-----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, GeVPYBSc4kDzT28PqLrRQjBjxEcXhoFtHgUAFsaS+avmnhLmHHlc1T3wOQsw2TpJ tBdVtaYNx5HIta0H70IH9Q== 0001169232-03-006766.txt : 20031119 0001169232-03-006766.hdr.sgml : 20031119 20031119171340 ACCESSION NUMBER: 0001169232-03-006766 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CTI INDUSTRIES CORP CENTRAL INDEX KEY: 0001042187 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 362848943 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23115 FILM NUMBER: 031013612 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 10-Q 1 d57458_10q.txt FORM 10-Q 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 September 30, 2003 Commission File No. 000-23115 CTI INDUSTRIES CORPORATION (Exact name of registrant as specified in its charter) Illinois 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. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes | | No |x| APPLICABLE ONLY TO CORPORATE ISSUERS: COMMON STOCK, no par value, 1,918,420 outstanding Shares, as of September 30, 2003. 1 FORM 10-Q CTI INDUSTRIES CORPORATION PART I. FINANCIAL INFORMATION AND MANAGEMENT'S DISCUSSION AND ANALYSIS Item 1. Financial Statements The following financial statements of the Registrant are attached to this Form 10-Q: 1. Consolidated Balance Sheets as at September 30, 2003 (unaudited) and December 31, 2002 2. Unaudited Condensed Consolidated Statements of Operations - Three and Nine Month Periods Ended September 30, 2003 and September 30, 2002 3. Unaudited Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2003 and September 30, 2002 The Financial Statements reflect all adjustments which are, in the opinion of management, necessary for 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 September 30, 2003, net sales were $8,429,000, compared to net sales of $10,873,000 for the three months ended September 30, 2002, a decline of 22.5%. For the quarter, (i) net sales of laminated and printed films declined from $ 5,828,000 in the third quarter of 2002 to $5,033,000 in the third quarter of 2003, (ii) net sales of metalized balloons declined from $ 3,621,000 in the third quarter of 2002 to $ 2,574,000 in the third quarter of 2003 and (iii) net sales of latex balloons decreased from $1,283,000 in the third quarter of 2002 to $511,000 in the third quarter of 2003. In the quarter, other net sales of approximately $311,000 included sales of helium and artwork and films. During the quarter ended September 30, 2003, sales of laminated and printed films represented 59.7% of total sales, metalized balloons 30.5% of total sales and latex balloons 6.1% of total sales. For the same period of the prior year, laminated and printed films represented 53.6% of total sales, metalized balloons 33.3% and latex balloons 11.8%. The decrease in sales for the third quarter is attributable principally to (i) a decline in sales to a principal customer for completed film products from $2,496,000 in the third quarter of 2002 to $1,878,000 in the third 2 quarter of 2003 and (ii) a decline in sales to a principal customer for laminated film from $1,465,000 in the third quarter 2002 to $1,240,000 in the third quarter 2003 and (iii) a decline in sales to a principal customer of metalized balloons from $642,000 in the third quarter 2002 to $253,000 in the third quarter 2003. For the nine months ended September 30, 2003, net sales were $27,253,000 compared to net sales of $31,517,000 for the nine months ended September 30, 2002, a decline of 13.5%. For the nine months, (i) net sales of laminated and printed films declined from $16,309,000 in the nine months ended September 30, 2002 to $13,535,000 in the nine months ended September 30, 2003, (ii) net sales of metalized balloons decreased from $10,464,000 in the nine months ended September, 2002 to $9,852,000 in the nine months ended September 30, 2003 and (iii) net sales of latex balloons decreased from $3,908,000 in the nine months ended September 30, 2002 to $2,705,000 in the nine months ended September 30, 2003. Other sales during the quarters ended September 30, 2003 and 2002 (principally helium, accessories and artwork and films) were approximately $1,161,000 and $836,000, respectively. During the nine month period ended September 30, 2003, sales of laminated and printed films represented 49.7% of total sales, metalized balloons 36.1% of total sales and latex balloons 9.9% of total sales. For the same period of the prior year, laminated and printed films represented 51.8% of total sales, metalized balloons 33.2% and latex balloons 12.4%. The decrease in sales over the nine month period is attributable principally to (i) a decline in sales to a customer for a completed film product from $10,306,000 for the nine months ended September 30, 2002, to $7,922,000 for the nine months ended September 30, 2003, and (ii) a decline in sales to a customer for laminated film from $5,799,000 in the first nine months of 2002 to $4,105,000 in the first nine months of 2003. During the first nine months of 2003, there were two customers whose purchases represented more than 10% of the Company's sales during the period, (i) one customer of laminated film products whose purchases totaled $3,244,000, or 11.9% of total sales for the nine month period and (ii) a customer for a completed film product whose purchases totaled $7,922,000, or 29.1% of total Company sales for the nine month period. For the same period last year, these customers represented 18.4% and 32.7%, respectively. Cost of Sales. For the fiscal quarter ended September 30, 2003, cost of sales increased to 78.9% of net sales as compared to 75.3% of net sales in the three month period ended September 30, 2002. For the nine month period ended September 30, 2003, costs of sales increased to 79.4% compared to 75.1% for the