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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, 2000.
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 $7,230,336.
The aggregate market value of voting stock held by non-affiliates of the Issuer
as of June 15, 2000 was $11,560,213.
The number of shares of common stock outstanding as of June 22, 2000 was
7,576,505.
Transitional Small Business Disclosure Format (Check one): Yes _X_ No _ .
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PART I
Item 1. Description of Business
Business
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 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.
Recent Developments
On February 3, 2000 the Company entered into an Agreement and Plan of
Merger with Centillion Data Systems, Inc. ("Centillion") pursuant to which
Centillion's telecommunications billing business will be merged into the
Company. Centillion is a telecommunication company with annual billing revenues
of approximately $10.9 million dollars.
Centillion will divest itself of all businesses other than its billing
business, and Centillion's shareholders will initially receive 9,747,404 shares
of the Company's Common Stock. Centillion shareholders will be able to receive
up to 3,215,100 additional shares of the Company's common stock depending upon
the attainment of a revenue target by the combined company of $12 million over a
three year period from Centillion's largest current customer and from any
business that the combined company may derive from third parties to certain
patent infringement claims made by Centillion. Centillion shareholders will be
entitled to all or a portion of the additional shares based upon the formula of
3,215,100 shares multiplied by the ratio of (a) revenues derived by the combined
company from those sources to (b) $12 million target revenue. Centillion's
shareholders will be entitled to purchase the difference, if any, between
3,215,100 and the additional shares so issued at $1.50 per share.
The Centillion businesses that are not related to the billing business
are being transferred to a limited liability company (that will be owned by
current Centillion shareholders) in exchange for a Promissory Note that will be
approximately $10,000,000, which the Company will acquire in the merger.
Principal and interest will be paid as those businesses are sold. The Company
will issue additional shares of Common Stock to the Centillion shareholders for
principal payments, at a per share value of 88% of the average market value of
the Common Stock at the time. If the Promissory Note is not fully paid in five
years it is to be appraised, and shares of the Company's Common Stock are to be
issued for the appraised value at the average market price at the time.
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Centillion's right to enforce its patents, and its current and future
patent infringement litigation and claims, are being transferred to a limited
liability company that will be wholly-owned by the Company (the "Tracking LLC").
As part of the merger consideration in connection with the transfer, 2,833,334
shares of a newly-authorized Class B common stock will be issued to the
Centillion stockholders (the current Company common stock will be re-designated
as Class A). The Company and the holders of Class B common stock have certain
rights to convert the Class B common stock into Class A common stock at various
times after the merger based on the value of the Tracking LLC at a Class A
common stock value of $2.25 per share, for a maximum of 333,334 additional
shares if issued within one year of closing, and thereafter at either 88% of the
average market value at the time or 100% of the average market value at the
time, depending upon the type and amount of the conversion. Affiliates of
Centillion's current stockholders have committed to loan, on a non-recourse
basis, up to $2,000,000 to the Tracking LLC to pursue its patent infringement
litigation.
The Centillion merger will be accounted for as a reverse acquisition
due to the fact that former Centillion shareholders will own a majority of the
outstanding shares of common stock and control of the combined company upon
consummation of the transaction.
On April 6, 2000 the Company entered into an Agreement and Plan of
Merger with Celltech Information Systems, Inc., which is contingent on the
consummation of the Centillion merger. Celltech provides custom software
development, customer management systems, billing and other services, and had
net annual billing revenues of approximately $6.4 million dollars.
The Company will acquire Celltech with a combination of cash and stock
for total consideration valued at $5,251,977. The purchase will include $262,599
in cash, and the balance of $4,989,378 will be satisfied by the issuance of
1,633,126 newly registered shares of common stock at an assumed value of $3.00
per share (subject to change based upon the fair market value on the measurement
date). The shares, to be issued at closing, may be adjusted based upon the
average stock price during the twenty-day trading period prior to the closing,
to a maximum average price of $3.75 per share and a minimum of $2.25 per share.
Consummation of the mergers are subject to certain customary conditions
including regulatory and other approvals. The Company currently anticipates such
transactions to be consummated in the second fiscal quarter of 2001. However
there can be no assurance that either transaction will be consummated.
Markets, Products and Services
The Company estimates that the worldwide annual market for
telemanagement products and services and telecommunications billing and customer
care is approximately $9 billion.
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 candidates for the
Company's billing products. The Company anticipates it can further expand its
products and services through internal development of its own technological
capabilities, 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.
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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 that are generally for periods of 12
months.
For software licensing agreements on a direct distribution basis,
payment terms are a 50% deposit upon receipt of order and the 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 activityOutputs
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. The billing
products are mission-critical to providers inasmuch 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 "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
includes 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 that at some future time it will package and market 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 Data Solutions, 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. Moreover, these
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
"Nereus" (CTI Data Solutions, Inc..) and "Proteus Office", "Proteus Corporate"
and "Proteus Trader" (CTI Data Solutions Ltd.), all of which are Y2K compliant.
All Windows OS products apply state-of-the-art technology to 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.)
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Installed Customer Base - MS-DOS Software Systems. For the year ended
March 31, 2000, 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, 2000, the Company employed approximately 65
people on a full-time basis, of whom five 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: The Company competes with a number of companies that
provide products and services that serve the same function as those provided by
the Company, although the Company operates in a highly fragmented market.
Competitors such as Amdocs Ltd., Daleen Technologies, Veramark Technologies and
Billing Concepts compete against the Company in the billing sector and
competitors such as BTS, FDS, Softech, Oak and Tiger compete against the Company
in the telemanagement sector.
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Billing Sector. 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 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 is 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. This 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.
Item 2. Description of Properties
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 originally expired in August 2000, but the Company has renegotiated an
extension to January 31, 2001. Annual rent is approximately $24,000. The
Company's subsidiary, CTI Data Solutions Ltd., leases an approximately 3,485
square foot office space in Purley, Surrey, UK. At present, the annual rent is
approximately $71,109. The term of the lease is for 5 years which commenced in
December 1999 and will end in December 2004.
