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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1999
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO _____ .
Commission file number 0-10560.
CTI GROUP (HOLDINGS) INC.
(Exact name of Small Business Issuer in its charter)
DELAWARE 51-0308583
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(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification Number)
2550 Eisenhower Avenue, Norristown, PA 19403
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (610) 666-1700
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 __ .
The number of shares of common stock par value $.01, outstanding as of July 22,
1999 was 7,093,300.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
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ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 412,667 $ 776,146
Trade, accounts receivable less allowance
for doubtful accounts of $284,617
and $264,156 at June 30, 1999 and
March 31, 1999, respectively 945,063 626,631
Inventories 27,475 22,458
Prepaid expenses 130,460 93,514
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Total current assets 1,515,665 1,518,749
Furniture, fixtures, equipment and leasehold
improvements at cost, less accumulated
depreciation and amortization of $325,574
and $305,250 at June 30, 1999 and
March 31, 1999, respectively 171,412 168,327
Computer software, net of accumulated
amortization of $2,404,884 and $2,283,518
at June 30, 1999 and March 31, 1999,
respectively 723,315 840,682
Excess of cost over net assets of acquired
business, net of accumulated amortization of
$12,228 and $11,112 at June 30, 1999 and
March 31, 1999, respectively 32,340 33,453
Other assets 21,862 21,862
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$2,464,594 $2,583,073
========== ==========
</TABLE>
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CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
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LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 182,725 $ 218,424
Accounts payable 414,793 492,842
Other accrued expenses 1,213,661 1,177,893
Deferred revenue 801,949 999,518
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Total current liabilities 2,613,128 2,888,677
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Commitments and contingencies
Stockholders'
equity:
Common stock, par value $.01; 10,000,000 shares
authorized; 7,093,300 issued at June 30, 1999
and 7,041,349 shares issued at March 31, 1999 70,933 70,417
Capital in excess of par value 8,065,867 8,062,507
Accumulated deficit (7,950,227) (8,085,684)
Other comprehensive income - Foreign
currency translation 71,293 53,556
Less - Treasury stock, 140,250 shares at
June 30, 1999 and March 31, 1999, at cost (406,400) (406,400)
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Total stockholders' equity (148,534) (305,604)
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$2,464,594 $2,583,073
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</TABLE>
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CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
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1999 1998
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<S> <C> <C>
Net sales $2,003,117 $1,626,510
Costs and expenses:
Cost of sales (exclusive of depreciation and
amortization) 942,895 884,260
Selling, general and administrative expenses 780,235 823,470
Depreciation and amortization 142,806 228,220
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1,865,936 $1,935,950
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Income (loss) from operations 137,181 (309,440)
Other expenses (income)
Interest expense net of interest income 1,724 31,440
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Net income (loss) $ 135,457 $ (340,880)
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Other Comprehensive Income (loss)
Foreign currency translation adjustment 17,737 (36,921)
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Comprehensive income (loss) $ 153,194 $ (377,801)
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Basic and Diluted Net income (loss) per common share $ 0.02 $ (0.05)
========== ==========
Basic weighted average common shares outstanding 6,944,135 6,526,000
========== ==========
Diluted weighted average common shares outstanding 7,105,258 6,526,000
========== ==========
</TABLE>
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CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------------
1999 1998
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<S> <C> <C>
Cash Provided By (Used In):
Operating activities:
Net Income $ 135,457 $ (340,880)
Adjustments to reconcile net income to cash
provided by (used in) operations:
Depreciation and amortization 142,806 228,220
Provision for doubtful accounts 20,461 (36,639)
Issuance of stock options 3,876 --
Changes in Operating Working Capital:
Decrease (increase) in receivables, trade (348,363) 122,204
Increase in inventories (5,071) (47)
Decrease (increase) in prepaid expenses (38,869) 19,590
Decrease in accounts payable (78,841) (218,226)
(Decrease) increase in other accrued expenses 53,777 61,925
Decrease in deferred revenue (175,755) 62,236
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Total adjustments (425,979) 239,263
Cash utilized in operating activities (290,522) (101,617)
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Investing Activities:
Additions to equipment and leasehold improvements (23,357) (28,972)
Additions to computer software (4,000) (130,212)
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Cash utilized in investing activities (27,357) (159,184)
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Financing Activities:
(Repayment of) addition to debt (35,704) 5,339
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Cash provided by (utilizing in) financing activities (35,704) 5,339
Decrease in cash and cash equivalents (353,583) (255,462)
Effect of exchange rates on cash (9,896) (24,559)
Cash and cash equivalents, at beginning of period 776,146 628,329
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Cash and cash equivalents, at end of period $ 412,667 $ 348,308
========= =========
Supplemental disclosures:
Cash paid during the year for interest $ 4,414 $ 4,620
</TABLE>
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CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: Business and Basis of Presentation
CTI Group (Holdings) Inc. and Subsidiaries (the "Company") designs, develops,
markets and supports data processing software and services for managing
telecommunications systems.