same period in 2002. This increase was the result principally of increased production overhead expenses during the period, resulting in increased unit costs over prior periods, as well as lower margin sales to a significant customer for foil balloons and lower pricing in the sale of foil balloons to other customers. Administrative. For the fiscal quarter ended September 30, 2003, administrative expenses were $749,000, or 8.9% of net sales as compared to $1,169,000, or 10.7% of net sales for the three month period ended September 30, 2002. For the first nine months of 2003, administrative expenses were $2,971,000, or 10.9% of net sales for the period as compared to $3,253,000, or 10.3% of net sales for the same period in 2002. The decrease is attributable to a reduction in personnel, consulting and audit expenses. Selling. For the fiscal quarter ended September 30, 2003, selling expenses were $414,000, or 4.9% of net sales, as compared to $408,000, or 3.8% of net sales, for the three month period ended September 30, 2002. For the first nine months of 2003, selling expenses were 1,033,000, or 3.8% of net sales for the period, compared to $1,158,000 or 3.7% of net sales for the same period in 2002. There has been no significant change in selling expenses over these periods. 3 Advertising and Marketing. For the quarter ended September 30, 2003, advertising and marketing expenses were $391,000, or 4.6% of net sales as compared to $459,000, or 4.2% of net sales in the three month period ended September 30, 2002. For the nine months ended September 30, 2003, advertising and marketing expenses were 1,640,000 or 6% of net sales for the period, compared to $1,293,000 or 4.1% of net sales for the same period in 2002. The increase, which primarily occurred in the 1st and 2nd quarters of 2003, is attributable principally to (i) increases in artwork and film expenses, (ii) increases in salaries, trade show expense and catalogue expense and (iii) reclassification of customer service expenses to this category from selling expense. Other Income or Expense. Interest expense increased to $301,000 for the quarter ended September 30, 2003, as compared to $220,000 for the quarter ended September 30, 2002. For the nine months ended September 30, 2003, interest expense was $777,000 compared to $605,000 for the same period in 2002. The increase in interest expense is attributable to the increase in total borrowings by the Company during the period. During the three month period ended September 30, 2003, subsidiaries of the Company, principally the Mexico subsidiaries, Flexo Universal, S.A. de C.V. and CTI Mexico S.A. de C.V. experienced gain with respect to currency fluctuation, in the amount of $14,000, compared to a loss for the same period of 2002 of $52,000. For the nine months ended September 30, 2003, the gain from currency fluctuation was $2,000 compared to a loss in the same period of 2002 of $266,000. Net Income or Loss. For the fiscal quarter ended September 30, 2003, the Company had a net loss before taxes and minority interest of $97,000 as compared to net income before taxes and minority interest of $415,000 for the second quarter of 2002. Income tax benefit for the third quarter of fiscal 2003 was $226,000, resulting in net income of $129,000. The income tax expense for the three month period ended September 30, 2002 was $27,000, resulting in net income after minority interest of $388,000. For the nine months ended September 30, 2003, the Company had a net loss before provision for income taxes or minority interest of $749,000, compared to net income in the same period of 2002 of $1,211,000. Income tax benefit for the nine months ended September 30, 2003, was $322,000, resulting in a net loss for the period of $428,000. For the nine months ended September 30, 2002, income tax expense was $325,000, and net income for the period was $886,000. The change in net income for the nine months ended September 30, 2003 compared to the same period of 2002 is attributable to several principal factors: (i) a reduction in net sales of almost $4.3 million from the level of net sales for the same period of 2002, (ii) the Company experienced lower margins overall in sales with the result that gross profit on sales was reduced by $2,228,000 to $5,618,000 for the nine months ended September 30, 2003, from $7,846,000 for the same period in 2002; (iii) the lower gross margin rate was attributable to increased production overhead expenses incurred particularly during the first quarter, as well as sales of metalized balloons at lower pricing to a major customer and (iv) production and sales in Mexico were reduced in March and April, 2003 as a result of the move of equipment and operations to a new facility, and additional costs were incurred in that move. Also, during the first quarter of 2003, the Company continued to experience costs associated with (i) the installation and set-up of new equipment and (ii) the development and implementation of a foil balloon program for a significant customer. During the second and third quarters of 2003, management has acted to reduce production overhead and administration expenses and plans to further reduce these expenses to improve margins. 