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): January 7, 2003
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 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 11, 2002, Cellular Technical Services Company, Inc. ("CTS"), and GTS
Prepaid, Inc. ("GTS"), entered into an agreement whereby CTS agreed to (i)
transfer to GTS on a consignment basis its inventory of pre-paid phone cards and
(ii) authorize GTS to act as its agent to collect certain accounts receivable.
Such transaction closed on January 7, 2003. The inventory and accounts
receivable had been owned by Isis Tele-Communications, Inc., a subsidiary of CTS
("ISIS"), and had been pledged to CTS as security for a loan to ISIS. Upon ISIS'
default under such loan, CTS foreclosed on its security interest in such assets.
On February 21, 2003, GTS will pay to CTS an agreed upon sales price for each of
the pre-paid phone cards it has sold and all accounts receivable collected. The
aggregate sales price for the inventory that CTS will receive if all the
pre-paid phone cards are sold is $46,193.14. The total amount that CTS will
receive if all the accounts receivable assigned for collection to GTS are
collected is $512,797.36. GTS will keep all amounts it receives from the sale of
the pre-paid phone cards that exceeds the agreed upon sales price for such
cards. On February 27, 2003, CTS and GTS will determine whether to extend the
agreement with respect to remaining inventory and uncollected accounts
receivable.
CTS does not intend to produce or sell pre-paid phone cards in the future.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Pro Forma Financial Information
The unaudited condensed consolidated pro forma balance sheet as of September 30,
2002 is derived from the unaudited balance sheet presented in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, and
reflects the disposition of ISIS as though the transaction occurred on September
30, 2002. The unaudited condensed consolidated pro forma statement of operations
for the nine months ended September 30, 2002 was derived from the Company's
unaudited statement of operations in its Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002, and reflects the disposition of ISIS as though
the transaction occurred on January 1, 2002. The unaudited condensed
consolidated pro forma statement of operations for the year ended December 31,
2001 was derived from the Company's statement of operations for the year ended
December 31, 2001 included in its 2001 Annual Report on Form10-K, and reflects
the disposition of ISIS as though the transaction occurred on January 1, 2001.
You should not assume that these pro forma statements are indicative of future
results or the results the Company would have achieved had the transaction
occurred at the dates presented. Additionally, these pro forma financial
statements were prepared under rules established by the Securities and Exchange
Commission in Article 11 of Regulation S-X. We did not assume that any cost
savings or synergies occurred following this transaction.
You should read these pro forma financial statements in conjunction with the
historical financial statements included in the Company's 2001 Annual Report on
Form 10-K and the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002. The pro forma adjustments made in this Current Report on
Form 8-K require the Company to use estimates and assumptions based on currently
available information. The Company believes the estimates and assumptions are
reasonable, and that the significant effects of this transaction have been
properly reflected in our pro forma financial statements. However, actual
results may differ from the estimates and assumptions used.
CELLULAR TECHNICAL SERVICES COMPANY, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2002
(In $000)
CTS Pro Forma As
--- --------- --
Historical Adjustments Adjusted
---------- ----------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $3,996 $ 29 b $4,025
Accounts receivable, net of reserves of $240 768 (762) a 6
Inventories 414 (414) -
Prepaid expenses, deposits and other current assets 184 (79) a 105
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Total Current Assets 5,362 (1,226) 4,136
PROPERTY AND EQUIPMENT, net 304 (27) a 277
LONG-TERM INVESTMENT 1,754 - 1,754
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TOTAL ASSETS $7,420 $(1,253) $6,167
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $1,020 $ (876) a $ 144
Payroll related liabilities 156 (71) a 85
Customers' deposits and deferred revenue 129 (129) a -
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Total Current Liabilities 1,305 (1,076) 229
STOCKHOLDERS' EQUITY
Preferred Stock, $0.01 par value per share, 5,000
shares authorized, none issued and outstanding - - -
Common Stock, $0.001 par value per share, 30,000 shares
authorized, 2,292 shares issued and
outstanding at September 30, 2002 23 - 23
Additional paid-in capital 29,976 - 29,976
Accumulated deficit (23,884) (177) c (24,061)
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Total Stockholders' Equity 6,115 (177) 5,938
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $7,420 $(1,253) $6,167
============= ============ ===========
See accompanying notes.
