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, 2005
|_| 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 19, 2005, the small business issuer had outstanding 32,157,560
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 (i)
Item 1 - Financial Statements (unaudited)
Condensed Consolidated Balance Sheet at July 31, 2005 1-2
Condensed Consolidated Statements of Operations for the nine and 3
three months ended July 30, 2005 and 2004 and for the period from
September 23, 2003 (inception) to July 31, 2005
Condensed Consolidated Statement of Changes in Stockholders' 4
(Deficiency) Equity for the nine and three months ended July 31,
2005 and for the period from September 23, 2003 (inception) to
July 31, 2005
Condensed Consolidated Statements of Cash Flows for the nine and 5-6
three months ended July 31, 2005 and 2004 and for the period from
September 23, 2003 (inception) to July 31, 2005
Notes to the Condensed Consolidated Financial Statements 7
Item 2 - Plan of Operation 12
Item 3 - Controls and Procedures 17
PART II--OTHER INFORMATION
Item 1 - Legal Proceedings 18
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3 - Defaults upon Senior Securities 18
Item 4 - Submission of Matters to a Vote of Security Holders 18
Item 5 - Other Information 18
Item 6 - Exhibits 18
Signatures 19
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. 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. Although
Cell Power believes that expectations reflected in the forward-looking
statements are reasonable, it cannot guarantee future results, performance or
achievements. Moreover, neither Cell Power nor any other person assumes
responsibility for the accuracy and completeness of these forward-looking
statements. Cell Power 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
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
July 31, 2005
ASSETS
CURRENT ASSETS
Cash $ 43,422
Accounts receivable 29,526
Prepaid expense 17,500
--------
TOTAL CURRENT ASSETS 90,448
INTANGIBLE ASSETS, net of accumulated amortization
of $55,000 225,010
--------
TOTAL ASSETS $315,458
========
See Notes to Condensed Consolidated Financial Statements.
1
CELL POWER TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
July 31, 2005
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 54,525
-----------
TOTAL CURRENT LIABILITIES 54,525
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value, 100,000,000 shares authorized;
32,157,560 shares issued and outstanding 2,531,644
Paid-in capital deficiency (412,801)
Deficit accumulated during the development stage (1,834,577)
Deferred compensation (23,333)
-----------
TOTAL STOCKHOLDERS' EQUITY 260,933
-----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 315,458
===========
See Notes to Condensed Consolidated Financial Statements.
2
CELL POWER TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the
Period from
September 22,
For the Nine For the Nine 2003 For the Three For the Three
Months Ended Months Ended (Inception) to Months Ended Months Ended
July 31, July 31, July 31, July 31, July 31,
2005 2004 2005 2005 2004
------------ ------------ ------------ ------------ ------------
REVENUE
Product sales $ 164,445 $ 31,250 $ 195,695 $ -- $ 31,250
Royalties 45,557 70,836 140,601 15,647 14,410
------------ ------------ ------------ ------------ ------------
TOTAL REVENUE 210,002 102,086 336,296 15,647 45,660
------------ ------------ ------------ ------------ ------------
COST OF GOODS SOLD
Product costs 151,420 14,300 167,999 -- 14,300
Amortization of intangibles 22,500 22,500 55,000 7,500 7,500
------------ ------------ ------------ ------------ ------------
TOTAL COST OF GOODS SOLD 173,920 36,800 222,999 7,500 21,800
------------ ------------ ------------ ------------ ------------
GROSS PROFIT 36,082 65,286 113,297 8,147 23,860
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
Consulting fees 431,467 545,999 1,296,016 107,500 195,000
Professional fees 228,916 70,748 389,282 74,774 40,748
Officer's salary 20,000 98,561 139,160 -- 31,310
Marketing and other 60,522 25,329 136,324 15,152 17,271
------------ ------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 740,905 740,637 1,960,782 197,426 284,329
------------ ------------ ------------ ------------ ------------
OPERATING LOSS (704,823) (675,351) (1,847,485) (189,279) (260,469)
------------ ------------ ------------ ------------ ------------
OTHER (INCOME) EXPENSES
Interest expense - related parties -- 46,043 62,974 -- 10,070
Interest expense -- 16,052 21,000 -- 10,817
Interest income (1,112) -- (1,112) (5) --
------------ ------------ ------------ ------------ ------------
TOTAL OTHER (INCOME) EXPENSES (1,112) 62,095 82,862 (5) 20,887
------------ ------------ ------------ ------------ ------------
NET LOSS $ (703,711) $ (737,446) $ (1,930,347) $ (189,274) $ (281,356)
============ ============ ============ ============ ============
Basic and diluted net loss per common share $ (0.02) $ (0.03) $ (0.01) $ (0.01)
============ ============ ============ ============
Weighted-average common shares outstanding 32,157,560 27,837,574 32,157,560 29,452,664
============ ============ ============ ============
See Notes to Condensed Consolidated Financial Statements.
