UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2000
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO _____ .
Commission file number 0-10560.
CTI GROUP (HOLDINGS) INC.
(Exact name of Small Business Issuer in its charter)
DELAWARE 51-0308583
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification Number)
2550 Eisenhower Avenue, Norristown, PA 19403
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (610) 666-1700
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No __.
The number of shares of common stock par value $.01, outstanding as of November
8, 2000 was 7,661,505.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, March 31,
2000 2000
------------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 15,550 $ 171,761
Trade, accounts receivable less allowance
for doubtful accounts of $132,848
and $97,717 at September 30, 2000 and
March 31, 2000, respectively 419,381 857,390
Inventories 6,909 4,367
Prepaid expenses 65,112 97,949
-------- ----------
Total current assets 506,952 1,131,467
Furniture, fixtures, equipment and leasehold
improvements at cost, less accumulated
depreciation and amortization of $451,893
and $402,441 at September 30, 2000 and
March 31, 2000, respectively 165,510 182,923
Computer software, net of accumulated
amortization of $2,986,260 and $2,745,842
at September 30, 2000 and March 31, 2000,
respectively 168,643 397,389
Other assets 9,623 9,623
-------- ----------
$850,728 $1,721,402
======== ==========
2
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
September 30, March 31,
2000 2000
------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note and loan payable $ 290,000 $ 50,398
Accounts payable 317,722 135,570
Other accrued expenses 545,863 981,082
Accrued merger costs 579,408 243,981
Accrued taxes payable 141,900 143,114
Deferred revenue 517,334 521,957
----------- -----------
Total current liabilities 2,392,227 2,076,102
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01; 50,000,000 shares
authorized; 7,651,505 issued at September 30, 2000
and 7,566,505 shares issued at March 31, 2000 76,515 75,665
Capital in excess of par value 8,814,070 8,524,057
Accumulated deficit (10,097,030) (8,606,975)
Other comprehensive income - Foreign
currency translation 71,346 58,953
Less - Treasury stock, 140,250 shares (406,400) (406,400)
----------- -----------
Total stockholders' equity (1,541,499) (354,700)
----------- -----------
$ 850,728 $ 1,721,402
=========== ===========
3
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six-Months Ended
September 30,
---------------------------
2000 1999
----------- ------------
Sales $ 2,145,097 $ 3,965,721
Cost of sales (exclusive of depreciation and
amortization) 1,412,138 1,978,048
----------- -----------
Gross Profit 732,959 1,987,673
----------- -----------
Costs and expenses:
Selling, general and administrative expenses 1,352,061 1,234,372
Depreciation and amortization 280,638 277,555
Merger Costs 590,152 -0-
----------- -----------
$ 2,222,851 $ 1,511,927
=========== ===========
Income (loss) from operations (1,489,892) 475,746
Other expenses
Interest expense net of interest income 163 2,857
----------- -----------
Net income (loss) $(1,490,055) $ 472,889
=========== ===========
Other Comprehensive income (loss)
Foreign currency translation adjustment 12,393 (15,209)
----------- -----------
Comprehensive income (loss) $(1,477,662) $ 457,680
=========== ===========
Basic and diluted net income (loss) per common share $ (0.20) $ 0.07
=========== ===========
Basic weighted average common shares outstanding 7,460,422 6,972,301
=========== ===========
Diluted weighted average common shares outstanding 7,460,422 7,159,679
=========== ===========
4
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three-Months Ended
September 30,
---------------------------
2000 1999
----------- ------------
Sales $ 879,955 $ 1,962,604
Cost of sales (exclusive of depreciation and
amortization) 651,614 1,035,153
----------- ------------
Gross Profit 228,341 927,451
----------- ------------
Costs and expenses:
Selling, general and administrative expenses 847,841 454,137
Depreciation and amortization 139,667 134,749
Merger Costs 331,791 -0-
----------- ------------
$ 1,319,299 $ 588,886
----------- ------------
Income (loss) from operations (1,090,958) 338,565
Other expenses
Interest expense net of interest income 1,526 1,133
----------- ------------
Net income (loss) $(1,092,484) $ 337,432
=========== ===========
Other Comprehensive income (loss)
Foreign currency translation adjustment 24,394 (32,946)
----------- ------------
Comprehensive income (loss) $(1,068,090) $ 304,486
=========== ===========
Basic and diluted net income (loss) per common share $ (0.15) $ 0.05
=========== ===========
Basic weighted average common shares outstanding 7,491,255 7,000,467
=========== ===========
Diluted weighted average common shares outstanding 7,491,255 7,196,992
=========== ===========
5
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six-Months Ended
September 30,
---------------------------
2000 1999
------------ ----------
Cash Provided By (Used In):
Operating activities:
Net (Loss) Income $ (1,490,055) $ 472,889
Adjustments to reconcile net income to cash
provided by (used in) operations:
Depreciation and amortization 280,638 277,555
Provision for doubtful accounts 46,973 (1,586)
Compensation expense related to issuance
of stock options 268,716 26,140
Changes in operating working capital:
Decrease (increase) in receivables, trade 332,855 (232,869)
Increase in inventories (2,542) (11,616)
Decrease in prepaid expenses 25,083 23,047
Increase (decrease) in accounts payable 177,484 (45,461)
Increase (decrease) in other accrued expenses (41,840) (187,871)
Increase (decrease) in deferred revenue 29,509 (331,811)
----------- ---------
Cash utilized in operating activities (373,179) (11,583)
----------- ---------
Investing Activities:
Additions to equipment and leasehold
improvements (34,480) (50,149)
Additions to computer software -0- (4,000)
----------- ---------
Cash utilized in investing activities (34,480) (54,149)
----------- ---------
Financing Activities:
Repayment of Debt (50,398) (118,429)
Exercised Stock Options 22,150 -0-
Additional Borrowings 290,000 -0-
----------- ---------
Cash provided by (utilizing in) financing
activities 261,752 (118,429)
Effect of exchange rates on cash (10,304) (15,336)
----------- ---------
Decrease in cash and cash equivalents (156,211) (199,497)
Cash and cash equivalents, at beginning of period 171,761 776,146
----------- ---------
Cash and cash equivalents, at end of period $ 15,550 $ 576,649
=========== =========
Supplemental disclosures:
Cash paid during the year for interest $ 1,110 $ 10,117
6
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: Business and Basis of Presentation
CTI Group (Holdings) Inc. and Subsidiaries (the "Company") designs, develops,
markets and supports data processing software and services for managing
telecommunications systems.
The accompanying consolidated financial statements have been prepared by CTI
Group (Holdings) Inc. without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"), and reflect all adjustments
which, in the opinion of management, are necessary for a fair statement of the
results for the interim periods presented. All such adjustments are of a normal
recurring nature. Certain previously reported amounts have been reclassified to
conform with the current period presentation.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted pursuant to the rules and regulations of the SEC,
although the Company believes the disclosures are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31,
2000.
ACCOUNTING PRONOUNCEMENTS: In June 1998, the FASB issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
collectively referred to as derivatives, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
consolidated balance sheet and measure those statements at fair value. This
statement, as amended, is effective for fiscal years beginning after June 15,
2000, although early adoption is encouraged. The Company has not yet determined
the impact SFAS No. 133 will have on its consolidated financial position or
results of operations.
In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB No. 101"). SAB No. 101 provides guidance on the recognition, presentation,
and disclosure of revenue in financial statements filed with the SEC, and is
required to be adopted in the fourth quarter of fiscal years beginning after
December 15, 1999. The Company has not yet determined the impact SAB No. 101
will have on its consolidated financial position or results of operations.
