-----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, H4qWN4CjJz2T1gkExsDgq9Vej7BTNAo1m1ZxKj4giMzCr+80cz7xq1yBR1s3K0Ra 18NO3a2NWXVa9cmaqmjl8Q== 0001169232-04-002997.txt : 20040517 0001169232-04-002997.hdr.sgml : 20040517 20040517165440 ACCESSION NUMBER: 0001169232-04-002997 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040517 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: 04813229 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 d59693_10-q.txt FORM 10-Q 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 March 31, 2004 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 March 31, 2004. PART I. FINANCIAL INFORMATION Item 1. Financial Statements The following consolidated financial statements of the Registrant are attached to this Form 10-Q: 1. Interim Balance Sheet as at March 31, 2004 (unaudited) and December 31, 2003; 2. Interim Statements of Operations (unaudited) for the three months ended March 31, 2004 and March 31, 2003; 3. Interim Statements of Cash Flows (unaudited) for the three months ended March 31, 2004 and March 31, 2003. 4. Notes to Consolidated Financial Statements 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 March 31, 2004, net sales were $10,894,000 compared to net sales of $10,162,000 for the three months ended March 31, 2003, an increase of 7.2%. For the quarters ended March 31, 2004 and 2003, net revenues by product category were as follows: For the Three Month Period Ended March 31, 2004 March 31, 2003 -------------- -------------- Laminated and Printed Films $3,674,000 $4,187,000 Metalized Balloons $4,931,000 4,712,000 Latex Balloons $1,685,000 992,000 Other $ 604,000 271,000 During the quarter ended March 31, 2004, sales of laminated and printed films represented 33.7% of total sales, metalized balloons 45.3% of total sales and latex balloons 15.5% of total sales other sales consisting primarily of helium products and accessories represented 5.5% of sales. For the same period of the prior year, laminated and printed films represented 41.2% of total sales, metalized balloons 46.4% latex balloons 9.8%, and other sales 2.7%, consisting primarily of helium products for which we act as a broker for the Eckerd and Walgreen Drug Store chains. Those sales were approximately $479,000. 2 The decrease in sales of laminated and printed product in the first quarter of 2004 is the result principally of a decrease in sales to a significant customer. Sales to that customer for the first quarter of 2004 were $1,245,000 (or 11.4% of total sales for the quarter) compared to sales to such customer of $2,593,000 (or 25.5% of total sales for the quarter) in 2003. During the first quarter of 2004, there were two other customers whose purchases represented more than 10% of the Company's sales during the quarter: (i) one customer of laminated film products whose purchases totaled $1,978,000 or 18.2% of total sales for the quarter, and (ii) a customer of metalized balloons whose purchases totaled $1,142,000 or 10.5% of total Company sales for the quarter. Cost of Sales. For the fiscal quarter ended March 31, 2004, cost of sales decreased to 80.3% of net sales as compared to 80.9% of net sales in the three month period ended March 31, 2003. This decrease was primarily the result of a reduction in overhead expense. Administrative. For the fiscal quarter ended March 31, 2004, administrative expenses were $989,000, or 9.1% of net sales as compared to $1,259,000, or 12.4% of net sales for the three month period ended March 31, 2003. This decrease is attributable to decreases in audit expense and salary expense. Selling. For the fiscal quarter ended March 31, 2004, selling expenses were $390,000, or 3.6% of net sales, as compared to $402,000, or 4.0% of net sales for the three month period ended March 31, 2003. There was no significant change in the amount or nature of selling expenses in the first quarter of 2004 related to the first quarter of 2003. Advertising and Marketing. For the fiscal quarter ended March 31, 2004, advertising and marketing expenses were $393,000, or 3.6% of net sales as compared to $589,000, or 5.8% of net sales in the three month period ended March 31, 2003. This decrease is attributable principally to a reduction in salaries, travel, artwork and plate expense. Other Income. Other income of $446,000 relates primarily to income from the resolution of vendor and other obligations of CTI Mexico Net Income or Loss. For the fiscal quarter ended March 31, 2004, the Company had a net profit before taxes and minority interest of $607,000 as compared to net (loss) before taxes and minority interest of ($658,000) for the first quarter of 2003. Income tax expense for the first quarter of fiscal 2004 was $233,000, resulting in net income of $372,000 after minority interest of $2,000. The income tax expense for the three month period ended March 31, 2003 was $34,000, resulting in net (loss) of ($690,000) after minority interest of ($2,000). The change in net income before income taxes and minority interest for the first quarter of 2004 from the first quarter of 2003 is attributable to several factors: (i) higher sales and increased margins in US operations with the result that gross profit on sales was increased to $2,147,000 for the quarter ending March 31,2004 as compared to $1,937,000 for the quarter ending on March 31, 2003, an increase of $210,000; these margin gains were driven by a reduction in overhead costs associated with more efficient