3
CELL POWER TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIENCY)
EQUITY Period from September 22, 2003 (Inception) to July 31, 2005
- --------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Paid-in During the Stock Deferred
------------------------ Capital Development Subscription Consulting
Shares Amount Deficiency Stage Receivable Fees Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
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 -- -- -- -- 10
Collection of stock subscription
receivable on October 24, 2003 -- -- -- -- 100 -- 100
Net loss -- -- -- (95,770) -- -- (95,770)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE - October 31, 2003 23,600,000 236 -- (95,770) (126) -- (95,660)
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) -- -- -- (300,000)
Stock options issued to consultant for
services on January 22, 2004 -- -- 10,999 -- -- -- 10,999
Issuance of common stock to consultants
for services on February 12, 2004 3,000,000 300,000 -- -- -- (300,000) --
Issuance of common stock for $.20 per
share on March 10, 2004 250,000 50,000 -- -- -- -- 50,000
Collection of stock subscription
receivable on March 15, 2004 -- -- -- -- 126 -- 126
Issuance of common stock for $.75 per
share and warrants on June 11, 2004,
net of issuance costs of $26,600 864,000 621,400 -- -- -- -- 621,400
Issuance of common stock for $.75 per
share and warrants on July 30, 2004,
net of issuance costs of $98,292 1,090,560 719,602 -- -- -- -- 719,602
Issuance of common stock for $.75 per
share and warrants on September 1, 2004,
net of issuance costs of $51,600 672,000 452,400 -- -- -- -- 452,400
Issuance of common stock to consultants
for services on September 24, 2004 250,000 140,000 -- -- -- (140,000) --
Issuance of common stock for $.75 per
share and warrants on October 6, 2004,
net of issuance costs of $26,624 320,000 213,376 -- -- -- -- 213,376
Issuance of common stock to consultants
for services on October 20, 2004 11,000 6,600 -- -- -- -- 6,600
Amortization of deferred consulting fees -- -- -- -- -- 236,200 236,200
Net loss -- -- -- (1,130,866) -- -- (1,130,866)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE - October 31, 2004 32,157,560 2,531,644 (412,801) (1,130,866) -- (203,800) 784,177
Amortization of deferred consulting fees -- -- -- -- -- 180,467 180,467
Net loss -- -- -- (703,711) -- -- (703,711)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE - July 31, 2005 (UNAUDITED) 32,157,560 $ 2,531,644 $ (412,801) $(1,834,577) $ -- $ (23,333)$ 260,933
=========== =========== =========== =========== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements.
4
CELL POWER TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- --------------------------------------------------------------------------------
For the
Period from
September 22,
For the Nine For the Nine 2003
Months Ended Months Ended (Inception) to
July 31, July 31, July 31,
2005 2004 2005
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (703,711) $ (737,446) $(1,930,347)
----------- ----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of deferred consulting fees 180,467 150,000 416,667
Stock issued for services -- -- 6,600
Stock options issued for services -- 10,999 10,999
Amortization of intangibles 22,500 22,500 55,000
Changes in operating assets and liabilities:
Increase in accounts receivable (29,526) (31,250) (29,526)
Decrease in prepaid expenses - related party -- 35,000 --
Increase in prepaid expenses (17,500) -- (17,500)
Increase in accounts payable 37,717 (285) 54,525
Increase in accrued payroll -- 11,167 --
Increase in accrued interest - related parties -- (16,931) --
Increase in accrued interest -- (4,948) --
Decrease in deferred revenue -- (30,000) (30,000)
----------- ----------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (510,053) (591,194) (1,463,582)
----------- ----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of intangible assets -- -- (100,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of stock purchase liability -- -- (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 $203,116) -- 1,391,002 2,056,778
Collection of stock subscription receivable -- 126 226
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES $ -- $ 641,128 $ 1,607,004
----------- ----------- -----------
See Notes to Condensed Consolidated Financial Statements
5
CELL POWER TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS,
(UNAUDITED)
- --------------------------------------------------------------------------------
For the
Period from
September 22,
For the Nine For the Nine 2003
Months Ended Months Ended (Inception) to
July 31, July 31, July 31,
2005 2004 2005
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH $(510,053) $ 49,934 $ 43,422
CASH - Beginning of period 553,475 93,994 --
--------- --------- ---------
CASH - End of period $ 43,422 $ 143,928 $ 43,422
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the periods for:
Interest $ -- $ 83,975 $ 83,975
Taxes $ 1,700 $ -- $ 1,700
Non-cash investing and financing activities:
Issuance of common stock in exchange for services to
to be rendered $ -- $ 300,000 $ 300,000
See Notes to Condensed Consolidated Financial Statements.
