-----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, TplCqm6Ev6uXhJdZiYgZpma5r+qExRRNrpEKdQSaX4EAgNDnOSYlD5umwiDd2Sij 6bdq+yu62BsKKk2NtgqjXw== 0001042187-99-000003.txt : 19990318 0001042187-99-000003.hdr.sgml : 19990318 ACCESSION NUMBER: 0001042187-99-000003 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990317 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: 1031 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-23115 FILM NUMBER: 99567192 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 1 FORM 10-QSB FORM 10-QSB 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, 1999 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 60010 (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, 2,735,831 outstanding Shares and CLASS B COMMON STOCK, $.091 par value, 1,098,901 outstanding Shares, as of February 26, 1999. 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, 1999 and Balance Sheet as of October 31, 1998. 2. Interim Statements of Operations for the three month periods ending January 31, 1999 and January 31, 1998. 3. Interim Statements of Cash Flows for the three month periods ending January 31, 1999 and January 31, 1998. 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 Operation Results of Operations Net Sales. For the fiscal quarter ended January 31, 1999, net sales were $4,988,000, as compared to sales of $5,839,000 for the first quarter of 1998. The decline in sales is due to a decrease in metallized balloon sales of $680,000, and a decrease in printed and laminated film sales of $185,000. Cost of Sales. For the quarter ended January 31, 1999, cost of sales increased to 61.7% of net sales as compared to 59.3% of net sales in the first fiscal quarter of 1998. The increase was a result of lower production levels and costs incurred in purchasing and installing new equipment. Included in these costs are increased depreciation expenses. Administrative. For the quarter ended January 31, 1999, administrative expenses were $532,000 or 10.7% of sales as compared to $526,000, or 9% of sales for the first fiscal quarter of 1998. Selling. For the quarter ended January 31, 1999, selling expenses were $645,000, or 12.9% of net sales, as compared to $741,000, or 12.7% of net sales for the first fiscal quarter of 1998. The decrease in selling expenses was primarily due to lower sales and to lower commissions paid as fewer sales were made through the Company's independent sales representative network. 2 Advertising and Marketing. For the quarter ended January 31, 1999, advertising and marketing expenses were $478,000, or 9.6% of sales as compared to $479,000, or 8.2% of sales in the first fiscal quarter of 1998. Other Income or Expense. Interest expense increased to $221,000 for the quarter ended January 31, 1999, as compared to $177,000 for the first quarter of fiscal 1998 as a result of interest paid on the new equipment loan, and a higher balance on the revolving line of credit. Net Income or Loss. For the quarter ended January 31, 1999, the Company had net income of $60,000 as compared to net income of $325,000 the first fiscal quarter of 1998. The reserve for income tax for the first quarter of fiscal 1999 was $13,000 as compared to $207,000 for the first quarter of 1998. The Company's net income was affected by the reduced level of sales, a small decline in margins and by increased interest and depreciation costs arising from the Company's investment in plant and equipment. Financial Condition Liquidity and Capital Resources. Cash flow provided by operations during the quarter ended January 31, 1999, was $642,000. This resulted primarily from a decrease in inventory and increase in accrued liabilities. During the first fiscal quarter of 1998, the Company had cash flows used in operations of $1,280,505 mainly as a result of increases in accounts receivable and inventory of over $2,596,000. At January 31, 1999, the Company maintained a cash balance of $317,000. The Company's current cash management strategy includes maintaining minimal cash balances and utilizing the revolving line of credit for liquidity. At October 31, 1998, the Company had cash and cash equivalents of $235,000. At January 31, 1999, the Company had working capital of $2,977,000. Working capital at October 31, 1998, was $3,313,000. Investment Activities. During the quarters ended January 31, 1999 and January 31, 1998, the Company invested $1,340,000 and $897,000, respectively, in machinery and equipment and merchandise displays at customer locations. The Company also invested $14,000 and $500,000, respectively, in its Mexican supplier of latex balloons in the first fiscal quarter of 1999 and 1998. Financing Activities. Cash flow provided by financing activities for the quarter ended January 31, 1999, was $798,000 resulting primarily from advances on lines of credit and proceeds from long term debt. 