-----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, ViqLwvKN+Z0rh3bRCVrUQJLu+qJRGe7b8xN1IpR2NYRH4E8xfv8rK+dcBiJDdVl8 JBnWpp5QUPw4zTeTeVePxg== 0001169232-04-005160.txt : 20041013 0001169232-04-005160.hdr.sgml : 20041013 20041013125132 ACCESSION NUMBER: 0001169232-04-005160 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20041013 DATE AS OF CHANGE: 20041013 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-23115 FILM NUMBER: 041076563 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/A 1 d60880_10q.txt AMENDMENT TO FORM 10-Q FORM 10-Q/A Amendment No. 1 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 June 30, 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 June 30, 2004. PART I. FINANCIAL INFORMATION Item 1. Financial Statements The following consolidated financial statements of the Registrant are attached to this Form 10-Q/A Amendment No. 1: 1. Interim Balance Sheet as at June 30, 2004 (unaudited) and December 31, 2003; 2. Interim Statements of Operations (unaudited) for the three and six months ended June 30, 2004 and June 30, 2003; 3. Interim Statements of Cash Flows (unaudited) for the six months ended June 30, 2004 and June 30, 2003. 4. Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net Income (Loss). For the three months ended June 30, 2004, the Company had incurred a net loss of ($136,000), or ($0.07) per share (basic and diluted) compared to net income for the same period of 2003 of $133,000, or $0.07 per share (basic) and $0.06 per share (diluted). For the quarter, the Company incurred a loss before taxes and minority interest of ($195,000), compared to income before taxes and minority interest in the same period of 2003 of $6,000. For the six months ended June 30, 2004, the Company had net income of $236,000, or $0.12 per share (basic) and $0.12 per share (diluted), compared to a net loss of ($557,000) or ($0.29) per share (basic and diluted) for the six months ended June 30, 2003. For the six months ended June 30, 2004 the Company had income before taxes and minority interest of $413,000, compared to a loss of ($652,000) for the same period in 2003. Included in the first six months of 2004, are income items (described more fully below) totaling $490,000 which occurred principally during the first quarter of 2004 and are not expected to recur in the future. Net Sales, For the three months ended June 30, 2004, net sales were $9,592,000 compared to net sales of $8,662,000 for the same period of 2003, an increase of 10.7%. Net sales by product categories are as follows for each period respectively: 2 For the three month period ended June 30, 2004 June 30,2003 ------------- ------------ Laminated and Printed Films $3,615,000 $4,315,000 Metalized Balloons 4,297,000 2,241,000 Latex Balloons 1,195,000 1,552,000 Other 485,000 554,000 ---------- ---------- $9,592,000 $8,662,000 During the three months ended June 30, 2004, sales of laminated and printed films represented 38% of sales, metalized balloons 45% of sales and latex balloons 12% of sales. During the same period of 2003, sales of laminated and printed films represented 50% of total sales, metalized balloons 26% and latex balloons 18%. Other sales consists primarily of helium, for which the company acts as a broker for select customers. For the six months ended June 30, 2004, net sales were $20,486,000 compared to net sales of $18,824,000 for the same period of 2003, an increase of 8.8%. For the six months ended June 30, 2003 and 2004, sales by product category were as follows: For the six month period ended June 30, 2004 June 30, 2003 ------------- ------------- Laminated and Printed Films $ 7,289,000 $ 8,502,000 Metalized Balloons 9,228,000 6,953,000 Latex Balloons 2,880,000 2,544,000 Other 1,089,000 825,000 ----------- ----------- $20,486,000 $18,824,000 During the six months ended June 30, 2004, sales of laminated and printed films represented 36% of total sales, metalized balloons 45% of sales and latex balloons 14% of sales. During the same period of 2003, sales of laminated and printed films represented 45% of total sales, metalized balloons 37% of total sales and latex balloons 14% of total sales. The decline in sales of laminated and printed films during the second quarter and the six months ended June 30, 2004 is attributable principally to a decline in sales to ITW Spacebag. Sales to ITW Spacebag during the first six months of 2003 were $5,125,000 and during the first six months of 2004 were $2,423,000. In part, the decline in sales to the customer during the first six months of 2004 is attributable to (i) the customer engaging in pouch production internally and (ii) the Company has not supplied a component of the pouches which it supplied during 2003. We anticipate that sales to ITW Spacebag will continue during the remainder of 2004 at substantially the same rate as during the first six months. The increase in sales of metalized balloons during the second quarter and the six months ended June 30, 2004, compared to the same periods in the prior year, is the result, principally, of sales to a new customer. Sales to this customer were $1,142,000 for the first quarter and 3 $2,175,000 for the first six months. We anticipate an increase in metalized balloon sales during the final six months of 2004 and into the first six months of 2005, compared to those same periods in 2003 and 2004, primarily as the result of new customers. During the first six months of 2004, there were four customers whose purchases represented more than 10% of the Company's sales for that period: $3,946,000, $2,423,000, $2,256,000, and $2,175,000. During the first three months of 2004, there