Cti (CTIG) 10-Q 2015 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission file number 000-10560

CTI GROUP (HOLDINGS) INC.

(Exact name of registrant as specified in its charter)

DELAWARE	51-0308583
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

333 North Alabama Street, Suite 240, Indianapolis, IN 46204

(Address of principal executive offices) (Zip Code)

(317) 262-4666

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of August 1, 2015, the number of shares of Class A common stock, par value $.01 per share, outstanding was 29,863,011.

CTI GROUP (HOLDINGS) INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2015

TABLE OF CONTENTS

ITEM NO.			PAGE NO.
Forward Looking Statements				3
PART I – Financial Information
1.	Financial Statements - Unaudited
		Consolidated Balance Sheets at June 30, 2015 and December 31, 2014		4
		Consolidated Statements of Comprehensive Income (Loss) for the six months ended June 30, 2015 and June  30, 2014		5
		Consolidated Statements of Comprehensive Income (Loss) for the three months ended June 30, 2015 and June  30, 2014		6
		Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and June 30, 2014		7
		Notes to Consolidated Financial Statements		8
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
3.	Quantitative and Qualitative Disclosures about Market Risk			27
4.	Controls and Procedures			27
PART II – Other Information
1.	Legal Proceedings			28
1A.	Risk Factors			28
2.	Unregistered Sales of Equity Securities and Use of Proceeds			28
3.	Defaults Upon Senior Securities			28
4.	Mine Safety Disclosures			28
5.	Other Information			28
6.	Exhibits			28

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Forward-Looking Statements

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains “forward-looking” statements. Forward-looking statements discuss matters that are not historical facts. 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 such words as “anticipate”, “believe”, “estimate”, “could”, “should”, “would”, “seek”, “plan”, “expect”, “may”, “predict”, “project”, “intend”, “potential”, “continue”, 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, each reader of this Form 10-Q should carefully consider the risk factors stated in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, 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 from those discussed herein, including, but not limited to: economic conditions, risks associated with conducting business outside the United States, ability to obtain a loan facility or receive additional advances from Fairford Holdings Limited, a British Virgin Islands Company, who, as of August 1, 2015, owned beneficially 65.1% of the Company’s Class A common stock, if needed, incurring additional losses, impact of accounting pronouncements, recording additional impairments, ability to maintain an effective system of internal controls over financial reporting and disclosure controls and procedures, effects of the recent U.S. recession and unstable global economy, ability to attract and retain customers to purchase its products, ability to develop or launch new software products, technological advances by third parties and competition, and ability to protect the Company’s patented technology. You should not place any undue reliance on any forward-looking statements. Except to the extent required by law, the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions or circumstances or assumptions underlying such statements, or otherwise.

References herein to the Company mean CTI Group (Holdings) Inc. and its subsidiaries unless context otherwise requires.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

	June 30, 2015			December 31, 2014
ASSETS
Cash and cash equivalents	$	4,330,917		$	5,278,476
Trade accounts receivable, less allowance for doubtful accounts of $72,434 and $66,706, respectively		3,117,396			3,577,866
Prepaid expenses		276,939			368,965
Other current assets		127,564			243,861
Total current assets		7,852,816			9,469,168
Property, equipment, and software, net		2,290,352			2,280,493
Intangible assets, net		231,988			470,566
Deferred tax asset		14,878			—
Goodwill		2,769,589			2,769,589
Other assets Legal settlements		6,309			29,218
Total assets	$	13,165,932		$	15,019,034
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	222,735		$	244,335
Accrued expenses		1,061,577			1,227,101
Accrued wages and other compensation		503,106			633,761
Income tax payable		754,484			635,980
Deferred tax liability		188,717			191,731
Deferred revenue		3,625,730			4,250,433
Notes payable		59,353			57,522
Total current liabilities		6,415,702			7,240,863
Lease incentive – long term		171,182			241,276
Deferred revenue – long term		202,651			799,559
Deferred tax liability – long term		—			45,721
Note payable – long term		—			30,138
Total liabilities		6,789,535			8,357,557
Commitments and contingencies
Stockholders’ equity:
Class A common stock, par value $.01 per share; 47,166,666 shares authorized; 29,863,011 and 29,388,937 issued at June 30, 2015 and at December 31, 2014, respectively		298,630			293,889
Additional paid-in capital		26,390,270			26,339,410
Accumulated deficit		(20,594,306	)		(20,203,616	)
Accumulated other comprehensive income		473,946			423,937
Treasury stock, 140,250 shares Class A common stock at June 30, 2015 and December 31, 2014 at cost		(192,143	)		(192,143	)
Total stockholders’ equity		6,376,397			6,661,477
Total liabilities and stockholders’ equity	$	13,165,932		$	15,019,034

See accompanying notes to consolidated financial statements.

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CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

	Six months ended June 30,
	2015			2014
Revenues:
Software sales, service fee and license fee revenue	$	7,793,896		$	8,029,538
Cost and Expenses:
Cost of products and services, excluding depreciation and amortization		2,108,090			2,067,948
Selling, general and administration		3,805,461			3,857,440
Research and development		1,367,482			1,691,862
Depreciation and amortization Legal settlements		838,042			928,667
Total costs and expenses		8,119,075			8,545,917
Loss from operations		(325,179	)		(516,379	)
Other (income) / expense
Interest expense		3,003			25,473
Other expense / (income)		202			(1,344,749	)
Total other (income) / expense		3,205			(1,319,276	)
Income / (loss) before income taxes		(328,384	)		802,897
Tax expense		62,306			112,940
Net income / (loss)		(390,690	)		689,957
Other comprehensive income / (loss)
Foreign currency translation adjustment		50,008			(7,344	)
Comprehensive income / (loss)	$	(340,682	)	$	682,613
Basic net income / (loss) per common share	$	(0.01	)	$	0.02
Diluted net income / (loss) per common share	$	(0.01	)	$	0.02
Basic weighted average common shares outstanding		29,412,425			29,212,021
Diluted weighted average common shares outstanding		29,412,425			31,674,711

See accompanying notes to consolidated financial statements

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CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

	Three months ended June 30,
	2015			2014
Revenues:
Software sales, service fee and license fee revenue	$	3,694,572		$	4,084,069
Cost and Expenses:
Cost of products and services, excluding depreciation and amortization		1,041,759			1,038,005
Selling, general and administration		1,976,114			1,927,449
Research and development		704,619			870,017
Depreciation and amortization Legal settlements		407,150			462,002
Total costs and expenses		4,129,642			4,297,473
Loss from operations		(435,070	)		(213,404	)
Other expense
Interest expense		2,477			5,604
Total other / expense		2,477			5,604
Loss before income taxes		(437,547	)		(219,008	)
Tax expense (benefit)		(36,869	)		70,897
Net loss		(400,678	)		(289,905	)
Other comprehensive income / (loss)
Foreign currency translation adjustment		77,816			(6,048	)
Comprehensive loss	$	(322,862	)		(295,953	)
Basic and diluted net loss per common share	$	(0.01	)	$	(0.01	)
Basic and diluted weighted average common shares outstanding		29,573,466			29,212,021

See accompanying notes to consolidated financial statements

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CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Six months ended June 30,
	2015			2014
Cash flows from operating activities:
Net income / (loss)	$	(390,690	)	$	689,957
Adjustments to reconcile net income / (loss) to net cash (used in) / provided by operating activities:
Depreciation and amortization		838,042			928,667
Provision for doubtful accounts		2,781			24,401
Deferred income taxes		(63,081	)		(62,147	)
Recognition of rent incentive benefit		(35,408	)		310,415
Stock compensation expense		133,100			79,966
Loss on disposal		202			—
Changes in operating assets and liabilities:
Trade receivables		464,012			(540,494	)
Prepaid expenses		94,714			34,813
Income taxes		107,678			(371,773	)
Other assets		138,552			114,370
Accounts payable		(24,183	)		(20,554	)
Accrued expenses		(253,892	)		(173,706	)
Accrued wages and other compensation		(176,121	)		264,708
Deferred revenue		(1,204,553	)		4,962,763
Cash (used in) / provided by operating activities		(368,847	)		6,241,386
Cash flows used in investing activities:
Additions to property, equipment, and software		(606,042	)		(868,528	)
Cash used in investing activities		(606,042	)		(868,528	)
Cash flows (used in) / provided by financing activities:
Exercise of stock options		20,947			—
Payment on note payable		(28,307	)		(26,593	)
Payment on note from shareholders		—			(1,400,000	)
Cash used in financing activities		(7,360	)		(1,426,593	)
Effect of foreign currency exchange rates on cash and cash equivalents		34,690			120,215
Increase / (decrease) in cash and cash equivalents		(947,559	)		4,066,480
Cash and cash equivalents, beginning of period		5,278,476			1,271,514
Cash and cash equivalents, end of period	$	4,330,917		$	5,337,994

See accompanying notes to consolidated financial statements.