6
CELL POWER TECHNOLOGIES, INC.
(A Development Stage Company)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
ORGANIZATION
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" or the "Company"), 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.
Immediately prior to the consummation of the Exchange Agreement, ETMV was
an inactive public shell. Pursuant to the Exchange Agreement, ETMV repurchased
20,000,000 shares of its common stock for $300,000, which it accounted for as a
treasury stock transaction. ETMV subsequently cancelled the shares and then
issued 23,600,000 of its unregistered shares of common stock for 100% of the
outstanding membership units of Cell Power LLC. Each membership unit of Cell
Power LLC was exchanged for 100,000 shares of ETMV common stock. As a result of
this exchange, the members of Cell Power LLC gained voting control of ETMV and,
thus, the exchange was accounted for as a reverse acquisition and Cell Power LLC
became a wholly-owned subsidiary of ETMV.
The accompanying financial statements set forth in this report for periods
prior to the recapitalization, are the financial statements of Cell Power LLC,
which have been retroactively restated to give effect to the exchange for Cell
Power's common stock, no par value (the "Common Stock"). Cell Power and its
subsidiary, Cell Power LLC, are collectively referred to as the "Company".
On April 29, 2004, ETMV changed its name to Cell Power Technologies, Inc.
DESCRIPTION OF BUSINESS AND DEVELOPMENT STAGE OPERATIONS
The Company acquired certain revenue/royalty rights, product purchasing
rights and exclusive sub-distribution rights, in certain markets in the western
hemisphere, for "Cellboost" for a period of ten years. Cellboost is a compact,
non-rechargeable, and disposable cellular telephone battery. A substantial
amount of the Company's time and capital resources are being devoted to
developing its plan to distribute Cellboost.
In addition to developing markets under the rights described above, the
Company's other development stage activities include raising capital of which
the Company has raised approximately $2 million to date through sales of its
common stock. As a development stage company, the Company is subject to all of
the risks and uncertainties that are associated with starting a new business
(See Note 2).
NOTE 2 - GOING CONCERN AND MANAGEMENT'S PLAN
The Company's condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As of July 31, 2005, the
Company has incurred accumulated net losses of $1,930,347 since its inception,
has working capital of $35,923 and stockholders' equity of $260,933. The Company
has significantly limited capital resources and will require additional funding
in order to sustain its operations, market its products and execute its overall
business plan. The Company expects to incur additional losses in the foreseeable
future. There is no assurance that the Company will generate revenue or raise
the funds that it needs to maintain its operation. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
7
CELL POWER TECHNOLOGIES, INC.
(A Development Stage Company)
(Unaudited)
The Company's ability to continue to operate as a going concern is
substantially dependent on its ability to generate operating cash flow through
the execution of its business plan and secure funding sufficient to provide for
the working capital needs of the business. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Management is currently in the process of executing its business plan. There can
be no assurance that management will be successful in implementing its business
plan or that the successful implementation of such business plan will actually
improve the Company's operating results.
NOTE 3 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying 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, 2005, and its results of operations and cash
flows for the nine months ended July 31, 2005 not misleading. Operating results
for the nine months ended July 31, 2005 are not necessarily indicative of the
results that may be expected for the fiscal year ending October 31, 2005.
PRINCIPLES OF CONSOLIDATION
The accompanying condensed consolidated financial statements include the
accounts of Cell Power and its wholly owned subsidiary Cell Power LLC. 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 persuasive evidence of an arrangement exists pursuant to which units are
shipped, the fee is fixed and determinable and collectibility is probable.
Revenues from royalties of Cellboost units were $45,557 and $70,836 for the nine
months ended July 31, 2005 and 2004, respectively, and $15,647 and $14,410 for
the three months ended July 31, 2005 and 2004, respectively. Revenues from the
distribution of the Cellboost product were $164,445 and $31,250 for the nine
months ended July 31, 2005 and 2004, respectively and $0 and $31,250 for the
three months ended July 31, 2005 and 2004, respectively.
8
CELL POWER TECHNOLOGIES, INC.