were three customers whose purchases represent more than 10% of the Company's sales for that period: $1,979,000, $1,245,000, and $1,142,000. Cost of Sales. During the three months ended June 30, 2004, cost of sales increased to 79% of net sales compared to 78% of net sales for the same period in 2003. For the six month period ended June 30, 2004, the cost of sales remained 80%, the same as for the six month period in 2003. Administrative Expenses. For the three months ended June 30, 2004, administrative expenses were $1,175,000, or 12.3% of net sales, compared to $1,051,000, or 12.1% of net sales for the same period in 2003. For the six months ended June 30, 2004, administrative expenses were $2,164,000, or 10.6% of net sales, compared to $2,222,000, or 11.8% of net sales, for the same period in 2003. There were no material changes in administrative expenses during the first six months of 2004 compared to the same period of the prior year. We do not anticipate a significant change in administrative expenses for the remainder of the year. Selling Expenses. For the three months ended June 30, 2004, selling expenses were $357,000, or 3.7% of net sales for the quarter, compared to $217,000 or 2.5% of net sales for the second quarter of 2003. For the six months ended June 30, 2004, selling expenses were $747,000 or 3.6% of net sales for the period, compared to $619,000 or 3.3% of net sales for the same period in 2003. The increase in selling expense is attributable to a change in department structure in which the supervision of customer service and an administrative assistant salary are now charged to selling expense. The other item relating to this increase is an increase in commission expenses. We do not anticipate a significant change in selling expenses for the remainder of the year. Advertising and Marketing Expense. For the three months ended June 30, 2004, advertising and marketing expenses were $282,000, or 2.9% of net sales for the period, compared to $661,000 or 7.6% of net sales for the same period of 2003. For the six months ended June 30, 2004, advertising and marketing expenses were $675,000, or 3.3% of net sales for the period, compared to $1,250,000, or 6.6% of net sales for the same period in 2003. The decline in advertising and marketing expense is attributable to reduction in personnel, decreases in spending in tradeshows and catalog expense and a reduction in the cost of artwork and films. We do not anticipate a significant change in advertising and marketing expense for the remainder of the year. Other Income and Expense. During the three months ended June 30, 2004, the Company incurred interest expense and loan fees of $338,000, compared to interest and loan fees of $274,000 during the same period of 2003. 4 During the six months ended June 30, 2004, the Company incurred interest expense and loan fees of $670,000 compared to interest and loan fees of $475,000 during the same period for 2003. The increase in this expense is due to higher levels of borrowing as a result of increased borrowing capacity to finance our sales growth, higher interest rates due to cost of capital funding being higher under our new credit facility and loan fees incurred during these periods. The interest rate provided in our loan agreement with our bank is variable. However, we do not believe that a change of one or two percent in interest rate would have a material effect on our results of operations. Also, during the six months ended June 30, 2004, the Company had net other income items totaling $490,000. Most of this gain is attributable to the first quarter of 2004. These items included: (i) gains of $64,000 related to transactions involving the valuation of the foreign currency, the amount of which will vary from period to period; (ii) gains related to a review and determination that various accrued items on the books of the Mexican subsidiaries of the Company, CTI Mexico, S.A. de C.V. and Flexo Universal, S.A. de C.V., are not due or payable; the items included (a) accrued amounts for profit sharing or seniority benefits determined on the basis of a legal review not to be due, totaling $97,950, (b) accrued amounts related to an asset tax determined not to be due or beyond the statute of limitations, in the amount approximately of $49,400, (c) accrued amounts with respect to various accounts settled or determined not to be due or payable, in the aggregate amount of approximately $190,000; (iii) gains related to the settlement of an account with a tax authority in the amount of $38,750 based on payment of an amount less than the amount accrued on the books of CTI Mexico and Flexo Universal and (iv) gains totaling $70,000 based on the settlement of various accounts in consideration of payment of an amount less than the amount accrued. Most of these gains related to the restructuring of CTI Mexico which commenced in February, 2003 when CTI Mexico effected a spin-off under Mexican law in which a portion of assets, liabilities and capital were transferred to Flexo Universal and Flexo Universal became the primary subsidiary of the Company in Mexico. These gains are not recurring. Income Taxes During the second quarter of 2004, the Company recorded an income tax benefit of $58,000, arising from the operating loss in the quarter, compared to an income tax benefit recorded for the second quarter of 2003 in the amount of $130,000. For the first six months of 2004, the Company recorded income tax expense of $175,000 compared to an income tax benefit received for the same period of 2003 in the amount of $95,000. Financial Condition During the six months ended June 30, 2004, the Company used cash in operations of $994,000, compared to cash provided by operations during the first six months of 2003 in the amount of $1,143,000. For the most part the use of cash in operations arose from (i) the increase in receivables during the period by $937,000, and (ii) a reduction in accounts payable and accrued expenses by $1,298,000. During the six month period cash from operations was affected positively by depreciation of $910,000; depreciation is expected to continue at approximately the same rate over the balance of 2004. 