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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended September 30, 2003.
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to _______
Commission File No: 000-30045
CATUITY INC.
(Exact Name of Registrant as specified in its charter)
Delaware 38-3518829
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2711 E. Jefferson Avenue
Detroit, MI 48207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(313) 567-4348
Indicate by check mark whether the registrant (1) has filed all reports
required 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 such filing
requirements for the past 90 days.
Yes ( X ) No ( )
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes ( ) No ( X )
Indicate the number of shares outstanding of each of the issuer's
classes of stock as of the latest practical date: Common stock outstanding --
11,657,158 shares as of October 31, 2003
1
CATUITY INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets - September 30, 2003 and December 31, 2002 3
Consolidated statements of operations - Three months ended September 30, 2003 and 2002;
Nine months ended September 30, 2003 and 2002 4
Consolidated statements of cash flows -- Nine months ended September 30, 2003 and 2002 5
Notes to Consolidated Financial Statements - September 30, 2003 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Item 3. Qualitative and Quantitative Disclosure about Market Risk 10
Item 4. Controls And Procedures 11
PART II. OTHER INFORMATION 11
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES AND CERTIFICATIONS 13
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CATUITY INC.
CONSOLIDATED BALANCE SHEETS
----------------------------------------------
SEPTEMBER 30, DECEMBER 31,
2003 2002
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 5,916,645 $ 3,611,447
Accounts receivable, less allowance of $57,500 at 979,637 377,218
September 30, 2003 and $54,000 at
December 31, 2002
Restricted cash 110,593 106,568
Work in process 4,218 2,407
Prepaid expenses and other 306,570 294,195
----------------------------------------------
Total current assets 7,317,663 4,391,835
Property and equipment, net 224,832 200,417
----------------------------------------------
Total assets $ 7,542,495 $ 4,592,252
==============================================
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities:
Accounts payable $ 261,944 $ 302,714
Deferred revenue 332,302 1,811,926
Accrued compensation 415,789 146,143
Other accrued expenses 190,310 168,417
Trust liability 89,360 85,492
----------------------------------------------
Total current liabilities 1,289,705 2,514,692
Accrued compensation 55,012 79,359
Shareholders' equity:
Common stock - $.001 par value; Authorized - 100 11,655 8,531
million shares: issued and outstanding --
11,654,500 at September 30, 2003 and 8,530,610
at December 31, 2002
Preferred stock - $.001 par value Authorized - 10
million shares - -
Additional paid-in capital 37,208,596 33,131,863
Shareholder loans (729,234) (757,733)
Foreign currency translation adjustment (160,254) (322,115)
Accumulated deficit (30,132,985) (30,062,345)
----------------------------------------------
Total shareholders' equity 6,197,778 1,998,201
----------------------------------------------
Total liabilities and shareholders' equity $ 7,542,495 $ 4,592,252
==============================================
See accompanying notes.
3
CATUITY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------------------------
2003 2002 2003 2002
-----------------------------------------------------------------
Revenues:
Software development revenue $ 585,896 $ 128,876 $ 1,794,906 $ 1,594,463
Service revenue 442,897 410,811 717,838 816,136
License revenue 88,700 10,800 1,745,925 33,650
-----------------------------------------------------------------
Total revenues 1,117,493 550,487 4,258,669 2,444,249
Cost of revenue and other operating expenses:
Cost of software development 351,968 116,300 1,001,060 933,511
Cost of service 319,126 403,360 607,916 781,239
Sales and marketing 302,119 371,581 948,195 1,448,137
Research and development 42,232 252,933 237,030 316,325
General and administrative 478,902 337,820 1,619,387 1,148,988
General and administrative -- variable stock
compensation expense/(credit) (918) (167,754) (40,620) (45,926)
------------------------------------------------------------------
Total costs and expenses 1,493,429 1,314,240 4,372,968 4,582,274
-----------------------------------------------------------------
Operating loss (375,936) (763,753) (114,299) (2,138,025)
Interest income 15,371 13,048 43,659 44,533
-----------------------------------------------------------------
Net income loss $ (360,565) $ (750,705) $ (70,640) $(2,093,492)
=================================================================
Net income loss per share - basic and diluted $ (0.04) $ (0.09) $ - $ (0.26)
=================================================================
Weighted average shares outstanding-basic & diluted 9,380,606 8,070,338 8,854,668 8,069,345
=================================================================
See accompanying notes.
