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 July 31, 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)
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 September 14, 2004, the small business issuer had outstanding
31,576,560 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
Item 1 - Financial Statements
Condensed Consolidated Balance Sheet at July 31, 2004 (Unaudited) 1-2
Condensed Consolidated Statements of Operations for the nine
and three months ended July 31, 2004 and for the period from
September 22, 2003 (inception) to July 31, 2004 (Unaudited) 3
Condensed Consolidated Statement of Changes in Stockholders'
Equity/(Deficiency) for the nine months ended July 31, 2004 and
for the period from September 22, 2003 (inception) through
July 31, 2004 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended July 31, 2004 and for the period from September 22,
2003 (inception) through July 31, 2004 (Unaudited) 5-6
Notes to the Condensed Consolidated Financial Statements (Unaudited) 7
Item 2 - Plan of Operation 11
Item 3 - Controls and Procedures 15
PART II--OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 2 - Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities 15
Item 3 - Defaults upon Senior Securities 16
Item 4 - Submission of Matters to a Vote of Security Holders 16
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 17
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.
(i)
CELL POWER TECHNOLOGIES, INC. AND SUBSIDIARY
(Formerly e-The Movie Network, Inc.)
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
July 31, 2004
ASSETS
CURRENT ASSETS
Cash $143,928
Accounts receivable 31,250
--------
TOTAL CURRENT ASSETS 175,178
INTANGIBLE ASSETS, net of accumulated amortization
of $25,000 255,010
--------
TOTAL ASSETS $430,188
========
See Notes to Condensed Consolidated Financial Statements.
1
CELL POWER TECHNOLOGIES, INC. AND SUBSIDIARY
(Formerly e-The Movie Network, Inc.)
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
July 31, 2004
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued payroll and related taxes $ 11,167
-----------
TOTAL CURRENT LIABILITIES 11,167
-----------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, no par value, 100,000,000 shares authorized;
30,904,560 shares issued and outstanding 1,143,620
Additional paid-in capital 162,847
Deficit accumulated during the development stage (737,446)
Deferred consulting fees (150,000)
-----------
TOTAL STOCKHOLDERS' EQUITY 419,021
-----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 430,188
===========
See Notes to Condensed Consolidated Financial Statements.
2
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 Nine For the Three 2003
Months Ended Months Ended (Inception) to
July 31, July 31, July 31,
2004 2004 2004
------------ ------------ ------------
REVENUE
Net sales $ 31,250 $ 31,250 $ 31,250
Royalties 70,836 14,410 70,836
------------ ------------ ------------
TOTAL REVENUE 102,086 45,660 102,086
------------ ------------ ------------
COST OF GOODS SOLD 14,300 14,300 14,300
------------ ------------ ------------
GROSS PROFIT 87,786 31,360 87,786
------------ ------------ ------------
OPERATING EXPENSES
Consulting fees - related parties 315,000 105,000 370,000
Consulting fees 230,999 90,000 230,999
Professional fees 70,748 40,748 86,550
Amortization of intangibles 22,500 7,500 25,000
Payroll and related taxes 98,561 31,310 98,561
Other 25,329 17,271 25,917
------------ ------------ ------------
TOTAL OPERATING EXPENSES 763,137 291,829 837,027
------------ ------------ ------------
OPERATING LOSS (675,351) (260,469) (749,241)
------------ ------------ ------------
OTHER EXPENSES
Interest expense - related parties 46,043 10,070 62,975
Interest expense 16,052 10,817 21,000
------------ ------------ ------------
TOTAL OTHER EXPENSES 62,095 20,887 83,975
------------ ------------ ------------
NET LOSS $ (737,446) $ (281,356) $ (833,216)
============ ============ ============
Basic and diluted net loss per common share ($ 0.03) ($ 0.01)
============ ============
Weighed-average common shares outstanding 27,837,574 29,452,664
============ ============
See Notes to Condensed Consolidated Financial Statements.