use of equipment and labor and increased use of temporary labor reducing fringe and overtime costs; (ii) the recognition of $446,000 of income due to the reduction of debt at our CTI Mexico facility; and (iii) a reduction in 3 administrative, selling, advertising, and marketing expenses as compared to the first quarter of 2003. Liquidity and Capital Resources Cash Flow Items. Cash flow used in operations during the three months ended March 31, 2004 was $1,240,000. Cash flow in the first quarter was affected by an increase in receivables of $1,754,000 and a decrease in accounts payable of $659,000. During the first quarter of 2003, cash flow used in operations was $588,000. Investment Activities. During the three months ended March 31, 2004, cash flow used in investing activities was $262,000. In the first quarter of 2003, cash used in investing activities was $333,000 for the purchase of machinery and equipment. The Company has no commitments for capital expenditures over the second quarter of 2004. Financing Activities. For the three months ended March 31, 2004, cash flow generated from financing activities was $1,421,000. The funds provided were principally advances on the company's line of credit in the amount of $1,336,000. Cash flow provided by financing activities during the first quarter of 2003 was $1,476,000. Liquidity and Capital Resources. At March 31, 2004, the Company had a cash balance of $331,000. The Company's current cash management strategy includes maintaining minimal cash balances and utilizing the Company's revolving line of credit for liquidity. At March 31, 2004, the Company had a working capital deficit of $346,000 compared to a working capital deficit of $3,588,000 at March 31, 2003. As of March 31, 2004, there was an additional $312,000 available under the Company's revolving line of credit. The Company believes that existing capital resources and cash generated from operations will be sufficient to meet the Company's requirements for at least the next 12 months. 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. With the inclusion of a new major customer in metalized balloons with sales that are not expected to be seasonal we expect this season effect to be reduced. In addition, 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 18 and 19 of our 2003 Annual Report on Form 10-K/A, Amendment No. 1, as filed with the Securities and Exchange Commission. 4 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 (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 2004 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. 5 Item 3. Quantitative and Qualitative Disclosures of Market Risk The Company has not identified any material changes in risk factors identified in its Form 10-K/A Amendment No. 1 for the fiscal year ended December 31, 2003, which would create any material market risk for the Company. 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. 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, 2003, Airgas, Inc., Airgas-Southwest, Inc., Airgas-South, Inc. and Airgas-East, Inc. filed a joint action against CTI Industries Corporation 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, the plaintiffs claim that CTI Industries Corporation owes them certain sums for (i) helium sold and delivered, (ii) rental charges with respect to helium tanks and (iii) replacement charges for tanks claimed to have been lost. The Company intends to vigorously defend this action and to pursue its counterclaim. In addition, the Company is also 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, we do not believe any of these proceedings will have, individually or in the aggregate, a material adverse effect upon our financial condition or future results of operation. 6 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity 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 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 ----------- ----------- 3.1 Third Restated Certificate of Incorporation of CTI Industries Corporation (incorporated by reference to Exhibit A contained in Registrant's Schedule 14A Definitive Proxy Statement for solicitation of written consent of shareholders, as filed with Commission on October 25, 1999) 3.2 By-laws of CTI Industries Corporation (incorporated by reference to Exhibits, contained in Registrant's Form SB-2 Registration Statement (File No. 333-31969) effective November 5, 1997) 11 Statement: Computation of Per Share Earnings 31.1 Sarbanes-Oxley Act Section 302 Certifications for Howard W. Schwan 31.2 Sarbanes-Oxley Act Section 302 Certification 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 7 (b) The Company filed a Current Report on Form 8-K on April 16, 2004, reporting its financial results for the fiscal year ended December 31, 2003. The Company has not filed any other Current Reports 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. 8 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: May 17, 2004 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 9 CTI Industries Corporation and Subsidiaries Consolidated Balance Sheets
