<PAGE>
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, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934
For the transition period from to
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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 No X
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The number of shares of common stock, par value $.01, outstanding as of February
10, 1998 was: 6,555,314
<PAGE>
CTI Group (Holdings) Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
ASSETS ------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 36,370 $ 105,700
Receivables:
Trade, less allowance for doubtful
accounts of $65,000 at December 31,
1997 and March 31, 1997 635,830 649,250
Inventories 20,140 42,360
Prepaid expenses 97,480 76,430
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Total current assets 789,820 873,740
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Furniture, fixtures, equipment and
leasehold improvements at cost, less
accumulated depreciation and amortization
of $477,330 at December 31, 1997 and
$431,830 at March 31, 1997 176,580 210,530
Computer software, net of accumulated
amortization of $1,425,870 at December 31,
1997 and $1,328,930 at March 31, 1997 1,530,300 1,579,330
Excess of cost over net assets of acquired
business, net of accumulated amortization
of $5,380 at December 31, 1997 and $2,200
at March 31, 1997 39,180 42,360
Other assets 49,810 49,810
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$ 2,585,690 $ 2,755,770
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</TABLE>
<PAGE>
CTI Group (Holdings) Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
LIABILITIES and STOCKHOLDERS' EQUITY ------------ ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $205,310 $ 57,360
Accounts payable 472,070 519,750
Accrued commissions and other compensation 98,810 24,990
Other accrued expenses 445,090 283,510
Deferred revenue 304,700 365,880
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Total current liabilities 1,525,980 1,251,490
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Long-term debt, less current portion 22,360 25,280
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Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01; 10,000,000
shares authorized; 6,695,564 shares
issued at December 31, 1997 and
6,530,564 at March 31, 1997 66,960 65,310
Capital in excess of par value 7,822,190 7,769,180
Accumulated deficit (6,439,330) (5,943,020)
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1,449,820 1,891,470
Equity adjustment from foreign currency
translation (6,070) (6,070)
Less - Treasury stock, 140,250 shares at
December 31, 1997 and March 31, 1997
at cost (406,400) (406,400)
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Total stockholders' equity 1,037,350 1,479,000
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$ 2,585,690 $ 2,755,770
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</TABLE>
<PAGE>
CTI Group (Holdings) Inc.
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
----------------------------
1997 1996
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<S> <C> <C>
Net sales $ 2,185,870 $ 2,529,650
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Costs and expenses:
Cost of sales (exclusive of depreciation
and amortization) 1,148,780 1,110,380
Selling, general and administrative expenses 1,301,850 1,306,210
Depreciation and amortization 148,650 154,460
Interest expense 18,300 2,850
Interest income (1,980) (6,620)
Other expense 84,500 --
Other income (17,920) --
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2,682,180 2,567,280
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Loss before income taxes (496,310) (37,630)
Income tax provision -- 14,580
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Net loss $ (496,310) $ (52,210)
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Net loss per common share $ (0.08) $ (0.01)
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Weighted average common shares outstanding 6,398,647 5,449,309
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</TABLE>
<PAGE>
CTI Group (Holdings) Inc.