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CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1: Business and Basis of Presentation

The Company designs, develops, markets and supports billing and data management software and services. The Company operates in two business segments: Electronic Invoice Management (“EIM”) and Call Accounting Management and Recording (“CAMRA”). The majority of the Company’s business is in Europe and North America.

The Company was originally incorporated in Pennsylvania in 1968 and reincorporated in the State of Delaware in 1988, pursuant to a merger of CTI into a wholly owned subsidiary formed as a Delaware corporation. In November 1995, the Company changed its name to CTI Group (Holdings) Inc.

EIM designs, develops and provides electronic invoice presentment and analysis software that enables internet-based customer self-care for wireline, wireless and convergent providers of telecommunications services. EIM software and services are used primarily by telecommunications services providers to enhance their customer relationships while reducing the providers operational expenses related to paper-based invoice delivery and customer support relating to billing inquiries. CAMRA designs, develops and provides software and services used by enterprise, governmental, institutional end users and managed and hosted customers of service providers to manage their telecommunications service and equipment usage and to analyze voice, video, and data usage, record and monitor communications and perform administrative and back office functions such as cost allocation or client bill back. These applications are commonly available in the market as enterprise-grade products. Customers typically purchase the CAMRA products when upgrading or acquiring a new enterprise communications platform.

The accompanying consolidated financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature.

Certain information in footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), has been condensed or omitted pursuant to the rules and regulations of the SEC, although the Company believes the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2014 and the notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC.

The Company follows accounting standards set by the Financial Accounting Standards Board (“FASB”). The FASB establishes GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants, which the Company is required to follow.

Amortization expense of developed software, which relates to cost of sales, was presented as depreciation and amortization expense. Amortization expense of developed software amounted to $478,768 and $377,732 for the six months ended June 30, 2015 and 2014, respectively. Amortization expense of developed software amounted to $241,139 and $195,455 for the three months ended June 30, 2015 and 2014, respectively.

NOTE 2: Supplemental Schedule of Non-Cash Investing and Financing Activities

The Company paid $0 and $41,415 for current year income tax estimates for the six months ended June 30, 2015 and 2014, respectively, for taxable income in the United Kingdom. The Company paid income taxes of approximately $19,000 and $498,200 during the six months ended June 30, 2015 and 2014, respectively, for taxes on prior year income in the United Kingdom.

NOTE 3: Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, notes payable, and other accruals approximate their fair values because of their nature and expected duration.

NOTE 4: Debt Obligations and Liquidity

In October 2013, in order to supplement the Company’s liquidity, Fairford Holdings Limited (“Fairford”), Michael Reinarts and John Birbeck (collectively, Fairford and Messrs. Reinarts and Birbeck, the “Lenders”) agreed to advance

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to the Company up to $1,400,000. In connection with the advancement, the Company issued to the Lenders a promissory note, with the amount advanced bearing interest at 6.5% per annum. On April 17, 2014, the Company paid off the promissory note.

The Company believes that the primary sources of liquidity over the next twelve months will be cash on hand and cash from operations. If the Company is unable to generate adequate cash from operations, the Company may seek funds from Fairford or any one of the other Lenders.

NOTE 5: New Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers: Topic 606 (“ASU 2009-14”), which supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard is effective for the Company in first quarter of fiscal 2018, with early adoption to fiscal year 2017 permitted. The standard allows entities to apply either of two adoption methods: (i) retrospective application to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective application with the cumulative effect of initially applying the standard recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. The Company is evaluating the impact of adopting this new standard on its financial statements and the method of adoption.

In August 2014, FASB issued ASU 2014-15, “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this ASU provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this ASU on the consolidated financial statements.

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NOTE 6: Basic and Diluted Net Income Per Common Share

Basic earnings per share amounts are computed by dividing reported earnings available to common stockholders by the weighted average shares outstanding for the period. Diluted earnings per share amounts are computed by dividing reported earnings available to common stockholders by weighted average common shares outstanding for the period giving effect to securities considered to be potentially dilutive common shares, such as stock options.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014
Net income / (loss)	$	(400,678	)	$	(289,905	)	$	(390,690	)	$	689,957
Weighted average shares of common stock outstanding used to compute basic earnings per share		29,573,466			29,212,021			29,412,425			29,212,021
Additional common shares to be issued assuming exercise of stock options and stock warrants		—			—			—			2,462,690
Weighted average shares of common and common equivalent stock outstanding used to compute diluted earnings per share		29,573,466			29,212,021			29,412,425			31,674,711
Basic:
Net income / (loss) per share	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	0.02
Weighted average common shares outstanding		29,573,466			29,212,021			29,412,425			29,212,021
Diluted:
Net income / (loss) per share	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	0.02
Weighted average common and common equivalent shares outstanding		29,573,466			29,212,021			29,412,425			31,674,711

For the three months ended June 30, 2015 and 2014 and the six months ended June 30, 2015, outstanding stock options were excluded from weighted average shares of common and common equivalent shares outstanding due to their anti-dilutive effect as a result of the Company’s net loss.

Note 7: Stock Based Compensation

The Company’s Amended and Restated Stock Option and Restricted Stock Plan (the “Plan”) provided for the issuance of incentive and nonqualified stock options to purchase, and restricted stock grants of, shares of the Company’s Class A common stock. Individuals eligible for participation in the Plan included designated officers and other employees (including employees who also serve as directors), non-employee directors, independent contractors and consultants who perform services for the Company. The terms of each grant under the Plan were determined by the board of directors of the Company (the “Board”), or a committee of the board administering the Plan, in accordance with the terms of the Plan. 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 granted under the Plan typically become exercisable over a one to five year period. Generally, the options have various vesting periods, which include immediate and term vesting periods.

In 2002, the Company’s stockholders authorized an additional 2,000,000 shares available for grant under the Plan. In addition, the Company filed a registration statement on Form S-8 with the SEC. Such registration statement also covered certain options granted prior to the merger in 2001, which were not granted under the Plan (“Outside Plan Stock Options”).

On December 8, 2005, the Company’s stockholders ratified the CTI Group (Holdings) Inc. Stock Incentive Plan (the “Stock Incentive Plan”) at the Company’s 2005 Annual Meeting of Stockholders. In addition, the Company filed a registration statement on Form S-8 with the SEC. The Stock Incentive Plan replaced the Plan. No new grants will be granted under the Plan. Grants that were made under the Plan prior to the stockholders’ approval of the Stock Incentive Plan will continue to be administered under the Plan.

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The Stock Incentive Plan is administered by the Compensation Committee of the Board, (the “Compensation Committee”). Under the Stock Incentive Plan, the Compensation Committee is authorized to grant awards to non-employee directors, executive officers and other employees of, and consultants and advisors to, the Company or any of its subsidiaries and to determine the number and types of such awards and the terms, conditions, vesting and other limitations applicable to each such award. In addition, the Compensation Committee has the power to interpret the Stock Incentive Plan and to adopt such rules and regulations as it considers necessary or appropriate for purposes of administering the Stock Incentive Plan.

The following types of awards or any combination of awards may be granted under the Stock Incentive Plan: (i) incentive stock options, (ii) non-qualified stock options, (iii) stock grants, (iv) performance awards, and (v) restricted stock units.

The maximum number of shares of Class A common stock with respect to which awards may be granted to any individual participant under the Stock Incentive Plan during each of the Company’s fiscal years will not exceed 1,500,000 shares of Class A common stock, subject to certain adjustments described in the Stock Incentive Plan.

The aggregate number of shares of Class A common stock that are reserved for awards, including shares of Class A common stock underlying stock options, to be granted under the Stock Incentive Plan is 6,000,000 shares, subject to adjustments for stock splits, recapitalizations and other specified events. As of June 30, 2015, there were 415,725 awards available for grant under the Stock Incentive Plan. If any outstanding award is cancelled, forfeited, or surrendered to the Company, shares of Class A common stock allocable to such award may again be available for awards under the Stock Incentive Plan. Incentive stock options may be granted only to participants who are executive officers and other employees of the Company or any of its subsidiaries on the day of the grant, and non-qualified stock options may be granted to any participant in the Stock Incentive Plan. No stock option granted under the Stock Incentive Plan will be exercisable later than ten years after the date it is granted.

On April 1, 2014, “Board”, adopted Amendment No. 1 (the “Amendment”) to the CTI Group (Holdings) Inc. Stock Incentive Plan. The Amendment amended the Stock Incentive Plan to, among other things, permit the Compensation Committee of the Board, as administrator of the Stock Incentive Plan, to issue restricted stock units (each an “RSU”) to certain eligible participants under the Stock Incentive Plan. An RSU represents a contingent right to receive shares of Class A common stock, cash and/or other property. Pursuant to the Amendment, the Compensation Committee of the Board may, in its sole discretion, determine (i) the participants, under the Stock Incentive Plan, who will receive RSUs, and (ii) the number of shares of the Company’s Class A common stock and/or the amount of cash or other property underlying each RSU. Further, each RSU will be subject to such terms and conditions consistent with the Stock Incentive Plan as are determined by the Compensation Committee of the Board and as set forth in the award agreement relating to such RSU. The Amendment also amended the Stock Incentive Plan to permit the Compensation Committee of the Board to grant awards under the Stock Incentive Plan in substitution for stock and stock-based awards of another entity (an “Acquired Entity”) held by such Acquired Entity’s former employees if such individuals become employees of the Company as a result of the Company’s merger or consolidation with or acquisition of the Acquired Entity.

