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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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Form 10 - QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-10560
CTI Group (Holdings) Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 51-0308583
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 S. Trooper Road, P.O. Box 80360, Valley Forge, PA 19484
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(Address of principal executive offices; zip code)
Issuer's telephone number, including area code (610) 666-1700
Not Applicable
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(Former name, address, and fiscal year)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
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The number of shares of common stock, par value $.01, outstanding as of
January 31, 1997 was: 6,390,314
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CTI Group (Holdings) Inc.
Consolidated Balance Sheet
ASSETS
December 31, March 31,
1996 1996
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(Unaudited)
Current assets:
Cash and cash equivalents $ 66,510 $ 288,870
Receivables:
Trade, less allowance for doubtful
accounts of $50,000 at December 31,
1996 and $60,000 at March 31, 1996 576,340 802,410
Inventories 34,730 19,450
Prepaid expenses 63,960 26,590
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Total current assets 741,540 1,137,320
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Furniture, fixtures, equipment and
leasehold improvements at cost, less
accumulated depreciation and amortization
of $421,980 at December 31, 1996 and
$371,410 at March 31, 1996 222,800 246,300
Computer software, net of accumulated
amortization of $1,254,660 at December 31,
1996 and $1,149,790 at March 31, 1996 941,380 694,260
Other assets 39,850 29,380
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$1,945,570 $2,107,260
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2
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CTI Group (Holdings) Inc.
Consolidated Balance Sheet
LIABILITIES and STOCKHOLDERS' EQUITY
December 31, March 31,
1996 1996
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(Unaudited)
Current liabilities:
Current portion of long-term debt $ 7,990 $ 28,710
Accounts payable 262,270 450,820
Accrued commissions and other compensation 14,090 52,600
Other accrued expenses 214,780 217,830
Deferred revenue 218,960 209,390
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Total current liabilities 718,090 959,350
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Long-term debt, less current portion 29,690 34,720
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Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01; 10,000,000
shares authorized; 5,735,564 shares
issued at December 31, 1996 and 5,522,006
shares issued at March 31, 1996 57,360 55,220
Capital in excess of par value 7,349,830 7,214,730
Accumulated deficit (5,797,720) (5,745,510)
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1,609,470 1,524,440
Equity adjustment from foreign currency
translation (5,280) (4,850)
Less - Treasury stock, 140,250 shares at
December 31, 1996 and March 31, 1996
at cost (406,400) (406,400)
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Total stockholders' equity 1,197,790 1,113,190
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$ 1,945,570 $ 2,107,260
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3
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CTI Group (Holdings) Inc.
Statement of Operations
(Unaudited)
Nine Months Ended
December 31,
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1996 1995
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Net sales $ 2,529,650 $ 3,266,390
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Costs and expenses:
Cost of sales (exclusive of depreciation 1,110,380 1,435,900
and amortization)
Selling, general and administrative expenses 1,306,210 1,385,830
Depreciation and amortization 154,460 184,990
Interest income, net of interest expense of
$2,850 and $1,720 in 1996 and 1995,
respectively (3,770) (9,660)
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2,567,280 2,997,060
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Income (loss) before income taxes (37,630) 269,330
Income tax provision 14,580 30,100
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Net income (loss) $ (52,210) $ 239,230
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Net income (loss) per common share $ (0.01) $ 0.04
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Weighted average common shares outstanding 5,449,309 5,326,200
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4
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CTI Group (Holdings) Inc.
