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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
(MARK ONE)
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2001
OR
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|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM __________ TO ___________
COMMISSION FILE NUMBER 000-25205
CELLPOINT INC.
(Name of small business issuer in its charter)
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NEVADA 52-2032380
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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3000 HILLSWOOD DRIVE, (Zip Code)
HILLSWOOD BUSINESS PARK,
CHERTSEY, SURREY KT16 ORS, ENGLAND
(Address of principal executive offices)
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44-1932 895 310
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: NONE.
Securities registered under Section 12(g) of the Exchange Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
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Common Stock, $.001 par value NASDAQ National Market
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Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. Yes |X| No |_|
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes |_| No |_|
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of January 17, 2002,
16,355,543 shares of Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements for the Company's second fiscal quarter ended
December 31, 2001 are attached to this Report, commencing on page F-1.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our consolidated financial
condition and consolidated results of operations should be read in conjunction
with our consolidated financial statements and related notes thereto in our
Annual Report on Form 10-KSB for the fiscal year ended June 30, 2001.
RECENT DEVELOPMENTS
UNWIRE AB AND TELEMATICS OPERATIONS IN CELLPOINT SOUTH AFRICA
On May 19, 2001, the Company approved the disposal of the telematics
business segment of the Company and committed to a plan to dispose of the
business. Accordingly, the telematics business segment was presented as a
discontinued operation in the balance sheet as of June 30, 2001 and the related
statements of operations and cash flows for the six months ended December 31,
2001. At June 30, 2001, the Company had accrued approximately $1,100,000 for
additional losses expected from the discontinued operations through the expected
date of disposition. For the six months ended December 31, 2001 the Company has
incurred losses of approximately $1,085,000 against the accrual. The Company
does not anticipate any further significant losses in connection with the
disposal of this segment and the segment is no longer a part of the Company. Net
sales for Telematics were approximately $264,000 and $195,037 for the six months
ended December 31, 2001 and 2000, respectively.
On October 9, 2001, the Company's subsidiary, Unwire AB, filed for
protection under the bankruptcy courts in Sweden. As a result of the filing, the
Company has ceased all funding of Unwire operations. The bankruptcy courts have
appointed a Trustee to oversee the disbursement of Unwire's assets and the
Company now has no control over the operations or decision making capabilities
of Unwire. As a result, Unwire is no longer included in the consolidated
financial statements of the Company.
In November, 2001 CellPoint Systems SA ("Systems SA"), the Company's
South African subsidiary, filed for liquidation under the laws of South Africa.
Systems SA operated a research and development facility for the Company. The
telematics portion of Systems SA has already been included in the discontinued
operations for financial reporting
purposes. The results of the location services portion of Systems SA is not
included in discontinued operations, and those functions are to be continued
within the Company's Swedish operating subsidiary. Costs of closing this
subsidiary, primarily the write-off of the net receivable from Systems SA, were
accrued in the June 30, 2001 financial statements.
RESTRUCTURING PROGRAM
On October 19, 2001 CellPoint Systems AB acquired 100% of its
partly-owned development company, Micronet MLS AB in Karlskrona, Sweden,
purchasing the outstanding 42% of Micronet MLS and assets with 107,142 shares of
the Company's common stock. Micronet MLS AB staff have transferred to Systems AB
to preserve the security of the Company's technology and facilitate cost savings
in the future.
As a result of the above, Micronet MLS AB is currently a dormant entity and is
expected to be liquidated in the near future.
Consistent with the Company's strategy to reduce operating costs within
continuing operations, the United Kingdom subsidiary CellPoint Europe Ltd filed
for liquidation on November 2, 2001. The Company's headquarters and management
functions reside in its office in Kista, Sweden. A branch office will be
maintained in the United Kingdom to continue serving existing and future
customers.
LONG TERM DEBT
On December 6, 2000, the Company entered into an agreement whereby it
issued to Castle Creek Technology Partners LLC ("Castle Creek") convertible
notes in the aggregate principal amount of $10,000,000, which were originally
due and payable on September 30, 2002. Interest on the debt is 6% per annum,
compounded semi-annually and payable semi-annually on each June 30 and December
31. Prior to June 5, 2001, the notes were convertible, in whole or in part, at a
fixed conversion price of $25 per share at the option of the holder of the debt
and could be converted in exchange for all or part of the outstanding debt plus
the accrued interest at the conversion date. Subsequent to June 5, 2001, the
notes were convertible at the lower of $25 or 90% of the average of the five
lowest volume weighted average prices during the period of twenty consecutive
trading days ending on the trading day immediately prior to the date of
determination. The conversion of the notes contained certain limitations as set
forth in the agreement. The Company has reserved 2,000,000 shares for the
purpose of possible future conversions.
In connection with the convertible notes, the Company issued a warrant
that was immediately exercisable and which expires on December 5, 2005. The
warrant grants Castle Creek the right to purchase 210,526 shares of the
Company's common stock at an exercise price per share of $11.40, subject to
adjustment.
On July 25, 2001, the Company entered into a note purchase,
modification and forebearance agreement with Castle Creek concerning the above
mentioned notes. Under the agreement, the outstanding notes were to be
repurchased by the Company. The Company agreed to buy back the outstanding
principal of the notes over 90 days for 86% of the remaining principal, plus
accrued interest, and issued a warrant with 500,000 shares issuable upon
exercise of the warrant at an exercise price of $3.14 per share and exercisable
after one year for a period of four years (subject to specified anti-dilution
adjustments). In addition, the Company granted to Castle Creek a security
interest in its assets (including the assets of its subsidiaries), including its
intellectual property. Castle Creek agreed not to trade in the Company's stock
effective July 25, 2001 until the note repurchase is completed, in consideration
for which Castle Creek was paid $1,000,000 as a non-refundable deposit against
the final note purchase payment. The fixed conversion price of the Notes was
changed to $4.00 with no floating conversion price if the notes are purchased on
a timely basis and the Company complies with all its other obligations to Castle
Creek in all material respects. The Company also agreed to certain limitations
on the terms of future debt and equity financings, which limitations would not
apply to a financing that provided the proceeds for the final purchase of the
Notes.
On September 26, 2001, the Company and Castle Creek entered into an
amendment of the July 25, 2001 agreement, wherein the outstanding convertible
notes were to be repurchased at 100% of the remaining principal and subject to a
fixed conversion price of $4.00. The Company paid $2,250,000 to Castle Creek on
September 26, 2001 for principal and accrued interest and was scheduled to make
a final payment on October 1, 2002 for $6,105,100 plus accrued interest (subject
to specified adjustments upon a material breach by the Company). The outstanding
notes are
prepayable in part or in whole at any time without penalty. However, if the
Company is in non-compliance of the limitations on the terms of future debt and
equity financing, there will be a $2,000,000 penalty and the notes will become
convertible at the lower of 1) the average closing price during the ten day
period beginning five days prior to the date of the non-compliance event or (2)
the lowest price of common stock or common stock equivalents sold from September
25, 2001 to the non-compliance event. The July agreement, except as modified by
the amendment and the Stipulation and Order discussed below, remains in effect.
On November 15, 2001, the Company was served with a suit by Castle
Creek, and on December 13, 2001, Castle Creek filed an amended complaint, to
have its debt of in excess of $6.1 million principal plus interest declared due
and payable, for a default payment of $2 million and other damages and relief.
The principal issue in dispute in the litigation was the antidilution adjustment
applicable to the number of shares that Castle Creek is entitled to purchase
under the warrant issued in the July 25, 2001 restructuring with Castle Creek to
purchase 500,000 shares of common stock (see "Legal Proceedings").
On December 19, 2001, the Company entered into a Stipulation and Order
with Castle Creek providing that Castle Creek agreed to stay prosecution of this
case until February 28, 2002, provided that the Company makes required
prepayments on its Notes to Castle Creek of $200,000 by January 31, 2002, which
payment was timely made, and an additional $550,000 by February 28, 2002, and
provided, further, that the Company does not breach its agreements and
instruments with Castle Creek subsequent to the date of the Stipulation and
Order. In addition, the Stipulation and Order specified an adjustment in the
exercise price of the December 2000 warrant from $11.40 to $7.75 and the July
2001 warrant that carried anti-dilution provisions was amended to give Castle
Creek the right to purchase 1,500,000 shares at an adjusted exercise price of
$1.20 per share. There are no further adjustments to the number of shares
purchasable under the July 2001 warrant except by reason of stock splits, stock
dividends and the like. The July 2001 warrant is immediately exercisable as to
50% of the 1,500,000 shares and exercisable as to the balance beginning July 25,
2002, with the warrant expiring on July 25, 2006. If the Company is in
compliance with the provisions of the Stipulation and Order at February 28,
2002, then Castle Creek will dismiss the case with prejudice. The Company is
also required to make prepayments of the Notes in an amount equal to 25% of the
gross proceeds of each financing the Company closes; provided, that the maximum
aggregate amount of prepayments that the Company is required to make under the
Stipulation and Order prior to October 1, 2002 (the due date of the Notes) is
$3,000,000.
As of December 31, 2001, Castle Creek had converted $750,000 of the
notes into 270,594 shares.
Following each of the debt modifications, the Company applied the rules
of Emerging Issues Task Force ("EITF") 96-19: "Debtor's Accounting for a
Modification or Exchange of Debt Instruments." Based on the provisions of EITF
96-19 it was determined that there was not a substantial change from the
original debt agreement and as such, the modified debt continues to be presented
at fair value using the new effective interest rate. Legal fees associated with
the modifications were expensed in the periods in which they were incurred.
