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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 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
(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification Number)
2550 Eisenhower Avenue, Norristown, PA 19403
(Address of principal executive offices (Zip Code)
Issuer's telephone number, including area code (610) 666-1700
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of each class Name of each exchange on which registered
Common Stock, Par Value $.01 Per Share None
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 __ .
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this Form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment of
this Form 10-KSB. X
The Issuer's revenues for its most recent fiscal year were $7,043,026.
The aggregate market value of voting stock held by non-affiliates of the Issuer
as of June 25, 1999 was $1,691,798.
The number of shares of common stock outstanding as of June 25, 1999 was
7,041,349.
Transitional Small Business Disclosure Format (Check one): Yes _X_ No __.
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PART I
Item 1. Description of Business
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A. Business Development
The Company was incorporated in Pennsylvania in 1968 and reincorporated
in the State of Delaware as of April 1, 1988, pursuant to a merger of the
Company into a wholly owned subsidiary formed as a Delaware corporation. In
November 1995, the Company changed its name to CTI Group (Holdings) Inc.
CTI Group (Holdings) Inc., a Delaware corporation (the "Company" and
"CTI") through its wholly-owned subsidiaries CTI Data Solutions Inc. in the
United States and CTI Data Solutions Ltd. in the United Kingdom designs,
develops, markets and supports data processing software and services for
managing telecommunications systems.
The Company's telemanagement products and services are used by
organizations to optimize the usuage of their telecommunication services and
equipment and to control telephone expenses and uses. The Company's billing and
customer care software products are used by small to mid-range telephone and
wireless network operators to manage customer accounts, generate bills, track
payments and customer service operations.
The Company estimates that the worldwide annual market for
telemanagement products and services and telecommunications billing and customer
care is approximately $2 billion and $9 billion, respectively.
Clients. Telemanagement products are marketed to organizations with
internal telecommunications systems supporting an aggregate of telephone, fax
and modem equipment. The Company's clients include Fortune 500 companies,
mid-size and small-cap companies, hospitals, universities and government
agencies (local, county, state and federal).
Billing products are marketed to providers of telecommunications
services. Generally, clients are switched and switchless resellers of
long-distance, local and international voice and data services, who purchase
services wholesale from IXCs (inter-exchange carriers) for resale to business
and residential end-users. Since passage of the Telecommunications Act of 1996,
CLECs (competitive local exchange carriers), ISPs (Internet service providers),
cellular and PCS (personal communications systems) companies, cable television
operators, utility companies and universities have become future candidates for
the Company's billing products. The Company anticipates it can further expand
its products and services through further internal development of its own
technological capabilities, or by seeking to partner with companies offering
complementary technology or by pursuing possible acquisitions. The Company seeks
to provide full retrieval and processing capabilities for all forms of billable
electronic event records.
Revenue Generation. The Company generates revenue through service
bureau contracts, software licensing agreements and maintenance agreements
supporting licensed software. Maintenance agreements are either on a time and
material basis or full service agreements which are generally for periods of 12
months.
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For software licensing agreements on a direct distribution basis,
payment terms are 50% deposit upon receipt of order and 50% balance upon
installation which is normally completed within 60 days. Occasionally, larger
software orders may require up to six months to complete custom software
development and installation. For software licensing via distributor channels,
payment terms are net 30 days. Service bureau contracts provide monthly
recurring revenue. Generally, contracts of 12 to 36 months carry automatic
12-month renewals until canceled. The Company purchases data collection devices
specifically designed for use with telecommunications switches and other
hardware such as modems as are necessary to perform its business. The Company
rents or resells such equipment to end-users.
Sales Channels. Telemanagement product sales use direct and distributor
sales channels. All sales for billing software and services are Company direct.
Data Collection and Processing. Event records are collected and stored
in real-time by solid-state devices specifically designed for use with
telecommunications switches, or by computer memory. Data is obtained for
processing by polling the storage devices, by reading the data from a magnetic
media prepared by the client or the client's service provider, or by e-mail. The
Company processes event records generated by telecommunications switching
vehicles that, to date, include telephone PBX (private branch exchange) ISP
(Internet Services Providers) and CENTREX (central office exchange) equipment.
The event records, processed by the Company, detail billable activity: e.g.,
call origin and destination, internet domain numbers, date and time stamping,
call duration, etc. The records are processed against pricing algorithms and
other tables to derive data necessary to support a provider's need to invoice
customers or a volume-user's need to track telecommunications activity. Outputs
from the Company's software and services are various summary and detail reports
and statements which are generally provided as hard copy printouts. Outputs are
also available for viewing on computer monitors and are transportable via modem,
magnetic media (e.g. tapes, disks, CD-ROMs) and e-mail.
Billing Products: General. The Company's billing products support
telecommunications providers' and ISP's needs to invoice customers. Software and
services are designed to collect and process data describing accounts
receivable; to generate and deliver invoices; to support a customer service call
center; and, to interface with other operational support systems (OSS). The
billing products are mission-critical to providers insomuch as they affect cash
flow, customer service and capabilities to define, design, package and market
competitive services. Billing products are presently provided on a service
bureau basis exclusively; however, the Company does consider proposals for
restricted object code/source code licensing that the Company assesses to be
non-competitive to its billing business. Service bureau billing solutions
require a "front-end" software to be licensed by the client. The client uses the
software to maintain a customer database and to fulfill needs to maintain
customer profiles; to define services, packaging and pricing plans; to operate a
customer service call center; and to control all parameters for the invoice
processing performed by the Company. Invoices are generated at the Company's
service bureau by processing extracts from the client's customer database
against customers' call/event records. After processing a client's data and
creating invoice image files, the Company outsources most invoice printing and
mailing to mail houses. Invoice data is returned to the client for updating the
customer database.
Windows OS Platform. The Company began delivery of its new NEPTUNE
Billing and Customer Care System for the telecommunications billing market
sector during the year ended March 31, 1997. All contracts are with providers of
telephony/internet services. With continuing product development and/or
integration with third-party complementary-technology systems, NEPTUNE's open
system architecture is capable of developing convergent billing solutions. This
would include cellular, PCS, cable, utilities, and of integrating other
operational support functions such as service provisioning and trouble/repair
tracking into a single, coherent system. NEPTUNE, written in Visual C++, is
designed to operate on Windows-based LAN and PC platforms and, with additional
programming, for coexistence with DOS mainframe computers and competing
client/server systems such as Unix and Novell NetWare, and is fully Y2K
compliant.
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DOS Platform. Approximately 35 reseller sites remain under contract for
the Company's legacy Billing Systems. The legacy systems employ DOS mainframe
processing to generate invoices and require users to license a proprietary
PC-based customer database software. The Company anticipates migrating these
legacy clients to the Company's NEPTUNE platform. Such migration will be
affected by the complexity of each client's billing applications, resources
available to the Company without impacting new business, and a client's urgency
to migrate.
NEPTUNE is currently marketed as a service bureau product. The Company
considers proposals for restricted object code/source code licensing that the
Company assesses to be non-competitive to its billing business. The Company
anticipates at some future time the packaging and marketing of NEPTUNE as a
licensed software product to complement its billing service bureau product.
Should the Company license NEPTUNE as a complete billing software package, the
product would include a pricing module and invoice/statement generation module
in addition to database management/reporting software already licensed to
service bureau clients.
Telemanagement Products: General. Telemanagement products are used by
companies, institutions and government agencies for fiscal or legal purposes to
track telecommunications activity and to control costs associated with operating
telecommunications networks. They perform functions of call recording, call
accounting, cost allocation, client bill-back, analyses of trunk traffic and
calling patterns, toll fraud detection, directory services and integration with
other PBX peripheral products. (See "Collection and Data Processing"). The
Company's United Kingdom subsidiary has introduced a new telemanagement
function, carrier cost comparisons, which seizes upon the competition among
carriers due to deregulating telecommunications markets. This new function
allows a corporate telecom manager to compare performance and cost benefits of
different carriers using the actual call data and unique calling patterns of
their organization. The benefits to the telecom manager are new capabilities to
select carrier services precisely to need and at minimal costs. The availability
of Internet access to employees via corporate networks introduces new areas of
fiscal and legal concern for telecommunications managers such that the Company
anticipates new telemanagement applications for usage tracking and cost
allocation of Internet activity over its clients' networks. With the acquisition
of Soft-Com Inc., now "CTI Soft-Com Inc.," in December 1996, and Databit Ltd.,
now CTI Data Solutions Ltd., in February 1998, the Company's installed customer
base increased substantially to over 13,500 systems total. Moreover, the
acquisitions accelerated the Company's initiatives to build its critical mass,
to strengthen its product portfolio with state-of-the-art Windows OS products,
to expand sales distribution channels and to market products internationally.
TMS Service Bureau. The Company's TMS (Telephone Management System)
Service Bureau processes clients' telecommunications data into management
reports on a monthly basis. The Company's service bureau account managers
oversee processing schedules, collection of data to be processed, quality
control and shipments of deliverables. Account managers work with clients as
necessary to help interpret reports, answer questions about telecommunications
systems and providers, and make recommendations when improvements to clients'
systems are sought. Clients achieve the intended purposes of routine
telemanagement tasks with minimal responsibilities.
Windows OS Software Systems. The Company licenses software products to
clients who prefer and have the personnel resources to operate and maintain a
call accounting or telemanagement system in-house. Such clients have advantages
of near-real-time call record processing, ad hoc system queries and on-demand
management reporting in addition to routine, end-of-month telemanagement
reports. However, clients assume all responsibilities for collecting, storing
and interpreting data. Clients are supported by the Company with routine updates
of time-sensitive tariff files and V&H coordinate files which correlate area and
exchange codes to city, state and country locations. The Company's current
portfolio of Windows OS telemanagement products by its subsidiaries includes
"UNITY" (CTI Soft-Com Inc.) and Cpro and C6win (CTI Data Solutions Ltd.), all of
which are Y2K compliant. All Windows OS products apply state-of-the-art
technology to
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upgrade and expand traditional call accounting and telemanagement market
applications. New Windows platform features for example include: call accounting
report distribution via e-mail; CDR (call detail record) polling via Internet,
Intranets or WANs; TAPI (telephony applications programming interface) dialer
which facilitates point-and-click dialing from database-resident corporate and
local directories; and 911 notification which allows organizations to assign any
number of Windows-based PCs on their corporate LAN with an immediate screen-pop
notification when a 911 call is made (the screen-pop pinpoints the caller's
exact location within the building). The Company provides a service for 24-hour
alarm monitoring of toll-fraud detection equipment. All call accounting clients
are offered the option of toll-fraud protection. Detection equipment is
purchased by the Company and resold or rented to clients. (A majority of clients
elect to assume responsibility for monitoring and responding to alarms in lieu
of the Company's service.)