(A Development Stage Company)
(Unaudited)
EMPLOYEE STOCK OPTIONS
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 net loss per
share as 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, 2005 and 2004, respectively:
Nine Months Ended Three Months Ended
July 31, July 31,
2005 2004 2005 2004
--------- --------- --------- ---------
Net loss as reported $(703,711) $(737,446) $(189,274) $(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) (6,770) (2,256) (2,256)
--------- --------- --------- ---------
Pro forma net loss $(710,481) $(744,216) $(191,530) $(283,612)
========= ========= ========= =========
Net loss per share, basic and diluted
as reported $ (0.02) $ (0.03) $ (0.01) $ (0.01)
========= ========= ========= =========
Pro forma net loss per share,
basic and diluted $ (0.02) $ (0.03) $ (0.01) $ (0.01)
========= ========= ========= =========
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 123R "Share Based Payment". This statement is a revision
of SFAS Statement No. 123, "Accounting for Stock-Based Compensation" and
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
its related implementation guidance. SFAS 123R addresses all forms of share
based payment ("SBP") awards including shares issued under employee stock
purchase plans, stock options, restricted stock and stock appreciation rights.
Under SFAS 123R, SBP awards result in a cost that will be measured at fair value
on the awards' grant date, based on the estimated number of awards that are
expected to vest and will be reflected as compensation expense in the financial
statements. This statement is effective for public entities that file as small
business issuers as of the beginning of the first annual reporting period that
begins after December 15, 2005. Upon adoption of this pronouncement the Company
may need to record additional stock compensation expense.
9
CELL POWER TECHNOLOGIES, INC.
(A Development Stage Company)
(Unaudited)
In December 2004, the FASB issued Statement Accounting Standard ("SFAS")
No. 153 "Exchanges of Nonmonetary Assets". This Statement amends Opinion 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The provisions of this Statement are
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. Earlier application is permitted for nonmonetary asset
exchanges occurring in fiscal periods beginning after December 16, 2004. The
provisions of this Statement should be applied prospectively. The adoption of
this pronouncement did not have material effect on the Company's financial
statements.
EITF Issue 04-8, "The Effect of Contingently Convertible Instruments on
Diluted Earnings per Share." The EITF reached a consensus that contingently
convertible instruments, such as contingently convertible debt, contingently
convertible preferred stock, and other such securities should be included in
diluted earnings per share (if dilutive) regardless of whether the market price
trigger has been met. The consensus is effective for reporting periods ending
after December 15, 2004. The adoption of this pronouncement did not have
material effect on the Company's financial statements.
In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes
and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement
No. 3, Reporting Accounting Changes in Interim Financial Statements. This
statement changes the requirements for the accounting for and reporting of a
change in accounting principle. This Statement applies to all voluntary changes
in accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed. This statement is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005.
NOTE 4 - NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss applicable to
common shares by the number of weighted-average common shares outstanding during
the period. Common stock equivalents have been excluded from the
weighted-average shares for the nine and three months ended July 31, 2005 and
2004, respectively, as their inclusion would be antidilutive. Potentially
dilutive securities include an aggregate of 4,190,016 and 3,098,416, stock
options and warrants for the purchase of common stock at July 31, 2005 and 2004,
respectively.
NOTE 5 - SIGNIFICANT CUSTOMERS AND SUPPLIERS
During the nine and three months ended July 31, 2005 and 2004 the
Company's revenue was generated entirely from royalties received from E & S
International Enterprises, Inc. ("E & S"), and the sale of Cellboost units to
two customers.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
CONSULTING SERVICES CONTRACTS
In October 2003, the Company entered into a management services agreement
with an entity that was considered to be a related party prior to the Exchange
Agreement. The original terms of the agreement provided that the Company receive
general business and management services for monthly payments of $35,000 for
five years. In December 2004, the Company and the consultant amended the
agreement to reduce the required monthly payments to $17,500 commencing January
2005. The Company incurred $192,500 and $52,500 of fees under this contract
during the nine and three months ended July 31, 2005, respectively and $315,000
and $105,000 for the nine and three months ended July 31, 2004, respectively.
10
CELL POWER TECHNOLOGIES, INC.
(A Development Stage Company)
(Unaudited)
In January 2004, the Company entered into a separate consulting services
agreement for corporate finance advisory and business development 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 Company's common stock at an
exercise price of $0.75 per share and has a fair value of $10,999. In December
2004, the Company and the consultant entered into an amendment to the consulting
agreement pursuant to which beginning January 1, 2005 and continuing on a
month-to-month basis, the consultant will receive monthly payments of $3,000.
The Company paid $13,000 of fees under this contract during the nine months
ended July 31, 2005. The agreement was terminated as of February 2005 upon the
mutual agreement of the Company and the Consultant.
