SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT
Pursuant to Section 13 or 15 (d) of
the Securities and Exchange Act of 1934
For the fiscal year ended Commission File
June 30, 1996 Number 0-15379
Power-Cell, Inc.
(Exact name of registrant as specified in charter)
Colorado 84-1029701
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
660 Preston Forest Center, Box 200
Dallas, Texas 75230
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(214) 373-1887
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) or 12(g) of the Act:
$.0001 par value common stock
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is approximately $630,000. This calculation is based upon the average
of the bid and asked prices of the Registrant's Common Stock on June 30, 1996.
The number of shares of the Registrant's $.0001 par value Common Stock
outstanding as of September 30, 1996 was 6,216,875.
<PAGE>
PART I
Item 1. Business
--------
(a) General Development of Business.
--------------------------------
On December 27, 1988, the United States Patent and Trademark
Office issued a United States' Letter Patent to Power-Cell, Inc.,
a Colorado corporation (the "Company") relating to certain
features of the Company's replaceable low-cost reserve battery
charger unit. The patent entitles the Company to prohibit others
from making, using or selling the invention claimed for a period
of seventeen (17) years from the date of issue. The Company filed
a Divisional Patent Application on September 19, 1988 relating to
other aspects of the battery charger unit. The Company was advised
on August 22, 1989 that certain of its claims contained in its
Divisional Patent Application are allowable by the U.S. Patent
Examiner and the patent will advance to issue. Based upon the
results of a search conducted of the Untied States Patent and
Trademark Office records in March 1987, it was determined that
there were no U.S. patents that would be infringed by the
manufacturing and marketing of the Product, and no patents have
subsequently come to the attention of the Company which would be
infringed. In addition, the Company has filed for patent
protection relating to the battery charger unit in thirteen
foreign countries and was advised on August 8, 1989 that its
patent application in Spain, Italy, Great Britain, Australia and
Argentina has been approved for issue. There can be no assurance
that such additional patent protection can or will be obtained.
On May 27, 1989, the Company entered into a letter of intent (the
"Letter of Intent") with Daewoo Heavy Industries, Inc., of Seoul,
Korea ("DHI") to complete the development program for the Company
reserve battery charger unit (the "Product"). The Letter of Intent
provided that DHI would bear most costs and expenses related to
development of the Product. The Company would provide technical
assistance and pay regulatory costs. Upon satisfactory development
of the Product pursuant to the development program, the parties
intended to negotiate a definitive agreement for the manufacture
and distribution of the Product on a worldwide basis.
Negotiations pursuant to the Letter of Intent were terminated in
September, 1990. DHI informed the Company that DHI's prime bank
would not approve a loan to DHI for the Product on the grounds of
government policies to regulate the business diversification of
conglomerates in Korea. In addition, DHI informed the Company that
DHI's Board of Directors decided to postpone indefinitely DHI's
participation in the project due to increased wage and material
costs for cases and plates, the strength of the Korean won, and
the general problem of oil price increases caused by the crises in
the Persian Gulf.
2
<PAGE>
Power Cell, Inc. entered into an Agreement of Limited Partnership
on October 9, 1992, by and among Reserve Battery, Inc., a Colorado
corporation as general partner (the name of the general partner
was amended to read "Reserve Cell Limited Liability Company",
General Partner of Reserve Battery Cell, L.P.), and other parties
at interest.
The parties, as above, formed a limited partnership with the name
of "Reserve Battery Cell, L.P" subject to the provisions of the
Colorado Uniform Limited Partnership Act of 1981, as amended, to
develop, manufacture, market and sell the reserve battery product
lines; to obtain financing and refinancing to accomplish the
foregoing purposes and other provisions normally required in such
projects.
Power Cell, Inc. has a participation of 7.35% percent in the
Reserve Battery Cell, L.P., that may be increased or decreased,
due to certain events pending, namely the legal action of Reserve
vs. Osmic et al.(See item 3, page 5). Should Reserve prevail in
this matter, the 5.34% interest of Osmic in the limited
partnership will be canceled and re-allocated on a pro rata basis
between Reserve, Power Cell, Inc. and the international rights
holders. Further, the right to participate in 41% of the Power
Cell, Inc. domestic royalties should also be canceled. The three
year option of Osmic to acquire 200 thousand PCI common shares at
$1.00 per share expired on March 5, 1995. (originally 20 million
shares at a one cent per share cost, adjusted for a 100/1 reverse
split of the common shares effective November 21, 1994). In
addition, PCI will receive royalty payments on all units produced
and sold in the United States and its possessions. Royalty
payments on international sales of the unit will be paid to
individual international rights holders or their designees, some
of which are affiliates of PCI, and all of which are limited
partners in the partnership, on the following basis: one-third (33
1/3%) to J. C. Rambin; one-third (33 1/3%) to Rudy Marich;
one-third to Howard Farkas (75% of 1/3) and Burt Kanter (25% of
1/3).
Power Cell, Inc. entered into a License Agreement on October 9,
1992, by and among Reserve Battery Cell, L.P., a Colorado limited
partnership (Reserve), the International Rights Holders and other
parties at interest. The license agreement granted to Reserve
included the rights to the patents, technology and the Domestic
and International Rights, to develop, produce, market and sell the
product.
