form10qsb.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-QSB
x
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE
SECURITIES EXCHANGE ACT OF 1934
FOR
THE
QUARTERLY PERIOD ENDED MARCH 31, 2007
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE
ACT OF 1934
COMMISSION
FILE NUMBER: 0-18718
CT
HOLDINGS ENTERPRISES, INC.
(EXACT
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE
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75-2242792
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(STATE
OR OTHER JURISDICTION OF
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(I.R.S.
EMPLOYER
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INCORPORATION
OR ORGANIZATION)
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IDENTIFICATION
NO.)
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TWO
LINCOLN CENTRE, SUITE 1600, 5420 LBJ FREEWAY, DALLAS, TEXAS 75240
(ADDRESS
OF PRINCIPAL EXECUTIVE OFFICES)
(214)
520-9292
(REGISTRANT’S
TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate
by check mark whether the registrant, (1) has filed all reports
required to be filed by Section13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes þ No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
(Check one):
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes þ No o
Class
Outstanding at May 11, 2007
Common
Stock, Par value $.01 per
share 2,397,264
Transitional
Small Business Disclosure Format Yes o
No þ
CT
HOLDINGS ENTERPRISES, INC.
FORM
10-QSB
QUARTERLY
REPORT
FOR
THE
QUARTERLY PERIOD ENDED
MARCH
31,
2007
CT
HOLDINGS
ENTERPRISES, INC.
UNAUDITED
BALANCE SHEETS
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MARCH
31,
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DECEMBER
31,
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2007
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2006
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ASSETS
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CURRENT
ASSETS
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Cash
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$ |
2,797
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$ |
197
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TOTAL
ASSETS
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$ |
2,797
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$ |
197
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LIABILITIES
AND STOCKHOLDERS’ DEFICIT
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CURRENT
LIABILITIES
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Accounts
payable and accrued expenses
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$ |
65,327
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$ |
392,681
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Advance
payable to officer
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-
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46,288
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Note
payable to shareholder including accrued interest of $0 and
$7,801
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-
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16,801
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Total
current liabilities
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65,327
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455,770
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COMMITMENTS
AND CONTINGENCIES
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PREFERRED
STOCK, $0.01 stated value per share; 1,000,000 shares
authorized;
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No
shares issued or outstanding
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-
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-
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COMMON
STOCK, $.01 par value per share; 60,000,000 shares
authorized;
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2,397,264
and 836,370 shares issued and outstanding at March 31, 2007 and December
31, 2006.
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23,973
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8,364
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COMMON
STOCK, pending issuance (38,572 shares at December 31,
2006)
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-
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600,000
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COMMITMENT
RECEIVABLE FROM OFFICER
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(6,408 |
) |
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-
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ADDITIONAL
PAID-IN CAPITAL
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59,082,536
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58,238,845
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ACCUMULATED
DEFICIT
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(59,162,631 |
) |
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(59,302,782 |
) |
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Total
stockholders’ deficit
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(62,530 |
) |
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(455,573 |
) |
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TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
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$ |
2,797
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$ |
197
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|
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The
accompanying notes are an integral part of these consolidated financial
statements.
CT
HOLDINGS ENTERPRISES, INC.
UNAUDITED
STATEMENTS OF OPERATIONS
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THREE
MONTHS ENDED
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MARCH
31,
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2007
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2006
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Revenue
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$ |
-
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$ |
-
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General
and administrative
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61,917
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73,665
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Stock
based compensation expense
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34,800
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|
-
|
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Gain on
settlement of liabilities
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|
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(237,281 |
) |
|
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-
|
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Interest
expense
|
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413
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243,076
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Income
(loss) before income taxes
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140,151
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(316,741 |
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Provision
for income taxes
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-
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-
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Net
income (loss)
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$ |
140,151
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(316,741 |
) |
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Net
income (loss) per share - basic and diluted
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$ |
0.10
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$ |
(0.33 |
) |
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Weighted
average common shares outstanding - basic and diluted
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1,415,009
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960,656
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The
accompanying notes are an integral part of these consolidated financial
statements.
CT
HOLDINGS ENTERPRISES, INC.
UNAUDITED
STATEMENTS OF CASH FLOWS
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THREE
MONTHS ENDED
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MARCH
31,
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2007
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2006
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CASH
FLOWS FROM OPERATING ACTIVITIES
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Net
income (loss)
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$ |
140,151
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$ |
(316,741 |
) |
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Adjustments
to reconcile net income (loss) to net cash
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used
in operating activities:
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Amortization
of deferred debt discount
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-
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161,646
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Accrual
for litigation and related interest
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-
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68,607
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Gain
on settlement of accounts payable
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(237,281 |
) |
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-
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Stock
compensation expense
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34,800
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-
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Changes
in operating assets and liabilities:
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Accounts
payable and accrued expenses
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40,835
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76,488
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Payable
to CDSS Wind Down Inc.
