-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SbGkirPwXCJ2pmSe67qOwIxcKhybrklUoGKTeJ8vY3ddZfKQMyQhteI9NIbgByKv PIAVDZ94xR5n4GRsPciuuA== 0001042187-98-000013.txt : 19980325 0001042187-98-000013.hdr.sgml : 19980325 ACCESSION NUMBER: 0001042187-98-000013 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980324 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CTI INDUSTRIES CORP CENTRAL INDEX KEY: 0001042187 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS MANUFACTURING INDUSTRIES [3990] IRS NUMBER: 362848943 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 000-23115 FILM NUMBER: 98571817 BUSINESS ADDRESS: STREET 1: 22160 N PEPPER RD CITY: BARRINGTON STATE: IL ZIP: 60010 MAIL ADDRESS: STREET 1: 22160 N PEPPER RD STREET 2: 22160 N PEPPER RD CITY: BARRINGTON STATE: IL ZIP: 60010 10QSB/A 1 FORM 10-QSB/A FORM 10-QSB/A (Amendment No. 1) SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 1998 Commission File No. 000-23115 CTI INDUSTRIES CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-2848943 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 22160 North Pepper Road, Barrington, Illinois 60060 (Address of principal executive offices) (Zip Code) (847) 382-1000 (Registrant's telephone number, including area code) Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days. APPLICABLE ONLY TO CORPORATE ISSUERS: COMMON STOCK, $.065 par value, 2,735,202 outstanding Shares and CLASS B COMMON STOCK, $.091 par value, 1,098,901 outstanding Shares, as of February 28, 1998. Part I. FINANCIAL INFORMATION Item 1. Financial Statements The following consolidated financial statements of the Registrant are attached to this Form 10-QSB: 1. Interim Balance Sheet as of January 31, 1998 and Balance Sheet as of October 31, 1997. 2. Interim Statements of Operations for the three month periods ending January 31, 1998 and January 31, 1997. 3. Interim Statements of Cash Flows for the three month periods ending January 31, 1998 and January 31, 1997. The Financial Statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of results for the periods presented. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net Sales. For the fiscal quarter ended January 31, 1998, net sales increased to $5,839,000 from $4,672,000 for the first fiscal quarter of 1997, an increase of approximately 25%. The Company experienced increases in sales, as compared to the first quarter of fiscal 1997, in each of its product lines -- mylar balloons, latex balloons and printed and laminated films. Cost of Sales. For the quarter ended January 31, 1998, cost of sales decreased to 59.3% of net sales as compared to 67.9% of net sales in the first fiscal quarter of 1997. The decrease was a result of reduced overhead expenses and lower material costs. Administrative. For the quarter ended January 31, 1998, administrative expenses were $526,000 or 9% of sales as compared to $431,000, or 9.2% of sales for the first fiscal quarter of 1997. Selling. For the quarter ended January 31, 1998, selling expenses were $741,000, or 12.7% of net sales, as compared to $671,000, or 14.4% of net sales for the first fiscal quarter of 1997. The percentage decrease was due to the Company's ability to increase sales while maintaining selling expense levels. Advertising and Marketing. For the quarter ended January 31, 1998, advertising and marketing expenses were $479,000 as compared to $203,000 in the first fiscal quarter of 1997. The increase in these expenses was a result of catalogue printing costs and service fees and rebates paid on national account sales programs. 2 Net Income or Loss. For the quarter ended January 31, 1998, the Company had net income of $325,000 as compared to net income of $98,000 the first fiscal quarter of 1997. The provision for income taxes for the first quarter of fiscal 1998 was $207,000 as compared to no allowance for the first quarter of 1997 as a result of loss carry forwards. For the first quarter of 1998, the entire income of $325,000 was allocable to Common Stock, whereas in the first quarter 1997, $65,000 of income was allocable to the Common Stock and the remaining $33,000 was allocable to the then outstanding Convertible Preferred Stock. Convertible Preferred Stock was converted to Class B Common Stock in November of 1997. Financial Condition Liquidity and Capital Resources. Cash flow used in operations during the quarter ended January 31, 1998, was $1,281,000. This resulted primarily from increased sales and resulting increases in accounts receivable and inventory of over $2,596,000. During the first fiscal quarter of 1997, the Company had cash flows used in operations of $1,076,000 mainly as a result of increases in accounts receivable of $1,777,000. At October 31, 1997, the Company maintained a cash balance of $237,000. In November of 1997, the Company sold 1,725,000 shares of its Common Stock at $4.00 per share in an initial public offering. The net proceeds from the offering to the Company were approximately $5,500,000. The Company's cash balance at January 31, 1998 was $2,922,000. Investment Activities. During the quarter ended January 31, 1998 and January 31, 1997, the Company invested $897,000 and $11,000, respectively, in machinery and equipment and merchandise displays