3
CELL POWER TECHNOLOGIES, INC. AND SUBSIDIARY
(Formerly e-The Movie Network, Inc.)
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY/(DEFICIENCY)
(UNAUDITED)
Period from September 22, 2003 (Inception) to July 31, 2004
- --------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Additional During the Stock
------------------------ Paid-in Development Subscription
Shares Amount Capital Stage Receivable
-------------------------------------------------------------------
BALANCE - September 22, 2003 (Inception) -- $ -- $ -- $ -- $ --
Issuance of common stock at inception
for $.00001 per share 22,600,000 226 -- -- (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 -- -- -- -- 100
Net loss -- -- -- (95,770) --
---------- ---------- ---------- ---------- ----------
BALANCE - October 31, 2003 23,600,000 236 -- (95,770) (126)
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 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 -- -- -- -- 126
Issuance of common stock for $.75 per share
and warrants on June 11, 2004, net of
issuance costs of $26,600 864,000 347,984 273,415 -- --
Issuance of common stock for $.75 per share
and warrants on July 30, 2004, net of
issuance costs of $98,292 1,090,560 417,370 302,233 -- --
Amortization of deferred consulting fees -- -- -- -- --
Net loss -- -- -- (737,446) --
---------- ---------- ---------- ---------- ----------
BALANCE - July 31, 2004 30,904,560 $1,143,620 $ 162,847 $ (737,446) $ --
========== ========== ========== ========== ==========
Deferred
Consulting
Fees Total
-------------------------
BALANCE - September 22, 2003 (Inception) $ -- $ --
Issuance of common stock at inception
for $.00001 per share -- --
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
Net loss -- (95,770)
---------- ----------
BALANCE - October 31, 2003 -- (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 to consultants
for services on February 12, 2004 (300,000) --
Issuance of common stock for $.20 per share
on March 10, 2004 -- 50,000
Collection of stock subscription
receivable on March 15, 2004 -- 126
Issuance of common stock for $.75 per share
and warrants on June 11, 2004, net of
issuance costs of $26,600 -- 621,399
Issuance of common stock for $.75 per share
and warrants on July 30, 2004, net of
issuance costs of $98,292 -- 719,603
Amortization of deferred consulting fees 150,000 150,000
Net loss -- (737,446)
---------- ----------
BALANCE - July 31, 2004 $ (150,000) $ 419,021
========== ==========
See Notes to Condensed Consolidated Financial Statements.
4
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 Nine 2003
Months Ended (Inception) to
July 31, July 31,
2004 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (737,446) $ (833,216)
----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of deferred consulting fees 150,000 150,000
Stock options issued for services 10,999 10,999
Amortization of intangibles 22,500 25,000
Changes in operating assets and liabilities:
Increase in accounts receivable (31,250) (31,250)
Decrease in prepaid expenses - related party 35,000 --
Decrease in accounts payable (285) --
Increase in accrued payroll and related taxes 11,167 11,167
Decrease in accrued interest - related parties (16,931) --
Decrease in accrued interest (4,948) --
Decrease in deferred revenue (30,000) (30,000)
----------- -----------
TOTAL ADJUSTMENTS 146,252 135,916
----------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (591,194) (697,300)
----------- -----------
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
Repayment of notes payable -related parties (600,000) (600,000)
Repayment of notes payable assumed (150,000) (150,000)
Proceeds from issuance of common stock (net of
stock issue costs of $124,892) 1,391,002 1,391,002
Collection of stock subscription receivable 126 226
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES $ 641,128 $ 941,228
----------- -----------
See Notes to Condensed Consolidated Financial Statements.
5
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 Nine 2003
Months Ended (Inception) to
July 31, July 31,
2004 2004
----------- -----------
NET INCREASE IN CASH $ 49,934 $143,928
CASH - Beginning of period 93,994 --
-------- --------
CASH - Ending of period $143,928 $143,928
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the periods for:
Interest $ 83,975 $ 83,975
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
See Notes to Condensed Consolidated Financial Statements.