Installed Customer Base - MS-DOS Software Systems. For the year ended
March 31, 1999, most installations of the Company's telemanagement software base
remained under license agreements for the Company's older call accounting and
telemanagement products designed for PCs and LANs using MS-DOS. In the U.S., DOS
products include: ITMS/III (Interactive Telecommunications Management System,
Version 3), CMS (Call Management System), SCOUT Call Accounting System, and
COMMANDER Telemanagement System. Internationally, DOS products include CLAIREPRO
and CLAIRE 6 Call Management Systems. The Company anticipates substantial
repeat-sales opportunities over the next several years as it seeks to upgrade
this telemanagement software base to its new Windows OS products.
Interactive Service Bureau. The Company has deployed on a limited basis
hybrid systems which combine the most desirable benefits of service bureau
outsourcing and in-house telemanagement. Under Interactive Service Bureau
agreements, clients' routine telemanagement processing and monthly reporting are
performed by the Company's service bureau while an on-site terminal facilitates
add system queries and reporting.
Employees. As of March 31, 1999, the Company employed approximately 75
people on a full-time basis, of whom three persons were executive officers and
the balance were engaged in development, installation and servicing of software,
data processing, customer service, sales and marketing, and general
administrative services.
Patents. The Company has not applied for patent protection with respect
to any of its software programs or other technology that it deems proprietary.
Management believes that available patent protection would not afford the
Company significant protection against competitors' development of infringing
software or other technology. The Company seeks to protect the confidentiality
of its proprietary software and other technology through non-disclosure
agreements with its employees, clients and prospective clients.
Trademarks. A trademark registration was issued for the Company's CTI1
logo during the year ended March 31, 1997. The Company owns no other trademarks
and does not have any trademark applications pending.
Environment. The Company does not anticipate that compliance with
federal, state or local environmental regulations will have any material effect
on its capital expenditures, operating results or competitive position, or that
it will be required to make any material capital expenditures for environmental
protection in the current fiscal year.
Competition: Billing Sector. Aside from highly-capitalized subsidiaries
of major telecommunications companies, led by Cincinnati Bell Information
Systems (CBIS), and large multi-industry information processing companies, such
as Electronic Data Systems (EDS), the third-party billing marketplace is
fragmented with fractional shares distributed among many competitors.
Deregulation of the telecommunications industry and the advent of convergence,
which is the delivery of multiple telecommunications services from a single
provider, casts such new and urgent importance to upgrading mission-critical
billing systems that the sector is attracting substantial attention and
investment. As convergence evolves, major billing companies can be expected to
compete increasingly in fewer, broader
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arenas with a complete portfolio of convergent billing solutions. Deregulation
is also inviting substantial new entrepreneurial enterprise for niche providers,
which consequently can sustain a lucrative market for billing companies with
partial convergence capabilities. There are an increasing number of competitors
with billing experience who are positioning to offer convergent billing
solutions. Other competitors are attempting to enter the market or expand from
niche market positions. While projections for growth in telecommunications
billing are robust, the market can be expected to become increasingly
competitive.
Telemanagement Sector. Telemanagement market opportunities are strong
for Windows-based products since telecommunications software has trailed other
PC software in migrating to true Windows platforms. Many DOS and Unix systems at
corporations, hospitals, universities and government agencies are ripe for
replacement. Furthermore, these systems must be upgraded for year 2000
compliancy, which should move most organizations to replace them with
state-of-the-art Windows technology rather than absorb inescapable programming
costs. Of the competitive Windows-based telemanagement systems on the market
today, the Company believes most to be direct functional translations of older
DOS products and lack many of its product's new features and functionality. The
telemanagement market is highly competitive and competition is expected to
remain strong for the foreseeable future.
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 represented approximately $250,000 in revenues in the
fiscal year 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 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.
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Item 2. Description of Properties
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The Company entered into a new operating lease for its corporate US
headquarters in Norristown, PA in July 1998. The Company leases approximately a
5,000 square foot facility. The term of the lease is for 5 1/2 years which
commenced on July 25, 1998, and will end on December 2003. Annual rent of
$43,200 in equal monthly installments commenced as of August 1, 1998. Annual
rent increases become effective on the anniversary of the initial rent payment
as provided for in the lease. In addition the company leases an additional 1,000
square foot facility for its service bureau operations, also in Norristown, PA.
The lease expires August 2000. Annual rent is approximately $24,000. The
Company's subsidiary, CTI Data Solutions Ltd., leases an approximately 6,000
square foot office space in Purley, Surrey, UK. The Company is currently
negotiating a new lease for this space. At present, the annual rent is
approximately $124,700.
Item 3. Legal Proceedings
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In 1990, a suit was filed on behalf of the Estates of five deceased
plaintiffs who alleged that the failure of communications equipment of a
predecessor entity used by a certain fire department, and allegedly maintained
by a former subsidiary of the Company, impaired rescue operations while fighting
a certain fire. Currently, plaintiffs' allegations have not supported the claim
that the Company's subsidiary, who is the named insured under an insurance
policy, was involved in the maintenance of the communication equipment in
question. During the fiscal year ended March 31, 1997, three of the cases were
settled. The Company's former general liability insurance carrier has borne the
cost of these settlements. Discovery is proceeding on the remaining two cases;
however, further settlement discussions are to be held with the remaining
claimants. As a result 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.
In connection with the settlement of a lawsuit in November 1997 between
the Company and a former employee of one of the Company's subsidiaries, the
Company had entered into a settlement agreement pursuant to which it agreed, (1)
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 (as of
March 31, 1999 $20,000 was the remaining balance due under the settlement
agreement) and (2) to enter into a distributor agreement with the former
employee for the distribution of the Company's Unity software for a two year
period ending November 1999. The distributor agreement provided for a credit on
account for the first $100,000 of Unity software purchases. As of March 31, 1999
the former employee had utilized $39,455 of this credit.
In March 1998 the Company's former financial advisors filed suit
against the Company for breach of contract. This is an action seeking damages
not to be less than $80,000 and the grant of an option to purchase 100,000
shares of the Company's common stock. The complaint seeks to recover a "success
fee" to which it claims entitlement as investment advisor to the Company
pursuant to a contract entered into in August 1997. The contract entitled the
financial advisor to a success fee of 4% of new financing secured and an option
to purchase 100,000 shares of the Company's common stock if the financial
advisor presented a financing prospect acceptable to the Company and such
financing was related to the acquisition of Databit, a subsidiary of Siemens.
This acquisition eventually was consummated by the Company itself on the basis
of seller financing in which the financial advisor played no role. Subsequently,
the seller financing which was in the form of secured promissory note was
forgiven by Siemens in March 1999. The Company paid the financial advisor the
advisory fee called for under the contract and out-of-pocket expenses. The
Company believes the financial advisor is not entitled to the success fee and
intends to vigorously defend the action and strongly contends that no amounts
are due to the financial advisor.
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In November 1998, a former employee, Dennis Cramer, filed suit against
the Company alleging breach of an implied employment contract and other matters
and as a result is claiming approximately $50,000 in damages from the Company.
The Company believes no implied employment contract existed; furthermore, the
Company believes it has meritorious defenses to the claim and intends to
vigorously contest this action.
In addition to the litigation noted above, the Company is from time to
time subject to routine litigation incidental to its business. The Company
believes that the result of the above noted litigation and other pending legal
proceedings will not have a materially adverse effect on the Company's financial
condition.
Item 4. Submission of Matters to a Vote of Security Holders
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None
PART II
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Item 5. Market for Common Equity and Related Stockholder Matters
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A. The shares of the Company's Common Stock are traded on the OTC
Bulletin Board (Symbol "CTIG"). The table below sets forth for the indicated
periods the bid price ranges for the common stock as reported by the OTC
Bulletin Board. These prices representing prices between dealers, do not include
retail markups, markdowns or commissions and do not necessarily represent actual
transactions.
Quarterly Common Stock Price Ranges
-----------------------------------
(for the fiscal year ended March 31,)
1999 1998
---- ----
High Low High Low
1st Quarter $ .31 $.22 $ .44 $.19
2nd Quarter $ .33 $.27 $ .63 $.20
3rd Quarter $ .15 $.10 $ .56 $.25
4th Quarter $ .69 $.12 $ .50 $.25
B. At June 25, 1999, the high / low sales price for such shares was
$.41.
C. At June 21, 1999, the number of shareholders of record of Common
Stock approximated 490.
D. No dividends were paid in the fiscal years ended March 31, 1999 and
1998.
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Item 6. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
Cautionary Statement Regarding Forward-Looking Statements
---------------------------------------------------------
This report contains "forward-looking" statements. The Company is
including this statement for the express purpose of availing itself of
protections of the safe harbor provided by the Private Securities Litigation
Reform Act of 1995 with respect to all such forward-looking statements. Examples
of forward-looking statements include, but are not limited to: (a) projections
of revenues, capital expenditures, growth, prospects, dividends, capital
structure and other financial matters; (b) statements of plans and objectives of
the Company or its management or Board of Directors; (c) statements of future
economic performance; (d) statements of assumptions underlying other statements
and statements about the Company and its business relating to the future; and
(e) any statements using the words "anticipate", "expect", "may", "project",
"intend" or similar expressions.
The Company's ability to predict projected results or the effect of
certain events on the Company's operating results is inherently uncertain.
Therefore, the Company wishes to caution each reader of this report to carefully
consider the following factors, any or all of which have in the past and could
in the future affect the ability of the Company to achieve its anticipated
results and could cause actual results to differ materially than those discussed
herein: ability to attract and retain customers to purchase its products,
ability to commercialize and market products, results of research and
development, technological advances by third parties and competition, future
capital needs of the Company, history of operating losses, dependence upon key
personnel and general economic and business conditions.
Results of Operations
---------------------
Revenues from operations increased $3,444,306 to $7,043,026 for the
fiscal year ended March 31, 1999, as compared to the prior year period. This
increase in revenues is due primarily to the inclusion of one full year of
operational activities for the year ended March 31, 1999 of the acquired
operations of Databit Ltd. during fiscal year ended March 31, 1999 versus
approximately two months of operations activity during fiscal year ended March
31, 1998. Revenues generated from CTI Data Solutions Ltd. (formerly Databit
Ltd.) operations amounted to approximately $4.4 million during fiscal year end
March 31, 1999, compared to $900,000 during the fiscal years end March 31, 1998.
Revenues generated from CTI Data Solutions Inc. slightly decreased by $85,000
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 62% of sales in 1999 and 56% of sales in 1998. Costs
of sales increased $2,349,618 for fiscal year ended March 31, 1999, as compared
to the prior year period due primarily to the inclusion of one full year of
operational activities during fiscal 1999 of the acquired operations of Databit
Ltd. as compared to approximately two months of operational activity included
during fiscal year ended March 31, 1998. Margins have decreased as a result of
greater revenues derived from CTI Data Solutions Ltd. products in the UK which
historically have had a higher cost structure than the products sold by CTI Data
Solutions Inc. in the USA.