at customer locations. The Company also invested $500,000 in its Mexican supplier of latex balloons in the first fiscal quarter of 1998. Financing Activities. For the quarter ended January 31, 1998, the Company generated $5,369,000 in financing activities, primarily as a result of the proceeds of the Company's initial public offering of its Common Stock in November of 1997. Cash flow provided by financing activities for the quarter ended January 31, 1997, was $967,000 resulting primarily from advances on lines of credit. The Company believes that existing capital resources and cash generated from operations, will be sufficient to meet the Company's requirements for at least 12 months. Thereafter the Company may require additional capital in order to expand its business and there can be no assurance that the Company will be able to secure additional debt or equity financing or that such financing will be available on favorable terms. Seasonality. In the mylar product line, sales have historically been seasonal with approximately 20% to 27% of annual sales of mylar being generated in December and January and 11% to 13% of annual mylar sales being generated 3 in June and July in recent years. The sale of latex balloons and laminated film products have not historically been seasonal. Forward Looking Statements. Forward looking statements made in this filing involve material risks and uncertainties that could cause actual results and events to differ materially from those set forth, or implied, including (i) the Company's ability to enter into contracts with licensors, suppliers, distributors, and strategic partners, (ii) the Company's growth strategy and (iii) anticipated trends in the Company's business, as well as other risks and uncertainties reported in the Company's other SEC filings. Part II. OTHER INFORMATION Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities In March and May of 1996, a group of investors made an equity investment of $1,000,000 in the Company in return for 1,098,901 shares of Preferred Stock, $.91 par value. Each share of Preferred Stock was entitled to an annual cumulative dividend of 13% of the purchase price, and was convertible into one share of Common Stock. The shares of Preferred Stock, voting separately as a class, were entitled to elect four of the Company's directors. In July, 1997, the Company effected a recapitalization (the "Recapitalization") without a formal reorganization. As part of the Recapitalization, the Board of Directors approved the creation of Class B Common Stock, approved a 1 for 2.6 reverse stock split on both the Common Stock and Preferred Stock, and negotiated a conversion of all then outstanding shares of the Company's Convertible Preferred Stock into an aggregate of 1,098,901 shares of Class B Common Stock. The conversion was effective upon the closing of the initial public offering of the Company's Common Stock in November of 1997. The shares of Class B Common Stock contain rights identical to shares of Common Stock, except that shares of Class B Common Stock, voting separately as a class, have the right to elect four of the Company's seven directors. Shares of Common Stock and Class B Common Stock, voting together as a class, vote on all other matters, including the election of the remaining directors. The recapitalization, initial public offering and related transactions were approved by written consent of the shareholders. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 4 Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits* (b) The Company has not filed a Current Report during the quarter covered by this report. * Also incorporated by reference the Exhibits filed as part of the SB-2 Registration Statement of the Registrant, effective November 5, 1997, and subsequent periodic filings. 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: March 24, 1998 CTI INDUSTRIES CORPORATION By: /s/ Stephen M. Merrick ---------------------------------- Stephen M. Merrick, Chief Executive Officer and Principal Financial Officer 6 CTI Industries Corporation and Subsidiary Consolidated Balance Sheet
January 31, 1998 October 31, 1997 (Unaudited) (See note) ----------------- -------------------- ASSETS Current assets: Cash and equivalents $ 2,921,958 $ 237,230 Accounts receivable (less allowance for doubtful accounts of $134,532 and $136,050 at January 31, 1998 and October 31, 1997) 5,098,807 3,045,696 Inventories 5,597,423 5,073,861 Deferred Tax Assets 327,035 327,035 Other 1,189,640 483,652 ------------- -------------- Total current assets 15,134,863 9,167,474 Property and equipment: Machinery and equipment 7,502,925 6,711,978 Building 2,181,647 2,175,713 Office furniture and equipment 1,385,941 1,058,150 Land 250,000 250,000 Leasehold improvements 147,128 147,128 Projects under construction 174,545 402,714 ------------- -------------- 11,642,186 10,745,683 Less: accumulated depreciation (7,034,317) (6,851,148) ------------- -------------- Total property and equipment, net 4,607,869 3,894,535 Other assets: Deferred IPO costs - 445,067 Deferred financing costs, net 55,795 56,671 Investment in subsidiaries 881,980 81,816 Note receivable 730,000 300,000 Deferred tax assets 272,063 272,063 ------------- -------------- Total other assets 1,939,838 1,155,617 ------------- -------------- TOTAL ASSETS $ 21,682,570 $ 14,217,626 ============= ==============
