-----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, F9FVxShq2yn8eR+aYZr0a2ds+D+U8pfFe88dGaUl/bcFPey4po9CyzJVMTuJkJ1y SmNQTqg9b3+tEv47xIoLoQ== 0001057056-00-000013.txt : 20000322 0001057056-00-000013.hdr.sgml : 20000322 ACCESSION NUMBER: 0001057056-00-000013 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000131 FILED AS OF DATE: 20000321 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: 574562 BUSINESS ADDRESS: STREET 1: 22160 N PEPPER RD CITY: BARRINGTON STATE: IL ZIP: 60010 MAIL ADDRESS: STREET 1: 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, 2000 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, $.195 par value, 789,736 outstanding Shares and CLASS B COMMON STOCK, $2.73 par value, 366,300 outstanding Shares, as of January 31, 2000. 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, 2000 and Balance Sheet as of October 31, 1999. 2. Interim Statements of Operations for the three month periods ending January 31, 2000, and January 31, 1999. 3. Interim Statements of Cash Flows for the three month periods ending January 31, 2000 and January 31, 1999. 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 first fiscal quarter ended January 31, 2000, net sales were $7,013,000, as compared to sales of $4,988,000 for the first quarter of 1999, an increase of 40.6%. Sales increased over all product lines - mylar balloons, latex balloons and laminated and printed films. Net sales grew $1,100,000 in the laminations and printed films product line. Latex balloon sales also increased due to the acquisition of an additional equity interest in Pulidos et Terminados Finos, S.A. de C.V., a manufacturer of latex balloons ("PTF"). Cost of Sales. For the fiscal quarter ended January 31, 2000, cost of sales increased to 67.8% of net sales as compared to 61.7% of net sales in the first fiscal quarter of 1999. The increase was primarily the result of consolidating the results of PTF's operations which currently operate with a higher cost of goods sold percentage than domestic operations. Administrative. For the fiscal quarter ended January 31, 2000, administrative expenses were $928,000 or 13.2% of sales as compared to $532,000, or 10.7% of sales for the first quarter of 1999. The primary increase in administrative expenses came from the acquisition of PTF. Beginning in January 2000, PTF's administrative expenses have been reduced and management plans to continue reducing expenses during the remainder of the current fiscal year. Domestically, administrative expenses increased due to costs associated with the reverse stock split, effective in November 1999, and consulting fees incurred in a corporate wide project to improve cost accounting procedures. Selling. For the fiscal quarter ended January 31, 2000, selling expenses were $549,000 or 7.8% of sales, as compared to $645,0000, or 12.9% of net sales for the first fiscal quarter of 1999. The decline in selling expense 2 dollars is primarily related to the re-negotiation of certain licensing agreements, which has resulted in a reduction in royalty expenses in the current fiscal year. Advertising and Marketing. For the fiscal quarter ended January 31, 2000, advertising and marketing expenses were $332,000 or 4.7% of net sales as compared to $478,000 or 9.6% of net sales in the first quarter of 1999. The decrease in advertising and marketing expense dollars was the result of several factors, mainly reduced servicing costs on several national account programs, and reduced expenditures related to the Company's attendance at fewer trade shows. Other Income or Expense. Interest expense increased to $341,000 for the quarter ended January 31, 2000, as compared to $221,000 for the first fiscal quarter of 1999. The increased was due to the consolidation of PTF, whose interest expense totalled $114,000 for the first quarter. During the quarter ended January 31, 2000, the Company sold its building located next to its headquarters in Barrington, IL for a gain of $300,000, and entered into an agreement to lease back the facility. Net Income or Loss. For the fiscal quarter ended January 31, 2000, the Company had income before taxes of $442,000 as compared to income before taxes of $74,000 for the first fiscal quarter of 1999. The provision for income taxes for the first fiscal quarter of 2000 was $179,000, resulting in net income of $263,000. The tax provision for the first fiscal quarter of 1999 was $13,000, resulting in net income of $60,000. Financial Condition Liquidity and Capital Resources. Cash flow used in operations during the three months ended January 31, 2000 was $299,000, which was due to increasing accounts receivable driven by increased sales volume. During the first three months of 1999, cash flow provided by operations was $642,000, mainly the result of non-cash depreciation expense and lower inventory levels. Investment Activities. During the three months ended January 31, 2000, cash flow provided by investing activities was $1,664,000. The cash inflow was provided by the proceeds from the sale of the building located next to the Company's headquarters. Investments in machinery and equipment were $232,000 for the first quarter of 2000. In the first three months of fiscal 1999, $1,354,000 was used in investing activities, primarily for the purchase of machinery and equipment. Financing Activities. For the three months ended January 31, 2000, the Company used $1,504,000 in financing activities, primarily to pay off the long-term mortgage loan that existed on the building which was sold. Cash flow provided by financing activities for the three months ended January 31, 1999 was $798,000, resulting from the proceeds of long-term debt and use of the short-term revolving line of credit. At January 31, 2000, the Company had a cash balance of $154,000. The Company's current cash management strategy includes maintaining minimal cash balances and utilizing the revolving line of credit for liquidity. At October 31, 1999, the Company had cash and cash equivalents of $337,000. At January 31, 2000, the Company had working capital of ($539,000), and at October 31, 1999, working capital was $630,000. 