Statement of Operations
(Unaudited)
Three Months Ended
December 31,
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1996 1995
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Net sales $ 745,820 $ 1,130,010
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Costs and expenses:
Cost of sales (exclusive of depreciation 348,410 490,050
and amortization)
Selling, general and administrative expenses 398,300 487,990
Depreciation and amortization 51,530 61,440
Interest income, net of interest expense of
$860 and $920 in 1996 and 1995,
respectively (660) (3,710)
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797,580 1,035,770
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Income (loss) before income taxes (51,760) 94,240
Income tax provision 970 10,900
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Net income (loss) $ (52,730) $ 83,340
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Net income (loss) per common share $ (0.01) $ 0.02
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Weighted average common shares outstanding 5,517,747 5,381,756
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5
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CTI Group (Holdings) Inc.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
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1996 1995
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<S> <C> <C>
Cash Provided By (Used In):
Operating activities:
Net Income $ (52,210) $ 239,230
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Adjustments to reconcile net income to cash
provided by (used in) operations:
Depreciation and amortization 154,460 184,990
Provision for doubtful accounts (10,000) (18,000)
Issuance of stock options 50,230 --
Issuance of stock 77,010 28,250
Changes in Operating Working Capital:
Decrease (increase) in receivables, trade 236,070 (254,600)
Decrease (increase) in inventories (15,280) 19,670
Decrease (increase) in prepaid expenses (37,370) 1,750
(Decrease) increase in accounts payable (188,550) 175,490
(Decrease) increase in accrued commissions and
other compensation (38,510) 5,160
Decrease in other accrued expenses (3,050) (191,040)
(Decrease) increase in deferred revenue 9,570 (69,820)
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Total adjustments 234,580 (118,150)
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Total operating activities 182,370 121,080
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Investing Activities:
Decrease (increase) in other assets (10,470) 16,900
Additions to equipment and leasehold improvements (26,090) (78,290)
Additions to computer software (351,990) (290,090)
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Total investing activities (388,550) (351,480)
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Financing Activities:
Repayment of debt (25,750) (17,350)
Proceeds from bank borrowings -- 50,000
Stock issuance via exercise of stock option 10,000 --
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Total financing activities (15,750) 32,650
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Effect of exchange rate changes on cash (430) (4,490)
Decrease in cash and cash equivalents (221,930) (197,750)
Cash and cash equivalents, at beginning of period 288,870 570,310
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Cash and cash equivalents, at end of period $ 66,510 $ 368,070
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Supplemental disclosures:
Cash paid during the year for:
Interest 2,850 1,720
Taxes 760 34,470
</TABLE>
6
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CTI Group (Holdings) Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - The consolidated balance sheet as of December 31, 1996,
the statement of operations for the three and nine months ended
December 31, 1996 and 1995, and the statement of cash flows for the
nine months ended December 31, 1996 and 1995 have been prepared by
the Company without audit. In the opinion of management all
adjustments necessary to present fairly the financial position,
results of operations, and statement of cash flows at December 31,
1996 have been made. The results of operations for interim periods
are not necessarily indicative of the results for the full year.
NOTE 2 - Inventories are stated at the lower of cost or market
determined principally by the first-in, first-out (FIFO) method.
Substantially all inventory consists of equipment purchased for
resale and repair parts.
NOTE 3 - Income (loss) per common share is computed on the basis of
the weighted average number of common shares outstanding during
the period. Per share computations do not assume the exercise of
stock options outstanding because such exercises would not be
dilutive.
NOTE 4 - Certain reclassifications have been made to the
comparative December 31, 1995 data to conform to the current years
presentations.
NOTE 5 - The Company issued 105,000 stock options to its employees
during the six months ended September 30, 1996. The option price
ranges from $.60 to $.61. Accordingly the Company recorded
compensation expense of $50,230. The options are exercisable upon
date of grant and are for the term of 10 years from the date of
grant.
NOTE 6 - During the quarter ended December 31, 1996 the Company
issued 139,708 shares of common stock of the Company to certain
employees. The stock vests over the period ending March 31, 1997,
provided the employees remain in the continued employment of the
Company. Accordingly the Company recorded compensation expense of
$69,850 based upon the average of the bid and ask price of the
Company's stock on December 31, 1996
7
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NOTE 7 - During the quarter ended December 31, 1996 the Company issued 23,850
shares of common stock of the Company, in lieu of cash, as a
finders fee for the acquisition of Soft-Com, Inc. The Company signed
the Acquisition Agreement in December 1996 and finalized the
transaction on January 2, 1997. Accordingly, the Company recorded
expense in the amount of $7,160.
NOTE 8 - In December 1996 the Company signed an acquisition agreement to
purchase all the outstanding stock of Soft-Com, Inc. The Company
purchased Soft-Com, Inc. for a straight equity consideration
equivalent to approximately 12.5% of the combined companies
outstanding stock. The transaction was finalized on January 2, 1997
upon filing the appropriate papers with the State of Delaware.
8
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This report contains "forward-looking" statements within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "PSLRA"). The Company
is including this statement for the express purpose of availing itself of the
protections of the PSLRA safe harbor with respect to forward-looking
statements. Examples of forward-looking statements include, but are not
limited to (a) projections of revenues, income or loss, earnings or loss per
share, capital expenditures, growth prospects, dividends, capital structure
and other financial items, (b) statements of plans and objectives of the
Company or its management or Board of Directors, including the introduction
of new products, or estimates or predictions of actions by customers,
suppliers, competitors or regulating authorities, (c) statements of future
economic performance and (d) statements of assumptions underlying other
statements and statements about the Company or its business.