4
CATUITY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
2003 2002
-----------------------------------
Cash flows from operating activities:
Net loss $ (70,640) $(2,093,492)
Adjustments used to reconcile net loss to net cash used
in operating activities:
General and Administrative variable stock compensation (40,620) (45,926)
(non-cash)
Depreciation and amortization 186,748 111,374
Non-cash services -- 19,200
Changes in assets and liabilities:
Accounts receivable (602,419) (247,230)
Other assets, net (18,211) 91,766
Deferred revenue (1,479,624) 627,450
Accounts payable (40,770) 20,015
Accrued expenses and other liabilities 271,060 (358,220)
-----------------------------------
Net cash used in operating activities (1,794,476) (1,875,063)
-----------------------------------
Cash flows from investing activities:
Purchase of property and equipment (211,163) (123,613)
-----------------------------------
Net cash used in investing activities (211,163) (123,613)
-----------------------------------
Cash flows from financing activities:
Repayment of shareholder loan 28,499 --
Issuance of common stock, net of expenses 4,120,477 1,691
-----------------------------------
Net cash provided by financing activities 4,148,976 1,691
-----------------------------------
Foreign exchange effect on cash and cash equivalents 161,861 (15,956)
-----------------------------------
Net increase/(decrease) in cash and cash equivalents 2,305,198 (2,012,941)
Cash and cash equivalents, beginning of period 3,611,447 4,464,863
-----------------------------------
Cash and cash equivalents, end of period $ 5,916,645 $ 2,451,922
===================================
See accompanying notes.
5
CATUITY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Catuity Inc.
(the "Company") have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for annual
financial statements and notes. The balance sheet at December 31, 2002 has been
derived from the audited financial statements at that date but does not include
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring items) considered
necessary for a fair presentation have been included. Operating results,
including license revenue, for the three and nine month periods ended September
30, 2003 are not necessarily indicative of the results that may be expected for
any subsequent quarter or for the entire year ended December 31, 2003. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 2002.
The accompanying interim, consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes included in
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 2002.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
2. COMPREHENSIVE INCOME/(LOSS)
Comprehensive income/(loss) is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------------------------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net loss $ (360,565) $ (750,705) $ (70,640) $(2,093,492)
Foreign currency 77,021 (27,543) 161,861 (15,956)
translation ----------- ----------- ----------- -----------
Total $ (283,544) $ (778,248) $ 91,221 $(2,109,448)
comprehensive =========== =========== =========== ============
income/ (loss)
3. STOCK BASED COMPENSATION
The Company accounts for stock-based awards issued to employees under the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and has adopted
the disclosure-only alternative of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
Had compensation costs for stock-based awards issued to employees been
determined consistent with SFAS
6
No.123, the Company's net loss and net loss per share would have been reported
as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
---- ---- ---- ----
Net loss as reported ($ 360,565) ($ 750,705) ($ 70,640) ($2,093,492)
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards (56,654) (211,761) (370,457) (520,324)
=========== =========== ============= ===========
Pro forma net loss ($ 417,219) $ (962,466) $ (441,097) $(2,613,816)
=========== =========== ============= ===========
Net income/(loss) per share: basic
and diluted- as reported ($ 0.04) ($ 0.09) $ -- ($ 0.26)
=========== =========== ============= ===========
Pro forma basic and diluted (loss)
per share ($ 0.04) ($ 0.12) ($ 0.05) ($ 0.32)
=========== =========== ============= ===========
4. SHAREHOLDERS' EQUITY
PRIVATE PLACEMENT
In July 2003, the Company concluded a private placement in Australia of
3,000,000 shares of the Company's common stock to seven accredited investors at
a price of $2.00 AUD per share ($1.30 USD based on the foreign exchange rate in
effect on the date of the transaction). The price represented an 11% discount to
the shares' fair market value on the Australian Stock Exchange (ASX) on the
transaction date. The Company issued the shares in two tranches -- the first on
July 25, 2003 for 625,000 shares (the maximum permitted under ASX listing rules
prior to receiving shareholder approval) and the second for 2,375,000 shares on
September 22, 2003 following shareholder approval at a special meeting of
shareholders on September 19, 2003. The Company paid a placement fee of 3% of
the purchase price to the Placement Agent for both tranches. The second tranche
of shares included 196,000 shares sold to Mr. Duncan P.F. Mount, Chairman of the
Company. The proceeds from all of the placement shares were added to the
Company's general working funds to be used for general operating purposes. The
shares were sold without registration under US securities laws pursuant to an
exemption from such registration.