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. The Company believes that existing capital resources and cash generated from operations will be sufficient to meet the Company's requirements for at least the next twelve months. 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 in June and July in recent years. The sale of latex balloons and laminated film products have not historically been seasonal. 3 Safe Harbor Provision of the Private Securities Litigation Act of 1995 and Forward Looking Statements. The Company operates in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. The market for mylar and latex balloon products is generally characterized by intense competition, frequent new product introductions and changes in customer tastes which can render existing products unmarketable. The statements contained in Item 2 (Management's Discussion and Analysis of Financial Condition and Results of Operation) that are not historical facts may be forward-looking statements (as such term is defined in the rules promulgated pursuant to the Securities Exchange Act of 1934) that are subject to a variety of risks and uncertainties more fully described in the Company's filings with the Securities and Exchange Commission including, without limitation, those described under "Risk Factors" in the Company's Form SB-2 Registration Statement (File No. 333-31969) effective November 5, 1997. The forward-looking statements are based on the beliefs of the Company's management, as well as assumptions made by, and information currently available to the Company's management. Accordingly, these statements are subject to significant risks, uncertainties and contingencies which could cause the Company's actual growth, results, performance and business prospects and opportunities in 1999 and beyond to differ materially from those expressed in, or implied by, any such forward-looking statements. Wherever possible, words such as "anticipate," "plan," "expect," "believe," "estimate," and similar expressions have been used to identify these forward-looking statements, but are not the exclusive means of identifying such statements. These risks, uncertainties and contingencies include, but are not limited to, the Company's limited operating history on which expectations regarding its future performance can be based, competition from, among others, national and regional balloon, packaging and custom film product manufacturers and sellers that have greater financial, technical and marketing resources and distribution capabilities than the Company, the availability of sufficient capital, the maturation and success of the Company's strategy to develop, market and sell its products, risks inherent in conducting international business, risks associated with securing licenses, changes in the Company's product mix and pricing, the effectiveness of the Company's efforts to control operating expenses, general economic and business conditions affecting the Company and its customers in the United States and other countries in which the Company sells and anticipates selling its products and services and the Company's ability to (i) adjust to changes in technology, customer preferences, enhanced competition and new competitors; (ii) protect its intellectual property rights from infringement or misappropriation; (iii) maintain or enhance its relationships with other businesses and vendors; and (iv) attract and retain key employees. There can be no assurance that the Company will be able to identify, develop, market, sell or support new products successfully, that any such new products will gain market acceptance, or that the Company will be able to respond effectively to changes in customer preferences. There can be no assurance that the Company will not encounter technical or other difficulties that could delay introduction of new or updated products in the future. If the Company is unable to introduce new products and respond to industry changes or customer preferences on a timely basis, its business could be materially adversely affected. The Company is not obligated to update or revise these forward-looking statements to reflect new events or circumstances. 