5 During the six months ended June 30, 2004, investing cash flows consisted of equipment in the amount of $172,000. The net purchase of equipment during the first six months of 2003 was $1,319,000. The Company believes its capital equipment is sufficient to meet planned operations for the next twelve months. The Company anticipates a replacement of its computer systems and software, but has no formal commitment as of this date. During the six months ended June 30, 2004, cash provided by financing activities was $1,127,000, compared to net cash provided in the same period of 2003 of $313,000. The source of cash provided in the first six months of 2004 was, principally, net advances on the Company's revolving line of credit in the amount of $2,301,000. Under the terms of the Company's revolving line of credit, the bank advances up to 85% of eligible receivables and 50% of eligible inventory. The amount of the net advances on the line of credit reflect (i) increased sales during the first six months of 2004 and (ii) an increase in inventory during the period in the amount of approximately $240,000. Financing cash outflows consisted of repayments of $294,000 to the term loan and $1,039,000 on vendor notes. Liquidity and Capital Resources. As of June 30, 2004, the Company's cash balance was $421,000 and there was approximately $101,000 available under the Company's line of credit with its bank. As of June 30, 2004, the Company had working capital of $21,000 compared to a working capital deficit of $2,352,000 as of June 30, 2003 and a working capital deficit of $706,000 as of December 31, 2003. As of June 30, 2004, the Company was in compliance all loan covenants with its bank. Based on our financial projections, the Company believes it will comply with all financial and other covenants of the loan agreement with its bank for the remainder of 2004 and beyond. The Company believes that existing capital resources, cash generated from operations, and its newly established Standby Equity Distribution Agreement will be sufficient to meet the Company's requirements for at least twelve months. Under the SEDA, an investment firm has committed to provide up to $5 million of funding to be drawn down at the Company's discretion by the purchase of the Company's common stock. The Company may request up to $100,000 in any seven-day period in exchange for issuing shares of its common stock to the investment firm. The purchase price of any shares purchased under the SEDA with respect to any advance will be equal to 100% of the volume weighted average price of the Company's common stock on the NASDAQ SmallCap Stock Market for the five days immediately following the notice date for the advance, subject to payment to the investment firm of a commitment fee of 5% of the amount of each advance. The facility may be used in whole or in part entirely at the Company's discretion, subject to an effective registration of the related shares. As of June 30, 2004, no shares have been issued or funds received by the Company under this agreement. 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 from our recurring product line we expect this seasonality effect to be reduced. In addition, the sale of latex balloons and laminated film products have not historically been seasonal. 6 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. 2, as filed with the Securities and Exchange Commission. 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 Operations) 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 7 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 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, some of which may be affected by changes in the prices of natural gas and crude oil. 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 the end of the period covered by 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. The matter is 8 currently in the course of discovery and is scheduled for a final pre-trial conference on January 3, 2005. On June 4, 2004, Spar Group, Inc. initiated an arbitration proceeding in New York City against the Company. In the proceeding, Spar Group claims that there is due from the Company to Spar Group for services rendered in the amount of $180,043, plus interest. Spar Group claims to have rendered services to the Company in various Eckerd stores with respect to the display and ordering of metalized and latex balloons for sale in those stores. The Company has filed an answer denying liability with respect to the claim and asserting a counterclaim for damages against Spar Group for breach of its agreement to provide such services. The Company belives it has made adequate provision for any settlement of this matter based on dicussions with counsel. 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. 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. 9 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) 10.1 Standby Equity Distribution Agreement dated July 1, 2004, between the Company and Cornell Capital Partners, LP (incorporated by reference to Exhibit contained in the Registrant's Form 10-Q for the quarter ended June 30, 2004, as filed with the Commission on August 23, 2004). 