At a special meeting of the shareholders on March 26, 2003 the Company's
shareholders approved the sale of 90,000 common shares and 30,000 warrant shares
to Boom Australia Pty. Ltd. ("Boom"), the family trust of Mr. Duncan P.F. Mount,
Chairman of the Company. The aggregate offering price was $327,375 AUD ($197,000
USD), which is net of a 3% placement fee paid to the investor. These shares were
sold without registration under US securities laws pursuant to an exemption from
such registration. The 30,000 warrant shares expire in November 2004 and have an
exercise price of $4.20 AUD ($2.25 USD).
LIMITED RECOURSE LOANS
In 1995 and 1996, the Company issued non-recourse loans to an Australian
director for the purpose of purchasing approximately 276,000 shares of the
Company's stock. The Company's recourse for repayment of the loans is limited to
after-tax dividends and proceeds from the disposal of the shares. In 1999,
$75,000 AUD of the loan was repaid related to the sale of 25,000 shares. In
September 2003, approximately $42,000 AUD was repaid related to the sale of
20,250 shares. The $19,000 AUD balance owed to the Company related to this was
repaid in October 2003.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Catuity develops, licenses and supports customer loyalty software that enables
retailers, transaction processors, product suppliers and card issuing banks to
establish and administer customer incentive and loyalty programs that are
completely customizable to meet their unique needs. The Catuity system functions
in both the internet (e-commerce) and in-store environments using existing
magnetic stripe cards and/or smart cards.
During the third quarter of 2003, Target Corporation completed the installation
of Catuity's loyalty software on cash registers in their U.S. stores. A pilot of
the system began in July 2003. As part of the pilot, Target Visa cardholders can
visit the Target website, or an in-store kiosk, where they can download
electronic coupons directly to their cards. Upon presentation of the card for
payment at the cash register, these coupons are instantly redeemed. During the
third quarter, Catuity recorded license revenue related to the annual renewal of
its agreement with Target.
The Company anticipates uneven license revenue recognition between fiscal
quarters until its base of customers using the system is expanded.
OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND
SEPTEMBER 30, 2002
REVENUE
Total revenues for the three month period ended September 30 ("third quarter")
increased $567,000, or 103%, to $1,117,000 in 2003 compared to 2002, and
increased $1,815,000, or 74%, to $4,259,000 for the nine month period ended
September 30, 2003 compared to the same period in 2002. The third quarter
increase was primarily due to software development work for a major customer.
The nine-month period increase was principally due to the recognition of
$1,072,000 of license revenue in the first quarter of 2003 and the recognition
of $585,000 of license revenue in the second quarter of 2003, principally from
Visa and Target. These amounts were included in deferred revenue on the
Company's balance sheet as of December 31, 2002 and were recognized as revenue
in 2003 based on customer acceptance and the delivery of all elements essential
to the functionality of the software .
COST OF SOFTWARE DEVELOPMENT REVENUE
Direct cost of software development revenue primarily consists of salaries,
employee benefits, related expenses and overhead for the portion of time spent
by the Company's technical staff located in Sydney Australia and its project
managers and business analysts located in Arlington Virginia, on software
development activities. Direct cost of software development increased $236,000,
or 203%, in the third quarter of 2003 over the third quarter of 2002, while
software development revenue increased by $457,000, or 354%, over the same
period. For the nine months ended September 30, 2003, the cost of software
development revenue increased $68,000, or 7%, compared with the corresponding
2002 period. Software development revenue increased by $201,000, or 13%, over
the same period. The increase in expense and revenue for both the three- and
nine-month periods was due to an increase in the amount of customer-related
development work in 2003 compared to the same periods in 2002.