Through March 31, 2015, the Company treated all RSUs as equity awards as it was the Company’s intent to redeem these awards via transfer of stock. On April 20, 2015, the Board of Directors consented to allow RSUs that had vested at April 1, 2015 to be redeemed for their cash or stock value. As a result of this decision, the remaining RSUs outstanding were deemed tainted, and were modified to be treated as liability awards. The Company now records a liability for restrictive stock units and remeasures the liability on each reporting date and the associated compensation cost is adjusted to reflect the remeasurement of the fair value at the reporting date.

On April 1, 2015, the Board adopted the CTI Group (Holdings) Inc. 2015 Stock Incentive Plan (the “2015 Stock Incentive Plan”).

The 2015 Stock Incentive Plan is administered by the Compensation Committee of the Board. Under the 2015 Stock Incentive Plan, the Compensation Committee is authorized to grant awards to non-employee directors, executive officers and other employees of, and consultants and advisors to, the Company or any of its subsidiaries and to determine the number and types of such awards and the terms, conditions, vesting and other limitations applicable to each such award. In addition, the Compensation Committee has the power to interpret the 2015 Stock Incentive Plan and to adopt such rules and regulations as it considers necessary or appropriate for purposes of administering the 2015 Stock Incentive Plan.

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The following types of awards or any combination of awards may be granted under the 2015 Stock Incentive Plan: (i) incentive stock options, (ii) non-qualified stock options, (iii) stock grants, (iv) performance awards, and (v) RSUs.

The maximum number of shares of Class A common stock with respect to which awards may be granted to any individual participant under the 2015 Stock Incentive Plan during each of the Company’s fiscal years will not exceed 1,500,000 shares of Class A common stock, subject to certain adjustments described in the 2015 Stock Incentive Plan.

The aggregate number of shares of Class A common stock that are reserved for awards, including shares of Class A common stock underlying stock options, to be granted under the 2015 Stock Incentive Plan is 5,000,000 shares, subject to adjustments for stock splits, recapitalizations and other specified events. If any outstanding award is cancelled, forfeited, settled in cash or surrendered to the Company, shares of Class A common stock allocable to such award may again be available for awards under the 2015 Stock Incentive Plan. Incentive stock options may be granted only to participants who are executive officers and other employees of the Company or any of its subsidiaries on the day of the grant, and non-qualified stock options may be granted to any participant in the 2015 Stock Incentive Plan. No stock option granted under the 2015 Stock Incentive Plan will be exercisable later than ten years after the date it is granted.

The Compensation Committee of the Board, as administrator of the 2015 Stock Incentive Plan, is permitted to issue RSUs to certain eligible participants under the 2015 Stock Incentive Plan. The Compensation Committee of the Board may, in its sole discretion, determine (i) the participants under the 2015 Stock Incentive Plan who will receive RSUs, and (ii) the number of shares of the Company’s Class A common stock and/or the amount of cash or other property underlying each RSU. Further, each RSU will be subject to such terms and conditions consistent with the 2015 Stock Incentive Plan as are determined by the Compensation Committee of the Board and as set forth in the award agreement relating to such RSU. The Compensation Committee of the Board is also permitted to grant awards under the 2015 Stock Incentive Plan in substitution for stock and stock-based awards of an Acquired Entity held by such Acquired Entity’s former employees if such individuals become employees of the Company as a result of the Company’s merger or consolidation with or acquisition of the Acquired Entity.

On April 20, 2015, the Board of Directors consented to allow RSUs that had vested at April 1, 2015 to be redeemed for their cash or stock value. As a result of this decision, the remaining RSUs outstanding were deemed tainted, and were modified to be treated as liability awards. The Company now records a liability for restrictive stock units and remeasures the liability on each reporting date and the associated compensation cost is adjusted to reflect the remeasurement of the fair value at the reporting date. There were 165,305 shares exercised and 308,869 RSU’s vested for the six months ended June 30, 2015. In addition, there were 85,243 shares or $44,584 redeemed for cash and accounted for as a reduction in stockholders equity. The stock option expense for the period ended June 30, 20915 was $133,100.

As of June 30, 2015, no awards had been issued under the 2015 Stock Incentive Plan.

At June 30, 2015, there were options to purchase 3,057,171 shares of Class A common stock. There were exercisable options to purchase an aggregate of 2,957,171 shares of Class A common stock under the Plan, Stock Incentive Plan and 2015 Stock Incentive Plan as of June 30, 2015.

At June 30, 2015, there were RSUs outstanding representing the right, subject to satisfaction of vesting conditions, to receive an aggregate of 3,098,614 shares of Class A common stock (or their value in cash) at a future date without payment of a purchase price.

Information with respect to options was as follows:

	Options & RSU Shares			Exercise Price Range Per Share	Weighted Average Exercise Price
Outstanding, January 1, 2015		5,811,746		$ 0.00 - $ 0.40	$	0.21
Granted		2,519,507		$ 0.00 - $ 0.52	$	0.00
Exercised		(474,074	)	$ 0.09 - $ 0.52	$	0.383
Expired		(1,701,394	)	$ 0.00 - $ 0.52	$	0.374
Outstanding, June 30, 2015		6,155,785		$ 0.00 - $ 0.52	$	0.243

The future compensation costs related to non-vested options at June 30, 2015 is $619,418. The Company now records a liability for restrictive stock units (RSU’s) and remeasures the liability on each reporting date and the associated compensation cost is adjusted to reflect the remeasurement of the fair value at the reporting date.

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The future compensation cost of the RSU’s valued at June 30, 2015 will be $929,584. The future costs will be recognized over the weighted average period of approximately 2.75 years

The following table summarizes options exercisable at June 30, 2015:

	Option Shares		Exercise Price Range Per Share		Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Remaining Contractual Term
June 30, 2015		2,957,171		$ 0.08-$ 0.52	$	0.243	$	694,635	4.64 years

The following table summarized non vested options and RSU’s:

	Option/RSU Shares
Unvested outstanding, January 1, 2015		1,376,832
Granted		2,519,507
Expired		(260,623	)
Vested		(437,102	)
Unvested outstanding, June 30, 2015		3,198,614

The fair value of each option award is estimated on the date of grant using a closed-form option valuation model (Black-Scholes-Merton formula) that uses the assumptions noted in the following table:

	2014
Risk-free interest rate		0.50	%
Dividend yield		0.00	%
Volatility factor		91.00	%
Expected lives		5 years

RSU’s value is the value of the Company’s stock on the reporting date and expense is recognized on a straight line basis taking into account an estimated forfeiture.

For the three and six months ended June 30, 2015 and the three months ended June 30, 2014, outstanding stock options were excluded from weighted average shares of common and common equivalent shares outstanding due to their anti-dilutive effect as a result of the Company’s net loss.

The fair value of each option award is estimated on the date of grant using a closed-form option valuation model (Black-Scholes-Merton formula). Expected volatilities are based on implied volatilities from historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from general practices used by other companies in the software industry and estimates by the Company of the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

On February 16, 2007, the Company and Fairford Holdings Europe AB, formerly known as Fairford Holdings Scandinavia AB (“Fairford Europe”), a wholly-owned subsidiary of Fairford, entered into the Securities Purchase Agreement (the “Agreement”), dated February 16, 2007. Pursuant to the Agreement, on February 16, 2007, the Company issued to Fairford Europe a Class A common stock Purchase Warrant (the “Original Warrant”) to purchase shares of Class A common stock of the Company in consideration for securing the issuance of a $2.6 million letter of credit (the “Letter of Credit”) from SEB Bank to National City Bank. Due to National City Bank’s receipt of the Letter of Credit, the Company was able to obtain the loan at a favorable cash-backed interest rate. Effective April 14, 2008, the Company entered into a new Securities Purchase Agreement with Fairford Europe and issued an additional warrant to Fairford Europe purchase shares of Class A common stock based on the interest rate savings (the “Additional Warrant”).