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
---------------------------
1997 1996
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<S> <C> <C>
Net sales $ 601,240 $ 745,820
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Costs and expenses:
Cost of sales (exclusive of depreciation
and amortization) 338,200 348,410
Selling, general and administrative expenses 374,270 398,300
Depreciation and amortization 46,950 51,530
Interest expense 5,160 860
Interest income (470) (1,520)
Other expense 84,500 --
Other income (17,920) --
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830,690 797,580
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Loss before income taxes (229,450) (51,760)
Income tax provision -- 970
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Net loss $ (229,450) $ (52,730)
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Net loss per common share $ (0.04) $ (0.01)
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Weighted average common shares outstanding 6,406,981 5,517,747
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</TABLE>
<PAGE>
CTI Group(Holdings) Inc.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
------------------------
1997 1996
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<S> <C> <C>
Cash Provided By (Used In):
Operating activities:
Net Loss $ (496,310) $ (52,210)
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Adjustments to reconcile net loss to cash
provided by (used in) operations:
Depreciation and amortization 148,650 154,460
Provision for doubtful accounts -- (10,000)
Issuance of stock 54,650 50,230
Issuance of stock option -- 77,010
Changes in Operating Working Capital:
Decrease in receivables, trade 13,420 236,070
Decrease (increase) in inventories 22,220 (15,280)
Increase in prepaid expenses (21,050) (37,370)
Decrease in accounts payable (47,680) (188,550)
(Decrease) increase in accrued commissions
and other compensation 73,820 (38,510)
(Decrease) increase in other accrued
expenses 161,580 (3,050)
(Decrease) increase in deferred revenue (61,180) 9,570
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Total adjustments 344,430 234,580
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Total operating activities (151,880) 182,370
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Investing Activities:
Increase in other assets -- (10,470)
Additions to equipment and leasehold
improvements (11,530) (26,090)
Additions to computer software (50,950) (351,990)
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Total investing activities (62,480) (388,550)
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Financing Activities:
Repayment of debt (29,970) (25,750)
Proceeds from borrowings 175,000 --
Stock issuance via exercise of stock option -- 10,000
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Total financing activities 145,030 (15,750)
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(Decrease) increase in cash and cash equivalents (69,330) (221,930)
Effect of exchange rates on cash -- (430)
Cash and cash equivalents, at beginning of period 105,700 288,870
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Cash and cash equivalents, at end of period $ 36,370 $ 66,510
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Supplemental disclosures:
Cash paid during the year for:
Interest 12,700 2,850
Taxes -- 760
</TABLE>
<PAGE>
CTI Group (Holdings) Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - The consolidated balance sheet as of December 31, 1997,
the statement of operations for the nine and three months
ended December 31, 1997 and 1996, and the statement of
cash flows for the nine months ended December 31, 1997
and 1996 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,
1997 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 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, 1996 data to conform to the
current years presentations.
NOTE 5 - On August 11, 1997, John Perri ("Perri"), the former
President of the Company's CTI Soft-Com Inc. subsidiary
and Soft-Com Inc., filed suit in the United States
District Court for the Eastern District of Pennsylvania
against the Company, CTI Data Solutions (USA), Inc.,
Anthony P. Johns and Mark Daugherty in connection with
the Company's termination of Mr. Perri's employment on
July 28, 1997 and the Company's acquisition of Soft-Com
Inc. in January 1997. On November 11, 1997, the parties
to this litigation entered into a settlement agreement,
pursuant to which, among things; (i) no party admitted
liability to another party; (ii) the Company agreed to
pay an aggregate of $100,000 payable in monthly
installments of $5,000 and issue options to purchase
100,000 shares of common stock of the Company to Perri to
resolve the litigation and buy out the remainder of
Perri's employment contract . The options issued as part
of this settlement were in substitution for the options
granted under his employment agreement: (iii) Perri filed
a stipulation terminating the litigation with prejudice;
and, (iv) the parties released each other from any
further liability.
NOTE 6 - On February 2, 1998, the Company acquired the assets and
substantially all the liabilities of Siemens' Databit
business division. Databit is engaged in the business of
the design, development, marketing, distribution,
licensing, maintenance and support of services. The
purchase price was paid by CTI Data Solutions
(International) Ltd., a wholly owned subsidiary of the
Company, in the form of a $2,000,000. Secured Promissory
Note. The Note calls for payment of annual interest of
ten percent (10%) quarterly in arrears until February 2,
2001 (the Maturity Date). The Company executed a Guaranty
(the "Guaranty") in favor of Siemens to guarantee CTI
International's performance under the Note. Siemens was
also granted a security interest in the assets of Databit
purchased by CTI International, pursuant to a Debenture
(the "Debenture") executed by CTI International in favor
of Siemens, and all of the assets of the Company,
including the Company's ownership interest in each of the
Company's wholly-owned subsidiaries, pursuant to a
Security Agreement (the "Security Agreement") and a
Collateral Pledge Agreement (the "Pledge Agreement")
executed by the Company in favor of Siemens.
<PAGE>
ITEM 2
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Management's Discussion and Analysis
or Plan of Operation
Results of Operations
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Net sales for the nine months ended December 31, 1997 decreased $343,780
(14%) 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 of approximately $288,970 (25%) from the same period in the
prior year. Sales associated with the Company's billing products decreased
approximately $474,130 (48%) from the same period in the prior year. This
reduction was the result of a major customer cancellation in September 1996.
Sales associated with the Company's telemanagement licensed software products
increased approximately $419,320 (107%). This increase was due to the
acquisition of Soft-Com Inc. in January 1997.