The separate license royalty agreement between the Company and the
Partnership provides that the Company will receive royalty
payments on all Power Cell units produced and sold in the Untied
States and its territories from 5% to 20% of annual gross per
unit. Royalty payments on international sales of Power Cell units
will be paid to individual international rights holders, some of
which are affiliates of the Company (director and/or significant
shareholders), and all of which are limited partners in the
Partnership.
3
<PAGE>
(b) Financial Information About Industry Segments.
----------------------------------------------
Not applicable.
(c) Narrative Description of Business.
----------------------------------
The Company was organized in April 1986 to seek out and evaluate
potential business opportunities. It received $360,000 in net
proceeds, before offering expenses of approximately $44,000, from
its initial public offering of 400,000 Units of its Common Stock
and Class A Warrants ("Units") that closed in December 1986. From
the close of that offering until the Spring of 1987, the Company
evaluated various business opportunities. In May 1987, the company
and Balzac Investments, Inc. ("Balzac") entered into a Merger
Agreement. The Merger was completed on February 19, 1988 after the
declaration of effectiveness of the Company's Post Effective
Amendment Number 6 to its Registration Statement of Form S-18.
Upon consummation of the Merger, the Company changed its name to
Power-Cell, Inc. The reason for this name change was that the
primary business of the Company was the development for eventual
manufacture and marketing of the Product.
In January 1987, Balzac purchased the rights to a battery charger
product (the "Product"). As a result of the Merger, the rights to
manufacture, market and distribute the Product and all related
technology in the Untied States and its territories now belong to
the Company. Other individuals and entities who are all former
shareholders of Balzac, own all the international rights to the
Product. The Product is a reserve battery approximately 6 inches
by 8 inches encased in hard form plastic that is designed to be
carried in a car and used to charge a "dead" automotive battery.
The Product utilizes a lead acid cell commonly used in marine
batteries. Marine batteries have been reported to have retained
full capacity after storage for up to nine years. Approximately 12
minutes after plugging the Product into the cigarette lighter of a
car, the Product is designed to transfer enough energy to the
"dead" battery to allow a normal restart. The Product is designed
to be used once and then be replaced. The Company does not
consider the Product to be hazardous.
4
<PAGE>
The Company believes the potential market for the Product includes
every operator of a car, truck or boat that uses a battery for
starting purposes. The Company intends to develop, manufacture and
market the Product through one or more third-party companies
specializing in the manufacture and national distribution of
batteries. Prior to the Merger, Balzac executed a royalty
agreement with its shareholders and assigned the international
rights to the Product to certain of its shareholders, both of
which were conditions precedent to the Merger. The company is not
entitled to international rights to the Product and, therefore,
has no right to manufacture, market or distribute the Product
outside the United States and its territories. The Company is also
obligated to pay the expenses incurred in filing foreign patent
applications for the Product which expenses will be reimbursed out
of a royalty interest granted to the shareholders of Balzac prior
to the Merger. These international rights are currently owned by
four individuals and entities, all of which are principal
shareholders of the Company.
Management intends that the Product, if marketed and distributed,
will compete with many other products including batteries, battery
chargers and jumper cables. Many manufacturers of these products
are established, well-financed entities with greater financial
resources than the Company, well-established products, existing
markets, customer lists and established distribution centers.
The Company has no full-time or part-time employees but uses one
consultant, who devotes substantially all of his time to the
Company's business.
(d) Financial Information About Foreign and Domestic Operations and
---------------------------------------------------------------
Export Sales.
-------------
Not applicable.
Item 2. Properties
----------
The Company owns no real estate. The Company currently shares
office space in Dallas, Texas with J. C. Rambin on a deferred
payment basis.
Item 3. Legal Proceedings
-----------------
On December 23, 1993, a complaint was filed, and amended on
December 28, 1993, in District Court, County of Arapahoe, State of
Colorado.
5
<PAGE>
* The plaintiffs are Reserve Cell Limited Liability Company, a
Colorado limited liability company, and as the General Partner
for Reserve Battery Cell, L.P., a Colorado Limited Partnership.
* The defendants are National Digital Electronics, Inc., a Texas
corporation, OSMIC, Inc., a Texas corporation, Onkar S. Modgil
and Ramon V. Jarrell.The allegations and claims for relief
involve; Disregard of Corporate fictions, civil conspiracy,
Breach of RBC Partnership contract, Breach of License Agreement,
Specific performance of License Agreement, Breach of Development
Contract, Intentional Interference with Contractual obligations,
Fraud by False Representation, Fraud by Non-disclosure or
Concealment, Misappropriation of Trade Secrets, Breach of
Fiduciary Duty, Aiding and Abetting Breach of Fiduciary Duty and
Exemplary Damages.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
A special meeting of the shareholders of Power Cell, Inc. was held
in Dallas, Texas on June 30, 1993. Its purpose was to consider and
vote to ratify, approve and adopt the Agreement of Limited
Partnership and the License Agreement, both dated October 9, 1992
by and among Reserve Battery Cell L.P. (the partnership), Power
Cell, Inc. and other parties at interest. The proposal was
approved, ratified and adopted.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
-----------------------------------------------------------------
Matters.
--------
The initial public offering of Units of the Company's Common Stock
and Class A Warrant was completed on December 16, 1986 and,
between that time and May 16, 1988, the date on which the
Company's Warrants were redeemed, (Gross Proceeds received
$1,284,000 - Note C) Units of the Company's Common Stock and
Warrants were traded in the over-the-counter market. The Company's
Common Stock began trading in the over-the-counter market on March
4, 1987. The Company's outstanding common share were reduced by a
reverse split at a ratio of 100-1, effective November 21, 1994. As
of June 30, 1995, the Company had 886 shareholders of record.
