-----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, TYmYQa5SHmHwyLXbnuIubRdHjjUiYVcu3dzCkTzfNBqKJEHRUsJ9G2r3vnMKTYbl d6uwPEQw0x/cHkga1jXUiA== 0001042187-99-000006.txt : 19990615 0001042187-99-000006.hdr.sgml : 19990615 ACCESSION NUMBER: 0001042187-99-000006 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990614 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: 99645942 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 April 30, 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, 2,733,831 outstanding Shares and CLASS B COMMON STOCK, $.091 par value, 1,098,901 outstanding Shares, as of April 30, 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 April 30, 1999 and Balance Sheet as of October 31, 1998. 2. Interim Statements of Operations for the three and six month periods ending April 30, 1999 and April 30, 1998. 3. Interim Statements of Cash Flows for the sixth month periods ending April 30, 1999 and April 30, 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 During the second quarter of fiscal 1999 ended April 30, 1999, the Company had a net loss of $246,000 compared to net income for the same period in the prior year of $238,000. For the six month period ended April 30, 1999, the Company had a net loss of $185,000 compared to a net profit of $563,000 for the same period of 1998. The decline in income was the result principally of a decline in revenues from the sale of mylar balloons for the fiscal year to date compared to fiscal 1998 of approximately $1.3 million. Management believes the decline is the result of general industry conditions causing weakness in mylar balloon sales, including the bankruptcy reorganization of one principal party good retail chain and financial difficulties of another. Income of the Company was also affected by increases in depreciation expense arising from investment in machinery and equipment, and increases in interest costs arising from increased levels of borrowing. The Company's recent capital investments and its efforts have been directed to increasing its revenues from the sale of printed, laminated and specialty film products, and reducing the level of the Company's reliance on mylar balloon sales. 2 Results of Operations Net Sales. For the fiscal quarter ended April 30, 1999, net sales were $4,862,000, as compared to sales of $5,492,000 for the second quarter of 1998. The decline in sales is mainly due to a decrease in metallized balloon sales of $610,000. Net sales for the first six months of fiscal 1999 were $9,850,000, as compared to sales of $11,332,000 for the same period in 1998. The decline in metallized balloon sales was the primary reason for the decrease in overall sales. Cost of Sales. For the fiscal quarter ended April 30, 1999, cost of sales increased to 69.2% of net sales as compared to 58.9% of net sales in the second fiscal quarter of 1998. The increase was a result of lower production volumes and costs incurred in a new equipment project. Cost of goods sold were 65.4% of net sales for the first six months of fiscal 1999, as compared to 59.1% for the same period of 1998. Administrative. For the fiscal quarter ended April 30, 1999, administrative expenses were $557,000 or 11.5% of sales as compared to $697,000, or 12.7% of sales for the second fiscal quarter of 1998. For the first six months of fiscal 1999, administrative expenses were $1,089,000 or 11.1% of sales as compared to $1,223,000, or 10.8% of sales for the same period of 1998. The decreases were due to reduced phone expenses, lower legal costs, and reduced consulting fees. Selling. For the fiscal quarter ended April 30, 1999, selling expenses were $656,000 or 13.5% of sales, as compared to $708,000, or 12.9% of net sales for the second fiscal quarter of 1998. For the first six months of fiscal 1999, selling expenses were $1,301,000 or 13.2% of sales as compared to $1,449,000, or 12.8% of net sales for the same period of 1998. The decline in selling expense dollars is primarily related to the decline in sales volume and the selling expenses directly associated with those sales. Advertising and Marketing. For the fiscal quarter ended April 30, 1999, advertising and marketing expenses were $400,000 or 8.2% of