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, 1997 Number 0-15379
Power-Cell, Inc.
(Exact name of registrant as specified in charter)
Colorado 84-1029701
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
660 Preston Forest Center, Box 200
Dallas, Texas 75230
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(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 $216,000. This calculation is based upon the average
of the bid and asked prices of the Registrant's Common Stock on June 30, 1997.
The number of shares of the Registrant's $.0001 par value Common Stock
outstanding as of September 30, 1997 was 6,216,875.
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POWER CELL, INC.
(A Development Stage Enterprise)
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.
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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).
The company was advised by Reserved Battery, Inc. on June 30, 1997
that litigation had been settled between Reserve and OSMIC, Inc. and
furnished with a copy of the assignments. OSMIC, Inc. has assigned to
Reserve Battery, Inc. the above cited limited partnership interest and
the license royalty interest of Power Cell, Inc./OSMIC, Inc. The
Company is currently reviewing the release and assignment to determine
the adequacy of the legal conveyance of the royalty of (41%) of its
domestic royalty provision; and its prorata portion of the 5.34% OSMIC
interest in the limited partnership to Power Cell, Inc.
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.
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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.
(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.
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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.
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o 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.
o 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.
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PERIOD COMMON STOCK
High Low
A. 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
B. July 1, 1996 to September 30, 1996 .35 .16
October 1, 1996 to December 31, 1996 .40 .155
January 1, 1997 to March 31, 1997 .34 .125
April 1, 1997 to June 30, 1997 .155 .155
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 all 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 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.
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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 $4,288,000 had been expended
on product development, capital equipment, operating capital, and
marketing activities.
The Company has been informed by Reserve Battery, Inc. that all
marketing and operations activities have been curtailed as a result of
its inability to source sufficient capital to sustain operation. If
Reserve is successful in sourcing a minimum funding commitment it
plans to launch a sales program via home shopping network in December,
1997.
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, 1997 of $26,119.
Results of Operations
The company has been engaged in organizational and capital raising
activities since inception through June 30, 1997. 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.
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Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report F-1
Balance Sheet - June 30, 1997 F-2
Statements of Operations - Years ended
June 30, 1997 and 1996 and for the period
from January 21, 1987 (date of
incorporation) to June 30, 1997 F-3
Statements of Shareholders' Deficit - For
the period from January 21, 1987 (date
of incorporation) through June 30, 1997 F-4, F-5
Statements of Cash Flows - Years ended
June 30, 1997 and 1996 and for the period
from January 21, 1987 (date of
incorporation) to June 30, 1997 F-6
Notes to Financial Statements F-7
9
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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
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Howard L. Farkas 73 Director 1988
Burton W. Kanter 67 Director 1988
Rudy Marich 71 Director 1989
James C. Rambin 73 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.
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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, 1997, no officer or director of
the Company received any compensation for their services as such.
James C. Rambin received $2,850 compensation for his services as an
independent consultant to the Company.
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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.
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<TABLE>
<S> <C> <C> <C> <C>
Number of Shares Percentage of
Names and Addresses Beneficially Owned Outstanding Shares
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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 Street, Suite 2410
Chicago, IL 60602 0 0.00%
Windy City, Inc. (3)
8300 Boone Boulevard, 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
James C. Rambin (1, 4, 6, 7)
5619 Ridgetown Circle
Dallas, Texas 75230 1,452,313 0.00%
J.L. Rambin (6)
Trustee of the Rambin Family Trust
5619 Ridgetown Circle
Dallas, Texas 75230 1,452,314 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.
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.
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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. Rambin Family Trust, a Trust organized under the laws of the State of Texas.
7. 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. Mr. Rambin has informed the Company that he has placed these
shares in the Rambin Family Trust, a Trust organized under the laws of the
State of Texas.
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.
(b) Reports on Form 8-K
None.
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(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
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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: /s/ James C. Rambin
-------------------------------
James C. Rambin, President
Date: October 13, 1997
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.
October 13, 1997 /s/ James C. Rambin
---------------------------------------
James C. Rambin, President and Director
(Principal Executive Officer)
October 13, 1997 /s/ Howard L. Farkas
---------------------------------------
Howard L. Farkas, Director
October 13, 1997 /s/ Rudy Marich
---------------------------------------
Rudy Marich, Director
October 13, 1997 /s/ Burton Kanter
---------------------------------------
Burton Kanter, Director
16
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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, 1997, and the related statements of
operations, shareholders' equity (deficit) and cash flows for each of the two
years in the period ended June 30, 1997 and the period from July 1, 1989 through
June 30, 1997, which is not separately presented. The period from inception
through June 30, 1989, which is not separately presented, was audited and
reported on by other auditors. 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, 1997, and the results of its operations and its
cash flows for each of the two years in the period ended June 30, 1997, and the
period from July 1, 1989 through June 30, 1997, 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, 1997. 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
October 8, 1997
F-1
<PAGE>
POWER CELL, INC.