3 The Company believes that existing capital resources and cash generated from operations will be sufficient to meet the Company's cash 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) 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; 4 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. 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* No. --- Statement re: Computation of Per Share Earnings 11 (b) The Company has not filed a Current Report on Form 8-K 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 21, 2000 CTI INDUSTRIES CORPORATION By: /s/ Howard W. Schwan ---------------------- Howard W. Schwan, President 6 CTI Industries Corporation and Subsidiaries Consolidated Balance Sheet as of January 31, 2000 and October 31, 1999 January 31, 2000 October 31, 1999 (Unaudited) (See note) ------------ ------------ ASSETS Current assets: Cash $ 154,161 $ 336,832 Accounts receivable (less allowance for doubtful accounts of $235,170 and $186,251 at January 31, 2000 and October 31, 1999) 6,155,258 3,225,802 Inventories 6,109,164 5,425,769 Deferred tax assets 208,926 208,926 Other 562,859 754,303 ------------ ------------ Total current assets 13,190,368 9,951,632 Property and equipment: Machinery and equipment 13,088,308 9,752,302 Building 2,363,744 3,643,675 Office furniture and equipment 1,588,707 1,588,382 Land 250,000 535,000 Leasehold improvements 161,885 161,885 Fixtures and equipment at customer locations 2,031,919 2,031,919 Projects under construction 347,826 391,719 ------------ ------------ 19,832,389 18,104,882 Less : accumulated depreciation (9,504,578) (9,048,413) ------------ ------------ Total property and equipment, net 10,327,811 9,056,469 Other assets: Deferred financing costs, net 25,361 29,165 Goodwill associated with acquisition of PTF 635,386 -- Invesment in subsidiary -- 809,773 Note receivable -- 715,422 Deferred tax assets 766,000 766,000 Other assets 298,357 110,526 ------------ ------------ Total other assets 1,725,104 2,430,886 ------------ ------------ TOTAL ASSETS $ 25,243,283 $ 21,438,987 ============ ============ See accompanying notes 7 CTI Industries Corporation and Subsidiaries Consolidated Balance Sheet as of January 31, 2000 and October 31, 1999 January 31, 2000 October 31, 1999 (Unaudited) (See note) ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,398,386 $ 2,980,500 Line of credit 4,016,316 3,574,023 Notes payable - current portion 956,916 1,367,070 Accrued liabilities 3,357,883 1,399,689 ------------ ------------ Total current liabiliites 13,729,501 9,321,282 Long-term liabilities: Other liabilities 92,107 15,928 Notes payable 4,090,803 5,534,876 Subordinated debt 835,000 865,000 ------------ ------------ Total long-term liabilities 5,017,910 6,415,804 Redeemable common stock 413,406 413,406 Minority interest 571,046 -- Stockholders' equity: Common stock - $.195 par value, 5,000,000 shares authorized, 966,327 shares issued, 841,644 (January 31, 2000) and 870,944 (October 31, 1999) shares outstanding 188,434 188,434 Class B Common stock - $2.73 par value, 500,000 shares authorized, 366,300 shares issued and outstanding 1,000,000 1,000,000 Paid-in-capital 5,554,332 5,554,332 Retained earnings (deficit) (218,251) (481,136) Accumulated other comprehensive earnings 36,851 14,548 Less: Treasury stock - 124,683 (January 31, 2000) and 95,383 (October 31, 1999) shares (575,384) (513,121) 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 5,511,420 5,288,495 ------------ ------------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 25,243,283 $ 21,438,987 ============ ============ Note: The balance sheet at October 31, 1999 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 Subsidiaries Consolidated Statements of Operations Quarter Ended January 31 2000 1999 (Unaudited) (Unaudited) ----------- ----------- Net Sales $ 7,013,024 $ 4,988,302 Cost of Sales 4,756,244 3,076,803 ----------- ----------- Gross profit on sales 2,256,780 1,911,499 Operating expenses: Administrative 928,285 532,364 Selling 549,400 645,127 Advertising and marketing 332,138 477,897 ----------- ----------- Total operating expenses 1,809,823 1,655,388 ----------- ----------- Income from operations 446,957 256,111 Other income (expense): Interest expense (340,775) (220,642) Interest income 5,776 22,418 Gain on sale of assets 300,467 -- Other 27,765 15,792 ----------- ----------- Total other expense (6,767) (182,432) ----------- ----------- Income before income taxes and minority interest 440,190 73,679 Income tax expense 179,430 13,267 ----------- ----------- Income before minority interest 260,760 60,412 Minority interest in (loss) of subsidiary (2,125) -- ----------- ----------- Net income $ 262,885 $ 60,412 =========== =========== Income applicable to common shares $ 262,885 $ 60,412 =========== =========== Basic income per common and common equivalent shares $ 0.22 $ 0.05 =========== =========== Diluted income per common and common equivalent shares $ 0.21 $ 0.05 =========== =========== Weighted average number of shares and equivalent shares of common stock outstanding: Basic 1,217,681 1,278,244 =========== =========== Diluted 1,251,377 1,320,332 =========== =========== 9 CTI Industries Corporation and Subsidiaries Consolidated Statements of Cash Flows