The Company's ability to predict projected results or to predict the effect
of any other pending events on the Company's operating results is inherently
uncertain. Therefore, the Company wishes to caution each reader of this
report to consider carefully specific factors, including competition for
products and customers; the risks of doing business abroad; the uncertainty
of developing or obtaining rights to new products that will be accepted by
the market; the limited market life of the Company's products; the effects of
government regulations and other factors discussed herein, because such
factors in some cases have affected, and in the future (together with other
factors) could affect, the ability of the Company to achieve its projected
results and may cause actual results to differ materially from those
expressed herein.
ITEM 2
Management's Discussion and Analysis
or Plan of Operation
Results of Operations
Net sales for the nine months ended December 31, 1996 decreased
$736,740 (23%) from the same period in the prior year. Included in this
reduction was a decline in the Company's sales associated with its
telemanagement service bureau products which decreased
$289,790 (20%) from the same period in the prior year. The reduction
was primarily the result of a major customer cancellation in
September 1995. This customer had sales of $230,050 (16%) of the
telemanagement service bureau sales for the nine months ended
December 31, 1995.
9
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Sales associated with the Company's billing products decreased
$413,970 (30%) from the same period in the prior year. Equipment
sales, associated with billing service customers, decreased by
approximately $573,000 which amount was partially offset by an
increase in the Company's recurring billing service sales of
approximately $163,000. In August 1996 the Company announced the
termination of one of its major billing service customers effective
September 1996. This customer had billing service sales of $575,880
(58%) for the nine months ended December 31, 1996 as compared to
$949,730 (68%) for the same period in the prior year.
Sales associated with the Company's telemanagement licensed
software products decreased $32,980 (8%) from the same period in
the prior year. This reduction was the result of the Company's inability
to effectively compete in the telemanagement licensed software
market segment due to its antiquated product offering through the
third fiscal quarter. The Company's telemanagement licensed
software product offering was a legacy based DOS application.
Potential customers, in this market segment, are demanding a
Windows based product. On January 2, 1997 the Company acquired
Soft-Com, Inc., a privately-held New York based telemanagement
company. Soft-Com offers state-of-the-art Windows based
telemanagement software products.
Cost of sales decreased $325,520 (23%) for the nine months ended
December 31, 1996 as compared to the prior year period. Cost of
sales was 44% of sales for the nine months ended December 31,
1996 and 1995. Equipment costs decreased by approximately
$296,000 as a result of the reduction in equipment sales. Production
costs decreased by approximately $88,000 as a result of the loss in
service bureau revenues. These reductions were offset by increases
in expensse related non-cash compensation, totaling approximately
$58,000, given to certain employees of the Company in the form of
Stock Options and Stock Grants.
Selling, general and administrative expenses (S, G & A) decreased $79,620
(6%) for the nine months ended December 31, 1996. S, G & A was 52% of sales
for the nine months ended December 31, 1996 as compared to 42% of sales for
the prior year period. The percentage increase in S, G, & A expenses in 1996
as compared to 1995 is the direct result of the lower sales volumes during
the comparable periods. The Company's cost structure for its S, G & A
expenses is relatively fixed in nature. Therefore any change in the level of
sales results in a corresponding fluctuation in S, G & A expenses is a
percentage of sales. Commission expense decreased by approximately $83,000 as
a result of a lower level of sales. Other S, G & A expenses decreased by
approximately $66,000. These reductions were offset by non-cash compensation,
totaling
10
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approximately $62,000, given to certain employees of the Company in the form
of Stock Options and Stock Grants. Additionally, the Company recorded a
non-cash expense of approximately $7,000 resulting from an issuance of stock,
as payment of a finders fee, in connection with the acquisition of Soft-Com,
Inc.
Depreciation and amortization expense decreased $30,530 (17%) from the same
period in the prior year. The reduction is primarily the result of the
Company's ITMS III Telemanagement Software product being fully amortized as
of March 31, 1996. However, during the quarter ended September 30, 1996, the
Company began amortizing the development costs associated with its Neptune
billing product.
The Company commenced marketing its Neptune billing software during the
nine months ended December 31, 1996 and has received several orders for the
product during this period. The Company has installed and has begun
generating revenue from some of the smaller customers during the quarter
ended December 31, 1996. The remainder of the orders from small customers
will be installed in the normal course of business. The Company has also
received orders from larger customers. The installation of these orders will
take place once final stress testing of the product is complete. The Company
anticipates completing the stress testing during the fourth fiscal quarter
and thereby to begin generating revenue from these larger customers from the
beginning of the Company's next fiscal year.