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-
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10,000
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NET
CASH USED IN OPERATING ACTIVITIES
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(21,495 |
) |
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-
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CASH
FLOWS FROM FINANCING ACTIVITIES
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Shares
issued to officer for cash advance
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24,095
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-
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Net
increase in cash and cash equivalents
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2,600
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-
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Cash
and cash equivalents at the beginning of the period
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197
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197
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Cash
and cash equivalents at the end of the period
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$ |
2,797
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$ |
197
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SUPPLEMENTAL
DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
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Common
stock issued to related party for legal services
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$ |
15,000
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$ |
-
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Common
stock issued to officer to settle advances and notes
payable
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$ |
63,089
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$ |
-
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Commitment
receivable from an officer for shares of common stock
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$ |
6,408 |
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$ |
- |
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Contribution
from CDSS to pay legal expenses
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$ |
109,500 |
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$ |
- |
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The
accompanying notes are an integral part of these consolidated financial
statements.
CT
HOLDINGS ENTERPRISES, INC.
NOTES
TO
FINANCIAL STATEMENTS
MARCH
31,
2007
NOTE
A -
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim
Financial Statements and Basis of Presentation
These
unaudited interim financial statements have been prepared on the historical
cost
basis in accordance with accounting principles generally accepted in the United
States and in the opinion of management, reflect all adjustments (consisting
of
normal, recurring adjustments) necessary to present fairly, the financial
position, results of operations and cash flows of CT Holdings Enterprises,
Inc.
(“CT Holdings” or the “Company”). On March 13, 2006 the Company
changed its name from CT Holdings, Inc. to CT Holdings Enterprises,
Inc.
Some
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
in the United States have been condensed or omitted pursuant to rules and
regulations promulgated by the Securities and Exchange Commission (the
“Commission”). The results of operations for the interim periods
shown herein are not necessarily indicative of the results to be expected for
any future interim period or for the entire year. These statements
should be read together with the audited financial statements and notes thereto
included in the Company’s Form 10-KSB for the year ended December 31, 2006 on
file with the Commission.
Description
of Business
CT
Holdings provides management expertise including consulting on operations,
marketing and strategic planning and a single source of capital to early stage
technology companies. The Company was incorporated in Delaware in 1992. The
business model is designed to enable the companies with whom the Company
acquires or invests to become market leaders in their industries. The strategy
over the years has led to the development, acquisition and operation of
technology based businesses with compelling valuations and strong business
models. The goal is to realize the value of these investments for the Company's
shareholders through a subsequent liquidity event such as a sale, merger or
initial public offering of the investee companies. However, our
business model is constrained by our lack of capital. At March 31, 2007, the
Company does not hold any investments and does not have any products or
services, customers or revenue,and the Company has no other lines of
business.
Liquidity
The
Company has incurred recurring operating losses and has a stockholders’ deficit
at March
31, 2007 of $62,530. At March 31, 2007 there is a cash balance of $2,797 and
current liabilities total $65,327. The Company has limited access to capital
at
March 31, 2007, no plans to raise capital, and management has not identified
sources of capital at March 31, 2007. Past funding needs of the business have
been provided by financings through notes payable, cash advances and additional
investments from related parties, including the Company's CEO and CITN
Investment Inc ("CII"), an affiliate of the Company’s CEO, however there can be
no assurance that such funds will be available from these related parties in
the
future. The Company has been and continues to be dependent upon outside
financing to perform its business development activities, make investments
in
new technology companies and to fund operations.
Reverse
Stock Split
On
February 14, 2007 our shareholders approved a proposal to amend the Company’s
Certificate of Incorporation to combine shares of the Company’s common stock to
effect a 1-for-70 reverse stock split. Share amounts have been adjusted to
show the affects of the reverse stock split for all periods presented. A
1-for-70 reverse stock split would make available sufficient authorized shares
of common stock to settle commitments to issue shares and to potentially
facilitate a corporate transaction such as a merger or financing. Corporate
transactions of this nature could improve liquidity, however there can be no
assurance that the Company will enter into any corporate transaction to improve
liquidity.
The
Company will continue to require working capital to fund operating expenses.
At
March 31, 2007, the Company has not identified sources of capital nor does
the
Company have any plans to raise sufficient amounts of capital to settle
liabilities or to fund business development activities.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Net
Income (Loss) per Common Share
Basic
net
income (loss) per common share is computed by dividing net income (loss) to
common shareholders by the weighted average number of shares of common stock
outstanding during the period.
Included
in the weighted average number of common shares outstanding for the three months
ended March 31, 2006 are 38,571 shares that would have been issued when a
shareholder exercised his right to convert a note payable to common stock and
85,714 shares that would have been issued to the Company’s CEO when he exercised
his right to exchange Parago shares for CT Holdings’ shares if the Company had
the available authorized shares. These shares have been included in
the computation for the date that they would have been issued. The
effect of stock options for 41,679 shares of common stock outstanding at March
31, 2006 have been excluded from the weighted average shares computation as
they
are antidilutive. The Company had no common stock equivalents at March 31,
2007;
therefore diluted earnings per share are the same as basic earnings per
share.