CELLULAR TECHNICAL SERVICES COMPANY, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(In $000, except share and per share amounts)
CTS Historical Pro Forma As Adjusted
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Adjustments
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REVENUE
Phonecards $ 9,417 $ (9,417) d -
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Total Revenue
9,417 (9,417) -
COSTS AND EXPENSES
Cost of phonecards 9,262 (9,262) d -
Sales and marketing 788 (449) d $ 339
General and administrative 871 (184) d 687
Research and development 1,217 - 1,217
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Total Costs and Expenses 12,138 (9,895) 2,243
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LOSS FROM OPERATIONS
(2,721) 478 (2,243)
OTHER INCOME, net 5 (2) d 3
INTEREST INCOME, net 64 - 64
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LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND CHANGE
IN ACCOUNTING PRINCIPLE (2,652) 476 (2,176)
INCOME TAX PROVISION (12) 3 d (9)
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LOSS FROM CONTINUING OPERATIONS
BEFORE THE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE $ (2,664) $ 479 $ (2,185)
======== ======== ========
BASIC AND DILUTED PER SHARE DATA:
Loss from continuing operations before the
effect of a change in accounting principle $ (1.17) $ 0.21 $ (0.96)
======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 2,292 2,292 2,292
Diluted 2,293 2,293 2,293
See accompanying notes.
CELLULAR TECHNICAL SERVICES COMPANY, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001 (In
$000 except share and per share amounts)
Pro Forma
---------
CTS Historical Adjustments As Adjusted
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REVENUES
Phonecards $ 15,148 $(15,148) d -
Services 5,268 - $ 5,268
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Total Revenues 20,416 (15,148) 5,268
COSTS AND EXPENSES
Cost of phonecards 14,812 (14,812) d -
Cost of services 1,287 - 1,287
Sales and marketing 1,241 (757) d 484
General and administrative 1,917 (633) d 1,284
Research and development 1,841 - 1,841
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Total Costs and Expenses 21,098 (16,202) 4,896
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(LOSS) INCOME FROM OPERATIONS
(682) 1,054 372
OTHER INCOME, net 974 - 974
INTEREST INCOME 308 171 d 479
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INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 600 1,225 1,825
INCOME TAX BENEFIT (11) - (11)
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INCOME FROM CONTINUING OPERATIONS $ 611 $ 1,225 $ 1,836
======== ======== ========
EARNINGS PER SHARE:
Basic $ 0.27 $ 0.53 $ 0.80
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Diluted $ 0.27 $ 0.53 $ 0.80
======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 2,292 2,292 2,292
Diluted 2,302 2,302 2,302
See accompanying notes.
CELLULAR TECHNICAL SERVICES COMPANY, INC
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
BASIS FOR PRESENTATION OF PRO FORMA FINANCIAL STATEMENTS
The amounts in the unaudited pro forma balance sheet and the pro forma
statements of operations referred to as CTS Historical are derived from the
consolidated balance sheet of the Company as of September 30, 2002 and the
consolidated statements of operations for the nine month period ended September
30, 2002 and for the year ended December 31, 2001.
The pro forma financial statements reflect the impact of the Consignment and
Agency Agreement with GTS Prepaid, Inc. and the assumed disposal of all other
remaining assets and settlement of all remaining liabilities of ISIS as of
September 30, 2002 and for the periods presented.
PRO FORMA ADJUSTING ENTRIES
(a) Adjustment to reflect the transfer of inventories and accounts
receivable in connection with the Consignment and Agency Agreement
with GTS Prepaid, Inc. and to exclude the remaining assets and
liabilities of ISIS as of September 30, 2002, as if they were disposed
of or settled on that date.
(b) Adjustment to record pro forma net cash proceeds of $29,000 from
the collection of assigned receivables and sales of consigned
inventory and from the estimated realizable value of the remaining
assets of ISIS, net of the estimated cash disbursements necessary to
settle remaining liabilities of ISIS as of September 30, 2002, as
follows:
Transfer of inventories and receivables to GTS Prepaid, Inc. $1,176,000
Realization of other current assets 79,000
Severance and other lease termination and exit costs (100,000)
Transaction costs and fees (50,000)
Settlement of remaining liabilities (1,076,000)
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Net pro forma cash proceeds $ 29,000
==========
Actual proceeds from the disposition of assets and liabilities will be
subject to adjustment based upon the final closing balance sheet and
the outcome of the sale of inventories and collection of receivables
by GTS.