Item 3. Legal Proceedings
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, 2000 there was no 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, 2000
the former employee has utilized the full value 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. There was
a settlement reached of $10,000 which was paid by the Company on November 1,
1999.
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In November 1998, a former employee filed suit against the Company
alleging breach of an implied employment contract and other matters, and 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
None
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
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,)
2000 1999
---- ----
High Low High Low
1st Quarter $0.5625 $0.35 $.31 $.22
2nd Quarter $0.75 $0.31 $.33 $.27
3rd Quarter $4.88 $0.45 $.15 $.10
4th Quarter $5.75 $1.906 $.69 $.12
B. At June 15, 2000, the high / low sales price for such shares was
$2.31.
C. At June 15, 2000, the number of shareholders of record of Common
Stock approximated 500. This number was derived from the Company's
stockholder records, and does not include beneficial owners of the
common stock whose shares are held in the names of various
dealers, clearing agencies, banks, brokers and other fiduciaries.
D. No dividends were paid in the fiscal years ended March 31, 2000
and 1999.
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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", "estimates", "expect", "may",
"plan", "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
The Company had a net loss of $521,291 or $0.07 per share for the
fiscal year ended March 31, 2000, as compared to a net loss of $414,843, or
$0.06 per share, for the fiscal year ended March 31, 1999. The net loss includes
non-recurring charges of $602,782 of which $482,153 relates to legal,
accounting, consulting and other compensation charges related to the pending
merger with Centillion and the acquisition of Celltech, and $120,629 in charges
related to the settlement costs related to the termination of a lease
(associated with office space previously leased by CTI Data Solutions Ltd.) The
charges related to the settlement costs related to the termination of the lease
have been included in selling, general and administrative expense for the fiscal
year ended March 31, 2000. The impact of the aforementioned non-recurring
charges for the fiscal year ended March 31, 2000 reduced net income by $602,782
or $0.09 per share.
Revenues from operations increased $187,310 to $7,230,336 for the
fiscal year ended March 31, 2000, as compared to the prior year period. The
increase in revenues was attributable to increased telemanagement product and
services revenues primarily generated by CTI Data Solutions Ltd. Revenues
generated from CTI Data Solutions Ltd. operations amounted to approximately $4.8
million during fiscal year end March 31, 2000, compared to $4.4 million in the
prior year ended March 31, 1999. Revenues generated from CTI Data Solutions Inc.
decreased by $193,004 compared to the prior year primarily as a result of
anticipated migration of revenues derived from service bureau activities in
excess of increases in newer technology based telemanagement products. Revenues
from ITMS Service Bureau activities ceased in September 1999. ITMS Service
Bureau revenues amounted to approximately $61,000 and $257,000 during fiscal
year ended March 31, 2000 and 1999, respectively. The Company anticipates that
it will be able to replace revenues from service bureau activities through
increased sales and servicing revenue from the newer technology based
telemanagement and billing product software. Revenues generated by CTI Data
Solutions Ltd. have been significantly less than those originally anticipated at
the time that the business was acquired in February 1998. (See Databit
Acquisition in Management's Discussion and Analysis or Plan of Operations).
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Cost of Sales were 58% of sales in 2000 and 62% of sales in 1999. Costs
of sales decreased $175,639 for fiscal year ended March 31, 2000, as compared to
the prior year period due primarily to continued cost containment measures
initiated during fiscal year ended March 31, 1999. The cost containment measures
included the continued reduction in non-essential technical staff. The less than
anticipated revenues generated by CTI Data Solutions Ltd. necessitated the cost
containment measures which were initiated during the fiscal year ended March 31,
1999. (See Databit Acquisition in Management's Discussion and Analysis or Plan
of Operations). Gross margins improved from 38% from the fiscal year ended March
31, 1999 to 42% for the fiscal year ended March 31, 2000. Margins improved for
telemanagement and billing revenues from 37% and 49%, respectively, for March
31, 1999 to 38% and 75%, respectively, for the fiscal year end March 31, 2000.
The improvement in gross margins was primarily related to cost containment
measures which included reduction in personnel staff levels and increased
revenues generated by CTI Data Solutions Ltd.
Selling, general and administrative ("SG&A") expenses increased from
$2,386,671 or 34% of sales in 1999 to $2,466,772 or 34% of sales in 2000. The
increase was primarily the net result of charges of $120,619 related to
settlement cost related to the termination of a lease associated with office
space previously leased by CTI Data Solutions Ltd. offset by reduction in
non-essential support staff.
The Company incurred expenses totalling $482,153 related to the pending
merger with Centillion.
Depreciation and amortization expenses increased $6,531 to $592,964 for
the fiscal year ended March 31, 2000 as compared to the prior year. Interest
expense decreased to $6,809 during fiscal year ended March 31, 2000 as compared
to, $29,697 during fiscal year ended March 31, 2000. The decrease in interest
expense was primarily due to the pay-down of the bank debt during fiscal year
ended March 31, 2000.
Liquidity and Capital Resources: Cash and cash equivalents decreased to
$171,761 at March 31, 2000 compared to $776,146 at March 31, 1999. Operating
activities utilized $466,155 primarily as a result of the Company's net loss,
increase in accounts receivable and decreases in accounts payable and deferred
revenues. Investing activities utilized $149,395 related primarily to the
additions to equipment and leasehold improvements. Financing activities utilized
$25,401 related to the repayment of debt of $168,031 offset by cash received in
connection with the exercise of stock options of $142,625.
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 $944,635 and
$1,369,928 at March 31, 2000 and 1999, respectively and has incurred net losses
of $521,291 and $414,843 for the years ended March 31, 2000 and 1999,
respectively. In addition, the Company's line of credit, which was fully
utilized as of March 31, 1999, was restructured to a term loan due in September
2000. The Company did not have any established lines of credit available for
borrowing as of March 31, 2000. In April 2000, the Company established an
overdraft line of credit for use by CTI Data Solutions Ltd. for approximately
$143,000. The overdraft line of credit bears interest at the bank's prime rate
plus 2.87%, with interest payable quarterly. The overdraft line of credit which
is available for a twelve month period is collateralized by CTI Data Solutions
Ltd.'s trade receivables. CTI Data Solutions Ltd. net trade receivable amounted
to $459,091 as of March 31, 2000.