March 31, 2004 December 31, 2003 -------------- ----------------- ASSETS (Unaudited) (Audited) Current assets: Cash $ 331,189 $ 329,742 Accounts receivable, (less allowance for doubtful accounts of $186,215 and $223,220 respectively) 6,129,142 4,620,276 Inventories 9,168,518 9,263,160 Deferred tax assets 361,751 361,751 Prepaid expenses and other current assets 1,125,211 859,635 ------------ ------------ Total current assets 17,315,810 15,434,564 Property and equipment: Machinery and equipment 19,254,421 18,939,535 Building 2,714,301 2,678,581 Office furniture and equipment 1,872,593 1,931,831 Land 250,000 250,000 Leasehold improvements 587,034 582,052 Fixtures and equipment at customer locations 2,286,814 2,232,285 Projects under construction 319,592 408,961 ------------ ------------ 27,284,755 27,023,245 Less : accumulated depreciation (15,305,718) (14,815,596) ------------ ------------ Total property and equipment, net 11,979,036 12,207,649 Other assets: Deferred financing costs, net 203,538 222,696 Goodwill 1,113,108 1,113,108 Deferred Income tax asset 803,449 1,012,365 Other assets 354,142 279,800 ------------ ------------ Total other assets 2,274,237 2,627,969 ------------ ------------ TOTAL ASSETS 31,569,083 30,270,182 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Checks written in excess of bank balance 529,703 341,108 Accounts payable 6,273,299 6,799,490 Line of credit 5,929,714 3,694,241 Notes payable - current portion 2,528,708 2,998,496 Notes payable - officer 0 Accrued liabilities 2,200,412 2,306,745 ------------ ------------ Total current liabilities 17,461,837 16,140,080 Long-term liabilities: Other liabilities 873,815 1,079,041 Notes payable 5,445,151 5,766,091 Notes payable - officers 2,111,999 2,064,126 ------------ ------------ Total long-term liabilities 8,430,965 8,909,258 Minority interest 10,230 9,263 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 1,910,086 shares outstanding, respectively 3,764,020 3,764,020 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 debt 595,174 595,174 Accumulated deficit (3,156,162) (3,528,063) Accumulated other comprehensive earnings (152,199) (234,768) Less: Treasury stock - 231,796 shares (939,114) (939,114) ------------ ------------ Total stockholders' equity 5,666,051 5,211,581 ------------ ------------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 31,569,083 $ 30,270,182 ============ ============
See accompanying notes to condensed consolidated unaudited statements CTI Industries Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited)
Quarter Ended March 31, 2004 2003 ------------ ------------ Net Sales $ 10,893,984 $ 10,162,495 Cost of Sales 8,746,614 8,225,442 ------------ ------------ Gross profit on sales 2,147,370 1,937,053 Operating expenses: Administrative 988,513 1,259,004 Selling 390,556 402,363 Advertising and marketing 393,484 588,894 ------------ ------------ Total operating expenses 1,772,552 2,250,261 ------------ ------------ Income from operations 374,817 (313,208) Other income (expense): Interest expense (331,136) (201,752) Interest income -- 389 Gain (loss) on sale of assets -- -- Foreign currency (loss) gain 76,756 (108,506) Other 486,896 (34,884) ------------ ------------ Total other income (expense) 232,516 (344,753) ------------ ------------ Income (loss) before income taxes and minority interest 607,333 (657,961) Income tax (benefit) expense 233,456 34,245 ------------ ------------ Income (loss) before minority interest 373,877 (692,206) Minority interest in income (loss) of subsidiary 1,976 (2,418) ------------ ------------ Net income (loss) $ 371,901 $ (689,788) ============ ============ Income (loss) applicable to common shares $ 371,901 $ (689,788) ============ ============ Basic income (loss) per common share $ 0.19 $ (0.36) ============ ============ Diluted income (loss) per common share $ 0.18 $ (0.36) ============ ============ Weighted average number of shares and equivalent shares of common stock outstanding: Basic 1,918,420 1,917,772 ============ ============ Diluted 2,044,501 1,917,772 ============ ============
See accompanying notes to condensed consolidated unaudited statements CTI Industries Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
For the Three Month Period Ended March 31, 2004 March 31, 2003 -------------- -------------- Cash flows from operating activities: Net (loss) income $ 371,901 $ (389,788) Adjustment to reconcile net loss to cash (used in) provided by operating activities: Depreciation and amortization 509,280 347,709 Deferred gain on sale/leaseback (7,512) 7,512 Amortization of Debt Discount 62,873 9,072 Minority interest in loss of subsidiary 967 (2,418) Provision for losses on accounts receivable & inventory 100,000 60,000 Deferred income taxes 233,456 2,885 Change in assets and liabilities: Accounts receivable (1,753,866) (882,019) Inventory 39,642 (430,992) Other assets (139,917) (131,125) Accounts payable and accrued expenses (657,064) 835,161 ----------- ----------- Net cash (used in) provided by operating activities (1,240,239) (588,405) Cash flows from investing activities: Purchases of property, plant and equipment (261,510) (295,031) Purchases of other assets (37,726) ----------- ----------- Net cash (used in) investing activities (261,510) (332,757) Cash flows from financing activities: Checks written in excess of bank balance 188,595 Net change in revolving line of credit 2,235,473 539,239 Warrants issued with Debt Proceeds from issuance of long-term debt 0 1,630,000 Proceeds from issuance of notes due to officer 395,000 Repayment of long-term debt (1,003,442) (1,088,448) Proceeds from exercise of warrants 15,750 Cash paid for deferred financing fees 0 (15,226) ----------- ----------- Net cash provided by (used in) financing activities 1,420,627 1,476,315 Effect of exchange rate changes on cash 82,569 2,552 ----------- ----------- Net increase (decrease) in cash 1,447 557,705 Cash and Equivalents at Beginning of Period 329,742 160,493 ----------- ----------- Cash and Equivalents at End of Period $ 331,189 $ 718,198 =========== ===========