Selling, general and administrative ("SG&A") expenses were 34% of
revenues in 1999 and 73% of revenues 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 an 8% decrease in SG&A expenses in 1999 compared to 1998 despite an
increase in revenues of 96%.
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In February 1998, the Company acquired the net assets of Databit
Limited from Siemens in exchange for the issuance of a promissory note for
$1,500,000 with no interest payments which was originally recorded at a
discounted value of $1,248,923. On March 31, 1999, the promissory note was
forgiven as the result of less than anticipated continued sales to Siemens than
had been originally implied in connection with the purchase of Databit. The
elimination of debt by Siemens was in substance an adjustment to the original
purchase price. The aforementioned adjustment to the purchase price resulted in
a purchase price adjustment benefit of $525,453 related to elimination of debt
of $1,335,541, elimination of computer software of $738,484 and computer
equipment, furniture and leasehold improvement of $71,604. Such benefit was
recorded in 1999 as a reduction in interest expense of $192,321 and reduction in
depreciation and amortization of $333,132.
Depreciation and amortization expenses decreased $133,156 to $586,433
for the fiscal year ended March 31, 1999 as compared to the prior year period.
This decrease is primarily related to the purchase price adjustment to
depreciation and amortization discussed above. Due to the non recurring nature
of this adjustment, management expects amortization and depreciation to increase
in future periods. Interest expense decreased to $29,697 during fiscal year
ended March 31, 1999 as compared to $76,425 during March 31, 1999, primarily the
result of the purchase price adjustment to interest expense discussed above.
The Company periodically evaluates all estimates and assumptions
related to its income tax provision and determined that an additional allowance
of $76,500 was appropriate in connection with the realization of benefit
association with the utilization of net operating losses for income tax
purposes.
Liquidity and Capital Resources: Cash and cash equivalents increased to
$776,146 at March 31, 1999 compared to $628,329 at March 31, 1998. The increase
in cash and cash equivalents was primarily related to increased collection
efforts on outstanding receivables. The Company was able to generate positive
cash flow from operations of $396,679 despite a loss of $414,843 primarily as
the result of non-cash charges of $586,433 of depreciation and amortization,
offset by a $192,321 purchase price adjustment to interest expense related to
the acquisition of Databit Ltd. Investing activities utilized $184,978 related
to the addition of capitalized software and financing activities utilized
$94,838 related to the repayment of debt for the year ended March 31, 1999. In
March 1999, the Siemens' promissory note of approximately $1.3 million issued in
connection with the Databit Ltd. acquisition was forgiven. Furthermore, Siemens
agreed to waive its rights to collect receivables of approximately $200,000
related to previously provided operational goods and services. Such benefit was
reflected in Selling, General and Administrative expenses in March 1999.
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 $1,369,928 and
$1,340,890 at March 31, 1999 and 1998, respectively and has incurred net losses
of $414,843 and $1,727,821 for the years ended March 31, 1999 and 1998,
respectively. In addition, the Company's line of credit was fully utilized as of
March 31, 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.
10
<PAGE>
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.
Item 7. Financial Statements
--------------------
Index to Financial Statements
-----------------------------
Page
----
Report of Independent Auditors for the Financial
Statements for the year ended March 31, 1999. F - 1
Report of Independent Auditors for the Financial
Statements for the year ended March 31, 1998. F - 2
Consolidated Balance Sheets at March 31, 1999 and 1998 F - 3
Consolidated Statements of Operations for the
years ended March 31, 1999 and 1998 F - 5
Consolidated Statements of Stockholders'
Equity (Deficit) and Comprehensive
Loss for the years ended
March 31, 1999 and 1998 F - 6
Consolidated Statements of Cash Flows for the
years ended March 31, 1999 and 1998 F - 7
Notes to Consolidated Financial Statements F - 9
Item 8. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
On March 17, 1999, Zelenkofske Axelrod and Co., CPA's Inc.
("Zelenkofske Axelrod") resigned as the principal independent accountant of the
Company. The Company's president was informed verbally by Zelenkofske Axelrod
that the resignation was due to the fact that (i) a different accountant
conducts the audit of CTI Data Solutions (International) Ltd., a subsidiary of
the Company which is projected to generate a majority of the total fiscal 1999
revenues of the Company and its affiliates and (ii) Zelenkofske Axelrod is no
longer undertaking public accounting work for publicly-traded companies such as
the Company. Accordingly, this change in accountant was not recommended or
approved by the Company's board of directors or an audit or similar committee.
11
<PAGE>
Zelenkofske Axelrod's report on the financial statements of the Company
for either of the past two fiscal years ending March 31, 1998, contained no
adverse opinion nor disclaimer of opinion, nor was the report modified as to
uncertainty, audit scope or accounting principles. There were no disagreements
between the Company and Zelenkofske Axelrod during the two most recent fiscal
years, nor during the subsequent interim period through March 17, 1999, whether
or not resolved, on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which, if not resolved to
Zelenkofske Axelrod's satisfaction, would have caused it to make reference to
the subject matter of the disagreement(s) in connection with its report.
In addition, during the two most recent fiscal years or subsequent
interim period through March 17, 1999, Zelenkofske Axelrod never advised the
Company that:
(1) Internal controls necessary to develop reliable financial
statements did not exist;
(2) Information had come to the attention of Zelenkofske Axelrod which
made it unwilling to rely on management's representations, or
unwilling to be associated with the financial statements prepared
by management; or
(3) The scope of an audit should have been expanded significantly, or
information had come to Zelenkofske Axelrod's attention that it
had concluded would, or if further investigated might have,
materially impacted the fairness or reliability of a previously
issued audit report or the underlying financial statements, or the
financial statements issued or to be issued covering the fiscal
period(s) subsequent to the date of the most recent audited
financial statements (including information that might have
precluded the issuance of an unqualified audit report), and the
issue had not been resolved to Zelenkofske Axelrod's satisfaction
prior to its resignation.
The above information is materially identical to the disclosure made by
the Company in a report on Form 8-K filed on March 30, 1999. In a letter from
Zelenkofske Axelrod that was included as an exhibit to the Form 8-K, Zelenkofske
Axelrod stated that it had read the Form 8-K and agreed with the statements made
in the Form 8-K.
On May 17, 1999, management of CTI Group (Holdings) Inc. (the
"Company") recommended the retention, subject to the approval of the Company's
Board of Directors, of the accounting firm of Deloitte & Touche LLP to be the
Company's independent accountants and to conduct an audit of the consolidated
financial statements for the year ended March 31, 1999. Upon receipt of the
engagement letter on June 28, 1999, the Board of Directors approved the
engagement of Deloitte & Touche LLP. Prior to the approval of Deloitte & Touche
LLP's retention by the Company's management, the Company did not consult with
Deloitte & Touche LLP regarding any financial or accounting matters.
Deloitte & Touche LLP reviewed the disclosure provided in the Form
8-K/A prior to its filing with the Securities and Exchange Commission.
12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
CTI Group (Holdings) Inc.
Norristown, Pennsylvania
We have audited the accompanying consolidated balance sheet of CTI Group
(Holdings) Inc. (the "Company") as of March 31, 1999, and the related
consolidated statements of operations, stockholders' equity (deficit) and
comprehensive loss, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1999 consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of March 31,
1999, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements for the year ended March 31,
1999 have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial statements, the
Company's recurring losses from operations and working capital deficiency raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
July 9, 1999
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board Of Directors and Stockholders
CTI Group (Holdings) Inc.
Norristown, PA 19403
We have audited the accompanying consolidated balance sheet of CTI Group
(Holdings) Inc. and Subsidiaries as of March 31, 1998 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CTI
Group (Holdings) Inc. and Subsidiaries as of March 31, 1998 and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed more fully in Note 4D, (as identified in the 1998 annual report on
Form 10-KSB) the Company has a deficiency in working capital of $1,340,890 at
March 31, 1998, and a net loss of $1,727,821 for the year ended March 31, 1998.
Management plans to improve the Company's operating performance and financial
condition, as also discussed in Note 4 D.
Zelenkofske Axelrod & Co., CPA's, Inc.
Jenkintown, PA
July 29, 1998, except for Note 3 as to
which the date is November 13, 1998.