The accompanying consolidated financial statements have been prepared by CTI
Group (Holdings) Inc. without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"), and reflect all adjustments
which, in the opinion of management, are necessary for a fair statement of the
results for the interim periods presented. All such adjustments are of a normal
recurring nature. Certain previously reported amounts have been reclassified to
conform with the current period presentation.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted pursuant to the rules and regulations of the SEC,
although the Company believes the disclosures are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31,
1999.
Certain reclassifications have been made to the comparative June 30, 1998 data
to conform to the current year's presentations.
NOTE 2: Basic and Diluted Income (Loss) Per Common Share
Net income (or loss) per common share is computed in accordance with the
provision of SFAS No. 128, "Earnings Per Share". Basic earnings per share is
computed by dividing reported earnings available to common stockholders by the
weighted average shares outstanding for the period. Diluted earnings per share
is computed by dividing reported earnings available to common stockholders by
weighted average shares outstanding for the period giving effect to securities
considered to be dilutive potential common shares such as stock options. The
effect of all dilutive potential common shares was to increase dilutive weighted
average shares by only 161,123 shares for the quarter ended June 30, 1999
resulting in dilutive weighted average shares of 7,105,258. Basic and diluted
earnings per share were $0.02 per share for the quarter ended June 30, 1999.
Because the Company incurred losses for the quarter ended June 30, 1998, the
effect of all dilutive potential common shares was antidilutive. Consequently,
the Company's basic and diluted earnings per share were the same for the quarter
ended June 30, 1998.
NOTE 3: Income Taxes
The Company utilized the benefit of available net operating loss carry-forwards
with an equivalent tax benefit to offset any tax liability as a result of income
which arose in three months period ended June 30, 1999.
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ITEM 2
Management's Discussion and Analysis or Plan of Operation
Results of Operations
Revenues from operations increased $376,607 to $2,003,117 for the three months
ended June 30, 1999, as compared to the prior year period. This increase in
revenues is due primarily to a $418,060 increase in revenues from CTI Data
Solutions Ltd., a UK based wholly-owned subsidiary, offset by a $41,453 decrease
in revenues from CTI Data Solutions Inc., a US based wholly-owned subsidiary.
Revenues increased from CTI Data Solutions Ltd. primarily as a result of
increased sales of its new C6Win product line. Revenues generated from CTI Data
Solutions Inc. slightly decreased compared to the prior year as a result of
anticipated continued migration of revenues derived from service bureau
activities in excess of increases in newer technology based telemanagement and
billing products. The Company anticipates that it will be able to replace and
exceed continued declines in service bureau activities by its newer technology
based telemanagement and billing product software.
Cost of Sales were 47% of revenues for three months ended June 30, 1999 as
compared to 54% in the prior year period. Costs of sales decreased as a
percentage of revenues for the three months ended June 30, 1999 as compared to
the prior year period due primarily to increased operational efficiencies and
improved sales efforts.
Selling, general and administrative ("SG&A") expenses were 39% for three months
ended June 30, 1999 and 51% for the same period in 1998. The decrease was
primarily the result of cost containment measures initiated during 1999. These
cost containment measures included the reduction in non-essential staff. The
Company realized a 5% decrease in SG&A expenses in 1999 compared to 1998 despite
an increase in revenues of 23%.
The depreciation and amortization expenses decreased by $85,414, a decrease of
37% over the same period last year related to the elimination of computer
software costs and fixed assets resulting from the purchase price adjustment on
March 31, 1999 related to the original purchase of Databit from Siemens.
Liquidity and Capital Resources
Cash and cash equivalents amounted to $412,667 as of June 30, 1999 compared to
$776,146 as of March 31, 1999. The decrease in cash is primarily the result of
cash utilized in operations of approximately $318,000 related to increased
operational activity, cash utilized in investing activities related to the
acquisition of fixed assets of approximately $27,000 and cash utilized in
financing activity related to the pay down of debt of approximately $36,000.
