SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 8, 2002
CELLULAR TECHNICAL SERVICES COMPANY, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 0-19437 11-2962080
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File No.) Identification No.)
2815 Second Avenue, Suite 100, Seattle, Washington 98121
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (206) 443-6400
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS
Cellular Technical Services Company, Inc. ("CTS"), announced its third
quarter financial results for 2002 on November 8, 2002. Additionally, CTS
announced that it would cease development efforts related to its Neumobility LBS
platform and applications division. See the press release attached as Exhibit
99.1 hereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Exhibits
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99.1 Press Release dated November 8, 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: November 8, 2002
CELLULAR TECHNICAL SERVICES
COMPANY, INC.
By: /s/ Bruce York
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Name: Bruce York
Title: Vice President and Chief Financial Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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99.1 Press Release dated November 8, 2002
EXHIBIT 99.1
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CELLULAR TECHNICAL SERVICES REPORTS 2002 THIRD-QUARTER
RESULTS AND PROVIDES UPDATE ON OPERATIONS
Seattle, November 8, 2002 - Cellular Technical Services Company, Inc. (Nasdaq
SCM Symbol: CTSC) ("CTS"), a provider of products and services for the prepaid
and wireless communications industries, today reported its third quarter
financial results for 2002.
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SUMMARY OF FINANCIAL HIGHLIGHTS
(Dollar amounts in 000s, except per share data)
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THREE MONTHS ENDED 9/30 NINE MONTHS ENDED 9/30
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2002 2001 2002 2001
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Revenue $3,728 $5,370 $9,417 $16,499
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Net Income (Loss) $(783) $81 $(2,764) $535
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Net Income (Loss) Per Share
Basic and Diluted $(0.34) $0.04 $(1.21) $0.23
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Total revenue decreased to $3.7 million in the three months ended September 30,
2002 compared to the prior year quarter, and to $9.4 million from $16.5 million
for the nine months ended September 30, 2002 compared to the prior year period.
2001 was the final year of revenue for CTS' Blackbird Platform product suite,
which accounted for $1.3 million in revenue in the third quarter of 2001 and
$4.1 million in revenue for the nine months ended September 30, 2001, compared
to zero in both 2002 periods. As previously reported, our Blackbird business
ended in December 2001 and we forecast no additional revenue from that segment
in future periods.
CTS reported a quarterly net loss of $783,000 compared to net income of $81,000
in the prior year period. The change is due to several factors: i) total gross
margin decreased by $1,116,000 as the Blackbird business provided $994,000 in
the prior year and decreased 2002 Isis gross margins of $122,000 due to volume
reductions and cost increases; ii) operating expense reductions of $290,000; and
iii) a combination of reduced other income, interest income and income taxes of
$38,000.
Revenue from the Company's Isis Telecommunications, Inc. subsidiary ("Isis")
decreased 8% to $3.7 million in revenue during the third quarter of 2002
compared to $4.1 million in the 2001 period, and 24% to $9.4 million in revenue
for the nine months ended September 30, 2002 compared to $16.5 million in the
2001 period. Today, with long-distance prices down substantially, customers need
to purchase fewer cards to get the same amount of calling time, impacting Isis'
revenue and profitability.
Since the Company's common stock traded below $1.00 for 30 consecutive trading
days, the Company received a notice from Nasdaq stating that it has 180 days
until April 30, 2003 to regain compliance by closing at least a minimum price of
$1.00 a share for 10 consecutive days to continue its listing on the Nasdaq SCM.
With approximately 2.29 million shares outstanding, the market capitalization at
a price of $1.00 is just under $2.3 million.