Income
Taxes
In
January 2007, the Company adopted the Financial Accounting Standards Board
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – An
Interpretation of FASB Statement No. 109” (FIN 48). This Interpretation
clarifies the accounting for uncertainty in income taxes recognized in a
company’s financial statements. FIN 48 requires companies to determine whether
it is “more likely than not” that a tax position will be sustained upon
examination by the appropriate taxing authorieties before any part of thebenefit
can be recorded in the financial statements. it also provides guidance on the
recognition, measurement and classification of income tax uncertainties, along
with any related interest and penalties. The Company did not recognize any
adjustments to the financial statements as a result of implementation of
FIN 48.
NOTE
C –
RELATED PARTY TRANSACTIONS
On
March
2, 2007, the CEO exercised a right to acquire 250,000 shares of common stock
for
providing up to $100,000 of cash for working capital purposes. At December
31,
2006, the CEO had advanced the Company $46,288 against the $100,000 commitment
and at March 31, 2007, $6,408 remained available under his commitment due to
the
Company. This amount were received by the Company subsequent to March 31, 2007.
On March 9, 2007, in recognition of service to the Company, Mr. Economou, a
director, was awarded 40,000 shares of common stock, Mr. Rogers, a director,
was
awarded 40,000 shares of common stock, Mr. Sawallich, a director, was awarded
20,000 shares of common stock, and Mr. Connelly, former Chief Financial Officer,
was awarded 10,000 shares of common stock. During the first quarter of 2007,
the
Company issued 50,000 shares to a law firm in which the CEO’s brother-in-law
is a partner, in exchange for a reduction in accrued legal expenses of $15,000.
The Company also issued 5,000 shares each to two consultants. The Company
recorded stock based compensation expense in the amount of $34,800 related
to
these issuances.
Also
on
March 2, 2007, following the effectiveness of the 1 for 70 reverse stock split,
the 85,715 unissued shares related to a previously exercised option were issued
to the CEO, 38,572 shares of common stock related to the conversion of a note
payable to a shareholder were issued to the shareholder and 1,014,286 shares
were issued to CII for an option exercised by CII.
Pursuant
to the terms of the transition services agreement with CDSS Wind Down Inc.
("CDSS") until its termination in December 2006, the Company agreed to pay
CDSS
$10,000 per quarter (reduced in July 2005 from $7,500 per month) for the
services of its CEO, CFO and accounting and information management staff, as
well as office rent and indirect overhead expenses. No amount was owed at March
31, 2007 because all amounts owed under the transition services agreement were
released on December 4, 2006 pursuant to an agreement between the Company and
CDSS.
During
the three months ended March 31, 2007, CDSS paid $109,500 in legal expenses
on
behalf of the Company. The $109,500 has been recorded as a contribution from
CDSS.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
The
following discussions should be read in conjunction with our audited financial
statements and related notes included in our Annual Report on Form 10-KSB for
the year ended December 31, 2006. Our year ends on December 31, and
each of our quarters end on the final day of a calendar quarter (March 31,
June
30, and September 30). The following discussions contain
forward-looking statements. Please see Cautionary Statement Regarding
Forward-Looking Statements and Risk Factors for a discussion of uncertainties,
risks and assumptions associated with these statements.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
report on Form 10-QSB contains forward-looking statements within the meaning
of
the Private Securities Litigation Reform Act of 1995. CT Holdings Enterprises,
Inc. (“CT Holdings” or the “Company”) bases these forward-looking statements on
its expectations and projections about future events, which CT Holdings has
derived from the information currently available to it. In addition, from time
to time, CT Holdings or its representatives may make forward-looking statements
orally or in writing. Furthermore, forward-looking statements may be included
in
CT Holdings’ filings with the Securities and Exchange Commission or press
releases or oral statements made by or with the approval of one of CT Holdings’
executive officers. For each of these forward-looking statements, CT Holdings’
claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements relate to future events or CT Holdings’ future
performance, including but not limited to:
Ÿ possible
or assumed future results of operations;
Ÿ future
revenue and earnings; and
Ÿ business
and growth strategies.
Forward-looking
statements are those that are not historical in nature, particularly those
that
use terminology such as may, could, will, should, likely, expects, anticipates,
contemplates, estimates, believes, plans, projected, predicts, potential or
continue or the negative of these or similar terms. The statements contained
in
this Report that are not purely historical are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding the Company’s expectations, beliefs, intentions or
strategies regarding the future. Forward-looking statements are subject to
certain known and unknown risks and uncertainties that could cause actual
results to differ materially from those expressed in any forward-looking
statements. These risks and uncertainties include, but are not limited to,
the
following important factors with respect to CT Holdings:
|
|
Ÿ
|
the
uncertainty of general business and economic
conditions;
|
|
|
Ÿ
|
the
financial performance of our
investments;
|
|
|
Ÿ
|
adverse
developments, outcomes and expenses in legal proceedings;
and
|
|
|
Ÿ
|
those
described under Risk Factors included in this
document.
|
Forward-looking
statements are only predictions as of the date they are made and are not
guarantees of performance. All forward-looking statements included in this
document are based on information available to CT Holdings on the date of this
Report on Form 10-QSB. Readers are cautioned not to place undue reliance on
forward-looking statements. The forward-looking events discussed in this Report
on Form 10-QSB and other statements made from time to time by CT Holdings or
its
representatives may not occur, and actual events and results may differ
materially and are subject to risks, uncertainties and assumptions about CT
Holdings including without limitation those discussed elsewhere in this Form
10-QSB under the heading Risk Factors as well as those discussed elsewhere
in
this Form 10-QSB, and the risks discussed in our Securities and Exchange
Commission filings. Except for their ongoing obligations to disclose material
information as required by the federal securities laws, CT Holdings is not
obligated to publicly update or revise any forward-looking statement, whether
as
a result of new information, future events or otherwise. In light of these
risks, uncertainties and assumptions, the forward-looking events discussed
in
this Report on Form 10-QSB and in other statements made from time-to-time by
CT
Holdings or its representatives might not occur.