net sales as compared to $462,000 or 8.4% of net sales in the second fiscal quarter of 1998. For the first six months of fiscal 1999, advertising and marketing expenses were $878,000 or 8.9% of sales as compared to $941,000, or 8.3% of net sales for the same period of 1998. The decrease in advertising and marketing expense dollars was primarily related to changes in programs for national accounts, resulting in lower servicing costs and rebates to customers. Other Income or Expense. Interest expense increased to $214,000 for the quarter ended April 30, 1999, as compared to $191,000 for the second fiscal quarter of 1998. Interest expense increased to $435,000 for the six months ended April 30, 1999, as compared to $368,000 for the second fiscal quarter of 1998. The increased interest expense is a result of increases in the level of both long term and short term borrowings. Net Income or Loss. For the fiscal quarter ended April 30, 1999, the Company had a loss of $238,000 as compared to income before taxes of $335,000 for the second fiscal quarter of 1998. The provision for income tax for the second quarter of fiscal 1999 was $8,000, resulting in a net loss of $246,000. The provision for income tax for the second quarter of fiscal 1998 was $98,000, resulting in net income of $238,000. For the six months ended April 30, 1999, the net loss was $185,000 as compared to a net profit of $563,000 for the first six months of fiscal 1998. 3 Financial Condition Liquidity and Capital Resources. Cash flow provided by operations during the six months ended April 30, 1999 was $1,494,000, which was affected by a decrease in inventory for the period of almost $1.4 million. During the first six months of 1998, cash flows used in operations was $2,437,000, mainly as a result of increased sales and resulting increases in accounts receivable and inventory. Investment Activities. During the six months ended April 30, 1999 and April 30, 1998, the Company invested $1,632,000 and $2,550,000, respectively, in machinery and equipment, and its Mexican supplier of latex balloons. Financing Activities. For the six months ended April 30, 1999, the Company generated $437,000 in financing activities, primarily as a result of proceeds from the issuance of long term debt. Cash flow provided by financing activities for the six months ended April 30, 1998 was $6,045,000 resulting primarily from the proceeds of the Company's initial public offering of its Common Stock in November 1997. At April 30, 1999, the Company maintained a cash balance of $518,000 . 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 April 30, 1999, the Company had working capital of $2,616,000, and at October 31, 1998, working capital was $3,313,000. 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. 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. 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) 4 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. Part II. OTHER INFORMATION Item 1. Legal Proceedings ----------------- Not applicable. Item 2. Changes in Securities --------------------- Not applicable 5 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. 6 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: June 14, 1999 CTI INDUSTRIES CORPORATION By: /s/ Stephen M. Merrick ---------------------------------------- Stephen M. Merrick, Chief Executive Officer and Principal Financial Officer 7 CTI Industries Corporation and Subsidiary Consolidated Balance Sheet as of April 30, 1999 and October 31, 1998
April 30, 1999 October 31, 1998 (Unaudited) (See note) ------------ ------------ ASSETS Current assets: Cash $ 518,043 $ 235,333 Accounts Receivable (less allowance for doubtful accounts of $80,206 and $132,211 at April 30, 1999 and October 31, 1998) 3,710,206 3,276,894 Inventories 6,144,921 7,641,381 Deferred tax assets 176,549 176,549 Other 1,257,721 1,089,058 ------------ ------------ Total current assets 11,807,440 12,419,215 Property and equipment: Machinery and equipment 7,070,309 6,812,069 Building 3,550,963 3,503,801 Office furniture and equipment 1,562,163 1,556,742 Land 535,000 535,000 Leasehold improvements 161,885 161,885 Fixtures and equipment at customer locations 2,031,919 1,907,358 Projects under construction 2,687,946 1,522,893 ------------ ------------ 17,600,185 15,999,748 Less : accumulated depreciation (8,322,608) (7,674,299) ------------ ------------ Total property and equipment, net 9,277,577 8,325,449 Other assets: Deferred financing costs, net 36,774 44,383 Investment in joint venture 78,158 77,975 Invesment in subsidiary 936,237 879,800 Note receivable 715,422 715,422 Deferred tax assets 391,377 391,377 ------------ ------------ Total other assets 2,157,968 2,108,957 ------------ ------------ TOTAL ASSETS $ 23,242,985 $ 22,853,621 ============ ============
