-----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, MREg4jWDHo6p8CyLbX+ZiaoBWVtmHkfGVvzqb5+7k1vws5qmh3AoBQmc7i6qUUDq w/vAt1Y7NvTPZOtEhYQhXw== 0001042187-99-000011.txt : 19990921 0001042187-99-000011.hdr.sgml : 19990921 ACCESSION NUMBER: 0001042187-99-000011 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990920 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CTI INDUSTRIES CORP CENTRAL INDEX KEY: 0001042187 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS MANUFACTURING INDUSTRIES [3990] IRS NUMBER: 362848943 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-23115 FILM NUMBER: 99713778 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 July 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, 2,699,831 outstanding Shares and CLASS B COMMON STOCK, $.91 par value, 1,098,901 outstanding Shares, as of July 31, 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 July 31, 1999 and Balance Sheet as of October 31, 1998. 2. Interim Statements of Operations for the three and nine month periods ending July 31, 1999 and July 31, 1998. 3. Interim Statements of Cash Flows for the nine month periods ending July 31, 1999 and July 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 During the third quarter of fiscal 1999 ended July 31, 1999, the Company had a net loss of $457,000 compared to net income for the same period in the prior year of $115,000. For the nine month period ended July 31, 1999, the Company had a net loss of $792,000 compared to a net profit of $679,000 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 $2 million. Management believes the decline is the result of general industry conditions causing weakness in mylar balloon sales. 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. Results of Operations Net Sales. For the fiscal quarter ended July 31, 1999, net sales were $3,899,000, as compared to sales of $4,382,000 for the third quarter of 1998. The decline in sales is mainly due to a decrease in metallized balloon sales of 15%. Net sales for the first nine months of fiscal 1999 were $13,750,000, as compared to sales of $15,714,000 for the same period in 1998. The decline in metallized balloon sales was the primary reason for the decrease in overall sales, however, sales of printed, laminated and specialty film products have increased 14% in the current fiscal year. 2 Cost of Sales. For the fiscal quarter ended July 31, 1999, cost of sales increased to 80.9% of net sales as compared to 52.6% of net sales in the third 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 71.5% of net sales for the first nine months of fiscal 1999, as compared to 57.2% for the same period of 1998. Administrative. For the fiscal quarter ended July 31, 1999, administrative expenses were $565,000 or 14.5% of sales as compared to $654,000, or 14.9% of sales for the third fiscal quarter of 1998. For the first nine months of fiscal 1999, administrative expenses were $1,654,000 or 12.0% of sales as compared to $1,877,000, or 11.9% of sales for the same period of 1998. Lower telephone costs and legal expenses contributed to the reduction in administrative expenses. Selling. For the fiscal quarter ended July 31, 1999, selling expenses were $600,000 or 15.3% of sales, as compared to $635,000, or 14.5% of net sales for the third fiscal quarter of 1998. For the first nine months of fiscal 1999, selling expenses were $1,902,000 or 13.8% of sales as compared to $2,083,000, or 13.2% 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 July 31, 1999, advertising and marketing expenses were $331,000 or 8.5% of net sales as compared to $463,000 or 10.6% of net sales in the third fiscal quarter of 1998. For the first nine months of fiscal 1999, advertising and marketing expenses were $1,209,000 or 8.8% of sales as compared to $1,404,000, or 8.9% 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. Other Income or Expense. Interest expense increased to $249,000 for the quarter ended July 31, 1999, as compared to $194,000 for the third fiscal quarter of 1998. Interest expense increased to $684,000 for the nine months ended July 31, 1999, as compared to $562,000 for the same period in fiscal 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 July 31, 1999, the Company had a loss before tax of $894,000 as compared to income before taxes of $162,000 for the third fiscal quarter of 1998. The provision for income tax for the third quarter of fiscal 1999 was $(436,000), resulting in a net loss of $457,000. The provision for income tax for the third quarter of fiscal 1998 was $47,000, resulting in net income of $115,000. For the nine months ended July 31, 1999, the net loss was $792,000 as compared to a net profit of $679,000 for the first nine months of fiscal 1998. 3 Financial Condition Liquidity and Capital Resources. Cash flow provided by operations during the nine months ended July 31, 1999 was $1,955,000, which was affected by a decrease in inventory for the period of $1,560,000. During the first nine months of 1998, cash flows used in operations was $2,477,000, mainly as a result of increased sales and resulting increases in accounts receivable and inventory. Investment Activities. During the nine months ended July 31, 1999 and July 31, 1998, the Company invested $2,052,000 and $3,358,000, respectively, in machinery and equipment, and its Mexican supplier of latex balloons. Financing Activities. For the nine months ended July 31, 1999, the Company generated $283,000 in financing activities, primarily as a result of proceeds from the issuance of long term and short term debt. Cash flow provided by financing activities for the nine months ended July 31, 1998 was $6,389,000 resulting primarily from the proceeds of the Company's initial public offering of its Common Stock in November 1997. At July 31, 1999, the Company maintained a cash balance of $404,000. 