In July 2005 the Company entered into a consulting agreement for marketing
and sales services. The agreement provides for payments of $20,000 for each
month of July and August 2005 for certain start-up expenses. In addition, the
consultant will receive a $0.20 commission per unit sold in Latin and South
America.
EMPLOYMENT AGREEMENT
The Company entered into a three-year employment agreement, effective
November 1, 2003, with its 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. In December 2004, the Company and its Chief Executive Officer entered
into an amendment to the employment agreement pursuant to which beginning
January 1, 2005 and continuing through the term of the Agreement, the Chief
Executive Officer is not entitled to a salary. Compensation expense under this
agreement amounted to $20,000 and $0 for the nine and three months ended July
31, 2005, respectively and $98,561 and $31,310 for the nine and three months
ended July 31, 2004, respectively and is presented as officer's salary in the
accompanying condensed consolidated statement of operations.
AGREEMENT WITH GLOBAL LINK TECHNOLOGIES, INC.
In January 2005, the Company received a letter from or on behalf of Global
Link Technologies, Inc. ("GBLK") together with a document titled First Amendment
to the Amended and Restated Asset Purchase Agreement (the "First Amendment").
The First Amendment, which the Company believes was inappropriately obtained by
GBLK and, as a result, is not valid, provides that the royalty fees payable to
GBLK are payable in perpetuity. The Company does not believe that the First
Amendment is enforceable and intends to vigorously defend against any claim GBLK
may initiate regarding the payment of royalties after 2005. GBLK has also
communicated to the Company that it may have retained certain rights under the
Amended Agreement with respect to Latin and South America and that through
certain of Company's actions or inactions the Company may be in breach of such
agreement. The Company believes that GBLK's contentions are without merit. GBLK
has not initiated any formal claims to date with respect to these assertions
however; the Company cannot guarantee that it would be successful in its defense
against any claims GBLK may initiate with respect to these contentions.
11
ITEM 2. PLAN OF OPERATION
The following analysis of the financial condition of the Company should be
read in conjunction with the condensed consolidated financial statements
included elsewhere herein. All statements in this Form 10-QSB related to Cell
Power Technologies, Inc. and Subsidiaries ongoing financial operations and
expected future results constitute forward-looking statements. The actual
results may differ materially from those anticipated or expressed in such
statements.
OVERVIEW AND HISTORY
Pursuant to an exclusive license agreement entered into between the patent
holder of the "Cellboost" battery and an exclusive distributor and a sub-license
agreement entered into between such exclusive distributor and a succeeding
sub-licensee with whom Cell Power Technologies, Inc. (the "Company" or "we")
entered into acquisition and license agreements, we currently hold royalty
rights on all sales of Cellboost units in North America, Mexico, Puerto Rico,
the US Virgin Islands, the Caribbean and Israel. In addition, we have exclusive
sub-distribution rights of Cellboost in Latin and South America, which is
defined as all countries south of Mexico and north of Tierra Del Fuego,
Argentina.
We were 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, our name was changed to Cell Power Technologies, Inc. Our
original business plan never materialized and, in November 2003, we entered into
an agreement with the holders of the membership interests in Cell Power
Technologies LLC, a Delaware limited liability company, pursuant to which we
issued shares of our common stock for all outstanding membership interests in
Cell Power Technologies LLC. Following the transaction, Cell Power Technologies
LLC became a wholly owned subsidiary of our company.
CELLBOOST PRODUCT
Cellboost is a patented simple disposable power source encased in a hard
shell of plastic with a phone specific plug providing instant talk time to dead
phone batteries as well as serving as a charging device for cellular phones. The
device attaches to the charger port of a cell phone and delivers enough energy
to the phone to enable up to 60 minutes of extra talk time. Cellboost is
intended to supply a needed energy source for built in phone batteries, thereby
avoiding the "dead" cell phone phenomenon. Smaller than a matchbook, Cellboost
comes in phone specific models to fit most cellphones and includes a portable
battery with a non-degenerating three-year shelf life. Cellboost is currently
available in ten different models that are compatible with Nokia, Motorola, Sony
Erickson, Samsung, LG, Sanyo and Siemens cell phones. Each Cellboost has a
plastic cap which makes their storage in pocketbooks or pockets convenient. The
caps are color-coded to be representative of the brand of phone that the
Cellboost works with.
Cellboost was developed by Jumpit AS ("Jumpit"), a private company based
in Oslo, Norway. In December 2001, Jumpit applied for patent protection for the
backup battery for a rechargeable phone. In March 2004, the United States Patent
Office granted the patent. Patent applications are pending in other parts of the
world, including South and Latin America.