4 Liquidity and Capital Resources Cash Flow Items. Cash flow generated from operations during the nine months ended September 30, 2003 was $2,755,000, compared to cash flow generated in operations for the same period of 2002 of $1,531,000. Cash flow was affected positively by a reduction in accounts payable over the nine months of $1,809,000 and an increase in inventory and certain other assets of $143,000. Cash flow was affected positively by a decrease in receivables during the period of $377,000. In the third quarter, the Company, in agreement with select vendors, converted $3,571,000 of accounts payable to notes payable with terms up to 24 months and a weighted average interest rate of 7.5%. Investment Activities. Cash used in investing activities during the nine months ended September 30, 2003 was $1,503,000 compared to $1,095,000 for the same period in 2002. The cash used in investing activities is attributable principally to the acquisition of property and equipment, much of which had previously been in the process of acquisition or completion and accounted for as projects under construction. Liquidity During the nine months ended September 30, 2003, the Company incurred net losses and utilized cash in its operating activities. As of September 30, 2003, the Company has a working capital deficiency of $2,968,000. The Company depends on its line of credit, including a term loan and revolving line of credit, with its principal lender for liquidity. This line of credit expires on January 12, 2004. For the year ending December 31, 2004, management anticipates improvement in cash flows from operating activities and is working to obtain alternative financing to replace its existing line of credit. However, there is no assurance that losses will not continue or that alternative financing will be obtained. If such anticipated events do not materialize, the Company may have to seek additional debt or equity financing to enable the Company to continue operations in their present form and to execute the Company's business plan. Financing Activities. During the nine months ended September 30, 2003, cash generated from financing activities was $2,361,000 compared to cash used in financing activities for the same period in 2002 of $333,000. In February, 2003, two officers of the Company loaned an aggregate of $1,630,000 to the Company in exchange for (i) two year promissory notes bearing interest at 9% per annum and (ii) five year warrants to purchase up to 163,000 shares of Common Stock of the Company at $4.87 per share, the market price of the Common Stock on the date of the issuance of the Warrants. The proceeds of these loans were to (i) re-finance the bank loan in the amount of $880,000 to CTI Mexico, S.A. de C.V., the 98% owned Mexico subsidiary of the Company and (ii) to provide financing for CTI Mexico and Flexo Universal, S.A de C.V., also a Mexico subsidiary of the Company. In the second and third quarters of 2003, an officer of the Company loaned to the Company an aggregate amount of $820,000. Such amount is due on demand and bears interest at the rate of 8% per annum. During the third quarter, an officer of the Company loaned to Flexo the sum of $100,000 under a promissory note providing for an interest rate of 8% per annum and payments at the rate of $5,000 per week. On April 24, 2003, the Company entered into a Secured Promissory Note in the principal amount of $2,912,000 and a First Modification to Mortgage with a Bank, under which the Secured Promissory Note is secured by the principal property of the Corporation in Barrington, Illinois. Under the Secured Promissory Note (i) the principal amount of the loan bears interest at the rate of 6.25% per annum and (ii) the Company is obligated to make payments 59 monthly payments of $19,209 each and to pay the balance then due on May 5, 2008. This Secured Promissory Note paid and superseded mortgage notes of the Company dated January, 2001 which had an initial principal balance of $2,873,000 and a balance as of April 24, 2003 of $2,638,000. After payment of the principal balance of those notes, prepayment penalties and loan expenses, the Company received net proceeds under the Secured Promissory Note of $231,000. Liquidity and Capital Resources. At September 30, 2003, the Company had a cash balance of $191,000. The Company employs a cash management strategy of maintaining minimal cash balances and utilizing its revolving line of credit for liquidity. 5 As of September 30, 2003, the Company had a working capital deficiency of $2,968,000, compared to a deficit working capital of $2,907,000 as of December 31, 2002. During the first quarter of 2003, $2,300,000 of term debt with the Company's primary lender was reclassified from long-term debt to short-term debt, as the term of the loan facility expires on January 12, 2004. The effect of reclassification of this debt was partially offset by the issuance of the previously described $1,630,000 of two year promissory notes. Under the terms of the loan agreement with the Company's primary lender, the loan facility expires on January 12, 2004, and the lender has given notice to the Company that the loan facility will terminate on that date. While the lender has advised the Company that it may grant limited extensions of the loan after January 12, 2004, if the Company is unable to obtain alternative financing, the Company may be unable to pay the balance which will then be due to the lender and its ability to continue operations may be adversely affected. Management of the Company is engaged in efforts to obtain alternative financing. The Company has received a commitment from one lending institution for a five-year term loan in the principal amount of $3 million and has also received a non-binding proposal from another lending institution for a line of credit, including a term loan and revolving loan, in the aggregate amount of $11 million. There can be no assurance that the Company will be able to complete a transaction for new financing which will provide adequate funds for the continued operation on terms acceptable to the Company, or at all. Seasonality. In the metalized balloon product line, sales have historically been seasonal, with approximately 22% to 25% of annual sales of metalized balloons being generated in December and January and 11% to 13% of annual metalized sales being generated in September and July in recent years. The sale of latex balloons and laminated film products have not historically been seasonal. As sales of latex balloons and laminated film products have increased in relation to sales of metalized balloons, the effect of this seasonality has been reduced Critical Accounting Policies A summary of our critical accounting policies and estimates is presented on pages 19 and 20 of our 2002 Annual Report on Form 10-K filed with the Securities and Exchange Commission. There have been no changes to such policies during the nine month period ending September 30, 2003. 