(c) Adjustment to record a pro forma net loss on the abandonment of
remaining property and equipment of ISIS at September 30, 2002 with
the pro forma assumption that no proceeds will be realized from the
disposal of these assets and to record related estimated severance,
lease termination costs and transaction costs. The actual loss will be
based on net book value of the assets upon disposal less sales
proceeds, if any.
(d) Adjustment to exclude revenues and expenses of ISIS (other than
administrative costs allocated from the parent Company) from the
statement of operations for the period, as if it were sold as of the
first day of the period presented.
(b) Exhibits
10.1 Consignment and Agency Agreement between Cellular
Technical Services Company, Inc. and GTS Prepaid, Inc.
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: January 21, 2003
CELLULAR TECHNICAL SERVICES
COMPANY, INC.
By: /s/ Bruce R. York
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Name: Bruce R. York
Title: Vice President and Chief
Financial Officer
Exhibit Index
EXHIBIT NO. DESCRIPTION
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10.1 Consignment and Agency Agreement between Cellular
Technical Services Company, Inc. and GTS Prepaid,
Inc.
EXHIBIT 10.1
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December 11, 2002
GTS PREPAID, INC.
10 Stow Road, Suite 200
Marlton, NJ 08053
Consignment and Agency Agreement
--------------------------------
Dear Sir/Madam:
This letter sets forth our agreement pursuant to which Cellular
Technical Services Company, Inc., a Delaware corporation ("Consignor"), will, as
of January 3, 2003 (i) provide GTS Prepaid, Inc., a Utah corporation
("Consignee") with the inventory set forth on Schedule A hereto (the
"Inventory"), (ii) authorize Consignee to sell such Inventory on a consignment
basis and (iii) authorize Consignee to act as its agent to collect the Accounts
Receivable set forth on Schedule B hereto (the "Accounts Receivable"). Consignor
has acquired the Inventory and Accounts Receivable pursuant to foreclosure under
a security agreement between Consignee and Isis Tele-Communications, Inc., a
Delaware corporation ("Isis").
1. Consignment of Inventory. Consignor is providing and Consignee is
receiving the Inventory on a consignment basis to hold and sell the Inventory in
accordance with this Agreement. Consignee may sell the Inventory at such price
it may determine but in any event, and irrespective of the sale price, Consignee
shall be liable to Consignor for the price of such Inventory on Schedule A (as
such price is mutually agreed to between Consignor and Consignee). Consignor is
and shall remain the owner of all Inventory and upon sale of Inventory by
Consignee, title thereto shall pass to such purchaser upon full payment for such
Inventory.
2. Sale of Inventory. Upon the sale of Inventory by Consignee, the
proceeds of such sale less the excess of the sales price above the price for
such Inventory (the "Proceeds") are and remain the property of Consignor and
shall be held in trust for and delivered to Consignor as hereinafter provided.
Consignee shall (i) maintain an accurate daily sales record of all Inventory
sold, (ii) advise Consignor of any disputes arising in respect of Inventory as
they arise, (iii) maintain a current list of all Inventory in its possession and
(iv) shall send copies of such records and list on a daily basis, by facsimile,
to Consignor at (206) 269-1404, Attention: Bruce York.
3. Collection of Accounts Receivable. Consignor hereby assigns and
Consignee accepts assignment of the Accounts Receivable and agrees to act as
Consignor's agent for collection of the Accounts Receivable. Consignee shall use
diligent and commercially reasonable efforts to collect the Accounts Receivable.
Consignee shall (i) maintain an accurate daily record of all Accounts Receivable
collected, (ii) advise Consignor of any disputes arising in respect of Accounts
Receivable as they arise, (iii) maintain a current list of all uncollected
Accounts Receivable in its possession and (iv) send copies of the daily record
of Accounts Receivable collected, disputes and uncollected Accounts Receivable
on a daily basis, by facsimile, to Bruce York, at the facsimile number set forth
in Section 2 above. Consignee shall
have no authority to compromise the amount of any Account Receivable without the
consent of Consignor.