OUR RIGHTS TO CELLBOOST PRODUCT
In February 2003, E & S International Enterprises, Inc. ("E & S"), a
California-based electronics distributor, entered into a worldwide exclusive
license agreement, as subsequently amended, with Jumpit for the distribution of
the Cellboost battery. E & S subsequently trademarked the name Cellboost. Under
the license agreement, E & S must meet certain performance targets on an annual
basis in order to maintain exclusive distribution rights in its agreement with
Jumpit. The license continues through February 2013, and contains a provision in
which six months prior to its scheduled expiration date of the license, the
parties can agree to consider, in good faith, the basis for an extension of the
agreement.
12
In February 2003, E & S entered into an agreement with Global Link
Technologies, Inc. ("Global Link"), pursuant to which E & S agreed to pay Global
Link a royalty for all sales in the territories below of the Cellboost units in
consideration of Global Link's termination of an agreement that it then had with
Jumpit. Under such agreement, E & S is required to pay Global Link the following
royalties:
* $.10 on net sales made to retailers in the United States, Mexico, Canada
and Israel;
* $.05 on net sales made to distributors in the United States, Mexico,
Canada and Israel; and
* $.075 on all pre-approved net sales made by E & S in South America,
which is defined as south of Mexico and north of Tierra Del Fuego, Argentina
including the Caribbean but not Puerto Rico or the U.S. Virgin Islands).
E & S also granted Global Link the right to serve as exclusive
sub-distributor in Latin America and as a distributor for the United States,
Mexico and Canada. Sales by E & S in Latin America must be pre-approved by
Global Link. Global Link's license agreement expires in February 2013, subject
to any extension in the original license agreement between E & S and Jumpit.
In October 2003, Cell Power Technologies LLC, our wholly owned subsidiary,
prior to entering into the Share Exchange Agreement with our company, entered
into an asset purchase agreement with Global Link wherein Cell Power LLC
purchased Global Link's royalty rights with respect to sales in North and
Central America, Mexico, the Caribbean and Israel entitling our company to
receive royalties on the net number of units sold by E & S in those territories.
The royalty payments are divided between two categories, sales to retailers and
sales to distributors. Royalty rates per unit payable to our company with
respect to sales by E & S to retailers and distributors are $0.10 and $0.05,
respectively. These rights expire on February 12, 2013, subject to any extension
in the underlying agreement between Jumpit and E & S.
In December 2003, Cell Power Technologies LLC entered into an amended and
restated amendment agreement with Global Link (the "Global Link Agreement") for
exclusive sub-distribution rights in Latin and South America, comprised of
Global Link's rights under the license 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). Pursuant to this agreement, we are required to remit royalties to
Global Link through 2005, based on units sold, and to E & S, equal to 50% of
gross profit on units sold by us as an exclusive sub-distributor. The royalty
fees due Global Link can be paid, at our sole discretion, either in the form of
cash or unregistered shares of common stock with a market value equal to the
amount of the obligation.
In January 2005, we received a letter from or on behalf of Global Link
together with a document titled First Amendment to the Amended and Restated
Asset Purchase Agreement (the "First Amendment"). The First Amendment, which we
believe was inappropriately obtained by GBLK and, as a result, is not valid,
provides that the royalty fees payable to GBLK are payable in perpetuity. We do
not believe that the First Amendment is enforceable and intends to vigorously
defend against any claim GBLK may initiate regarding the payment of royalties
after 2005. GBLK has also communicated to us that it may have retained certain
rights under the Amended Agreement with respect to Latin and South America and
that through certain of our actions or inactions the Company may be in breach of
such agreement. We believe that GBLK's contentions are without merit. GBLK has
not initiated any formal claims to date with respect to these assertions
however; the Company cannot guarantee that it would be successful in its defense
against any claims GBLK may initiate with respect to these contentions.
13
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.
We do not participate in, nor has it created, any off-balance sheet
special purpose entities or other off-balance sheet financing. In addition, we
do not enter into any derivative financial instruments for speculative purposes.
Intangible assets are carried at cost less accumulated amortization.
Amortization is computed on the straight-line method over the ten-year estimated
useful life of the assets.
We review the carrying value of our intangible assets to determine whether
impairment may exist. We consider relevant cash flow and profitability
information, including estimated future operating results, trends and other
available information, in assessing whether the carrying value of the intangible
assets can be recovered. If it is determined that the carrying value of the
intangible assets will not be recovered from the undiscounted future cash flows,
the carrying value of the assets would be considered impaired. An impairment
charge is measured as any deficiency in the amount of estimated fair value of
the intangible assets over carrying value.