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 metalized 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 6 (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 2003 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 obligate to update or revise these forward-looking statements to reflect new events or circumstances. Item 3. Quantitative and Qualitative Disclosures of Market Risk The Company does not have long term obligations bearing interest at variable rates which would create any material market risk for the Company. The Company, or subsidiaries of the Company, may from time to time have outstanding obligations denominated in a currency other than that of the principal office of the Company or such subsidiary. However, the amount of market risk arising from such obligations is not material. The Company and its subsidiaries are exposed to market risk in changes of commodity prices in some of the raw materials they purchase for their manufacturing needs , particularly nylon film, resin and latex. However, the risk involved would not have a material effect on the Company's results of operations or financial condition. 7 Item 4. Controls and Procedures (a) Evaluation of disclosure controls and procedures. Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within ninety days before the filing date of this report, have concluded that, as of such date our disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company. (b) Changes in internal controls. There were no significant changes in our internal controls or in other factors that could significantly affect the Company's disclosure controls and procedures subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in the Company's internal controls. As a result, no corrective actions were required or undertaken. Part II. OTHER INFORMATION Item 1. Legal Proceedings On September 5, 2002, Byrne Sales Associates, Inc. filed an action against the Company for breach of contract in the Circuit Court of Jefferson County, Wisconsin claiming as damages the amount of $150,805. In the action, the plaintiff alleged that certain products manufactured by the Company to the plaintiff were defective. The action was dismissed in May, 2003. On September 5, 2003, Airgas, Inc., Airgas-Southwest, Inc., Airgas-South, Inc. and Airgas-East, Inc. filed a joint action against the Company for claimed breach of contract in the Circuit Court of Lake County, Illinois claiming as damages the aggregate amount of $162,242. The Company has filed an answer denying the material claims of the complaint, affirmative defenses and a counterclaim. In the action, these plaintiffs claim that the Company owes to them certain sums for (i) helium sold and delivered, (ii) rental with respect to helium tanks and (iii) replacement charges for tanks claimed to have been lost. The Company intends vigorously to defend this action and to pursue its counterclaim. On June 3, 2003, Spectra Color Corporation filed an action against the Company for breach of contract in the Circuit Court of Lake County, Illinois, claiming as damages the amount of $87,447 for goods and services sold and delivered. The Company has filed an answer to the complaint in this action denying the material claims of the complaint. In addition, the Company, and one or more of its subsidiaries, is also a party to certain lawsuits arising in the normal course of business. The ultimate outcome of these matters is unknown but, in the opinion of management, the settlement of these matters is not expected to have a significant effect on the future financial position or results of operations of the Company. 8 Item 2. Changes in Securities During February and March, 2003, two officers of the Company loaned an aggregate of $1,630,000 to the Company in exchange for (i) two year promissory notes bearing interest at 9% per annum and (ii) five year warrants to purchase up to 163,000 shares of Common Stock of the Company at $4.87 per share, the market price of the Common Stock of the Company on the date of the Warrants. These Warrants were issued to the two officers of the Company in a private placement which was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, as a transaction not involving a public offering as all participants are sophisticated investors who have full access to information about the Company and have purchased the Warrants for investment and not with a view to the sale or distribution thereof. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders At our Annual Meeting of Shareholders on September 5, 2003, the following actions were submitted and approved by vote of the shareholders: (1) Election of six directors, and (2) Ratification of the Board's election of Eisner, LLP as our independent certified public accountants. A total of 1,541,029 shares (approximately 80%) of the issued and outstanding shares of the Company were represented by proxy or in person at the meeting. These shares were voted on the matters described above as follows: 1. For the directors as follows: Number of Shares Name Number of Shares For Abstaining/Withheld Michael P. Avramovich 1,541,029 0 Stanley M. Brown 1,538,054 2,975 Stephen M. Merrick 1,533,293 7,736 Howard W. Schwan 1,533,293 7,736 John H. Schwan 1,533,293 7,736 Bret Tayne 1,538,054 2,975 2. For the ratification of the Board's selection of Eisner, LLP as the independent certified public accountants of the Company as follows: 9 Number of Shares Number of Shares For Number of Shares Against Abstaining/Withheld 1,541,029 0 0 Item 5. Other Information The Certifications of the Chief Executive Officer and the Chief Financial Officer of Registrant Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are attached as Exhibits to this Report on Form 10-Q. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits* Exhibit No. Description ----------- ----------- 11 Statement re: Computation of Per Share Earnings 31.1 Sarbanes-Oxley Act Section 302 Certifications for Howard W. Schwan 31.2 Sarbanes-Oxley Act Section 302 Certifications for Stephen M. Merrick 32.1 Sarbanes-Oxley Act Section 906 Certification for Stephen M. Merrick, Chief Financial Officer 32.2 Sarbanes-Oxley Act Section 906 Certification for Howard W. Schwan, Chief Executive Officer (b) On July 29, 2003, the Company filed a report on Form 8-K disclosing that the Company had terminated its auditors and has retained new auditors. (c) On August 20, 2003, the Company filed a report on Form 8-K regarding its financial results for the Second Fiscal Quarter of 2003. *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. 10 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: November 19, 2003 CTI INDUSTRIES CORPORATION By: /s/ Howard W. Schwan ---------------------------- Howard W. Schwan, President By: /s/ Stephen M. Merrick ---------------------------- Stephen M. Merrick Executive Vice President and Chief Financial Officer 11 CTI Industries Corporation and Subsidiaries Condensed Consolidated Balance Sheets
September 30, 2003 December 31, 2002 ------------------ ----------------- ASSETS (Unaudited) (Audited) Current assets: Cash $ 190,783 $ 160,493 Accounts receivable, (less allowance for doubtful accounts of $237 and $222,220 respectively) 4,962,966 5,384,839 Inventories 10,042,058 10,033,593 Deferred tax assets 414,957 247,780 Prepaid expenses and other current assets 778,154 310,995 ------------ ------------ Total current assets 16,388,918 16,137,700 Property and equipment: Machinery and equipment 18,400,604 16,221,259 Building 2,677,107 2,636,595 Office furniture and equipment 1,839,441 1,746,480 Land 250,000 250,000 Leasehold improvements 735,293 388,655 Fixtures and equipment at customer locations 2,232,285 2,306,807 Projects under construction 497,100 2,331,981 ------------ ------------ 26,631,830 25,881,777 Less : accumulated depreciation (14,401,198) (14,166,764) ------------ ------------ Total property and equipment, net 12,230,632 11,715,013 Other assets: Deferred financing costs, net 49,240 51,747 Goodwill 1,113,108 1,113,108 Deferred tax assets 768,359 441,592 Other assets 270,575 812,698 ------------ ------------ Total other assets 2,201,283 2,419,145 ------------ ------------ TOTAL ASSETS 30,820,832 30,271,858 ============ ============ See accompanying notes to condensed consolidated unaudited statements LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Checks written in excess of bank balance 195,462 113,460 Accounts payable 6,852,110 9,580,823 Line of credit 3,441,973 5,642,649 Notes payable - current portion 5,314,041 1,742,658 Notes payable - officers 920,000 0 Accrued liabilities 2,833,904 1,965,561 ------------ ------------ Total current liabilities 19,557,491 19,045,151 Long-term liabilities: Other liabilities 1,070,589 710,257 Notes payable 3,082,492 5,016,109 Notes payable - officers 1,630,000 0 ------------ ------------ Total long-term liabilities 5,783,081 5,726,366 Minority interest 10,046 25,865 Stockholders' equity: Common stock - no par value, 5,000,000 shares authorized, 2,150,216 and 2,141,882 shares issued, 1,918,420 and 1,910,080 shares outstanding respectively 3,764,020 3,748,270 Class B Common stock - no par value, 500,000 shares authorized, 0 shares issued and outstanding 0 0 Paid-in-capital 5,554,332 5,554,332 Warrants issued in connection with subordinated debt and bank 595,174 135,462 Accumulated deficit (3,390,687) (2,962,816) Accumulated other comprehensive earnings (113,511) (6,002) Less: Treasury stock - 231,796 shares (939,114) (939,114) Notes receivable from stockholders 0 (56,456) ------------ ------------ Total stockholders' equity 5,470,214 5,474,476 ------------ ------------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 30,820,832 $ 30,271,858 ============ ============
See accompanying notes to condensed consolidated unaudited statements Condensed Consolidated Statements of Operations (Unaudited)
Quarter ended September 30, Year to Date September 30, 2003 2002 09/30/03 09/30/02 (as restated) (as restated) ---------- ----------- ----------- ----------- Net Sales $8,428,784 $10,873,147 $27,253,217 $31,516,993 Cost of Sales 6,653,397 8,187,960 21,634,749 23,671,322 ---------- ----------- ----------- ----------- Gross profit on sales 1,775,387 2,685,187 5,618,469 7,845,671 Operating expenses: Administrative 749,014 1,168,651 2,970,514 3,252,729 Litigation settlements expense -- -- -- 105,000 Selling 414,031 408,221 1,033,402 1,158,387 Advertising and marketing 390,750 458,704 1,640,281 1,292,915 ---------- ----------- ----------- ----------- Total operating expenses 1,553,795 2,035,576 5,644,197 5,809,031 ---------- ----------- ----------- ----------- Income from operations 221,592 649,611 (25,729) 2,036,640 Other income (expense): Interest expense (301,323) (220,446) (776,766) (604,690) Interest income 1,393 830 3,001 1,475 Gain (loss) on sale of assets 464 (980) 15,488 (31,743) Foreign currency gain (loss) 13,792 (51,813) 2,084 (265,685) Other (32,897) 37,575 32,584 74,792 ---------- ----------- ----------- ----------- Total