Upon consumation of the acquisition, on January 2, 1997, of Soft-Com, Inc.,
the Company began marketing the Soft-Com Windows based telemanagement
licensed software product, Unity. The Company has received new customer
orders for this product which should begin generating sales in the fourth
quarter. Additionally, the Company will start marketing this product to its
existing customer base. By marketing to its existing customer base, the
Company expects to improve customer retention while generating additional
sales.
During the quarter ended September 30, 1996 the Company announced the loss
of a major customer which had accounted for 23% of sales for the nine months
ended December 31, 1996. As a result, the Company instituted a financial
model to assist in maintaining a neutral cash position pending an anticipated
revenue recovery. The financial model, a six-month plan, included a reduction
in payroll of approximately 27% while maintaining the full capacity of the
Company's workforce affiliated with the Neptune product. Although there can
be no assurance, based upon the present orders the Company has received in
conjunction with the past level of market interest in the Neptune product,
management believes the financial model will be successful.
11
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Liquidity and Capital Resources
Working capital at December 31, 1996 was $23,450, a decrease of $154,520
from the March 31, 1996 working capital of $177,970. The working capital
ratio was 1.03 to 1 as of December 31, 1996 and 1.19 to 1 as of March 31,
1996. Working capital decreased as the result of the Company's continued
investment in its proprietary software billing products and equipment needs.
The Company's bank has extended the maturity of the Company's $200,000
revolving line of credit to July 31, 1997. The bank has also provided the
Company with a $50,000 line of credit for equipment purchases. As a result of
the availability of these funds, the new sales being generated and the
Company's current operating position, management believes its working capital
is adequate to fund its operations for the foreseeable future.
12
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Part II - Other Information
ITEM 1 - Legal Proceedings
In September 1990 the Company, through the loss adjusting service of its
former general liability insurance carrier, was advised of five Summons and
Complaints filed in the Superior Court of Bergen County, New Jersey. The suit
was filed on behalf of the Estates of five deceased plaintiffs who alleged
that the failure of communications equipment used by the Hackensack Fire
Department, and allegedly maintained by a subsidiary of the Company, impaired
rescue operations while fighting a fire in Hackensack, New Jersey. Currently,
plaintiffs' allegations have not supported the claim that the Company's
subsidiary, who is the named insured under the above insurance policy, was
involved in the maintenance of the communication equipment in question.
In December 1996, two of the cases were settled. The Company's share of the
settlements totaled $13,500. The Company's former general liability insurance
carrier will bear the cost of these settlements. Further settlement
discussions are to be held with the remaining claimants.
As a result of both of these settlements, and after consulting with the
Company's counsel and liability insurance carrier, it is the opinion of
management that the final outcome of the above matter will not have a
material effect, if any, on the financial statements of the Company.
ITEM 2 - Changes in Securities
None
ITEM 3 - Defaults Upon Senior Securities
Not Applicable
ITEM 4 - Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on October 15, 1996 at which
time the following matters were voted on by the Shareholders: (1) the
Shareholders elected Messrs. Anthony P. Johns, Francis O. Hunnewell, Rupert
D. Armitage and Mark H. Daugherty to serve as Directors of the Company until
the next Annual Meeting of Shareholders and until their successors would be
elected and would qualify; and (2) the Shareholders ratified the selection of
Zelenkofske, Axelrod & Co., Ltd., as the Company's independent certified
public accountants.
13
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ITEM 5 - Other Information
None
ITEM 6 - Exhibits and Reports on Form 8 - K
(a) Exhibits - None
(b) Form 8 - K
The Company filed a Form 8 - K with the Securities and Exchange Commission
on August 20, 1996 in connection with the contract termination of a major
customer.
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Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
2/13/97 /s/ Anthony P. Johns
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Date Anthony P. Johns
President & Chief Executive Officer
2/13/97 /s/ Mark H. Daugherty
- ---------- ----------------------------------
Date Mark H. Daugherty
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 66,510
<SECURITIES> 0
<RECEIVABLES> 626,340
<ALLOWANCES> 50,000
<INVENTORY> 34,730
<CURRENT-ASSETS> 741,540
<PP&E> 644,780
<DEPRECIATION> 421,980
<TOTAL-ASSETS> 1,945,570
<CURRENT-LIABILITIES> 718,090
<BONDS> 0
0
0
<COMMON> 5,735,564
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,945,570
<SALES> 2,529,650
<TOTAL-REVENUES> 2,529,650
<CGS> 1,110,380
<TOTAL-COSTS> 2,567,280
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,850
<INCOME-PRETAX> (37,630)
<INCOME-TAX> 14,580
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,210
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