NOTE 2: Going Concern and Management's Plan for Continuing Operations
The consolidated financial statements of the Company have been prepared on a
going concern basis, which contemplates the continuation of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company had a deficiency in working capital of $1,885,275 at
September 30, 2000 compared to a deficit of $944,635 at March 31, 2000 and has
incurred a net loss of $1,490,055 for the six months and $1,092,484 for the
three months ended September 30, 2000 compared to a net income of $472,889 for
the six months and $337,432 for the three months ended September 30, 1999. The
Company's financing activities have enabled the Company to support existing
operating activities. In April 2000, the Company established an overdraft line
of credit for use by CTI Data Solutions Ltd. for approximately $140,000. The
overdraft line of credit bears interest at the bank's prime rate plus 2.87%,
with interest payable quarterly. On June 29, 2000 a director of the company
issued a non interest bearing note in the amount of $40,000 with no maturity
date. As of September 30, 2000 the Company had approximately $65,000 available
under the overdraft line of credit. On September 13, 2000 Centillion Data
Systems Inc. ("Centillion") issued a 10% interest bearing loan for working
capital purpose in the amount of $250,000 which matures the earlier of September
30, 2001 or the consummation of the pending merger with Centillion (see Note 3).
7
On October 26, 2000 the loan was increased by an additional $300,000. The
Company's loans are collateralized by its trade receivables.
These factors indicate that there is substantial doubt about the Company's
ability to continue as a going concern. The accompanying financial statements do
not include any adjustments that might be necessary should the Company be unable
to continue as a going concern. The Company plans to focus on improving revenue
levels through increased marketing efforts and the identification of new
distribution arrangements. The Company anticipates that the pending mergers with
Centillion and Celltech Information Systems Inc. ("Celltech") (see Note 3 to the
consolidated financial statements) will significantly strengthen its financial
position and its ability to continue as a going concern by providing increased
revenues and cash resources. If the Company is not successful in its pending
mergers, future actions could include further cost containment measures,
consolidation of the product line, potential for additional private placement
financing, and the pursuit of joint venture partnerships/source code
transactions. The Company's ability to operate beyond the immediate future is
dependent upon its ability to achieve levels of revenues to support the
Company's cost structure, maintain adequate financing and generate sufficient
cash flows from operations to meet its operating needs. However, no assurance
can be given that the Company will be successful in its efforts to implement its
plans and achieve a level of profitability. The disruption in management time
associated with the pending merger and acquisition and the lack of capital
resources have hampered the Company's ability to grow revenue and has had an
unfavorable impact on cash flows.
NOTE 3: Pending Transactions
On February 3, 2000 the Company entered into an Agreement and Plan of Merger
with Centillion which was further amended on October 26, 2000 pursuant to which
Centillion's telecommunications billing business will be merged into the
Company. Centillion is a telecommunication company with annual billing revenues
of approximately $10.9 million.
Centillion will divest itself of all businesses other than its billing business,
and Centillion's shareholders will initially receive 13,295,837 shares of the
Company's Common Stock.
The Centillion businesses that are not related to the billing business are being
transferred to a limited liability company (that will be owned by current
Centillion shareholders) in exchange for a Promissory Note that will be
approximately $10,000,000, which the Company will acquire in the merger.
Principal and interest will be paid as those businesses are sold. The Company
will issue additional shares of Common Stock to the Centillion shareholders for
principal payments, at a per share value of 88% of the average market value of
the Common Stock at the time. If the Promissory Note is not fully paid in five
years it is to be appraised, and shares of the Company's Common Stock are to be
issued for the appraised value at 88% of the average market price at the time.
Centillion's patents, its right to enforce its patents, and its current and
future patent infringement litigation and claims, are being transferred to a
limited liability company that will be wholly owned by the Company (the
"Tracking LLC"). The Tracking LLC will execute a perpetual irrevocable
royalty-free license agreement authorizing Centillion and, after the merger, CTI
to use the patents. As part of the merger consolidation, in connection with the
transfer to the Tracking LLC, 2,833,334 newly authorized shares of the Company
Class B common stock will be issued to the Centillion stockholders (the current
Company common stock will be re-designated as Class A). The Company and the
holders of Class B common stock have certain rights to convert the Class B
common stock into Class A common stock at various times after the merger based
on the value of the Tracking LLC at a Class A common stock value at the lower of
$1.50 per share or 88% of the average market value at that time, for a maximum
of 1 million additional shares if issued within 25 months after closing,
otherwise, at 88% of the average market value at that time, or 100% of the
average market value at the time, depending upon the type and amount of
conversion. Affiliates of Centillion's current stockholders have committed to
loan, on a non-recourse basis, up to $2,000,000 to the Tracking LLC to pursue
its patent infringement litigation.
8
The Centillion merger will be accounted for as a reverse acquisition because
former Centillion shareholders will own a majority of the outstanding shares of
common stock and will control the combined company upon consummation of the
transaction. As such, upon closing the transaction, the Company's assets will be
revalued and the purchase price will be allocated to those assets and
liabilities assumed by Centillion. The allocation of the purchase price will be
dependent on the final appraisal yet to be received.
The Company has incurred costs related to the Centillion merger of $590,152 for
the six months ended September 30, 2000 and $482,153 in the fiscal year ended
March 31, 2000. Such cost are made up of legal, accounting, and consulting costs
of $335,426 in the six months ending September 30, 2000 and $269,881 in the
fiscal year ended March 31, 2000 and compensation expense of $254,726 in the six
months ending September 30, 2000 and $212,272 in the fiscal year ended March 31,
2000 related to options granted to the Company's President and Chief Executive
Officer ("CEO") to purchase up to 300,000 shares of the Company's common stock,
which were contingent upon the Company entering into a merger agreement with
Centillion (see Note 3). Such costs have been expensed as incurred due to the
Company being the accounting acquiree in the transaction. At the CEO's request,
subsequent to September 30, 2000, the board of directors cancelled the remaining
unvested options to purchase 200,000 shares of the Company's common stock.
On April 6, 2000 the Company entered into an Agreement and Plan of Merger with
Celltech which is contingent on the consummation of the Centillion merger.
Celltech provides custom software development, customer management systems,
billing and other services to the media of multi-service telecommunications
providers, and had net annual billing revenues of approximately $6.4 million.
The Company will acquire Celltech with a combination of cash and stock for total
consideration valued at $5,251,977. The purchase will include $262,599 in cash,
and the balance of $4,989,378 will be satisfied by the issuance of 1,633,126
newly registered shares of common stock at an assumed value of $3.00 per share
(subject to change based upon the fair market value on the closing date). The
shares, to be issued at closing, may be adjusted based upon the average stock
price during the twenty-day trading period prior to the closing to a maximum
average price of $3.75 per share and a minimum of $2.25 per share.
The Company will account for the Celltech acquisition under the purchase method
of accounting. The allocation of the purchase price will be dependent on the
final appraisal yet to be received.
Consummation of the mergers is subject to certain customary conditions including
regulatory and other approvals. The Company currently anticipates that these
transactions will be consummated in the third fiscal quarter of 2001. However
there can be no assurance that either transaction will be consummated.
NOTE 4: Basic and Diluted Income (Loss) Per Common Share
Net income (or loss) per common share is computed in accordance with the
provision of SFAS No. 128, "Earnings Per Share". Basic earnings per share is
computed by dividing reported earnings available to common stockholders by the
weighted average shares outstanding for the period. Diluted earnings per share
is computed by dividing reported earnings available to common stockholders by
weighted average shares outstanding for the period giving effect to securities
considered to be dilutive potential common shares such as stock options. The
effect of all dilutive potential common shares would have been to increase
dilutive weighted average shares by 112,918 shares for the six months and
111,342 shares for the three months ended September 30, 2000 resulting in
dilutive weighted average shares of 7,573,340 for the six months and 7,602,597
for the three months ended September 30, 2000. Basic and diluted loss per share
was $0.20 per share for the six months and $.15 for the three months ended
September 30, 2000. Because the Company incurred losses for the six months and
quarter ended September 30, 2000, the effect of all dilutive potential common
shares was antidilutive. Consequently, the Company's basic and diluted earnings
per share were the same for the six months and quarter ended September 30, 2000.
9
NOTE 5: Income Taxes
The Company utilized the benefit of available net operating loss carry-forwards
with an equivalent tax benefit to offset any tax liability as a result of income
which arose in the three and six months period ended September 30, 1999.