COST OF SERVICE REVENUE
Direct cost of service revenue primarily consists of salaries, employee
benefits, related expenses and overhead for the customer implementation and
support staff in Arlington Virginia, for the portion of their time spent on
service related activities. Direct cost of service decreased $84,000, or 21%, in
the third quarter of 2003 over the third quarter of 2002, while the Service
revenue increased by $32,000, or 8%, over the same period. For the nine months
ended September 30, 2003, direct cost of service decreased $173,000, or 22%,
compared with the corresponding 2002 period. Service revenue decreased by
$98,000, or 12%, over the same period. The decrease in cost for both the three-
and nine-month periods was principally due to the elimination of the use of
outside contractors in 2003.
8
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries, employee benefits,
travel, marketing, public relations and related overhead costs of the sales and
marketing department. Sales and marketing expenses decreased $69,000, or 19%, in
the third quarter of 2003 compared to the third quarter of 2002. The third
quarter decrease was primarily due to reductions in staff size. Expenses for the
nine months ended September 30, 2003, decreased $500,000, or 34%, compared with
the corresponding 2002 period. The nine-month period decrease was principally
due to reductions in staff size, travel, marketing related costs, and outside
professional services.
RESEARCH AND DEVELOPMENT
Research and Development expenses consist primarily of salaries, employee
benefits and overhead cost, incurred primarily by the technical staff in Sydney
Australia, for the portion of their time spent on research and development
activities. Research and development expenses decreased $211,000 in the third
quarter of 2003 compared to the third quarter of 2002. Expenses for the nine
months ended September 30, 2003, decreased $79,000 compared with the
corresponding 2002 period. The decrease of $211,000 and $79,000 for the three-
and nine-month periods was principally due to the technical team's increased
focus on software development activities for customers in 2003.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries, employee
benefits, related overhead costs and professional services fees. General and
administrative expenses increased $140,000 in the third quarter of 2003 over the
third quarter of 2002. Expenses for the nine months ended September 30, 2003,
increased $469,000 compared with the corresponding 2002 period. The third
quarter increase was primarily due to higher professional fees in the third
quarter of 2003 and a non-recurring reversal of accrued legal fees in the third
quarter of 2002. The nine-month period increase was primarily the result of a
second quarter accrual recorded for severance pay for the Company's former
Chairman, per contractual obligations and the reversal of accrued legal fees in
2002.
GENERAL AND ADMINISTRATIVE - VARIABLE STOCK COMPENSATION
General and administrative - variable stock compensation expense/(credits) are
due to the Company's 1995 non-recourse loans to a former director to acquire
stock and are non-cash in nature. During the three-month period ended September
30, 2003, credits of $918 were recorded due to a minor decline in the Company's
stock price relative to the price on June 30, 2003. In the same period in 2002,
a credit of $168,000 was recorded. For the nine-month period ended September 30,
2003 a credit of $41,000 was recorded due to downward movement in the Company's
stock price since December 31, 2002. In the same period in 2002, a credit of
$46,000 was recorded.
LIQUIDITY AND CAPITAL RESOURCES
In July 2003, the Company concluded a private placement in Australia of
3,000,000 shares of the Company's common stock to seven accredited investors at
a price of $2.00 AUD per share ($1.30 USD based on the foreign exchange rate in
effect on the date of the transaction). The price represented an 11% discount to
the shares' fair market value on the Australian Stock Exchange (ASX) on the
transaction date. The Company issued the shares in two tranches -- the first on
July 25, 2003 for 625,000 shares (the maximum permitted under ASX listing rules
prior to receiving shareholder approval) and the second for 2,375,000 shares on
September 22, 2003 following shareholder approval at a special meeting of
shareholders on September 19, 2003. The second tranche of shares included
196,000 shares sold to Mr. Duncan P.F. Mount, Chairman of the Company. The
Company paid a placement fee of 3% of the purchase price to the Placement Agent
for both tranches. The proceeds were added to the Company's general working
funds to be used for general operating purposes. These shares were sold without
registration under US securities laws pursuant to an exemption from such
registration.