RISK
FACTORS
Investing
in our common stock involves a high degree of risk. Any of the
following risks could materially adversely affect our business, operating
results and financial condition and could result in a complete loss of your
investment.
In
addition to the other information in this Report, the following factors should
be considered carefully in evaluating the Company and its
business. This disclosure is for the purpose of qualifying for the
safe harbor provisions of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as
amended. It contains factors that could cause results to differ
materially from such forward-looking statements. These factors are in
addition to any other cautionary statements, written or oral, which may be
made
or referred to in connection with any such forward-looking
statement.
The
following matters, among other things, may have a material adverse effect on
the
business, financial condition, liquidity, or results of operations of the
Company. Reference to these factors in the context of a
forward-looking statement or statements shall be deemed to be a statement that
any one or more of the following factors may cause actual results to differ
materially from those in such forward-looking statement or
statements. Before you invest in our common stock, you should be
aware of various risks, including those described below. Investing in
our common stock involves a high degree of risk. You should carefully consider
these risk factors, together with all of the other information included in
this
Report, before you decide whether to purchase shares of our common stock. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to
any
of these risks, and you may lose part or all of your investment.
GENERAL
RISKS
WE
HAVE RECEIVED A GOING CONCERN REPORT FROM OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM, HAVE A HISTORY OF NET LOSSES AND WILL NEED ADDITIONAL FINANCING
TO CONTINUE AS A GOING CONCERN.
We
have
received a report from our independent registered public accounting firm for
our
year ended December 31, 2006 containing an explanatory paragraph that describes
the uncertainty regarding our ability to continue as a going concern. Although
we had a significant gain for the year ended December 31, 2006, we have a
history of recurring operating losses and have a significant working capital
deficiency at March 31, 2007 of approximately $62,530. We had a cash balance
of
$2,797 at March 31, 2007 and current liabilities total approximately $65,327.
We
have limited access to capital, no plans to raise capital, and we have not
identified sources of capital at March 31, 2007. Our past funding needs of
the
business have been provided by financings through short-term notes payable
and
additional investments from related parties, including our CEO and CII, an
entity of which our CEO is an officer, director and 50% shareholder, however
there can be no assurance that such funds will be available from these related
parties in the future. The Company has been and continues to be dependent upon
outside financing to perform its business development activities, make
investments in new technology companies and to fund operations.
OUR
CEO AND HIS AFFILIATES CONTROL A MAJORITY OF OUR VOTING
SHARES.
On
February 14, 2007 our shareholders approved a proposal to amend the Company's
Certificate of Incorporation to combine shares of the Company's common stock
to
effect a one for 70 reverse stock split. A 1 for 70 reverse stock split would
make available sufficient authorized shares of common stock to settle
commitments to issue shares and to potentially facilitate a corporate
transaction such as a merger or financing. Following the reverse stock split
and
the
issuance of shares that we were previously unable to issue due to the limited
number of authorized shares, our CEO and his affiliates control a majority
of
the voting power of our common stock and may effect corporate transactions
even if our other shareholders are opposed to such transactions. Corporate
transactions of this nature could improve liquidity, however there can be no
assurance that the Company will enter into any corporate transaction to improve
liquidity.
OUR
BUSINESS FOCUS IS THE DEVELOPMENT AND ACQUISITION OF EARLY STAGE COMPANIES;
HENCE, WE WILL ENCOUNTER NUMEROUS RISKS ASSOCIATED WITH OUR BUSINESS FOCUS
AND
OUR PRIOR OPERATING HISTORY MAY NOT BE A MEANINGFUL GUIDE TO EVALUATING OUR
FUTURE PERFORMANCE.
Our
business model has been designed to enable the companies in whom we invest
or
acquire to become market leaders in their industries. Our strategy
over the years has led to the development, acquisition and operation of
technology based businesses with strong business models and compelling
valuations. We believe that the anticipated growth in technology creates strong
opportunities for us to increase shareholder value by investing in early stage
ventures well positioned for growth in their respective
marketplaces. Our business strategy seeks to increase the value of
each investee by providing management, marketing and financial expertise along
with financial capital and then realize this new value through a subsequent
liquidity event such as a sale, merger or initial public offering of the
investee companies. However, the impact of any advice and expertise
may be limited due to a lack of a significant ownership percentage in any of
our
investees and the lack of available capital.