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. Celltech will significantly strengthen its
financial position and its ability to continue as a going concern by providing
increased revenues and cash resources. If the Company is not successful in its
pending merger and acquisition, 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.
10
<PAGE>
Databit Acquisition
In February 1998, in a transaction accounted for as a purchase, the
Company consummated 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 February 1998.
The acquisition of Databit was subjected to on-going dialog and
negotiations that ultimately were finalized in March 1999. The initial
acquisition price established in February 1998 was financed through a secured
promissory note collateralized by the underlying net assets of Databit payable
to Siemens plc for approximately $2.3 million. The purchase price was based upon
the anticipated sales volumes to Siemens-related entities and underlying value
of its intangible assets. It immediately became apparent subsequent to February
1998 that the anticipated sales volumes and underlying value of its intangible
assets were unrealistic. As a result of the on-going negotiations, Siemens plc
agreed to adjust the purchase price through a reduction of the note payable to
Siemens plc for $1,500,000 with no interest payments, which was recorded at the
discounted value of $1,248,293. Siemens plc did, however, acknowledge that they
would continue to monitor the situation in hopes that efforts to reinstate sales
with the Siemens-related entities would succeed. Siemens plc agreed that further
adjustments to the note payable would be made if sales to Siemens-related
entities were not resurrected. Subsequent to September 1998, negotiations
continued between the Company and Siemens plc as sales generated from the assets
continued to be significantly less than was originally represented. These
continuing negotiations, caused by less sales to Siemens-related entities than
had been anticipated in connection with the purchase of Databit, ultimately
resulted in the forgiveness of the remaining balance of the promissory note on
March 31, 1999.
The elimination of debt by Siemens plc 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 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 adjustment 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 plc 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.
CTI Data Solutions Ltd. generated approximately $5.9 million of revenue
for the fiscal year ended March 31, 1998 on a proforma basis assuming the
acquisition of Databit was consummated on April 1, 1997. CTI Data Solutions Ltd.
recognized approximately $4.4 million of revenue for the fiscal year ended March
31, 1999. CTI Data Solutions Ltd. revenues declined significantly for the fiscal
year ended March 31, 1999, as compared to the prior year prepared on a proforma
basis as a result of loss of sales to Siemens-related entities. CTI Data
Solution Ltd. revenue for the first quarter for the fiscal year ended March 31,
1999 amounted to approximately $944,000 as compared to proforma revenues for the
fourth quarter for the fiscal year ended March 31, 1998 of approximately
$1,365,000 (the fourth quarter for fiscal 1998 is the quarter in which the
acquisition took place.) In the latter half of the fiscal year ended March 31,
1999, CTI Data Solutions Ltd. introduced new products which increased revenues
and offset the loss of revenues associated with sales to Siemens-related
entities and decline in revenues associated with its older products.
The increased revenue stream continued into the fiscal year ended March
31, 2000. CTI Data Solutions Ltd. recognized approximately $4.9 million in
revenues in March 31, 2000.
11
<PAGE>
The CTI Data Solutions Ltd. operating infrastructure remained
substantially in place after the acquisition of Databit. The operating
infrastructure remained substantially in place because it was assumed it would
continue to support revenue levels comparable to levels prior to the acquisition
which did not continue. After the acquisition of Databit in February 1998 the
lack of sales to Siemens-related entities and the existing operating
infrastructure resulted in an unfavorable impact on cash flows. In the second
quarter of the fiscal year ended March 31, 1999 cost containment measures were
instituted primarily in the form of staff reduction of non-essential staff in
order to improve cash flows. Operating expenses, including cost of goods,
selling general & administrative expenses and depreciation and amortization
declined within the fiscal year ended March 31, 1999 from a high of
approximately $1,367,000 in the first quarter to a low of approximately $872,000
in the fourth quarter.
The underlying products generating revenues for CTI Data Solutions are
significantly different currently than those offered as of the acquisition date
as a result of product development and upgrades.
12
<PAGE>
Item 7. Financial Statements
Index to Financial Statements
Page
----
Report of Independent Auditors. F - 1
Consolidated Balance Sheets at March 31, 2000 and 1999. F - 2
Consolidated Statements of Operations for the
years ended March 31, 2000 and 1999. F - 4
Consolidated Statements of Stockholders'
Equity (Deficit) and Comprehensive
Loss for the years ended
March 31, 2000 and 1999. F - 5
Consolidated Statements of Cash Flows for the
years ended March 31, 2000 and 1999. F - 6
Notes to Consolidated Financial Statements F - 8
13
<PAGE>
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.
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.