4. Initial Meeting. On January 28, 2003, Consignor and Consignee shall
meet to discuss the status of sales of Inventory and collections of Accounts
Receivable and any problems or issues that have arisen to date in connection
therewith.
5. Payment for Inventory Sold and Remittance of Accounts Receivable
Collected. On February 21, 2003, Consignee shall pay Consignor by wire transfer
to a bank account specified by Consignor, the sum total of (i) all Proceeds then
collected for all Inventory sold less the excess of the sales price above the
price for such Inventory as set forth on Schedule A and (ii) all Accounts
Receivable then collected.
6. Report and Meeting. On February 27, 2003, Consignee shall provide
to Consignor a written report certified by its President setting forth (i) all
sales of Inventory made, set forth by date, the Proceeds permitted to Consignor
with respect to each item of Inventory sold and a list all remaining unsold
items of Inventory, and (ii) the Accounts Receivable collected, set forth by
date, the amount representing the collections remitted to Consignor and all
uncollected Accounts Receivable. On such date the parties shall determine
whether to extend the parties acting hereby or otherwise agree as to the
treatment of unsold items of Inventory and uncollected Accounts Receivable.
7. Continuing Security Interest. As security for the timely and full
payment and satisfaction of the payment and other obligations of Consignee under
this Agreement, Consignee hereby grants to Consignor a continuing security
interest in and to all of Consignee's right, title and interest in and to any
and all Accounts Receivable and Inventory, wherever located, and any and all
proceeds (including, without limitation, insurance proceeds), accounts, books
and records, instruments, documents, goods, chattel paper, inventory, contract
rights, litigation claims and rights, insurance policies and rights, and payment
intangibles and other general intangibles of Consignee arising out of such
Accounts Receivable and Inventory.
8. Financing Statements. Consignee authorizes Consignor to file, at
any time and from time to time, any financing statements and continuation
statements, in any applicable jurisdictions, in each case, as is necessary or
useful to perfect or continue the security interest granted by Consignee. Any
such statements may be filed by Consignor with or without the signature of
Consignee or Consignor or the further authorization of Consignee.
9. Customers. Set forth on Schedule C hereto is a list of the
customers of Isis (the "Customers"). To the extent that during the 16 months
following the date of this Agreement, Consignee (or any successor or assignee)
generates at least $8,000,000 in gross sales to the Customers, or Consignee
signs a minimum two year agreement with Store 24 for all prepaid products,
Consignor (or any successor or assignee) shall be entitled to receive 2,000
shares of Common Stock of Consignee or of any such successor or assignee. Within
60 days after the end of such 16 month period, Consignee shall provide a
certificate of its President certifying the gross sales to Customers during the
period and if the requisite sales have been met, the shares shall be promptly
issued to Consignor.
10. Employees. Set forth on Schedule D is a list of the names of those
employees of Consignor that Consignee plans to make offers of employment
following the execution of this Agreement for the purpose of, among other
things, employing said employees as salespeople to solicit the Customers.
Consignor consents to any subsequent hiring of such employees by the Consignee.
11. Miscellaneous. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey without giving effect to
its principles of conflicts of law. The parties agree that any action hereunder
shall be brought in the federal or state courts located in New Jersey and waive
any defense of forum non conveniens. This Agreement may be executed in
counterparts, each of which shall be an original, but all of such counterparts
shall constitute one and the same instrument. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision. This
Agreement expresses the entire understanding of the parties with respect to the
subject matter hereof and may not be modified, amended or resolved except by an
instrument in writing.
If the foregoing is acceptable to you, please so indicate by signing
in the space provided below and returning a signed copy of this letter to us for
our records.
Very truly yours,
CELLULAR TECHNICAL SERVICES COMPANY, INC.
By: /s/ Stephen Katz
--------------------------------------
Name: Stephen Katz
Title: Chairman and Chief Executive
Officer
AGREED
GTS PREPAID, INC.
By: /s/ Randy Cherkas
-----------------------------
Name: Randy Cherkas
Title: President