Cost of sales increased $38,400 (4%) for the nine months ended December 31,
1997 as compared to the prior year period. Cost of sales was 53% of sales for
the nine months ended December 31, 1997 as compared to 44% of sales for the
prior year period. The Company reduced its ongoing cost of sales in the third
quarter of fiscal year ended March 31, 1997 as the result of the loss of a
major customer, however these costs were offset by the costs associated with
the Company's purchase of Soft-Com Inc in January 1997.
Selling, general and administrative expenses (S, G & A) decreased $4,360
for the nine months ended December 31, 1997. S, G & A was 60% of sales for
the nine months ended December 31, 1997 as compared to 52% of sales for the
prior year period. The Company has maintained and will continue to maintain
tight control over its S, G, & A expenses as it continues to market its
products.
Other expense for the nine months ended December 31, 1997 is the result of
the Company having settled the lawsuit filed by John Perri against the
Company, CTI Data Solutions (USA) Inc., Anthony P. Johns and Mark Daugherty.
The lawsuit was in connection with the Company's termination of Mr. Perri's
employment and the Company's acquisition of Soft-Com Inc.
Other income for the nine months ended December 31, 1997 is the result of
North American Venture Capital Fund ("NAVCF") assuming part of the debt which
was acquired in the acquisition of Soft-Com Inc. NAVCF was a significant
stockholder of Soft-Com Inc. prior to the acquisition of Soft-Com Inc. by the
Company.
The Company continues to market its new software products Neptune and
Unity. The Neptune billing software was completed as of the fiscal year ended
March 31, 1997. The Company continues to install the smaller customers since
March 1997 and has installed Neptune at a large customer site. Minimal
revenues started to be generated from this larger customer site in the
second quarter of this fiscal year. The Company expects this larger customer
to begin growing in size and therefore revenues to the Company during the
coming months. Unity sales have been received and installed beginning in the
last quarter of the fiscal year ended March 31, 1997.
<PAGE>
Liquidity and Capital Resources
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Working capital at December 31, 1997 was a deficit of $736,160, an increase
in the deficit of $358,410 from the March 31, 1997 deficit of $377,750. The
working capital ratio was .52 to 1 as of December 31, 1997 and .70 to 1 as of
March 31, 1997. Working capital decreased as the result of the Company's
operating activities utilizing cash. The Company utilized the line of credit
it has with the bank to fund its operations for the six months ending
September 30, 1997. The Company's bank has extended the maturity of the
Company's $200,000 revolving line of credit to March 31, 1998. During the
quarter ended September 30,1997 the Company reduced its cost structure by way
of a reduction in its workforce. On November 11, 1997 the Company settled an
outstanding lawsuit with the former President of its CTI Soft-Com Inc.,
subsidiary. As part of the settlement the Company removed the restriction,
that was part of the acquisition agreement with Soft-Com Inc., which
prevented the closing of its New York office. As a result of this settlement
the Company is in the process of consolidating its New York operations into
its Valley Forge operations to further reduce its cost structure and thus
assist the Company in generating cash from operations.
<PAGE>
Part II - Other Information
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ITEM 1 - Legal Proceedings
- -----------------------------------------
None
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
- -----------------------------------------------------------------
There were no matters submitted for a vote of security holders during
the nine months ended December 31, 1997.
ITEM 5 - Other Information
- -----------------------------------------
None
ITEM 6 - Exhibits and Reports on Form 8 - K
- -----------------------------------------------
(a) Exhibits - None
(b) Form 8 - K
None filed in the three months ended December 31, 1997.
<PAGE>
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.
/s/ Anthony P. Johns
- ------------------------------------- ----------------------
Anthony P. Johns Date
President & Chief Executive Officer
/s/ Mark H. Daugherty
- ------------------------------------- ----------------------
Mark H. Daugherty Date
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 36,370
<SECURITIES> 0
<RECEIVABLES> 700,830
<ALLOWANCES> 65,000
<INVENTORY> 20,140
<CURRENT-ASSETS> 789,820
<PP&E> 653,910
<DEPRECIATION> 477,330
<TOTAL-ASSETS> 2,585,690
<CURRENT-LIABILITIES> 1,525,980
<BONDS> 0
0
0
<COMMON> 66,960
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,585,690
<SALES> 2,185,870
<TOTAL-REVENUES> 2,185,870
<CGS> 1,148,780
<TOTAL-COSTS> 2,682,180
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,300
<INCOME-PRETAX> (496,310)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (496,310)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> 0
</TABLE>