6
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 accounting principles generally accepted in the
United States of America 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
accounting principles generally accepted in the United States of America 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 July 31, 2004, and its results of operations and cash
flows for the nine months ended July 31, 2004 not misleading. Operating results
for the nine months ended July 31, 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 $833,216 since its inception, has working capital of $164,011 and
stockholders' equity of $419,021 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 Company's ability to
continue to operate as a going concern is substantially dependent on its ability
to generate sufficient cash flows to meet its obligations on a timely basis, to
obtain additional financing and to ultimately attain profitability. The
condensed consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The Company is actively pursuing financing through a private placement which
commenced in May 2004 and through which it raised, as of July 31, 2004, net
proceeds of approximately $1,300,000. Additionally, the Company raised net
proceeds of approximately $453,000 in September of 2004 from such private
placement. See Notes 5 and 8. Management expects to incur additional losses for
the foreseeable future and recognizes the need to raise additional capital in
order to develop a viable business and realize its business plan. In the event
the Company is unable to successfully raise additional capital and generate
revenues, it is unlikely that the Company will have sufficient cash flows and
liquidity to finance its business operations as currently contemplated.
Management is actively engaged in raising capital through an additional round of
financing. However, there can be no assurances that the Company can obtain the
additional financing necessary to fund its operations and maintain its business
as presently conducted.
7
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 in Latin and
South America. 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 July 31, 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 loss per share if the Company had applied the fair value recognition
provisions of SFAS 123 to stock-based employee compensation for the nine and
three months ended July 31, 2004:
Nine Months Ended Three Months Ended
July 31, July 31,
2004 2004
------------------ ----------------
Net loss as reported $ (737,446) $ (281,356)
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects (6,770) (2,256)
----------- -------------
Pro forma net loss $ (744,216) $ (283,612)
=========== =============
Net loss per share, basic and diluted
as reported $ (0.03) $ (0.01)
=========== =============
Pro forma net loss per share,
basic and diluted $ (0.03) $ (0.01)
=========== =============
8
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.
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 and stock warrants 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 and 2,084,416 warrants at July
31, 2004.
NOTE 4 - SIGNIFICANT CUSTOMERS AND SUPPLIERS
The Company's revenue was generated by two customers each of which provided the
entire amount of the Company's net sales and royalties, respectively. The
Company's purchases are from one supplier.
NOTE 5 - 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 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.
In June and July 2004, the Company raised gross proceeds of $1,465,895 from the
sale of approximately 61 Units in the Private Placement. The Company extended
the scheduled termination date of the Private Placement to September 29, 2004,
beyond the originally scheduled termination date of July 31, 2004. After the
payment of offering related expenses, the Company received net proceeds of
approximately 1,341,000.
In connection with the private placement, the Company issued to two placement
agents five-year warrants to purchase up to 129,856 shares of the Company's
Common Stock at a per share exercise price of $1.25 and otherwise on the same
terms and conditions as the Warrants issued to the investors in the Private
Placement.
NOTE 6 - 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 nine months ended July 31, 2004.
9
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 nine and three months ended
July 31, 2004 amounted to $150,000 and $75,000, respectively, and is included in
consulting fees in the accompanying condensed consolidated statement of
operations for the nine and three months ended July 31, 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. Compensation expense under this agreement for the nine and three
months ended July 31, 2004 amounted to $90,000 and $30,000, respectively, and is
included with payroll and related taxes in the accompanying condensed
consolidated statements of operations for the nine and three months ended July
31, 2004.
NOTE 7 - STOCKHOLDERS EQUITY
In March 2004, the Company issued 250,000 shares of common stock for $50,000.
In June and July 2004, the Company issued 1,954,560 shares of common stock and
stock warrants for gross proceeds of $1,465,895 (See Note 5).
