.
In addition, on June 11, 2004, the Company raised net proceeds of approximately
$583,000 from the sale of 27 units of its securities, with each unit comprised
of 32,000 shares of Common Stock and three year warrants for an additional
32,000 shares of Common Stock at a per share exercise price of $1.25. The funds
were raised upon the initial closing (the "Initial Closing") of a private
placement (the "Private Placement") to certain private and institutional
investors of up to $3 million from the sale of Units. Subscription amounts are
deposited into an escrow account. The Private Placement is scheduled to
terminate on July 31, 2004, subject to one 60 day extension by the Company. The
Company is authorized to hold additional subsequent closings on proceeds of
Units. However, no assurance can be provided that the Company will be able to
hold additional closings or raise any additional funds from the Private
Placement. Of the amounts raised, approximately $200,000 are expected to satisfy
existing debt incurred incurred in connection with the acquisition of Cell Power
LLC and the remainder will be used for general corporate purposes. The Company
expects to allocate additional proceeds (if any) from the Private Placement
until existing debt in the approximate amount of $600,000 is retired.
Following the Initial Closing and assuming that the Company will be able to
continue to extend the terms of the outstanding debt until such debt is retired,
the Company believes its existing cash resources will be sufficient to fund its
operations as presently conducted through fiscal 2004. Thereafter, management
intends to seek additional needed financing through the Private Placement or
other avenues such as loans, the sale and issuance of additional debt and/or
equity securities, or other financing arrangements. The Company has no
commitments for any funding and no assurance can be given that the Company will
be able to raise needed funds on commercially acceptable terms.
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IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2003, and revised in December 2003, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 46 ("FIN 46"), "Consolidation
of Variable Interest Entities." FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity if the
equity investors in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional financial support from other parties.
FIN 46 is effective for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after December 15, 2004.
In May 2003, the FASB issued Statement of Financial Accounting Standard No. 150,
"Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes standards for
classification and measurement of certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in certain cases). The provisions of SFAS 150 are effective for
instruments entered into or modified after May 31, 2003 and pre-existing
instruments as of July 1, 2003. On October 29, 2003, the FASB voted to
indefinitely defer the effective date of SFAS 150 for mandatory redeemable
instruments as they relate to minority interests in consolidated finite-lived
entities through the issuance of FASB Staff Position 150-3.
The Company does not expect the adoption of these pronouncements to have a
material effect on its financial position or results of operations.
ITEM 3. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, and that
such information is accumulated and communicated to the Company's management, as
appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with participation of management,
including its Chief Executive Officer and Principal Financial and Accounting
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on the foregoing, the Company's Chief Executive
Officer and Principal Financial and Accounting Officer concluded that the
Company's disclosure controls and procedures were effective.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the three months ended April 30, 2004, there have been no changes in our
internal controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, these controls.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
SALE OF UNREGISTERED SECURITIES
Set forth below is certain information concerning sales by the Company of
unregistered securities during the three months ended April 30, 2004. The
issuances by the Company of the securities sold in the transactions referenced
below were not registered under the Securities Act of 1933, as amended, pursuant
to the exemption contemplated by Section 4(2) thereof for transactions not
involving a public offering.
1. In March 2004, the Company issued to an investor 250,000 shares of the
Company's common stock in consideration of $50,000.
2. In February 2004, the Company issued to two consultants 1.5 million shares of
the company's common stock each in connection with consulting agreements then
entered into by the Company with each consultant.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
31. Rule 13a-14(a) / 15d-14(a) Certification
32. Section 1350 Certification
(b) Reports on Form 8-K
1. The Company filed on March 5, 2004 a Current Report on Form 8-K announcing
the resignation of its then independent auditors.
2. On April 5, 2004, the Company filed an amendment to its Current Report on
Form 8-K originally filed on November 2, 2003, to, among other things, file the
2003 year-end statements of Cell Power LLC and to change its fiscal year end to
October 31.
3. The Company filed on April 23, 2004 a Current Report on Form 8-K announcing
the retention of Marcum & Kliegman, LLP , as its independent accountants.
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SIGNATURES
In accordance with the requirements of the Exchange Act the registrant caused
this report to be signed by the undersigned thereunto duly authorized.
DATE: June 14, 2004 CELL POWER TECHNOLOGIES, INC.
/s/ JACOB HERSKOVITS
--------------------------------------
JACOB HERSKOVITS
CHIEF EXECUTIVE OFFICER
(AND PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
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