FINANCIAL CONDITION
We are considered a development stage company and have a limited operating
history upon which an evaluation of our prospects can be made. As of July 31,
2005, we had an accumulated deficit of $1,834,577. Our prospects must therefore
be evaluated in light of the problems, expenses, delays and complications
associated with a development stage company.
REVENUES. We currently generate revenues from the collection of royalties
payable to us based on the net number of Cellboost units sold by E & S in North
America, Mexico, Puerto Rico, the US Virgin Islands, the Caribbean and Israel.
These royalty payments are divided between two categories, sales to retailers
and sales to distributors. Royalty rates per unit payable to us with respect to
sales by E & S to retailers and distributors are $0.10 and $0.05, respectively.
Revenues from royalties were $45,557 and $70,836 for the nine months ended July
31, 2005 and 2004, respectively. Revenues from our distribution of the Cellboost
product for the nine months ended July 31, 2005 and 2004 amounted to $164,445
and $31,250, respectively.
14
Our plan is to accelerate the development of new markets for Cellboost in
Latin and South America. We expect to incur significant additional expenditures
in implementing our marketing plan and will likely generate operating losses for
the foreseeable future. There can be no assurance that we will be profitable at
any time in the foreseeable future.
OPERATING EXPENSES. Our operating expenses for the nine months ended July
31, 2005 and 2004 amounted to $740,905 and $740,637 and were principally
comprised of consulting and professional fees. Commencing January 2005, our
payments under the contract with Superior Associates has been reduced by 50% and
our Chief Executive Officer and President is no longer receiving (nor entitled
to) a salary.
Nonetheless, we expect our operating expenses to increase over the course
of fiscal 2005 as we increase our efforts to develop an indirect distribution
framework in the South American market. We expect to incur significant
additional expenditures in implementing our marketing plan and expect to incur
operating losses in the foreseeable future. There can be no assurance that we
can operate the business profitably now or at anytime in the future.
LIQUIDITY AND CAPITAL RESOURCES
To date, we have funded our operations primarily through the sales of our
securities. Pursuant to a private placement commenced in May 2004 and completed
in October 2004, we raised aggregate gross proceeds of approximately $2,210,000
($2,007,000 net of offering costs) from the sale of 92.08 units of our
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 with a per share
exercise price of $1.25. We also raised an additional $50,000 during fiscal 2004
from the sale of other securities.
As of July 31, 2005, our existing cash resources were approximately
$43,000, in addition to which during August and September we collected
approximately $29,000 from royalties and distribution of the Cellboost product
which were sold during the nine months ended July 31, 2005. We need to raise
additional funds as we believe our existing cash resources will enable us to
maintain operations and meet our obligations as they come due only through the
fourth quarter of 2005.
Net cash used in operating activities during the nine months ended July
31, 2005 was $510,053 and is primarily attributable to consulting, professional
and marketing fees.
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. We have no commitments for
any additional funding and no assurance can be given that we will be able to
raise additional funds on commercially acceptable terms or at all. Unless we can
raise needed capital or experience a significant increase in royalty income
payable to us by E & S, we may need to curtail expenditures and cancel or delay
our efforts to establish and expand a marketing presence for Cellboost in South
and Latin America. Commencing January 2005, our monthly operating expenses have
been reduced by $29,500 through the reduction of salaries and consulting fees.
There can be no assurance, however, that these reductions are sustainable or
that we can sustain the business for any significant length of time solely
through initiatives to reduce our costs. These matters raise substantial doubt
about our ability to continue as a going concern.
15
Our continuation as a going concern is dependent upon, among other things,
our ability to obtain additional financing when and as needed, and to generate
sufficient cash flow to meet our obligations on a timely basis. No assurance can
be given that we will be able to obtain such financing on acceptable terms.
These circumstances could complicate our ability to raise additional capital.
Our financial statements do not include any adjustments to the carrying amounts
of our assets and liabilities that might result from the outcome of this
uncertainty.
In addition, any future capital raise by our company is likely to result
in substantial dilution to existing stockholders.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2004, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 123R "Share Based Payment". This statement is a revision
of SFAS Statement No. 123, "Accounting for Stock-Based Compensation" and
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
its related implementation guidance. SFAS 123R addresses all forms of share
based payment ("SBP") awards including shares issued under employee stock
purchase plans, stock options, restricted stock and stock appreciation rights.
Under SFAS 123R, SBP awards result in a cost that will be measured at fair value
on the awards' grant date, based on the estimated number of awards that are
expected to vest and will be reflected as compensation expense in the financial
statements. This statement is effective for public entities that file as small
business issuers as of the beginning of the first annual reporting period that
begins after December 15, 2005.
