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, 1999
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO _____ .
Commission file number 0-10560.
CTI GROUP (HOLDINGS) INC.
(Exact name of Small Business Issuer in its charter)
DELAWARE 51-0308583
------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification Number)
2550 Eisenhower Avenue, Norristown, PA 19403
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (610) 666-1700
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __ .
The number of shares of common stock par value $.01, outstanding as of October
18, 1999 was 7,145,384.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, March 31,
1999 1999
---------- ----------
ASSETS
(Unaudited)
Current assets:
Cash and cash equivalents $ 576,649 $ 776,146
Trade, accounts receivable less allowance for doubtful accounts of $101,407
and $264,156 at September 30, 1999 and
March 31, 1999, respectively 874,272 626,631
Inventories 9,386 22,458
Prepaid expenses 100,642 93,514
---------- ----------
Total current assets 1,560,949 1,518,749
Furniture, fixtures, equipment and leasehold improvements at cost, less
accumulated depreciation and amortization of $349,706 and $305,250 at
September 30, 1999 and
March 31, 1999, respectively 178,019 168,327
Computer software, net of accumulated
amortization of $2,514,391 and $2,283,518 at
September 30, 1999 and March 31, 1999,
respectively 619,911 840,682
Excess of cost over net assets of acquired business, net of accumulated
amortization of $14,454 and $11,112 at September 30, 1999 and
March 31, 1999, respectively 31,227 33,453
Other assets 21,862 21,862
---------- ----------
$2,411,968 $2,583,073
========== ==========
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 30, March 31,
1999 1999
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
Current liabilities:
Debt $ 100,000 $ 218,424
Accounts payable 456,643 492,842
Other accrued expenses 999,748 1,177,893
Deferred revenue 677,364 999,518
----------- -----------
Total current liabilities 2,233,755 2,888,677
----------- -----------
Commitments and contingencies
Stockholders'
equity:
Common stock, par value $.01; 10,000,000 shares authorized;
7,145,384 issued at September 30, 1999
and 7,041,349 shares issued at March 31, 1999 71,454 70,417
Capital in excess of par value 8,087,607 8,062,507
Accumulated deficit (7,612,795) (8,085,684)
Other comprehensive income - Foreign
currency translation 38,347 53,556
Less - Treasury stock, 140,250 shares at
June 30, 1999 and March 31, 1999, at cost (406,400) (406,400)
----------- -----------
Total stockholders' equity 178,213 (305,604)
----------- -----------
$ 2,411,968 $ 2,583,073
=========== ===========
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Six Months Ended
September 30,
--------------------------------
1999 1998
----------- -----------
Net sales $ 3,965,721 $ 3,455,990
Costs and expenses:
Cost of sales (exclusive of depreciation and
amortization) 1,978,048 1,832,560
Selling, general and administrative expenses 1,234,372 1,745,940
Depreciation and amortization 277,555 450,380
----------- -----------
$ 3,489,975 $ 4,028,880
----------- -----------
Income (loss) from operations 475,746 (572,890)
Other expenses (income)
Interest expense net of interest income 2,857 65,560
----------- -----------
Net income (loss) $ 472,889 $ (638,450)
=========== ===========
Other Comprehensive Income (loss)
Foreign currency translation adjustment (15,209) (22,289)
----------- -----------
Comprehensive income (loss) $ 457,680 $ (660,739)
=========== ===========
Basic and Diluted Net income (loss) per common share $ 0.07 $ (0.09)
=========== ===========
Basic weighted average common shares outstanding 6,972,301 6,896,793
=========== ===========
Diluted weighted average common shares outstanding 7,159,679 6,896,793
=========== ===========
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended
September 30,
--------------------------
1999 1998
----------- -----------
Net sales $ 1,962,604 $ 1,829,480
Costs and expenses:
Cost of sales (exclusive of depreciation and
amortization) 1,035,153 948,300
Selling, general and administrative expenses 454,137 922,470
Depreciation and amortization 134,749 213,910
----------- -----------
$ 1,624,039 $ 2,084,680
----------- -----------
Income (loss) from operations 338,565 (255,200)
Other expenses (income)
Interest expense net of interest income 1,133 34,120
----------- -----------
Net income (loss) $ 337,432 $ (289,320)
=========== ===========
Other Comprehensive Income (loss)
Foreign currency translation adjustment (32,946) 14,632)
----------- -----------
Comprehensive income (loss) $ 304,486 $ (274,688)
=========== ===========
Basic and Diluted Net income (loss) per common share $ 0.05 $ (0.04)
=========== ===========
Basic weighted average common shares outstanding 7,000,467 6,901,098
=========== ===========
Diluted weighted average common shares outstanding 7,196,992 6,901,098
=========== ===========
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
September 30,
----------------------
1999 1998
--------- ---------
Cash Provided By (Used In):
Operating activities:
Net Income $ 472,889 $(638,450)
Adjustments to reconcile net income to cash provided by (used in)
operations:
Depreciation and amortization 277,555 450,380
Issuance of stock options 26,140 --
Changes in Operating Working Capital:
Increase in receivables, trade (234,455) (11,675)
Decrease (increase) in inventories (11,616) 1,014
Decrease in prepaid expenses 23,047 76,623
Decrease in accounts payable (45,461) (229,283)
Decrease in other accrued expenses (187,871) (104,912)
(Decrease) increase in deferred revenue (331,811) 58,900
--------- ---------
Total adjustments (484,472) 476,964
Cash utilized in operating activities (11,583) (161,486)
--------- ---------
Investing Activities:
Additions to equipment and leasehold improvements (50,149) (37,466)
Additions to computer software (4,000) (189,544)
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Cash utilized in investing activities (54,149) (227,010)
--------- ---------
Financing Activities:
(Repayment of) addition to debt (118,429) (96,938)
--------- ---------
Cash provided by (utilizing in) financing activities (118,429) (96,938)
--------- ---------
Decrease in cash and cash equivalents (184,161) (485,434)
Effect of exchange rates on cash (15,336) (9,930)
Cash and cash equivalents, at beginning of period 776,146 628,329
--------- ---------
Cash and cash equivalents, at end of period $ 576,649 $ 132,965
========= =========
Supplemental disclosures:
Cash paid during the year for interest $ 10,117 $ 9,300
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: Business and Basis of Presentation
CTI Group (Holdings) Inc. and Subsidiaries (the "Company") designs, develops,
markets and supports data processing software and services for managing
telecommunications systems.
The accompanying consolidated financial statements have been prepared by CTI
Group (Holdings) Inc. without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"), and reflect all adjustments
which, in the opinion of management, are necessary for a fair statement of the
results for the interim periods presented. All such adjustments are of a normal
recurring nature. Certain previously reported amounts have been reclassified to
conform with the current period presentation.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted pursuant to the rules and regulations of the SEC,
although the Company believes the disclosures are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31,
1999.
NOTE 2: Basic and Diluted Income (Loss) Per Common Share
Net income (or loss) per common share is computed in accordance with the
provision of SFAS No. 128, "Earnings Per Share". Basic earnings per share is
computed by dividing reported earnings available to common stockholders by the
weighted average shares outstanding for the period. Diluted earnings per share
is computed by dividing reported earnings available to common stockholders by
weighted average shares outstanding for the period giving effect to securities
considered to be dilutive potential common shares such as stock options. The
effect of all dilutive potential common shares was to increase dilutive weighted
average shares by only 196,525 shares for the quarter ended September 30, 1999
resulting in dilutive weighted average shares of 7,196,992. Basic and diluted
earnings per share were $0.05 per share for the quarter ended September 30,
1999. The effect of all dilutive potential common shares was to increase
dilutive weighted average shares only 179,379 shares for the six months ended
September 30, 1999 resulting in dilutive weighted average shares of 7,151,679.
Basic and diluted earnings per share were $0.07 per share for the six months
ended September 30, 1999. Because the Company incurred losses for the quarter
ended September 30, 1998, the effect of all dilutive potential common shares was
antidilutive. Consequently, the Company's basic and diluted earnings per share
were the same for the quarter and six months ended September 30, 1998.
NOTE 3: Income Taxes
The Company utilized the benefit of available net operating loss carry-forwards
with an equivalent tax benefit to offset any tax liability as a result of income
which arose in six months period ended September 30, 1999.
NOTE 4: Segment Information
The Company designs, develops, markets and supports data processing software and
services for managing telecommunication systems. These business operations fall
into two major classifications: telemanagement and billing and customer care.
The Company's telemanagement products and services are used by organizations to
optimize the usage of their telecommunication services and equipment and to
control telephone expenses and uses. The Company's billing and customer care
software products are used by small to mid-range telephone and wireless network
operators to manage customer accounts, generate bills, track payments and
customer service operations. The Company conducts business in the United Kingdom
and United States. Activities in the United Kingdom are primarily telemanagement
activities. A summary of the Company's operations by geographic area for period
ended on September 30, 1999.