As of September 30, 2003, the Company had approximately $5,917,000 in cash and
cash equivalents, an increase of $2,305,000 from December 31, 2002. Net cash
used in operating activities was $1,794,000 for the nine-month period ended
September 30, 2003 compared with $1,875,000 for the nine-month period ended
September 30, 2002. The increase in net income for the nine month period ended
September 30, 2003 compared with the same period in
9
2002, was offset by the decrease in deferred revenue.
Cash used in investing activities was $211,000 for the nine-month period ended
September 30, 2003 compared with $124,000 for the nine-month period ended
September 30, 2002. The approximately $87,000 increase was primarily due to
purchased software, and the replacement of servers in the Company's offices in
Arlington and Sydney.
Cash obtained from financing activities was $4,149,000 for the nine-month period
ended September 30, 2003 compared with $2,000 for the nine-month period ended
September 30, 2002. The significant increase was related to cash received from
the private placement of 3,000,000 shares of common stock to seven accredited
investors, shares of common stock purchased by executives at fair market value
under the Executive Director Stock Purchase Plan, and the Executive Stock
Purchase Plan.
The foreign currency effect on cash was a positive $162,000 during the
nine-month period ended September 30, 2003 primarily due to the strengthening of
the Australian dollar against the U.S. dollar and higher cash balances held in
Australia during the period.
The Company believes that its existing capital resources are adequate to meet
its cash requirements for the next twelve months.
FORWARD LOOKING INFORMATION
The Management Discussion and Analysis of Financial Condition and Results of
Operations includes "forward-looking" statements within the meaning of the
Private Securities Litigation Act of 1995. This Act provides a "safe harbor" for
forward-looking statements to encourage companies to provide prospective
information about themselves so long as they identify these statements as
forward-looking and provide meaningful cautionary statements identifying
important factors that could cause actual results to differ from the expected
results. All statements other than statements of historical fact made in this
Form 10-Q are forward looking. In some cases, they can be identified by
terminology such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential," or "continue," the negative of
such terms or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially. In evaluating these
statements, you should consider various factors that may cause our actual
results to differ materially from any forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee our future results, levels of
activity, performance or achievement. Moreover, neither we nor any other person
assumes liability for the accuracy and completeness of the forward-looking
statements. Various factors may cause actual performance to differ from any of
the forward-looking statements contained in the Management Discussion and
Analysis of Financial Condition and Results of Operations. These include, but
are not limited to; currency exchange rates, inflation rates, recession, and
other external economic factors over which the Company has no control; the
timing and speed with which major customers and prospects execute their plans
for the use of loyalty and/or smart cards; the demand for, timing and market
acceptance of, new and existing smart card products; continued development of
the Company's software products; competitive product and pricing pressures;
patent and other litigation risk; the risk of key staff leaving the Company; as
well as the risk that major customers of the Company's products, including Visa,
reduce their work requirements or terminate their arrangements with the Company.
The Company is under no duty to update any of the forward-looking statements
after the date of this filing to conform such statements to actual results or to
changes in our expectations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to foreign currency exchange rate risk inherent in its
expenses, assets and liabilities that are denominated in the Australian dollar.
To date, the Company has not utilized any foreign currency hedging or other
derivative instruments to reduce exchange rate risk. The Company does not expect
to employ these or other strategies to hedge the risk in the foreseeable future.
10
As of September 30, 2003 and 2002 the Company's net current assets (defined as
current assets less current liabilities) subject to foreign currency risk were
$3,500,000 and $161,000. The potential decrease/(increase) in net assets from a
hypothetical 10% adverse change in quoted foreign currency exchange rates would
be approximately $350,000 and $16,100.
The Company is also exposed to interest rate risk on its deposits of cash, which
is affected by changes in the general level of interest rates in the United
States and Australia. Since the Company generally invests in very short-term
interest bearing deposits, it does not believe it is subject to any material
market risk exposure.
ITEM 4. CONTROLS AND PROCEDURES
Management, including the Company's Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the period ended September
30, 2003, pursuant to Rule 13a-15 of the Securities and Exchange Act of 1934.