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Pursuant to the Original Warrant, Fairford Europe is entitled to purchase 419,495 shares of Class A common stock at the exercise price of $0.34 per share, subject to adjustments as described in the Original Warrant, at any time prior to the 10th anniversary of the date of issuance. Pursuant to the Additional Warrant, Fairford Europe is entitled to purchase 620,675 shares of Class A common stock at the exercise price of $0.22 per share, subject to adjustments as described in the Additional Warrant, at any time prior to the 10th anniversary of the date of issuance. On December 31, 2009, Fairford Europe sold all of its owned Class A shares, or 355,099 shares to Fairford for SEK 2.80362 $(0.39) per share. As of June 30, 2015, Fairford beneficially owned 65.1% of the Company’s outstanding Class A common stock and Fairford Europe owned warrants to purchase 1,040,170 shares of the Company’s Class A common stock. Mr. Osseiran, the majority holder of the Company’s Class A common stock and a director of the Company, is a director of Fairford, the President of Fairford Europe and a grantor and sole beneficiary of a revocable trust which is the sole stockholder of Fairford. Mr. Dahl, a director of the Company, is a director of Fairford and the Chairman of Fairford Europe. The Original Warrant and Additional Warrant vested immediately upon grant.

Selling, general and administrative expense, includes stock based compensation $102,700 and $64,757 for the three months ended June 30, 2015 and June 30, 2014, respectively. Selling, general and administrative expense includes stock based compensation of $133,100 and $79,966, for the six months ended June 30, 2015 and June 30, 2014, respectively. Stock-based compensation expenses are recorded in the Corporate Allocation segment as these amounts are not included in internal measures of segment operating performance.

NOTE 8: Indemnification to Customers

The Company’s agreements with customers generally require the Company to indemnify the customer against claims that the Company’s software infringes third party patent, copyright, trademark or other proprietary rights. Such indemnification obligations are generally limited in a variety of industry-standard provisions including our right to replace the infringing product.

As of June 30, 2015, the Company did not experience any material losses related to these indemnification obligations and no material claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations, and consequently, the Company has not established any related accruals.

NOTE 9: Contingencies

The Company is subject to claims and lawsuits arising primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of any such pending claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.

The Company realized other income of $0 and $1,344,749 for the three and six months ended June 30, 2014, respectively. The other income of $1,344,749 was the net amount of a $3,100,000 patent settlement less legal fees related to the settlement of $1,755,251. The Company did not have any corresponding settlement in the period ended June 30, 2015.

On June 1, 2015, the Company entered into an Employment Agreement (the “Employment Agreement”) with Manfred Hanuschek, which amended and restated a prior agreement with Mr. Hanuschek. The terms of the Employment Agreement include, but are not limited to, compensation, non-competition, severance and change in control clauses. As of June 30, 2015 all relevant amounts have been accrued for under the Employment Agreement.

NOTE 10: Income Taxes

The Company records a valuation allowance against its net deferred tax asset to the extent management believes, it is more likely than not, that the asset will not be realized. As of June 30, 2015, the Company’s valuation allowance related only to net deferred tax assets in the United States. The Company does not expect earnings related to non-U.S. subsidiaries to be permanently reinvested. The impact of adoption of this policy has not had a material impact on the Company’s results of operations, financial position or cash flows.

The Company recognizes a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. As of June 30, 2015 and June 30, 2014, the Company had $162,735 and $159,827 of unrecognized tax benefits, respectively, all of which would favorably affect the Company’s effective tax rate if recognized. The Company and its subsidiaries are subject to U.S. federal and state income taxes as well as foreign income tax in the United Kingdom. The Company does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.

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The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company had no amounts accrued for interest and penalties as of June 30, 2015.

For the six months ended June 30, 2015 and June 30, 2014, the Company had $62,306 and $112,940, respectively, of income tax expense and for the three months ended June 30, 2015 and June 30, 2014, the Company had $(36,869) and $70,897 of income tax benefit and expense, respectively. The income tax benefit and expense were primarily related to the United Kingdom operations. The difference between the statutory rate and the actual rate is primarily due to the valuation allowance related to the net deferred tax assets in the United States. The lower actual rate in the United Kingdom for the three months ended June 30, 2015 is a result of increased capital allowances and research and development credits that are permanent differences.

NOTE 11: Segment Information

The Company has two reportable segments: EIM and CAMRA. These segments are managed separately because the services provided by each segment require different technology and marketing strategies.

Electronic Invoice Management:EIM designs, develops and provides electronic invoice presentment and analysis software that enables internet-based customer self-care for wireline, wireless and convergent providers of telecommunications services. EIM software and services are used primarily by telecommunications services providers to enhance their customer relationships while reducing the providers operational expenses related to paper-based invoice delivery and customer support relating to billing inquiries.

Call Accounting Management and Recording: CAMRA designs, develops and provides software and services used by enterprise, governmental, institutional end users and managed and hosted customers of service providers to manage their telecommunications service and equipment usage and to analyze voice, video, and data usage, record and monitor communications and perform administrative and back office functions such as cost allocation or client bill back. These applications are commonly available in the market as enterprise-grade products. Customers typically purchase the CAMRA products when upgrading or acquiring a new enterprise communications platform.

Reconciling items for operating income (loss) in the table below represent corporate expenses, legal costs for patent enforcement and depreciation all of which are in the United States.

The accounting policies for segment reporting are the same as those described in Note 1 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

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Summarized financial information concerning the Company’s reportable segments for the six and three months ended June 30, 2015 and 2014 is shown in the following tables.

	For Six Months Ended June 30, 2015
	Electronic Invoice Management		Call Accounting Management and Recording			Corporate Allocation			Consolidated
Revenues	$	4,234,692	$	3,559,204		$	—		$	7,793,896
Gross profit (loss) Revenues less cost of products, excluding depreciation and amortization		3,409,458		2,276,348			—			5,685,806
Depreciation and amortization		477,689		352,167			8,186			838,042
Income (loss) from operations		771,741		(146,781	)		(950,139	)		(325,179	)
Long-lived assets		3,763,950		1,462,977			86,189			5,313,116
	For Six Months Ended June 30, 2014
	Electronic Invoice Management		Call Accounting Management and Recording			Corporate Allocation			Consolidated
Revenues	$	4,834,524	$	3,195,014		$	—		$	8,029,538
Gross profit (loss) Revenues less cost of products, excluding depreciation and amortization		3,973,297		1,988,293			—			5,961,590
Depreciation and amortization		643,829		279,708			5,130			928,667
Income (loss) from operations		583,352		(207,240	)		(892,491	)		(516,379	)
Long-lived assets		4,741,108		1,350,844			19,913			6,111,865
	For Three Months Ended June 30, 2015
	Electronic Invoice Management		Call Accounting Management and Recording			Corporate Allocation			Consolidated
Revenues	$	2,057,486	$	1,637,086		$	—		$	3,694,572
Gross profit (loss) Revenues less cost of products, excluding depreciation and amortization		1,659,341		993,472			—			2,652,813
Depreciation and amortization		237,517		165,446			4,187			407,150
Income (loss) from operations		353,551		(268,225	)		(520,396	)		(435,070	)
Long-lived assets		3,763,950		1,462,977			86,189			5,313,116
	For Three Months Ended June 30, 2014
	Electronic Invoice Management		Call Accounting Management and Recording			Corporate Allocation			Consolidated
Revenues	$	2,458,149	$	1,625,920		$	—		$	4,084,069
Gross profit (loss) Revenues less cost of products, excluding depreciation and amortization		2,015,245		1,030,819			—			3,046,064
Depreciation and amortization		315,359		144,113			2,530			462,002
Income (loss) from operations		291,401		(88,882	)		(415,923	)		(213,404	)
Long-lived assets		4,741,108		1,350,844			19,913			6,111,865

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The following table presents net revenues by geographic location.

	For Six Months Ended June 30, 2015
	United States			United Kingdom		Consolidated
Revenues	$	1,963,542		$	5,830,354	$	7,793,896
Gross profit (Revenues less cost of products, excluding depreciation and amortization)		1,206,915			4,478,891		5,685,806
Depreciation and amortization		346,060			491,982		838,042
Income (loss) from operations		(1,517,406	)		1,192,227		(325,179	)
Long-lived assets		4,518,254			794,862		5,313,116
	For Six Months Ended June 30, 2014
	United States			United Kingdom		Consolidated
Revenues	$	2,167,184		$	5,862,354	$	8,029,538
Gross profit (Revenues less cost of products, excluding depreciation and amortization)		1,530,843			4,430,747		5,961,590
Depreciation and amortization		271,772			656,895		928,667
Income (loss) from operations		(963,105	)		446,726		(516,379	)
Long-lived assets		4,996,453			1,115,412		6,111,865
	For Three Months Ended June 30, 2015
	United States			United Kingdom		Consolidated
Revenues	$	896,460		$	2,798,112	$	3,694,572
Gross profit (Revenues less cost of products, excluding depreciation and amortization)		508,748			2,144,065		2,652,813
Depreciation and amortization		162,173			244,977		407,150
Income (loss) from operations		(1,117,268	)		682,198		(435,070	)
Long-lived assets		4,518,254			794,862		5,313,116
	For Three Months Ended June 30, 2014
	United States			United Kingdom		Consolidated
Revenues	$	1,023,657		$	3,060,412	$	4,084,069
Gross profit (Revenues less cost of products, excluding depreciation and amortization)		729,031			2,317,033		3,046,064
Depreciation and amortization		138,928			323,074		462,002
Income (loss) from operations		(493,914	)		280,510		(213,404	)
Long-lived assets		4,996,453			1,115,412		6,111,865

NOTE 12 –Related Party Transactions

On October 30, 2013, the Company, issued to Fairford, Michael Reinarts and John Birbeck (collectively, the “Lenders”) a Promissory Note (the “Note”) in the aggregate principal amount of $1,400,000 (the “Principal Amount”). As of June 30, 2015, Fairford beneficially owned 65.1% of the Company’s outstanding Class A common stock. Pursuant to the Note, the Company promised to pay to the Lenders, on demand made at any time following April 30, 2014, or if demand is not sooner made, on May 31, 2014 (such date, or if earlier, the date demand is made under the Note, the “Maturity Date”), the unpaid balance under the Note plus all interest accrued thereunder as of the Maturity Date in the following proportions: 80% to Fairford Holdings, Ltd., 10% to Michael Reinarts and 10% to John Birbeck. Advances as of December 31, 2013, totaled $1,400,000 under the Note. In February 2014, the Company paid the Lenders principal of $700,000 and all interest accrued to date. On April 17, 2014, the Company paid all remaining principal and accrued interest under the Note.