We
have a
limited history in executing our business strategy. As a consequence,
our prior operating history may not provide a meaningful guide to our prospects
in emerging markets. Moreover, our business model and prospects must
be considered in light of the risk, expense and difficulties frequently
encountered by companies in early stages of development, particularly companies
in new and rapidly evolving markets. We may be unable to execute our strategy
of
developing our business due to numerous risks, including the
following:
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- We
may be unable to identify or develop relationships with emerging
companies.
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- Any
companies that we are able to attract may not succeed and the value
of our
assets and the price of our common stock could consequently
decline.
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- Our
business model is unproven and depends on the willingness of companies
to
participate in our business development model and collaborate with
each
other and us.
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- Our
expenses may increase as we build the infrastructure necessary to
implement this model.
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- We
face competition from other incubators, some of which are publicly-
traded
companies, venture capital companies and large corporations; many
of these
competitors have greater financial resources and brand name
recognition than we do, which may make it difficult for us to effectively
compete.
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- We
will require additional capital resources in order to implement our
business model and we may not be able to obtain these resources on
attractive terms, if at all.
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CT
HOLDINGS HAS BEEN UNABLE TO OPERATE PROFITABLY.
Historically,
businesses and technologies in which we have invested were not controlled by
us
and as such we have been unable to rely on the investee company businesses
for a
source of cash flow, earnings, assets or capital. There can be no
assurance that CT Holdings will be able to successfully put in place the
financial, administrative and managerial structure necessary to continue to
operate as an independent public company, or that the development of such
structure will not require a significant amount of management's time and other
resources.
WE
MAY INCUR SIGNIFICANT COSTS TO AVOID INVESTMENT COMPANY STATUS AND MAY SUFFER
OTHER ADVERSE CONSEQUENCES IF WE ARE DEEMED TO BE AN INVESTMENT
COMPANY.
We
may
incur significant costs to avoid investment company status and may suffer other
adverse consequences if we are deemed to be an investment company under the
Investment Company Act of 1940. Some of our contemplated equity
investments in other businesses may constitute investment securities under
the
1940 Act. A company may be deemed to be an investment company if it
owns investment securities with a value exceeding 40% of its total assets,
subject to certain exclusions. Investment companies are subject to
registration under, and compliance with, the 1940 Act unless a particular
exclusion or Securities and Exchange Commission safe harbor
applies. If we were to be deemed an investment company, we would
become subject to the requirements of the 1940 Act. As a consequence,
we would be prohibited from engaging in some businesses or issuing our
securities and might be subject to civil and criminal penalties for
noncompliance. In addition, certain of our contracts might be voided,
and a court-appointed receiver could take control of us and liquidate our
business. Following the dividend distribution of our ownership in Citadel
Security Software Inc. in May 2002, we may be deemed to be an investment company
unless we qualify for a safe harbor within the time permitted under the 1940
Act.
Unless
an
exclusion or safe harbor was available to us, we would have to attempt to reduce
our investment securities as a percentage of our total assets. This reduction
could be accomplished in a number of ways, including the disposition of
investment securities and the acquisition of non-investment security assets.
If
we were required to sell investment securities, we may sell them sooner than
we
may otherwise have preferred. These sales may be at depressed prices and we
might never realize anticipated benefits from, and may incur losses on, these
investments. Some investments may not be sold due to contractual or
legal restrictions or the inability to locate a suitable
buyer. Moreover, we may incur tax liabilities when we sell
assets. We may also be unable to purchase additional investment
securities that may be important to our operating strategy. If we
decide to acquire non-investment security assets, we may not be able to identify
and acquire suitable assets and businesses.
OUR
STOCK IS TRADED IN THE OVER THE COUNTER MARKET.
Our
common stock trades on the OTC Bulletin Board. The OTC Bulletin Board
is generally considered to be a less efficient market, and our stock price,
as
well as the liquidity of our common stock, may be adversely impacted as a
result. The OTC Bulletin Board requires that listed companies remain current
in
their filings with the Securities and Exchange Commission. If we are
unable to remain current in our SEC filings, due to lack of funds or personnel
or otherwise, we could be delisted from the OTC Bulletin Board, and our stock
would trade, if at all, on the pink sheets.
MEMBERS
OF OUR BOARD OF DIRECTORS MAY HAVE INTERCOMPANY CONFLICTS OF INTEREST AFTER
OUR
SPIN-OFF.
Members
of the board of directors and management of CT Holdings own shares of both
CDSS
Wind Down Inc. ("CDSS"), formerly known as Citadel Security Software Inc.,
and
CT Holdings common stock. Following the spin-off, three of the four directors
of
CT Holdings became directors of CDSS, and the Chief Executive Officer and Chief
Financial Officer of CT Holdings also serve as Chief Executive Officer and
Chief
Financial Officer of CDSS. The assets of CDSS were sold in December
2006 and since the sale CDSS has been in the process of settling liabilities
and
winding down its remaining operations prior to its liquidation. These
relationships could create, or appear to create, potential conflicts of interest
when our directors and executives are faced with decisions that could have
different implications for CDSS and CT Holdings. The appearance of conflicts,
even if such conflicts do not materialize, might adversely affect the public's
perception of CT Holdings.