See accompanying notes to condensed consolidated unaudited statements March 31, 2004 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 flows for the periods presented in conformity with generally accepted accounting principles 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 three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2004. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2003. 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. 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 March 31, 2004, 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 three months ended March 31, 2004. 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. Note 2 - Legal Proceedings 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 to vigorously defend this action and pursue its counterclaim. 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 3 - Comprehensive Income Total Comprehensive Income was $82,569 for the three months ended March 31, 2004 and was a comprehensive loss of $666,202 for the three months ended March 31, 2003. Note 4 - Inventories, net March 31, 2004 December 31, 2003 -------------- ----------------- Raw material and work in process $ 2,619,675 $ 2,231,428 Finished goods 7,071,796 7,523,889 ------------ ------------ Inventory, Gross 9,691,471 9,755,317 Less: Inventory Reserves (522,952) (492,157) ------------ ------------ Inventories, net 9,168,519 9,263,160 ============ ============ Note 5 - 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 Three Months Ended March 31, 2004 March 31 March 31 -------- -------- 2004 2003 2004 2003 ---- ---- ---- ---- United States $ 9,617,000 $ 9,194,000 $ 28,457,000 $ 28,873,000 Mexico 1,532,000 1,180,000 5,605,000 5,584,000 United Kingdom 751,000 681,000 1,801,000 1,275,000 Eliminations (1,006,000) (893,000) (4,299,000) (3,930,000) ------------ ------------ ------------ ------------ $ 10,894,000 $ 10,162,000 $ 31,564,000 $ 31,802,000 ============ ============ ============ ============
Note 6 - Concentration of Credit Risk Concentration of credit risk with respect to trade accounts receivable is generally limited due to the number of entities comprising the Company's customer base. 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 uncollectable. Such losses have historically been within management's expectations. For the three months ended March 31, 2004, the Company had 3 customers that accounted for approximately; ($1,979,000) or 18.2%, ($1,245,000) or 11.4%, and ($1,142,000) or 10.5%, respectively, of consolidated net sales. EX-11 2 d59693_ex-11.txt STATEMENT: COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 CTI Industries Corporation and Subsidiaries Consolidated Earnings per Share Quarter Ended March 31, 2004 2003 ------------ ------------ Basic Average shares outstanding: Weighted average number of shares of common stock outstanding during the period 1,918,420 1,917,772 ============ ============ Net income (loss): Net income (loss) $ 371,901 $ (689,788) Amount for per share computation $ 371,901 $ (689,788) ============ ============ Per share amount $ 0.19 $ (0.36) ============ ============ Diluted Average shares outstanding: Weighted average number of shares of common stock outstanding during the period 1,918,420 1,917,772 Net additional shares assuming stock options and warrants exercised and proceeds used to purchase treasury stock 126,081 -- ------------ ------------ Weighted average number of shares and equivalent shares of common stock outstanding during the period 2,044,501 1,917,772 ============ ============ Net income: Net income (loss) $ 371,901 $ (689,788) Amount for per share computation $ 371,901 $ (689,788) ============ ============ Per share amount $ 0.18 $ (0.36) ============ ============ See accompanying notes to consolidated unaudited statements EX-31.1 3 d59693_ex31-1.txt SECTION 302 CERTIFICATIONS FOR HOWARD W. SCHWAN EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Howard W. Schwan, President 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 quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 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 quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 17, 2004 /s/ Howard W. Schwan ------------------------------ Howard W. Schwan President EX-31.2 4 d59693_ex31-2.txt SECTION 302 CERTIFICATIONS FOR STEPHEN M. MERRICK 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 quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures 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 quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 17, 2004 /s/ Stephen M. Merrick ------------------------------- Stephen M. Merrick Executive Vice President and Chief Financial Officer EX-32.1 5 d59693_ex32-1.txt SECTION 906 CERTIFICATION CFO 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 March 31, 2004 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 d59693_ex32-2.txt SECTION 906 CERTIFICATION CEO 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 March 31, 2004 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: (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/ Howard W. Schwan - ----------------------- Howard W. Schwan Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----