14
<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 sheets of CTI Group
(Holdings) Inc. (the "Company") as of March 31, 2000 and 1999 and the related
consolidated statements of operations, stockholders' equity (deficit) and
comprehensive loss, and cash flows for the years 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of March 31, 2000 and 1999,
and the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements 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, working capital deficiency, and stockholders' 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, PA
June 9, 2000
F-1
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
-------------------------
2000 1999
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 171,761 $ 776,146
Trade receivables, less allowance for doubtful
accounts of $97,717 and $145,077 at
March 31, 2000 and 1999 857,390 626,631
Inventories 4,367 22,458
Prepaid expenses 97,949 93,514
---------- ----------
Total current assets 1,131,467 1,518,749
Furniture, fixtures, equipment and leasehold
improvements at cost, less accumulated
depreciation and amortization of $402,441
and $305,250 at March 31, 2000 and 1999 182,923 168,327
Computer software, net of accumulated
amortization of $2,745,842 and $2,283,518 at
March 31, 2000 and 1999, respectively 397,389 840,682
Excess of cost over net assets of acquired
business, net of accumulated amortization of
$44,561 and $11,112 at March 31, 2000 and 1999 -0- 33,453
Other assets 9,623 21,862
---------- ----------
$1,721,402 $2,583,073
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-2
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
March 31,
-------------------------
2000 1999
---------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 50,398 $ 218,424
Accounts payable 135,570 492,842
Other accrued expenses 981,082 1,002,406
Accrued merger costs 243,981 - 0 -
Accrued taxes payable 143,114 175,487
Deferred revenue 521,957 999,518
---------- ----------
Total current liabilities 2,076,102 2,888,677
Commitments and Contingencies
Stockholders' deficit:
Common stock, par value $.01; 50,000,000 shares
authorized; 7,566,505 issued at March 31, 2000
and 7,041,349 shares issued at March 31, 1999 75,665 70,417
Capital in excess of par value 8,524,057 8,062,507
Accumulated deficit (8,606,975) (8,085,684)
Accumulated other comprehensive
income 58,953 53,556
Less - Treasury stock, 140,250 shares at
March 31, 2000 and 1999, at cost (406,400) (406,400)
---------- ----------
Total stockholders' deficit (354,700) (305,604)
---------- ----------
$1,721,402 $2,583,073
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-3
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended March 31,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Sales $ 7,230,336 $ 7,043,026
Cost of sales (exclusive of depreciation and
amortization) 4,202,929 4,378,568
----------- -----------
Gross Profit 3,027,407 2,664,458
----------- -----------
Costs and expenses:
Selling, general and administrative expenses 2,466,772 2,386,671
Merger costs 482,153 -0-
Depreciation and amortization 592,964 586,433
----------- -----------
3,541,889 2,973,104
----------- -----------
Loss from operations (514,482) (308,646)
Interest expense (6,809) (29,697)
----------- -----------
Loss before provision for income taxes (521,291) (338,343)
Provision for income taxes - 0 - 76,500
----------- -----------
Net loss $ (521,291) $ (414,843)
=========== ===========
Basic and diluted loss per common share $ (0.07) $ (0.06)
=========== ===========
Basic and diluted weighted average
common shares outstanding 7,007,295 6,898,946
=========== ===========
</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 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> <C>
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)
========= ======= ========== =========== ========= ======== =========
Stock issued to employees 108,751 1,084 30,960 32,044
Stock issued to directors in
lieu of fees 59,405 594 30,163 30,757
Stock issued to consultant 17,000 170 28,854 29,024
Stock options issued to directors
and employees 232,348 232,348
Exercised options 340,000 3,400 139,225 142,625
Comprehensive Loss:
Net Loss $(521,291) (521,291) (521,291)
Foreign currency adjustment 5,397 5,397 5,397
---------
Total $(515,894)
--------- ------- ---------- ========= ----------- --------- -------- ---------
Balances at March 31, 2000 7,566,505 $75,665 $8,524,057 $(8,606,975) $(406,400) 58,953 $(354,700)
========= ======= ========== =========== ========= ======== =========
</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 CASH FLOWS
<TABLE>
<CAPTION>
Years ended March 31,
---------------------------
2000 1999
----------- ----------
<S> <C> <C>
Cash Provided By:
Operating Activities:
Net Loss $(521,291) $(414,843)
Adjustments to reconcile net loss to net cash provided by
(used in) operations:
Depreciation and amortization 592,964 586,433
Purchase price adjustment to interest expense - 0 - (192,321)
Provision for doubtful accounts (17,258) (17,243)
Issuance of stock for payment of directors' fees 30,757 - 0 -
Issuance of stock options 232,348 34,794
Issuance of stock to employees 32,044 - 0 -
Issuance of stock for payment to consultants 29,024 - 0 -
Deferred taxes - 0 - 76,500
Changes in operating assets and liabilities:
Decrease (increase) in receivable, trade (216,847) 362,931
Decrease in inventories 18,623 25,421
Decrease (increase) in prepaid expenses (6,006) 49,758
Decrease in accounts payable (365,988) (23,074)
(Decrease) increase in other accrued expenses 191,740 (51,776)
Decrease in deferred revenue (478,504) (34,851)
Decrease (increase) in other assets 12,239 (5,050)
--------- ---------
Total operating activities (466,155) 396,679
--------- ---------
Investing Activities:
Additions to equipment and leasehold improvements (130,364) -0-
Additions to computer software (19,031) (184,978)
--------- ---------
Total investing activities (149,395) (184,978)
--------- ---------
</TABLE>
F-6
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Years ended March 31,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Financing Activities:
Repayment of debt (168,026) (94,838)
Exercised Options 142,625 - 0 -
----------- -----------
Total financing activities (25,401) (94,838)
----------- -----------
Effect of exchange rate changes on cash 36,566 30,954
----------- -----------
(Decrease) increase in cash and cash equivalents (604,385) 147,817
Cash and cash equivalents, at beginning of year 776,146 628,329
----------- -----------
Cash and cash equivalents, at end of year $ 171,761 $ 776,146
=========== ===========
Supplemental disclosures:
Cash paid during the year for:
Interest $ 12,417 $ 121,440
=========== ===========
Income taxes $ - 0 - $ - 0 -
=========== ===========
Non-cash investing and financing activities:
Purchase price adjustment (see Note 4)
Elimination of promissory note $ - 0 - $ 1,335,541
Write down of software - 0 - (738,484)
Write down of fixed assets - 0 - (71,604)
----------- -----------
$ - 0 - $ 525,453
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-7
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 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 inter-company accounts and transactions have been
eliminated in consolidation. The financial statements are prepared in conformity
with accounting principles generally accepted in the United States of America..
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. Estimates utilized by the Company include the determination of the
collectibility of receivables, valuation of options, and recoverability of
software costs.
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 the greater of the
amount computed using the ratio of the current gross revenues that a product
bears to the total of current and anticipated future gross revenues for that
product or 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 $19,031 and $184,978 in the fiscal years ended March 31,
2000 and 1999, respectively, in costs related to its software. The amortization
expense for developed software was $462,324 in the fiscal year ended March 31,
2000 and $492,821 in the fiscal year ended March 31, 1999.