NOTE 6: Note and Loan Payable
A director of the company issued a non interest-bearing loan of $40,000 on June
29, 2000 to the Company. This loan has no maturity date. On September 13, 2000
Centillion issued a 10% interest bearing loan in the amount of $250,000 for
working capital purposes which matures on the earlier of the closing of the
Centillion merger or September 12, 2001. On October 26, 2000 Centillion loaned
an additional $300,00 to the company for working capital purposes under the same
terms of the existing loan. The loan is collateralized by trade receivables of
the Company.
NOTE 7: Segment Information
The Company designs, develops, markets and supports data processing software
and services for managing telecommunication systems. These business operations
fall into two major classifications: telemanagement and billing and customer
care. The Company's telemanagement products and services are used by
organizations to optimize the usage of their telecommunication services and
equipment and to control telephone expenses and uses. The Company's billing and
customer care software products are used by small to mid-range telephone and
wireless network operators to manage customer accounts, generate bills, track
payments and customer service operations. The Company conducts business in the
United Kingdom and the United States. Activities in the United Kingdom are
primarily telemanagement activities. The Company has not provided product and
service information for each segment presented because it is impractical to do
so. A summary of the Company's operations by geographic area for the three and
six months ended September 30, 2000 and 1999 is as follows:
10
3 Months Ended 6 Months Ended
September 30, September 30,
UK USA Consolidated UK USA Consolidated
------------------------------------------- --------------------------------------------
2000
Sales $ 399,898 $ 480,057 $ 879,955 $1,123,025 $1,022,072 $ 2,145,097
========== ========= =========== ========== ========== ===========
Income (loss)
from operations $ (292,150) $(798,808) $(1,090,958) $ (569,987) $ (919,905) $(1,489,892)
========== ========= =========== ========== ========== ===========
Net income (loss) $ (291,588) $(800,896) $(1,092,484) $ (572,409) $ (917,646) $(1,490,055)
========== ========= =========== ========== ========== ===========
----
Long-lived assets $ 246,994 $ 96,782 $ 343,776 $ 246,994 $ 96,782 $ 343,776
========== ========= =========== ========== ========== ===========
1999
Sales $1,381,915 $ 580,689 $ 1,962,604 $2,744,281 $1,221,440 $ 3,965,721
========== ========= =========== ========== ========== ===========
Income (loss)
from operations $ 325,763 $ 12,802 $ 338,565 $ 404,048 $ 71,698 $ 475,746
========== ========= =========== ========== ========== ===========
Net income (loss) $ 328,107 $ 9,325 $ 337,432 $ 409,083 $ 63,807 $ 472,889
========== ========= =========== ========== ========== ===========
Long-lived assets $ 263,310 $ 534,620 $ 797,930 $ 267,310 $ 534,620 $ 797,930
========== ========= =========== ========== ========== ===========
The following table summarizes the Company's financial information by industry
segment.
3 Months Ended 6 Months Ended
September 30, September 30,
2000 1999 2000 1999
Revenues:
Telemanagement $ 722,289 $1,793,928 $ 1,806,679 $3,654,709
Billing and customer care 157,666 168,676 338,418 311,012
----------- ---------- ----------- ----------
Total sales $ 879,955 $1,962,604 $ 2,145,097 $3,965,721
Net Income (loss):
Telemanagement $ (601,499) $ 277,035 $ (191,574) $ 334,502
Billing and customer care (159,194) 60,397 (130,097) 93,387
Merger costs (331,791) -0- (590,142) -0-
----------- ---------- ----------- ----------
Net Income (loss) $(1,092,484) $ 337,432 $(1,490,055) $ 472,889
Depreciation and Amortization Expense:
Telemanagement $ 72,153 $ 67,235 $ 145,052 $ 141,968
Billing and customer care $ 67,514 $ 67,514 $ 135,586 $ 135,587
----------- ---------- ----------- ----------
Total depreciation and
amortization $ 139,667 $ 134,749 $ 280,638 $ 277,555
Total Assests:
Telemanagement $ 604,017 $ 604,017
Billing and customer care $ 246,711 $ 246,711
----------- -----------
Total assets $ 850,728 $ 850,728
11
ITEM 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
Revenues from operations decreased $1,820,624 to $2,145,097 for the six month
and $1,082,649 to $879,955 for the three month period ended September 30, 2000,
as compared to the corresponding period in the prior year. Revenues generated
from CTI Data Solutions Ltd. amounted to $1,123,025 for the six months and
$399,898 for the three month period ended September 30, 2000 as compared to
$2,744,281 for the six months and $1,381,915 for the three months for the
corresponding period in the prior year. Revenues generated for CTI Data
Solutions Inc. amounted to $1,022,072 for the six months and $480,057 for three
month period ended September 30, 2000 as compared to $1,221,440 for the six
month and $580,689 for the three month corresponding periods in the prior year.
During calendar year 1999, customers purchased and replaced systems at an
accelerated rate in anticipation of real or perceived Year 2000 software
problems. This has resulted in soft market conditions during calendar year 2000
and a depleted pipeline, particularly in the Company's UK business. The UK
business revenue stream is primarily dependent on new product sales while the US
business is also supported by ongoing call processing revenues. The lack of
financial resources has inhibited the Company's marketing and sales effort. The
revenue decrease was primarily associated with a decrease in telemanagement
revenues to $1,806,679 for the six months and to $722,289 for the three month
period ended September 30, 2000 as compared to $3,654,709 for the six months and
$1,793,928 for the three month corresponding period in the prior year offset by
an increase in billing revenue to $338,418 for the six month period ended
September 30, 2000 as compared to $311,012 in the corresponding period in the
prior year despite a slight decrease in billing revenue to $157,666 in the three
months ended September 30, 2000 as compared to $168,676 in the corresponding
period in the prior year. Telemanagement revenues have decreased primarily as a
result of lower product sales and installation. Billing revenue increased for
the six months ended September 2000 as compared to the comparable period in the
prior year as a result of increased call processing activities for billing
services. As demand from end users softened, the Company has redirected its
marketing strategy to forming strategic alliances with major telecommunication
providers. Management anticipates that our efforts in forming strategic
alliances, focusing on our direct sales force and product enhancements should
add incrementally to future business growth; however, there can be no assurance
that we will be successful in such efforts.
Cost of Sales were 66% of revenues for the six months and 74% of revenues for
the three month ended September 30, 2000 as compared to 50% in the six month and
53% in the three month period in the prior year. The overall increase in cost of
sales and corresponding decrease in gross margins was due primarily to a decline
in telemanagement sales for the six month and three month period ended September
30, 2000, coupled with fixed costs that did not decline at the same rate as
sales. Gross margins decreased to 34% for the six month and 26% for the three
month period ended September 30, 2000 as compared to 50% in the six month and
47% in the three month period in the prior year. Telemanagement gross margins
decreased to 29% for the six month period and to 18% for the three month period
ended September 30, 2000 as compared to 50% for the six month and 45% for the
three month period in the prior year. Billing and customer care gross margins
increased to 62% for the six month period ended September 30, 2000 as compared
to 58% for the same period in the prior year. Billing and customer care gross
margins decreased to 61% for the three month period ended September 30, 2000 as
compared to 70% for the same period in the prior year.
Selling, general and administrative expenses increased by $117,689 to $1,352,061
for the six month and increased by $393,704 to $847,841for the three month
period ended September 30, 2000. The increase in costs was primarily
attributable to increased cash compensation and stock option compensation costs
corresponding with increased professional fees.
12
The Company incurred expenses totaling $590,152 for the six month period and
$331,791 for the three month period ended September 30, 2000 related to the
pending merger with Centillion and Celltech.
Depreciation and amortization expenses increased by $3,083 to $280,638 for the
six month and increased by $4,918 to $139,667 for the three month period ended
September 30, 2000.
Liquidity and Capital Resources
Cash and cash equivalents amounted to $15,550 as of September 30, 2000 compared
to $171,761 as of March 31, 2000. The decrease in cash is the result of cash
utilized in operations of $373,179 which was related primarily to the net loss,
partially offset by noncash charges and charges in operating working capital
combined with cash utilized in investing activities related to the acquisition
of fixed assets of approximately $34,400 partially offset by cash provided in
financing activities of $261,752 which was primarily related to a $40,000 loan
received from a director and a loan from Centillion of $250,000 offset by
repayment of debt of $50,398.