The following table sets forth the range of quarterly high and low
bid quotations for the Common stock for the periods indicated.
Quotations are inter-dealer quotations, without retail markups,
markdowns or commissions, and may not necessarily represent actual
transactions.
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD COMMON STOCK
High Low
A. July 1, 1994 to September 30, 1994 $.025 $.0001
October 1, 1994 to December 31, 1994 $.750 $.250
January 1, 1995 to March 31, 1995 $.625 $.250
April 1, 1995 to June 30, 1995 $.310 $.120
B. July 1, 1995 to September 30, 1995 $.125 $.125
October 1, 1995 to December 31, 1995 $.0625 $.0625
January 1, 1996 to March 31, 1996 $.09375 $.08375
April 1, 1996 to June 30, 1996 $.1875 $.125
</TABLE>
Item 6. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations Liquidity and Capital Resources
---------------------------------------------------------
On October 21, 1992, the company entered into a limited
partnership agreement (see General Development of Business section
for outline of various contract terms and conditions) with several
other limited partners and a sole general partner to provide for
management, funding, manufacturing and marketing of the Power Cell
reserve battery unit on a worldwide basis. The company initially
owned an 11% interest in the limited partnership, which may
increase or decrease due to the occurrence of certain events. The
interest decreased to 7.35% during fiscal 1996 due to the addition
of outside investors, resulting in a pro rata dilution. In
addition, a separate license royalty agreement between the Company
and the limited partnership provides that the Company will receive
royalty payments on al Power Cell units produced and sold in the
United States and its territories. Royalty payments on
international sales of Power Cell units will be paid to individual
international rights holders, or their designees, some of which
are affiliates of the Company, and all of which are limited
partners in the partnership, as follows: one-third (33 1/3%) to J.
C. Rambin; one-third (33 1/3%) to Rudy Marich; one-third to Howard
Farkas (75% of 1/3) and Burt Kanter (25% of 1/3).
The contract agreement has no provision for direct funding of
Power Cell, Inc. Its earnings, if any, will be derived from an
interest in the limited partnership together with royalties, if
any, from the license royalty agreement.
On July 1, 1996, Reserve Battery Cell, L.P. (Reserve Battery)
announced initial market release in select cities of the Power
Cell Reserve Battery unit. According to Reserve
7
<PAGE>
Battery, the product will plug into a cigarette lighter or attach
directly to battery terminals and recharge a battery even in
extreme weather conditions (-10 degrees F to 100 degrees F) in a
matter of minutes. Also, these small units can be stored for
years, do not need to be recharged and never lose their power
prior to activation. The Power Cell has the strength to recharge a
battery more than once for a few weeks after it has been
activated. It is a powerful 5 amp Hour battery and, with the
additional purchase of a Power Inverter, will operate small
household and other electronic appliances for hours during a power
outage or emergency situation.
Reserve Battery is currently marketing the product line through
Direct Response Television, magazine print advertising, direct
mail, and via their Web Site at www.safestart.com.
Power Cell, Inc. has received information from Reserve Battery
that, as of June 30, 1996, funds in excess of $4,118,000 had been
expended on product development, capital equipment, operating
capital, and marketing activities.
Management is currently evaluating its future course of action. To
improve its liquidity, the Company is negotiating for a sale of
common shares to an investor. Also, the developments herein should
assist the Company in reviewing the possibility of affiliating
with other companies through acquisition or merger combinations
that would provide a financial basis for a public or private
placement of debt or equity. There are ongoing discussions and
analysis of several potential candidates that could provide a
solution to the financial requirements of Power Cell, Inc. to
proceed as a viable entity and/or an integral part of an existing
operation. The Company had a working capital deficit as of June
30, 1996 of $15,889.
Results of Operations
---------------------
The company has been engaged in organizational and capital raising
activities since inception through June 30, 1996. It has not
incurred major operational expenditures. The losses incurred since
inception primarily reflect legal, accounting, and administrative
expenses associated with the preparation of the merger documents
and registration statement, product development and arranging for
the manufacture of its battery charger product for test marketing
purposes.
8
<PAGE>
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page
Independent Auditor's Report F-1
Balance Sheets - June 30, 1996 F-2
Statements of Operations - Years ended June 30, 1996
and 1995 and for the period from January 21, 1987
(date of incorporation) to June 30, 1996 F-3
Statements of Shareholders' Equity - For
the period from January 21, 1987 (date
of incorporation) through June 30, 1996 F-4, F-5
Statements of Cash Flows - Years ended June 30, 1996
and 1995 and for the period from January 21, 1987
(date of incorporation) to June 30, 1996 F-6
Notes to Financial Statements F-7
9
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure Matters
----------------------------
There were no changes in, nor disagreements with, accountants on
accounting and financial disclosure matters required to be
disclosed in this Item.