On March 7, 2013, a proposal was made by Fairford, Michael Reinarts and John Birbeck (the “Buying Group”), to purchase all of the outstanding shares of stock of the Company for a cash purchase price of $0.29 per share (the “Proposal”). On December 30, 2013, the purchase price on the offer was increased to $0.40 per share (the “Revised Offer”). On June 14, 2014, the Special Committee of the Board rejected the Revised Offer.

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Upon being informed of the Special Committee’s rejection of the Revised Offer, the Buying Group informed the Company on June 14, 2014 that it would not be increasing and formally withdrew the Revised Offer. Accordingly, the Board disbanded the Special Committee effective immediately.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The Company is comprised of two business segments: EIM and CAMRA. EIM designs, develops and provides electronic invoice presentment and analysis software that enables internet-based customer self-care for wireline, wireless and convergent providers of telecommunications services. EIM software and services are used primarily by telecommunications services providers to enhance their customer relationships while reducing the providers operational expenses related to paper-based invoice delivery and customer support relating to billing inquiries. CAMRA designs, develops and provides software and services used by enterprise, governmental, institutional end users and managed and hosted customers of service providers to manage their telecommunications service and equipment usage and to analyze voice, video, and data usage, record and monitor communications and perform administrative and back office functions such as cost allocation or client bill back. These applications are commonly available in the market as enterprise-grade products. Customers typically purchase the CAMRA products when upgrading or acquiring a new enterprise communications platform.

The Company generates its revenues and cash from several sources: software sales, license fees, processing fees, implementation fees, software support and maintenance fees and training and consulting services.

The Company’s software products and services are subject to changing technology and evolving customer needs which require the Company to continually invest in research and development in order to respond to such demands. The limited financial resources available to the Company require the Company to concentrate on those business segments and product lines which the Company believes will provide the greatest returns on investment. The EIM segment, as compared to the other business segment, provides the predominant share of income from operations and cash flow from operations. The majority of CAMRA segment revenues are derived from its United Kingdom operations but the Company believes that most of the growth in the CAMRA segment will occur in the United States.

Overall revenues decreased primarily as a result of decrease in the EIM segment of $599,832 which represented a 12.4% decrease for the six month period ended June 30, 2015 over the prior comparable period. Revenues derived from the United Kingdom operations represented 74.8% of total revenues for the six months ended June 30, 2015. The increase was attributable to a decrease in US EIM revenue. The United States revenues decreased by $203,642, or 9.4%, to $1,963,542 for the six months ended June 30, 2015 compared to $2,167,184 for the six months ended June 30, 2014. Such decrease was primarily related to a decrease in revenue in the EIM segment sales in the United States due to a loss of a customer. The Company earns a substantial portion of its revenue from a single EIM customer in the United Kingdom. That customer represented approximately 24.2% and 22.1% of total revenues for the six months ended June 30, 2015 and June 30, 2014, respectively.

The Company reported revenue in the EIM segment of $4.2 million and $4.8 million for the six months ended June 30, 2015 and 2014, respectively. For the CAMRA segment, the Company recorded revenues of $3.6 million and $3.2 million for the six months ended June 30, 2015 and 2014, respectively.

The Company believes that as voice and data services continue to commoditize, service providers will seek alternative business models to replace revenue lost as a result of pricing pressures. One such business model is the delivery of managed or hosted voice and video services. Although the Company has seen what it believes to be positive results in its CAMRA segment, due to the unstable global economy, the growth has been slower than anticipated but the Company continues to see improvement in the CAMRA segment.

Traditionally, organizations that required advanced voice and video services would purchase enabling communications hardware and software, operate and maintain this equipment, and depreciate the associated capital expense over time. This approach had two major disadvantages for such organizations. The first being that organizations would experience significant capital and operational expenditures related to acquiring these advanced services. The second being that the capabilities of the acquired equipment would not materially improve as voice and video service technology evolved.

Service providers recognized these challenges and began, as part of their next generation network (“NGN”) strategies, to deliver managed and hosted service offerings that do not require the customer to purchase expensive equipment up-front and virtually eliminate the operational expenditures associated with managing and maintaining an enterprise-grade communications network. Service providers incrementally improve revenue by enabling competitive voice and video features while reducing costs by delivering these services on high-capacity, low-cost NGNs.

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Due to the profitability and average revenue per user advantage possible by delivering such managed and hosted service offerings, providers not only look at acquiring new customers but converting legacy customers onto the NGN platform. The Company believes that this conversion process is significant. Many legacy features and functions are not available on NGN platforms, primarily due to the immaturity of the service delivery model.

The Company’s CAMRA applications will help eliminate customer resistance to conversion to next generation platforms, while creating new revenue opportunities for service providers through the delivery of compelling value added services. The Company’s call recording product SmartRecord® enables service providers to selectively intercept communications on behalf of their hosted and managed service customers. This application also enables managed and hosted service customers of service providers to analyze voice, video, screen and data usage, record and monitor communications, and perform administration and back office functions such as quality assurance and voice-of-customer analytics.

The Company call accounting product Proteus® provides firms with a premise-based application that imports call detail records form many enterprise-class telephone systems and financial trading voice platforms. The information is used by firms to perform cost allocation, client bill back, telephony cost analysis, telephone network optimization, telephone fraud detection, key performance indicator analysis and trader voice analysis. These applications are released as enterprise-grade products. The Company typically sells the CAMRA offerings when customers are upgrading or acquiring a new enterprise communications platform.

The Company has taken the business benefits of these enterprise-grade applications and has delivered provider-grade managed and hosted service applications, enabling service providers to create a new recurring revenue stream.

Financial Condition

In the six months ended June 30, 2015, stockholders’ equity decreased $285,080 from $6,661,477 as of December 31, 2014 to $6,376,397 as of June 30, 2015 primarily as a result of net loss of $390,690. The Company realized a decrease in net current assets (current assets, less current liabilities) of $791,191 which was primarily attributable to a decrease in cash due to advanced payments on a large invoice in the EIM segment generated in the first quarter of 2014.

At June 30, 2015, cash and cash equivalents were $4,330,917 compared to $5,278,476 at December 31, 2014, and such decrease was primarily attributable to cash used by operating activities for the six months ended June 30, 2015 of $368,847 in conjunction with cash used in investing activities of $606,042 and cash flows used in financing activities of $7,360. The cash used in operating activities in the six months ended June 30, 2015 of $368,847 was primarily attributable to a net loss of $390,690 and a decrease in deferred revenue of $1,204,553. The decrease in deferred revenue is primarily related to a large invoice in the EIM segment that was partially realized and the net loss is primarily attributable to the loss in the US CAMRA segment. The cash used in investing activities for the six months ended June 30, 2015 of $606,042 related to additions to property, equipment and software.

The cash used in financing activities for the six months ended June 30, 2015 of $7,360 was due primarily to payment on lease and partially offset by exercising of stock options. The Company generates approximately 74.6% of its revenues from operations in the United Kingdom where the functional currency, the United Kingdom pound, has weakened by 1.0% in relation to the United States dollar during the six month period ended June 30, 2015.

Results of Operations(Six Months Ended June 30, 2015 Compared to Six Months Ended June 30, 2014)

Revenues

Revenues from operations for the six months ended June 30, 2015 decreased $235,642, or 2.6%, to $7,793,896 as compared to $8,029,538 for the six months ended June 30, 2014. Overall revenues decreased primarily as a result of decreased sales in the EIM segment, due to loss of a customer in the US EIM segment and a 8.7% negative foreign currency impact. Revenues derived from the United Kingdom operations represented 74.6% and 73.0% of total revenues for the six months ended June 30, 2015 and 2014, respectively. The increase in the percentage of total revenues attributable to United Kingdom operations was primarily related to decreased sales in the United States EIM segment due to a loss of a customer. The United States revenues decreased by $204,642, or 9.4%, to $1,963,542 for the six months ended June 30, 2015 compared to $2,167,184 for the six months ended June 30, 2014. Such decrease was primarily related to a decrease in revenue in the EIM segment sales in the United States partially offset by an increase in revenue in the CAMRA segment.