F-8
<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 future net cash flows of the acquired
operation, 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 based upon fair
market value of the individual products or services as follows:
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.
The Company typically does not provide bundled products or services. Revenues
are recorded for each product or services based on when such products or
services are performed. The value of the different elements of the products or
services performed is based upon the actual amount charged to the customers when
the elements are sold and the amount charged is specifically identifiable to the
element.
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
would have been to increase dilutive weighted average shares by 170,371 shares
and 53,007 for the years ended March 31, 2000 and 1999, respectively amounting
to 7,177,666 shares and 6,951,953 shares at March 31, 2000 and 1999
respectively. Because the Company incurred losses for the years ended March 31,
2000 and 1999, 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, 2000 and 1999.
F-9
<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, 2000, such deposits exceeded statutory insured limits by
$69,038. 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. Trade
receivable write-offs amounted to $64,618 and $153,565 for the fiscal years
ended March 31, 2000 and 1999, respectively.
COMPREHENSIVE INCOME: 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
carry forwards.
RECLASSIFICATION: Certain reclassifications have been made to the comparative
March 31, 1999 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 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.
In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB No. 101"). SAB No. 101 provides guidance on the recognition, presentation,
and disclosure of revenue in financial statements filed with the SEC, and is
required to be adopted in the fourth quarter of fiscal years beginning after
December 15, 1999. The Company has not yet determined the impact SAB No. 101
will have on its consolidated financial position or results of operations.
NOTE 2 - GOING CONCERN AND 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 $944,635 and $1,369,928 at March
31, 2000 and 1999, respectively and has incurred net losses of $521,291 and
$414,843 for the years ended March 31, 2000 and 1999, respectively. In addition,
the Company's line of credit, which was fully utilized as of March 31, 1999, was
restructured to a term loan due in September 2000.
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. The Company anticipates that the pending merger with
Centillion and the acquisition of Celltech (see Note 3) will significantly
strengthen its financial position and its ability to continue as a going concern
by providing increased revenues and cash resources. If the Company is not
successful in its pending merger and acquisition, 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. In April 2000, the Company established an
overdraft line of credit available for use by CTI Data Solutions Ltd. for
approximately $143,000. 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-10
<PAGE>
NOTE 3 - PENDING TRANSACTIONS: On February 3, 2000 the Company entered into an
Agreement and Plan of Merger with Centillion Data Systems, Inc. ("Centillion")
pursuant to which Centillion's telecommunications billing business will be
merged into the Company. Centillion is a telecommunication company with annual
billing revenues of approximately $10.9 million dollars.
Centillion will divest itself of all businesses other than its billing business,
and Centillion's shareholders will initially receive 9,747,404 shares of the
Company's Common Stock. Centillion shareholders will be able to receive up to
3,215,100 additional shares of the Company's common stock depending upon the
attainment of a revenue target by the combined company of $12 million over a
three year period from Centillion's largest current customer and from any
business that the combined company may derive from third parties to certain
patent infringement claims made by Centillion. Centillion shareholders will be
entitled to all or a portion of additional shares based upon the formula of
3,215,100 shares multiplied by the ratio of (a) revenues derived by the combined
company from those sources to (b) 12 million. Centillion's shareholders will be
entitled to purchase the difference, if any, between 3,215,100 and the
additional shares so issued at $1.50 per share.
The Centillion businesses that are not related to the billing business are being
transferred to a limited liability company (that will be owned by current
Centillion shareholders) in exchange for a Promissory Note that will be
approximately $10,000,000, which the Company will acquire in the merger.
Principal and interest will be paid as those businesses are sold. The Company
will issue additional shares of Common Stock to the Centillion shareholders for
principal payments, at a per share value of 88% of the average market value of
the Common Stock at the time. If the Promissory Note is not fully paid in five
years it is to be appraised, and shares of the Company's Common Stock are to be
issued for the appraised value at the average market price at the time.
Centillion's right to enforce its patents, and its current and future patent
infringement litigation and claims, are being transferred to a limited liability
company that will be wholly-owned by the Company (the "Tracking LLC"). As part
of the merger consolidation, in connection with the transfer, 2,833,334
newly-authorized shares of the Company Class B common stock will be issued to
the Centillion stockholders (the current Company common stock will be
re-designated as Class A). The Company and the holders of Class B common stock
have certain rights to convert the Class B common stock into Class A common
stock at various times after the merger based on the value of the Tracking LLC
at a Class A common stock value of $2.25 per share, for a maximum of 333,334
additional shares if issued within one year of closing, and thereafter at either
88% of the average market value at the time or 100% of the average market value
at the time, depending upon the type and amount of the conversion. Affiliates of
Centillion's current stockholders have committed to loan, on a non-recourse
basis, up to $2,000,000 to the Tracking LLC to pursue its patent infringement
litigation.
The Centillion merger will be accounted for as a reverse acquisition due to the
fact that former Centillion shareholders will own a majority of the outstanding
shares of common stock and control of the combined company upon consummation of
the transaction. As such, upon closing the transaction, the Company's assets
will be revalued and the purchase price will be allocated to those assets and
liabilities assumed by Centillion. The allocation of the purchase price will be
dependent on the final appraisal yet to be received.
The Company has incurred costs related to the Centillion merger of $482,153.
Such cost are made up of legal, accounting, and consulting costs of $269,881 and
compensation expense of $212,272 related to options granted to the Company's
President and Chief Executive Officer ("CEO") which were contingent upon the
Company entering into a merger agreement with Centillion (see Note 9). Such
costs have been expensed as incurred due to the Company being the accounting
acquiree in the transaction.
F-11
<PAGE>
On April 6, 2000 the Company entered into an Agreement and Plan of Merger with
Celltech Information Systems, Inc. which is contingent on the consummation of
the Centillion merger. Celltech provides custom software development, customer
management systems, billing and other services to the media of multi-service
telecommunications providers, and had net annual billing revenues of
approximately $6.4 million dollars.