PART III
Item 9. Directors and Executive Officers of the Registrant
--------------------------------------------------
The following table sets forth the name and age of each director
and their position and offices with the Company:
Names Age Current Served as
Position Director Since
- --------------------------------------------------------------------------------
Howard L. Farkas 72 Director 1988
Burton W. Kanter 66 Director 1988
Rudy Marich 70 Director 1989
James C. Rambin 72 Director, President 1988
Howard L. Farkas has been a director of the Company since February
1988. From 1981 to the present, he has been a part owner of Farkas
Group, Inc., a general real estate brokerage company. In addition,
Mr. Farkas, from 1962 to the present had been a director of the
Union Bank and Trust, Denver, Colorado; from 1964 to the present
he has been a director of Windsor Gardens Realty, Inc., a real
estate brokerage firm; from 1980 to the present he had been a
director of Northwest Engineering Company, Rapid City, South
Dakota, a quarry and asphalt and concrete contractor; from 1980 to
1988 he was a director of Robert Halmi, New York, New York, a
motion picture production company; from 1983 to the present he has
been a director and chairman of the board of Logic Devices, Inc.,
Sunnyvale, California, a semiconductor design and manufacturing
company; from 1985 to the present he has been a director of
Synthetech, Inc., Albany, Oregon, a publicly held enzyme process
manufacturing company; Mr. Farkas is also an officer and director
of Acquisition Industries, Inc., a blind pool company. From 1969
through 1982, Mr. Farkas served as president and chairman of the
board of Environmental Developers, Inc., a company which
established and built planned residential communities. Mr. Farkas
graduated from the University of Denver and received his B.S.
degree in 1948, and became a certified public accountant in 1951.
Mr. Farkas was a vice president of G.A.S. Corp., the corporate
general partner of a limited partnership known as GAS Acquisition
Services Limited Partnership, which filed for protection under
Chapter 11 of the Bankruptcy Act on June 22, 1990. On September
23, 1992, Mr. Farkas filed for protection under Chapter 7 of the
Bankruptcy Act.
10
<PAGE>
Burton W. Kanter is not currently an officer or principal
shareholder of Company. Mr. Kanter has been a director of the
Company since February 1988. Mr. Kanter has been of counsel to
the law firm of Neal, Gerber & Eisenberg since February 1986.
Prior to 1986, Mr. Kanter was a senior partner of the law firm
Kanter & Eisenberg from 1980 to 1985. In addition, Mr. Kanter is
Chairman of the Board of Walnut Capital Corp., a Small Business
Investment Company which acts as a private venture capital firm.
Mr. Kanter serves as a director of Scientific Measurement
Systems, Inc., a manufacturer of industrial tomographic
equipment, HealthCareCOMPARE Corp. a health utilization review
company, Channel America, LPTV, Inc., a low-power television
company, and a number of privately held companies. Mr. Kanter has
written and spoken extensively on Federal tax matters and is a
faculty member of the University of Chicago Law School.
Rudy Marich has been a principal shareholder of Company since May
1988. On April 3, 1989 his shareholdings were transferred to
Marich Investments, Ltd. (a Colorado limited partnership). Mr.
Marich has over 30 years of experience in investment banking. For
the past five years, Mr. Marich has been President of R.B.
Marich, Inc., an investment bank and venture capital brokerage
firm which is a member of the National Association of Securities
Dealers and the Securities Investor Protection Corp. R.B. Marich,
Inc. acted as underwriter for Company's initial public offering.
Mr. Marich earned a Master of Arts degree and a Bachelor of Arts
degree from the University of Northern Colorado in 1952 and 1950,
respectively. R.B. Marich, Inc. ceased operations in August,
1990. Mr. Marich is currently engaged as a private Investment
Banking Consultant.
James C. Rambin was a director of Balzac since its inception and
has been a director of Company since February 1988. Mr. Rambin has
also been President of Company since February 1988. From 1982 to
the present, he has been President and a director of Sandia
Financial, Inc., a Dallas, Texas corporate finance consulting
firm. Mr. Rambin was President and a director of Oil City
Petroleum, a publicly held oil production and development company,
from August 1978 through September 1982, when he resigned as
president. Mr. Rambin resigned as a director of Oil City in
December 1983.
Item 10. Executive Compensation
----------------------
During the fiscal year ended June 30, 1995, no officer or director
of the Company received any compensation for their services as
such. James C. Rambin received $13,092 compensation for his
services as an independent consultant to the Company.
11
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth the number of shares of Company's
Common Stock and percentage of the outstanding shares of Company's
Common Stock owned beneficially (1) by each officer, director and
director nominee of Company; (2) by all officers and directors of
Company as a group; and (3) by all other persons who are known to
the Company to own more than 5% of Company's Common Stock. Except
as noted, each shareholder has sole voting and investment power of
the shares listed.
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Names and Addresses Number of Shares Percentage of
Beneficially Owned Outstanding Shares
- --------------------------------------------------------------------------------------------------------------------
Howard L. Farkas (1, 2)
5460 S. Quebec Street
Suite 300
Englewood, CO 80111-1918 0 0.00%
S.A. Hellerstein
Trustee for the Farkas Trusts (2)
1139 Delaware Street
Denver, CO 80204 1,089,235 17.25%
Burton W. Kanter (1, 3)
2 N. LaSalle St.
Suite 2410
Chicago, IL 60602 0 0.00%
Windy City, Inc. (3)
8300 Boone Blvd., Suite 780
Vienna, VA 22182 363,078 5.84%
Rudy Marich (1, 5, 6)
Marich Investments, Ltd.
6025 S. Quebec, Suite 150
Englewood, CO 80111 0 0.00%
Thomas M. Vickers (5)
Trustee of the Marich Family Trust
6025 S. Quebec, Suite 150
Englewood, CO 80111 2,904,627 46.72%
James C. Rambin (1, 4, 6)
5619 Ridgetown Circle
Dallas, Texas 75230 2,904,627 46.72%
All Current Officers and Directors
as a group (4 in number) 2,904,627 46.72%
</TABLE>
1. Currently director of the company.
2. The Farkas Trusts are a group of trusts of which the beneficiaries
include family members of Howard L. Farkas, a director of the Company.
