UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-QSB/A
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended Commission File Number 0-19437
March 31, 2005 -------
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CELLULAR TECHNICAL SERVICES COMPANY, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 11-2962080
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
20 East Sunrise Highway, Suite 200, Valley Stream, New York 11581
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (516) 568-0100
Indicate by check mark whether the Issuer (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes X No
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4,586,770 Common Shares were outstanding as of May 4, 2005
Transitional Small Business Disclosure Format. Yes No X
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CELLULAR TECHNICAL SERVICES COMPANY, INC.
TABLE OF CONTENTS FOR FORM 10-QSB/A
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS................................................3
ITEM 2. MANAGEMENT'S PLAN OF OPERATIONS....................................9
ITEM 3. CONTROLS AND PROCEDURES.............................................9
PART II. OTHER INFORMATION...................................................10
ITEM 1. LEGAL PROCEEDINGS...................................................10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................10
2
CELLULAR TECHNICAL SERVICES COMPANY, INC.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(in 000's)
March 31, December 31,
2005 2004
---- ----
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,058 $ 2,199
Prepaid expenses, deposits and other current assets 81 0
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Total Current Assets 2,139 2,199
LONG-TERM INVESTMENT, net of valuation adjustment of $1,754 in 2005 and 2004 -- --
-------- --------
TOTAL ASSETS $ 2,139 $ 2,199
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 90 $ 86
Settlement payable 25
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Total Current Liabilities 115 86
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Commitments and contingencies -- --
STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value per share, 5,000 shares authorized, none issued
and outstanding
Common Stock, $.001 par value per share, 30,000 shares authorized, 2,487 shares 25 25
issued and outstanding at March 31, 2005 and 2,487 shares issued and
outstanding at December 31, 2004
Additional Paid-in Capital
30,102 30,095
Accumulated deficit (28,103) (28,007)
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Total Stockholders' Equity 2,024 2,113
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,139 $ 2,199
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CELLULAR TECHNICAL SERVICES COMPANY, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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(in 000's, except per share amounts)
(unaudited)
Three Months Ended
March 31,
--------------------
2005 2004
---- ----
REVENUES
Phonecards $ -- $ --
COSTS AND EXPENSES
General and administrative 105 132
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Total Costs and Expenses 105 132
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LOSS FROM OPERATIONS (105) (132)
OTHER INCOME (EXPENSE) , net -- 3
INTEREST INCOME, net 9 8
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LOSS BEFORE TAX (96) (121)
PROVISION FOR INCOME TAX -- --
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NET LOSS $ (96) $ (121)
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BASIC AND DILUTED SHARE DATA:
Net Loss $(0.04) $(0.05)
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WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted 2,487 2,315
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CELLULAR TECHNICAL SERVICES COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(in 000's)
(unaudited)
Three Months Ended
March 31,
------------------
2005 2004
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OPERATING ACTIVITIES
Net loss .................................................................. $ (96) $ (121)
Adjustments to reconcile net loss to net cash used in operating activities:
Non cash compensation expense (restricted stock) ...................... 7 22
Loss (Gain) on disposal of assets ..................................... 1
Changes in operating assets and liabilities:
Decrease in accounts receivable, net ................................ 9
Increase in prepaid expenses and deposits ........................... (81) (2)
(Decrease) Increase in accounts payable and accrued liabilities ..... 4 (14)
Increase in Settlements Payable...................................... 25
Decrease in payroll related liabilities ............................. (4)
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NET CASH USED IN OPERATING ACTIVITIES ........................................ (141) (109)
NET CASH PROVIDED BY INVESTING ACTIVITIES .................................... -- --
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NET CASH PROVIDED BY FINANCING ACTIVITIES .................................... -- --
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NET DECREASE IN CASH AND CASH EQUIVALENTS .................................... (141) (109)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............................. 2,199 2,651
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CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................... $2,058 $2,542
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
CELLULAR TECHNICAL SERVICES COMPANY, INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE A -- BASIS OF PRESENTATION AND LIQUIDITY:
The accompanying unaudited condensed consolidated financial statements of
Cellular Technical Services Company, Inc. ("CTS" or the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The operating
results for the three month period ended March 31, 2005 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2005. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2004 and in the Company's other filings with the
Securities and Exchange Commission. Unless the context otherwise requires, all
references to "CTS" or the "Company" herein include Cellular Technical Services
Company, Inc. and any entity over which it has or shares operational control.
CTS has no current business. Management currently has no plan to liquidate the
Company and distribute the remaining assets to stockholders. As of early 2004
the Company may be considered as a dormant enterprise in accordance with
Statement of Financial Accounting Standards No. 7. The Company has been and will
be evaluating alternative businesses and acquisitions. There is no assurance
that such alternative businesses and acquisitions can be accomplished before CTS
spends all of its remaining cash balances, that CTS will be able to raise money
at acceptable terms, if at all, to fund the acquisitions and/or the operating
activities of the businesses it may acquire, and that the acquired businesses
will represent viable business strategies and/or will be consistent with the
expectations and risk profiles of CTS' stockholders.