Due to the beneficial conversion features associated with the
financing, the Company applied EITF 00-27: Application of EITF No. 98-5
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios", to the convertible instruments. In
accordance with EITF 00-27 the value of the beneficial conversion feature was
recorded as a reduction to the carrying amount of the convertible debt and an
addition to paid-in-capital. The fair value of the warrants granted in
connection with the financing and the amendments thereto was calculated using
the Black Scholes pricing model and recorded as a further reduction to the
carrying amount and an addition to paid-in-capital.
As a result of the private placements at the end of the first quarter
the anti-dilution provision attached to the warrants issued on July 25, 2001
became effective. As such, the Company recalculated and adjusted the exercise
price and therefore adjusted the number of shares issuable upon exercise of the
warrants. This resulted in an adjusted exercise price of $1.42 and additional
shares of 608,235 issuable upon exercise of the warrants. The adjustment to the
exercise price of the warrants increased the value of the warrants recorded as
debt discount by $263,553. The terms of this warrant were further modified by
the Stipulation and Order discussed above. As a result of the changes provided
by the Stipulation and Order, a further discount of $248,574 was recorded.
The Company has therefore recorded a total debt discount of
approximately $4,026,000 and is amortizing the discount over the term of the
debt. Amortization is accelerated when necessary for conversions and repayments
of the debt principal. Amortization for the three and six month months periods
ended December 31, 2001 and 2000 was approximately $483,000, $128,000,
$1,604,000 and $128,000, respectively, and is recorded as a component of
financial items.
On December 20, 2001, the Company negotiated an additional $500,000
loan in addition to the $4 million loan already outstanding with M&S Trust.
RECENT SALE OF SECURITIES
On September 25, 2001, the Company closed a private placement pursuant
to which it issued 3,250,000 shares of Common Stock for proceeds of $3,250,000.
In addition, the Company issued warrants to purchase 1,625,000 shares of Common
Stock, exercisable at $2.25 per share for two years. The Company used part of
the proceeds from this offering to make the initial required payment to Castle
Creek for the repurchase of a portion of the convertible notes held by Castle
Creek.
On September 25, 2001, the Company closed a placement under Regulation
S for an aggregate of $2,071,130, pursuant to which the Company issued an
aggregate of 1,568,144 shares and 784,071 warrants to purchase shares of the
Company's Common Stock, exercisable at $2.36 per share for two years.
As a result of the private placements, the Company has received proceeds
totaling approximately $5,762,000 by December 31, 2001. Commitments totaling
approximately $859,000 have been reported as Stock subscriptions receivable in
Stockholders' equity. Shares of the Company's Common Stock in relation to the
Stock subscription receivable have not been issued and thus they have been
reflected in Stockholders' equity as Common Shares to be issued at December 31,
2001.
On October 5, 2001, the Company completed the initial closing of a
private placement of Common Stock and warrants pursuant to which it issued an
aggregate of 1,238,096 shares of Common Stock for proceeds of $1,300,000. In
addition, the Company issued warrants to purchase 619,048 shares of Common
Stock, half of which are exercisable at $3.50 per share for twelve months
following the closing, and the other half of which are exercisable at $5.00 per
share for twenty-four months following the closing.
COMMERCIAL DEVELOPMENTS
On November 26, 2001, CellPoint announced that E-Plus had ordered
CellPoint's Mobile Location Broker (MLB) as its location middleware platform.
The MLB will be used for external access to location data, empowering Mobile
Virtual Network Operators, independent Service Providers, and other partners
when creating value added services. MLB is an integral component enabling new
revenue streams for mobile operators and their Service Provider partners to
deliver location-specific mobile Internet services. CellPoint's Mobile Location
Server (MLS) is already installed at E-Plus and can position users irrespective
of whether they are actively engaged in a call or not; MLB completes the full
solution for location service provision.
During the Quarter, the Company announced results of an extensive
performance testing program for its network-based location services platform,
Mobile Location System (MLS). Stringent tests were carried out on an entry-level
location platform configuration to measure and capture the performance data that
is most important to GSM carriers. The CellPoint platform was loaded to simulate
2,500 users doing 504,000 requests over a 60-minute period. This load reflects a
capacity of 140 location transactions per second. The Company also announced it
was ready to accept challenges by any location platform vendor in any GSM
environment.
EVENTS AFTER DECEMBER 31, 2001
On January 31, 2002, the Company closed a private placement of Common
Stock and warrants pursuant to which it issued an aggregate of 848,982 shares of
Common Stock for proceeds of $665,000. In addition, the Company issued warrants
to purchase 424,471 shares of Common Stock which are exercisable at $1.50 per
share for twenty four months
following the closing.
On January 31, 2002, CellPoint paid $200,000 to Castle Creek per the
Stipulation and Order discussed above.
On February 5, 2002, the Company announced its Mobile Location Broker
had been selected and installed for a major European Mobile Portal with further
details to be provided before 3GSM World in Cannes, France taking place on Feb
19-21.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2001
The results of continuing operations are reported herein for the
Company's location services business. The Company's telematics division is
reported as "discontinued operations".
REVENUES. In the fiscal quarter ended December 31, 2001 (the "Current
Quarter"), the Company's gross revenues from continuing operations were
$176,552, as compared to revenues from continuing operations of $804,417 for the
fiscal quarter ended December 31, 2000 (the "Comparable Quarter"). All of the
Company's revenues came from the European market. The decrease in revenues is
considered to be a timing effect as the Company previously recorded revenue in
prior quarters based on revenue recognition rules for software installation of
its Mobile Location System (MLS) product. The Company is currently engaged in
several negotiations to close further contracts. No revenues were recorded
during the quarter from the contract announced in December 2001 for the license
sale of its Mobile Location Broker.
COST OF REVENUES. Costs incurred by the Company in producing revenues
in the Comparable Quarter were mainly the costs of supplying hardware in
conjunction with the sale of the previous generation of software platforms. Such
costs decreased by $112,929 to $14,637 in the Current Quarter as compared to
$127,566 in the Comparable Quarter. The Company's role in supplying hardware in
relation to its sale of software and applications is decreasing, and
accordingly, the costs of producing revenue as a percentage of revenue has
decreased. Research and development expenses are recorded separately.
GROSS PROFIT. For the Current Quarter, the Company recorded a gross
profit of $161,915 as compared to $676,851 gross profit in the Comparable
Quarter. This decrease in gross profit is attributable to the decrease in
revenues in the Current Quarter whilst the gross margin increased by 7.6% to
91.7% in the Current Quarter from 84.1% in the Comparable Quarter as a result of
decreased need to supply hardware as part of the Company's product.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's selling,
general and administrative expenses decreased by $1,269,694 to $599,929 in the
Current Quarter from $1,869,623 in the Comparable Quarter. The decrease in
selling, general and administrative expenses in the Company's continuing
operations was primarily due the Company's restructuring program. Recurring
selling, general and administrative expenses are expected to decrease in future
periods due to the restructuring program in place compared to the fiscal year
ended June 30, 2000.
RESEARCH AND DEVELOPMENT EXPENSES. The Company's research and
development expenses increased by $298,147 to $1,388,832 in the Current Quarter
from $1,090,685 in the Comparable Quarter. The increase in research and
development expenses in the Company's continuing operations was due to the
research and development of the new generation of software platforms for
location-based services.
PROFESSIONAL FEES. Professional fees increased by $24,756 to
$485,585 in the Current Quarter from $460,829 in the Comparable Quarter due
to charges from the Company's previous law firm of at least $250,000 which,
according to the Company, is without merit as following the Company's the
lawsuit against the law firm. Professional fees in the Current Quarter are
related to costs incurred in connection with general legal, accounting,
consulting and regulatory compliance.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased by $39,624 to $974,912 in the Current Quarter from $935,288 in
the Comparable Quarter. Depreciation and amortization is primarily
related to purchased technology. The amortization of the positioning technology
acquired in connection with the Unwire acquisition and retained by the
continuing operations amounts to $386,879 and $386,879 and the amortization of
the original core technology amounts to $445,830 and $497,082 for the three
months ended December 31, 2001 and 2000, respectively.
FINANCIAL ITEMS. Financial items resulted in an expense of $745,148
in the Current Quarter compared to a net expense of $599,037 in the
Comparable Quarter. Interest expense was $664,882 in the Current Quarter,
compared to interest income of $198,125 in the Comparable Quarter. The
increase in interest expense was attributable to the $10,000,000 of
convertible notes issued in December 2000 and the amortization of the debt
discount recorded in relation to those notes and the subsequent amendments to
the terms thereof resulting in non-cash expense in the Current Quarter of
$483,305. Interest expense in the Current Quarter consisted of non-cash
expense of $483,305 on the Castle Creek debt discount, interest of $91,577 to
Castle Creek and interest of $90,000 to M&S Trust. In the Current Quarter,
the Company had realized foreign exchange losses aggregating $125,591 whereas
in the Comparable Quarter, the Company had net realized foreign exchange gain
of $6,610. These items result primarily from exchange rate fluctuations in
the currencies of the United States, England and Sweden.
LOSS FROM CONTINUING OPERATIONS. Loss from continuing operations for
the Current Quarter was ($4,032,491) versus ($4,620,896) in the Comparable
Quarter. The decrease in loss from continuing operations in the Current Quarter
was mainly a result of the restructuring of the Company.