Mr. Farkas disclaims beneficial ownership of the shares owned by the
Farkas Trusts.
13
<PAGE>
3. Windy City, Inc. is a corporation composed of certain interests of
family member of Burton W. Kanter, a director of the Company. Mr.
Kanter disclaims beneficial ownership of shares owned by Windy City,
Inc.
4. Currently an officer and director of the Company.
5. Marich Investments, Ltd. a Trust organized under the laws of the State
of Colorado.
6. The Company has received a copy of a statement on Schedule 13D filed
by Messrs. Marich and Rambin reporting that on September 3, 1988, they
entered into a voting agreement with the intent of acting together
concerning the voting power held by them as shareholders of the
Company. Messrs. Marich and Rambin reported that they have shared
voting power and shared dispositive power with respect to the shares
owned by each of them of record. Mr. Marich owned or had beneficial
ownership of 1,452,313 shares, and Mr. Rambin owned 1,452,313 shares
of record. Mr. Marich has informed the Company that he has placed
these 1,452,313 shares in Marich Investments, Ltd., a Trust organized
under the laws of the State of Colorado.
Item 12. Certain Relationships and Related Transactions.
-----------------------------------------------
The Company is obligated to pay a royalty to various individuals,
including James C. Rambin, on sales of the Product and all
products produced and/or sold in connection with the technology
related to the Product. This royalty pertains to the initial
acquisition of the technology.
PART IV
Item 13. Exhibits, Financial Statement, Schedules, and Reports on Form 8-K
-----------------------------------------------------------------
(a) (1) List of Financial Statements
----------------------------
See Item 8.
(2) List of Financial Statement Schedules
-------------------------------------
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange
Commission are not required under the related instruction or
are inapplicable, and therefore have been omitted.
(3) Listing of Exhibits
-------------------
The Exhibits listed on the accompanying Exhibit Index are
filed as part of this report.
14
<PAGE>
(b) Reports on Form 8-K
-------------------
None.
(c) Exhibits
--------
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules
-----------------------------
None.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
POWER-CELL, INC.
(Registrant)
By: ________________________________
James C. Rambin, President
Date: __________________
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
---------------------------------------
James C. Rambin, President and Director
(Principal Executive Officer)
--------------------------------------------
Howard L. Farkas, Director
--------------------------------------------
Rudy Marich, Director
--------------------------------------------
Burton Kanter, Director
16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Power Cell, Inc.
Dallas, Texas
We have audited the accompanying balance sheet of Power Cell, Inc. (a
development stage enterprise) as of June 30, 1996, and the related statements of
operations, shareholders' equity (deficit) and cash flows for each of the two
years in the period ended June 30, 1996 and the period from July 1, 1989 through
June 30, 1996, which is not separately presented. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Power Cell, Inc. (a development
stage enterprise) as of June 30, 1996, and the results of its operations and its
cash flows for each of the two years in the period ended June 30, 1996, and the
period from July 1, 1989 through June 30, 1996, which is not separately
presented, in conformity with generally accepted accounting principles.
We have also audited the combination of the accompanying statements of
operations and cash flows for the period from January 21, 1987 (date of
incorporation) to June 30, 1989 into the period from January 21, 1987 to June
30, 1996. In our opinion, such statements have been properly combined.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A, the Company's
significant operating losses and limited financial resources raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note A. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
HEIN + ASSOCIATES LLP
Dallas, Texas
September 20, 1996
F-1
<PAGE>
POWER CELL, INC.
(A Development Stage Enterprise)
BALANCE SHEET
As of June 30, 1996
ASSETS
CURRENT ASSET - Cash and cash equivalents $ 10,372
INVESTMENT IN LIMITED PARTNERSHIP, at cost 31,787
-----------
Total Assets $ 42,159
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES - Accounts payable and
accrued expenses $ 26,261
ADVANCES PAYABLE 20,000
COMMITMENTS AND CONTINGENCIES
(Notes D, F, G and H)
SHAREHOLDERS' EQUITY:
Common stock, $.0001 par value, 750,000,000 shares
authorized; 6,216,875 shares issued and outstanding 622
Additional paid in capital 1,541,883
Deficit accumulated in the development stage (1,546,607)
----------
Total Shareholders' Deficit (4,102)
Total Liabilities and Stockholders' Deficit $ 42,159
==============
See accompanying notes to financial statements.
F-2
<PAGE>
POWER CELL, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
For the period
from January 21,
1987 (Date of
Incorporation)
Year Ended June 30,
1996 1995 to June 30, 1996
---- ---- ----------------
REVENUE
Interest and other income $ 791 $ 1,165 $ 176,535
EXPENSES
Product development - - 225,478
General and administrative 29,792 24,359 1,464,958
Interest - - 32,706
---------- ------------ -------------
29,792 24,359 1,723,142
---------- ------------ -------------
NET LOSS $ (29,001) $ (23,194) $ (1,546,607)
========== ============ ================
NET LOSS PER SHARE $ * $ *
========== ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,216,875 6,199,000
========== ===========
* Less than $ (.01)
See accompanying notes to financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
POWER CELL, INC.