The Company will acquire Celltech with a combination of cash and stock for total
consideration valued at $5,251,977. The purchase will include $262,599 in cash,
and the balance of $4,989,378 will be satisfied by the issuance of 1,633,126
newly registered shares of common stock at an assumed value of $3.00 per share
(subject to change based upon the fair market value on the measurement date).
The shares, to be issued at closing, may be adjusted based upon the average
stock price during the twenty-day trading period prior to the closing to a
maximum average price of $3.75 per share and a minimum of $2.25 per share.
The Company will account for the Celltech acquisition under the purchase method
of accounting. The allocation of the purchase price will be dependent on the
final appraisal yet to be received.
Consummation of the mergers are subject to certain customary conditions
including regulatory and other approvals. The Company currently anticipates such
transactions to be consummated in the second fiscal quarter of 2001. However
there can be no assurance that either transaction will be consummated.
The following summarized financial information for Centillion and Celltech has
been derived from their audited financial statements for the year ended December
31, 1999 and their unaudited financial statements for the three months ended
March 31, 2000.
<TABLE>
<CAPTION>
Centillion Celltech
Year ended 3 months ended Year ended 3 months ended
12/31/99 3/31/00 12/31/99 3/31/00
----------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Statement of Operations
Information
Sales 10,734,642 10,127,979 7,952,798 1,856,529
Gross Profit 6,211,857 6,866,189 3,968,862 926,222
Income (loss) from
Operations 4,253,272 6,392,952 (714,580) 97,091
Net income (loss) from
Continuing Operations 2,619,563 4,217,098 (577,411) 80,620
Balance Sheet Information
(at period end)
Total Assets of
Discontinued Operations 3,941,885 -
Total Assets 25,623,321 1,674,381
Total Liabilities of
Discontinued Operations 889,489 -
Minority Interest 1,369,039 -
Total Liabilities 4,681,219 1,131,490
Stockholders' Equity 20,942,102 542,891
</TABLE>
F-12
<PAGE>
NOTE 4 - ACQUISITION OF BUSINESS
In February 1998, in a transaction accounted for as a purchase, the Company
consummated 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 February 1998.
The acquisition of Databit was subjected to on-going dialog and negotiations
that ultimately were finalized in March 1999. The initial acquisition price
established in February 1998 was financed through a secured promissory note
collateralized by the underlying net assets of Databit payable to Siemens plc
for approximately $2.3 million. The purchase price was based upon the
anticipated sales volumes to Siemens-related entities and underlying value of
its intangible assets. It immediately became apparent subsequent to February
1998 that the anticipated sales volumes and underlying value of its intangible
assets were unrealistic. As a result of the on-going negotiations, Siemens plc
agreed to adjust the purchase price through a reduction of the note payable to
Siemens plc for $1,500,000 with no interest payments, which was recorded at the
discounted value of $1,248,293. Siemens plc did, however, acknowledge that they
would continue to monitor the situation in hopes that efforts to reinstate sales
with the Siemens-related entities would succeed. Siemens plc agreed that further
adjustments to the note payable would be made if sales to Siemens-related
entities were not resurrected. Subsequent to September 1998, negotiations
continued between the Company and Siemens plc as sales generated from the assets
continued to be significantly less than was originally represented. These
continuing negotiations, caused by less sales to Siemens-related entities than
had been anticipated in connection with the purchase of Databit, ultimately
resulted in the forgiveness of the remaining balance of the promissory note on
March 31, 1999.
The elimination of debt by Siemens plc 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 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 adjustment 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 plc 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.
NOTE 5 - FURNITURE, FIXTURES, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
The Company's fixed assets consist of the following:
<TABLE>
<CAPTION>
March 31,
------------------------
2000 1999
-------- --------
<S> <C> <C>
Equipment $476,736 $342,134
Furniture and fixtures 1,271 14,500
Leasehold improvements 107,357 116,943
-------- --------
585,364 473,577
Less accumulated depreciation and amortization (402,441) (305,250)
-------- --------
$182,923 $168,327
======== ========
</TABLE>
F-13
<PAGE>
Depreciation and amortization expense on furniture, fixtures, equipment, and
leasehold improvements amounted to $97,187 and $89,160 for the fiscal year ended
March 31, 2000 and 1999, respectively.
NOTE 6 - DEBT
The following table summarizes current debt:
March 31,
--------------------------
2000 1999
------- --------
Bank debt $50,398 $198,560
Other - 0 - 19,864
------- --------
$50,398 $218,424
======= ========
The bank debt which was amended in September 1999, requires equal requires
monthly payments of principal and interest amounting to $8,791 maturing on
September 30, 2000. The bank debt bore interest at 10% during fiscal year end
March 31, 2000 and 1999. The bank debt is secured by substantially all of the
assets of CTI Data Solutions Inc. The bank debt 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. At March 31, 2000
the Company was not in compliance with certain of its financial covenants;
however, in June 2000 the Company received permanent waiver of compliance on its
financial covenants from the bank. In April 2000, the Company established an
overdraft line of credit available for use by Data Solutions Ltd. for
approximately $143,000. The overdraft line of credit bears interest at the
bank's prime rate plus 2.87% with interest payable quarterly. The overdraft line
of credit which is available for a twelve month period is collaterialized by CTI
Data Solutions Ltd.'s trade receivables. CTI Data Solutions Ltd. net trade
receivable amounted to $459,091 as of March 31, 2000.
NOTE 7 - 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:
2001 $199,153
2002 $191,054
2003 $147,809
2004 & thereafter $ 81,134
---------
Total minimum lease payments $619,150
Rent and lease expense was $306,694 and $506,623 for the fiscal years ended
March 31, 2000 and 1999, 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, 2000 and 1999, $0 and $20,000
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, 2000 the former employee had fully
utilized this credit.
F-14
<PAGE>
In March 1998 the Company's former financial advisors filed suit against the
Company for breach of contract. This action sought 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 financial advisor sought 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 Company believed it paid the financial
advisor the advisory fee called for under the contract and out-of-pocket
expenses; however, there was a settlement reached of $10,000, which was paid by
the Company on November 1, 1999.