Stephen Katz, CTS Chairman and CEO, noted, "As of September 30, 2002 we had $4.0
million in cash, $4.1 million of working capital and no bank debt. We have made
the difficult decision to cease development
efforts of our Neumobility LBS platform and applications division. This is due
to the uncertainty in both timing and magnitude of future revenue streams
combined with the large continuing investment required to sustain, market and
support the products. We have reduced our workforce by 13 personnel in the
Neumobility division this week. We will, however, continue to seek outside
partners or investors for the Neumobility IP portfolio and product suite. We are
currently evaluating severance and any potential facilities or equipment related
charges to be accrued in the fourth quarter related to the closure of this
division. During the fourth quarter of 2002 we anticipate incurring
approximately $0.1 million in cash severance charges and in the range of
$0.1-$0.4 million in a combination of other charges related to the writedown of
excess computer equipment and lease costs related to excess facilities to be
paid through the third quarter of 2003. We forecast ending the year 2002 with
approximately $3.2 million in cash.
We believe that the business outlook is positive at TruePosition, Inc., an LBS
company in which we have a substantial investment, especially given recent
issues with competing technologies and TruePosition's strong intellectual
property portfolio. Additionally, we are continuing to evaluate a variety of
strategic alternatives with respect to our Isis prepaid products subsidiary and
our other assets."
The Company expects to schedule a conference call to discuss its results and
operations to be held during the first week of December.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS: This press release may
contain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties that could
cause actual results for CTS or its affiliates to differ materially from those
expressed or implied in the applicable statements. These risks and uncertainties
include but are not limited to: vulnerability to rapid industry change and
technological obsolescence; limited customer base and reliance on a relatively
small number of customers and customer contracts; dependence on a limited number
of existing products and services; uncertainty of continued demand for and
market penetration of its existing products and services under existing and
future contracts; uncertainty in its ability to timely develop, introduce and
gain acceptance of new products and services; uncertainty of the demand for and
market penetration of new products and services; the possible impact of
competitive products and pricing; the risk that its current and future products
may contain errors or be affected by technical problems that would be difficult
and costly to detect and correct; reliance on a limited number of outside
vendors for key components and processes; potential difficulties in managing
changing business conditions; dependence on key personnel; the availability of
financing; and other risks described in CTS' filings with the Securities and
Exchange Commission.
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CELLULAR TECHNICAL SERVICES COMPANY, INC.
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SELECTED CONSOLIDATED BALANCE SHEET DATA
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(in 000's)
September 30, December 31,
2002 2001
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Cash $3,996 $6,353
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Accounts Receivable, 768 529
net
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Inventories, net 414 531
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Total Assets 7,420 9,990
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Working Capital 4,057 6,523
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Stockholders' Equity 6,115 8,879
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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)
Three Months Ended Nine Months Ended
September 30, September 30,
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2002 2001 2002 2001
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REVENUE
Phonecards $ 3,728 $ 4,052 $ 9,417 $ 12,395
Services and Systems -- 1,318 -- 4,104
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Total Revenue 3,728 5,370 9,417 16,499
COSTS AND EXPENSES
Cost of phonecards 3,645 3,847 9,262 12,187
Cost of services and systems -- 324 -- 1,078
Sales and marketing 251 283 788 1,054
General and administrative 221 447 871 1,404
Research and development 402 434 1,217 1,411
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Total Costs and Expenses 4,519 5,335 12,138 17,134
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LOSS FROM OPERATIONS (791) 35 (2,721) (635)
OTHER INCOME, net -- 2 5 947
INTEREST INCOME, net 13 63 64 244
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INCOME (LOSS) BEFORE INCOME TAXES AND CHANGE IN
ACCOUNTING PRINCIPLE (778) 100 (2,652) 556
INCOME TAX PROVISION 5 19 12 21
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INCOME (LOSS) BEFORE THE EFFECT OF
A CHANGE IN ACCOUNTING (783) 81 (2,664) 535
PRINCIPLE
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE -- -- (100) --
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NET INCOME (LOSS) $ (783) $ 81 $ (2,764) $ 535
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BASIC AND DILUTED PER SHARE DATA:
Income (loss) before the effect of a change
in accounting principle $ (0.34) $ 0.04 $ (1.17) $ 0.23
Cumulative effect of a change in accounting
principle -- -- (0.04) --
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Net income (loss) $ (0.34) $ 0.04 $ (1.21) $ 0.23
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WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 2,292 2,292 2,292 2,292
Diluted 2,292 2,297 2,293 2,301