The Company's disclosure controls and procedures are designed to ensure that
information required to be disclosed by the Company in its periodic SEC filings
is recorded, processed and reported within the time periods specified in the
SEC's rules and forms. Based upon, and as of the date of that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective, in all material respects, to
ensure that information required to be disclosed in the reports the Company
files and submits under the Exchange Act is recorded, processed, summarized and
reported as and when required.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date the Company carried out its evaluation. There were no significant
deficiencies or material weaknesses identified in the evaluation and, therefore,
no corrective actions were taken.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In July 2003, the Company concluded a private placement in Australia of
3,000,000 shares of the Company's common stock to seven accredited investors at
a price of $2.00 AUD per share ($1.30 USD based on the foreign exchange rate in
effect on the date of the transaction). The price represented an 11% discount to
the shares' fair market value on the Australian Stock Exchange (ASX) on the
transaction date. The Company issued the shares in two tranches -- the first on
July 25, 2003 for 625,000 shares (the maximum permitted under ASX listing rules
prior to receiving shareholder approval) and the second for 2,375,000 shares on
September 22, 2003 following shareholder approval at a special meeting of
shareholders on September 19, 2003. The second tranche of shares included
196,000 shares sold to Mr. Duncan P.F. Mount, Chairman of the Company. The
Company paid a placement fee of 3% of the purchase price to the Placement Agent
for both tranches. The proceeds were added to the Company's general working
funds to be used for general operating purposes. These shares were sold without
registration under US securities laws pursuant to an exemption from such
registration.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 19, 2003, Catuity held a special shareholder meeting at which time
the shareholders approved all proposals.
The tabulation of the voting on each of the resolutions put before the
shareholders is as follows:
VOTES VOTES
RESOLUTION FOR AGAINST ABSTAIN BROKER NON-VOTES TOTAL
- ----------------------------------------------------------------------------------------------------------------
1. Approve the issue of 2,696,233 511,700 507,325 5,557,704 9,272,962
196,000 shares of common
stock
2. Approve the issue of 3,200,567 511,496 3,325 5,557,574 9,272,962
800,000 shares of common
stock
3. Approve the issue of 2,888,547 511,496 315,215 5,557,704 9,272,962
637,500 shares of common
stock
4. Approve the issue of 3,145,222 566,561 3,475 5,557,704 9,272,962
250,000 shares of common
stock
5. Approve the issue of 2,290,987 511,496 912,775 5,557,704 9,272,962
237,500 shares of common
stock
6. Approve the issue of 3,192,854 510,916 3,625 5,565,567 9,272,962
154,000 shares of common
stock
7. Approve the issue of 3,192,904 510,866 3,625 5,565,567 9,272,962
100,000 shares of common
stock
8. Subsequently approve 2,977,384 222,686 507,325 5,565,567 9,272,962
the issue of 90,000 shares
of common stock
9. Subsequently approve 3,164,698 227,482 315,215 5,565,567 9,272,962
the issue of 453,666 shares
of common stock
10. Subsequently approve 2,234,831 247,749 1,224,815 5,565,567 9,272,962
the issue of 625,000 shares
of common stock
12
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibit Description
EX-31.1 Certification by Michael V. Howe, President
and Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
EX-31.2 Certification by John H. Lowry, Chief
Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
EX-32 Certifications pursuant to pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
The following reports were filed on Form 8-K during the three
month period ended September 30, 2003:
Item Reported Financial Statements Filed? Filing Date
------------- --------------------------- -----------
Catuity completes $4 Million (US) No 7-22-03
Private Placement
ASX Price Query Response No 9-11-03
Results of Special Meeting of Shareholders No 9-19-03
SIGNATURES AND CERTIFICATIONS
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.
By: /s/ Michael V. Howe
-------------------
Michael V. Howe
President and Chief Executive Officer
By: /s/ John H. Lowry
-----------------
John H. Lowry
Chief Financial Officer
Date: November 13, 2003
13
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
EX-31.1 Certification by Michael V. Howe, President and Chief
Executive Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
EX-31.2 Certification by John H. Lowry, Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EX-32 Certifications pursuant to pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
14