F-2
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
---------- -----------
1999 1998
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 776,146 $ 628,329
Trade receivables, less allowance for doubtful
accounts of $264,156 and $281,399 at
March 31, 1999 and 1998 626,631 979,997
Inventories 22,458 48,674
Prepaid expenses 93,514 145,894
---------- ----------
Total current assets 1,518,749 1,802,894
Furniture, fixtures, equipment and leasehold
improvements at cost, less accumulated
depreciation and amortization of $305,250
and $314,540 at March 31, 1999 and 1998 168,327 405,135
Computer software, net of accumulated
amortization of $2,283,518 and $1,885,961 at
March 31, 1999 and 1998, respectively 840,682 2,080,811
Excess of cost over net assets of acquired
business, net of accumulated amortization of
$11,112 and $6,660 at March 31, 1999 and 1998 33,453 37,905
Other assets 21,862 16,812
Deferred tax asset ----- 76,500
---------- ----------
2,583,073 $4,420,057
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
F-3
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
March 31,
---------- -----------
1999 1998
---------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 218,424 $ 293,820
Accounts payable 492,842 519,980
Other accrued expenses 1,177,893 1,257,968
Deferred revenue 999,518 1,072,016
---------- ----------
Total current liabilities 2,888,677 3,143,784
Long-term debt, less current portion -- 1,267,743
Commitments and contingencies (see Note 6)
Stockholders'
equity:
Common stock, par value $.01; 10,000,000 shares
authorized; 7,041,349 issued at March 31, 1999
and 6,989,681 shares issued at March 31, 1998 70,417 69,900
Capital in excess of par value 8,062,507 8,028,230
Accumulated deficit (8,085,684) (7,670,841)
Accumulated other comprehensive
income (loss) 53,556 (12,359)
Less - Treasury stock, 140,250 shares at
March 31, 1999 and 1998, at cost (406,400) (406,400)
---------- ----------
Total stockholders' equity (deficit) (305,604) 8,530
---------- ----------
$2,583,073 $4,420,057
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
F-4
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended March 31,
-------------------------------
1999 1998
----------- ------------
<S> <C> <C>
Net sales $ 7,043,026 $ 3,598,720
Costs and expenses:
Cost of sales (exclusive of depreciation and
amortization) 4,378,568 2,028,950
Selling, general and administrative expenses 2,386,671 2,606,622
Depreciation and amortization 586,433 719,589
----------- -----------
7,351,672 5,355,161
----------- -----------
Loss from operations before income
(expenses) and provision for income
taxes (benefits) (308,646) (1,756,441)
Other income (expenses)
Interest expense (29,697) (76,425)
Other, net -- 28,545
----------- -----------
Loss before provision for income taxes (338,343) (1,804,321)
Provision for income taxes (benefits) 76,500 (76,500)
----------- -----------
Net loss $ (414,843) $(1,727,821)
=========== ===========
Basic and diluted income (loss) per common share $ (0.06) $ (0.27)
=========== ===========
Basic and diluted weighted average
common shares outstanding 6,898,946 6,479,341
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
Accumulated
other
Common Stock Total in comprehensive
---------------------- excess of Comprehensive Accumulated Treasury income
Shares Par value par value loss deficit Stock (loss) Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1997 6,530,564 $65,310 $7,769,180 $(5,943,020) $(406,400) $(6,070) $1,479,000
Stock issued in connection
with raising capital 165,000 1,650 53,980 55,630
Stock issued to directors for
payment of directors' fees 47,059 470 15,530 16,000
Stock issued to employees for
payment of deferred wages 247,058 2,470 81,530 84,000
Issuance of employee
stock options 91,930 91,930
Issuance of stock options
in connection with
litigation settlement 16,080 16,080
Comprehensive loss:
Net loss $(1,727,821) (1,727,821) (1,727,821)
Other comprehensive loss
Foreign currency adjustments (6,289) (6,289) (6,289)
-----------
Total $(1,754,110)
--------- ------- ---------- =========== ----------- --------- -------- ----------
Balances at March 31,1998 6,989,681 $69,900 $8,028,230 $(7,670,841) $(406,400) $(12,359) $ 8,530
--------- ------- ---------- ----------- --------- -------- ----------
Issuance of directors'
stock options 2,500 2,500
Stock and stock rights 51,668 517 31,777 32,294
issued to employees
Comprehensive loss:
Net loss $ (414,843) (414,843) (414,843)
Other comprehensive income
Foreign currency adjustments 65,915 65,915 65,915
----------
Total $ (348,928)
--------- ------- ---------- =========== ----------- --------- -------- ----------
Balances at March 31, 1999 7,041,349 $70,417 $8,062,507 $(8,085,684) $(406,400) 53,556 $(305,604)
=== ==== ========= ======= ========== =========== ========= ====== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended March 31,
-------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Cash Provided By:
Operating Activities:
Net Income (Loss) $ (414,843) $(1,727,821)
Adjustments to reconcile net loss to net cash provided by
(used in) operations:
Depreciation and amortization 586,433 719,589
Purchase price adjustment to interest expense (192,321) -----
Provision for doubtful accounts (17,243) 216,399
Issuance of stock options in connection with litigation ----- 16,080
Issuance of stock in payment of deferred compensation ----- 84,000
Issuance of stock in connection with raising capital ----- 55,630
Issuance of stock for payment of directors' fees ----- 16,000
Issuance of stock options and stock rights 34,794 91,930
Deferred taxes 76,500 (76,500)
Changes in operating assets and liabilities:
Decrease in receivable, trade 362,931 70,992
Decrease (increase) in inventories 25,421 (4,664)
Decrease (increase) in prepaid expenses 49,758 (18,314)
(Decrease) increase in accounts payable (23,074) (32,193)
(Decrease) increase in other accrued expenses (51,776) 678,868
Increase (decrease) in deferred revenue (34,851) (170,014)
Decrease (increase) in other assets (5,050) 32,998
Total operating activities 396,679 (15,632)
---------- ----------
Investing Activities:
Additions to equipment and leasehold improvements ----- (54,048)
Additions to computer software (184,978) (58,527)
Acquisition of businesses ----- 404,228
----------- ----------
Total investing activities (184,978) 324,651
----------- ----------
</TABLE>
F-7
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Years ended March 31,
-------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Financing Activities:
Repayment of debt (94,838) (86,718)
Proceeds from borrowings ----- 299,802
----------- ----------
Total financing activities (94,838) 213,084
----------- ----------
Effect of exchange rate changes on cash 30,954 526
----------- ----------
Increase in cash and cash equivalents 147,817 522,629
Cash and cash equivalents, at beginning of year 628,329 105,700
----------- ----------
Cash and cash equivalents, at end of year $ 776,146 $ 628,329
=========== ==========
Supplemental disclosures:
Cash paid during the year for:
Interest $ 121,440 $ 17,495
========== ==========
Income taxes $ ----- $ -----
========== ==========
Non-cash investing and financing activities:
Acquisition of businesses
Working capital other than cash $ ----- $ 443,850
Equipment and leasehold Improvements ----- (268,950)
Capitalized software at appraised value ----- (1,017,923)
Long-term debt ----- 1,247,251
------------ ----------
Cash generated (paid) to acquire businesses $ ----- $ 404,228
=========== ==========
Purchase price adjustment (see Note 3)
Elimination of promissory note $1,335,541 -----
Write down of software (738,484) -----
Write down of fixed assets (71,604) -----
------------ ----------
$ 525,453
============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
F-8
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business: CTI Group (Holdings) Inc. and Subsidiaries (the "Company") designs,
develops, markets and supports data processing software and services for
managing telecommunications systems.
CONSOLIDATION POLICY: The consolidated financial statements include the accounts
of CTI Group (Holdings) Inc. and its domestic and foreign subsidiaries, all of
which are wholly-owned. All material inter-company accounts and transactions
have been eliminated in consolidation.
CURRENCY TRANSLATION: The financial statements of CTI Data Solutions Ltd., a UK
based wholly-owned subsidiary, have been included in the consolidated financial
statements and have been translated to U.S. dollars in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation." Assets and liabilities are translated at current rates in effect
at the consolidated balance sheet date and stockholders' equity is translated at
historical exchange rates. Revenue and expenses are translated at the average
exchange rate for the applicable period. Any resulting translation adjustments
are made directly to accumulated other comprehensive income.
CASH EQUIVALENTS: The Company considers all highly liquid investments, with a
maturity of three months or less, to be cash equivalents.
USE OF ESTIMATES: The preparation of the consolidated 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 disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Accordingly, actual results could differ from those
estimates.
INVENTORIES: Inventories consisting of equipment purchased for resale, are
stated at the lower of cost or market with cost determined on the first-in,
first-out (FIFO) method.
FURNITURE, FIXTURES, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS: Furniture, fixtures,
equipment and leasehold improvements are stated at cost. Depreciation and
amortization are calculated on a straight-line basis over the estimated useful
lives of the assets ranging from 3 to 5 years. Leasehold improvements are
amortized over the period of lease or the useful lives of the improvements,
whichever is shorter. All maintenance and repair costs are charged to operations
as incurred.
COMPUTER SOFTWARE: Expenditures for producing product masters incurred
subsequent to establishing technological feasibility are capitalized and are
amortized on a product-by-product basis. The amortization is computed using the
straight-line method over the remaining estimated economic life of the product.
The unamortized capitalized costs are compared annually to estimated net
realizable value of the related product. Because of competitive factors, and the
inherent tendency in the software industry toward rapid obsolescence, the
estimated value of the Company's software is subject to material revision in the
near term.
The Company capitalized $184,978 and $58,527 in the fiscal years ended March 31,
1999 and 1998, respectively, in costs related to its software. The amortization
expense for developed software was $492,821 in the fiscal year ended March 31,
1999 and $584,692 in the fiscal year ended March 31, 1998.
F-9
<PAGE>
EXCESS OF COST OVER NET ASSETS ACQUIRED: Goodwill, which represents the excess
of purchase price over fair value of net assets acquired, is amortized on a
straight-line basis over ten years. The Company periodically assesses the
recoverability of goodwill by comparing the carrying amount to estimated
undiscounted future operating cash flows of the acquired operation. If the
carrying amount exceeds the expected net cash flows the excess amount is written
off as a current impairment charge.
LONG-LIVED ASSETS: In accordance with the Statement of Financial Accounting
Standards SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," the Company reviews long-lived assets
and certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable. Impairment losses are recognized if expected cash flows of the
related assets are less than their carrying values.
REVENUE RECOGNITION: The Company accounts for software revenues in accordance
with the American Institute of Certified Public Accountants' Statement of
Position 97-2, Software Revenue Recognition.
Software Lease Fees: Revenues on software license fees are recognized when
persuasive evidence of an arrangement exists, delivery has occurred, fee is
fixed or determinable and collectibility is probable.
Maintenance and Enhancements: Revenue on maintenance contracts is recognized
ratably over the contract period. Revenue associated with product support
services is recorded in deferred revenue in the accompanying combined balance
sheets and amortized over the period in which the services are provided.
Service Bureau: The Company provides telemanagement and billing services for
processing services at its service bureau utilized by its customers. The
revenue on these contracts is recognized monthly as the services are
performed.
Product Sales: Revenue is recognized upon shipment to customer.
STOCK BASED COMPENSATION: The Company accounts for stock options and awards in
accordance with SFAS No. 123, "Accounting for Stock-based Compensation".
Compensation cost is based upon estimated fair value of options granted and is
recognized over the shorter of the period of service or vesting period of the
option.
INCOME TAXES: The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes". Under the liability method, deferred income taxes
are recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting amounts at
each year-end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable for the period and the change during the period in deferred tax assets
and liabilities.
BASIC AND DILUTED 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 53,007 shares and 180,844
for the years ended March 31, 1999 and 1998, respectively amounting to 6,951,953
shares and 6,660,185 shares at March 31, 1999 and 1998 respectively. Because the
Company incurred losses for the years ended March 31, 1999 and 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 years ended
March 31, 1999 and 1998.
F-10
<PAGE>
CONCENTRATION OF CREDIT RISK: The Company invests its cash primarily in deposits
with major banks. At times, these deposits may be in excess of statutory insured
limits. As of March 31, 1999, such deposits exceeded statutory insured limits by
$647,089. Concentration of credit risk with respect to trade receivables is
moderate due to the relatively diverse customer base. Ongoing credit evaluation
of customers' financial condition is performed and generally no collateral is
received. The Company maintains reserves for probable credit losses and such
losses in the aggregate have not exceeded management's estimates.
COMPREHENSIVE INCOME: In 1999 the Company adopted SFAS No. 130, Reporting
Comprehensive Income. This statement establishes rules for the reporting of
comprehensive income and its components. Comprehensive income consists of net
income and foreign currency translation adjustments and is presented in the
Consolidated Statement of Stockholders Equity (Deficit) and Comprehensive Loss.
There is no tax impact on the comprehensive income or loss due to the Company's
net operating loss carryforwards. The adoption of SFAS 130 had no impact on
total stockholders' equity (deficit). Prior year financial statements have been
reclassified to conform to the SFAS 130 requirements.
RECLASSIFICATION: Certain reclassifications have been made to the comparative
March 31, 1998 amounts to conform to the current year's presentations.
ACCOUNTING PRONOUNCEMENTS: In June 1998, the FASB issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
collectively referred to as derivatives, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
consolidated balance sheet and measure those statements at fair value. This
statement, as proposed to be amended, is effective for fiscal years beginning
after June 15, 2000, although early adoption is encouraged. The Company has not
yet determined the impact SFAS No. 133 will have on its consolidated financial
position or results of operations.