(A Development Stage Enterprise)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Period From January 21, 1987 (Date of Incorporation)
through June 30, 1996
Deficit
Accumulated
Common Stock Additional in the
Common Stock Subscribed Paid in Development
------------ ---------- ------- -----------
Shares Amount Shares Amount Capital Stage
------ ------ -------- -------- ------- -----
Issuance of stock on January 21, 1987 4,356,942 $ 436 - - $ 564 $ -
Net loss - - - - - (255,419)
------------ ---------- -------- -------- ----------- -----------
BALANCE, June 30, 1987 4,356,942 436 - - 564 (255,419)
Issuance of stock for legal services
on February 17, 1988 163,385 16 - - 1,234 -
Stock recorded upon reverse
acquisition of Magellan 925,850 93 - - 285,427 -
Exercise of warrants 560,698 56 - - 1,195,194 -
Net loss - - - - - (271,610)
------------ ---------- -------- -------- ------------ -----------
BALANCE, June 30, 1988 6,006,875 601 - - 1,482,419 (527,029)
Net loss - - - - - (273,357)
------------ ---------- -------- -------- ------------ -----------
BALANCE, June 30, 1989 6,006,875 601 - - 1,482,419 (800,386)
Net loss - - - - - (310,335)
------------ ---------- -------- -------- ------------ -----------
BALANCE, June 30, 1990 6,006,875 601 - - 1,482,419 (1,110,721)
Net loss - - - - - (199,455)
------------ ---------- -------- -------- ------------ -----------
BALANCE, June 30, 1991 6,006,875 601 - - 1,482,419 (1,310,176)
</TABLE>
-Continued-
F-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
POWER CELL, INC.
(A Development Stage Enterprise)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT),
Continued For the Period From January 21, 1987 (Dateof Incorporation)
through June 30, 1996
Deficit
Accumulated
Common Stock, in the
Common Stock Subscribed Additional Paid in
Shares Amount Shares Amount Capital Stage
------ ------- ------ ------ -------- ----------
Net loss - $ - - $ - $ - $ (87,993)
-----------------------------------------------------------------------------------------
BALANCE, June 30, 1992 6,006,875 601 - - 1,482,419 (1,398,169)
Net loss - - - - - (64,367)
-----------------------------------------------------------------------------------------
BALANCE, June 30, 1993 6,006,875 601 - - 1,482,419 (1,462,536)
Subscription of common stock
on June 30, 1994 - - 100,000 25,000 (2,500) -
Net loss - - - - - (31,876)
-----------------------------------------------------------------------------------------
BALANCE, June 30, 1994 6,006,875 601 100,000 25,000 1,479,919 (1,494,412)
Issuance of stock subscribed on
July 14, 1994 100,000 10 (100,000) (25,000) 24,990 -
Issuance of stock on July 14, 1994
for commission on June 30, 1994
stock offering 10,000 1 - - 2,499 -
Issuance of stock on July 14, 1994 100,000 10 - - 24,990 -
Cost of stock issuance-legal fees
and commissions - - - - (3,500) -
Net loss - - - - - (23,194)
-----------------------------------------------------------------------------------------
BALANCE, June 30, 1995 6,216,875 $ 622 - - 1,528,898 1,517,606
Issuance of stock options for
legal fees - - - - 12,985 -
Net loss - - - - - (29,001)
-----------------------------------------------------------------------------------------
BALANCE, June 30, 1996 6,216,875 $ 622 - $ - $ 1,541,883 $ (1,546,607)
============= ============ ========= ========= ============== ==============
See accompanying notes to financial statements.
</TABLE>
F-5
<PAGE>
POWER CELL, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
For the Period
from January 21,
1987 (Date of
Year Ended June 30, Incorporation)
1996 1995 to June 30, 1996
---------- ----------- ----------------
OPERATING ACTIVITIES:
Net loss $ (29,001) $ (23,194) $ (1,546,607)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization and depreciation - - 24,644
Loss on theft of equipment - - 741
Issuance of stock options for services 12,985 - 12,985
Changes in operating assets and liabilities:
Decrease in other current assets 900 - -
(Increase) in other assets - - (16,400)
Increase (decrease) in accounts payable
and accrued expenses (1,800) (6,555) 26,261
---------- ----------- -----------
NET CASH USED IN
OPERATING ACTIVITIES (16,916) (29,749) (1,498,376)
---------- ----------- -----------
INVESTING ACTIVITIES:
Investment in limited partnership - - (31,787)
Purchase of office equipment - - (8,985)
---------- ----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES - - (40,772)
---------- ----------- -----------
FINANCING ACTIVITIES:
Advance received - - 20,000
Proceeds from issuance of common stock
and exercise of warrants - 50,000 1,533,020
Cost of stock issuance - (3,500) (3,500)
---------- ----------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES - 46,500 1,549,520
---------- ----------- -----------
INCREASE (DECREASE) IN CASH (16,916) 16,751 10,372
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 27,288 10,537 -
---------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 10,372 $ 27,288 $ 10,372
========== ========= ==========
SUPPLEMENTAL INFORMATION - cash
paid during the period for interest $ - $ - $ 32,706
============ ========== =========
</TABLE>
NONCASH TRANSACTIONS - Common stock was issued for services and for the
acquisition of Magellan (Note B) in fiscal year 1988.
The Company paid a $2,500 commission in fiscal year 1995 related to a common
stock subscription, by the issuance of shares of common stock (Note G).
See accompanying notes to financial statements.
