UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-QSB
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, 2006
CELLULAR TECHNICAL SERVICES COMPANY, INC.
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(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
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act) Yes [X] No [ ]
4,586,758 Common Shares were outstanding as of April 28, 2005
Transitional Small Business Disclosure Format. Yes [ ] No [X]
CELLULAR TECHNICAL SERVICES COMPANY, INC.
TABLE OF CONTENTS FOR FORM 10-QSB
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS ............................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS ........ 9
ITEM 3. CONTROLS AND PROCEDURES ............................................ 9
PART II. OTHER INFORMATION .................................................. 10
ITEM 6. EXHIBITS ........................................................... 10
2
CELLULAR TECHNICAL SERVICES COMPANY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(in 000's)
March 31, December 31,
2006 2005
----------- ------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,524 $ 3,555
Prepaid expenses, deposits and other current assets 38 0
----------- ------------
Total Current Assets 3,562 $ 3,555
LONG-TERM INVESTMENT, net of valuation adjustment of $1,754 in 2006 and 2005 -- --
----------- ------------
TOTAL ASSETS $ 3,562 $ 3,555
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 88 $ 81
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Total Current Liabilities 88 81
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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, 4,587
shares issued and outstanding at March 31, 2006 and December 31, 2005 46 46
Additional Paid-in Capital 31,663 31,663
Accumulated deficit (28,235) (28,235)
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Total Stockholders' Equity 3,474 3,474
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,562 $ 3,555
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
CELLULAR TECHNICAL SERVICES COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in 000's, except per share amounts)
(unaudited)
Three Months Ended
March 31,
----------------------------
2006 2005
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REVENUES -- --
COSTS AND EXPENSES
General and administrative 35 105
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Total Costs and Expenses 35 105
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LOSS FROM OPERATIONS (35) (105)
OTHER INCOME (EXPENSE), net -- --
INTEREST INCOME, net 35 9
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LOSS BEFORE TAX (0) (96)
PROVISION FOR INCOME TAX -- --
----------------------------
NET LOSS $ (0) $ (96)
============================
BASIC AND DILUTED SHARE DATA:
Net Loss $ (0.00) $ (0.04)
============================
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted 4,587 2,487
============================
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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
(in 000's)
(unaudited)
Three Months Ended
March 31,
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2006 2005
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OPERATING ACTIVITIES
Net loss $ (0) $ (96)
Adjustments to reconcile net loss to net cash used in operating
activities:
Non cash compensation expense (restricted stock) -- 7
Changes in operating assets and liabilities:
(Increase) in prepaid expenses and deposits (38) (81)
(Decrease) in accounts payable and accrued liabilities 7 4
----------- ------------
NET CASH USED IN OPERATING ACTIVITIES (31) (141)
NET CASH PROVIDED BY INVESTING ACTIVITIES -- --
NET CASH PROVIDED BY FINANCING ACTIVITIES -- --
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (31) (141)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,555 2,199
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CASH AND CASH EQUIVALENTS AT END OF PERIOD 3,524 $ 2,058
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
CELLULAR TECHNICAL SERVICES COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2006 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2006. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2005 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 2006 the Company
will incur costs of approximately $0.2 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, 2006 of
approximately $3.5 million are sufficient to fund its current cash flow
requirements through at least the next twelve months.
NOTE B -- STOCK OPTIONS
Pursuant to the Company's 1991 Qualified Stock Option and 1991 Non-Qualified
Stock Option Plans, as amended (the "1991 Plan"), the Company was authorized
to grant options to purchase up to (i) 280,000 shares of Common Stock to its
officers and key employees, at a price not less than the fair market value
per share of Common Stock on the date of grant; and (ii) 120,000 shares of
Common Stock to its directors, officers, key employees and others who rendered
services to the Company at such price as fixed by the Compensation and Stock
Option Committee. Options granted under the 1991 Plans generally vest to the
respective option holders at the rate of 20% per year commencing on the first
anniversary date of the grant. No new grants may be made under the 1991 Plans.
The Company's 1993 Non-Employee Director Stock Option Plan allows the Company
to grant options to purchase up to 70,000 shares of Common Stock. Each
non-employee director is to be granted options to purchase: (i) 2,000 shares
of Common Stock upon initial appointment as a director of the Company; and
(ii) an additional 1,200 shares, in recurring annual increments, at a price
equal to the fair market value per share of Common Stock on the date of grant.
Options under the Non-Employee Director Plan vest to the respective option
holder after one year and have a term of ten years.
The Company's 1996 Stock Option Plan authorizes the grant of both incentive
("ISO") and non-qualified stock options up to a maximum of 335,000 shares
of the Company's Common Stock to employees (including officers and directors
who are employees) of and consultants to the Company. The exercise price,
term and vesting provision of each option grant is fixed by the Compensation
and Stock Option Committee with the provision that the exercise price of an
ISO may not be less than the fair market value of the Company's Common Stock
on the date of grant, and the term of an ISO may not exceed ten years.
6
Commencing January 1, 2006, the Company adopted Statement of Financial
Accounting Standard No. 123R, "Share Based Payment" ("SFAS 123R"), which
requires all share-based payments, including grants of stock options, to be
recognized in the income statement as an operating expense, based on their fair
values.