OUR
EARNINGS AND STOCK PRICE ARE SUBJECT TO SIGNIFICANT
FLUCTUATIONS.
Due
to
the factors noted in this Report, our earnings and stock price have been and
may
continue to be subject to significant volatility, particularly on a quarterly
basis. We have experienced no revenue or earnings which have had an
immediate and significant adverse effect on the trading price of our common
stock. This may occur again in the future.
CHANGES
IN TAX LAWS OR UNANTICIPATED TAX ASSESSMENTS COULD AFFECT OUR FUTURE
FINANCIAL
RESULTS.
Future
changes in tax laws or their interpretation and application, tax rates or the
results of tax examinations could favorably or unfavorably affect the valuation
of our deferred tax assets and liabilities. In addition, we are
subject to the examination of our income, franchise, sales and use, property
and
other tax returns by federal, state and local tax authorities. We routinely
assess the likelihood of adverse outcomes that may result from an examination
of
our tax returns to determine the adequacy of any provisions for taxes and the
valuation of our deferred tax assets and liabilities. There can be no
assurance that the outcomes from any future examinations by taxing jurisdictions
will not have
an
adverse effect on our operating results, cash flow and financial condition
of
the Company.
CANCELLATION
OF CERTAIN AGREEMENTS WITH CDSS AS A RESULT OF THE SALE OF SUBSTANTIALLY
ALL OF THE ASSETS OF CDSS IN DECEMBER 2006 COULD REQUIRE US TO
INCUR
HIGHER COSTS AND CASH OUTLAYS.
In
May
2002, we entered into several agreements with CDSS to define our ongoing
relationship after the spin-off distribution and to allocate tax and other
specified liabilities and obligations arising from periods prior to the
distribution
date. We entered into these agreements prior to the distribution while CDSS
was
a wholly owned subsidiary of CT Holdings. As a condition of the sale
of the assets of CDSS in December 2006 these agreements were
terminated.
CT
Holdings and CDSS had entered into a transition services agreement with CT
Holdings. This agreement provides that CT Holdings and CDSS will provide each
other services in such areas as information management and technology, sharing
of office space, personnel and indirect overhead expenses, employee benefits
administration, payroll, financial accounting and reporting, claims
administration and reporting, and other areas where CT Holdings and CDSS may
need transitional assistance and support. The cancellation of this agreement
means that CT Holdings will need to obtain other sources of these services
for
which the cost of such services may greater than the $10,000 per quarter fee
that CT Holdings was charged by CDSS. In addition due to the lack of
access to cash CT Holdings may not be able to obtain these
services.
In
addition, CT Holdings and CDSS entered into a tax disaffiliation agreement
which
set out each party's rights and obligations with respect to deficiencies and
refunds, if any, of federal, state, local or foreign taxes for periods
before
and after the Distribution Date and related matters such as the filing of tax
returns and the conduct of Internal Revenue Service and other
audits. Under the tax disaffiliation agreement, CDSS would have
indemnified CT Holdings for all taxes and liabilities incurred as a result
of
CDSS's or an affiliate's post-distribution action or omission contributing
to an
Internal Revenue Service determination that the distribution was not
tax-free. CT Holdings would have indemnified CDSS for all taxes and
liabilities incurred solely because CT Holdings or an affiliate's
post-distribution action or omission contributes to an Internal Revenue Service
determination that the distribution was not tax-free. If
the Internal Revenue Service determined that the distribution was not tax-free
for any other reason, CT Holdings and CDSS would have indemnified each other
against all taxes and liabilities pro rata based on relative values as of the
distribution date. Also, CDSS would have indemnified CT Holdings
against any taxes resulting from any internal realignment undertaken to
facilitate the distribution on or before the distribution date. Upon
cancellation of the tax affiliation agreement the cross indemnification
provisions of this agreement were cancelled and should any of these actions
arise, CT Holdings would be required to settle any tax liabilities resulting
from such actions.
IF
WE LOSE THE SERVICES OF ANY OF OUR KEY PERSONNEL, INCLUDING OUR CHIEF
EXECUTIVE
OFFICER, OR OUR DIRECTORS, OUR BUSINESS MAY SUFFER.
We
are
dependent on our key officers, including Steven B. Solomon, our Chairman and
Chief Executive Officer, and acting Chief Financial Officer, and our directors.
Our business could be negatively impacted if we were to lose the services of
one
or more of these persons.
OUR
BUSINESS
CT
Holdings Enterprises, Inc. provides management expertise and sources of capital
to early stage companies. We were incorporated in Delaware in 1992. On March
13,
2006 the Company changed its name to CT Holdings Enterprises, Inc. Our business
model is designed to enable the companies in which we invest or acquire to
become market leaders in their industries. Our strategy is expected to lead
to
the development, acquisition and operation of technology based businesses with
compelling valuations and strong business models. We believe that the
anticipated growth in technology creates strong opportunities for us to increase
shareholder value by investing in well-positioned early stage ventures. Our
goal
is to realize the value of our investments for our shareholders through a
subsequent liquidity event such as a spin-off, sale, merger or initial public
offering of the investee companies.