INCOME/LOSS FROM DISCONTINUED OPERATIONS. On July 25, 2001, the
Company publicly announced its intention to sell its telematics division. On
October 9, 2001, Unwire filed for bankruptcy protection under the laws of
Sweden. Under accounting principles generally accepted in the United States,
the results of operations for the telematics division, are presented under
"Loss from Discontinued Operations" for the Comparable Quarter. The loss from
"discontinued operations" of $3,299,030 represents the operating losses of
the telematics division for the comparable quarter. This amount includes
depreciation and amortization of $2,290,312. The loss for the discontinued
operations prior to October 9, 2001 was taken as a cost in the fiscal
year-end 2001. Results subsequent to October 9, 2001 are no longer a part of
the Company's consolidated financial statements. In addition, in the quarter
ended December 31, 2001, upon disposition of the subsidiaries operating in
the telematics business the Company has recorded the reversal of the
cumulative translation adjustment relative to these discontinued operations
that had previously been recorded as a component of Stockholders' Equity.
NET LOSS AND LOSS PER SHARE. As a result of the above, net loss was
($4,032,491) for the Current Quarter. Loss per share from continuing operations
was ($0.25) based on weighted average shares outstanding of 16,301,713, while
the Comparable Quarter loss per share from continuing operations was ($0.44)
based upon a weighted average of 10,485,000 shares outstanding. The net loss for
the Comparable Quarter was ($7,919,926) including the loss from discontinued
operations of ($3,299,030).
SIX MONTHS ENDED DECEMBER 31, 2001
The results of continuing operations are reported herein for the
Company's location services business. The Company's telematics division is
reported as "discontinued operations".
REVENUES. In the six months ended December 31, 2001 (the "Current
Period"), the Company's gross revenues from continuing operations were $591,757,
as compared to revenues from continuing operations of $1,729,970 for the six
months ended December 31, 2000 (the "Comparable Period"). All of the Company's
revenues came from the European market. The decrease in revenues is considered
to be a timing effect as the Company is currently engaged in several
negotiations to close further contracts.
COST OF REVENUES. Costs incurred by the Company in producing revenues
in the Comparable Period were mainly the costs of supplying hardware in
conjunction with the sale of the previous generation of software platforms. Such
costs decreased by $320,716 to $35,683 in the Current Period as compared to
$356,399 in the Comparable Period. The Company's role in supplying hardware in
relation to its sale of software and applications is decreasing, and
accordingly, the costs of producing revenue as a percentage of revenue has
decreased. Research and development expenses are recorded separately.
GROSS PROFIT. For the Current Period, the Company recorded a gross
profit of $556,074 as compared to
$1,373,571 gross profit in the Comparable Period. This decrease in gross profit
is attributable to the decrease in revenues in the Current Period whilst the
gross margin increased by 14.6% to 94.0% in the Current Period from 79.4% in the
Comparable Period as a result of decreased need to supply hardware as part of
the Company's product.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's selling,
general and administrative expenses decreased by $760,655 to $2,463,746 in the
Current Period from $3,224,401 in the Comparable Period. The decrease in
selling, general and administrative expenses in the Company's continuing
operations was primarily due to the restructuring program. Recurring selling,
general and administrative expenses are expected to decrease in future periods
due to the restructuring program in place compared to the fiscal year ended June
30, 2002.
RESEARCH AND DEVELOPMENT EXPENSES. The Company's research and
development expenses increased by $590,954 to $2,460,939 in the Current Period
from $1,869,985 in the Comparable Period. The increase in research and
development expenses in the Company's continuing operations was due to the
research and development of the new generation of software platforms for
location-based services.
PROFESSIONAL FEES. Professional fees decreased by $31,066 to $651,261
in the Current Period from $682,327 in the Comparable Period. Professional fees
in the Current Period are primarily related to costs incurred in connection with
regulatory compliance.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased by $139,869 to $1,985,131 in the Current Period from
$1,845,262 in the Comparable Period. Depreciation and amortization is primarily
related to purchased technology. The amortization of the positioning technology
acquired in connection with the Unwire acquisition amounts to $805,357 and
$773,758 and the amortization of the original core technology amounts to
$891,660 and $994,163 for the six months ended December 31, 2001 and 2000,
respectively.
FINANCIAL ITEMS. Financial items resulted in an expense of
$2,285,726 in the Current Period compared to a net expense of $748,680 in the
Comparable Period. Interest expense was $2,014,576 in the Current Period,
compared to $13,490 in the Comparable Period. The increase in interest
expense was attributable to the $10,000,000 of convertible notes issued in
December 2000 and the amortization of the debt discount recorded in relation
to those notes and the subsequent amendments to the terms thereof resulting
in non-cash expense in the Current Period of $1,604,249. Interest expense in
the Current Period consisted of the non-cash expense of $1,604,249 on the
Castle Creek debt discount, interest of $230,327 to Castle Creek and interest
of $180,000 to M&S Trust. In the Current Period, the Company had realized
foreign exchange losses aggregating $250,044 whereas in the Comparable
Period, the Company had net realized foreign exchange gain of $6,610. These
items result primarily from exchange rate fluctuations in the currencies of
the United States, England and Sweden.
LOSS FROM CONTINUING OPERATIONS. Loss from continuing operations for
the Current Period was ($9,290,729) versus ($7,339,369) in the Comparable
Period. The increase in loss from continuing operations in the Current Period
was a result of the increased financial costs related to the Castle Creek
transaction of interest expense ($230,247) and non-cash expense of ($1,604,249).
INCOME/LOSS FROM DISCONTINUED OPERATIONS. On July 25, 2001, the
Company publicly announced its intention to sell its telematics division. On
October 9, 2001, Unwire filed for bankruptcy protection under the laws of
Sweden. Under accounting principles generally accepted in the United States,
the results of operations for the telematics division, are presented under
"Loss from Discontinued Operations" for the Comparable Period. The loss from
"discontinued operations" of ($5,927,855) represents the operating losses of
the telematics division for the comparable period. This amount includes
depreciation and amortization of $4,504,197. The loss for the discontinued
operations for the Current Period was taken as a cost in the fiscal year-end
2001. In addition, in the quarter ended December 31, 2001, upon disposition
of the subsidiaries operating in the telematics business the Company has
recorded the reversal of the cumulative translation adjustment relative to
these discontinued operations that had previously been recorded as a
component of Stockholders' Equity.
NET LOSS AND LOSS PER SHARE. As a result of the above, net loss was
($9,290,729) for the Current Period. Loss per share from continuing operations
was ($0.68) based on weighted average shares outstanding of 13,641,876, while
the Comparable Period loss per share from continuing operations was ($0.70)
based upon a weighted average of 10,475,000 shares outstanding. The net loss for
the Comparable Period was ($13,267,224) including the loss from discontinued
operations of ($5,927,855).
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL. At December 31, 2001, the Company had $1,300,386 in
current assets. Cash and cash equivalents amounted to $179,729. Accounts
receivable was $729,498. Current liabilities were $14,550,071 at December 31,
2001. Included in that amount is $2,667,869 in accrued expenses and current
liabilities of which $271,892 related to standard business payables, $433,766 to
taxes, $140,000 to professional fees not yet billed, $190,000 to salaries to
shareholders who are also employees of the Company, accrued interest payable to
Castle Creek of $422,474, $209,208 of deferred income not yet billed, $212,176
remaining reserve on a previous acquisition and $788,353 accrued for contingent
costs related to liquidated subsidiaries. The Company does not expect any
imminent payments in connection with these contingencies but these accruals made
in prior periods will be maintained until liquidation is cleared by the
trustees.
Accounts payable of $2,805,511 includes $518,514 invoiced from the
Company's former legal counsel and is in dispute by the Company. In December
2001, the Company filed a malpractice claim against former counsel relating to
work performed in connection with the Company's agreements with Castle Creek
Technology Partners LLC. The claim alleges former counsel breached the duty of
care owed to their client by failing to reasonably and competently represent
CellPoint in the transactions associated with Castle Creek. The claim further
alleges that their actions and omissions fall below the standards for reasonably
competent attorneys in the preparation of documents consummating the agreements
and the advice related thereto. Also included in current liabilities is
$4,576,691 of short-term debt to Castle Creek Technology Partners LLC and
$4,500,000 to M&S Trust. The Company has established payment plans for several
current liabilities and payables to be paid over the next three to six months.
Long term liabilities were $725,750 and comprised of a related party
note due in April 2003 (See Note 9 to Financial Statements).
At June 30, 2001, the Company had $4,993,093 in current assets, of
which $687,151 consisted of cash and cash equivalents. Working capital deficit
at the end of the Current Quarter was ($13,249,685), as compared to ($2,408,779)
at the end of Fiscal 2001. The decrease in working capital is attributable
mainly to the reclassification of long-term debt of ($9,076,691) to current
liabilities as it is now due within 12 months of the end of the Current Quarter.
CASH FLOW FROM OPERATIONS. For the Current Period, the Company used
net cash in operating activities from continuing operations of $3,202,312 as
compared to $5,880,954 for the Comparable Period. Net cash used in operating
activities from discontinued operations was $1,094,378 in the Current Period,
as compared to $1,883,132 in the Comparable Period. The increase in net cash
provided is primarily a result of decreased operating loss before
depreciation and amortization and non-cash expense related to the
amortization of the debt discount in connection with convertible notes. For
the current fiscal year, total operating expenses are expected to continue to
decrease on a quarterly basis.