See accompanying notes 7 CTI Industries Corporation and Subsidiary Consolidated Balance Sheet
January 31, 1998 October 31, 1997 (Unaudited) (See note) ----------------- -------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 3,654,846 $ 3,725,500 Line of Credit 3,233,093 3,017,940 Stock redemption contract payable - current portion 8,333 30,533 Notes payable - current portion 1,348,367 580,097 Accrued liabilities 1,869,913 871,182 ------------- -------------- Total current liabilities 10,114,552 8,225,252 Long-term liabilities: Notes payable 2,805,126 2,885,151 Subordinated Debt 865,000 865,000 ------------- -------------- Total long-term liabilities 3,670,126 3,750,151 Redeemable Common Stock 450,000 450,000 Stockholders' equity Convertible Preferred stock - $.91 par value, 2,000,000 shares authorized, 1,098,901 shares issued and outstanding, including accumulated dividends of $63,917 at October 31, 1997 - 1,063,917 Common stock - $.065 par value, 11,000,000 shares authorized, 2,879,584 (January 31, 1998) and 1,154,584 (October 31, 1997) shares issued, 2,735,202 (January 31, 1998) and 1,010,202 (October 31, 1997) shares outstanding 187,337 75,048 Class B Common stock - $.91 par value, 1,100,000 shares authorized, 1,098,901 shares outstanding at January 31, 1998 1,000,000 - Paid-in-capital 5,537,942 248,348 Retained earnings 1,504,527 1,179,274 Foreign currency translation adjustment 43,486 51,036 Less: Treasury stock - 144,382 shares at cost (370,700) (370,700) Redeemable common stock (450,000) (450,000) Stock subscription receivable (4,700) (4,700) ------------- -------------- Total stockholders' equity 7,447,892 1,792,223 ------------- -------------- Total liabilities and stockholders' equity $ 21,682,570 $ 14,217,626 ============= ==============
Note: The balance sheet at October 31, 1997 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete statements. See accompanying notes 8 CTI Industries Corporation and Subsidiary Consolidated Statement of Operations Quarter Ended January 31 1998 1997 (Unaudited) (Unaudited) --------------- -------------- Net sales $ 5,839,234 $ 4,671,596 Cost of sales 3,461,089 3,173,654 --------------- -------------- Gross profit on sales 2,378,145 1,497,942 Operating expenses: Administrative 525,982 430,922 Selling 740,559 671,022 Advertising and marketing 478,696 203,025 --------------- -------------- Total operating expenses 1,745,237 1,304,969 --------------- -------------- Income from operations 632,908 192,973 --------------- -------------- Other income (expense): Interest expense (177,158) (142,842) Other 76,210 47,713 --------------- -------------- Total other expense (100,948) (95,129) --------------- -------------- Income before income taxes 531,960 97,844 Income tax expense 206,700 158 --------------- -------------- Net income 325,260 97,686 Dividends applicable to convertible preferred stock - (32,500) --------------- -------------- Income applicable to common shares $ 325,260 $ 65,186 =============== ============== Basic income per common share $0.09 $0.07 =============== ============== Diluted income per common share and common equivalent share $0.08 $0.05 =============== ============== Weighted average number of shares and equivalent shares of common stock outstanding Basic 3,698,270 987,125 =============== ============== Diluted 4,086,783 2,086,026 =============== ============== See accompanying notes 9 CTI Industries Corporation and Subsidiary Consolidated Statement of Cash Flows
Quarter Ended January 31 1/31/98 1/31/97 (Unaudited) (Unaudited) ---------- ---------- Cash Flow Provided by Operations: Net Income $ 325,260 $ 97,686 Adjustments to reconcile net income: Depreciation and amortization 184,041 133,347 Gain on sale of property and equipment - (40,000) Provision for losses on A/R & inventory 19,126 45,669 Change in assets and liabilities: Change in accounts receivable (2,057,236) (1,776,831) Change in inventory (538,562) 275,428 Change in other assets (141,085) 58,155 Change in accounts payable & accrued expenses 927,951 130,511 ---------- ---------- Total Cash Flow Used by Operations (1,280,505) (1,076,035) Cash Flow Provided by Investing Activities: Purchases of property and equipment (896,502) (10,978) Investment in P&TF (500,000) - Investment in joint venture - (10,000) ---------- ---------- Total Cash Flow used by Investing Activities (1,396,502) (20,978) Cash Flow Provided by Financing Activities: Stock redemption contract payments (22,200) (17,807) Advances on line of credit 3,430,000 3,888,804 Repayments on line of credit (3,214,847) (2,948,362) Proceeds from issuance of long term debt 10,630 - Proceeds from issuance of short term debt 850,000 - Repayment of long term debt (172,385) (99,234) Proceeds from issuance of preferred stock - 160,000 Proceeds from issuance of common stock 5,401,883 - Loan to P&TF (850,000) - Conversion of preferred stock (1,000,000) - Proceeds from conversion of preferred stock 1,000,000 - Dividends paid (63,917) (16,250) ---------- ---------- Total Cash Flow Provided by Financing Activities 5,369,164 967,151 ---------- ---------- Effect of exchange rate changes on cash (7,429) - ---------- ---------- Increase (Decrease) in Cash & Equivalents 2,684,728 (129,862) Cash and Equivalents at Beginning of Quarter 237,230 130,818 ---------- ---------- Cash and Equivalents at End of Quarter $2,921,958 $ 956 ========== ==========