At
March
31, 2007 our lack of available capital has limited our ability to
raise sufficient capital to invest in additional companies and technologies
that
could offer us and our shareholders a reasonable rate of return on their
investment in the foreseeable future. We expect that if and when capital becomes
available to us, we may continue our business development and investment
activities, however there can be no assurance that any capital will be available
to us. Until such time as capital becomes available the Company's business
activities will be limited to reviewing investment opportunities and filing
of
compliance documents.
RESULTS
OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2007 AS COMPARED WITH THE YEAR
ENDED MARCH 31, 2006
Our
operations consist of costs and expenses for the activities to identify
additional technologies companies in which we might invest, as well as costs
associated with SEC reporting. We do not generate any revenue.
GENERAL
AND ADMINISTRATIVE EXPENSES
During
the three months ended March 31, 2007 general and administrative expenses were
$61,917. The Company also had $34,800 of stock compensation expense. General
and
administrative expenses declined $11,748 or 16% versus the $73,665 of total
general and administrative expenses recorded for the three months ended March
31, 2006. The decrease is primarily due to lower legal and other professional
fees. The Company also realized a $237,281 gain on settlement of accounts
payable.
INTEREST
EXPENSE
Interest
expense for the three months ended March 31, 2007 and 2006 was $413 and
$243,076, respectively. Interest expense during the first quarter of 2007 was
not significant because the litigation accrual, advances and notes payable
to
officers and shareholders, the demand note payable to CDSS and the convertible
note payable to CITN Investment Inc. ("CII") which, collectively, generated
interest expense in the first quarter of 2006 were no longer outstanding during
the three months ending March 31, 2007.
LIQUIDITY
AND CAPITAL RESOURCES
We
received a report from our independent registered public accounting firm for
our
year ended December 31, 2006 containing an explanatory paragraph that describes
the uncertainty regarding our ability to continue as a going concern due to
our
recurring operating losses and our significant working capital deficiency.
Historically, we have incurred recurring operating losses and have a significant
stockholders' deficit at March 31, 2007 of approximately $62,530. We had a
cash
balance of $2,797 at March 31, 2007 and current liabilities total approximately
$65,327. We have limited access to capital, no plans to raise capital and we
have not identified sources of capital at March 31, 2007. Our past funding
needs
of the business have been provided by financings through short-term notes
payable and additional investments from related parties, including our CEO,
and
CII however there can be no assurance that such funds will be available from
these related parties in the future. The Company has been and continues to
be
dependent upon outside financing to perform its business development activities,
make investments in new technology companies and to fund
operations.
Our
plans
to continue to support and expand our business development activities are
limited due to a lack of identification and availability of near term capital.
As a result, it is unlikely that the implementation of the Company's business
strategy will generate positive cash flow in the foreseeable future. Achieving
positive cash flow is currently highly dependent upon obtaining liquidity from
our investments in unconsolidated affiliates. We have no plans at March 31,
2007
to raise additional capital to invest in new business
opportunities.
There
can
be no assurance that management's plans will be successful or what other actions
may become necessary. There can be no assurance that the Company will
ever achieve liquidity for its investments. Until we are able to
create liquidity from an additional inflow of new capital or from our
investments through sale to a strategic investor, an initial public offering
or
some other liquidity transaction, we will continue to require external sources
of working capital to fund our operating expenses. Our inability to raise
capital could have a material adverse effect on our business and operations
that
could be material to our results of operations.
Cash
Used in Operating Activities
The
net
cash used in operating activities was approximately $21,000 for the three months
ended March 31, 2007 resulting from a net profit of approximately $140,000
offset by non-cash charges of approximately $202,000, plus a net change in
operating liabilities of approximately $41,000.
Cash
Provided by Financing Activities
Net
cash
provided by financing activities was approximately $24,000 consisting primarily
of shares issued to the CEO for an advance made to the Company.
CONTRACTUAL
OBLIGATIONS
There
are
no notes payable, other long-term debt obligations, capital lease obligations,
operating lease obligations or long-term capital purchase commitments at March
31, 2007.
ITEM
3. CONTROLS AND PROCEDURES
The
Company's management, including the Company's principal executive officer and
principal financial officer, has evaluated the effectiveness of the Company's
disclosure controls and procedures (as defined in Rules 13(a) - 15(e) and 15(d)
- 15(e) under the Securities Exchange Act of 1934) as of the three months ended
March 31, 2007, the period covered by the Form 10-QSB. Based upon that
evaluation, the Company's principal executive officer and principal financial
officer have concluded that the disclosure controls and procedures were
effective as of March 31, 2007 to provide reasonable assurance that material
information relating to the Company is made known to management including the
CEO and CFO.
There
were no changes in the Company's internal control over financial reporting
that
occurred during the Company's last fiscal quarter that have materially affected,
or are reasonably likely to materially affect, the Company's internal control
over financial reporting.
INHERENT
LIMITATION ON THE EFFECTIVENESS OF INTERNAL CONTROLS
The
effectiveness of any system of internal control over financial reporting,
including CT Holdings', is subject to inherent limitations, including the
exercise of judgment in designing, implementing, operating, and evaluating
the
controls and procedures, and the inability to eliminate misconduct completely.