On July 25, 2001, CellPoint publicly announced the planned sale of Unwire. The
Company was unable to identify a purchaser for Unwire and on October 9, 2001,
Unwire filed for bankruptcy protection under the laws of Sweden. The Company
does not anticipate any further significant charges in relation to this
bankruptcy.
CASH FLOW FROM INVESTING ACTIVITIES. For the Current Period, the
Company had a net cash outflow from investing activities from continuing
operations of $259,395 versus a net cash outflow of $85,149 in the Comparable
Period whereof
$242,864 was primarily due to ongoing research and development expenses
offset by $157,715 being proceeds from disposal of investment in affiliated
company. The Company does not currently have any commitments for capital
expenditures during the current fiscal year, but the Company may make such
expenditures if an opportunity consistent with the Company's business
strategy presents itself.
CASH FLOW FROM FINANCING ACTIVITIES. For the Current Period, the
Company had a net cash inflow from financing activities of $3,116,938 versus
a net cash inflow from financing activities of continuing operations of
$10,149,000 in the Comparable Period. The Company received net proceeds of
approximately $5,761,838 from sales of equity through private placements in
the Current Period. Proceeds were used to repay long term debt to Castle
Creek of $3,144,900 and for working capital.
The Company will require additional capital during its fiscal year ending June
30, 2002 to carry on its business and meet its current liabilities and implement
its business strategies, including cash for (i) payment of operating expenses
such as salaries for employees and ongoing business costs, and (ii) further
implementation of those business strategies. Such additional capital may be
raised through additional public or private financing, as well as borrowings and
other resources. To the extent that additional capital is raised through the
sale of equity or equity-related securities, the issuance of such securities
could result in dilution to the Company's stockholders. No assurance can be
given, however, that the Company will have access to the capital markets in the
future, or that financing will be available on acceptable terms to satisfy the
Company's cash requirements to implement its business strategies. If the Company
is unable to access the capital markets or obtain acceptable financing, its
future results of operations and financial conditions would be materially and
adversely affected. The Company may be required to raise substantial additional
funds through other means. If adequate funds are not available to the Company,
it may be required to curtail operations significantly or to obtain funds
through entering into arrangements with collaborative partners or others that
may require it to relinquish rights to certain of its technologies or product
candidates that the Company would not otherwise relinquish. While the Company
has begun to receive commercial revenues, there can be no assurances that its
existing commercial agreements will provide adequate cash to sustain its
operations. If the Company decides to expand its business faster, or to
geographic areas outside of Europe during the next twelve months, it may need to
raise further capital.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB")
finalized FASB Statements No. 141, Business Combinations (SFAS No. 141), and No.
142, Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 141 requires
the use of the purchase method of accounting and prohibits the use of the
pooling-of-interests method of accounting for business combinations initiated
after June 30, 2001. SFAS No. 141 also requires that the Company recognize
acquired intangible assets apart from goodwill if the acquired intangible assets
meet certain criteria. SFAS No. 141 applies to all business combinations
initiated after June 30, 2001and for purchase business combinations completed on
or after July 1, 2001. It also requires, upon adoption of SFAS No. 142 that the
Company reclassify the carrying amounts of intangible assets and goodwill based
on the criteria in SFAS No. 141.
SFAS No. 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least annually.
In addition, SFAS No. 142 requires that the Company identify reporting units for
the purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS No. 142. SFAS No. 142 is required to be
applied in fiscal years beginning after December 15, 2001 to all goodwill and
other intangible assets recognized at that date, regardless of when those assets
were initially recognized. Early adoption is permitted in the first quarter of
fiscal years beginning after December 15, 2000. SFAS No. 142 requires the
Company to complete a transitional goodwill impairment test six months from the
date of adoption. The Company is also required to reassess the useful lives of
other intangible assets within the first interim quarter after adoption of SFAS
No. 142. The Company is still assessing the impact SFAS No. 142 will have on its
financial position and results of operations and thus was unable to early adopt
SFAS No. 142. The Company will thus adopt SFAS No. 142 on July 1, 2002.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). This statement
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121") and a
portion of Accounting Principles Board Opinion No. 30, "Reporting Results of
Operations -Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS
No. 144 retains the fundamental provisions of SFAS No. 121 for recognition and
measurement of impairment, but amends the accounting and reporting standards for
segments of a business to be disposed of. SFAS No.144 is effective for fiscal
years beginning after December 15, 2001, and interim periods within those fiscal
years, with early application encouraged. The provisions of SFAS No. 144
generally are to be applied prospectively. The Company believes that the
adoption of SFAS No. 144 will not have a material impact on the Company's
financial position or results of operations.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Report contain "forward looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. These are statements that do not relate strictly to
historical or current facts. Although the Company believes that its plans,
intentions and expectations reflected in such forward looking statements are
reasonable, it can give no assurance that such plans, intentions or expectations
will be achieved. Such forward-looking statements involve known and unknown
risks and uncertainties. The Company's actual actions or results may differ
materially from those discussed in the forward-looking statements. These risk
factors are set forth below. All forward looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements set forth below:
o Our limited operating history makes evaluation of our business and
prospects difficult;
o Our business and prospects must be considered in light of the risks,
uncertainties, expenses and difficulties frequently encountered by
companies in their early stages of development, particularly
companies in new and rapidly evolving markets, such as the market
for location services;
o We have been sued by Castle Creek Technology Partners, LLC, which
has provided us financing, to have our debt of in excess of $6
million declared due and payable, for a default payment of $2
million and other damages and relief (See "Legal Proceedings"),
based on an alleged failure on our part to register an increased
number of shares for Castle Creek due to the operation of
antidilution provisions in a warrant we issued to Castle Creek in
July 2001. On December 19, 2001, we entered into a Stipulation and
Order with Castle Creek providing that Castle Creek agreed to stay
prosecution of this case until February 28, 2002, provided that we
make required prepayments on our Notes to Castle Creek of $200,000
by January 31, 2002, which payment was timely made, and an
additional $550,000 by February 28, 2002 and provided, further, that
we do not breach our agreements and instruments with Castle Creek
subsequent to the date of the Stipulation and Order. If we are in
compliance with the provisions of the Stipulation and Order at
February 28, 2002, then Castle Creek will dismiss the case with
prejudice. We are also required to make prepayments of the Notes in
an amount equal to 25% of the gross proceeds of each financing we
close; provided, that the maximum aggregate amount of prepayments
that we are required to make under the Stipulation and Order prior
to October 1, 2002 (the due date of the Notes) is $3,000,000.
o Our sales cycles are long and our revenue is unpredicatable;
o Our ability to secure additional financing on acceptable terms to
carry on our business and meet current liabilities and ongoing
expenses as and when necessary;
o Our ability to improve our technology to keep up with customer
demand for new services;
o The development cycle for new products may be significantly longer
than expected, resulting in higher than anticipated development
costs;
o The ability of our systems and operations to connect and manage a
substantially larger number of customers while maintaining adequate
performance, which could place a strain on managerial and
operational resources;
o Our ability to expand customer service, billing and other related
support systems;
o Our ability to retain the services of our key management and to
attract new members of our management team;
o Our ability to effect and retain appropriate patent, copyright and
trademark protection of our products;
o Despite the implementation of security measures, our computer
networks and web sites may be vulnerable to unauthorized access,
computer viruses and other disruptive problems, and any such
occurrence could result in the expenditure of additional resources
necessary to protect our assets;
o Increased competition in the field of location services;
o Our ability to make required payments on and to retire the
outstanding convertible notes held by Castle Creek Technology
Partners, LLC, pursuant to the terms of the Note Purchase,
Modification and Forebearance Agreement, dated as of July 25, 2001,
as amended as of September 26, 2001, and by the Stipulation and
Order with Castle Creek.
o Our ability to continue to meet the listing requirements of the
Nasdaq National Market. On November 21, 2001, The Nasdaq Stock
Market notified us of its staff determination that we did not comply
with the minimum net tangible assets or the stockholders equity
listing standards and requested that we submit a definitive plan for
compliance with these standards. We submitted our plan in response
to this notice on December 17, 2001. Due to the change in our
financial statements for the quarter ended September 30, 2001, set
forth herein, we have been advised by Nasdaq that this proceeding is
moot.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART II
ITEM 1. LEGAL PROCEEDINGS
PENDING LEGAL PROCEEDINGS
As described elsewhere in this report, the Company is party to a
Securities Purchase Agreement, dated December 6, 2000, with Castle Creek
Technology Partners LLP ("Castle Creek"), pursuant to which it issued
$10,000,000 principal amount of its convertible notes (the "Notes") to Castle
Creek, a Stock Purchase Warrant, dated December 6, 2000, entitling Castle Creek
to purchase additional shares of the Company's common stock, and a related
Registration Rights Agreement, dated December 6, 2000, providing for
registration with the Securities and Exchange Commission ("SEC") of the shares
of common stock owned by Castle Creek and issuable pursuant to said convertible
notes and stock purchase warrant for resale. On July 25, 2001, the Company and
Castle Creek Technology Partners LLC ("Castle Creek") entered into a Note
Purchase, Modification and Forebearance Agreement (the "July Agreement"),
pursuant to which the Company agreed to purchase over 90 days for 86% of face
value of the then remaining $9.25 million principal amount in convertible notes
held by Castle Creek. The Company agreed to pay $3.0 million to Castle Creek by
September 24, 2001 and $4.955 million by October 23, 2001 (of which $1.0 million
was paid as a non-refundable deposit on July 25. 2001), plus all accrued and
unpaid interest from the original issuance date through October 23, 2001 or, if
earlier, the date of the purchase. As part of the transaction, the Company
issued to Castle Creek five-year warrants to purchase 500,000 shares of Common
Stock, exercisable, after one year, at an initial exercise price of $3.14 per
share (subject to specified anti-dilution adjustment as set forth in the terms
of such warrants). The shares issuable upon exercise of such warrant were
required to be registered with the Securities and Exchange Commission.