NOTE 2 - MANAGEMENT'S PLAN FOR CONTINUING OPERATIONS: 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 had a
deficiency in working capital of $1,369,928 and $1,340,890 at March 31, 1999 and
1998, respectively and has incurred net losses of $414,843 and $1,727,821 for
the years ended March 31, 1999 and 1998, respectively. In addition, the
Company's line of credit was fully utilized as of March 31, 1999 and expires in
September 1999. The Company, for the year ended March 31, 1999, was able to
generate positive cash flow from operations of $396,679 despite a net loss of
$414,843 primarily as a result of non-cash charges of $586,433 of depreciation
and amortization, offset by a $192,321 purchase price adjustment to interest
expense related to the Databit acquisition (see Note 3).
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.
F-11
<PAGE>
NOTE 3 - ACQUISITION OF BUSINESS
In February 1998, in a transaction accounted for as a purchase, the Company
completed the acquisition of Databit, a subsidiary of Siemens plc through its
wholly-owned subsidiary CTI Data Solutions (International) Ltd. Subsequent to
the acquisition, the Company changed the name of CTI Data Solutions
(International) Ltd. to CTI Data Solutions Ltd. The operations of Databit are
included in the Company's results since the acquisition date. In connection with
the acquisition, the Company initially issued a secured promissory note to
Siemens for $1,500,000 with no interest payments which was recorded at the
discounted value of $1,248,293. The assets acquired, which consist primarily of
software costs and fixed assets, were recorded at their estimated fair values as
determined by an independent appraisal.
On March 31, 1999, the promissory note was forgiven as the result of less than
anticipated continued sales to Siemens than had been originally implied in
connection with the purchase of Databit. The elimination of debt by Siemens was
in substance an adjustment to the original purchase price. The aforementioned
adjustment in original purchase price on March 31, 1999 resulted in a purchase
price adjustment benefit of $525,453 related to elimination of debt of
$1,335,541, elimination of computer software of $738,484 and computer equipment,
furniture and leasehold improvement of $71,604. Such benefit was recorded in
1999 as a reduction in interest expense of $192,321 and reduction in
depreciation and amortization of $333,132, including $49,813 of depreciation and
amortization of expense in the prior year.
Furthermore, Siemens waived its rights to collect receivables of approximately
$200,000 related to previously provided operational goods and services. Such
benefit was reflected in selling, general and administrative expenses in March
1999.
The following unaudited pro forma financial information for the Company gives
effect to the Databit Ltd. acquisition and the subsequent purchase price
adjustment, as discussed above, as if it had occurred on April 1, 1997. The pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations which actually would have
resulted had the acquisition occurred on the date indicated, or which may result
in the future.
Year ended
March 31, 1998
--------------
Net Sales $ 8,598,081
Net loss $ (2,314,802)
============
Net loss per common share $ (.34)
============
F-12
<PAGE>
NOTE 4 - FURNITURE, FIXTURES, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS The
Company's fixed assets consist of the following:
March 31,
--------- ---------
1999 1998
--------- ---------
Equipment $342,134 $589,465
Furniture and fixtures 14,500 14,500
Leasehold improvements 116,943 115,710
-------- --------
473,577 719,675
Less accumulated depreciation and amortization (305,250) (314,540)
-------- --------
$168,327 $405,135
======== ========
Depreciation and amortization expense on furniture, fixtures, equipment, and
leasehold improvements amounted to $89,160 and $158,098 for the fiscal year
ended March 31, 1999 and 1998, respectively.
NOTE 5 - DEBT
The following table summarizes debt:
March 31,
--------- ---------
1999 1998
--------- ---------
Secured promissory note (the "Siemens' note") ----- $1,248,293
Line of credit $198,560 $ 200,000
Other 19,864 113,270
-------- ----------
218,424 1,561,563
Less current portion 218,424 293,820
-------- ----------
$ 0 $1,267,743
======== ==========
The secured promissory note obtained in connection with the purchase of
Databit Ltd. from Siemens (Note 3) was a non-interest bearing note which was
discounted at 10%. The amount discounted at March 31, 1998 was $251,707. On
March 31, 1999, the Siemens promissory note with a carrying value of $1,335,541
was forgiven (see Note 3).
The line of credit requires monthly interest payments maturing on September
30, 1999 bearing interest at the bank's prime rate, plus 0.5%. The effective
rate was 10.0% at March 31, 1999 and 9.0% at March 31, 1998. There were no
additional amounts available to borrow under the line of credit as of March 31,
1999. The line is secured by substantially all of the assets of CTI Data
Solutions Inc. The line of credit contains various restrictive covenants, among
which include maintaining a certain level of stockholders' equity and debt to
net worth ratio on CTI Data Solutions Inc. It is the Company's intention to
refinance the line of credit with a term greater than one year; however, there
can be no assurance that the Company will be successful in its efforts.
F-13
<PAGE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
A. LEASE COMMITMENTS - The Company leases its office facilities and certain
equipment under non-cancelable long-term operating leases which expire at
various dates. Minimum aggregate annual rentals subject to certain escalation
clauses, under non-cancelable long-term operating leases are as follows:
Year ending March 31:
2000 $323,565
2001 $189,463
2002 $132,920
2003 $ 99,584
2004 $ 61,829
--------
Total minimum lease payments $807,361
Rent and lease expense was $506,623 and $260,565 for the fiscal years ended
March 31, 1999 and 1998, respectively.
B. CONTINGENCIES: In connection with the settlement of a lawsuit in November
1997 between the Company and a former employee of one of the Company's
subsidiaries, the Company had entered into a settlement agreement pursuant to
which, it agreed (1) 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 (as of March 31, 1999 and 1998, $20,000 and $80,000
respectively, were the remaining balances due under the settlement agreement and
are included in other accrued expenses on the balance sheet) and (2) to enter
into a distributor agreement with the former employee for the distribution of
the Company's Unity software for a two year period ending November 1999. The
distributor agreement provided for a credit on account for the first $100,000 of
Unity software purchases. As of March 31, 1999 the former employee had utilized
$39,455 of this credit.
In March 1998 the Company's former financial advisors filed suit against the
Company for breach of contract. This is an action seeking damages not to be less
than $80,000 and the grant of an option to purchase 100,000 shares of the
Company's common stock. The complaint seeks to recover a "success fee" to which
it claims entitlement as investment advisor to the Company pursuant to a
contract entered into in August 1997. The contract entitled the financial
advisor to a success fee of 4% of new financing secured and an option to
purchase 100,000 shares of the Company's common stock if the financial advisor
presented a financing prospect acceptable to the Company and such financing was
related to the acquisition of Databit, a subsidiary of Siemens. This acquisition
eventually was consummated by the Company itself on the basis of seller
financing in which the financial advisor played no role. Subsequently, the
seller financing which was in the form of secured promissory note was forgiven
by Siemens in March 1999 (See Note 5). The Company paid the financial advisor
the advisory fee called for under the contract and out-of-pocket expenses. The
Company believes the financial advisor is not entitled to the success fee and
intends to vigorously defend the action and strongly contends that no amounts
are due to the financial advisor.
In November 1998, a former employee, Dennis Cramer, filed suit against the
Company alleging breach of an implied employment contract and other matters and
as a result is claiming approximately $50,000 in damages from the Company. The
Company believes no implied employment contract existed; furthermore, the
Company believes it has meritorious defenses to the claim and intends to
vigorously contest this action.
F-14
<PAGE>
In addition to the litigation noted above, the Company is from time to time
subject to routine litigation incidental to its business. The Company believes
that the result of the above noted litigation and other pending legal
proceedings will not have a materially adverse effect on the Company's financial
condition.
C. EMPLOYMENT AGREEMENTS: In conjunction with an employment contract effective
April 1, 1995, the Company has agreed to pay an aggregate of 5% of pre-tax
profit as incentive compensation to the President/CEO during each fiscal year
ended March 31, 1998 and 1999. No accrual was required for the fiscal years
ended March 31, 1999 and 1998. The employment agreement with the President/CEO
was reviewed on April 1, 1998 and extended to March 31, 2001. The aggregate
minimum annual salary commitment under this agreement is $175,000 per annum.
NOTE 7 - INCOME TAXES
The provision for income taxes (benefit) consists of the following:
Years ended March 31,
-----------------------
1999 1998
-------- ---------
Federal - deferred $ 59,125 $ (59,125)
State - deferred $ 17,375 $ (17,375)
-------- ---------
Provision for income taxes (benefit) $ 76,500 $ (76,500)
======== =========
A reconciliation of income tax expense at the statutory rate to income tax
expense at the Company's effective rate is as follows:
Years ended March 31,
-----------------------
1999 1998
-------- ----------
Computed tax (benefit) at the expected statutory rate $(118,420) $ (613,470)
State tax (benefit), net (22,100) (101,540)
Other 6,700 4,500
Loss from foreign subsidiary 14,727 32,270
Increase in valuation allowance 195,593 601,740
--------- -----------
76,500 $ (76,500)
========= ===========
The components of the overall net deferred taxes are as follows:
Years ended March 31,
-----------------------
1999 1998
-------- ---------
Tax loss carry-forwards $971,048 $1,042,360
Depreciation and amortization 417,829 173,581
Allowance for doubtful accounts 108,400 123,816
Unexercised stock options 60,026 62,541
Other ----- 2,909
---------- ----------
Total deferred tax assets 1,557,303 1,405,207
Valuation allowance (1,557,303) (1,328,707)
---------- ----------
Deferred tax asset net of valuation allowance ----- 76,500
========== ==========
F-15
<PAGE>
The Company has federal net operating loss carry-forwards of approximately
$2,200,000 which are available to reduce future taxable income. The loss
carry-forwards will expire if unused beginning in the year 2006 through 2013.
The Company has foreign and state net operating loss carry-forwards of
approximately $18,000 and 2,000,000 respectively. These carry-forwards expire
over various time periods. Because of the Company's uncertainty in being able to
utilize the benefits of the carry-forwards before expiration they have been
fully offset by a valuation allowance.
The Company believes it has adequately accrued any taxes, penalties, and
interest, which are currently due, related to previous delinquent filed income
tax returns, and included them in the accompanying consolidated financial
statements.
NOTE 8 - CAPITAL STOCK TRANSACTIONS
A. ISSUANCE OF COMMON STOCK:
During the fiscal year ended March 31, 1999 the Company issued 51,668 shares of
its common stock to key employees at its CTI Data Solutions Inc. subsidiary. Key
employees were also granted rights to have an additional 51,643 shares provided
they remained employed until April 1999. Accordingly, the Company recognized
approximately $32,000 in compensation expense which was recognized during fiscal
year end March 31, 1999. Compensation expense was based upon fair value of the
common stock and common stock rights at the date of grant.
During the fiscal year ended March 31, 1998, the Company issued a total of
165,000 shares of the Company's common stock valued at $55,630, in an
unsuccessful attempt to raise funds for the acquisition of Databit which was
therefore expensed. The stock was issued in lieu of cash compensation to certain
organizations and a director involved in the unsuccessful attempt to raise
capital.