For the quarter ended January 31 2000 1999 (Unaudited) (Unaudited) ----------- ----------- Cash flows from operating activities: Net income $ 262,885 $ 60,412 Adjustment to reconcile net income to cash provided by (used in) operating activities: Depreciation and amortization 396,924 317,349 Equity in loss of subsidiary and joint venture -- 3,467 Minority interest in loss of subsidiary (2,125) -- Gain on sale of fixed assets (300,467) -- Provision for losses on accounts receivable & inventory 49,143 99,116 Change in assets and liabilities: Accounts receivable (2,301,194) (801,030) Inventory (205,576) 334,500 Other assets 543,266 (66,329) Accounts payable and accrued expenses 1,258,556 694,736 ----------- ----------- Net cash provided by (used in) operating activities (298,588) 642,221 Cash flows from investing activities: Proceeds from sale of property and equipment 1,841,984 -- Purchases of property and equipment (232,388) (1,340,193) Investment in and advances to PTF -- (14,240) Cash acquired in acquisition of PTF 54,029 -- ----------- ----------- Net cash provided by (used in) investing acitivites 1,663,625 (1,354,433) Cash flows from financing activities: Advances on line of credit 4,700,720 4,215,000 Repayments on line of credit (4,258,427) (3,992,141) Proceeds from issuance of long-term debt -- 695,367 Repayment of long-term debt (1,474,227) (120,668) Repayment of short-term debt (380,000) -- Repayment of subordinated debt (30,000) -- Purchase of treasury stock (62,263) -- ----------- ----------- Net cash provided by (used in) financing activities (1,504,197) 797,558 Effect of exchange rate changes on cash (43,511) (3,404) ----------- ----------- Net increase (decrease) in cash (182,671) 81,942 Cash and Equivalents at Beginning of Period 336,832 235,333 ----------- ----------- Cash and Equivalents at End of Period $ 154,161 $ 317,275 =========== ===========
See accompanying notes 10 January 31, 2000 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, 2000 are not necessarily indicative of the results that may be expected for the year ended October 31, 2000. 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, 1999. Note 2 - Stock Split On November 4, 1999, a one-for-three reverse stock split became effective. As a result of the reverse stock split, every three shares of the Company's Common Stock were reclassified and changed into one share of the Company's Common Stock with a new par value of $.195 per share, and every three shares of the Company's Class B Common Stock were reclassified and changed into one share of the Company's Class B Common Stock, with a new par value of $2.73 per share. Note 3 -- Warrants Issued In November 1999, warrants issued in 1997 to purchase up to 76,388 shares of the Company's Common Stock for $9.36 were cancelled. New warrants to purchase up to 423,579 shares of the Company's Common Stock at $1.688 were issued. The new warrants expire on November 9, 2004. Note 4 -- Acquisition of majority interest in PTF On November 12, 1999, the Company entered into an agreement to acquire additional shares of PTF Industrias S.A. de C.V., bringing the Company's Common Stock ownership to approximately 74%. The Company contributed to the capital of PTF certain outstanding indebtedness of PTF to the Company in the amount of 989,400, and certain equipment valued at $855,600, in exchange for capital stock of PTF. The acquisition resulted in the recording of goodwill in the amount of $621,395, which is being amortized over a period of 15 years. Note 5 - 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, 2000 and 1999 was computed as follows: 11 CTI Industries Corporation and Subsidiaries Quarter Ended January 31 2000 1999 ---------- ---------- Basic Average shares outstanding: Weighted average number of shares of common stock outstanding during the period 1,217,681 1,278,244 ========== ========== Net income: Net income $ 262,885 $ 60,412 Amount for per share computation $ 262,885 $ 60,412 ========== ========== Per share amount $ 0.22 $ 0.05 ========== ========== Diluted Average shares outstanding: Weighted average number of shares of common stock outstanding during the period 1,217,681 1,278,244 Net additional shares assuming stock options and warrants exercised and proceeds used to purchase treasury stock 33,696 42,088 ---------- ---------- Weighted average number of shares and equivalent shares of common stock outstanding during the period 1,251,377 1,320,332 ========== ========== Net income: Net income $ 262,885 $ 60,412 Amount for per share computation $ 262,885 $ 60,412 ========== ========== Per share amount $ 0.21 $ 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, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB. 0001042187 CTI Industries Corporation 1,000 dollars 3-mos OCT-31-2000 NOV-01-1999 JAN-31-2000 1.000 154 0 6,390 235 6,109 13,190 19,832 9,504 25,243 13,730 4,926 0 0 188 5,323 25,243 7,013 7,013 4,756 4,756 1,474 0 341 442 179 263 0 0 0 263 .22 .21
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