In addition, the Company granted to Castle Creek a security interest in
its assets (including the assets of its
subsidiaries), including its intellectual property. The fixed conversion price
of the notes was changed to $4.00 with no floating conversion price if the notes
were purchased on a timely basis and the Company was in compliance with all its
other obligations to Castle Creek in all material respects. The Company also
agreed to certain limitations on the terms of future debt and equity financings,
which limitations would not apply to a financing that provided the proceeds for
the final purchase of the Notes. The Company granted Castle Creek a full release
of all claims and agreed not to disparage Castle Creek; Castle Creek has agreed
not to disparage the Company.
On September 26, 2001, Ce1lPoint and Castle Creek entered into an
amendment of the July Agreement to repurchase the convertible notes held by
Castle Creek and related matters. Pursuant to the amendment, the Company paid
$2.25 million to Castle Creek on September 26, 2001 for principal and accrued
interest. The remaining outstanding convertible notes are subject to a fixed
conversion price of $4.00, and are scheduled to be, repurchased on October 1,
2002 for approximately $6.1 million plus accrued interest (and, in the event of
a material breach by the Company, such prices will be then subject to specified
adjustments by a reset of the fixed conversion price to the lower of (a) the
average closing price during the ten-day period beginning five days prior to the
date of such non compliance event, or (b) the lowest price at which the
Company's Common Stock or Common Stock equivalents are sold after September 25,
2001, and by the payment of an additional repurchase amount of $2,000,000). The
outstanding notes are prepayable in part or in whole at any time, without
penalty.
The Company was served with a complaint on November 15, 2001, for a
suit by Castle Creek to have its debt of in excess of $6 million declared due
and payable, for a default payment of $2 million and other damages and relief,
and on December 13, 2001, Castle Creek filed an amended complaint. The principal
issue in dispute in the litigation is a declaratory judgment sought by Castle
Creek as to the antidilution adjustment applicable to the number of shares that
Castle Creek is entitled to purchase under the warrant to purchase 500,000
shares of common stock issued in the July 25, 2001 restructuring with Castle
Creek. On December 19, 2001, the Company entered into a Stipulation and Order
with Castle Creek providing that Castle Creek agreed to stay prosecution of this
case until February 28, 2002, provided that the Company makes required
prepayments on its Notes to Castle Creek of $200,000 by January 31, 2002, which
payment was timely made, and an additional $550,000 by February 28, 2002 and
provided, further, that the Company does not breach its agreements and
instruments with Castle Creek subsequent to the date of the Stipulation and
Order. If the Company is in compliance with the provisions of the Stipulation
and Order at February 28, 2002, then Castle Creek will dismiss the case with
prejudice. The Company is also required to make prepayments of the Notes in an
amount equal to 25% of the gross proceeds of each financing it closes; provided,
that the maximum aggregate amount of prepayments that the Company is required to
make under the Stipulation and Order prior to October 1, 2002 (the due date of
the Notes) is $3,000,000. The Company has also registered in its Registration
Statement that was declared effective by the Securities and Exchange Commission
on January 8, 2002, the 1,500,000 shares issuable to Castle Creek by reason of
the Stipulation and Order for the July 2001 warrant.
CLAIM FILED AGAINST FORMER COUNSEL
In December 2001, the Company filed a $100 million malpractice claim
against its former legal counsel, relating to work performed by that firm in
negotiation of agreements with Castle Creek. This firm represented the Company
in contract negotiations and documented the details of the private placement in
which Castle Creek purchased the Notes. This firm also worked on subsequent
agreements and modifications with Castle Creek in July and September, 2001. The
claim alleges this firm breached the duty of care owed to its client by failing
to reasonably and competently represent the Company in the transactions
associated with Castle Creek. The claim further alleges that their actions and
omissions fall below the standards for reasonably competent attorneys in the
preparation of documents consummating the agreements and the advice related
thereto. The Company in this suit alleges that it has suffered damages as a
direct and proximate result of the malpractice of these attorneys in an amount
to be determined at trial, but no less than $100 million, plus interest,
attorneys' fees, costs and punitive damages.
AROSMAIZELS AB ARBITRATION
The Company had received a claim by ArosMaizels AB for 5,700,000
Swedish Kronor (approximately $550,000) for financial services rendered to the
Company in connection with the Unwire transaction and potential financings. This
claim was submitted for arbitration, as a result of which, the Company is
required to pay 4,500,000 Swedish Kronor (approximately $425,000) plus interest
at 8% from May 3, 2001. The Company previously recorded a reserve for this
claim and intends to pay it in full.
ITEM 2. CHANGES IN SECURITIES
(a) None.
(b) None.
(c) Recent Sales of Securities.
In late September and early October, 2001, the Company closed
three private Placements of its common stock and warrants to
purchase common stock: the first placement was for $3.25
million, pursuant to which the Company issued 3,250,000 shares
of Common Stock plus 1,625,000 warrants to purchase shares of
Common Stock at an exercise price of $2.25 per share,
exercisable for two years. The units were sold to accredited
investors pursuant to Regulation 506 under the Securities Act
of 1933, as amended (the "Securities Act"). The proceeds from
the sale of these units were used to repurchase a portion of
the convertible notes held by Castle Creek. The second
placement was an offering pursuant to Regulation S under the
Securities Act, in which non-U.S. Persons (as such term is
defined in Regulation S), purchased 1,568,144 shares of Common
Stock and 784,071 warrants to purchase shares of Common Stock,
exercisable at $2.36 per share for two years. The proceeds
from the Regulation S offering aggregated $2,071,130, and will
be used for working capital. The third placement was for
shares of Common Stock and warrants to purchase Common Stock
for $1,300,000. Such offering was made to accredited investors
pursuant to Regulation 506 under the Securities Act. In
connection with such offering, the Company issued 1,238,096
shares of Common Stock, and 619,048 warrants to purchase
shares of Common Stock, half of which are exercisable at $3.50
per share for twelve months and the other half of which are
exercisable at $5.00 per share for twenty-four months.
(d) None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 12, 2001, the Company held its annual meeting of
stockholders. At the meeting, the stockholders voted on (i) the proposal to
elect as directors the persons who have been nominated by the current Board of
Directors of the Company, (ii) the proposal to approve the amendment to the
Company's Articles of Incorporation to increase the authorized common stock of
the Company from 22,000,000 shares of common stock, par value $.001 per share,
to 50,000,000 shares of common stock, par value $.001 per share, (iii) the
proposal to approve the amendment to the Company's Articles of Incorporation to
increase the authorized preferred stock of the Company from 3,000,000 shares of
non-voting preferred stock, par value $.001 per share, to 10,000,000 shares of
preferred stock, par value $.001 per share, having such rights and preferences,
including voting rights, as the Board of Directors of the Company may determine,
(iii) the adoption of an amendment to the Company's Stock Warrant Plan, and (iv)
the proposal to ratify the retention of BDO Seidman, LLP as the independent
auditors of the Company.
(i) The proposal to elect persons to serve as directors of the Company;
Stephen Childs, Lynn Duplessis, Peter Henricsson, Lars Person, Bengt Nordstrom
and Jan Rynning received an average of 10,261,193 votes in favor of each
nominee, an average of 103,777 votes against and 0 abstentions and broker
non-votes, representing an average vote of 99% of the votes cast in favor of the
election of directors.
Individual votes:
For Withheld % of votes cast
Stephen Childs 10 261 076 106 095 99%
Lynn Duplessis 10 278 581 88 590 99%
Peter Henricsson 10 257 476 109 695 99%
Bengt Nordstrom 10 261 076 106 095 99%
Lars Persson 10 261 076 106 095 99%
Jan Rynning 10 261 076 106 095 99%
(ii) the proposal to approve an amendment to the Company's Articles of
Incorporation to increase the authorized common stock of the Company from
22,000,000 shares of common stock to 50,000,000 shares of common stock was
adopted, having received 10,340,165 votes in favor, 26,548 votes against and 458
abstentions and broker non-votes, representing a vote of 63% of the total shares
outstanding and 99.7% of the votes cast in favor of the proposal;
(iii) the proposal to approve an amendment to the Company's Articles of
Incorporation to increase the authorized preferred stock of the Company from
3,000,000 shares of preferred stock to 10,000,000 shares of preferred stock, par
value $.001 per share, having such rights and preferences, including voting
rights, as the Board of Directors of the Company may determine was not adopted,
having received 6,141,864 votes in favor, 35,428 votes against and 4,189,879
abstentions and broker non-votes, representing a vote of 37% of the total shares
outstanding in favor of the proposal, less than the minimum of 50% of the total
shares outstanding required for adoption ;
(iv) the proposal to approve an amendment to the Company's 1998 Stock
Warrant Plan was adopted, having received 10,336,225 votes in favor, 29,948
votes against and 998 abstentions and broker non-votes, representing a vote of
63% of the total shares outstanding and 99.8% of the votes cast in favor of the
proposal; and
(v) the retention of BDO Seidman LLP for audit responsibility as the
Company's independent auditors was ratified, having received 10,354,048 votes in
favor, 12,673 votes against and 450 abstentions and broker non-votes,
representing a vote of 63% of the total shares outstanding and 99.9% of the
votes cast in favor.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
(b) Reports on Form 8-K
Current Reports on Form 8-K were filed on July 31, 2001,
October 5, 2001, and on December 21, 2001.