4 Part II. OTHER INFORMATION Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities Not applicable Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits* Description No. ----------- --- Statement Re: Computation of Per Share Earnings 11 (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 17, 1999 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 as of January 31, 1999 and October 31, 1998 January 31, 1999 October 31, 1998 (Unaudited) (See note) ------------ ------------ ASSETS Current assets: Cash $ 317,275 $ 235,333 Accounts Receivable (less allowance for doubtful accounts of $141,730 and $132,211 at January 31, 1999 and October 31, 1998) 4,062,944 3,276,894 Inventories 7,222,745 7,641,381 Deferred tax assets 176,549 176,549 Other 1,155,388 1,089,058 ------------ ------------ Total current assets 12,934,901 12,419,215 Property and equipment: Machinery and equipment 6,994,080 6,812,069 Building 3,503,801 3,503,801 Office furniture and equipment 1,561,719 1,556,742 Land 535,000 535,000 Leasehold improvements 161,885 161,885 Fixtures and equipment at customer locations 2,010,015 1,907,358 Projects under construction 2,573,441 1,522,893 ------------ ------------ 17,339,941 15,999,748 Less : accumulated depreciation (7,987,844) (7,674,299) ------------ ------------ Total property and equipment, net 9,352,097 8,325,449 Other assets: Deferred financing costs, net 40,578 44,383 Investment in joint venture 79,688 77,975 Invesment in subsidiary 888,860 879,800 Note receivable 715,422 715,422 Deferred tax assets 391,377 391,377 ------------ ------------ Total other assets 2,115,925 2,108,957 ------------ ------------ TOTAL ASSETS $ 24,402,923 $ 22,853,621 ============ ============ See accompanying notes 7 CTI Industries Corporation and Subsidiary Consolidated Balance Sheet as of January 31, 1999 and October 31, 1998 January 31, 1999 October 31, 1998 (Unaudited) (See note) ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,309,431 $ 3,070,545 Line of credit 4,401,105 4,178,246 Notes payable - current portion 751,568 817,569 Accrued liabilities 1,495,591 1,039,742 ------------ ------------ Total current liabiliites 9,957,695 9,106,102 Long-term liabilities: Notes payable 5,921,393 5,280,692 Subordinated debt 865,000 865,000 ------------ ------------ Total long-term liabilities 6,786,393 6,145,692 Redeemable common stock 413,406 413,406 Stockholders' equity: Common stock - $.065 par value, 11,000,000 shares authorized, 2,898,980 shares issued at January 31, 1999 and October 31, 1998, and 2,735,831 shares outstanding at January 31, 1999 and October 31, 1998 188,434 188,434 Class B common stock - $.91 par value, 1,100,000 shares authorized, 1,098,901 shares outstanding at January 31, 1999 and October 31, 1998 1,000,000 1,000,000 Paid-in-capital 5,554,332 5,554,332 Retained earnings 1,361,546 1,301,134 Foreign currency translation adjustment 22,973 26,377 Less: Treasury stock - 163,149 shares at cost at January 31, 1999 and October 31, 1998 (407,294) (407,294) Redeemable common stock (413,406) (413,406) Stock subscription receivable (4,700) (4,700) Notes receivable from stockholders (56,456) (56,456) ------------ ------------ Total stockholders' equity 7,245,429 7,188,421 ------------ ------------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 24,402,923 $ 22,853,621 ============ ============ Note: The balance sheet at October 31, 1998 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 For the quarter ended January 31 1999 1998 (Unaudited) (Unaudited) ----------- ----------- Net Sales $ 4,988,303 $ 5,839,234 Cost of Sales 3,076,804 3,461,089 ----------- ----------- Gross profit on sales 1,911,499 2,378,145 Operating expenses: Administrative 532,364 525,982 Selling 645,127 740,559 Advertising and marketing 477,897 478,696 ----------- ----------- Total operating expenses 1,655,388 1,745,237 ----------- ----------- Income from operations 256,111 632,908 Other income (expense): Interest expense (220,642) (177,158) Interest income 22,418 50,818 Other 15,792 25,392 ----------- ----------- Total other expense (182,432) (100,948) ----------- ----------- Income before income taxes 73,679 531,960 Income tax expense (benefit) 13,267 206,700 ----------- ----------- Net income $ 60,412 $ 325,260 =========== =========== Basic income per common and common equivalent shares $ 0.02 $ 0.09 =========== =========== Diluted income per common and common equivalent shares $ 0.02 $ 0.08 =========== =========== Weighted average number of shares and equivalent shares of common stock outstanding Basic 3,834,732 3,698,270 =========== =========== Diluted 4,002,977 4,086,783 =========== =========== See accompanying notes 9 CTI Industries Corporation and Subsidiary Consolidated Statement of Cash Flows