other income (expense) (318,572) (234,834) (723,609) (825,851) ---------- ----------- ----------- ----------- (Loss) Income before income taxes and minority interest (96,981) 414,777 (749,337) 1,210,789 Income tax (benefit) expense (226,341) 26,639 (321,766) 324,849 ---------- ----------- ----------- ----------- Income (loss) before minority interest 129,361 388,138 (427,571) 885,940 Minority interest in income (loss) of subsidiary 621 1,180 300 (4,975) ---------- ----------- ----------- ----------- Net income (loss) $ 128,740 $ 386,958 $ (427,871) $ 890,915 ========== =========== =========== =========== Income (loss) applicable to common shares $ 128,740 $ 386,958 $ (427,871) $ 890,915 ========== =========== =========== =========== Basic income (loss) per common share $ 0.07 $ 0.25 $ (0.22) $ 0.68 ========== =========== =========== =========== Diluted income (loss) per common share $ 0.06 $ 0.22 $ (0.22) $ 0.60 ========== =========== =========== =========== Weighted average number of shares and equivalent shares of common stock outstanding: Basic 1,918,420 1,557,010 1,918,206 1,319,620 ========== =========== =========== =========== Diluted 1,996,734 1,742,259 1,918,206 1,473,679 ========== =========== =========== ===========
See accompanying notes to condensed consolidated unaudited statements CTI Industries Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Nine Month Period Ended September 30, 2003 September 30, 2002 (as restated) -------------------------------------------------- Cash flows from operating activities: Net (loss) income $ (427,871) $ 890,915 Adjustment to reconcile net (loss) income to cash (used in) provided by operating activities: Depreciation and amortization 1,160,823 1,105,700 Deferred gain on sale/leaseback (17,527) (22,534) Amortization of Debt Discount 119,606 20,625 Minority interest in loss of subsidiary 300 (4,975) Provision for losses on accounts receivable & inventory 180,000 225,000 Deferred income taxes (303,501) 283,754 Change in assets and liabilities: Accounts receivable 376,876 (754,179) Inventory (143,467) (2,198,461) Other assets 231 (602,972) Accounts payable and accrued expenses 1,809,262 2,588,529 -------------------------------------------------- Net cash (used in) provided by operating activities 2,754,732 1,531,402 Cash flows from investing activities: Purchases of property plant and equipment (1,502,848) (1,094,850) -------------------------------------------------- Net cash (used in) investing activities (1,502,848) (1,094,850) Cash flows from financing activities: Checks written in excess of bank balance 82,002 555,875 Net change in revolving line of credit (1,771,182) (580,400) Proceeds from issuance of long-term debt 2,801,813 0 Proceeds from issuance of notes due to officers 2,550,000 0 Repayment of long-term debt (4,870,919) (308,320) Collection of Stockholder Note 56,456 0 Proceeds from debt to equity swap 15,750 0 Cash paid for deferred finance fees (73,931) 0 -------------------------------------------------- Net cash provided by (used in) financing activities 1,210,011 (332,845) Effect of exchange rate changes on cash (11,583) 29,482 -------------------------------------------------- Net increase in cash 30,290 133,189 Cash and Equivalents at Beginning of Period 160,493 110,488 -------------------------------------------------- Cash and Equivalents at End of Period $ 190,783 $ 243,677 ================================================== Supplemental non-cash investing and financing activities: Issuance of stock for subordinated debt $ -- $ 715,000 Long-term debt incurred for the purchase of equipment $ -- 1,840,819 Note payable incurred to purchase 21.8% of minority interest in CTI Mexico S.A. de C.V. $ -- 150,000 Accounts payable converted to notes payable $ 3,571,000 $ --
See accompanying notes to condensed consolidated unaudited statements September 30, 2003 CTI Industries Corporation and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements Note 1 - Basis of Presentation The accompanying financial statements are unaudited but in the opinion of management contain all the adjustments (consisting of those of a normal recurring nature) considered to present fairly the financial position and the results of operations and cash flow for the periods presented in conformity with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Operating results for the nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the fiscal year ended December 31, 2002. Principles of consolidation and nature of operations: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, CTI Balloons Limited and CTF International S.A. de C.V., as well as its majority owned subsidiaries CTI Mexico S.A. de C.V., and Flexo Universal, S.A. de C.V. All significant intercompany transactions and accounts have been eliminated in consolidation. The Company (i) designs, manufactures and distributes balloon products throughout the world and (ii) operates systems for the production, lamination, coating and printing of films used for food packaging and other commercial uses and for conversion of films to flexible packaging containers and other products. Note 2 - Liquidity During the nine months ended September 30, 2003, the Company incurred net losses and utilized cash in its operating activities. As of September 30, 2003, the Company has a working capital deficiency of $2,968,000. The Company depends on its line of credit, including a term loan and revolving line of credit, with its principal lender for liquidity. This line of credit expires on January 12, 2004. For the year ending December 31, 2004, management anticipates improvement in cash flows from operating activities and is working to obtain alternative financing to replace its existing line of credit. However, there is no assurance that losses will not continue or that alternative financing will be obtained. If such anticipated events do not materialize, the Company may have to seek additional debt or equity financing to enable the Company to continue operations in their present form and to execute the Company's business plan. Note 3 - Restatement The Unaudited Condensed Consolidated Statement of Operations for the Three and Nine Month Periods ended September 30, 2002 incorporate a restatement of the results of operations for such periods. The restatement for those periods relates to the amortization of the discount on notes payable resulting from the value assigned to warrants to purchase common stock that were issued during 1999 and 2001 that had not previously been reflected. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and use assumptions that affect certain reported amounts and disclosures. Actual results may differ from those estimates. Stock-Based Compensation At September 30, 2003, the Company had four stock-based compensation plans. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations. The Company recognizes compensation cost for stock-based compensation awards equal to the difference between the quoted market price of the stock at the date of grant or award and the price to be paid by the employee upon exercise in accordance with the provisions of APB No. 25. Based upon the terms of Company's current stock option plans, the stock price on the date of grant and price paid upon exercise are the same. Accordingly, no stock-based employee compensation cost has been recognized, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. No stock options were granted during the nine months ended September 30, 2003. Historically, the Company's option awards have vested at date of grant. Accordingly, had the Company applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-based Compensation," there is no pro forma effect on net income to disclose in periods with no option awards. Reclassification Certain items in the financial statements for the three and nine months ended September 30, 2002 have been reclassified to be consistent with the presentation shown for the three and nine months ended September 30, 2003, involving the reclassification of customer service expenses from selling expense to advertising and marketing expense. Note 4 - Legal Proceedings On September 5, 2002, Byrne Sales Associates, Inc. filed an action against the Company for breach of contract in the Circuit Court of Jefferson County, Wisconsin claiming as damages the amount of $150,805. The action was dismissed in May, 2003. On September 5, 2003, Airgas, Inc., Airgas-Southwest, Inc., Airgas-South, Inc. and Airgas-East, Inc. filed a joint action against the Company for claimed breach of contract in the Circuit Court of Lake County, Illinois claiming as damages the aggregate amount of $162,242. The Company has filed an answer denying the material claims of the complaint, affirmative defenses and a counterclaim. In the action, these plaintiffs claim that the Company owes to them certain sums for (i) helium sold and delivered, (ii) rental with respect to helium tanks and (iii) replacement charges for tanks claimed to have been lost. The Company intends vigorously to defend this action and to pursue its counterclaim. On June 3, 2003, Spectra Color Corporation filed an action against the Company for breach of contract in the Circuit Court of Lake County, Illinois, claiming as damages the amount of $87,447 for goods and services sold and delivered. The Company has filed an answer to the complaint in this action denying the material claims of the complaint. In addition, the Company and its subsidiaries are party to certain lawsuits arising in the normal course of business. The ultimate outcome of these matters is unknown but, in the opinion of management, the settlement of these matters is not expected to have a significant effect on the future financial position or results of operations of the Company. Note 5 - Comprehensive Income Total Comprehensive Income (loss) was (235,000) for the three months ended September 30, 2003 and was $416,000 for the three months ended September 30, 2002. Note 6 - Inventories September 30, 2003 (unaudited) December 31,2002 ------------------ ---------------- Raw material and work in process 2,259,877 $4,001,374 Finished goods 8,206,716 6,386,719 ---------- ---------- Inventory, Gross 10,466,593 10,388,093 Less: Inventory Reserves (424,535) (354,500) ---------- ---------- Inventories 10,042,058 $10,033,593 ========== =========== Note 7 - Geographic Segment Data The Company has determined that it operates primarily in one business segment which designs, manufactures, and distributes film products for use in packaging and novelty balloon products. The Company operates in foreign and domestic regions. Information about the Company's operations by geographic areas is as follows. Net Sales to External Customers Total Assets at For the Nine Months Ended September 30, September 30 December 31 ------------ ----------- 2003 2002 2003 2002 ---- ---- ---- ---- United States $23,590,000 $28,857,000 $27,080,000 $26,311,000 Mexico 1,833,000 1,991,000 5,518,000 4,983,000 United Kingdom 1,830,000 669,000 1,514,000 980,000 Eliminations (3,590,000) (2,002,000) ----------- ----------- ----------- ----------- $27,253,000 $31,517,000 $30,821,000 $30,272,000 =========== =========== =========== =========== Note 8 - Concentration of Credit Risk The Company performs ongoing credit evaluations and provides an allowance for potential credit losses against the portion of accounts receivable which is estimated to be un-collectable. Such losses have historically been within management's expectations. For the 9 months ended September 30, 2003, the Company had two customers