(A Development Stage Enterprise)
BALANCE SHEET
As of June 30, 1997
ASSETS
------
CURRENT ASSET - Cash $ 942
INVESTMENT IN LIMITED PARTNERSHIP, at cost 31,787
-----------
Total Assets $ 32,729
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
-----------
CURRENT LIABILITIES - Accounts payable and
accrued expenses $ 27,061
ADVANCES PAYABLE 20,000
COMMITMENTS AND CONTINGENCIES
(Notes D, F, G and H)
SHAREHOLDERS' DEFICIT:
Common stock, $.0001 par value, 750,000,000 shares
authorized; 6,216,875 shares issued and outstanding 622
Additional paid-in capital 1,552,992
Deficit accumulated in the development stage (1,567,946)
-----------
Total Shareholders' Deficit (14,332)
Total Liabilities and Stockholders' Deficit $ 32,729
===========
See accompanying notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
POWER CELL, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
<S> <C> <C> <C>
For the period
from January 21,
1987 (Date of
Years Ended June 30, Incorporation)
---------------------
1997 1996 to June 30,1997
----------- ---------- ----------------
REVENUE
Interest and other income $ 189 $ 791 $ 176,724
EXPENSES
Product development -- -- 225,478
General and administrative 21,528 29,792 1,486,486
Interest -- -- 32,706
----------- ---------- ----------------
21,528 29,792 1,744,670
----------- ---------- ----------------
NET LOSS $ (21,339) $ (29,001) $(1,567,946)
=========== =========== ================
NET LOSS PER SHARE $ * $ *
=========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,216,875 6,216,875
=========== ===========
</TABLE>
* Less than $ (.01)
See accompanying notes to financial statements.
F-3
<PAGE>
POWER CELL, INC.
(A Development Stage Enterprise)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Period From January 21, 1987 (Date of Incorporation)
through June 30, 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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>
POWER CELL, INC.
(A Development Stage Enterprise)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT), Continued
For the Period From January 21, 1987 (Date of Incorporation)
through June 30, 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Common Stock Additional in the
Common Stock Subscribed Paid-in Development
------------------------- --------------------------
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)
Issuance of stock options for legal
fees -- -- -- -- 11,109 --
Net loss -- -- -- -- -- (21,339)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, June 30, 1997 6,216,875 $ 622 -- $ -- $ 1,552,992 $(1,567,946)
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
POWER CELL, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
For the Period
from January 21,
1987 (Date of
Years Ended June 30, Incorporation)
------------------------------
1997 1996 to June 30, 1997
----------- ----------- ----------------
OPERATING ACTIVITIES:
Net loss $ (21,339) $ (29,001) $ (1,567,946)
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 11,109 12,985 24,094
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 800 (1,800) 27,061
------------ ----------- ------------
NET CASH USED IN
OPERATING ACTIVITIES (9,430) (16,916) (1,507,806)
------------- ------------- ------------
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 - - 1,533,020
Cost of stock issuance - - (3,500)
-------------- ------------- -------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES - - 1,549,520
-------------- ------------- ------------
INCREASE (DECREASE) IN CASH (9,430) (16,916) 942
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 10,372 27,288 -
--------------- ------------ --------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 942 $ 10,372 $ 942
=============== ============ ==============
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.
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 accounts for deferred income taxes on a liability method,
whereby 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.
See accompanying notes to financial statements.
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, 1997, the general partner has
reported to Company management that initial market release of the product in
select cities will commence upon securing a manufacturing facility. 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.
During fiscal 1997, 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 years 1997 and 1996 amounted to $11,109
and $12,985, respectively, and were charged to operations in the
accompanying statements 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,
---------------------
1997 1996
------- -------
Deferred tax asset - net operating loss
carryforward $ 420,000 $ 413,000
Deferred tax asset valuation allowance (420,000) (413,000)
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
For Federal income tax purposes at June 30, 1997, 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 2012.
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, 1997 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, 1997 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 up to a certain
sales level as specified in the agreement. 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
engineering firm that developed the battery product received an approximate
41% of the Company's royalty rights and an approximate 8% interest in the
Partnership. Subsequent to June 30, 1997, the Partnership received a
favorable settlement in a lawsuit against the engineering firm. The
settlement released the 41% royalty rights and the 8% Partnership interest.
Currently, the Company is reviewing the terms and conditions of the
settlement to determine the impact on the Company of the return of the
royalty rights.
F-10
<PAGE>
POWER CELL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
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.
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 $213,000 for the fiscal years ended June
30, 1994 through 1997.
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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000798539
<NAME> POWER-CELL, INC.
<MULTIPLIER> 1
<CURRENCY> us Dollars
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 942
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 942
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 32729
<CURRENT-LIABILITIES> 47061
<BONDS> 0
0
0
<COMMON> 1553614
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32729
<SALES> 0
<TOTAL-REVENUES> 189
<CGS> 0
<TOTAL-COSTS> 21528
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (21339)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21339)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