The consolidated financial statements of the Company have been prepared on a
going concern basis, which contemplates the continuation of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company had a deficiency in working capital of $1,885,276 at
September 30, 2000 compared to a deficit of $944,635 at March 31, 2000 and has
incurred a net loss of $1,490,055 for the six months and $1,092,484 for the
three months ended September 30, 2000 compared to a net income of $472,889 for
the six months and $337,432 for the three months ended September 30, 1999. The
Company's financing activities have enabled the Company to support existing
operating activities. In April 2000, the Company established an overdraft line
of credit for use by CTI Data Solutions Ltd. for approximately $140,000. The
overdraft line of credit bears interest at the bank's prime rate plus 2.87%,
with interest payable quarterly. The overdraft line of credit which is available
for a twelve month period is collateralized by CTI Data Solutions Ltd.'s trade
receivables. On June 29, 2000 a director of the company issued a non interest
bearing note in the amount of $40,000 with no maturity date. As of September 30,
2000 the Company had approximately $65,000 available under the overdraft line of
credit. On September 13, 2000 Centillion issued a 10% interest bearing loan for
working capital purpose in the amount of $250,000 which matures earlier of the
closing of the merger with Centillion or September 12, 2001. On October 26, 2000
the loan was increased by an additional $300,000. The Company's loans are
collateralized by its trade receivables.
These factors indicate that there is substantial doubt about the Company's
ability to continue as a going concern. The accompanying financial statements do
not include any adjustments that might be necessary should the Company be unable
to continue as a going concern. The Company plans to focus on improving revenue
levels through increased marketing efforts and the identification of new
distribution arrangements. The Company anticipates that the pending mergers with
Centillion and Celltech (see Note 3 to the consolidated financial statements)
will significantly strengthen its financial position and its ability to continue
as a going concern by providing increased revenues and cash resources. If the
Company is not successful in its pending mergers, future actions could include
further cost containment measures, consolidation of the product line, potential
for additional private placement financing, and the pursuit of joint venture
partnerships/source code transactions. The Company's ability to operate beyond
the immediate future is dependent upon its ability to achieve levels of revenues
to support the Company's cost structure, maintain adequate financing and
generate sufficient cash flows from operations to meet its operating needs.
However, no assurance can be given that the Company will be successful in its
efforts to implement its plans and achieve a level of profitability. The
disruption in management time associated with the pending merger and acquisition
and the lack of capital resources has hampered the Company's ability to grow
revenue and has had an unfavorable impact on cash flows.
13
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings:
None
ITEM 2 - Changes in Securities:
None
ITEM 3 - Details Upon Senior Securities:
Not Applicable
ITEM 4 - Submission of Matters to a Vote of Security Holders:
There were no matters submitted for a vote of security holders during
the three months ended September 30, 2000.
ITEM 5 - Other Information:
None
ITEM 6 - Exhibits and Reports on Form 8 - K:
10.20 First Amendment to Agreement and Plan of Merger dated May 1,
2000
10.21 Second Amendment of Agreement and Plan of Merger dated May 1,
2000
10.22 Third Amendment to Agreement and Plan of Merger dated July 26,
2000
10.23 Fourth Amendment to Agreement and Plan of Merger dated October
26, 2000
10.24 Amended and Restated Loan and Security Agreement dated October
26, 2000
10.25 Amended and Restated Promissory Note dated October 26, 2000
There were no reports filed under Form 8-K during the three months
ended September 30, 2000
14
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/Anthony P. Johns
- -------------------
Anthony P. Johns Date: November 14, 2000
Chairman & Chief Executive Officer
15
10.20
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER is made this 1st
day of May, 2000 by and between Centillion Data Systems, Inc. ("Centillion") and
CTI Group Holdings, Inc. ("CTI Group").
BACKGROUND
A. Centillion agreed to merge with and into CTI Group pursuant to the
Agreement and Plan of Merger ("Agreement") dated as of February 3, 2000.
B. Section 7.1(b) of the Agreement provides that either Centillion or
CTI Group may terminate the Agreement if the Effective Time (as defined therein)
does not occur on or before June 30, 2000 (the "Termination Date").
C. The parties hereto have mutually agreed to amend the Agreement to
reflect a new Termination Date.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound hereby, the parties hereto agree as follows:
Section 7.1(b) of the Agreement shall be deleted in its entirety and
replaced as follows:
(b) by either Centillion or CTI Group if the Effective Time shall
not have occurred on or before September 30, 2000 (the "Termination
Date"); provided, however, that the right to terminate this
Agreement and under this Section 7.1(b) shall not be available to
any party whose intentional failure to fulfill any material
obligation under this Agreement has caused, or resulted in, the
failure of the Effective Time to occur on or before the Termination
Date;
IN WITNESS WHEREOF, the parties have executed this Amendment the day
and year first written above.
CENTILLION DATA SYSTEMS, INC. CTI GROUP HOLDINGS, INC.
By: /s/ John M. Cauffman By: /s/Anthony P. Johns
-------------------- -------------------
Name: John M. Cauffman Name: Anthony P. Johns
Title: President & CEO Title: Chairman/CEO
10.21
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER is made this 1st
day of May, 2000 by and between Centillion Data Systems, Inc. ("Centillion") and
CTI Group Holdings, Inc. ("CTI Group").
BACKGROUND
A. Centillion agreed to merge with and into CTI Group pursuant to the
Agreement and Plan of Merger ("Agreement") dated as of February 3, 2000.
B. Section 3(a) of Exhibit A to the Agreement provides that the shares
of Class CTIG B Common Stock may be converted into CTIG Class A Common Stock at
a conversion rate equal to $2.25 per share for the first one (1) million shares
and 88% of the then Current Market Value of CTIG Class A Common Stock for those
shares converted in excess of one (1) million.
C. The parties have mutually agreed that only the first 333,334 and not
the first one (1) million shares of CTIG Class B Common Stock converted into
CTIG Class A Common Stock shall be converted at $2.25 per share as currently
reflected in the Agreement.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound hereby, the parties hereto agree as follows:
Section 3(a) of the Agreement shall be deleted in its entirety and
replaced as follows:
(a) Conversion at the Corporation's Election. During the Initial
Conversion Period the shares of Class B Common Stock shall be
subject, in the sole discretion of the Board of Directors, to
conversion into a number of shares of Class A Common Stock equal in
value, on a per share equivalent basis, to the value of Centillion
LLC, with the number of shares into which the Class B Common Stock
will be converted to be determined as follows: during the first
twelve (12) months of the Initial Conversion Period, the conversion
would be based on the Class A Common Stock valued at (A) $2.25 per
share (for the first 333,334 shares of Class A Common Stock so
issued) and (B) an amount equal to 88% of the then Current Market
Value of the Class A Common Stock, for any additional shares of
Class A Common Stock (beyond 333,334 shares) so issued. During the
remainder of the Initial Conversion Period all of the Class A Common
Stock to be issued upon conversion of the Class B Common Stock under
this Section 3(a) would be valued at an amount equal to 88% of the
then current market value of the Class A Common Stock.
IN WITNESS WHEREOF, the parties have executed this Second Amendment the
day and year first written above.
CENTILLION DATA SYSTEMS, INC. CTI GROUP HOLDINGS, INC.
By: /s/ John M. Cauffman By: /s/ Anthony P. Johns
-------------------- --------------------
Name: John M. Cauffman Name: Anthony P. Johns
Title: President & CEO Title: Chairman/CEO
10.22
THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER ("Amendment") is
made this 26th day of July, 2000 by and between Centillion Data Systems, Inc.
("Centillion") and CTI Group Holdings, Inc. ("CTI Group").
BACKGROUND
A. Centillion agreed to merge with and into CTI Group pursuant to that
certain Agreement and Plan of Merger ("Agreement") dated as of February 3, 2000.