During the fiscal year ended March 31, 1998 the Company issued 294,117 shares of
the Company's common stock to certain employees and outside directors of the
Company. The average bid and ask price on the date of issue was $.34. The stock
issued to the employees was in lieu of a partial salary deferment. The stock
issued to the outside directors was in lieu of their deferred directors' fees.
Compensation expense of $100,000 was recorded.
B. OPTIONS:
The Company's Stock Option and Restricted Stock Plan (the "Plan") provides for
the issuance of incentive and nonqualified stock options and restricted stock
grants to obtain 600,000 shares of common stock. Individuals eligible for
participation in the Plan include key employees (including employees who also
serve as Directors), non-employee directors, independent contractors and
consultants who perform services for the Company. The exercise price of the
stock options are determined by the higher of the fair market value or the book
value of the common stock at the time the option is granted. The number of
options to be granted, option period and the option prices are determined by the
Stock Option Committee of the Board of Directors in accordance with the terms of
the Plan. Option period can not exceed ten years from date of grant. Outstanding
stock options become immediately exercisable upon a change of control of the
Company as in accordance with the terms of the Plan. Stock options typically
become exercisable over a one to five year period.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for the grants issued in 1999 and 1998, respectively; no
dividend yield for all years, expected volatility of 130% and 128%, risk-free
interest rates of 6% for all options and expected lives of 3 years for all
options. The weighted average fair value of options granted was $.25 for fiscal
year end March 31, 1999 and 1998. The Company has recorded compensation expense
in connection with options granted of $2,500 and $91,920 for the fiscal years
ended March 31, 1999 and 1998 respectively.
F-16
<PAGE>
The Company also grants nonqualified stock options to purchase shares of
restricted common stock of the Company that is not covered by a registration
statement (the "Outside Plan Stock Options"). Terms of such options are
determined by the Board of Directors.
At March 31, 1999 the Company has 85,000 stock options available for grant under
the Plan. The Company has a total of 425,000 nonqualified Outside Plan Stock
Options outstanding at March 31, 1999 of which 268,333 are exercisable.
Activity in the stock option plans for the years ended March 31, 1999 and 1998
under the aforementioned plans in total were:
<TABLE>
<CAPTION>
Price Per Weighted Average
Shares Share Price
--------------------------------------------------------------------
<S> <C> <C> <C>
April 1, 1997 585,000 $0.18 - $0.80 $0.44
Granted 440,000 $0.34 - $0.35 $0.34
Exercised --- --- ---
Canceled (190,000) $0.20 - $0.60 $0.45
-------- ------------- ------
March 31, 1998 835,000 $0.18 - $0.80 $0.39
Granted 30,000 $0.25 $0.25
Exercised --- --- ---
Canceled (125,000) $0.34 - $0.60 $0.44
-------- ------------- ------
March 31, 1999 740,000 $0.18 - $0.80 $0.37
======== ============= ======
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options as of March 31, 1999:
<TABLE>
<CAPTION>
Outstanding Options Options exercisable
------------------- -------------------
Weighted Weighted
Weighted Average Average Average Average
Range of Number of Remaining Exercise Number of Exercise
Exercise Price Options Life (years) Price Options Price
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.01 to $0.40 595,000 4.25 $0.31 388,333 $0.27
$0.41 to $0.80 145,000 5.76 $.070 137,500 $0.71
</TABLE>
NOTE 9 - MAJOR CUSTOMERS
For the fiscal year ended March 31, 1999 and 1998, the Company had sales to a
single customer aggregating $653,626 (9% of revenues) and $291,200 (8% of
revenues), respectively. Accordingly, future operations could be affected by
adverse changes in the Company's relationship with, or the financial condition
of, this customer.
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, trade receivables, and
trade payables approximate fair value because of the short maturity of those
instruments. The carrying values of the line of credit approximate fair value
due to their short-term maturities. The carrying value of long-term debt as of
March 31, 1998 approximated its fair value because its interest rate
approximated the borrowing rates available to the Company at that time.
F-17
<PAGE>
NOTE 11 - PROFIT-SHARING PLAN
The Company has established a qualified 401(k) profit-sharing plan effective
July 15, 1995. Eligible employees may defer a portion of their salaries. At the
discretion of the Board of Directors, the Company can contribute to the
profit-sharing plan, and may make a matching contribution of an additional
amount of eligible employees' deferrals. There were no contributions to the plan
during the fiscal years ended March 31, 1999 and 1998. Following the acquisition
of Databit Ltd. (see Note 3) CTI Data Solutions Ltd. incurred an obligation
under the terms of the purchase agreement to contribute to an employee pension
plan. The amount contributed by the Company in the fiscal year ended March 31,
1999 and 1998 was not material.
NOTE 12 -SEGMENT INFORMATION
The Company designs, develops, markets and supports data processing software
and services for managing telecommunication systems. These business operations
fall into two major classifications: telemanagement and billing and customer
care. The Company's telemanagement products and services are used by
organizations to optimize the usage of their telecommunication services and
equipment and to control telephone expenses and uses. The Company's billing and
customer care software products are used by small to mid-range telephone and
wireless network operators to manage customer accounts, generate bills, track
payments and customer service operations. The Company conducts business in the
United Kingdom and United States. Activities in the United Kingdom are primarily
telemanagement activities. A summary of the Company's operations by geographic
area for the years ended March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
UK USA Consolidated
-------------------------------------------------
1999
----
<S> <C> <C> <C>
Total net sales $ 4,433,011 $ 2,610,015 $ 7,043,026
=========== =========== ============
Loss from operations $ (98,179) $ (210,467) $ (308,646)
=========== =========== ============
Net loss $ (98,179) $ (316,664) $ (414,843)
=========== =========== ============
Long-lived assets $ 274,865 $ 789,459 $ 1,064,324
=========== =========== ============
1998
----
Total net sales $ 902,670 $ 2,696,050 $ 3,598,720
=========== =========== ============
Loss from operations $ (424,204) $(1,332,237) $ (1,756,441)
=========== =========== ============
Net loss $ (439,811) $(1,288,010) $ (1,727,821)
=========== =========== ============
Long-lived assets $ 1,287,068 $ 1,330,095 $ 2,617,163
=========== =========== ============
</TABLE>
F-18
<PAGE>
The following table summarizes the Company's financial information by industry
segment.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues:
Telemanagement $6,168,785 $2,944,157
Billing and customer care 874,241 654,563
---------- ------------
Total Sales $7,043,026 $3,598,720
Net loss:
Telemanagement $ (319,744) $(1,520,482)
Billing and customer care (95,099) (207,339)
---------- ------------
Net loss $ (414,843) $(1,727,821)
Depreciation and Amortization Expense:
Telemanagement $292,433 $425,589
Billing and customer care 294,000 294,000
---------- ------------
Total depreciation and amortization $586,433 $719,589
Total Assets:
Telemanagement $1,840,784 $2,981,947
Billing and customer care 742,289 1,438,110
---------- ------------
Total assets $2,583,073 $4,420,057
</TABLE>
F-19
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of Securities
Exchange Act of 1934
----------------------------------------------------
The following Directors were elected by the Shareholders at the 1996
Annual Meeting of Shareholders and the Board of Directors appointed the
following officers. All Directors will hold office until the next Annual Meeting
of Shareholders of the Company and until their successors shall be elected and
qualify. All officers of the Company serve at the discretion of the Board.
<TABLE>
<CAPTION>
Name and Age Occupation during past five (5) years
------------ -------------------------------------
<S> <C>
Anthony P. Johns (50) Mr. Johns, a UK citizen, has served as Chairman of the Board since October, 1996, and
President, Chief Executive Officer and Director of the Company since March, 1990. He
was Chairman of the Board of Directors of Britannic Group Holdings Ltd., Britannic
Telecom Company Ltd. and Britannic Telecare Ltd. from December 1989 to May 1995.
Francis O. Hunnewell (60) Mr. Hunnewell has been a Director since November 1993 and served as Chairman of the
Board from November 1993 to August 1995. Mr. Hunnewell is CEO of AEGIS, LLC, private
equity investment managers with offices in Boston and the Former Soviet Union. He is
also President of Hunnewell & Co., Investment Bankers and Vice Chairman of Asian
Capital Partners Ltd., an Asian regional merchant bank, headquartered in Hong Kong.
Rupert D. Armitage (51) Mr. Armitage, a UK citizen, has been a Director since November 1995. He is founding
member, Chairman and Managing Director of three software related companies in the
United Kingdom: Ambit Research Ltd. formed in 1987; Information from Data Ltd. formed
in 1993; and Personal and Corporate Training Systems Ltd. formed in 1995.
Fred H. Rohn (73) Mr. Rohn has been a Director since May 1998. He is presently General Partner in North
American Venture Capital Funds and President of American Venture Management, Inc. He
serves on Corporate Boards of the following corporations: Pratt-Read Corp., The Futures
Group, New Jersey Title Insurance Co., Weldotron Corp.,. Deck The Walls, Inc., Peacock
Papers, Inc., Scandia Packaging Machinery Corp., and Moretrench American Corp.
Mary Ann Davis (60) Ms. Davis has been Corporate Secretary since May 1989. Prior to that, Ms. Davis was an
Administrative Assistant from May 1982, to a Judge of the Common Pleas Court of
Montgomery County, Pennsylvania.
</TABLE>
13
<PAGE>
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who own more than ten percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms filed.
Based solely on review of the copies of such forms furnished to the
Company, or written representation that no Forms 3, 4 or 5 were required, the
Company believes that during the last fiscal year, all applicable Section 16(a)
filing requirements have been complied with by its officers, directors and
greater than ten-percent beneficial owners.
Item 10. Executive Compensation
----------------------
A. MANAGEMENT REMUNERATION
The following table sets forth the compensation paid or accrued for the
five highest paid officers of the Company and its subsidiaries. The Company had
only one officer for the year ended March 31, 1999 who received in excess of
$100,000.
Annual Compensation
------------------------------------------------
Name and Principal Other Annual
Position Year Salary Bonus Compensation
- ------------------ ---- -------- ----- -------------
Anthony P. Johns, President 1999 $175,000 -- $29,972 (2)
& Chief Executive Officer 1998 $175,000 -- $29,635 (2)
1997 $140,000 (1) -- $26,700 (2)
(1) Mr. Johns agreed to a 40% salary reduction for the period from October 1,
1996 to March 31, 1997 as part of the Company implementing a six-month plan
to assist in maintaining a neutral cash position. The plan was required due
to the loss of a major customer in the quarter ended September 30, 1996.
(2) Includes an $11,100 annual automobile allowance, $15,600 of living expense
payments and automobile insurance premiums paid by the Company.