CELLPOINT INC. AND SUBSIDIARIES
CONTENTS
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PAGE:
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Consolidated balance sheets as of December 31, 2001 (Unaudited) and June 30, 2001 (Audited).............................. F-1
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Consolidated statements of operations for the six months ended December 31, 2001 and 2000................................ F-2
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Consolidated statements of comprehensive income/(loss) for the six months period ended December 31, 2001 and 2000........ F-3
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Consolidated statements of cash flows for the six months period ended December 31, 2001 and 2000......................... F-4
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Notes to consolidated financial statements............................................................................... F-5
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CELLPOINT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN USD)
NOTE DECEMBER 31, JUNE 30,
2001 2001
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................................................. $ 179,729 $ 687,151
Accounts receivable ........................................................ 729,498 1,366,641
Unbilled receivables ....................................................... -- 792,443
Prepaid expenses and other current assets .................................. 158,037 383,578
Other receivables .......................................................... 233,122 402,132
Current assets of discontinued operations .................................. 2 -- 1,361,148
------------- -------------
TOTAL CURRENT ASSETS .......................................................... 1,300,386 4,993,093
LONG-TERM ASSETS
Restricted cash ............................................................ 7 387,403 184,216
Acquired technology, net of accumulated amortization of $6,941,953 and
$5,411,604, respectively ................................................ 14,040,652 15,571,001
Other intangible assets, net of accumulated amortization of $1,541,005 and
$1,311,830, respectively ................................................ 878,026 1,107,201
Property and equipment, net of accumulated depreciation of $1,045,102 and
$480,345, respectively .................................................. 672,522 885,780
Non-current assets of discontinued operations ................................. 2 -- 521,401
------------- -------------
TOTAL LONG-TERM ASSETS ........................................................ 15,978,603 18,269,599
------------- -------------
TOTAL ASSETS .................................................................. $ 17,278,989 $ 23,262,692
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses and other current liabilities ............................. 10 $ 2,667,869 $ 2,337,066
Accounts payable ........................................................... 2,805,511 2,082,257
Current maturities of long-term debt (net of debt discount of $1,528,409 and 3 9,076,691 --
nil, respectively)
Current liabilities of discontinued operations ............................ -- 2,982,549
------------- -------------
TOTAL CURRENT LIABILITIES ..................................................... 14,550,071 7,401,872
DUE TO RELATED PARTY .......................................................... 9 725,750 --
LONG-TERM DEBT (net of debt discount of nil and $1,914,490) ................... 3 -- 11,785,510
------------- -------------
TOTAL LIABILITIES ............................................................. 15,275,821 19,187,382
------------- -------------
MINORITY INTEREST ............................................................. -- 48,464
COMMITMENTS AND CONTINGENCIES ................................................. 3
STOCKHOLDERS' EQUITY
Preferred shares ($0.001 par value; authorized 3,000,000 shares, nil issued
and outstanding) ........................................................ -- --
Common shares ($0.001 par value; authorized 50,000,000 shares, 16,355,543
shares and 10,824,503 shares issued and outstanding, respectively)
16,356 10,824
Common shares to be issued ................................................ 4 859,292 --
Additional paid in capital ................................................. 105,694,212 98,692,254
Cumulative foreign currency translation adjustment ......................... (668,631) 597,478
Stock subscription receivable ................................................. 4 (859,292) --
Accumulated deficit ........................................................... (103,038,769) (95,273,710)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY .................................................... 2,003,168 4,026,846
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................... $ 17,278,989 $ 23,262,692
------------- -------------
See accompanying notes to the consolidated financial statements
CELLPOINT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN USD)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
NOTE 2001 2000 2001 2000
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues ..................................... $ 176,552 $ 804,417 $ 591,757 $ 1,729,970
Cost of revenues ............................. (14,637) (127,566) (35,683) (356,399)
------------ ------------ ------------ ------------
Gross profit ................................. 161,915 676,851 556,074 1,373,571
Selling, general and administrative expense .. 5 (599,929) (1,869,623) (2,463,746) (3,224,401)
Research and development expense ............. (1,388,832) (1,090,685) (2,460,939) (1,869,985)
Professional fees ............................ (485,585) (460,829) (651,261) (682,327)
Depreciation and amortization ................ (974,912) (935,288) (1,985,131) (1,845,262)
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES ........... (3,449,258) (4,356,425) (7,561,077) (7,621,975)
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS ......................... (3,287,343) (3,679,574) (7,005,003) (6,248,404)
Loss on sale on investment ................... -- (342,285) -- (342,285)
Financial items, net ......................... 8 (745,148) (599,037) (2,285,726) (748,680)
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS .............. (4,032,491) (4,620,896) (9,290,729) (7,339,369)
------------ ------------ ------------ ------------
INCOME/(LOSS) FROM DISCONTINUED OPERATIONS ... 2 1,525,670 (3,299,030) 1,525,670 (5,927,855)
------------ ------------ ------------ ------------
NET LOSS ..................................... $ (2,506,821) $ (7,919,926) $ (7,765,059) $(13,267,224)
============ ============ ============ ============
Weighted average number of shares outstanding,
basic and diluted ...................... 16,301,713 10,485,000 13,641,876 10,475,000
------------ ------------ ------------ ------------
Net loss per common share basic and diluted:
Continuing operations .................... $ (0.25) $ (0.44) $ (0.68) $ (0.70)
Discontinued operations .................. $ 0.09 $ (0.31) $ 0.11 $ (0.57)
Net loss per share ....................... $ (0.16) $ (0.76) $ (0.57) $ (1.27)
See accompanying notes to the consolidated financial statements
CELLPOINT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(AMOUNTS IN USD)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 2001 2000
(unaudited) (unaudited) (unaudited) (unaudited)
Net loss .................................... $ (2,506,821) $ (7,919,926) $ (7,765,059) $(13,267,224)
Other comprehensive income (loss), cumulative
foreign exchange adjustments .......... (1,433,215) 17,205 (1,266,109) (135,241)
------------ ------------ ------------ ------------
Comprehensive loss for the period ........... $ (3,940,036 $ (7,902,721) $ (9,031,168) $(13,402,465)
============ ============ ============ ============
See accompanying notes to the consolidated financial statements
CELLPOINT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN USD)
NOTE 6 SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2001 2000
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ............................................................ $ (7,765,059) $(13,267,224)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
(Income)/Loss from discontinued operations .......................... (1,525,670) 5,927,855
Depreciation and amortization ....................................... 1,985,131 1,845,262
Provision for allowance on accounts receivables ..................... -- (36,732)
Non-cash financing costs ............................................ 1,604,249 127,636
Reversal of cumulative translation adjustment related to liquidated
subsidiaries ...................................................... (127,506) --
Loss on disposal of investment in affiliated company ................ -- 342,285
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Increase in restricted cash ......................................... (203,187) --
Decrease/(increase) in accounts receivable .......................... 637,143 (492,771)
Decrease/(increase) in unbilled receivables ......................... 792,443 --
Decrease/(increase) in prepaid expenses ............................. 225,541 (654)
Decrease/(increase) in other receivables ............................ 169,010 (412,944)
Increase/(decrease) in accrued expenses and other current liabilities 330,803 129,522
Increase/(decrease) in accounts payable ............................. 674,790 12,328
Decrease in due to affiliate ........................................ -- (55,517)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES FROM CONTINUING OPERATIONS: ...... (3,202,312) (5,880,954)
NET CASH USED IN OPERATING ACTIVITIES FROM DISCONTINUED OPERATIONS: .... (1,094,378) (1,883,132)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES: ................................. (4,296,690) (7,764,086)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................................................ (259,395) (242,864)
Proceeds from disposal of investment in affiliated company .......... -- 157,715
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES FROM CONTINUED OPERATIONS: ....... (259,395) (85,149)
NET CASH USED IN INVESTING ACTIVITIES FROM DISCONTINUED OPERATIONS: .... (3,429) (95,217)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES: ................................. (262,824) (180,366)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable ........................................... (3,144,900) --
Proceeds from notes payable ......................................... -- 10,000,000
Net proceeds from private placements ................................ 5,339,321 --
Proceeds from issuance of shares .................................... -- 149,800
Due to related party ................................................ 725,750 --
Advances of bank loans .............................................. 500,000 --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES FROM CONTINUING
OPERATIONS: ......................................................... 3,420,171 10,149,800
------------ ------------
Effects of exchange rate changes on cash ............................... 634,113 (22,584)
Effects of exchange rate changes on cash from discontinued operations .. (2,192) (11,241)
------------ ------------
Increase/(decrease) in cash and cash equivalents ....................... (507,422) 2,171,523
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....................... 687,151 6,624,392
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................. $ 179,729 $ 8,795,915
------------ ------------
See accompanying notes to the consolidated financial statements
CELLPOINT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN USD)
1 BASIS OF PRESENTATION
NATURE OF REPORT. The consolidated balance sheet at the end of the
preceding fiscal year has been derived from the audited consolidated balance
sheet contained in the Company's Annual Report on Form 10-KSB, on file with the
Securities and Exchange Commission, and is presented for comparative purposes.