The Company earns a substantial portion of its revenue from a single EIM customer in the United Kingdom. That customer represented approximately 24.2% of total revenues for the six months ended June 30, 2015 and approximately 22.1% for the six months ended June 30, 2014.

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Cost of Products and Services Excluding Depreciation and Amortization

Cost of products and services, excluding depreciation and amortization, for the six months ended June 30, 2015, increased $40,142, or 0.2%, to $2,108,090, as compared to $2,067,948 for the six months ended June 30, 2014. The increase was primarily related to increased research and development costs allocated to cost of goods. The cost of products and services, excluding depreciation and amortization, related to the CAMRA segment increased $75,865 or 6.3% to $1,282,586 for the six months ended June 30, 2015 from $1,206,721 for the six months ended June 30, 2014. The increase was primarily due to increase in revenue. The costs of products and services, excluding depreciation and amortization, related to the EIM segment decreased by $35,993 or 4.2% to $825,234 for the six months ended June 30, 2015 compared to $861,227 for the six months ended June 30, 2014. The decrease is primarily related to the decrease in personnel costs due to the loss of US EIM customer. The cost of products and services, excluding depreciation and amortization, was 27.0% of revenue for the six months ended June 30, 2015, as compared to 25.8% of revenue for the six months ended June 30, 2014. The increase in percentage relates to payment of referral fees in the six months ended June 30, 2015 without any payment for the six month period ended June 30, 2014.

Selling, General and Administrative Costs

Selling, general and administrative expenses for the six months ended June 30, 2015 decreased $51,979, or 1.3%, to $3,805,461 compared to $3,857,440 for the six months ended June 30, 2014. The decrease was primarily due to decreased in general and administrative compensation expense in the United States. Selling, general and administrative costs related to the CAMRA segment increased by $95,279 or 7.0% to $1,456,221 for the six months ended June 30, 2015 compared to $1,360,942 for the six months ended June 30, 2014. The increase in the CAMRA selling costs of $95,279 was primarily as a result of an 11.4% increase in CAMRA revenue. Selling, general and administrative costs related to the EIM segment decreased by $87,693 or 5.8% to $1,407,287 for the six months ended June 30, 2015 compared to $1,494,980 for the six months ended June 30, 2014. The decrease in Selling, general and administrative costs related to the decrease in professional fees and bad debt in the EIM segment. The corporate allocation increased by $54,591 or 6.2% to $941,952 for the six months ended June 30, 2014 compared to $887,361 for the six months ended June 30, 2014 which was primarily due professional fees.

Research and Development Expense

Research and development expense for the six months ended June 30, 2015 decreased $324,380 or 19.2%, to $1,367,482 as compared to $1,691,862 for the six months ended June 30, 2014. This is primarily due to a decrease in personnel costs with reallocation of job responsibilities in the UK. Research and development costs related to the CAMRA segment increased $59,858 to $614,741 for the six months ended June 30, 2014 compared to $554,883 for the six months ended June 30, 2014. Research and development expense related to the EIM segment decreased $383,938 to $752,741 for the six months ended June 30, 2015 compared to $1,136,679 for the six months ended June 30, 2014. Research and development costs that were capitalized during the six months ended June 30, 2015 and June 30, 2014 amounted to $520,681 and $537,596, respectively. Research and development costs allocated to cost of goods sold during the six months ended June 30, 2015 and June 30, 2014 amounted to $250,017 and $215,142, respectively.

Depreciation and Amortization

Depreciation and amortization for the six months ended June 30, 2015 decreased $90,625 or 9.8% to $838,042 from $928,667 in the six months ended June 30, 2014. This decrease is primarily related to reduction of amortization of intangible assets.

Amortization expense of developed software, which relates to cost of sales, was presented as depreciation and amortization expense. Amortization expense of developed software amounted to $478,768 and $377,732 for the six months ended June 30, 2015 and 2014, respectively.

Other Income and Expense

The Company realized interest expense of $3,003 for the six months ended June 30, 2015 compared to interest expense of $25,473 for the six months ended June 30, 2014. The decrease in interest expense was primarily due to the Company’s pay off of debt during 2014.

The Company realized other income of $1,344,749 for the six months ended June 30, 2014. The other income of $1,344,749 was the net amount of a $3,100,000 patent settlement less legal fees related to the settlement of $1,755,251.

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Taxes

The tax expense for the six months ended June 30, 2015 decreased $50,634 or 44.8%, to $62,306 as compared to $112,940 for the six months ended June 30, 2014. The tax expense for the six months ended June 30, 2015 and June 30, 2014, decreased compared to prior period due an increase in capital allowances consisting primarily of expenditures for capital and research and development with a pre-tax income related to operations in the United Kingdom of $1,719,267 and $442,053, respectively. The effective tax rates for the six months ended June 30, 2015 and June 30, 2014 for the United Kingdom were 3.6% and 25.5%, respectively. The difference between the statutory rate and the actual rate is primarily due to the taxable income in the United States being off-set by Company’s United States net operating loss carry-forward and the valuation allowance. The lower rate in the United Kingdom can be attributed to capital allowances and research and development credits led to the tax benefit.

The Company records a valuation allowance against its net deferred tax asset to the extent management believes that it is more likely than not that the asset will not be realized. As of June 30, 2015, the Company’s valuation allowance related to the net deferred tax assets in the United States.

Net Income / (Loss)

The Company realized a net loss for the six months ended June 30, 2015 of $(390,690) compared to net income of $689,957 for the six months ended June 30, 2014. The change in net (loss) / income was primarily associated with the other income of $1,344,749 related to the patent enforcement settlement received in 2014.

Results of Operations(Three Months Ended June 30, 2015 Compared to Three Months Ended June 30, 2014)

Revenues

Revenues from operations for the three months ended June 30, 2015 decreased $389,497, or 9.5%, to $3,694,572 as compared to $4,084,069 for the three months ended June 30, 2014. The decrease was primarily due to the loss of a EIM customer in the US and a 8.2% negative foreign currency impact. The CAMRA segment sales increase by $11,166, or 0.6%, to $1,637,086 as compared to $1,625,920 for the three months ended June 30, 2014. The EIM segment decreased $400,663, or 16.3%, to $2,057,486 for the three months ended June 30, 2015 as compared to $2,458,149 for the three months ended June 30, 2014. This decrease was primarily due to the loss of revenue from a single EIM customer in the United States. There was not any revenue recognized by this customer for the three months ended June 30, 2015 and $334, 516 or 8.2% of total revenue related to customer for the three months ended June 30, 2014.

Cost of Products and Services Excluding Depreciation and Amortization

Cost of products and services, excluding depreciation and amortization, for the three months ended June 30, 2015, increased $3,754, or 0.4%, to $1,041,759, as compared to $1,038,005 for the three months ended June 30, 2014. The increase was primarily related to costs associated with increased revenue in the CAMRA segment. The cost of products and services, excluding depreciation and amortization, related to the CAMRA segment increased $48,513, or 8.2% to $643,614 for the three months ended June 30, 2015 from $595,101 for the three months ended June 30, 2014. The increase was due to a increase of support fees to the CAMRA segment. The costs of products and services, excluding depreciation and amortization, related to the EIM segment decreased by $44,759, or 10.1%, to $398,145 for the three months ended June 30, 2015 compared to $442,904 for the three months ended June 30, 2014. The decrease was primarily due to the decrease in exchange rate. The cost of products and services, excluding depreciation and amortization, was 28.2% of revenue for the three months ended June 30, 2015, as compared to 25.4% of revenue for the three months ended June 30, 2014.

Selling, General and Administrative Costs

Selling, general and administrative expenses for the three months ended June 30, 2015 increased $48,665, or 2.5%, to $1,976,114 compared to $1,927,449 for the three months ended June 30, 2014. The increase was primarily related to increase in stock option expense and professional fees and partially offset by the decrease in corporate compensation expense in the US. Selling, general and administrative costs related to the CAMRA segment increased by $88,416, or 12.8%, to $776,794 for the three months ended June 30, 2015 compared to $688,378 for the three months ended June 30, 2014. This increase is primarily due to an increase in the headcount in the CAMRA segment and the effect of exchange rate. Selling, general and administrative costs related to the EIM segment decreased by $142,567, or 17.3%, to $683,111 for the three months ended June 30, 2015 compared to $825,678 for the three months ended June 30, 2014. The decrease is primarily attributable to a decrease in personnel costs.

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Selling, general and administrative costs related to the corporate allocation increased by $102,816, or 24.8%, to $516,209 for the three months ended June 30, 2015 compared to $413,393 for the three months ended June 30, 2014. The increase was primarily attributable to an increase in personnel.