Based on management plans, these financial statements have been prepared under
the "going concern" assumption which presumes that the Company will continue its
existence.
Management expects that during the remaining nine months of 2005 the Company
will incur costs of approximately $0.40 million, primarily related to costs of
maintaining the business as a public entity and insurance. The Company does not
expect to have any current source of revenues and has de minimis operations.
Accordingly, management believes that its cash balances as of March 31, 2005 of
approximately $2.0 million are sufficient to fund its current cash flow
requirements through at least the next twelve months.
NOTE B -- STOCK OPTIONS
As provided for by FAS No. 123 - Accounting for Stock-Based Compensation, the
Company has chosen to measure stock-based compensation cost under the
intrinsic-value method prescribed under Accounting Principles Board Opinion No.
25 and has adopted only the disclosure provisions of FAS 123. As the Company
issues options with exercise prices equal to market value on the date of grant,
compensation expense is not recognized. Stock compensation expense for options
granted to non-employees has been determined in accordance with FAS 123 and
Emerging Issues Task Force ("EITF") Issue No. 96-18 as the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measured. The fair value of options granted to
non-employees is periodically re-measured as the underlying options vest.
The pro forma information regarding net income (loss) and earnings (loss) per
share is required by FAS 123, which has been updated by FAS No. 148 - Accounting
for Stock-Based Compensation - Transition and Disclosure, and has been
determined as if the Company had accounted for its employee stock options under
the fair value method of those statements. In that regard, the fair value for
options granted during the period March 31, 2004 was estimated at the date of
grant using a Black-Scholes option-pricing model with the following
weighted-average assumptions: (No options were granted during the period ended
March 31, 2005)
6
Three Months Ended
March 31
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2005 2004
---- ----
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Risk-free interest rate -- 2.46%
Dividend yield -- 0
Volatility factor -- 1.19
Expected life of the options (years) -- 4.0
Fair value of options granted during the -- $ 0.56
period
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in 000's, except per share amounts):
Three Months Ended Three Months Ended
March 31, 2005 March 31, 2004
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Net loss $ (96) $ (121)
Add: Stock-based compensation as reported 7 22
Deduct: Total stock-based compensation expense
determined under fair value method for all awards,
net of taxes (7) (45)
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Net loss - pro forma $ (96) $ (144)
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Basic and diluted loss per share - as reported $ (0.04) $ (0.05)
Basic and diluted loss per share - pro forma $ (0.04) $ (0.06)
NOTE C -- CONTINGENCIES:
Legal proceedings: From time to time, the Company is involved with or could be
subject to involvement with legal actions and claims which arise in the ordinary
course of business which management believes will be resolved without a material
adverse effect on the Company's business, financial condition or results of
operations. The Company is currently involved in one commercial litigation case.
On October 25, 2001, New England Telecom, Inc. and Paul Gregory, a former
employee, filed a claim in the Superior Court of Massachusetts (the "Court")
against the Company its Chairman, and Isis Tele-Communications, Inc ("Isis"), a
majority owned subsidiary of the Company, alleging, among other things, that the
Company breached a purchase agreement and a related employment contract. The
agreement included a two-year earn-out with a maximum contingent total payout of
$1.5 million. During December 2004, the Court dismissed all claims against the
Company and its Chairman. During May 2005, this case was settled out of court by
payment of a nominal sum to Mr. Gregory, the liability for which has been
included in Settlement Payable on the Balance Sheet and the expense has been
included in General and Administrative Expenses on the Statement of Operations.
NOTE D -- LOSS PER SHARE:
The calculation of basic and diluted loss per share is as follows (in 000's,
except per share amounts):
Three Months Ended
March 31
--------
2005 2004
---- ----
Net loss (A) $ (96) $ (121)
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Weighted average number of shares outstanding (B) 2,487 2,315
===================================
Basic and diluted loss per share (A)/(B) $ (0.04) $ (0.05)
===================================
Outstanding stock options of 192,800 and 191,065 at March 31, 2005 and 2004,
respectively, were excluded from the computation of diluted earnings per share
because their effect was anti-dilutive.
7
NOTE E - SUBSEQUENT EVENTS
On April 12, 2005 the Company entered into a Securities Purchase Agreement (the
"Agreement") with Frost Gamma Investments Trust (the "Frost Trust"), Dr. Jane
Hsiao and Richard C. Pfenniger, Jr., among others. Pursuant to the Agreement,
the Company sold an aggregate of 2,100,000 shares of the Common Stock of the
Company. The purchase price for the sale of the Common Stock was $0.75 per share
in cash for an aggregate price of $1,575,000. The Company's cost for this
transaction was $15,000, resulting in an increase in cash of $1,560,000.
Pursuant to the Agreement, the Frost Trust, Dr. Hsiao and Mr. Pfenniger
purchased 1,400,000 shares, 200,000 shares and 100,000 shares, respectively, of
Common Stock. Dr. Phillip Frost controls the Frost Trust. Dr. Frost, Dr. Hsiao
and Mr. Pfenniger were elected to the board of directors of the Company pursuant
to the provisions of the Agreement.