3 Months Ended September 30, 1999 6 Months Ended September 30, 1999
UK USA Consolidated UK USA Consolidated
----------- ------------- ------------ ----------- ----------- ------------
1999
Total net sales $ 1,381,915 $ 580,689 $ 1,962,604 $ 2,744,281 $ 1,221,440 $ 3,965,721
=========== ============= ============ =========== =========== ===========
Net income $ 328,107 $ 9,325 $ 337,432 $ 409,083 $ 63,806 $ 472,889
=========== ============= ============ =========== =========== ===========
1998
Total net sales $ 1,176,125 $ 653,355 $ 1,829,480 $ 2,120,435 $ 1,335,555 $ 3,455,990
=========== ============= ============ =========== =========== ===========
Net loss $ (182,940) $ (106,380) $ (289,320) $ (457,636) $ (180,814) $ (638,450)
=========== ============= ============ =========== =========== ===========
The following table summarizes the Company's financial information by industry
segment.
3 Months Ended 6 Months Ended
September 30, 1999 September 30, 1999
------------------------- -------------------------
Revenues:
Telemanagement $ 1,793,928 $ 1,636,943 $ 3,654,709 $ 3,069,949
Billing and customer care 168,676 192,537 311,012 386,041
----------- ----------- ----------- -----------
Total Sales $ 1,962,604 $ 1,829,480 $ 3,965,721 $ 3,455,990
Net (loss) Income:
Telemanagement $ 277,035 $ (251,247) $ 334,502 $ (554,271)
Billing and customer care 60,397 (38,073) 93,387 (84,179)
----------- ----------- ----------- -----------
Net (loss) income $ 337,432 $ (289,320) $ 472,889 $ (638,450)
8
ITEM 2
Management's Discussion and Analysis or Plan of Operation
Cautionary Statement Regarding Forward-Looking Statements
This report contains "forward-looking" statements. The Company is including this
statement for the express purpose of availing itself of protections of the safe
harbor provided by the Private Securities Litigation Reform Act of 1995 with
respect to all such forward-looking statements. Examples of forward-looking
statements include, but are not limited to: (a) projections of revenues, capital
expenditures, growth, prospects, dividends, capital structure and other
financial matters; (b) statements of plans and objectives of the Company or its
management or Board of Directors; (c) statements of future economic performance;
(d) statements of assumptions underlying other statements and statements about
the Company and its business relating to the future; and (e) any statements
using the words "anticipate", "expect", "may", "project", "intend" or similar
expressions.
The Company's ability to predict projected results or the effect of certain
events on the Company's operating results is inherently uncertain. Therefore,
the Company wishes to caution each reader of this report to carefully consider
the following factors, any or all of which have in the past and could in the
future affect the ability of the Company to achieve its anticipated results and
could cause actual results to differ materially than those discussed herein:
ability to attract and retain customers to purchase its products, ability to
commercialize and market products, results of research and development,
technological advances by third parties and competition, future capital needs of
the Company, history of operating losses, dependence upon key personnel and
general economic and business conditions.
Results of Operations
Revenues from operations increased $509,731 to $3,965,721 for the six months and
$133,124 to $1,962,604 for the quarter ended September 30, 1999, as compared to
the prior year period. There was an increase of $623,838 for the six months and
$205,790 for the quarter ended September 30, 1999 primarily due to the increase
in revenues from CTI Data Solutions Ltd., a UK based wholly-owned subsidiary.
This increase was offset by a decrease in revenue of $114,115 for the six months
ended September 30, 1999, and $72,666 for the quarter ended September 30, 1999
from CTI Data Solutions Inc., a US based wholly-owned subsidiary. Revenues
increased from CTI Data Solutions Ltd. primarily as a result of increased sales
of its new C6Win product line. Revenues generated from CTI Data Solutions Inc.
slightly decreased compared to the prior year as a result of anticipated
continued migration of revenues derived from service bureau activities in excess
of increases in newer technology based telemanagement and billing products.
During the second half of it's fiscal year the Company anticipates that it will
be able to replace and exceed continued declines in service bureau activities by
its newer technology based telemanagement and billing product software.
Cost of Sales were 50% of revenues for six months and 53% for the quarter ended
September 30, 1999 as compared to 53% and 52% respectively in the prior year
period. Costs of sales decreased as a percentage of revenues for the six months
ended September 30, 1999 despite a slight increase in the quarter ended
September 30, 1999, as compared to the prior year period due primarily to
increased operational efficiencies and improved sales efforts.