All other financial statements are unaudited. The unaudited financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Item 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. The financial information
included in the quarterly report should be read in conjunction with the
Company's audited financial statements and related notes thereto for the fiscal
year ended June 30, 2001. In the opinion of management, all adjustments
necessary to present fairly the financial position, results of operations and
changes in cash flows, for all periods presented, have been made. The results of
operations for interim periods are not necessarily indicative of the operating
results for the full year.
GOING CONCERN. The consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company has
recurring losses from operations and operating cash constraints that raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include adjustments relating to the
recoverability and classification of recorded asset amounts, or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's ability to continue as a
going concern is dependent on its ability to generate sufficient cash flow to
meet its obligations on a timely basis and to raise additional financing to pay
current liabilities. There can be no assurances that the Company will be
successful in these efforts.
ESTIMATES AND UNCERTAINTIES. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
RECLASSIFICATIONS. Certain amounts relating to the six-months ended
December 31, 2000 have been reclassified to conform to the current year
presentation.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS. In June 2001, the
Financial Accounting Standards Board ("FASB") finalized FASB Statements No. 141,
"Business Combinations" (SFAS No. 141), and No. 142, "Goodwill and Other
Intangible Assets" (SFAS No. 142). SFAS No. 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS No. 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS No. 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS No. 142 that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS No. 141.
SFAS No. 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least annually.
In addition, SFAS No. 142 requires that the Company identify reporting units for
the purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS No. 142. SFAS No. 142 is required to be
applied in fiscal years beginning after December 15, 2001 to all goodwill and
other intangible
assets recognized at that date, regardless of when those assets were initially
recognized. Early adoption is permitted in the first quarter of fiscal years
beginning after December 15, 2000. SFAS No. 142 requires the Company to complete
a transitional goodwill impairment test six months from the date of adoption.
The Company is also required to reassess the useful lives of other intangible
assets within the first interim quarter after adoption of SFAS No. 142.
The Company has not completed its assessment of the impact SFAS No. 142
will have on its financial position and results of operations and thus was
unable to early adopt SFAS No. 142. The Company will thus adopt SFAS No. 142 on
July 1, 2002.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121") and a portion of Accounting
Principles Board Opinion No. 30, "Reporting Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions". SFAS No. 144 retains the
fundamental provisions of SFAS No. 121 for recognition and measurement of
impairment, but amends the accounting and reporting standards for segments of a
business to be disposed of. SFAS No.144 is effective for fiscal years beginning
after December 15, 2001, and interim periods within those fiscal years, with
early application encouraged. The provisions of SFAS No. 144 generally are to be
applied prospectively. The Company believes that the adoption of SFAS No. 144
will not have a material impact on the Company's financial position or results
of operations.
2 DISCONTINUED OPERATIONS
On May 19, 2001, the Company approved the disposal of the telematics
business segment of the Company and committed to a plan to dispose of the
business. In October and November 2001, the two subsidiaries that contained
the telematics business segment filed for protection under the bankruptcy
court. As a result of the filings the Company ceased all funding of the
telematics business segment and relinquished to the respective bankruptcy
courts control over the operations and decision making capabilities of the
former subsidiaries (See also Note 5). Accordingly, the telematics business
segment was presented as a discontinued operation in the balance sheet as of
June 30, 2001. The statements of operations and cash flows for the six months
ended December 31, 2000, have been restated to conform with this
presentation. At June 30, 2001, the Company had accrued approximately
$1,100,000 for additional losses expected from the discontinued operation
through the expected date of disposition. For the six months ended December
31, 2001 the Company has incurred losses of approximately $1,085,000 against
the accrual. The Company does not anticipate any further significant losses
related to this segment. From the time the business ceased to be under the
control of the Company, its financial statements have ceased to be included
in the Company's consolidated financial statements. Losses through the date
at which control was relinquished are included in the Company's Accumulated
Deficit. In addition, in the quarter ended December 31, 2001, upon
disposition of the related subsidiaries the Company has recorded the reversal
of the cumulative translation adjustment relative to these discontinued
operations that had previously been recorded as a component of Stockholders'
Equity.
The continuing operations of the Company now constitute the only
reportable business segment.
The components of assets (liabilities) of discontinued operations
included in the Company's Consolidated Balance Sheet at June 30, 2001 are as
follows:
DECEMBER 31, JUNE 30,
2001 2001
Current assets:
Cash and cash equivalents ...................................... - $ --
Accounts receivable ............................................ - 262,504
Prepaid expenses and other current assets ...................... --
Other receivables .............................................. - 482,423
Inventory ...................................................... - 429,432
Other current assets ........................................... - 186,789
Non-current assets:
Other long-term assets ......................................... - 521,401
Current liabilities:
Accounts payable, accrued expenses and other current liabilities - (2,982,549)
---------- -----------
Net liabilities of discontinued operations ........................ - $(1,100,000)
---------- -----------
3 LONG TERM DEBT
DECEMBER 31, JUNE 30,
2001 2001
M&S Trust $4,500,000 $ 4,000,000
Castle Creek (a) 4,576,691 7,785,510
------------------ ----------------
$9,076,691 $11,785,510
------------------ ----------------
(a) Castle Creek.
On December 6, 2000, the Company entered into an agreement whereby it
issued to Castle Creek Technology Partners LLC ("Castle Creek") convertible
notes in the aggregate principal amount of $10,000,000, which were originally
due and payable on September 30, 2002. Interest on the debt is 6% per annum,
compounded semi-annually and payable semi-annually on each June 30 and December
31. Prior to June 5, 2001, the notes were convertible, in whole or in part, at a
fixed conversion price of $25 per share at the option of the holder of the debt
and could be converted in exchange for all or part of the outstanding debt plus
the accrued interest at the conversion date. Subsequent to June 5, 2001, the
notes were convertible at the lower of $25 or 90% of the average of the five
lowest volume weighted average prices during the period of twenty consecutive
trading days ending on the trading day immediately prior to the date of
determination. The conversion of the notes contained certain limitations as set
forth in the agreement. The Company has reserved 2,000,000 shares for the
purpose of possible future conversions.
In connection with the convertible notes, the Company issued a warrant
that was immediately exercisable and which expires on December 5, 2005. The
warrant grants Castle Creek the right to purchase 210,526 shares of the
Company's common stock at an exercise price per share of $11.40.
On July 25, 2001, the Company entered into a note purchase,
modification and forebearance agreement with Castle Creek concerning the above
mentioned notes. Under the agreement, the outstanding notes were to be
repurchased by the Company. The Company agreed to buy back the outstanding
principal of the notes over 90 days for 86% of the remaining principal, plus
accrued interest, and issued a warrant with 500,000 shares issuable upon
exercise of the warrant at an exercise price of $3.14 per share and exercisable
after one year for a period of four years (subject to specified anti-dilution
adjustments). In addition, the Company granted to Castle Creek a security
interest in its assets (including the assets of its subsidiaries), including its
intellectual property. Castle Creek agreed not to trade in the Company's stock
effective July 25, 2001 until the note repurchase is completed, in consideration
for which Castle Creek was paid $1,000,000 as a non-refundable deposit against
the final note purchase payment. The fixed conversion price of the Notes was
changed to $4.00 with no floating conversion price if the notes are purchased on
a timely basis and the Company complies with all its other obligations to Castle
Creek in all material respects. The Company also agreed to certain limitations
on the terms of future debt and equity financings, which limitations would not
apply to a financing that provided the proceeds for the final purchase of the
Notes.
On September 26, 2001, the Company and Castle Creek entered into an
amendment of the July 25, 2001 agreement, wherein the outstanding convertible
notes were to be repurchased at 100% of the remaining principal and subject to a
fixed conversion price of $4.00. The Company paid $2,250,000 to Castle Creek on
September 26, 2001 for principal and accrued interest and was scheduled to make
a final payment on October 1, 2002 for $6,105,100 plus accrued interest (subject
to specified adjustments upon a material breach by the Company). The outstanding
notes are prepayable in part or in whole at any time without penalty. However,
if the Company is in non-compliance of the limitations on the terms of future
debt and equity financing, there will be a $2,000,000 penalty and the notes will
become convertible at the lower of 1) the average closing price during the ten
day period beginning five days prior to the date of
the non-compliance event or (2) the lowest price of common stock or common stock
equivalents sold from September 25, 2001 to the non-compliance event. The July
agreement, except as modified by the amendment, remains in effect, except as
further modified by the Stipulation and Order discussed below.
On November 15, 2001, the Company was served with a suit by Castle
Creek, and on December 13, 2001, Castle Creek filed an amended complaint, to
have its debt of in excess of $6,100,000 principal plus interest declared due
and payable, for a default payment of $2,000,000 and other damages and relief.
The principal issue in dispute in the litigation was the antidilution adjustment
applicable to the number of shares that Castle Creek is entitled to purchase
under the warrant issued in the July 25, 2001 restructuring with Castle Creek to
purchase 500,000 shares of common stock.