On April 1, 1998, the Company entered into an employment agreement with
Anthony P. Johns. Pursuant to this agreement, Mr. Johns is employed as President
and Chief Executive Officer of the Company for a three-year term at an annual
base salary of $175,000. Should the Company regain its listing on NASDAQ, Mr.
Johns' salary will be increased to $200,000 for the remaining term of the
Employment Agreement. In addition to such annual base salary, Mr. Johns is
entitled to receive as additional compensation in the form of an annual bonus,
an amount equal to five percent (5%) of the Company's pretax profit. The Company
has also agreed to (i) provide Mr. Johns with a monthly automobile allowance,
(ii) an accommodation allowance in recognition of his need to maintain a
residence both here and in the UK; and (iii) pay the premiums on life insurance
and health insurance policies for the benefit of Mr. Johns. Mr. Johns will also
be reimbursed by the Company for all expenses reasonably incurred by him in the
performance of his duties.
14
<PAGE>
The members of the Board of Directors, who are not employees of the
Company, are paid fees of $1,000 per quarter and $500 per Board of Director
meeting attended, plus reasonable travel expenses. The Chairman of the Board, if
not an employee of the Company, will receive an additional $2,000 per annum as
compensation for his duties as Chairman. Mr. Armitage receives an additional
$1,000 per board meeting attended due to the two additional days needed for
travel to and from the UK pursuant to an agreement upon his election to the
Board in November 1995. During the fiscal year ended March 31, 1999, Messrs.
Armitage, Hunnewell and Rohn earned fees for their services on the Board of
Directors of approximately $10,000, $6,000 and $6,000, respectively, plus
expenses; in addition, Mr. Armitage earned fees of approximately $23,000 in
connection with oversight of management activities related to CTI Data Solutions
Ltd. During the fiscal year ended March 31, 1999, Mr. Rohn received 30,000 stock
options pursuant to the Company's stock option and restricted stock plan upon
his appointment to the Board of Directors.
The following table sets forth option and stock appreciation right,
exercises in last fiscal year and year end values.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Name Shares Acquired Value Received Underlying Unexercised in-the-Money
on Exercise(#) ($) Options/SARs at Options/SARs at
FY-End(#) FY-End($)(1)
Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Anthony P. Johns, - - 50,000 / 0 $10,500 / $0.00
President/Chief
Executive Officer
</TABLE>
(1) As of June 25, 1999 the market value of the Company's stock was $0.41.
15
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth certain information with respect to the
beneficial ownership of shares of Common Stock held by officers, directors, or
affiliates, individually or as a group, and each person or entity known to the
Company to own beneficially more than 5% of the Company's Common Stock at June
25, 1999.
Percent
Shares of Common Stock of Voting
Name and Business Address Beneficially Owned (l) Securities
- ------------------------- ---------------------- ----------
Anthony P. Johns 2,045,603 (2)(3) 28.8%
CTI Data Solutions (USA), Inc.
2550 Eisenhower Avenue
Norristown, PA 19403
Rupert D. Armitage 371,912 (4) 5.2%
Ambit Research
100 New Kings Road
London SW64LX
Francis O. Hunnewell 214,314 (5) 3.0%
Hunnewell & Co.
10 Tremont Street, Suite 500
Boston, MA 02108
Fred H. Rohn 498,073 (6)(7) 6.9%
Village Road
P.O. Box 714
New Vernon, NJ 07976
All executive officers and directors 3,182,512 (2)(6)(8) 43.5%
as a group (5 persons)
NOTES:
(1) All shares are beneficially owned and the sole investment and voting power
is held by the person named, except as set forth below. Each share of
common stock has one vote.
(2) Includes 119,147 shares of the Company's common stock owned by John Perri
for which Mr. Johns holds voting proxy power.
(3) Includes options exercisable into 50,000 shares of the Company's common
stock.
16
<PAGE>
(4) Includes options exercisable into 52,500 shares of the Company's common
stock.
(5) Includes options exercisable into 30,000 shares of the Company's common
stock.
(6) Includes 383,073 shares of the Company's common stock owned by North
American Venture Capital Fund. Includes options exercisable into 90,000
shares of the Company's common stock. Mr. Rohn is a General Partner and
small Ltd. Partner of the Fund.
(7) Includes options exercisable into 15,000 shares of the Company's common
stock.
(8) Includes options exercisable into 267,500 shares of the Company's common
stock.
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
Not Applicable
Item 13. Exhibits and Reports on Form 8-K
---------------------------------
a) (1) and (2) The consolidated financial statements filed as part of
this annual report on Form 10-KSB are included in Part II, Item 7.
Index to Financial Statements Page
----------------------------- ----
Report of Independent Auditors for the Financial
Statements for the year ended March 31, 1999. F - 1
Report of Independent Auditors for the Financial
Statements for the year ended March 31, 1998. F - 2
Consolidated Balance Sheets at March 31, 1999 and 1998 F - 3
Consolidated Statements of Operations for the
years ended March 31, 1999 and 1998 F - 5
Consolidated Statements of
Stockholders' Equity (Deficit) and
Comprehensive Loss for the years
ended March 31, 1999 and 1998 F - 6
Consolidated Statements of Cash Flows for the
years ended March 31, 1999 and 1998 F - 7
Notes to Consolidated Financial Statements F - 9
17
<PAGE>
(b) Reports on Form 8-K.
The Company filed a Form 8-K with the Securities and Exchange
Commission on March 30, 1999, in connection with the resignation of Zelenkofske,
Axelrod and Co., Ltd. as principal accountants.
The Company filed a Form 8-K with the Securities and Exchange
Commission on 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 Securities and Exchange
Commission on July 14, 1999 in connection with the engagement of Deloitte &
Touche LLP as new independent auditors.
(c) Exhibits
2.1 Agreement and Plan of Merger dated as of December 16, 1996, by and
among CTI Group (Holdings) Inc., CGI Acquisition Corp., Soft-Com Inc. and John
Perri incorporated by reference from Exhibit #2.1 to Form 8-K filed with the
Securities and Exchange Commission on January 16, 1997.
2.2 Asset Purchase Agreement dated as of February 2, 1998 by and among
CTI Group (Holdings) Inc. CTI Data Solutions (International) Ltd. and Siemens
plc incorporated by reference from Exhibit #2.1 to the Form 8-K filed with the
Securities and Exchange Commission on February 17, 1998.
3.l The Company's Certificate of Incorporation and the By-laws
incorporated by reference from the Proxy Statement filed with the Securities and
Exchange Commission for Special Meeting of Stockholders held on February 19,
1988.
3.2 Amendment to the Company's Certificate of Incorporation for the
increase in the authorized capital of the Company to 10,000,000 shares, $.01 par
value incorporated by reference from the Form 10-Q, for the period ended
December 31, 1990, filed with the Securities and Exchange Commission on February
15, 1991.
10.1 Lease dated September 2, 1992, between Daniel S. Berman and Robert
J. Berman, co-partners, and the Company incorporated by reference from Exhibit
#10.5 to the Form 10-KSB filed with the Securities and Exchange Commission on
June 29, 1993.
10.2 Commercial Security Agreement dated June 1, 1995, between PNC
Bank, National Association and the Company incorporated by reference from
Exhibit #10.9 to the Form 10-KSB filed with the Securities and Exchange
Commission on June 29, 1995.
10.3 The Company's Stock Option and Restricted Stock Plan incorporated
by reference from Exhibit #1 to the 1995 Proxy filed with the Securities and
Exchange Commission on October 6, 1995.
10.4 Promissory Note dated September 29, 1995, between PNC Bank, NA and
the Company incorporated by reference from Exhibit #10.10 to the Form 10-KSB
filed with the Securities and Exchange Commission on July 1, 1996.
10.5 Promissory Note dated December 28, 1995, between PNC Bank, NA and
the Company incorporated by reference from Exhibit #10.11 to the Form 10-KSB
filed with the Securities and Exchange Commission on July 1, 1996.
10.6 Commercial Security Agreement dated June 1, 1996, between PNC
Bank, NA and the Company incorporated by reference from Exhibit #10.12 to the
Form 10-KSB filed with the Securities and Exchange Commission on July 1, 1996.
18
<PAGE>
10.7 Promissory Note dated June 1, 1996, between PNC Bank, NA and the
Company incorporated by reference from Exhibit #10.13 to the Form 10-KSB filed
with the Securities and Exchange Commission on July 1, 1996.
10.8 Form of Registration Rights Agreement dated as of January 2, 1997,
by and between CTI Group (Holdings) Inc. and each of the holders of the capital
stock of Soft-Com Inc. incorporated by reference from Exhibit #10.1 to Form 8-K
filed with the Securities and Exchange Commission on January 16, 1997.
10.9 Copy of Installment Note dated May 16, 1995, between First
Fidelity and Soft-Com Inc. incorporated by reference from Exhibit #10.13 to Form
10-KSB filed with the Securities and Exchange Commission on August 19, 1997.
10.10 Form of $2,000,000 Secured Promissory Note, executed by CTI Data
Solutions (International) Ltd. in favor of Siemens plc, dated February 2, 1998,
incorporated by reference from Exhibit #10.1 to the Form 8-K filed with the
Securities and Exchange Commission on February 17, 1998.
10.11 Form of Guaranty executed by CTI Group (Holdings) Inc. in favor
of Siemens plc dated February 2, 1998, incorporated by reference from Exhibit
#10.2 to the Form 8-K filed with the Securities and Exchange Commission on
February 17, 1998.
10.12 Form of Debenture executed by CTI Data Solutions (International)
Ltd. in favor of Siemens plc, dated February 2, 1998, incorporated by reference
from Exhibit #10.3 to the Form 8-K filed with the Securities and Exchange
Commission on February 17, 1998.
10.13 Form of Security Agreement between CTI Group (Holdings) Inc. and
Siemens plc, dated February 2, 1998, incorporated by reference from Exhibit
#10.4 to the Form 8-K filed with the Securities and Exchange Commission on
February 17, 1998.
10.14 Form of Collateral Pledge Agreement executed by CTI Group
(Holdings) Inc. in favor of Siemens plc dated February 2, 1998 incorporated by
reference from Exhibit #10.5 to the Form 8-K filed with the Securities and
Exchange Commission on February 17, 1998.
10.15 Copy of Employment Agreement, dated December 8, 1997 between
Anthony P. Johns and the Company incorporated by reference from Exhibit #10.15
to Form 10-KSB filed with the Securities and Exchange Commission on December 16,
1998.
10.16 Copy of Agreement, dated September 29, 1998 by and among CTI
Group (Holdings) Inc., CTI Data Solutions (International) Ltd., and Siemens plc
amending the Asset Purchase Agreement referred to in Exhibit 2.2 above,
incorporated by reference from Exhibit #10.16 to Form 10-KSB filed with the
Securities and Exchange Commission on December 16, 1998.