Selling, general and administrative ("SG&A") expenses were 31% of revenues for
six months and 23% for the quarter ended September 30, 1999 and 50% and 51%
respectively for the same period in 1998. The decrease was primarily the result
of cost containment measures initiated during 1999. These cost containment
measures included the reduction in non-essential staff. The Company realized a
29% decrease in SG&A expenses for six months and 51% for the quarter ended
September 30, 1999 compared to the same period in 1998 despite an increase in
revenues of 15% for six months and 7% for the quarter ended September 30, 1999.
9
The depreciation and amortization expenses decreased by $172,825 a decrease of
38% for six months and $79,161 a decrease of 37% for the quarter ended September
30, 1999 over the same period last year due to the elimination of computer
software costs and fixed assets resulting from the purchase price adjustment on
March 31, 1999 related to the original purchase of Databit from Siemens.
Liquidity and Capital Resources
Cash and cash equivalents amounted to $576,649 as of September 30, 1999 compared
to $776,146 as of March 31, 1999. The decrease in cash is primarily the result
of cash utilized in operations of approximately $11,583 related to increased
operational activity, cash utilized in investing activities related to the
acquisition of fixed assets of approximately $54,149 and cash utilized in
financing activity related to the pay down of debt of approximately $118,429.
The consolidated financial statements of the Company have been prepared on a
going concern basis, which contemplates the continuation of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company has a deficiency in working capital of $672,806 at
September 30, 1999 compared to a deficit of $1,369,928 at March 31, 1999 and has
generated net income of $472,889 for the six months ended September 30, 1999,
compared to a net loss of $638,450 for the previous period. In addition, the
Company's line of credit was fully utilized as of September 30, 1999 and expires
in September 2000.
Deferred revenues have decreased over the same period last year due to the
decrease of non-Y2K compliance maintenance renewals that will expire on December
31, 1999. These contracts have been prorated until December 31, 1999 and offered
our Y-2K compliant software.
The Company believes that it will be able to continue to show a profit and
generate cash as shown in the first six months ended September 30, 1999.
Year 2000 Compliance Issues
The Company believes that its software products and services are Year 2000
compliant with the exception of certain older telemanagement software products
that are no longer being supported. Customers still utilizing these older
telemanagement software products have been notified that those products are no
longer being supported and that Year 2000 compliant software is available.
Licensing Fees on the non-compliant Year 2000 software, which is being phased
out, were insignificant for the six months ended September 30, 1999. Management
believes that the elimination of the non-compliant Year 2000 revenue stream will
be replaced by the customers switching to the Year 2000 compliant replacement
software products. For a minority of customers, this will not be possible and
the net cost to the Company of conversion of such customers is not anticipated
to be material. The Company is converting the service bureau customers of CTI
Data Solutions Inc. to a Year 2000 compliant system. The cost of this is
estimated to be no more than $25,000 in total. There will also be additional
costs to convert some of the Company's internal computer systems to become Year
2000 compliant. The computer systems affected are administrative in nature and
will not of themselves disrupt the operations of the Company, in the event of
failure. The cost of converting the internal computer systems is estimated to be
$15,000 and a plan is in place to replace the relevant systems in the third
quarter.
The Company does not have a formal contingency plan if the conversions
and corrections made to prepare for the Year 2000 are not successful. The
Company's total costs to be incurred to ensure the Company's products and
systems are Year 2000 compliant are estimated to be approximately $50,000. The
Company has contacted significant vendors with respect to their Year 2000
compliance issues. To date the Company is not aware of material non-compliance
with its vendors.
10
The Company believes that before December 31, 1999 its internal
computer systems will be Year 2000 compliant; however, the Company cannot
guarantee that its internal computer systems or the systems of other companies
will be timely converted or that a failure to convert by another company, or a
conversion that is incompatible with our systems, would not have material
adverse effect on its operations.
The Company believes that the most reasonably likely worst case scenario with
respect to the Year 2000 compliance issue is the failure of a supplier to become
Year 2000 compliant, which could result in the temporary interruption of the
supply of services, namely electricity and telecommunication providers which
could result in potential lost sales and profits. The Company believes that
non-IT systems utilized to operate the Company's facilities, equipment and other
activities that are not related to IT systems will function without substantial
Year 2000 compliance problems.
11
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings:
None
ITEM 2 - Changes in Securities:
None
ITEM 3 - Details Upon Senior Securities:
Not Applicable
ITEM 4 - Submission of Matters to a Vote of Security Holders:
There were no matters submitted for a vote of security holders during
the three months ended June 30, 1999.
ITEM 5 - Other Information:
None
ITEM 6 - Exhibits and Reports on Form 8 - K for this quarter:
(a) Exhibits - None
(b) Form 8 - K
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
Chairman & Chief Executive Officer