The consolidated financial statements of the Company have been prepared on a
going concern basis, which contemplates the continuation of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company has a deficiency in working capital of $1,097,463 at June
30, 1999 compared to a deficit of $1,369,928 at March 31, 1999 and has incurred
net income of $135,457 for the fiscal year ended March 31, 1999 compared to a
net loss of $340,880 for the previous period. In addition, the Company's line of
credit was fully utilized as of June 30, 1999 and expires in September 1999.
The Company anticipates it will refinance its line of credit which matures in
September 1999; furthermore, the Company believes, if it does not refinance the
line, that it will have adequate funds to repay outstanding amounts at maturity.
However, no assurance can be given that the Company will be successful in its
efforts to refinance its line of credit or have adequate funds to repay the
outstanding amount at maturity.
7
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These factors indicate that there is substantial doubt about the Company's
ability to continue as a going concern. The accompanying financial statements do
not include any adjustments that might be necessary should the Company be unable
to continue as a going concern. The Company plans to focus on improving revenue
levels through increased marketing efforts and the identification of new
distribution arrangements. Future actions could include further cost containment
measures, consolidation of the product line, potential for additional private
placement financing, and the pursuit of joint venture partnerships/source code
transactions. The Company's ability to operate beyond the immediate future is
dependent upon its ability to achieve levels of revenues to support the
Company's cost structure, maintain adequate financing and generate sufficient
cash flows from operations to meet its operating needs. However, no assurance
can be given that the Company will be successful in its efforts to implement its
plans and achieve a level of profitability.
Year 2000 Compliance Issues
All of the Company's software products and services are Year 2000 compliant with
the exception of certain older telemanagement software products that are no
longer being supported. Customers still utilizing these older telemanagement
software products have been notified that those products are no longer being
supported and that Year 2000 compliant software is available. Licensing Fees on
the non-compliant Year 2000 software which is being phased out were
insignificant for the quarter ended June 30, 1999. Management believes that the
elimination of the non-compliant Year 2000 revenue stream will be replaced by
the customers switching to the Year 2000 compliant replacement software
products. For a minority of customers, this will not be possible and the net
cost to the Company of conversion of such customers is not anticipated to be
material. The Company is converting the service bureau customers of CTI Data
Solutions Inc. to a Year 2000 compliant system. The cost of this is estimated to
be no more than $25,000 in total. There will also be additional costs to convert
some of the Company's internal computer systems to become Year 2000 compliant.
The computer systems affected are administrative in nature and will not of
themselves disrupt the operations of the Company, in the event of failure. The
cost of converting the internal computer systems is estimated to be $15,000 and
a plan is in place to replace the relevant systems by the end of July 1999.
The Company does not have a formal contingency plan if the conversions
and corrections made to correct and prepare for the Year 2000 compliance issue
are not successful. The Company costs incurred and expected to be incurred
related to ensuring the Company's products and systems are Year 2000 compliant
are estimated to be approximately $50,000. The Company is in the process of
contacting significant vendors with respect to their Year 2000 compliance
issues. To date the Company is not aware of material non-compliance with its
vendors.
The Company believes that before December 31, 1999 its internal
computer systems will be Year 2000 compliant; however, the Company cannot
guarantee that its internal computer systems or the systems of other companies
will be timely converted or that a failure to convert by another company, or a
conversion that is incompatible with our systems, would not have material
adverse effect on its operations.
The Company believes that the most reasonably likely worst case
scenario with respect to the Year 2000 compliance issue is the failure of a
supplier to become Year 2000 compliant, which could result in the temporary
interruption of the supply of services, namely electricity and telecommunication
providers which could result in potential lost sales and profits. The Company
believes that non-IT systems utilized to operate the Company's facilities,
equipment and other activities that are not related to IT systems will function
without substantial Year 2000 compliance problems.
8
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PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings:
None
ITEM 2 - Changes in Securities:
None
ITEM 3 - Details 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 three months ended June 30, 1999.
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 SEC of June 28, 1999 in
connection with the engagement of Deloitte & Touche LLP as new
independent auditors.
The company filed a Form 8-K/A with the SEC of July 14, 1999 in
connection with the engagement of Deloitte & Touche LLP as new
independent auditors.
9
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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.
- ---------------------------------- -------------------------
Anthony P. Johns Date
Chairman & Chief Executive Officer