B. The Securities and Exchange Commission ("SEC") has reviewed a proxy
statement to be delivered to the CTI Group shareholders in connection with the
shareholder vote to approve the Agreement.
C. The SEC has requested modifications to the proxy statement, which
will require that clarification be made in certain provisions of Exhibit A to
the Agreement.
D. The parties have mutually agreed to revise Exhibit A of the
Agreement and other provisions of the Agreement in accordance with the
provisions set forth in this Amendment.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Section 1.5(b)(ii) shall be modified by deleting the second sentence
in its entirety and replacing it as follows:
The option shall be exercised by Centillion having, at the Effective
Time, the balance sheet of Centillion reflecting cash of not less
than $8,000,000 less all expenditures made by Centillion relating to
the development of Billing Business software (not to exceed
$1,500,000) in fiscal year 2000 in lieu of the $6,500,000 provided
for in Section 6.2(d).
2. Section 6.2(d)(ii) shall be deleted in its entirety and replaced as
follows:
cash of not less than $6,500,000 (or $8,000,000 less all
expenditures made by Centillion relating to the development of
Billing Business software (not to exceed $1,500,000) in fiscal year
2000 in the event that Centillion exercises the option provided for
in Section 1.5(b)(ii));
3. Section 6.2(d)(iv)(x) of the Agreement shall be deleted in its
entirety and replaced as follows:
$8,000,000 of cash.
4. Section 5 of Exhibit A to the Agreement shall be deleted in its
entirety and replaced as follows:
5. Liquidation.
In the event of a liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the corporation the holders of the
shares of Class A Common Stock and the holders of the shares of Class B Common
Stock shall share in the aggregate in the funds of the Corporation as follows:
Class A Common Stock shall receive the proportion represented by (1)
the net assets of the corporation without regard to the net assets of Centillion
LLC divided by (2) the net assets of the corporation.
Class B Common Stock shall receive the proportion represented by (1)
the net assets of Centillion LLC divided by (2) the net assets of the
corporation.
Neither the consolidation or merger of the corporation with or into any
other corporation or corporations nor the sale, transfer or lease of all or
substantially all of the assets of the corporation shall itself be deemed to be
a liquidation, dissolution or winding up of the corporation within the meaning
of this Paragraph 5 of this Article. Notwithstanding anything to the contrary
herein, the holders of the Class B Common Stock shall have no rights to the
specific assets owned by Centillion LLC at the time of liquidation, dissolution
or winding up of the Corporation.
5. The definition of "Covered Disposition" contained in Section 8 of
Exhibit A to the Agreement shall be deleted in its entirety and replaced as
follows:
"Covered Disposition" shall mean: (a) any direct or indirect sale,
transfer or conveyance by the Corporation of fifty percent (50%) or more of its
equity interest in the LLC; or (b) any grant of any pledge or other security
interest in fifty percent (50%) or more of the equity interest of the
Corporation in Centillion LLC; or IN WITNESS WHEREOF, the parties have executed
this Third Amendment the day and year first written above.
CENTILLION DATA SYSTEMS, INC. CTI GROUP HOLDINGS, INC.
By: /s/John M. Cauffman By: /s/Anthony P. Johns
------------------- --------------------
Name: John M. Cauffman Name: Anthony P. Johns
Title: President & CEO Title: Chairman/CEO
10.23
FOURTH AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This FOURTH AMENDMENT TO AGREEMENT AND PLAN OF MERGER is made this 26th
day of October, 2000 by and between Centillion Data Systems, Inc. ("Centillion")
and CTI Group (Holdings) Inc. ("CTI Group").
BACKGROUND
A. Centillion agreed to merge with and into CTI Group pursuant to the
Agreement and Plan of Merger ("Agreement") dated as of February 3, 2000.
B. In accordance with that First Amendment to Agreement and Plan of
Merger ("First Amendment") dated May 1, 2000, Centillion and CTI Group agreed to
amend the Termination Date to September 30, 2000.
C. Section 7.1(b) of the Agreement as amended by the First Amendment
provides that either Centillion or CTI Group may terminate the Agreement if the
Effective Time (as defined therein) does not occur on or before September 30,
2000 (the "Termination Date").
D. Exhibit "D" to the Agreement contains a promissory note to be
executed in favor of Centillion in an amount not to exceed $11,500,000 (the
"Note"). The Note includes a reference to an Exhibit "A" that contains a listing
of the collateral which secures repayment of the Note. Exhibit "A" was not
attached to the Note.
E. The parties hereto have mutually agreed to amend the Agreement to
reflect a new Termination Date and modify certain other terms of the Agreement,
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Section 1.5(b) of the Agreement shall be deleted in its entirety and
replaced as follows:
(b) At the Effective Time by virtue of the Merger and without any
action on the part of the holders thereof (in each of the following
cases other than such shares owned or held by CTI Group or
Centillion, which shall automatically be retired and shall cease to
exist, and no consideration shall be delivered in exchange therefor,
and other than Dissenting Shares):
(i) The shares of capital stock of Centillion issued and
outstanding immediately prior to the Effective Time (the
"Centillion Capital Stock"), shall be converted into the
following (the "Merger Consideration") pro rata, on a per share
equivalent basis:
(A) 13,295,837 shares of Class A Common Stock;
(B) 2,833,334 shares of Class B Common Stock;
(C) The right to receive additional shares of Class A Common
Stock on the terms and conditions set forth in Section 1.15
hereof (the "Additional Stock Rights"); and
(D) Class A Common Stock equal in value to the amount of Patent
Proceeds (as defined in Section 6.2(d)) reflected on
Centillion's balance sheet at the Effective Time, with the
number of shares to be issued to be the number of shares
with Class A Common Stock valued at (i) the lower of $1.50
per share or 88% of the Current Market Value of Class A
Common Stock at the Effective Time (for the first 1 million
shares of Class A Common Stock so issued) and (ii) 88% of
the Current Market Value of the Class A Common Stock at the
Effective Time (beyond the first 1 million shares).
2. Section 1.14 of the Agreement shall be deleted in its entirety and
replaced as follows:
1.14 Intentionally Deleted.
3. Section 6.2 of the Agreement shall be amended as follows:
6.2(c)(i) shall be deleted in its entirety and replaced as follows:
(c) Transfer of Assets. Prior to the Effective Time:
(i) Centillion shall have created a single member,
member-managed limited liability company under the laws of
the state of Delaware where Centillion is the member to be
called Centillion L.L.C. (the "LLC") into which Centillion
shall have transferred (a) all of its rights, title and
interests to and arising from U.S. Patent No. 5287270 and
U.S. Patent No. 5325290 and all foreign patents listed on
Exhibit "H" attached hereto (the "Related Patents") plus,
(b) all of its causes of action, claims and counterclaims
relating to any patent owned by Centillion and its
Subsidiaries as of the Effective Time or to any patent
issuing after the Effective Time from patent applications
owned by Centillion and its Subsidiaries (ownership of
such patents and patent applications shall be retained by
the Surviving Corporation) plus, (c) the SBC Settlement
Proceeds (less the cost of litigation expenses, taxes and
$3,000,000) (collectively, the "Tracked Assets"), and the
LLC shall have obtained, from an affiliate of the
Centillion Stockholders, a commitment to lend to the LLC
on a non-recourse basis up to $2,000,000 to finance the
LLC's patent enforcement action. The $2,000,000 loan shall
be secured by the Tracked Assets and evidenced by a
$2,000,000 promissory note attached as Exhibit "F".
6.2(d) shall be deleted in its entirety and replaced as follows:
(d) Minimum Balance Sheet Requirements. The adjusted
balance sheet of Centillion, on and as of the Effective
Time (which shall be certified by Centillion's Chief
Financial Officer) must reflect: (i) Net current assets
(i.e., over current liabilities) of not less than $1.00;
(ii) cash of not less than $8,000,000 less all
expenditures made by Centillion relating to the
development of Billing Business software (not to exceed
$2,000,000) in fiscal year 2000; (iii) no long term
liabilities other than deferred taxes, (iv) net worth of
not less than $2,000,000, after eliminating from
consideration in determining such net worth (x) $8,000,000
of cash, (y) the Shareholder LLC Promissory Note, and (z)
the Tracked Assets except that the book value at the
Effective Time of U.S. Patent No. 5289270, U.S. Patent No.