that accounted for approximately $ 7,922,000, 29.1% and 3,244,000, 11.9%, respectively, of consolidated net sales. Note 9 - CTI Mexico Transactions Effective February 23, 2003, the Company's 98% owned subsidiary, CTI Mexico, effected a spin-off under Mexican law under which certain of its assets, liabilities and equity were transferred to a newly formed corporation, Calidad Empresarial Mexicana, S.A. de C.V. ("Calidad"), having the same shareholders as CTI Mexico. Effective on April 10, 2003, Calidad was merged into Flexo Universal, S.A. de C.V. ("Flexo"), then a wholly-owned subsidiary of the Company (which had not previously engaged in any operations). In the merger, all of the assets and certain liabilities of Calidad were acquired by Flexo. As a result of the merger, the Company now owns 98% of the capital stock of Flexo. Note 10 - Warrants and Shareholder Debt In February, 2003, two officers of the Company loaned an aggregate of $1,630,000 to the Company in exchange for (i) two year promissory notes bearing interest at 9% per annum and (ii) five year warrants to purchase up to 163,000 shares of Common Stock of the Company at $4.87 per share, the market price of the Common Stock on the date of the issuance of the Warrants. As a result of valuing the warrants and allocating a portion of the proceeds to the warrants, the Company recorded additional paid-in capital attributable to the warrants of $459,712 and a related discount on the promissory notes of the same amount. The note is recorded at March 31, 2003, net of unamortized discount of $454,335. The proceeds of these loans were to (i) refinance the bank loan in the amount of $880,000 to CTI Mexico, S.A. de C.V., the 98% owned Mexican subsidiary of the Company and (ii) to provide financing for CTI Mexico and Flexo Universal , S.A. de C.V., also a Mexico subsidiary of the Company. During the second and third quarter of 2003, an officer of the Company loaned to the Company an aggregate amount of $ 820,000. Such amount is due on demand and bears interest at the rate of 8% per annum. During the third quarter of 2003, an officer of the Company loaned to Flexo Universal the sum of $100,000 under a promissory note providing for interest at a rate of 8% per annum and payments at the rate of $5,000 per week. CTI Industries Corporation and Subsidiaries Consolidated Earnings per Share (Unaudited)
Quarter ended September 30 Year to Date September 30 2003 2002 2003 2002 ---------- ----------- ----------- ----------- Basic Average shares outstanding: Weighted average number of shares of common stock outstanding during the period 1,918,420 1,557,010 1,918,206 1,319,620 ========= ========= ========== ========== Net income (Loss): Net income (loss) $ 128,740 $ 386,958 $ (427,871) $ 890,915 ========= ========= ========== ========== Amount for per share computation $ 128,740 $ 386,958 $ (427,871) $ 890,915 ========= ========= ========== ========== Per share amount $ 0.07 $ 0.25 $ (0.22) $ 0.68 ========= ========= ========== ========== Diluted Average shares outstanding: Weighted average number of shares of common stock outstanding during the period 1,918,420 1,557,010 1,918,206 1,319,620 Net additional shares assuming stock options and warrants exercised and proceeds used to purchase treasury stock(1) 78,314 185,249 154,059 --------- --------- ---------- ---------- Weighted average number of shares and equivalent shares of common stock outstanding during the period 1,996,734 1,742,259 1,918,206 1,473,679 ========= ========= ========== ========== Net income: Net income (loss) $ 128,740 $ 386,958 $ (427,871) $ 890,915 ========= ========= ========== ========== Amount for per share computation $ 128,740 $ 386,958 $ (427,871) $ 890,915 ========= ========= ========== ========== Per share amount $ 0.06 $ 0.22 $ (0.22) $ 0.60 ========= ========= ========== ==========
See accompanying notes to condensed consolidated unaudited statements (1) For the nine months ended September 30, 2003, potential additional shares, in the amount of 239,567 shares were excluded from the calculation of diluted earnings per share because it would have been anti-dilutive. EX-31.1 3 d57458_ex31-1.txt EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Howard W. Schwan, President and Chief Executive Officer of CTI Industries Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of CTI Industries Corporation. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 19, 2003 /s/ Howard W. Schwan ------------------------------------- Howard W. Schwan President and Chief Executive Officer EX-31.2 4 d57458_ex31-2.txt EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Stephen M. Merrick, Executive Vice President and Chief Financial Officer of CTI Industries Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of CTI Industries Corporation. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 19, 2003 /s/ Stephen M. Merrick ---------------------------- Stephen M. Merrick Executive Vice President and Chief Financial Officer EX-32.1 5 d57458_ex32-1.txt EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of CTI Industries Corporation (the "Company") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stephen M. Merrick, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Stephen M. Merrick - ----------------------- Stephen M. Merrick Chief Financial Officer EX-32.2 6 d57458_ex32-2.txt EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of CTI Industries Corporation (the "Company") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Howard W. Schwan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (3) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (4) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Howard W. Schwan - ----------------------- Howard W. Schwan Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----