8
Item 2. Management's Plan of Operations
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 that
reflect the Company's views with respect to future events and financial
performance. The Company uses words and phrases such as "anticipate," "expect,"
"intend," "the Company believes," "future," and similar words and phrases to
identify forward-looking statements. Reliance should not be placed on these
forward-looking statements. These forward-looking statements are based on
current expectations and are subject to risks, uncertainties and assumptions
that could cause, or contribute to causing, actual results to differ materially
from those expressed or implied in the applicable statements. Readers should pay
particular attention to the descriptions of risks and an uncertainty described
in this report and in the Company's other filings with the Securities and
Exchange Commission. All forward-looking statements included in this report are
based on information available to the Company on the date of this report. The
Company assumes no obligation or duty to update any such forward-looking
statements.
The Company recently began to file its periodic reports with the SEC in
compliance with the "small business issuer" provisions of Regulation S-B, under
the Securities Exchange Act of 1934. Previously, the Company had filed its
periodic reports under Regulation S-K and Regulation S-X, under the Exchange
Act. Generally, a Small Business Issuer cannot file under Regulation S-B if its
annual revenues or public float exceed $25.0 million for two consecutive years.
The Company qualifies as a Regulation S-B filer since its annual revenues for
both 2004 and 2003 were less than $25.0 million and its public float has not
exceeded $25.0 million. Regulation S-B is tailored for the small business
issuer, and although it requires accurate and complete disclosure, it does not
require certain specific disclosure which is required under Regulation S K and
Regulation S-X.
Management expects that during the last nine months of 2005 the Company will
incur costs of approximately $0.4 million, primarily related to costs of
maintaining the business as a public entity and insurance. The Company is not
expected to have any significant revenues or operations. There can be no
assurance that the Company's operations will be profitable on a quarterly or
annual basis in the future or that past revenue levels can be enhanced or
sustained. Past and existing revenue levels should not be considered indicative
of future operating results. Accordingly, subject to a potential acquisition or
other investment, management believes that its cash balances as of March 31,
2005 are sufficient to fund its current cash flow requirements through at least
the next twelve months, however unanticipated changes may require additional
financing.
The Company has no current business. It is not engaged in any planned product
research and development and it does not anticipate doing so in the future. The
Company has disposed of all of its equipment, and has one part time employee.
On April 12, 2005 the Company entered into a Securities Purchase Agreement (the
"Agreement") with Frost Gamma Investments Trust (the "Frost Trust"), Dr. Jane
Hsiao and Richard C. Pfenniger, Jr., among others. Pursuant to the Agreement,
the Company sold an aggregate of 2,100,000 shares of the Common Stock of the
Company. The purchase price for the sale of the Common Stock was $0.75 per share
in cash for an aggregate price of $1,575,000. The Company's cost for this
transaction was $15,000, resulting in an increase in cash of $1,560,000.
Pursuant to the Agreement, the Frost Trust, Dr. Hsiao and Mr. Pfenniger
purchased 1,400,000 shares, 200,000 shares and 100,000 shares, respectively, of
Common Stock. Dr. Phillip Frost controls the Frost Trust. Dr. Frost, Dr. Hsiao
and Mr. Pfenniger were elected to the board of directors of the Company pursuant
to the provisions of the Agreement.
Item 3. Controls and Procedures
The Company maintains a system of disclosure controls and procedures that is
designed to provide reasonable assurance that information, which is required to
be disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934, as amended, is accumulated and communicated to
management in a timely manner. The Company's Chief Executive Officer and Chief
Financial Officer have evaluated this system of disclosure controls and
procedures as of the end of the period covered by this quarterly report, and
believe that the system is operating effectively to ensure appropriate
disclosure. There have been no changes in the Company's internal control over
financial reporting during the most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved with or could be subject to
involvement with legal actions and claims which arise in the ordinary course of
business which management believes will be resolved without a material adverse
effect on the Company's business, financial condition or results of operations.
The Company is currently involved in one commercial litigation case. On October
25, 2001, New England Telecom, Inc. and Paul Gregory, a former employee, filed a
claim in the Superior Court of Massachusetts ("the Court") against the Company
its Chairman, and Isis Tele-Communications, Inc ("Isis"), a majority owned
subsidiary of the Company, alleging, among other things, that the Company
breached a purchase agreement and a related employment contract. The agreement
included a two-year earn-out with a maximum contingent total payout of $1.5
million. During December 2004, the Court dismissed all claims against the
Company and its Chairman. During May 2005, this case was settled out of court by
payment of a nominal sum to Mr. Gregory.
SIGNATURES
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Pursuant to 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.
CELLULAR TECHNICAL SERVICES COMPANY, INC.
By: /s/Kenneth Block
----------------
Kenneth Block
Secretary and Chief Financial Officer
May 16, 2005
Item 6. Exhibits
Exhibit 31.1 Rule 13a-14(a) Certification by Chief Financial Officer
Exhibit 31.2 Rule 13a-14(a) Certification by Chief Executive Officer
Exhibit 32.1 Section 1350 Certification
10