For the quarter ended January 31 1999 1998 (Unaudited) (Unaudited) ----------- ----------- Cash Flow Provided by Operations: Net income $ 60,412 $ 325,257 Adjustments to net income: Depreciation and amortization 317,349 184,044 Equity in earnings of P&TF and CTF 3,467 -- Provision for losses on A/R & inventory 99,116 19,126 Change in assets and liabilities: Change in accounts receivable (801,030) (2,057,236) Change in inventory 334,500 (538,562) Change in other assets (66,329) (141,085) Change in accounts payable & accrued expenses 694,736 927,951 ----------- ----------- Total Cash Flow Provided (Used) by Operations 642,221 (1,280,505) Cash Flow Provided by Investing Activities: Purchases of property and equipment (1,340,193) (896,502) Investment in and advances to P&TF (14,240) (500,000) ----------- ----------- Total Cash Flow Used by Investing Activities (1,354,433) (1,396,502) Cash Flow Provided by Financing Activities: Stock redemption contract payments -- (22,200) Advances on line of credit 4,215,000 3,430,000 Repayments on line of credit (3,992,141) (3,214,847) Proceeds from issuance of long term debt 695,367 10,630 Proceeds from issuance of short term debt -- 850,000 Repayment of long term debt (120,668) (172,385) Proceeds from issuance of common stock -- 5,401,883 Loan to P&TF -- (850,000) Dividends paid -- (63,917) ----------- ----------- Total Cash Flow Provided by Financing Activities 797,558 5,369,164 Effect of exchange rate changes on cash (3,404) (7,429) ----------- ----------- Increase (Decrease) in Cash and Equivalents 81,942 2,684,728 Cash and Equivalents at Beginning of Period 235,333 237,230 ----------- ----------- Cash and Equivalents at End of Period $ 317,275 $ 2,921,958 =========== ===========
See accompanying notes 10 January 31, 1999 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, 1999 are not necessarily indicative of the results that may be expected for the year ended October 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company and Subsidiaries' annual report on Form 10-KSB for the year ended October 31, 1998. Note 2 - Earnings Per Share The Company adopted SFAS No. 128, "Earnings per Share," for the year ended October 31, 1998. Adoption of this pronouncement did not have a material impact on the Company's financial statements. Basic earnings per share is computed by dividing the income available to common shareholders, net earnings less preferred stock dividends, by the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share 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 each period. Earnings per share for the periods ended January 31, 1999 and 1998 was computed as follows: 11 CTI Industries Corporation and Subsidiary Quarter Ended January 31 1999 1998 ---------- ---------- Basic Average shares outstanding: Weighted average number of shares of common stock outstanding during the period 3,834,732 3,698,270 ========== ========== Net income: Net income $ 60,412 $ 325,260 Less preferred stock dividends -- -- ---------- ---------- Amount for per share computation $ 60,412 $ 325,260 ========== ========== Per share amount $ 0.02 $ 0.09 ========== ========== Diluted Average shares outstanding: Weighted average number of shares of common stock outstanding during the period 3,834,732 3,698,270 Net additional shares assuming stock options and warrants exercised and proceeds used to purchase treasury stock 168,245 388,513 ---------- ---------- Weighted average number of shares and equivalent shares of common stock outstanding during the period 4,002,977 4,086,783 ========== ========== Net income: Net income $ 60,412 $ 325,260 Less preferred stock dividends -- -- ---------- ---------- Income applicable to common shares $ 60,412 $ 325,260 Add dividends on preferred stock assumed converted into common shares -- -- ---------- ---------- Amount for per share computation $ 60,412 $ 325,260 ========== ========== Per share amount $ 0.02 $ 0.08 ========== ========== Warrants to purchase 277,244 shares of common stock at $3.12 were outstanding during the first quarter of 1999 but were not included in the computation of diluted EPS because the warrants' exercise price was greater than the average market price of the common shares. Options to purchase 329,000 shares of common stock at $2.50 - $4.00 were outstanding during the first quarter of 1999 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. 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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB. 0001042187 CTI Industries Corporation 1,000 dollars 3-mos OCT-31-1999 NOV-01-1998 JAN-31-1999 1.000 317 0 4,205 142 7,223 12,935 17,340 7,988 24,403 9,958 0 0 0 188 7,057 24,403 4,988 4,988 3,077 3,077 1,617 0 221 73 13 60 0 0 0 60 .02 .02
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