5325290 and the Related Patents shall be included as an
asset in the calculation of net worth, (v) all earnings of
Centillion's Billing Business for the period from January
1, 2000 to the Effective Time and (vi) any proceeds
received between October 1, 2000 and the Effective Time
from parties who are defendants under any patent
litigation relating to U.S. Patent No. 5287270 and U.S.
Patent No. 5325290 (less the cost of litigation expenses
and taxes whether paid or reserved against )(the "Patent
Proceeds").
2
4. A new Section 6.2(h) shall be added to the Agreement, to read as
follows:
(h) License Agreement. The LLC shall have executed an irrevocable,
perpetual, exclusive (except for licenses that have been issued
prior to the Effective Time and/or licenses issued pursuant to any
settlement agreements relating to any patent litigation),
royalty-free license agreement authorizing CTI Group to use U.S.
Patent No. 5287270 and U.S. Patent No. 5325290 and Related Patents,
in form and substance satisfactory to CTI Group.
5. Section 6.3(f) shall be modified by replacing the reference to "not
below $1.26 per share" to "not below $.80 per share."
6. Section 7.1(b) of the Agreement shall be deleted in its entirety and
replaced as follows:
(b) by either Centillion or CTI Group if the Effective Time shall
not have occurred on or before January 31, 2001 (the "Termination
Date"); provided, however, that the right to terminate this
Agreement and under this Section 7.1(b) shall not be available to
any party whose intentional failure to fulfill any material
obligation under this Agreement has caused, or resulted in, the
failure of the Effective Time to occur on or before the Termination
Date;
7. Exhibit A of the Agreement shall be modified as follows:
Section 1 of Exhibit A shall be deleted in its entirety and
replaced as follows:
1. Total Authorized Shares.
(a) Common Stock. The aggregate number of shares which the
Corporation is authorized to issue is 50,000,000 common shares
(collectively, the "Common Stock"), of which:
(i) 47,166,666 common shares shall be designated Class A Common
Stock having a par value of $0.01 per share (the "Class A Common
Stock"); and
(ii) 2,833,334 common shares shall be designated Class B Common
Stock having a par value of $0.01 per share ("Class B Common
Stock"). The Class A Common Stock and the Class B Common Stock
are collectively referred to herein as the "Common Stock".
3
Section 3(a) of Exhibit A shall be deleted in its entirety and replaced
as follows:
(a) Conversion at the Corporation's Election. During the Initial
Conversion Period the shares of Class B Common Stock shall be
subject, in the sole discretion of the Board of Directors, to
conversion into a number of shares of Class A Common Stock equal in
value, on a per share equivalent basis, to the value of Centillion
LLC (excluding the value attributed to U.S. Patent No. 5287270, U.S.
Patent No. 5325290 and the Related Patents), with the number of
shares into which the Class B Common Stock will be converted to be
determined as follows: Class A Common Stock valued at the lower of
(i) $1.50 per share or 88% of then Current Market Value of Class A
Common Stock (for the first 1 million shares of Class A common Stock
so issued less the number of shares issued at the Effective Time
pursuant to Section 1.5(b)(i)(D) of the Merger Agreement) or (B) 88%
of the then Current Market Value of the Class A Common Stock (for
any additional shares).
Section 3(b) of Exhibit "A" shall be deleted in its entirety and
replaced as follows:
(b) Conversion at the election of the holders of Class B Common
Stock. During the Interim Conversion Period, the shares of Class B
Common Stock, at the election of the holders of more than 50% of the
outstanding shares of such Class B Common Stock, shall be converted
into shares of Class A Common Stock (i) in the first 31 days of the
Interim Conversion Period in the manner set forth in Section 3(a)
above and (ii) during the remainder of the Interim Conversion
Period, the Class A Common Stock shall be valued at 88% of the then
Current Market Value of the Class A Common Stock.
8. Exhibit "D" of the Agreement shall be deleted in its entirety and
replaced by the Exhibit "A" attached hereto.
9. Exhibit "H" attached hereto shall be added to the Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment the day
and year first written above.
CENTILLION DATA SYSTEMS, INC. CTI GROUP (HOLDINGS) INC.
By: /s/ John M. Cauffman By: /s/ Anthony P. Johns
-------------------- --------------------
Name: John M. Cauffman Name: Anthony P. Johns
Title: President & CEO Title: Chairman/CEO
4
EXHIBIT "A"
5
EXHIBIT "H"
FOREIGN PATENTS
1. European Pat. No. 541535 for BILLING SYSTEM WITH DATA INDEXING
2. French Pat. No. 541535 for BILLING SYSTEM WITH DATA INDEXING
3. German Pat. No. 69031044.7 for BILLING SYSTEM WITH DATA INDEXING
4. Italian Pat. No. 541535 for BILLING SYSTEM WITH DATA INDEXING
5. Netherlands Pat. No. 541535 for BILLING SYSTEM WITH DATA INDEXING
6. Spanish Pat. No. 541535 for BILLING SYSTEM WITH DATA INDEXING
7. British Pat. No. 541535 for BILLING SYSTEM WITH DATA INDEXING
8. Switzerland Pat. No. 541535 for BILLING SYSTEM WITH DATA INDEXING
6
10.24
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT made this 26th
day of October, 2000 (the "Agreement"), is among CTI DATA SOLUTIONS, INC., a
corporation formed and existing under the laws of Delaware, with its principal
place of business at 2550 Eisenhower Avenue, Norristown, Pennsylvania 19403
("Data") and CTI DATA SOLUTIONS, LTD., a corporation formed under the laws of
the State of Delaware, with its Principal place of business at Nordic House, 120
High Street, Purley, Surrey CR8 2AD, United Kingdom ("Data UK") and CTI GROUP
(HOLDINGS) INC., a corporation formed and existing under the laws of the State
of Delaware, with its principal place of business at 2550 Eisenhower Avenue,
Norristown, PA 19403 ("Group" and together with Data and Data UK hereinafter
collectively referred to as, the "Borrowers"), and CENTILLION DATA SYSTEMS, INC.
(hereinafter referred to as, the "Lender"), a corporation formed and existing
under the laws of the State of Indiana, with its principal place of business at
333 North Alabama Street, Suite 240, Indianapolis, Indiana 46204 ("Lender's
Address") the address at which information concerning Lender's security
interests hereunder may be obtained.
Lender hereby agrees to lend Borrowers the principal sum of Five
Hundred Fifty Thousand Dollars ($550,000) (the "Loan"), the proceeds of which
shall be used for working capital and for general operating purposes. Each
Borrower hereby agrees to repay the proceeds of the Loan in accordance with the
terms of that certain Amended and Restated Promissory Note (the "Note") by and
among Borrowers and Lender dated the date hereof.
As security for the repayment of the Liabilities (as defined below),
each Borrower hereby grants to Lender a first prior perfected security interest
in and to all accounts (except for Data UK, which is granting to Lender a second
lien on accounts subordinate only to the first priority security interest
granted to National Westminster Bank (the "National Westminster Lien"))(as
defined in Article 9 of the Uniform Commercial Code), whether now existing or
hereafter arising in the future, including without limitation, all accounts
receivable of each Borrower created by or arising from the sale of goods or the
performing of services made under such Borrower's corporate name or any of such
Borrower's trade names (collectively, the "Collateral").
As used in this agreement, "Liability or Liabilities" means all present
and future obligations of the Borrowers to Lender, whether direct or indirect,
joint or several, otherwise secured or unsecured under the Loan and Note.
Each Borrower represents that its chief executive office, the
Collateral, and its books and records relating to the Collateral, are located at
the address set out in the first paragraph of this agreement.
The Borrowers covenants and agrees that Borrowers, or any of them, as
the case may be, will promptly notify Lender in writing of any changes in the
above location or locations. The Borrowers further represent that they do not
operate nor issue invoices under any trade name or other name.