Prior to adopting SFAS 123R, the Company accounted for stock-based employee
compensation under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." The company has applied the modified prospective
method in adopting SFAS 123R. Accordingly, periods prior to adoption have not
been restated. Under the modified prospective method, awards that were granted,
modified, or settled on or after January 1, 2006 are measured and accounted
for in accordance with SFAS 123R. Unvested equity-classified awards that were
granted prior to January 1, 2005 will continue to be accounted for in
accordance with SFAS 123, except that all awards are recognized in the results
of operations over the remaining vesting periods. The impact of forfeitures
that may occur prior to vesting is also estimated and considered in the amount
recognized. In addition, the realization of tax benefits in excess of amounts
recognized for financial reporting purposes will be recognized as a financing
activity in accordance with SFAS 123R.
No tax benefits were attributed to the stock-based compensation expense because
a valuation allowance was maintained for substantially all net deferred tax
assets. We elected to adopt the alternative method of calculating the historical
pool of windfall tax benefits as permitted by FASB Staff Position (FSP) No. SFAS
123R-c, "Transition Election Related to Accounting for the Tax Effects of
Share-Based Payment Awards." This is a simplified method to determine the pool
of windfall tax benefits that is used in determining the tax effects of stock
compensation in the results of operations and cash flow reporting for awards
that were outstanding as of the adoption of SFAS 123R.
The following table illustrates the effect on net income and earnings per
share if the fair value based method had been applied to the prior period (in
000's, except per share amounts).
Three Months Ended
March 31, 2005
--------------------
Reported net loss $(96)
Add: Stock-based compensation as reported 7
Deduct: Stock-based employee compensation determined
under the fair value based method prior to adoption
of SFAS 123R, net of related tax effects (7)
-----------------
Pro Forma net loss $(96)
=================
Loss per share:
Basic and diluted - as reported $(0.04)
Basic and diluted - pro forma $(0.04)
Stock option compensation expense was $0 for the three months ended March 31,
2006.
The following summarizes the activity of the Company's stock options for the
three months ended March 31, 2006:
Weighted
Average
Weighted Remaining Aggregate
Average Contractual Intrinsic
Shares Exercise Price Term Value
---------------- --------------- --------------- ---------------
Number of shares under option plans:
Outstanding at January 1, 2006 175 $8.13 5.44
Granted --
Exercised --
Canceled or expired --
---------------- --------------- --------------- ---------------
Outstanding at March 31, 2006 175 $8.13 5.44 $ 112
================ =============== =============== ===============
Exercisable at March 31, 2006 172 $8.24 5.43 $ 109
================ =============== =============== ===============
The Company did not grant any options during the quarter ended March 31, 2006.
The following summarizes the activity of the Company's stock options that have
not vested for the three months ended March 31, 2006.
7
Weighted
Average
Shares Exercise Price
----------------- ---------------
Nonvested at January 1, 2006 3 $1.74
Granted -- --
Canceled or expired -- --
Vested -- --
----------------- ---------------
Nonvested at March 31, 2006 3 $1.74
================= ===============
As of March 31, 2006, there was $1,000 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under
existing stock option plans. This cost is expected to be recognized over a
weighted-average period of 1.5 years. The total fair value of shares vested
during the three-months ended March 31, 2006 was $0.
NOTE C -- CONTINGENCIES:
Legal proceedings: The Company is not currently a party to any litigation,
however, from time to time, the Company 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.
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,
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2006 2005
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Net loss (A) $ (0) $ (96)
========================
Weighted average number of shares outstanding (B) 4,587 2,487
========================
Basic and diluted loss per share (A)/(B) $ (0.00) $(0.04)
========================
Outstanding stock options of 174,600 and 192,800 at March 31, 2006 and 2005,
respectively, were excluded from the computation of diluted earnings per share
because their effect was anti-dilutive.
NOTE E - OTHER EVENTS
NONE
8
Item 2. Management's Discussion and Analysis or 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 uncertainties 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 files 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 (the "Exchange Act"). Prior to the quarter ended March 31,
2004, 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 disclosures which are
required under Regulation S-K and Regulation S-X.
Management expects that during the last nine months of 2006 the Company will
incur costs of approximately $0.2 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 revenue levels can be enhanced. 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, 2006 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.
Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123R, "Share Based Payment." The Company
elected to use the modified prospective transition method, therefore, prior
period results were not restated. Prior to the adoption of SFAS 123R,
stock-based compensation expense related to stock options was not recognized in
the results of operations if the exercise price was at least equal to the market
value of the common stock on the grant date, in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". As
a result, the recognition of stock-based compensation expense was generally
limited to the expense attributed to restricted share based awards. The adoption
of SFAS 123R did not have a material effect on the Company's financial
statements.
At March 31, 2006, there was approximately $1,000 of unrecognized stock
compensation related to unvested awards (net of estimated forfeitures) expected
to be recognized over the weighted average period of 1.5 years.
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
Exchange Act, 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 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
SIGNATURES
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.
CELLULAR TECHNICAL SERVICES COMPANY, INC.
By: /s/Kenneth Block
----------------
Kenneth Block
Secretary and Chief Financial Officer
May 22, 2006
10