10.17 Copy of Lease Agreement, dated, July 1, 1998, by and between
Daniel S. Berman and Robert J. Berman, co-partners and CTI Group (Holdings) Inc.
for approximately 1,000 square feet of office space in the building known as 901
S. Trooper Road, Norristown, Pennsylvania, incorporated by reference from
Exhibit #10.17 to Form 10-KSB filed with the Securities and Exchange Commission
on December 16, 1998.
10.18 Copy of Lease Agreement, dated July 10, 1998, by and between
WHVPW Real Estate Ltd. Partnership and CTI Group (Holdings) Inc. for offices at
2550 Eisenhower Avenue, Norristown, Pennsylvania, incorporated by reference from
Exhibit #10.18 to Form 10-KSB filed with the Securities and Exchange Commission
on December 16, 1998.
19
<PAGE>
10.19 Copy of Agreement, dated March 31, 1999, by and among CTI Group
(Holdings) Inc., CTI Data Solutions (International) Ltd. and Siemens plc.
eliminating obligations and amending the Asset Purchase Agreement referred to in
Exhibit 2.2.
23.1 Consent of Deloitte & Touche LLP, Independent Auditors.
23.2 Consent of Zelenkofske Axelrod & Co., Ltd, CPA's and Inc.
27.1 List of Subsidiaries of CTI Group (Holdings) Inc. as of March
31, 1998.
27.2 Financial Data Schedule.
20
<PAGE>
Exhibit 21.1
CTI GROUP (HOLDINGS) INC.
List of Subsidiaries
as of March 31, 1998
Name State of Incorporation
---- ----------------------
CTI Delaware Holdings Inc. Delaware
CTI Data Solutions (USA) Inc. Delaware
CTI Soft-Com Inc. Delaware
Telephone Budgeting Systems Inc. New York
Plymouth Communications Inc. Delaware
Name Country
---- -------
CTI Data Solutions Ltd. United Kingdom
21
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) 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.
CTI Group (Holdings) Inc.
-----------------------------
Date: July 9, 1999 Anthony P. Johns,
President & Chief Executive Officer,
Chairman, Board of Directors
CTI GROUP (HOLDINGS) INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report was signed on behalf of the Registrant by the undersigned, and in
the capacities and on the dates indicated.
July 9, 1999 /s/ Anthony P. Johns
- ------------- --------------------
Date Anthony P. Johns,
President & Chief Executive Officer,
Chairman, Board of Directors
(Principal Executive Officer)
July 9, 1999 /s/ Francis O. Hunnewell
- ------------- ------------------------
Date Francis O. Hunnewell,
Member, Board of Directors
July 9, 1999 /s/ Rupert D. Armitage
- ------------- ----------------------
Date Rupert D. Armitage
Member, Board of Directors
July 9, 1999 /s/ Fred Rohn
- ------------- -------------
Date Fred Rohn
Member, Board of Directors
22
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement No.
333-01475 of CTI Group (Holdings) Inc. on Form S-8 of our report dated July 9,
1999 (which report expresses an unqualified opinion and includes an explanatory
paragraph related to the material uncertainty concerning the Company's ability
to continue as a going concern) appearing in this Annual Report on Form 10-KSB
of CTI Group (Holdings) Inc. for the year ended March 31, 1999.
Deloitte & Touche LLP
Philadelphia, PA
July 9, 1999
23
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement of
CTI Group (Holdings) Inc. on Form S-8 (No. 333-01475) of our report dated July
29, 1998, except for Note 3 (as identified in the 1998 Annual Report on Form
10-KSB) as to which the date is November 13, 1998 appearing in the Annual Report
on Form 10-KSB of CTI Group (Holdings) Inc. for the year ended March 31, 1999.
Zelenkofske Axelrod & Co., CPA's Inc.
Jenkintown, PA
June 29, 1999
24
<PAGE>
Exhibit 10.19
This Agreement is made on the 31st day of March, 1999
BETWEEN
(1) Siemens plc of Siemens House, Oldbury, Bracknell, Berkshire, RG12 8FZ (the
"Seller")
(2) CTI Data Solutions Limited of 854 Brighton Road, Purley, Surrey, CR8 2LZ
(the "Buyer")
(3) CTI Group (Holdings) Inc. of 901 South Trooper Road, PO Box 80360, Valley
Forge, Pennsylvania 19484, United States of America ("CTIG")
Whereas:
A. On the 2nd February 1998 the Seller and the Buyer entered into purchase and
sale agreement (the "Sale Agreement"( under which the Seller agreed to sell
to the Buyer a telecommunications call management software and services
business (the "Business").
B. The purchase price for the Business as set out in the Sale Agreement was
$2,000,000 (the "Principal Sum") the payment of which was secured under a
promissory note (the "Note") delivered by the Buyer to the Seller on 2nd
February 1998 (the "Closing Date"). Pursuant to a post-closing adjustment
to the purchase price the Principal Sum was amended and increased to
$2,278,000.
C. Under the terms of the Note of 2nd February 1998 the Principal sum was
expressed to be payable on 2nd February 2001 (the "Maturity Date") and
interest was expressed to be payable on the Principal sum and the rate of
10% per annum from the Closing Date to the Maturity Date and the Buyer had
an obligation under the terms of the Note to pay interest quarterly in
arrears.
D. Contemporaneously with the execution and delivery of the Note CTIG executed
it and delivered to the Seller a security agreement (the "Security
Agreement") and a pledge agreement (the "Pledge Agreement") and the Buyer
executed and delivered to the Seller a debenture (the "Debenture") which
documents provided a security interest in the assets of CTIG and the Buyer
respectively as a security for the payment of the Principal Sum and the
interest payable under the terms of the Note.
E. Under an agreement entered into between the parties on 29th September 1998
(the "Amendment Agreement") the following amendments were, inter alia,
agreed:
(i) the Principal Sum as set out in the Sale Agreement, the Note, the
Security Agreement, the Pledge Agreement and the Debenture were
amended in that all references to the Principal Sum as $2,278,000
formerly $2,000,000 were deleted and there was substituted the sum
of $1,500,000.
(ii) The interest due and payable on the Principal Sum (amounting to
$56,950) was agreed to be paid no later than 30th September 1998.
(iii) Save for the interest referred to in E(ii) above it was agreed that
no further interest should be payable on the Principal Sum and the
Seller expressly waived any further right to receive any interest.
25
<PAGE>
F. The parties now wish to enter into a further agreement in relation to the
outstanding liabilities referred to above and other matters:
Therefore it is agreed as follows:
1. The Seller hereby agrees to forever waive and release the Buyer from any
obligation to pay the Principal Sum and all references to such obligation
in the Note, the Security Agreement, the Pledge Agreement and the Debenture
shall have no meaning or effect.
2. The Seller hereby agrees to forever waive its right to nominate a Director
to serve on the Board of CTIG under Article 7.5 of the Sale Agreement and
on the Board of the Buyer under Section 7 of the Debenture. The Seller
shall procure that William Driscoll shall resign from the Board of
Directors of CTIG with effect from 9th March 1999.
3. The provisions of this agreement will not affect the liability of the Buyer
to the Seller arising as a consequence of the assignments to the Buyer of
the two leases of office premises situated at Brighton Road, Purley.
4. The following is agreed in relation to the current debts and debts which
will crystallise in the future:
4.1 In relation to the current invoiced indebtedness of the Buyer to
Siemens group companies (being Siemens Business Services Limited,
Siemens Group Services Limited and Siemens Network Systems, a
division of Siemens plc), amounting to a total aggregate value of
(pound)140,326.61 (the "Invoiced Value") the Seller hereby forever
waives on behalf of itself and the other Siemens group companies the
right to receive(pound)129,281.00 of the Invoiced Value. It is
agreed that the Buyer will make payment of the balance of the
Invoiced Value amounting to (pound)11,045.56 by no later than the
end of March 1999 and for such purpose the said balance shall be
made payable to Siemens Network Systems (a division of Siemens plc).
Such payment to Siemens Network Systems shall constitute full and
final settlement of the balance of the Invoiced Value in respect to
all Siemens group companies.
4.2 In relation to accrued additional charges due to Siemens group
companies (as referred to in paragraph 4.1 above) amounting to a
total aggregate value estimated to be (pound)118,235.00 it is agreed
that the Seller will submit the precise invoices relating to these
accrued charges prior to the end of April 1999. It is further agreed
that the Buyer will make payment of the total aggregate value of
these invoices by way of a banker's standing order over twelve equal
monthly payments commencing on 30th April 1999. The banker's
standing order shall be made payable to Siemens Network Systems (a
division of Siemens plc) and such payment shall constitute full and
final settlement in respect of accrued additional charges owing to
the Siemens group companies aforementioned.
4.3 In relation to the monthly charges for ongoing services to be
supplied by Siemens group companies from and including March 1999,
comprising the following:
Siemens Business Services - Mobile phones/pagers (pound)2,000
Siemens Group Services - Cars and fuel (pound)18,000
-------------
Total (pound)20,000
=============
It is agreed that the Seller will make payment to Siemens Network
Systems (a division of Siemens plc) for these charges by banker's
standing order, monthly in arrears until
26
<PAGE>
such time as the services cease to be provided by the respective
Siemens group companies. Any variation to the actual amount invoiced
and the amount paid under the standing order shall be adjusted at
each quarter end.
It is agreed that the Seller shall no longer have any obligation to
provide car fleet services to the Buyer with effect from the date
the Seller transfers the operation of its car fleet to an external
car fleet service provider which is currently estimated to be with
effect from 1st May 1999.
5. In consideration for the waiver of the debt set out clause 4 of this
agreement, the Seller undertakes to continue to provide support to the
customer base of Siemens Communications and acknowledges the key importance
of Claire Pro installations in relation to such support.
6. Where any obligation is expressed to be discharged by the Buyer in this
agreement TIG shall be jointly and severally liable for the discharge of
such obligation.
7. Save as expressly set out herein all of the terms and conditions of the
Sale Agreement and the Amendment Agreement shall not be amended and shall
remain in full force and effect.
8. The parties shall execute any other further documents or agreements as may
be necessary to give effect to the terms set out herein.
9. This agreement to the extent it relates to the Sale Agreement, the Note and
the Debenture shall be subject to English law and to the extent it relates
to the Security Agreement or the Pledge Agreement shall be subject to the
Law of the Commonwealth of Pennsylvania.
AS WITNESS the hands of the duly authorised representatives of the parties the
day and year first above written.
Signed for and on behalf of Signed for and on behalf of
Siemens plc by its duly authorised signatory CTI Data Solutions Limited by
its duly authorised signatory
Signature _________________________ Signature ______________________
Title _____________________________ Title __________________________
Signed for and on behalf of
CTI Group (Holdings) Inc. by its duly
authorised signatory
Signature _________________________
Title _____________________________
27
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 776,146
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<RECEIVABLES> 890,787
<ALLOWANCES> 264,156
<INVENTORY> 22,458
<CURRENT-ASSETS> 1,518,749
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0
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<TOTAL-LIABILITY-AND-EQUITY> 2,583,073
<SALES> 7,043,026
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