The Borrowers covenants and agrees that they will promptly notify
Lender in writing if in the future any of them operate under any other trade
name.
Each Borrower represents and warrants that, except as specifically set
forth in Schedule A: (a) it is the sole owner of the Collateral, free from any
lien, security interest, charge or encumbrance other than the National
Westminster Lien; (b) it has not purchased any of the Collateral in a bulk
transfer; (c) it has the right to grant the security interest created by this
agreement; (d) no financing statements, or other instrument of similar effect,
covering all or any part of the Collateral is on file in any recording office
other than that in favor of Lender; (e) such Borrower is and will continue to be
eligible to do business and is otherwise in good standing in all jurisdictions
where it owns property or transacts business; (f) such Borrower is and will
continue to be in material compliance with all applicable laws, statutes, rules
and regulations, including without limitation, those concerning the environment,
employee pension and benefit plans and the payment of taxes, assessments and
other governmental charges; (g) it is not a party to any contracts to supply
items to the United States of America or any of its departments, agencies,
subdivisions or instrumentalities and (h) all statements, representations and
warranties made in this agreement or any other document delivered by such
Borrower to Lender are true, correct, complete and not misleading in all
material respects.
Each Borrower covenants and agrees that: (a) it will defend the
Collateral against the claims and demands of all persons; (b) it will not sell,
lease, encumber, remove, conceal, grant or permit any further security interest
in the Collateral, nor part with possession of any thereof, nor permit the same
to be used for hire, nor in violation of any law or ordinance; (c) it will pay
all taxes levied on the Collateral (unless contested in good faith), and will
make due and timely payment or deposit of all federal, state and local taxes,
assessments or contributions required by law and will execute and deliver to
Lender, on demand, appropriate certificates attesting to such payment or
deposit; (d) Lender is authorized, at Borrowers' expense, to conduct searches
and execute and file such financing statements and other instruments or
documents as may be necessary to perfect and protect Lender's security interest,
including without limitation, any documents necessary to perfect a subordinated
security interest in England against the Collateral of Data UK equivalent to a
security interest under Article 9 of the Uniform Commercial Code; (e) it will
join with Lender in doing whatever may be necessary under applicable law to
perfect Lender's security interest; and (f) it will immediately notify Lender,
in writing, of (1) the discovery, discharge or release of any hazardous
substance for which the Borrower is in any way responsible under the Spill
Compensation and Control Act or any similar federal or state statute, (2) the
existence of any event or condition which presents a risk of incurring a
material liability under ERISA (Public Law 93-406, as amended), (3) any change
of name by which such Borrower is registered, known by or conducting business
under, and (4) the occurrence or existence of any event, condition or fact which
may materially affect the financial condition of such Borrower.
The failure to make any payment due under the Note within thirty (30)
days of its due date or a breach of any of the representations, warranties or
covenants made herein or in the Note shall constitute an event of default.
Upon the occurrence of any event of default, Lender will provide
Borrower notice by certified mail, return receipt requested, to the address
above and Borrower shall have Ten (10) days from receipt thereof to cure such
default. In the event Borrower fails to cure such default, all Liabilities of
Borrowers shall immediately be due and payable and Lender may: (a) proceed, with
or without judicial process, to take possession of all or any part of the
Collateral; (b) assign, transfer and deliver at any time any portion of the
Collateral, including without limitation, by sale of the Collateral in such
manner, at such price and on such terms as Lender may deem best; (c) upon proper
notice, elect to retain the Collateral in satisfaction of all Liabilities; (d)
add to the Liabilities reasonable attorney's fees directly related to the
documentation and administration of this Loan Security Agreement and underlying
Note; and (e) pursue any remedy available to it by law or equity, including
without limitation, all rights and remedies granted to a secured party under the
Uniform Commercial Code, or under any other agreement between Borrowers and
Lender. Each Borrower agrees that upon receipt of notice from Lender demanding
possession of the Collateral, such Borrower will do everything necessary to
assemble the Collateral and make it available to Lender at the place designated
by Lender. Each Borrower waives any and all rights it may have to notice or a
hearing (by court proceedings or otherwise) to determine Lender's right to
obtain possession of the Collateral. Any sale of the Collateral may be public or
private and at such price or prices as Lender may deem best. To the extent
permitted by law, each Borrower waives any right to notice of any sale or other
disposition of the Collateral. Each Borrower's rights under all licenses and
franchise agreements shall inure to Lender's benefit. Each Borrower agrees that
a reasonable means of disposition of Accounts shall be for Lender to hold and
liquidate any and all Accounts. In the event of a sale or other disposition of
the Collateral, the Lender shall apply all proceeds first to all costs and
expenses of disposition, including reasonable attorney's fees, and then to the
Liabilities. Any required notification of a sale or other disposition of the
Collateral or of any action by Lender will be sufficient and reasonable if given
personally or mailed not less than five (5) days prior to the day on which the
action is to be taken.
Borrowers acknowledge and confirm that as of October 26, 2000, they are
indebted to Lender, without defense, set-off or counter-claim under the Loan and
Security Agreement and Promissory Note each dated September 13, 2000 (the
"Existing Loan Documents") in the principal amount of Two Hundred and Fifty
Thousand Dollars ($250,000) ("Existing Indebtedness"). This Agreement amends and
restates the agreements or documents heretofore securing the Existing
Indebtedness. The Existing Indebtedness shall be deemed to constitute a loan
hereunder and Borrowers shall be jointly and severally, absolutely and
unconditionally liable for the repayment of such loan in accordance with the
terms hereof. The execution and delivery of this Agreement, however, does not
evidence or represent a refinancing, repayment, accord and/or satisfaction or
novation of the Existing Indebtedness. All liens and security interests
previously granted for the benefit of Lender, pursuant to the Existing Loan
Documents are acknowledged and reconfirmed and remain in full force and effect
and are not intended to be released, replaced or impaired.
Lender shall not be deemed to waive, by any act, delay, omissions or
otherwise, any of its rights or remedies hereunder unless such waiver is in
writing and signed by Lender and then only to the extent specifically set forth
therein. A waiver in one event shall not be continuing or a bar to or waiver of
such right or remedy on a subsequent event. Any waiver by Lender of any
provision of this agreement shall not discharge any Obligor. Any rights and
remedies provided for in this agreement may be exercised singly or concurrently.
Each Borrower waives presentment for payment, demand, notice of
nonpayment, notice of protest, and protest of all commercial paper at any time
held by Lender on which such Borrower is in any way liable. Each Borrower
consents to any and all extensions of time, renewals, waivers, or modifications
that may be granted by Lender with respect to the payment or other provisions of
any such commercial paper, and to the release of any Collateral, with or without
substitution, and to the release of any party against which such Borrower has a
right of recourse. Each Borrower agrees (a) that a breach of any covenants
contained in this agreement will cause irreparable injury to Lender, (b) that
Lender has no adequate remedy at law, and (c) that every covenant shall be
specifically enforceable.
Each Borrower acknowledges that this is a continuing security agreement
which shall remain effective until all obligations under the Loan and Note are
paid in full. Lender shall execute any reasonable documents requested by
Borrower to evidence the termination of this Agreement upon such payment in
full.
This agreement shall be governed, construed and interpreted in
accordance with the laws of Pennsylvania without giving effect to principles of
conflicts of laws. The exclusive forum for any legal proceeding arising out of
or related to this agreement shall be the Courts of the Commonwealth of
Pennsylvania or the United States District Court, Eastern District of
Pennsylvania. The Borrowers and Lender each hereby irrevocably consent to the
jurisdiction of said courts and waive any right to a jury trial on any issue on
which the Borrowers and Lender are in an adverse position. In the event any
provision of this agreement shall be held invalid or unenforceable, such holding
shall not invalidate or render unenforceable any other provision. This
agreement, including its covenants and warranties, shall be binding upon and
inure to the benefit of the Borrowers and Lender and their respective successors
and assigns; it shall be in addition to, and not in substitution of, any
evidence of liability or any other agreement between the Borrowers and Lender,
all of which shall be construed as one instrument.