The Company is currently in the process of evaluating the effect that the
adoption of this pronouncement may have on its financial statements.
In December 2004, the FASB issued Statement Accounting Standard ("SFAS")
No. 153 "Exchanges of Nonmonetary Assets". This Statement amends Opinion 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The provisions of this Statement are
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. Earlier application is permitted for nonmonetary asset
exchanges occurring in fiscal periods beginning after December 16, 2004. The
provisions of this Statement should be applied prospectively.
The adoption of this pronouncement did not have material effect on the
Company's financial statements.
EITF Issue 04-8, "The Effect of Contingently Convertible Instruments on
Diluted Earnings per Share." The EITF reached a consensus that contingently
convertible instruments, such as contingently convertible debt, contingently
convertible preferred stock, and other such securities should be included in
diluted earnings per share (if dilutive) regardless of whether the market price
trigger has been met. The consensus is effective for reporting periods ending
after December 15, 2004.
16
The adoption of this pronouncement did not have material effect on the
Company's financial statements.
In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes
and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement
No. 3, Reporting Accounting Changes in Interim Financial Statements. This
statement changes the requirements for the accounting for and reporting of a
change in accounting principle. This Statement applies to all voluntary changes
in accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed. This statement is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005.
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF OUR DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we carried out an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Exchange Act Rule 13-d-15(e) and
15d-15(e)). Based upon that evaluation and management's assessment of the
potential effect of the material weakness described below, our Chief Executive
Officer (and Principal Accounting Officer) concluded that as of the end of the
period covered by this Quarterly Report on Form 10-QSB our disclosure controls
and procedures were effective to enable us to record, process, summarize and
report information required to be included in our periodic SEC filings within
the required time period.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS
Disclosure Controls are procedures that are designed with the objective of
ensuring that information required to be disclosed in our reports filed under
the Securities Exchange Act of 1934 ("Exchange Act"), such as this quarterly
report, is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. Disclosure Controls are also designed
with the objective of ensuring that such information is accumulated and
communicated, as appropriate to allow timely decisions regarding required
disclosure. Internal Controls are procedures which are designed with the
objective of providing reasonable assurance that (1) our transactions are
properly authorized, recorded and reported; and (2) our financial statements are
presented in conformity with generally accepted accounting principles.
Our company is not an accelerated filer (as defined in the Securities
Exchange Act) and is currently not required to deliver management's report on
our internal control over financial reporting until our fiscal year ended
October 31, 2006.
In connection with the audit of our financial statements for the year
ended October 31, 2004, Marcum & Kliegman LLP, our independent registered public
accounting firm ("Marcum") advised us that it had identified a material weakness
in our controls over financial reporting under standards established by the
Public Company Accounting Oversight Board with respect to our royalty reporting.
The material weakness identified by Marcum relates to our ability to record
royalty revenue, the data for which we obtain from an outside party in reports
that are furnished to us on a calendar quarterly basis, which, as of the quarter
ended January 31, 2005, did not coincide with our fiscal quarters. This required
us to estimate revenue for the final month of each fiscal quarter. Specifically,
Marcum communicated their identification of the material weakness to us at our
October 31, 2004 year end audit committee meeting that we held in January 2005.
For the year ended October 31, 2004, the effect of this timing difference was
not material to our financial statements.
We discussed the aforementioned material weakness in detail with our
independent registered public accounting firm, which firm specifically
recommended that we contact the outside party to request a change in the
reporting structure that is currently provided for under our licensing
agreement. We immediately accepted this recommendation and contacted the outside
party to request that the royalty reports be provided to us in intervals that
coincide with our fiscal reporting periods. The outside party has acknowledged
our request and has committed to provide us with such reports in intervals that
coincide with our fiscal quarters beginning in the quarter ended April 30, 2005.
We received the requested reports for the quarter ended April 30, 2005 in June
2005.
17
Notwithstanding our efforts, we did not receive the requested reports for
the month of July 2005 as of the date of the filing of this quarterly report.
However, based on the amounts of the royalties earned during May and June 2005
we do not believe that the amount of royalties for July 2005 that would have
been reported by such third party are significant. We are currently in the
process of evaluating and considering remedies available to us in order to
obtain the data in the time frame that we require.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal controls over financial reporting that
occurred during the quarter ended July 31, 2005 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
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.
31. Rule 13a-14(a) / 15d-14(a) Certification
32. Section 1350 Certification
18
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 19, 2005 CELL POWER TECHNOLOGIES, INC.
/s/ JACOB HERSKOVITS
--------------------------------------
JACOB HERSKOVITS
CHIEF EXECUTIVE OFFICER
(AND PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
19