See accompanying notes 8 CTI Industries Corporation and Subsidiary Consolidated Balance Sheet as of April 30, 1999 and October 31, 1998
April 30, 1999 October 31, 1998 (Unaudited) (See note) ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,663,937 $ 3,070,545 Line of credit 4,109,002 4,178,246 Notes payable - current portion 817,526 817,569 Accrued liabilities 1,600,947 1,039,742 ------------ ------------ Total current liabiliites 9,191,412 9,106,102 Long-term liabilities: Notes payable 5,789,855 5,280,692 Subordinated debt 865,000 865,000 ------------ ------------ Total long-term liabilities 6,654,855 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 (April 30, 1999 and October 31, 1998) shares issued, and 2,733,831 (April 30, 1999) and 2,735,831 (October 31, 1998) shares outstanding 188,434 188,434 Class B common stock - $.91 par value, 1,100,000 shares authorized, 1,098,901 shares outstanding at April 30, 1999 and October 31, 1998 1,000,000 1,000,000 Paid-in-capital 5,554,332 5,554,332 Retained earnings 1,115,945 1,301,134 Foreign currency translation adjustment 9,125 26,377 Less: Treasury stock - 165,149 shares at cost at April 30, 1999 and 163,149 shares at cost at October 31, 1998 (409,962) (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 6,983,312 7,188,421 ------------ ------------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 23,242,985 $ 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 9 CTI Industries Corporation and Subsidiary Consolidated Statement of Operations
Quarter Ended April 30 Year to Date April 30 1999 1998 1999 1998 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ------------ ------------ ------------ ------------ Net Sales $ 4,861,980 $ 5,492,346 $ 9,850,282 $ 11,331,580 Cost of Sales 3,362,868 3,233,488 6,439,671 6,694,577 ------------ ------------ ------------ ------------ Gross profit on sales 1,499,112 2,258,858 3,410,611 4,637,003 Operating expenses: Administrative 556,693 697,324 1,089,058 1,223,306 Selling 656,357 708,165 1,301,485 1,448,724 Advertising and marketing 399,682 462,452 877,579 941,148 ------------ ------------ ------------ ------------ Total operating expenses 1,612,732 1,867,941 3,268,122 3,613,178 ------------ ------------ ------------ ------------ Income (loss) from operations (113,622) 390,917 142,489 1,023,825 Other income (expense): Interest expense (214,315) (191,178) (434,957) (368,336) Interest income 23,007 40,759 45,425 91,577 Other 67,284 94,977 83,076 120,369 ------------ ------------ ------------ ------------ Total other expense (124,024) (55,442) (306,456) (156,390) ------------ ------------ ------------ ------------ Income (loss) before income taxes (237,646) 335,475 (163,967) 867,435 Income tax expense 7,954 97,500 21,221 304,200 ------------ ------------ ------------ ------------ Net income (loss) $ (245,600) $ 237,975 $ (185,188) $ 563,235 ============ ============ ============ ============ Basic income (loss) per common and common equivalent shares $ (0.06) $ 0.06 $ (0.05) $ 0.15 ============ ============ ============ ============ Diluted income (loss) per common and common equivalent shares $ (0.06) $ 0.06 $ (0.05) $ 0.14 ============ ============ ============ ============ Weighted average number of shares and equivalent shares of common stock outstanding Basic 3,834,421 3,832,297 3,834,576 3,765,284 ============ ============ ============ ============ Diluted 3,834,421 4,178,167 3,834,576 4,126,660 ============ ============ ============ ============
See accompanying notes 10 CTI Industries Corporation and Subsidiary Consolidated Statement of Cash Flows