In November 1998, a former employee 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.
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.
No accrual was required for the fiscal years ended March 31, 2000 and 1999. 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 8 - INCOME TAXES
The provision for income taxes (benefit) consists of the following:
Years ended March 31,
---------------------
2000 1999
------ -------
Federal - deferred $- 0 - $59,125
State - deferred $- 0 - $17,375
------ -------
Provision for income taxes (benefit) $- 0 - $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:
<TABLE>
<CAPTION>
Years ended March 31,
--------------------------
2000 1999
----------- ----------
<S> <C> <C>
Computed tax (benefit) at the expected statutory rate $ (182,452) $(118,420)
State tax (benefit), net (30,959) (22,100)
Other 15,748 6,700
Loss from foreign subsidiary (10,577) 14,727
Increase in valuation allowance 208,240 195,593
---------- ---------
$ - 0 - $ 76,500
========== =========
</TABLE>
F-15
<PAGE>
The components of the overall net deferred taxes are as follows:
Years ended March 31,
-------------------------
2000 1999
---------- -----------
Tax loss carry-forwards $1,556,533 $ 971,048
Depreciation and amortization 210,077 417,829
Allowance for doubtful accounts 40,553 108,400
Unexercised stock options 92,336 60,026
Other (133,956) --
---------- -----------
Total deferred tax assets 1,765,543 1,557,303
Valuation allowance (1,765,543) (1,557,303)
---------- -----------
Deferred tax asset net of valuation allowance - 0 - - 0 -
========== ===========
The Company has federal net operating loss carry-forwards of approximately
$3,750,000 which are available to reduce future taxable income. The loss
carry-forwards will expire if unused beginning in the year 2006 through 2020.
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. If utilized, certain tax benefits of
approximately $300,000 would be related to stock option exercises and recorded
directly to equity.
NOTE 9 - CAPITAL STOCK TRANSACTIONS
A. ISSUANCE OF COMMON STOCK:
During the fiscal year ended March 31, 2000 the Company issued 108,751 shares of
its common stock to its employees. Accordingly, the Company recognized
approximately $32,000 in compensation expense, based on the market value of the
stock on the grant date, during fiscal year end March 31, 2000.
During the fiscal year ended March 31, 2000 the Company issued 59,405 shares of
its common stock valued at $30,757 to outside directors in lieu of their
deferred directors' fees. The Company also issued 17,000 shares of its common
stock valued at $29,024 to outside consultants in lieu of payment for services
rendered.
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 that 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.
F-16
<PAGE>
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 2000 and 1999, respectively; no
dividend yield for all years, expected volatility of 133% and 130%, risk-free
interest rates of 5.3% - 6.6% and 5.7% for all options and expected lives of 3
years for all options. The weighted average fair value of options granted,
excluding options issued to the CEO, was $.36 and $.25 for fiscal year end March
31, 2000 and 1999 respectively. The weighted average fair value of options
granted to the CEO during fiscal year end March 31, 2000 was $5.09. Such options
were contingent on the Company entering into a definitive merger agreement with
Centillion. Upon entering into the agreement on February 3, 2000, the value of
the vested portion of these options was immediately expensed. The remaining
value will be recorded as compensation expense over the remaining option vesting
period through November 2002. The Company has recorded expense related to the
vested portion of all of the options granted of $232,348 and $2,500 for the
fiscal years ended March 31, 2000 and 1999 respectively.
F-17
<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, 2000 the Company has 70,000 stock options available for grant under
the Plan. The Company has a total of 485,000 nonqualified Outside Plan Stock
Options outstanding at March 31, 2000 of which 24,500 are exercisable.
Activity in the stock option plans for the years ended March 31, 2000 and 1999
under the aforementioned plans in total were:
<TABLE>
<CAPTION>
Exercise Price Weighted Average
Shares Per Share Exercise Price
-------- --------------- ----------------
<S> <C> <C> <C>
April 1, 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
Granted 530,000 .35 - 1.09 .91
Exercised (340,000) .18 - .80 .41
Cancelled (235,000) .34 - .61 .38
-------- ------------- ------
March 31, 2000 695,000 .18 - 1.09 .67
======== ============= ======
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options as of March 31, 2000:
<TABLE>
<CAPTION>
Outstanding Options Options exercisable
-------------------- -------------------
Weighted Weighted
Weighted 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 $0.35 245,000 5.07 $0.28 195,000 $0.27
$0.36 to $0.50 150,000 4.08 0.48 20,000 .375
$1.09 300,000 9.58 1.09 -0-
</TABLE>
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 value of the bank debt approximates fair value due to
its short-term maturity.
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, 2000 and 1999. 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,
2000 and 1999 was $66,700 and $44,075 respectively.
F-18
<PAGE>
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. The Company has not provided product and service
information for each segment presented because it is impractical to do so. A
summary of the Company's operations by geographic area for the years ended March
31, 2000 and 1999 is as follows:
UK USA Consolidated
----------------------------------------------
2000
----
Sales $4,813,325 $2,417,011 $7,230,336
========== ========== ==========
Income (loss) from operations $ 260,622 $ (775,104) $ (514,482)
========== ========== ==========
Net income (loss) $ 264,432 $ (785,723) $ (521,291)
========== ========== ==========
Long-lived assets $ 253,672 $ 336,263 $ 589,935
========== ========== ==========
1999
----
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
========== ========== ==========
F-19
<PAGE>
The following table summarizes the Company's financial information by industry
segment.