On December 19, 2001, the Company entered into a Stipulation and Order
with Castle Creek providing that Castle Creek agreed to stay prosecution of this
case until February 28, 2002, provided that the Company makes required
prepayments on its Notes to Castle Creek of $200,000 by January 31, 2002, and an
additional $550,000 by February 28, 2002 and provided, further, that the Company
does not breach its agreements and instruments with Castle Creek subsequent to
the date of the Stipulation and Order. In addition, the Stipulation and Order
provided a change in exercise price of the December 2000 warrant from $11.40 to
$7.75 and the July 2001 warrant that carried anti-dilution provisions was
amended to give Castle Creek the right to purchase 1,500,000 shares at a new
exercise price of $1.20 per share. 50% of the 1,500,000 shares are exercisable
immediately and the balance are exercisable beginning July 25, 2002 with all
shares expiring on July 25, 2006. The anti-dilution feature was further modified
such that the number of shares that Castle Creek is entitled to purchase under
the July 2001 Warrant was fixed at 1,500,000 (subject to adjustments for stock
splits, stock dividends and combinations of shares, and like events, but not
subject to adjustment due to a decrease in the exercise price of the Warrant).
Procedures clarifying the manner of calculating the adjustments to the exercise
price of the July 2001 Warrant were incorporated in the Stipulation and Order.
If the Company is in compliance with the provisions of the Stipulation and Order
at February 28, 2002, then Castle Creek will dismiss the case with prejudice.
The Company is also required to make prepayments of the Notes in an amount equal
to 25% of the gross proceeds of each financing the Company closes; provided,
that the maximum aggregate amount of prepayments that the Company is required to
make under the Stipulation and Order prior to October 1, 2002 (the due date of
the Notes) is $3,000,000.
As of December 31, 2001, Castle Creek had converted $750,000 of the
notes into 270,592 shares.
Following each of the debt modifications, the Company applied the rules
of Emerging Issues Task Force ("EITF") 96-19: "Debtor's Accounting for a
Modification or Exchange of Debt Instruments." Based on the provisions of EITF
96-19 it was determined that there was not a substantial change from the
original debt agreement and as such, the modified debt continues to be presented
at fair value using the new effective interest rate. Legal fees associated with
the modifications were expensed in the periods in which they were incurred.
Due to the beneficial conversion features associated with the
financing, the Company applied EITF 00-27: Application of EITF No. 98-5
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios", to the convertible instruments. In
accordance with EITF 00-27 the value of the beneficial conversion feature was
recorded as a reduction to the carrying amount of the convertible debt and an
addition to paid-in-capital. The fair value of the warrants granted in
connection with the financing and the amendments thereto was calculated using
the Black Scholes pricing model and recorded as a further reduction to the
carrying amount and an addition to paid-in-capital.
As a result of the private placements at the end of the first quarter
the anti-dilution provision attached to the warrants issued on July 25, 2001
became effective. As such, the Company recalculated and adjusted the exercise
price and therefore adjusted the number of shares issuable upon exercise of the
warrants. This resulted in an adjusted exercise price of $1.42 and additional
shares of 608,235 issuable upon exercise of the warrants. The adjustment to the
exercise price of the warrants increased the value of the warrants recorded as
debt discount by $263,553. The terms of this warrant were further modified by
the Stipulation and Order discussed above. As a result of the changes provided
by the Stipulation and Order, a further discount of $248,574 was recorded.
The Company has therefore recorded a total debt discount of
approximately $4,026,000 and is amortizing the discount over the term of the
debt. Amortization is accelerated when necessary for conversions and repayments
of the debt principal. Amortization for the three and six month months periods
ended December 31, 2001 and 2000 was approximately $483,00, $128,000, $1,604,000
and $128,000, respectively, and is recorded as a component of financial
items.
See also Note 9.
4 EQUITY FINANCING
On September 25, 2001, the Company closed a private placement pursuant
to which it issued 3,250,000 shares of Common Stock for proceeds of $3,250,000.
In addition, the Company issued warrants to purchase 1,625,000 shares of Common
Stock, exercisable at $2.25 per share for two years. The Company used part of
the proceeds from this offering to make the initial required payment to Castle
Creek for the repurchase of a portion of the convertible notes held by Castle
Creek.
On September 25, 2001, the Company closed a placement under Regulation
S for an aggregate of $2,071,130, pursuant to which the Company issued an
aggregate of 1,568,144 shares and 784,071 warrants to purchase shares of the
Company's Common Stock, exercisable at $2.36 per share for two years.
As a result of the private placements, the Company has received
proceeds totaling approximately $5,762,000 by December 31, 2001. Commitments
totaling approximately $859,000 have been reported as Stock subscriptions
receivable in Stockholders' equity. Shares of the Company's Common Stock in
relation to the Stock subscription receivable have not been issued and thus they
have been reflected in Stockholders' equity as Common Shares to be issued at
December 31, 2001.
On October 5, 2001, the Company completed the initial closing of a
private placement of Common Stock and warrants pursuant to which it issued an
aggregate of 1,238,096 shares of Common Stock for proceeds of $1,300,000. In
addition, the Company issued warrants to purchase 619,048 shares of Common
Stock, half of which are exercisable at $3.50 per share for twelve months
following the closing, and the other half of which are exercisable at $5.00 per
share for twenty-four months following the closing.
5 LIQUIDATION OF SUBSIDIARIES
In October 2001, the Company's subsidiary, Unwire, filed for protection
under the bankruptcy courts in Sweden. As a result of the filing the Company has
ceased all funding of Unwire operations. The bankruptcy courts have appointed a
Trustee to oversee the disbursement of Unwire's assets and the Company now has
no control over the operations or decision making capabilities of Unwire. As a
result, Unwire is no longer included in the Consolidated financial statements.
The Company's South African subsidiary, CellPoint Systems SA (Pty) Ltd
("Systems SA"), also filed for bankruptcy protection under the laws of South
Africa in November 2001. Systems S.A. operated a research and development
facility for the Company. The telematics portion of Systems SA had already been
recorded within the amounts presented as discontinued operations. The location
services portion of Systems SA is not included in discontinued operations, and
those functions will continue to be performed by the Company's Swedish
subsidiary. Costs of closing this subsidiary, primarily the write-off of the
intercompany net receivable from Systems SA, have been accrued in the June 30,
2001 financial statements.
On November 2, 2001 the Company's subsidiary in England, CellPoint
Europe Ltd.("CellPoint Europe"), was filed for liquidation by the appointed
liquidator. The functions performed by CellPoint Europe will now be performed by
the Swedish subsidiary CellPoint Systems AB and its branch office in the United
Kingdom.
The assets, liabilities and results of operations of Systems SA and
CellPoint Europe were immaterial to the financial statements of the Company for
all periods presented. Included in Financial Items is a gain of $127,506 related
to the reversal of cumulative translation adjustments recorded in prior periods
relative to the subsidiaries liquidated other than the portion classified as a
discontinued operation (See Notes 2 and 8).
6 SUPPLEMENTAL CASH FLOW INFORMATION
SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2001 2000
Cash paid during the year for:
Interest related to continuing operations........................... $389,703 $104,053
Interest related to discontinued operations......................... 4,796 6,584
Non-cash transactions relating to investing and financing
activities:
Discount on debt issued............................................. 1,218,169 2,807,942
Conversion of convertible debt to common stock...................... 450,000 149,800
Stock subscription receivable 859,292 -
7 RESTRICTED CASH
Cash is restricted in accordance with bank performance guarantees whereby in the
event the Company does not fulfill certain contracts, the cash will be disbursed
to the related customer. The Company has two bank performance guarantees
amounting to approximately $387,000, one of which for approximately $193,000
expires on December 31, 2004 but will automatically be reduced by approximately
$138,000 on January 1, 2003 and the other for approximately $194,000 expires on
October 30, 2002.
8 FINANCIAL ITEMS, NET
SIX MONTH ENDED
DECEMBER 31, DECEMBER 31,
2001 2000
Interest income..................................................... $ 8,982 $ 74,133
Other financial income.............................................. 213,843 85,541
Interest expense.................................................... (2,014,576) (225,105)
Other financial expense............................................. (169,175) (683,249)
Realized foreign exchange gains/(loss) (*).......................... (324,800) -
--------------- ----------------
Financial items, net................................................ (2,285,726) (748,680)
(*) Includes a gain of $127,506 related to cumulative translation adjustments
recorded in prior periods relative to foreign subsidiaries now liquidated (See
Note 5).
9 DUE TO RELATED PARTY
Bank debt of $725,750 to finance group operations had been personally
guaranteed by certain stockholders of CellPoint Inc. CellPoint Inc. agreed to
reimburse these shareholders for amounts paid by these shareholders if the
guarantee was called by the bank. These shareholders have agreed to defer the
repayment of this amount which the bank claimed in the quarter ended December
31, 2001 until April 15, 2003. The parties further agreed that no interest
will be charged. As a result, the amount payable to these shareholders has
been classified as a long-term liability in the accompanying financial
statements.
10 ACCRUED EXPENSES AND OTHER LIABILITIES
DECEMBER 31, JUNE 30,
2001 2001
Interest expense primarily due October 1, 2002...................... $ 422,479 $ 390,000
Deferred income..................................................... 209,208 -
Accrual for a previous acquisition.................................. 212,176 212,176
Accrual for contingent costs related to liquidation of subsidiaries. 788,353 -
Accrual for normal business expenses................................ 1,035,653 1,734,890
--------------- ----------------
$2,667,869 $2,337,066
SIGNATURE
In accordance with the requirements 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.
CELLPOINT INC.
By: /s/ PETER HENRICSSON
---------------------------------------
Peter Henricsson
President and Chief Executive Officer
By: /s/ LARS WADELL
----------------------------------------
Lars Wadell
Chief Financial Officer
Date: February 14, 2002