NOTE 8 - SUBSEQUENT EVENTS
In September 2004, the Company raised gross proceeds of $504,000 from the sale
of 21 Units in the Private Placement.
10
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 nine and three
months ended July 31, 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 condensed 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 in Europe and other parts of the world.
11
In February 2003, E & S International Enterprises, Inc. ("ESI"), a California
based electronics distributor, and Jumpit entered into a worldwide exclusive
license agreement for the distribution of the Cellboost battery (the "ESI-Jumpit
Agreement"). The license is in effect through February 12, 2013. Under the
ESI-Jumpit Agreement, ESI must meet certain financial commitments and
performance targets on an annual basis in order to maintain exclusive
distribution rights thereunder.
Following the ESI-Jumpit Agreement, in February 2003 ESI and Global Link
Technologies, Inc. ("Global") entered into an agreement (the "Ancillary
Agreement") wherein ESI granted to Global royalty rights for all sales of the
Cellboost battery in North America, Puerto Rico, the US Virgin Islands, the
Caribbean, Israel and Mexico and exclusive sub-distribution rights in Latin and
South America.
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
Ancillary Agreement. 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 Ancillary 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 $0.10
and $0.05, respectively.
If either the ESI-Jumpit Agreement or the Ancillary 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
Cellboost 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.
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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.
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.
In June and July 2004, the Company raised approximately $1,341,000 in net
proceeds from the private placement of units of its securities to certain
individual and institutional investors. See Note 5 to the condensed consolidated
financial statements accompanying this report. In September 2004, the Company
raised additional net proceeds of approximately $453,000 from such private
placement. See Note 8 to the condensed consolidated financial statements
accompanying this report.
The Company has had limited revenues to date. The Company's revenue is primarily
attributable to royalty income earned as a result of the royalty stream from ESI
(which was purchased from Global under the Ancillary Agreement). The Company
also has an accumulated deficit of approximately $737,000 as of July 31, 2004.
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LIQUIDITY AND CAPITAL RESOURCES
During the three months ended July 31, 2004, the Company repaid the principal
and accrued interest on outstanding debt in an aggregate approximate amount of
$834,000. As of July 31, 2004, the Company had approximately $144,000 in
available cash resources. In addition, in September 2004, the Company raised net
proceeds of approximately $453,000 from its private placement. See Notes 5 and 8
to the condensed consolidated financial statements accompanying this report.
The Company believes its existing cash resources will be sufficient to mantain
its operations as presently conducted through the first fiscal quarter of 2005.
Management intends to seek additional needed funds through financings 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 additional funding and no assurance can be given that the Company will be
able to raise additional funds on commercially acceptable terms or at all.
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.
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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 July 31, 2004, there have been no changes in the
Company's internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, these controls.
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 July 31, 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.
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1. In June and July 2004, the Company issued 1,954,560 shares of its Common
Stock and stock warrants to approximately 27 private and institutional investors
under the Private Placement for gross proceeds of $1,465,895.
2. In connection with the sale of the securities referenced above, the Company
issued to placement agents five-year warrants to purchase up to 129,856 shares
of Common Stock at an exercise price of $1.25 per share.
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
4.1 Form of Common Stock Purchase Warrant issued by Cell Power Technologies,
Inc. to certain investors.
10.1 Form of Subscription Agreement among Cell Power Technologies, Inc. and
certain investors.
31. Rule 13a-15(e) / 15(d)-15(e) Certification
32. Section 1350 Certification
(b) Reports on Form 8-K
1. The Company filed on May 5, 2004 a Current Report on Form 8-K announcing a
corporate name change.
2. The Company filed on June 16, 2004 a Current Report on Form 8-K announcing,
among other things, the initial closing on a private placement and the
disclosure of certain forecast and projections.
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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: September 14, 2004 CELL POWER TECHNOLOGIES, INC.
/s/ JACOB HERSKOVITS
--------------------------------------
JACOB HERSKOVITS
CHIEF EXECUTIVE OFFICER
(AND PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
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