Research and Development Expense

Research and development expense for the three months ended June 30, 2015 decreased $165,398, or 19.0%, to $704,619 as compared to $870,017 for the three months ended June 30, 2014. Research and development costs related to the CAMRA segment increased $32,247 or 11.2% to $319,457 for the three months ended June 30, 2015 compared to $287,210 for the three months ended June 30, 2014. The increase is primarily due to an increase in support fees in the CAMRA segment. Research and development expense related to the EIM segment decreased $197,645, or 33.9%, to $385,162 for the three months ended June 30, 2015 compared to $582,807 for the three months ended June 30, 2014. The decrease is primarily due to reduction of personnel and the exchange rates. Research and development costs for software with established technological feasibility that were capitalized during the three months ended June 30, 2015 and June 30, 2014 amounted to $292,446 and $300,440, respectively. Research and development costs allocated to cost of goods sold during the three months ended June 30, 2015 and June 30, 2014 amounted to $105,774 and $83,436, respectively. The increase was primarily due to the reduction of capitalized costs.

Depreciation and Amortization

Depreciation and amortization for the three months ended June 30, 2015 decreased $54,852 to $407,150 from $462,002 in the three months ended June 30, 2014. This is due primarily to reduction of amortization of intangible assets.

Amortization expense of developed software, which relates to cost of sales, was presented as depreciation and amortization expense. Amortization expense of developed software amounted to $241,139 and $195,455 for the three months ended June 30, 2015 and 2014, respectively.

Other Income and Expense

The Company incurred interest expense of $2,477 for the three months ended June 30, 2015 compared to $5,604 for the three months ended June 30, 2014. The change in interest expense was primarily due to the increase in investment income offsetting interest expense in 2015.

Taxes

The tax expense for the three months ended June 30, 2015 decreased $107,766, or 152.0%, to ($36,869) as compared to an expense of $70,897 for the three months ended June 30, 2014. The tax expense for the three months ended June 30, 2015 and June 30, 2014 was due to the pre-tax income in the United Kingdom of $682,198 and $276,943, respectively. The effective tax rates for the three months ended June 30, 2015 and June 30, 2014 for the United Kingdom were (5.0%) and 25.6%, respectively. The difference between the statutory rate and the actual rate is primarily due to the taxable income in the United States being off-set by Company’s United States net operating loss carry-forward and the valuation allowance. The lower rate in the United Kingdom can be attributed to capital allowances and research and development credits led to the tax benefit.

The Company records a valuation allowance against its net deferred tax asset to the extent management believes that it is more likely than not that the asset will not be realized. As of June 30, 2015, the Company’s valuation allowance related to the net deferred tax assets in the United States.

Net Income / (Loss)

The Company realized net loss for the three months ended June 30, 2015 of $400,678 compared to net loss of $289,905 for the three months ended June 30, 2014. The increase in the net loss was primarily associated with the losses generated from the CAMRA segment.

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Liquidity and Capital Resources

Historically, the Company’s principal needs for funds have been for operating activities (including costs of products and services, patent enforcement activities, selling, general and administrative expenses, research and development, and working capital needs) and capital expenditures, including software development. Cash flows from operations and existing cash and cash equivalents in the past have usually been adequate to meet the Company’s business objectives. Cash and cash equivalents decreased to $947,559 to $4,330,917 as of June 30, 2015 compared to $5,278,476 as of December 31, 2014. The decrease in cash and cash equivalents, during the six months ended June 30, 2015 was predominately related to a net loss of $390,690 and to capitalization of internally developed software and the purchase of equipment of $606,042. The cash used in operating activities in the six months ended June 30, 2015 of $368,847 was primarily attributable to the net loss of $390,690. The decrease in deferred revenue is primarily related to a large invoice in the EIM segment that was partially realized during the six months ended June 30, 2015. The net income is primarily attributable to the patent settlement with net proceeds of $1,344,749 recognized in other income for the six months ended June 30, 2014. Cash used in investing activities for the six months ended June 30, 2015 of $605,840 was primarily related to capitalization of internally developed software and the purchase of equipment of $606,042. The cash used in financing activities for the six months ended June 30, 2015 of $7,360 related to the payment on note and partially offset by the exercising of stock. The effect of foreign currency exchange rates on cash and cash equivalents was a gain of $34,690.

Cash is generated from (or utilized in) the income/(loss) from operations for each segment (see Note 11 to the Consolidated Financial Statements (unaudited) of Part I, Item 1 of this Form 10-Q). The EIM and CAMRA segments represented income / (loss) from operations for the six months ended June 30, 2015 of $771,741 and $(146,781), respectively and for the three months ended June 30, 2015 of $353,551 and $(268,225), respectively. The Corporate Allocation expense was $950,139 for the six months ended June 30, 2015 and $520,396 for the three months ended June 30, 2015. The United States location generated a loss from operations for the six and three months ended June 30, 2015 of $1,517,406 and $1,117,268, respectively, which was primarily associated with losses generated in the CAMRA segment and the Corporate Allocations expense. The United Kingdom location generated income from operations for the same periods of $1,192,227 and $682,198, respectively.

In October 2013, in order to supplement the Company’s liquidity, Fairford, Michael Reinarts and John Birbeck (the “Lenders”) agreed to advance to the Company up to $1,400,000. In connection with the advance, the Company issued to the Lenders a promissory note, for the amount advanced bearing interest at 6.5% per annum. On April 17, 2014, the Company repaid the promissory note.

The Company anticipates that its cash needs will be met during the next twelve months primarily through cash from operations and if necessary from the cash on hand. If the Company is unable to generate adequate cash from operations, the Company may seek additional funds from the Lenders or other Lenders. There can be no assurance that the Company will be successful in such efforts. As of June 30, 2015, the Company did not and as of the date of this Form 10-Q does not have an operating line credit facility in place.

Off-Balance Sheet Arrangements

The Company has no material off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to revenue recognition, bad debts, depreciation and amortization, investments, income taxes, capitalized software, goodwill, restructuring costs, accrued compensation, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the consolidated financial statements. For the description of other critical accounting policies used by the Company, see Item 8. “Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

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Income Taxes. The Company is required to estimate its income taxes. This process involves estimating the Company’s actual current tax obligations together with assessing differences resulting from different treatment of items for tax and accounting purposes which result in deferred income tax assets and liabilities.

The Company accounts for income taxes using the liability method. Under the liability method, a deferred tax asset or liability is determined based on the difference between the financial statement and tax bases of assets and liabilities, as measured by the enacted tax rates assumed to be in effect when these differences are expected to reverse.

The Company’s deferred tax assets are assessed for each reporting period as to whether it is more likely than not that they will be recovered from future taxable income, including assumptions regarding on-going tax planning strategies. To the extent the Company believes that recovery is uncertain, the Company has established a valuation allowance for assets not expected to be recovered. Changes to the valuation allowance are included as an expense or benefit within the tax provision in the statement of operations. As of June 30, 2015, the Company’s valuation allowance related only to net deferred tax assets in the United States. As a result, the Company’s tax expense relates to the United Kingdom operations and the Company does not anticipate recording significant tax charges or benefits related to operating gains or losses for the Company’s United States operations. Due to the Company transferring cash from its non-U.S. subsidiaries to the US in both 2012 and 2013, the Company no longer considers earnings related to non-U.S. subsidiaries to be permanently reinvested. The impact of adoption of this policy has not had a material impact on the Company’s results of operations, financial position or cash flows.

The Company recognizes a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the state of Indiana and foreign income tax in the United Kingdom. The Company does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company did not have any amounts accrued for interest and penalties at June 30, 2015.

The Company’s tax filings are subject periodically to regulatory review and audit.

Research and Development and Software Development Costs. Research and development costs are charged to operations as incurred. Software Development Costs are considered for capitalization when technological feasibility is established. The Company bases its determination of when technological feasibility is established based on the development team’s determination that the Company has completed all planning, designing, coding and testing activities that are necessary to establish that the product can be produced to meet its design specifications including, functions, features, and technical performance requirements.

Goodwill and Intangible Assets. The Company considers the goodwill and related intangible assets related to CTI Billing Solutions Limited to be the premium the Company paid for CTI Billing Solutions Limited. For accounting purposes, these assets are maintained at the corporate level and the Company considers the functional currency with respect to these assets as the United States dollar.

Goodwill is tested for impairment on an annual basis and between annual tests in certain circumstances, and written down when impaired. No impairment was identified in 2014. Purchased intangible assets other than goodwill are amortized over their useful lives unless these lives are determined to be indefinite. Purchased intangible assets are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, generally 3-15 years. Intangible assets consist of purchased technology, trademarks and trade names, and customer lists.

