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): FEBRUARY 2, 2006
(FEBRUARY 2, 2006)
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CATUITY INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-30045 38-3518829
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
2711 E. JEFFERSON AVE.
DETROIT, MICHIGAN 48207 (313)-567-4348
(Address of principal (Registrant's telephone number,
executive offices) including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions.
( ) Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
( ) Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
( ) Pre-commencement communications pursuant to Rule 14d-2(b), under the
Exchange Act (17 CFR 240.14d-2(b))
( ) Pre-commencement communications pursuant to Rule 13e-4(c), under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 7.01 REGULATION FD DISCLOSURE
On February 2, 2006 Catuity posted the following letter to its shareholders on
its website and filed it with the Australian Stock Exchange announcements
platform.
February 2, 2006
To Our Fellow Shareholders,
We are sending this letter today to give our shareholders and our trading
markets a current update on the Company and our direction. We keep our routine,
formal SEC filings and other required information up-to-date, but we also hope
that knowledge of where we are headed provided in a more informal manner - like
this letter - will help you understand our strategy. Of course, the information
in this letter should be considered together with the more detailed information
in our complete, formal SEC filings.
We have been very focused on operational issues in the months following our
September 2005 acquisition of a loyalty processing company and our approximately
USD$7.25 million capital raise. This has included efforts to refine our sales
strategy, complete the integration of the acquired company with Catuity's, and
build our sales and operational teams. We used approximately USD$2.7 million of
the USD $7.25 million raised to acquire a complementary loyalty processing
business in Australia. We have also made a small investment in our technology to
broaden its use with potential customers, and to build out our operations and
sales teams in the U.S. In the fourth quarter, we focused on execution and
operations as we move toward our long-term objective of being a consistently
profitable loyalty and gift card processor for mid-sized retailers.
This update is divided into three parts:
- understanding our strategy,
- a review of what has changed since Sept. 1, 2005, and
- a review of benchmarks we have set for the coming year.
We hope that you find this information useful in assessing the Company,
understanding our direction, and interpreting future announcements.
UNDERSTANDING OUR STRATEGY
Catuity is a loyalty and gift card processor focused on mid-sized retail chains
and on serving small merchants through re-sellers. We believe our sweet spot for
retailers is those with 75-250 locations. We have refined our sales management
process to focus on chain retailers in that size range that we believe are
interested in making a buying decision within one year. We are finding our best
opportunities to be in the pharmacy and health and beauty areas, a broad range
of franchised retailers and among retailers selling lifestyle products (such as
entertainment). As the provider of an Application Service Provider (ASP)-based,
outsourced solution, Catuity's primary competition is the retailer's in-house
solution, other outsourcers, and sellers of packaged programs. Our system is
linked directly to the Point-of-Sale (POS) system of a retailer, which
represents both an opportunity and a challenge in the sales process. To address
this, Catuity continues to invest small amounts of capital to integrate to the
leading POS and EFTPOS terminal platforms that are most commonly used by
retailers in the U.S. As we complete these integration efforts, we plan to
announce them to the market because we believe they indicate progress in our
strategy to make it easier for retailers and their providers to do business with
Catuity.
Our goal remains to become a consistently profitable company and we have
repeatedly said that we expect Catuity can become profitable by the end of
calendar year 2006 only through the acquisition of a profitable US company that
is complementary to our strategy. This said, we will only proceed with an
acquisition on terms that our Board believes make sense for all shareholders.
WHAT HAS CHANGED SINCE SEPT. 1, 2005?
As management, our commitment is to closely monitor our strategy against market
realities. As you might expect, we are constantly adjusting our effort and our
focus to better apply our intellectual as well as equity capital in ways that we
believe will strike an optimal balance among our desire for results, the need to
understand and manage our risks, and our commitment to deliver consistent
results for customers and shareholders. While our strategy has not changed, we
have modified our priorities in recent months in three important areas.