F-6
<PAGE>
POWER CELL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
Magellan Corporation (Magellan) was incorporated in Colorado on April 28,
1986 for the purpose of raising capital to seek and participate in business
opportunities. Effective February 19, 1988, Magellan completed a merger with
Balzac Investments, Inc. (Balzac) (see Note B), which was incorporated
January 21, 1987, and the resulting entity adopted the name Power Cell, Inc.
(the Company). The Company has had no revenues from operations and is
considered to be in the development stage. The Company has certain rights to
a battery charger product (see Notes D and G).
Loss per Common Share
---------------------
Loss per common share is based upon the weighted average number of common
shares outstanding. Warrants prior to exercise are not considered in the
computation as their effect would be antidilutive.
Office Equipment
----------------
Office equipment is recorded at cost. Depreciation is calculated using the
straight-line method over the estimated useful life of the assets. As of
June 30, 1994, the equipment had been fully depreciated.
Organization Costs
------------------
Costs incurred in connection with the organization of Balzac ($16,400) were
capitalized and amortized over five years using the straight-line method.
Cash Equivalents
----------------
For purposes of reporting cash flows, the Company considers demand deposits,
money market accounts and certificates of deposits with an original maturity
of three months or less to be cash equivalents.
Investment in Partnership
-------------------------
The Company has an approximate 7.35% limited partner interest in a
partnership and the investment is carried at cost.
Income Taxes
------------
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes" on July 1, 1993. SFAS 109 requires that
deferred income taxes be recorded on a liability method and adjusted when
new tax rates are enacted. Deferred income taxes are provided for temporary
differences between financial statements and income tax reporting amounts.
Long-Lived Assets
-----------------
The Company accounts for long-lived assets in accordance with Statement of
Financial Accounting Standards (SFAS) No. 121. The Company adopted SFAS No.
121 in fiscal year 1995 and it had no effect on the financial condition of
the Company.
F-7
<PAGE>
POWER CELL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Continuation as a Going Concern
-------------------------------
The accompanying financial statements and related footnotes have been
prepared assuming the Company will continue as a going concern. The Company
is in the development stage and has incurred significant losses since
inception and has limited financial resources. These factors raise
substantial doubt about the Company's ability to continue as a going
concern. The Company will need to raise capital and/or eventually achieve
profitable operations in order for it to continue as a going concern. The
Company entered into a limited partnership agreement in October 1992 that
management believes may result in successful manufacturing and marketing of
the Company's product and the eventual creation of a royalty stream to the
Company and potential earnings from the Company's interest in the
partnership (see note G). As of June 30, 1996, the general partner has
reported to Company management that initial market release of the product in
select cities will commence in late 1996. The Company has no obligation to
provide funding to the partnership and has no management role in the
partnership.
NOTE B - MERGER
Effective February 19, 1988, Magellan exchanged shares of its common stock
for all of the issued and outstanding common shares of Balzac. The shares
issued represented approximately 83% of the outstanding shares of Magellan
after the merger, and officers and directors of Balzac became the officers
and directors of Magellan. Accordingly, for financial reporting purposes,
Balzac is deemed to have acquired Magellan. The transaction was accounted
for using the purchase method of accounting and was recorded based upon the
value of Magellan's identifiable net assets, net of offering costs. The
accompanying financial statements, during the period prior to the merger,
reflect the historical accounts of Balzac. Magellan's operations are
included in the accompanying financial statements commencing February 19,
1988. Balzac's equity section has been restated from the date of
incorporation to reflect the number of shares which would have been
outstanding under Magellan's $.0001 par value capital structure.
The merger agreement also entitles Balzac's shareholders of record prior to
the merger to a 10% royalty on gross sales of the battery charger product.
NOTE C - SHAREHOLDERS' EQUITY
On December 6, 1986, Magellan received the net proceeds from the sale of
400,000 units (each unit consisting of one share of Magellan's common stock
and one Class A warrant) at $.01 per unit. Each Class A warrant entitled the
holder to purchase at a price of $.02, one share of common stock and one
Class B warrant. Each Class B warrant entitled the holder to purchase, at a
price of $.03, one share of common stock and one Class C warrant. Each Class
C warrant entitled the holder to purchase, at a price of $.04, one share of
common stock and one Class D warrant. Each Class D warrant entitled the
holder to purchase one share of common stock for $.05 per share.
On April 13, 1988, the Company called all Class A, B, C and D warrants for
redemption. Certain warrants were exercised and the Company received
approximately $1,284,000 net of escrow fees and the cost of redeeming the
remaining warrants. Other costs of approximately $88,000 related to the
registration of the warrants have been offset against the proceeds and
charged to additional paid in capital. All outstanding Class A, B, C and D
warrants were redeemed on May 16, 1988.
F-8
<PAGE>
POWER CELL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
During fiscal 1995, the Company issued 20,000,000 shares of common stock for
$50,000, $25,000 of which had been subscribed as of June 30, 1994.
Commissions and other expenses related to the stock issuances of 1,000,000
shares of stock and $3,500 of cash were paid.
The Company's board of directors approved a 100 for 1 reverse stock split on
October 25, 1994, which was effective for shareholders of record on November
21, 1994. All shareholders' equity information in the accompanying financial
statements has been restated to reflect the reverse split as if it had
occurred at inception.