See accompanying notes 10 January 31, 1998 Note 1 - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended January 31, 1998 are not necessarily indicative of the results that may be expected for the year ended October 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company and Subsidiaries' annual report on Form 10-K for the year ended October 31, 1997. Note 2 - P&TF Transaction On January 26, 1998, the Company and Pulidoes et Terminados Finos S.A. de C.V. ("P&TF") entered into an agreement under which (i) the Company subscribed for 45% of the outstanding capital stock of P&TF for $800,000, (ii) the Company loaned to P&TF $850,000 collateralized by certain latex balloon manufacturing equipment, and (iii) the 1995 equipment purchase agreement between the parties was cancelled with respect to 2 pieces of latex balloon manufacturing equipment, which equipment is now owned by CTI and leased to P&TF. The purchase of the capital stock was effective February 1, 1998, and the purchase price for the capital stock was paid by (i) applying $400,000 of advances made to P&TF prior to closing and (ii) a cash payment for the balance. The $400,000 debt owing to the Company from the 1995 acquisition was extinguished as a result of the cancellation of the sales of the two pieces of equipment to P&TF. Funding for the purchase of the P&TF stock was provided from general operating funds of the Company and, for the loan to P&TF, by a loan to the Company and with proceeds of a bank loan. At the time of the transaction, the suspension of payments proceeding relating to P&TF (in the nature of a Chapter XI bankruptcy reorganization proceeding) was terminated. Although the stock purchase was not effective until February 1, 1998, the above transactions have been reflected in the January 31, 1998 financial statements. Note 3 - Earnings Per Share In November 1997, the Company adopted the provisions of SFAS No. 128, "Earnings per Share". Adoption of this pronouncement did not have a material impact on the Company's financial statements. The provisions of SFAS No. 128 were applied to the prior period presented. Basic income per common share is computed by dividing income available to common shareholders, net income less preferred stock dividends, if applicable, by the weighted average number of shares of common stock outstanding during each period. Diluted income per common share for the quarter ended January 31, 1998 is computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents (stock options and warrants), unless anti-dilutive, during the period. Diluted income per common share for the quarter ended January 31, 1997 is computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents (stock options, warrants and convertible preferrred stock), unless anti-dilutive, during the period. The weighted average number of shares and equivalent shares of common stock outstanding during the period ended January 31, 1997 reflects conversion of all convertible preferred stock into 1,098,901 shares of common stock as of the beginning of the period. 11 Income per common share for the quarterly periods ended January 31, 1998 and 1997 was computed as follows (in thousands, except per share amounts):
Quarter Ended January 31 ------------------------------ Line 1998 1997 - --------- ------------ ------------ Basic Average shares outstanding: Weighted average number of shares of common stock outstanding during the period 3,698,270 987,125 ============ ============ Net Income Net income $325 $97 Less preferred stock dividends - (32) ------------ ------------ Amount for per share computation $325 $65 ============ ============ Per share amount $0.09 $0.07 ============ ============ Diluted Average shares outstanding Weighted average number of shares of common stock outstanding during the period 3,698,270 987,125 Net additional shares assuming stock options and warrants exercised and proceeds used to purchase treasury shares 388,513 - Additional shares assuming conversion of convertible preferred stock - 1,098,901 ------------ ------------ Weighted average number of shares and equivalent shares of common stock outstanding during the period 4,086,783 2,086,026 ============ ============ Net Income Net income $325 $97 Less preferred stock dividends - (32) ------------ ------------ Income applicable to common shares Add dividends on preferred stock assumed converted into common shares - 32 ------------ ------------ Amount for per share computation $325 $97 ============ ============ Per share amount $0.08 $0.05 ============ ============
12 EX-27 2 FDS -- FORM 10-QSB
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB. 0001042187 CTI Industries Corporation 1,000 dollars 3-mos OCT-31-1998 NOV-01-1997 JAN-31-1998 1.000 2,922 0 5,234 135 5,597 15,135 11,642 7,034 14,218 10,118 0 0 0 187 7,261 7,448 5,839 5,839 3,461 3,461 1,669 0 177 532 207 325 0 0 0 325 .09 .08
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