- - Mergers remain important to our strategy, but our goal is now to complete at
least one acquisition in the second half of this year. We had previously
anticipated that we would complete an acquisition in the first half of 2006.
During the fourth quarter of 2005, there was significant merger and acquisition
activity in our target market. As a result, we chose not to pay up to acquire a
business when valuations became, in our judgment, too pricey. Instead, we
directed our energy and focus into strengthening our sales and operations with
an eye toward creating positive momentum. Today, we are seeking the acquisition
of a traditional loyalty services and/or database marketing capability to expand
our range of products and services to our customers. While we have entered into
preliminary discussions with prospective acquisition-partners, it is still too
early to provide definitive information on these possibilities. Catuity's
technology generates a robust stream of information. Currently, our clients rely
on others to provide lucrative services to manage and maximize our information.
This focus is consistent with our long-stated strategy to broaden the range of
products and services we can offer to our chain retail clients.
- - We have found that the U.S. reseller market is moving to adopt Catuity's
technology. This appears to be, in part, because of the acquisition activity of
some of our key competitors. Catuity has been pleasantly surprised by the
apparent demand for a turnkey solution to be sold to merchants and small chains
through re-sellers, including merchant services companies, Independent Sales
Organizations, marketing companies and operators of coalition loyalty programs
in local markets. We view using resellers to reach small, independent merchants
as a very well established strategy that operates on a revenue-sharing model. A
year ago, we expected this to generate a relatively small amount of business for
us, but today we see sales through resellers to be a larger part of our organic
growth in 2006. We like this market because we have a product that works, an
operational service capability that provides turnkey outsourcing to our
resellers, and the ability to leverage our fixed costs more quickly than by only
selling to chain retailers. We think this market leverages the existing
relationship of our resellers and reduces the investment we need to make in
direct sales. It also does not compete with our direct sales efforts to
mid-sized chain retailers.
- - Catuity plans to introduce packaged products to broaden our offering to
retailers. As we have said in the past, our target clients are generally
choosing among an in-house solution, outsourcing, or a packaged product. In the
fourth quarter of 2005, Catuity made a minor investment to develop two turnkey
products that we believe will give us a better closing rate in sales by giving
our prospects more ways of doing business with us. We anticipate being able to
make more complete, formal announcements on these two turnkey products as
customers put the products to use. Unlike loyalty processing - where recurring
revenues are based on the total number of members and/or on a transactional fees
basis - packaged products are sold on a subscription or share-of-results basis.
We believe there is good demand in the chain world for packaged products. We are
also looking at ways to modify these packages for the reseller market. It is
important to note that introducing product packages does not require significant
new development of our technology.
WHAT TO EXPECT THROUGH 2006.
Here are some of the key activities we are working on in 2006:
- Continue to integrate our products to leading POS/EFTPOS platforms
to reduce the risks and upfront cost that often deters clients from
making a buying decision.
- Introduce 3-4 loyalty and gift card product packages this year which
target the pharmacy, health & beauty, and lifestyle retailing
markets.
- Announce and close an acquisition of a profitable loyalty services
and/or database marketing company by year-end to broaden our
offerings and diversify our revenue streams.
- Announce our capital raising strategy for 2006 by mid-year.
Please know that when we announce new business, it will be in the context of
demonstrating results that show we are executing our strategy as outlined in
this update. As we have stated in the past, we do not expect any single customer
announcement to result in Catuity being organically profitable by year-end 2006.
Rather, each announcement is intended to demonstrate positive momentum toward
building the recurring revenue streams that will move us closer to profitability
and drive the valuation of the Company in 2007 and beyond.
We appreciate your patience and support and welcome your questions at
racine@catuity.com.
Best Regards,
John Racine
President, CEO & Director (and shareholder)
Catuity Inc.
SIGNATURE
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.
CATUITY INC.
(Registrant)
By /s/ John H. Lowry
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John H. Lowry
Senior Vice President,
Chief Financial Officer & Secretary
Date: February 2, 2006