2000 1999
---- ----
Revenues:
Telemanagement $6,461,314 $6,168,785
Billing and customer care 769,022 874,241
---------- ----------
Total Sales $7,230,336 $7,043,026
Net Income (loss):
Telemanagement (118,231) $ (319,744)
Billing and customer care 79,093 (95,099)
Merger costs (482,153) - 0 -
---------- ----------
Net loss $ (521,291) $ (414,843)
Depreciation and Amortization Expense:
Telemanagement $ 320,674 $292,433
Billing and customer care 272,290 294,000
---------- ----------
Total depreciation and amortization $ 592,964 $586,433
Total Assets:
Telemanagement $1,222,195 $1,840,784
Billing and customer care 499,207 742,289
---------- ----------
Total assets $1,721,402 $2,583,073
F-20
<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 1999
Annual Meeting of Shareholders and the Board of Directors appointed the
following officers. All Directors will hold office until the next meeting of
shareholders of the Company at which Directors are to be selected 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 (51) Mr. Johns, a citizen of the United Kingdom, 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 (61) Mr. Hunnewell has been a Director since November 1993 and served as
Chairman of the Board from November 1993 to August 1995. Mr. Hunnewell was
CEO of AEGIS, LLC, private equity investment managers with offices in Boston
and the Former Soviet Union until it was sold in April 2000. He is President
of Hunnewell & Co., Investment Bankers and Vice Chairman of Asian Capital
Partners Ltd., an Asian regional merchant bank, headquartered in Hong Kong
and Globalearn.com, an internet company in the education sector.
Rupert D. Armitage (52) Mr. Armitage, a citizen of the United Kingdom, 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 (74) 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., New Jersey Title Insurance Co., Deck The
Walls, Inc., Scandia Packaging Machinery Corp., and Moretrench American
Corp.
Graham Bevington (40) Mr. Bevington, a citizen of the United Kingdom, has been a Director
since July 1999. He has been Managing Director of Mitel Telecommunications
Ltd. in the European, Middle East, African and Asia Pacific regions since
January 2000. Prior to that, he was Managing Director of DeTeWe, Ltd., a
major European manufacturer of telecommunications equipment since 1998. Mr.
Bevington joined DeTeWe, Ltd. in 1983.
Mary Ann Davis (61) 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>
15
<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 years ended March 31, 2000 and 1999 that received in
excess of $100,000.
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------------------------
Name and Principal Other Annual
Position Year Salary Bonus Compensation
------------------ ---- ------ ----- -------------
<S> <C> <C> <C> <C>
Anthony P. Johns, President 2000 $175,000 -- $32,434 (1)
& Chief Executive Officer 1999 $175,000 -- $32,762 (1)
1998 $175,000 -- $32,651 (1)
</TABLE>
(1) Includes an $11,100 annual automobile allowance, $15,600 of living expense
payments and automobile, life, and medical 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.
16
<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, 2000, Messrs.
Armitage, Hunnewell, Rohn and Bevington earned fees for their services on the
Board of Directors of approximately $10,000, $6,000, $6,000 and $5,000
respectively, plus expenses; in addition, Mr. Hunnewell earned fees of
approximately $25,900 in connection with consulting on the pending merger with
Centillion. During the fiscal year ended March 31, 2000, Mr. Bevington received
30,000 stock options pursuant to the Company's stock option and restricted stock
plan upon his appointment to the Board of Directors
The following table sets forth option and stock appreciation right,
exercises in last fiscal year and year end values.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money
Options/SARs at Options/SARs at
Shares Acquired Value Received FY-End(#) FY-End($)(1)
Name on Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Anthony P. Johns, 50,000 - $140,000 0 $0.00/$0.00
President / Chief
Executive Officer
</TABLE>
(1) As of June 15, 2000 the market value of the Company's stock was $2.31.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Percent of Total
Number of Securities Options/SARS
Underlying Unexercised Granted to Exercise
Options/SARS Employees in of Expiration
Name Granted Fiscal Year Base Price Date
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Anthony P. Johns, 300,000 57% $1.09 November 3, 2009
President / Chief
Executive Officer
</TABLE>
(1) As of June 15, 2000 the market value of the Company's stock was $2.31.
17
<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
15, 2000.
Percent
Shares of Common Stock of Voting
Name and Business Address Beneficially Owned (l) Securities
------------------------- ---------------------- ----------
Anthony P. Johns 1,883,456 24.9%
CTI Data Solutions (USA), Inc.
2550 Eisenhower Avenue
Norristown, PA 19403
Rupert D. Armitage 396,219 (1) 5.2%
Ambit Research
100 New Kings Road
London SW64LX
Francis O. Hunnewell 246,107 (2) 3.2%
Hunnewell & Co.
10 Tremont Street, Suite 500
Boston, MA 02108
Fred H. Rohn 100,754 1.3%
Village Road
P.O. Box 714
New Vernon, NJ 07976
Graham Bevington 17,938 (3) .02%
Mitel Telecom Ltd.
Portskewett
Monmouthshire
UK
All executive officers and directors
as a group (5 persons) 2,705,084 (1),(2),(3),(4) 35.1%
NOTES:
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.
(1) Includes options exercisable into 60,000 shares of the Company's common
stock.
(2) Includes options exercisable into 30,000 shares of the Company's common
stock.
(3) Includes options exercisable into 15,000 shares of the Company's common
stock.
(4) Includes options for other officers exercisable into 20,000 shares of
the Company's common stock.
18
<PAGE>
Item 12. Certain Relationships and Related Transactions
Not Applicable
Item13. 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 F - 1
Consolidated Balance Sheets at March 31, 2000 and 1999 F - 2
Consolidated Statements of Operations for the
years ended March 31, 2000 and 1999 F - 4
Consolidated Statements of
Stockholders' Equity (Deficit) and
Comprehensive Loss for the years
ended March 31, 2000 and 1999 F - 5
Consolidated Statements of Cash Flows for the
years ended March 31, 2000 and 1999 F - 6
Notes to Consolidated Financial Statements F - 8
(b) Reports on Form 8-K.
The Company filed a Form 8-K with the Securities and Exchange
Commission on February 22, 2000 in connection with the announcement of the
signing of a definitive merger agreement with Centillion Data Systems.
(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.
19
<PAGE>
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.
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.
20
<PAGE>
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.
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 and Touche LLP
27.1 List of Subsidiaries of CTI Group (Holdings) Inc. as of March 31,
2000.
27.2 Financial Data Schedule.
21