For the six months ended April 30 1999 1998 (Unaudited) (Unaudited) ----------- ----------- Cash Flow Provided by Operations: Net income (loss) $ (185,188) $ 563,235 Adjustment to net income: Depreciation and amortization 655,917 432,308 Equity in earnings of P&TF and CTF (25,505) (50,456) Provision for losses on A/R & inventory 142,459 111,255 Change in assets and liabilities: Change in accounts receivable (470,209) (1,265,610) Change in inventory 1,390,898 (1,907,548) Change in other assets (168,662) 241,307 Change in accounts payable & accrued expenses 154,597 (561,111) ----------- ----------- Total Cash Flow Provided (Used) by Operations 1,494,307 (2,436,620) Cash Flow Provided by Investing Activities: Purchases of property and equipment (1,600,437) (1,198,730) Investment in and advances to P&TF (31,115) (1,350,000) Investment in joint venture -- (1,529) ----------- ----------- Total Cash Flow Used by Investing Activities (1,631,552) (2,550,259) Cash Flow Provided by Financing Activities: Stock redemption contract payments -- (30,533) Advances on line of credit 9,110,000 9,460,000 Repayments on line of credit (9,179,244) (9,180,657) Proceeds from issuance of long term debt 822,489 10,630 Proceeds from issuance of short term debt -- 850,000 Repayment of long term debt (313,370) (383,423) Proceeds from issuance of common stock -- 5,401,883 Purchase of treasury stock (2,668) (18,639) Dividends paid -- (63,917) ----------- ----------- Total Cash Flow Provided by Financing Activities 437,207 6,045,344 Effect of exchange rate changes on cash (17,252) (4,342) ----------- ----------- Increase (Decrease) in Cash and Equivalents 282,710 1,054,123 Cash and Equivalents at Beginning of Period 235,333 237,230 ----------- ----------- Cash and Equivalents at End of Period $ 518,043 $ 1,291,353 =========== ===========
See accompanying notes 11 April 30, 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 six-month period ended April 30, 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 April 30, 1999 and 1998 was computed as follows: 12 CTI Industries Corporation and Subsidiary
Quarter Ended April 30 Year to Date April 30 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Basic Average shares outstanding: Weighted average number of shares of common stock outstanding during the period 3,834,421 3,832,297 3,834,576 3,765,284 =========== =========== =========== =========== Net income: Net income (loss) $ (245,600) $ 237,975 $ (185,188) $ 563,235 =========== =========== =========== =========== Amount for per share computation $ (245,600) $ 237,975 $ (185,188) $ 563,235 =========== =========== =========== =========== Per share amount $ (0.06) $ 0.06 $ (0.05) $ 0.15 =========== =========== =========== =========== Diluted Average shares outstanding: Weighted average number of shares of common stock outstanding during the period 3,834,421 3,832,297 3,834,576 3,765,284 Net additional shares assuming stock options and warrants exercised and proceeds used to purchase treasury stock -- 345,870 -- 361,376 ----------- ----------- ----------- ----------- Weighted average number of shares and equivalent shares of common stock outstanding during the period 3,920,182 4,178,167 3,945,516 4,126,660 =========== =========== =========== =========== Net income: Net income (loss) $ (245,600) $ 237,975 $ (185,188) $ 563,235 =========== =========== =========== =========== Amount for per share computation $ (245,600) $ 237,975 $ (185,188) $ 563,235 =========== =========== =========== =========== Per share amount $ (0.06) $ 0.06 $ (0.05) $ 0.14 =========== =========== =========== =========== Basic and diluted loss per share are the same for the quarter ended April 30, 1999 and the six months ended April 30, 1999 since the shares associated with options and warrants are not included because they are anti-dilutive.
13 EX-27 2 FDS -- FORM 10-QSB
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB. 0001042187 CTI Industries Corporation 1,000 dollars 6-mos OCT-31-1999 NOV-01-1998 APR-30-1999 1.000 518 0 3,790 80 6,145 11,807 17,600 8,323 23,243 9,191 0 0 0 188 6,795 23,243 9,850 9,850 6,440 6,440 3,139 0 435 (164) 21 (185) 0 0 0 (185) (.05) (.05)
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