Accordingly, any system of internal control over financial reporting, including
CT Holdings', can only provide reasonable, not absolute assurances. In addition,
projections of any evaluation of effectiveness to future periods are subject
to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate. We intend to continue to monitor and upgrade our internal controls
as necessary or appropriate for our business, but cannot assure you that such
improvements will be sufficient to provide us with effective internal control
over financial reporting.
PART
II. OTHER INFORMATION
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS
Following
approval by our stockholders of the reverse split referred to in Item 4 below,
we had sufficient authorized shares of our common stock to permit us to issue
shares in fulfillment of prior obligations, including the
following:
Steven
B.
Solomon, our CEO, had the right to receive 6,000,000 shares of our common
stock
that were issuable in February 2004 when Mr. Solomon exercised his right
to
exchange 5,000,000 (pre 1:1,000 reverse stock split) shares of Parago common
stock. Prior to the reverse split, the issuance of all 6,000,000 shares would
have caused the number of shares outstanding to exceed our authorized shares
of
60,000,000, and Mr. Solomon had previously waived his right to receive these
shares until such time as the shares were available. Following the reverse
split, Mr. Solomon received 85,714 shares of our common stock as a result
of
this transaction.
CITN
Investment Inc. (which is owned 50% by each of Mr. Solomon, our CEO, and
Lawrence Lacerte, a 5% stockholder) owned fully vested options to purchase
51%
of the shares of our common stock (approximately 71,000,000 pre-reverse split
shares) at an exercise price equal to the par value of the shares. This option
was granted in connection with the settlement of a demand note that was in
default, and the option would expire on the earlier of (a) 60 days after
the
approval of the reverse split or an increase in our authorized capital that
would permit the exercise of the option or (b) May 18, 2011. Following the
reverse split, CII would own an option to purchase 51% of the fully diluted
shares of our common stock (approximately 1,014,285 shares) at an exercise
price
equal to the par value per share. Following the reverse split, this
option was exercised.
We
had
agreed to issue 2,700,000 shares of common stock to Mr. Thomas Oxley, a 5%
stockholder, at such time as they became authorized or additional capital
stock
was available, whether by means of an increase to our authorized common stock
or
by the reverse stock split. During the first quarter of 2003, Mr. Oxley
converted a $600,000 note convertible note payable into 2,700,000 shares
of our
common stock. Since the issuance of all 2,700,000 shares would have caused
the
number of shares outstanding to exceed our authorized number of shares
(60,000,000), Mr. Oxley had waived his right to these shares until such time
as
the shares were available. Following the reverse split, Mr. Oxley received
38,571 shares of our Common Stock as a result of this transaction.
On
March
2, 2007, Mr. Solomon exercised a right to acquire 250,000 shares of common
stock
for providing up to $100,000 of cash for working capital purposes.
On
March
9, 2007, in recognition of their service to the Company, Mr. Economou, a
director, was awarded 40,000 shares of common stock, Mr. Rogers, a director,
was
awarded 40,000 shares of common stock, Mr. Sawallich, a director, was awarded
20,000 shares of common stock, Mr. Connelly, former Chief Financial Officer,
was
awarded 10,000 shares of common stock, and an employee was awarded 5,000
shares
of common stock.
The
shares were not registered under the Securities Act of 1933, as amended (the
“Securities Act”) by virtue of the exemption provided in Section 4(2) of the
Securities Act or Rule 701 under the Securities Act for the issuance to the
employee. The issuances did not involve a public offering and the purchasers
were accredited investors (other than the issuance to the
employee).
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
A
Special
Meeting of shareholders was held on February 14, 2007 to vote on a proposal
to
effect a reverse stock split on a one for seventy basis. The
following table presents the results of the shareholder vote
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Number
of Shares
|
| |
|
Voted
For
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Voted
Against
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|
Abstain
|
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Broker
Non-Votes
|
|
PROPOSAL
1 - Authorization of an amendment of the company's certificate
of
incorporation to combine shares of the company's common stock to
effect a
one-for-seventy reverse stock split, which is to be effected if
finally
approved by the board.
|
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49,784,721
|
|
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1,137,079
|
|
|
|
125,115
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|
None
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EXHIBIT
|
|
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|
NUMBER
|
|
DESCRIPTION
|
| |
|
|
|
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Certification
of Principal Executive Officer and Principal Financial Officer, filed
herewith.
|
| |
|
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Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to
18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed
herewith.
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this Annual Report on Form
10-QSB to be signed on its behalf by the undersigned, thereunto duly
authorized.
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Date:
May 15, 2007
|
CT
HOLDINGS ENTERPRISES, INC.
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By:/s/
STEVEN B. SOLOMON
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Steven
B. Solomon, President and Chief Executive Officer
(Duly
Authorized Signatory and Principal Executive Officer)
|
| |
|
| |
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By:/s/
STEVEN B. SOLOMON
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Steven
B. Solomon, Acting Chief Financial Officer
(Duly
Authorized Signatory and Principal Accounting and Financial
Officer)
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17