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 July 31, 1999, the Company had working capital of $2,000,000, 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. 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. 4 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* 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: September 20, 1999 CTI INDUSTRIES CORPORATION By: /s/ Howard W. Schwan ----------------------------- Howard W. Schwan, President 6 CTI Industries Corporation and Subsidiary Consolidated Balance Sheet as of July 31, 1999 and October 31, 1998
July 31, 1999 October 31, 1998 (Unaudited) (See note) ----------------- ----------------- ASSETS Current assets: Cash $ 404,445 $ 235,333 Accounts Receivable (less allowance for doubtful accounts of $101,356 and $132,211 at July 31, 1999 and October 31, 1998) 2,938,841 3,276,894 Inventories 6,077,608 7,641,381 Deferred tax assets 176,549 176,549 Other 1,567,662 1,089,058 ----------------- ----------------- Total current assets 11,165,105 12,419,215 Property and equipment: Machinery and equipment 9,648,423 6,812,069 Building 3,564,125 3,503,801 Office furniture and equipment 1,578,030 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 465,534 1,522,893 ----------------- ----------------- 17,984,916 15,999,748 Less : accumulated depreciation (8,700,175) (7,674,299) ----------------- ----------------- Total property and equipment, net 9,284,741 8,325,449 Other assets: Deferred financing costs, net 32,970 44,383 Investment in joint venture - 77,975 Invesment in subsidiary 920,162 879,800 Note receivable 715,422 715,422 Deferred tax assets 391,377 391,377 Non-current assets 102,895 - ----------------- ----------------- Total other assets 2,162,826 2,108,957 ----------------- ----------------- TOTAL ASSETS $ 22,612,672 $ 22,853,621 ================= =================
See accompanying notes 7 CTI Industries Corporation and Subsidiary Consolidated Balance Sheet as of July 31, 1999 and October 31, 1998
July 31, 1999 October 31, 1998 (Unaudited) (See note) ----------------- ----------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,147,612 $ 3,070,545 Line of credit 3,361,390 4,178,246 Notes payable - current portion 1,426,360 817,569 Accrued liabilities 1,229,729 1,039,742 ----------------- ----------------- Total current liabiliites 9,165,091 9,106,102 Long-term liabilities: Non-current liabilities 17,398 - Notes payable 5,811,583 5,280,692 Subordinated debt 865,000 865,000 ----------------- ----------------- Total long-term liabilities 6,693,981 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 (July 31, 1999 and October 31, 1998) shares issued, and 2,699,831 (July 31, 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 July 31, 1999 and October 31, 1998 1,000,000 1,000,000 Paid-in-capital 5,554,332 5,554,332 Retained earnings 508,814 1,301,134 Foreign currency translation adjustment 10,163 26,377 Less: Treasury stock - 199,149 shares at cost at July 31, 1999 and 163,149 shares at cost at October 31, 1998 (446,987) (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 6,340,194 7,188,421 ----------------- ----------------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 22,612,672 $ 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
Quarter Ended July 31 Year to Date July 31 1999 1998 1999 1998 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ---------------- ---------------- --------------- ----------------- Net Sales $ 3,899,451 $ 4,382,322 $13,749,733 $ 15,713,903 Cost of Sales 3,155,029 2,306,868 9,836,235 9,001,445 ---------------- ---------------- --------------- ----------------- Gross profit on sales 744,422 2,075,454 3,913,498 6,712,458 Operating expenses: Administrative 565,367 654,174 1,654,426 1,877,480 Selling 600,065 634,743 1,901,549 2,083,467 Advertising and marketing 331,288 462,716 1,208,867 1,403,864 ---------------- ---------------- --------------- ----------------- Total operating expenses 1,496,720 1,751,633 4,764,842 5,364,811 ---------------- ---------------- --------------- ----------------- Income (loss) from operations (752,298) 323,821 (851,344) 1,347,647 Other income (expense): Interest expense (248,603) (193,561) (683,560) (561,897) Interest income 20,752 32,924 66,177 124,501 Other 86,472 (952) 169,548 119,417 ---------------- ---------------- --------------- ----------------- Total other expense (141,379) (161,589) (447,835) (317,979) ---------------- ---------------- --------------- ----------------- Income (loss) before income taxes (893,677) 162,232 (1,299,179) 1,029,668 Income tax expense (436,298) 46,800 (506,860) 351,000 ---------------- ---------------- --------------- ----------------- Net income (loss) $ (457,379) $ 115,432 $ (792,319) $ 678,668 ================ ================ =============== ================= Basic income (loss) per common and common equivalent shares $ (0.12) $ 0.03 $ (0.21) $ 0.18 ================ ================ =============== ================= Diluted income (loss) per common and common equivalent shares $ (0.12) $ 0.03 $ (0.21) $ 0.16 ================ ================ =============== ================= Weighted average number of shares and equivalent shares of common stock outstanding Basic 3,820,843 3,825,954 3,829,999 3,785,523 ================ ================ =============== ================= Diluted 3,820,843 4,110,965 3,829,999 4,124,527 ================ ================ =============== =================