CTI GROUP (HOLDINGS) INC.
By: \s\ Anthony P. Johns
---------------------------
Anthony P. Johns
Title: Chairman/CEO
CTI DATA SOLUTIONS, INC.
By: /s/ Anthony P. Johns
---------------------------
Anthony P. Johns
Title: Chairman/CEO
CTI DATA SOLUTIONS, LTD.
By: /s/ Anthony P. Johns
---------------------------
Anthony P. Johns
Title: Chairman/CEO
CENTILLION DATA SYSTEMS, INC.
By: /s/ John M. Cauffman
---------------------------
John M. Cauffman, President
10.25
AMENDED AND RESTATED
PROMISSORY NOTE
$550,000 Dated: October 26, 2000
FOR VALUE RECEIVED and intending to be legally bound hereby, CTI GROUP
(HOLDINGS) INC., a Delaware corporation ("Group"), CTI DATA SOLUTIONS, LTD., a
Delaware corporation ("Data UK") and CTI DATA SOLUTIONS, INC., a Delaware
corporation ("Data", and together with Group and Data UK collectively referred
to as, the "Maker"), hereby, jointly and severally, promises to pay to the order
of CENTILLION DATA SYSTEMS, INC. (the "Payee") the maximum Principal Sum of Five
Hundred Fifty Thousand Dollars ($550,000), together with interest and reasonable
attorneys' fees thereon on the unpaid portion at the Rate.
Principal and Interest and reasonable attorneys' fees shall be paid
upon the earlier to occur of the following:
1. Upon demand at the closing of the merger between Maker and Payee
(the "Closing") pursuant to that certain Agreement and Plan of
Merger executed by and between Maker and Payee (the "Merger
Agreement") dated February 3, 2000; or
2. September 12, 2001 (the "Maturity Date").
In the event that this Note is paid contemporaneously with or as a
result of the Closing as provided for above, this Note shall be marked
discharged and satisfied and the outstanding principal and accrued interest due
hereunder shall be applied towards the requirement that Centillion have
$8,000,000 in cash less all expenditures made by Centillion relating to the
development of Billing Software on its books at the time of the Closing as
provided for in Sections 6.2(d)(ii) and 6.2(d)(iv)(x) of the Merger Agreement.
All sums realized by the Maker on account of this Note, from whatever
source received, shall be applied first to any reasonable and substantiated
fees, costs and expenses (including reasonable attorney's fees) incurred by the
Maker directly related to the documentation and administration of this Note,
second to accrued and unpaid interest, and then to principal.
As security for this Note, each Maker hereby grants, conveys, and
assigns to the Payee a security interest in and to all accounts (as defined in
Article 9 of the Uniform Commercial Code), whether now existing or hereafter
arising in the future, including without limitation all accounts receivable of
such Maker created by or arising from the sale of goods or the performing of
services made under such Makers's corporate name or any of such Maker's trade
names (collectively, the "Collateral").
The nonpayment when due of any amount payable under this Note within
thirty (30) days after the date due or the material breach of any
representations, warranties or covenants contained herein or in the Amended and
Restated Loan and Security Agreement by and among Maker and Payee (the "Loan
Agreement") dated the date hereof shall be an "Event of Default".
Upon the Event of Default or in the event this Note remains unpaid
after the Maturity Date, Payee shall, in addition to those rights granted under
the Loan Agreement, have the right to sell all or part of the Collateral in any
commercially reasonable manner to satisfy the balance due under this Note. Such
rights with respect to the Collateral shall be Payee's exclusive remedy. Payee
shall not have the right to collect any balance due under this Note from any
assets of Maker not included as part of the Collateral.
The Rate shall mean Ten percent (10%) per annum.
Maker shall have the privilege, without premium or penalty, of
prepaying this Note, at any time, in whole or in part, provided that each
prepayment shall be accompanied by accrued interest on the amount prepaid.
Upon an Event of Default, Maker will provide Payee notice by certified
mail return receipt requested to the below address and Maker shall have Ten (10)
days from the receipt thereof to cure any such default. In the event Maker fails
to cure said default, this Note shall, at Payee's option, become immediately due
and payable in full without further notice to or demand on Maker of any kind and
without presentment, demand or protest, notice of dishonor and notice of
protest, all of which are hereby waived.
In the event that the Maker engages an attorney to represent it in
connection with (a) any Event of Default, (b) any potential and/or actual
bankruptcy or other insolvency proceedings commenced by or against the Maker
and/or (c) any actual litigation arising out of or related to any of the
foregoing, or any of the Obligations, then the Maker shall be liable to and
shall reimburse the Maker on demand for all reasonable attorneys' fees, costs
and expenses incurred by the Maker in connection with any of the foregoing. The
Maker shall also be liable and shall also reimburse the Maker on demand for all
other reasonable, substantiated costs and expenses (including reasonable
attorney's fees) incurred by the Maker in connection with the enforcement of the
Obligations.
No extension of time for payment granted by the Maker of all or any
part of the amount owing on this Note at any time shall affect the liability of
the Maker hereunder.
Acceptance by the Maker of any payment after any Event of Default shall
not operate to extend the time of payment of any amount then remaining unpaid
and shall not constitute a waiver of any future installments, such Event of
Default or any other rights of the Maker under this Note. No delay by the Maker
in exercising any power or right shall operate as a waiver of any power or right
held by the Maker. The Maker hereby waives presentment for payment, demand,
protest, or notice of protest. No single or partial exercise of any power or
right shall preclude other or future exercise of the power or right, or the
exercise of any other power or right. The waiver of any default or grounds for
acceleration by the Maker shall not operate as a waiver of any subsequent
default, or grounds for acceleration of any power or right that the Maker may
have under the terms of this Note.
No waiver or modification of the terms of this Note shall be valid
unless in writing, signed by the Maker and the Maker, and appended hereto.
This Note amends and restates, but does not extinguish the indebtedness
evidenced by that certain Promissory Note given by Data to Payee dated September
13, 2000 in the original amount of Two Hundred Fifty Thousand Dollars
($250,000), as same may have been amended, supplemented or replaced from time to
time. Upon receipt of an executed copy of this Note, Payee shall mark the
aforementioned note canceled and return it to Maker.
This Note and all questions relating to its validity, interpretation,
performance, remediation and enforcement (including, without limitation,
provisions concerning limitations of actions) shall be governed by and construed
in accordance with the domestic laws of the Commonwealth of Pennsylvania,
notwithstanding any choice-of-laws doctrines of such jurisdiction or any other
jurisdiction which ordinarily would cause the substantive law of another
jurisdiction to apply, without the aid of any canon, custom or rule of law
requiring construction against the draftsman.
If any provision of this Note or the application thereof is held by a
court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions hereof shall not be affected thereby, and each provision of this Note
shall be valid and enforceable to the fullest extent permitted by law.
Waiver of Jury Trial. EACH MAKER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF , UNDER, OR IN CONNECTION WITH THIS
NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF THE MAKER. EACH MAKER HEREBY WAIVES THE RIGHT TO
INTERPOSE ANY COUNTERCLAIM OR OFFSET OF ANY NATURE OR DESCRIPTION IN ANY
LITIGATION RELATING TO THE PURCHASE DOCUMENTS OR THIS NOTE OR ANY LIABILITY
THEREUNDER OR HEREUNDER, OR ENFORCEMENT OF REMEDIES THEREUNDER OR HEREUNDER.
IN WITNESS WHEREOF, each Maker has caused this instrument to be
executed on its behalf by its duly authorized officer, on the date first set
forth above.
CTI GROUP (HOLDINGS) INC.
By: /s/ Anthony P. Johns
---------------------
Anthony P. Johns
Title: Chairman/CEO
CTI DATA SOLUTIONS, INC.
By: /s/ Anthony P. Johns
---------------------
Anthony P. Johns
Title: Chairman/CEO
CTI DATA SOLUTIONS, LTD.
By: /s/ Anthony P. Johns
---------------------
Anthony P. Johns
Title: Chairman/CEO