Subsequent to June 30, 1996, the Company granted options to purchase up to
200,000 shares of its common stock for $100 in lieu of legal services valued
at approximately $24,000. The options expire August 31, 2000. The portion of
the services attributable to fiscal 1996 amounted to $12,985 and were
charged to operations in the accompanying statement of operations.
NOTE D - ACQUISITION OF BATTERY CHARGER PRODUCT
On January 22, 1987, Balzac entered into an agreement to purchase the
product, Power Cell, and all related technology from the developers. Power
Cell is the trade name of a reserve battery device intended to be stored
until needed and immediately brought to full working capacity by activation.
Balzac paid $150,000 cash (including a total of $52,995 to a director and a
former officer of the Company) for the product and the technology. In
addition, Balzac agreed to make royalty payments to the former owners equal
to $.10 per unit for the first 11.2 million units sold and $.05 per unit for
the next 18 million units sold up to $2,000,000. The two individuals
referred to above are entitled to 45.2% of this royalty.
The Company assumed this royalty obligation pursuant to the merger.
The purchase price was funded by a note payable to a director of the
Company. The principal and accrued interest (total of $176,984) was paid in
July 1988.
NOTE E - INCOME TAXES
The components of the Company's deferred tax accounts are as follows:
June 30 ,
1996 1995
------- -------
Deferred tax asset - net operating loss
carryforward $ 413,000 $ 402,000
Deferred tax asset valuation allowance 413,000 (402,000)
--------- -------
Net deferred tax asset $ - $ -
============ =======
For Federal income tax purposes at June 30, 1996, the Company had a net
operating loss carryover of approximately $1,200,000. If not utilized, the
net operating loss will begin expiring in 2002 through 2011.
F-9
<PAGE>
POWER CELL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE F - RELATED PARTY TRANSACTIONS
During 1988, the Company used Corporate Stock Transfer, Inc. (CST) as its
transfer agent. An officer, director and shareholder of CST was also a
director of the Company in 1988. Total payments to CST by the Company (and
Magellan prior to the merger) through June 30, 1988 were approximately
$13,000. The Company discontinued using CST in 1989. Effective February 19,
1988, the Company entered into a consulting agreement with International
Marketing Visions, Inc. (IMV), which required monthly payments of $1,000 for
a term of thirty months. This agreement expired during fiscal year ended
June 30, 1991 and was not renewed. A family member of a former director of
the Company is a principal shareholder of IMV.
The Company does not have international rights to its battery charger
product. However, the Company is obligated to pay for expenses incurred in
filing foreign patent applications for the product on behalf of certain
directors of the Company and other individuals who hold the international
rights. These amounts are to be repaid out of the 10% royalty discussed in
Note B. The total paid by the Company pursuant to this obligation for the
period from January 21, 1987 (date of incorporation) to June 30, 1996 was
$72,057. These amounts were paid primarily prior to fiscal year 1993, and
the general partner has since assumed the obligation.
NOTE G - LIMITED PARTNERSHIP TERMS
In October 1992, the Company entered into a limited partnership agreement
with several other limited partners (including directors and/or significant
shareholders of the Company) and a sole general partner to provide for the
initial testing, and potentially, the management, funding, manufacturing and
marketing of the Power Cell reserve battery unit. In exchange for
contribution of rights to the Power Cell unit the Company initially obtained
an approximate 11% interest in the limited partnership (the Partnership) as
a limited partner, which is subject to certain preference distributions to
the general partner. The Company's initial Partnership interest decreased to
approximately 7.35% at June 30, 1996 due to the admittance of outside
investors into the Partnership. The Company is not involved in the
management of the Partnership.
A separate license royalty agreement between the Company and the Partnership
provides that the Company will be entitled to royalty payments on all Power
Cell units produced and sold in the United States and its territories equal
to 5% to 20% of the annual gross sales of the Partnership. A portion of this
royalty was assigned to another party as described below. Royalties on
international sales of Power Cell units will be paid to individual
international rights holders, some of which are affiliates of the Company
(directors and/or significant shareholders), and all of which are limited
partners in the Partnership.
In connection with the royalty and limited partnership agreements, the
Company issued options to acquire up to 200,000 shares of its common stock
at $1.00 per share to the engineering firm that developed the battery
product. These options expired March 5, 1995. In addition, the engineering
firm received an approximate 41% of the Company's royalty rights and an
approximate 8% interest in the Partnership.
During fiscal 1993, the Company incurred legal fees of $31,787 related to
the acquisition of its interest in the partnership. The general partner
advanced the Company $20,000 to assist with the legal costs. The terms of
the agreement between the general partner and the Company require the
advance to be repaid, with interest at 10%, from the first royalty payments
which the company may receive from the Partnership.
F-10
<PAGE>
POWER CELL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE H - CONTINGENCIES
In fiscal 1993, a request for additional compensation of approximately
$394,000 for the president of the Company was submitted to the Company's
board of directors for approval. In addition, the president of the Company
intends to submit to the Company's board of directors a request for
additional compensation totaling $186,590 for the fiscal years ended June
30, 1994 through 1996.
These amounts remain unpaid and are considered contingent liabilities and
have not been recorded in the accompanying financial statements, because to
date, none have been approved by the Company's board of directors.
F-11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 10,372
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,372
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,159
<CURRENT-LIABILITIES> 26,261
<BONDS> 0
0
0
<COMMON> 622
<OTHER-SE> (4,724)
<TOTAL-LIABILITY-AND-EQUITY> 42,159
<SALES> 0
<TOTAL-REVENUES> 791
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 29,792
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,001)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