See accompanying notes 9 CTI Industries Corporation and Subsidiary Consolidated Statement of Cash Flows
For the nine months ended July 31 1999 1998 (Unaudited) (Unaudited) ---------------------------------------- Cash Flow Provided by Operations: Net income (loss) $ (792,319) $ 678,669 Adjustment to net income: Depreciation and amortization 1,029,620 688,790 Equity in earnings of P&TF and CTF 4,970 6,188 Provision for losses on A/R & inventory 205,589 207,500 Change in assets and liabilities: Change in accounts receivable 286,855 (81,610) Change in inventory 1,560,887 (3,846,766) Change in other assets (402,309) 166,978 Change in accounts payable & accrued expenses 61,251 (296,620) ----------------- ----------------- Total Cash Flow Provided (Used) by Operations 1,954,544 (2,476,871) Cash Flow Provided by Investing Activities: Purchases of property and equipment (1,932,811) (1,999,220) Investment in and advances to P&TF (45,515) (1,350,000) Investment in joint venture - (8,747) Acquisition of CTF International (74,024) - ----------------- ----------------- Total Cash Flow Used by Investing Activities (2,052,350) (3,357,967) Cash Flow Provided by Financing Activities: Stock redemption contract payments - (30,533) Advances on line of credit 13,090,000 14,380,000 Repayments on line of credit (13,906,856) (14,213,846) Proceeds from issuance of long term debt 1,187,281 2,344,959 Proceeds from issuance of short term debt 570,000 850,000 Repayment of long term debt (617,600) (1,413,866) Repayment of short term debt - (850,000) Proceeds from issuance of common stock - 5,401,883 Proceeds from warrants exercised - 17,650 Purchase of treasury stock (39,693) (33,349) Dividends paid - (63,917) ----------------- ----------------- Total Cash Flow Provided by Financing Activities 283,132 6,388,981 Effect of exchange rate changes on cash (16,214) (27,041) ----------------- ----------------- Increase (Decrease) in Cash and Equivalents 169,112 527,102 Cash and Equivalents at Beginning of Period 235,333 237,230 ----------------- ----------------- Cash and Equivalents at End of Period $ 404,445 $ 764,332 ================= =================
See accompanying notes 10 July 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 nine-month period ended July 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 - Acquisition In July 1999, the Company acquired the remaining 50% of CTF International for $74,024. The effect on revenues, income before income taxes, net income and earnings per share for the period ended July 31, 1999 was insignificant. Note 3 - 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 July 31, 1999 and 1998 was computed as follows: 11 CTI Industries Corporation and Subsidiary
Quarter Ended July 31 Year to Date July 31 1999 1998 1999 1998 -------------------------------- -------------------------------- Basic Average shares outstanding: Weighted average number of shares of common stock outstanding during the period 3,820,843 3,825,954 3,829,999 3,785,523 ============== ============== ============== =============== Net income (loss): Net income (loss) $ (457,379) $ 115,432 $ (792,319) $ 678,669 Amount for per share computation $ (457,379) $ 115,432 $ (792,319) $ 678,669 ============== ============== ============== =============== Per share amount $ (0.12) $ 0.03 $ (0.21) $ 0.18 ============== ============== ============== =============== Diluted Average shares outstanding: Weighted average number of shares of common stock outstanding during the period 3,820,843 3,825,954 3,829,999 3,785,523 Net additional shares assuming stock options and warrants exercised and proceeds used to purchase treasury stock - 285,011 - 339,004 -------------- -------------- -------------- --------------- Weighted average number of shares and equivalent shares of common stock outstanding during the period 3,820,843 4,110,965 3,829,999 4,124,527 ============== ============== ============== =============== Net income (loss): Net income (loss) $ (457,379) $ 115,432 $ (792,319) $ 678,669 Amount for per share computation $ (457,379) $ 115,432 $ (792,319) $ 678,669 ============== ============== ============== =============== Per share amount $ (0.12) $ 0.03 $ (0.21) $ 0.16 ============== ============== ============== ===============
Basic and diluted loss per share are the same for the quarter ended July 31, 1999, and the nine months ended July 31, 1999, since the shares associated with options and warrants are not included because they are anti-dilutive. 12 EX-27 2 FDS -- FORM 10-QSB
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED JULY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB. 0001042187 CTI Industries Corporation 1,000 dollars 9-mos OCT-31-1999 NOV-01-1998 JUL-31-1999 1.000 404 0 3,040 101 6,077 11,165 17,985 8,700 22,613 9,165 6,694 0 0 188 6,152 22,613 13,750 13,750 9,836 9,836 4,529 0 684 (1,299) (507) (792) 0 0 0 (792) (.21) (.21)
-----END PRIVACY-ENHANCED MESSAGE-----