The Company has allocated goodwill and a significant component of its intangible assets to CTI Billing Solutions Limited, as that entity is considered a separate reporting unit. The Company performed its last annual impairment analysis on goodwill as of October 1, 2014, to coincide with the calendar date set in past years for this analysis. The Company’s analysis considered the projected cash flows of the reporting unit and gave consideration to appropriate factors in determining a discount rate to be applied to these cash flows. The results of this analysis indicated that there was no impairment as of the date of our annual impairment determination and that further impairment analysis was not required.

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The Company recognizes that the market for our stock can be below our book value which the Company attributes to a number of factors including very limited trading in the Company’s Class A common stock, a significant portion of the Company’s Class A common stock (approximately 65%) is beneficially owned by a majority stockholder, an overall “flight to quality” by investors in which many “penny stocks” such as CTI’s have been significantly downgraded in terms of pricing and an overall lack of public awareness of its operations. While the Company cannot quantify the impacts of these factors in terms of how they impact the difference between book value and our stock’s “market cap,” the Company does not believe that the market in its Class A common stock is sufficiently sophisticated to make a proper determination of the value of the Company’s Class A common stock.

Because of the Company’s continued relatively low “market cap”, the Company reviewed the assumptions utilized in the impairment determination and again found that there existed no impairment. As of November 1, 2014, the Company’s “market cap” was above the Company’s book value. The Company’s operations of the business unit are primarily based on recurring revenues and have not experienced an adverse change in anticipated performance considered in the impairment analysis. The Company believes that the analysis as of November 1, 2014 is sufficiently current and no formal analysis has been performed at June 30, 2015. If the Company assesses market condition changes in our business, it may be required to reflect additional goodwill impairment in the future.

Long-Lived Assets. The Company reviews the recoverability of the carrying value of its long-lived assets on an annual basis. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. When such events occur, the Company compares the carrying amount of the assets to the undiscounted expected future cash flows. If this comparison indicates there is impairment, the amount of the impairment is typically calculated using discounted expected future cash flows.

Revenue Recognition and Accounts Receivable Reserves. The Company records revenue when it is realized, or realizable, and earned. Revenues from software licenses are recognized upon shipment, delivery or customer acceptance, based on the substance of the arrangement or as defined in the sales agreement provided there are no significant remaining vendor obligations to be fulfilled and collectability is reasonably assured. Software sales revenue is generated from licensing software to new customers and from licensing additional users and new applications to existing customers.

The Company’s sales arrangements typically include services in addition to software. Service revenues are generated from support and maintenance, processing, training, consulting, and customization services. For sales arrangements that include bundled software and services, the Company accounts for any undelivered service offering as a separate element of a multiple-element arrangement. Amounts deferred for services are determined based upon vendor-specific objective evidence of the fair value of the elements. Support and maintenance revenues are recognized on a straight-line basis over the term of the agreement. Revenues from processing, training, consulting, and customization are recognized as provided to customers. If the services are essential to the functionality of the software, revenue from the software component is deferred until the essential service is complete.

If an arrangement to deliver software or a software system, either alone or together with other products or services, requires significant production, modification, or customization of software, the service element does not meet the criteria for separate accounting set forth in the guidance related to software revenue recognition. If the criteria for separate accounting are not met, the entire arrangement is accounted for in conformity with guidance related to contract accounting. The Company carefully evaluates the circumstances surrounding the implementations to determine whether the percentage-of-completion method or the completed-contract method should be used. Most implementations relate to the Company’s Telemanagement products and are completed in less than 30 days once the work begins. The Company uses the completed-contract method on contracts that will be completed within 30 days since it produces a result similar to the percentage-of-completion method. On contracts that will take over 30 days to complete, the Company uses the percentage-of-completion method of contract accounting.

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company continuously monitors collections and payments from its customers and the allowance for doubtful accounts is based on historical experience and any specific customer collection issues that the Company has identified. If the financial condition of its customers were to deteriorate resulting in an impairment of their ability to make payments, additional allowances may be required. Where an allowance for doubtful accounts has been established with respect to customer receivables, as payments are made on such receivables or if the customer goes out of business with no chance of collection, the allowances will decrease with a corresponding adjustment to accounts receivable as deemed appropriate.

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Stock Based Compensation. The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options and restricted stock units, based on the fair value of those awards at the date of grant. The Company uses the Black-Scholes-Merton formula to calculate the fair value of the stock options and restricted stock units.

The Company recognizes compensation cost net of a forfeiture rate and recognizes the compensation cost for only those awards expected to vest on a straight-line basis over the requisite service period of the award, which is generally the vesting term. The Company estimated the forfeiture rate based on its historical experience and its expectations about future forfeitures.

Through March 31, 2015, the Company treated all RSUs as equity awards as it was the Company’s intent to redeem these awards via transfer of stock. On April 20, 2015, the Board of Directors consented to allow RSUs that had vested at April 1, 2015 to be redeemed for their cash or stock value. As a result of this decision, the remaining RSUs outstanding were deemed tainted, and were modified to be treated as liability awards. The Company now records a liability for restrictive stock units and remeasures the liability on each reporting date and the associated compensation cost is adjusted to reflect the remeasurement of the fair value at the reporting date.

Selling, general and administrative expense included stock-based compensation for the three months ended June 30, 2015 and June 30, 2014 of $102,700 and $64,757, respectively. Selling, general and administrative expense included stock-based compensation for the six months ended June 30, 2015 and June 30, 2014 of $133,100 and $79,966, respectively. Stock-based compensation expenses are recorded in the Corporate Allocation segment as these amounts are not included in internal measures of segment operating performance.

The Company estimates it will recognize approximately $327,828, $581,487, $516,111 and $123,576 for the fiscal years ending December 31, 2015, 2016, 2017 and 2018, respectively, of compensation costs for non-vested stock options previously granted to employees.

New Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers: Topic 606 (“ASU 2009-14”), which supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard is effective for the Company in first quarter of fiscal 2018, with early adoption to fiscal year 2017 permitted. The standard allows entities to apply either of two adoption methods: (i) retrospective application to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective application with the cumulative effect of initially applying the standard recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. The Company is evaluating the impact of adopting this new standard on its financial statements and the method of adoption.

In August 2014, FASB issued ASU 2014-15, “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this ASU provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this ASU on the consolidated financial statements.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not Applicable.

Item 4. Controls and Procedures.

The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on this evaluation, the principal executive officer and principal financial officer concluded that as of June 30, 2015, the Company’s disclosure controls and procedures were effective in reaching a reasonable level of assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

The Company’s principal executive officer and principal financial officer also conducted an evaluation of internal control over financial reporting (“Internal Control”) to determine whether any changes in Internal Control occurred during the quarter covered by this report that have materially affected or which are reasonably likely to materially affect Internal Control. Based on that evaluation, there has been no such change during the quarter covered by this Form 10-Q.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations to enhance, where necessary, its procedures and controls.

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PART II - OTHER INFORMATION

Item 1 – Legal Proceedings.

The Company is from time to time subject to claims and administrative proceedings that are filed in the ordinary course of business and are unrelated to Patent Enforcement.

Item 1A – Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 which could materially affect the Company’s business, financial condition or future results. The risk factors in the Company’s Annual Report on Form 10-K have not materially changed. The risks in the Company’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3 – Defaults Upon Senior Securities.

None.

Item 4 – Mine Safety Disclosure

Not applicable.

Item 5 – Other Information.

None.

Item 6 – Exhibits.

Exhibit 10.1	CTI Group (Holdings) Inc. 2015 Stock Incentive Plan (incorporated by reference from Exhibit 10.1 of the Company’s current Report on Form 8-K filed with the Commission on April 7, 2015)
Exhibit 10.2	Employment Agreement dated June 1, 2015, by and between the Company and Manfred Hanuschek (incorporate by reference from Exhibit 10.1 of the Company’s current Report on Form 8-k filed with the Commission on June 5, 2015)
Exhibit 11.1	Statement re computation of per share earnings, incorporated by reference to Note 6 to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q
Exhibit 31.1*-	Chief Executive Officer Certification pursuant to Securities Exchange Act Rule 13a-14(a) / 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2*-	Chief Financial Officer Certification pursuant to Securities Exchange Act Rule 13a-14(a) / 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1**-	Section 1350 Certification of the Chief Executive Officer
Exhibit 32.2**-	Section 1350 Certification of the Chief Financial Officer
Exhibit 101INS *	XBRL Instance Document
Exhibit 101 SCH*	XBRL Taxonomy Extension Schema Document
Exhibit 101 CAL*	XBRL Calculation Linkbase Document
Exhibit 101 DEF*	XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101 LAB*	XBRL Label Linkbase Document
Exhibit 101 PRE*	XBRL Taxonomy Presentation Linkbase Document

* Filed herewith

** Furnished herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CTI Group (Holdings) Inc.
/s/ Manfred Hanuschek
Manfred Hanuschek	Date: August 14, 2015
Chief Executive Officer
(Principal Executive Officer)
/s/ Nathan Habegger
Nathan Habegger	Date: August 14, 2015
Chief Financial Officer
(Principal Financial Officer)

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