10.2 Registration Rights Agreement dated July 1, 2004, between the Company and Cornell Capital Partners, LP 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 (b) The Company filed a Current Report on Form 8-K on May 18, 2004, reporting its financial results for the quarter ended March 31, 2004. The Company filed another Current Report on Form 8-K on July 7, 2004, reporting that it had entered into a Standby Equity Distribution Agreement with an investment firm. A copy of this agreement has been added to this report as Exhibit 10.1. 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. 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: October 8, 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 11 CTI Industries Corporation and Subsidiaries Consolidated Balance Sheets
June 30, 2004 December 31, 2003 ------------- ----------------- ASSETS (Unaudited) (Audited) Current assets: Cash $ 421,430 $ 329,742 Accounts receivable, (less allowance for doubtful accounts of $355,469 5,467,657 4,620,276 and $186,215, respectively) Inventories 9,388,535 9,263,160 Deferred tax assets 361,751 361,751 Prepaid expenses and other current assets 1,032,989 859,635 ------------ ------------ Total current assets 16,672,362 15,434,564 Property and equipment: Machinery and equipment 18,158,239 18,939,535 Building 2,714,301 2,678,581 Office furniture and equipment 1,796,853 1,931,831 Land 250,000 250,000 Leasehold improvements 677,550 582,052 Fixtures and equipment at customer locations 2,286,814 2,232,285 Projects under construction 237,023 408,961 ------------ ------------ 26,120,780 27,023,245 Less: accumulated depreciation (14,847,855) (14,815,596) ------------ ------------ Total property and equipment, net 11,272,925 12,207,649 Other assets: Deferred financing costs, net 175,817 222,696 Goodwill 1,113,108 1,113,108 Deferred tax assets 851,284 1,012,365 Other assets 262,692 279,800 ------------ ------------ Total other assets 2,402,901 2,627,969 ------------ ------------ TOTAL ASSETS 30,348,188 30,270,182 ============ ============
See accompanying notes to condensed consolidated unaudited statements CTI Industries Corporation and Subsidiaries Consolidated Balance Sheets
June 30, 2004 December 31, 2003 ------------- ----------------- (unaudited) (audited) LIABILITIES AND STOCKHOLDERS' EQUITY Checks written in excess of bank balance 731,029 341,108 Accounts payable 5,659,098 6,799,490 Line of credit 5,810,369 3,694,241 Notes payable - current portion 2,528,708 2,998,496 Accrued liabilities 1,921,724 2,306,745 ------------ ------------ Total current liabilities 16,650,928 16,140,080 Long-term liabilities: Other Liabilities 1,038,898 1,079,041 Notes payable 4,726,709 5,766,091 Notes payable - officers 2,345,024 2,064,126 ------------ ------------ Total long-term liabilities 8,110,631 8,909,258 Minority interest 10,230 9,263 Commitments and Contingencies Stockholders' equity: Common stock - no par value, 5,000,000 shares authorized, 2,150,216 shares issued, 1,918,420 shares outstanding 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 (3,291,843) (3,528,063) Accumulated other comprehensive earnings (106,170) (234,768) Less: Treasury stock - 231,796 shares (939,114) (939,114) ------------ ------------ Total stockholders' equity 5,576,399 5,211,581 ------------ ------------ TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 30,348,188 $ 30,270,182 ============ ============
See accompanying notes to condensed consolidated unaudited statements CTI Industries Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited)
Quarter Ended June 30, Year to Date June 30, 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Net Sales $ 9,591,785 $ 8,661,939 $ 20,485,769 $ 18,824,434 Cost of Sales 7,559,756 6,755,910 16,306,371 14,981,352 ------------ ------------ ------------ ------------ Gross profit on sales 2,032,028 1,906,029 4,179,398 3,843,082 Operating expenses: Administrative 1,175,277 1,051,114 2,163,790 2,221,500 Selling 356,731 217,008 747,287 619,371 Advertising and marketing 282,005 660,637 675,489 1,249,531 ------------ ------------ ------------ ------------ Total operating expenses 1,814,013 1,928,759 3,586,565 4,090,402 ------------ ------------ ------------ ------------ Income (loss) from operations 218,016 (22,730) 592,833 (247,320) Other income (expense): Interest expense (338,828) (273,691) (669,964) (475,443) Interest income -- 1,220 -- 1,608 Gain (loss) on sale of assets 15,024 7,512 15,024 15,024 Foreign currency (loss) gain (12,914) 96,798 63,841 (11,708) Other (76,094) 196,495 410,802 65,482 ------------ ------------ ------------ ------------ Total other (expense) income (412,812) 28,334 (180,297) (405,037) ------------ ------------ ------------ ------------ (Loss) income before income taxes and minority interest (194,797) 5,604 412,536 (652,357) Income tax (benefit) expense (58,327) (129,671) 175,129 (95,425) ------------ ------------ ------------ ------------ Income (loss) before minority interest (136,470) 135,275 237,408 (556,932) Minority interest in income (loss) of subsidiary (789) 2,097 1,187 (321) ------------ ------------ ------------ ------------ Net (loss) income $ (135,681) $ 133,178 $ 236,220 $ (556,611) ============ ============ ============ ============ Income (loss) applicable to common shares $ (135,681) $ 133,178 $ 236,220 $ (556,611) ============ ============ ============ ============ Basic income (loss) per common share $ (0.07) $ 0.07 $ 0.12 $ (0.29) ============ ============ ============ ============ Diluted income (loss) per common share $ (0.07) $ 0.06 $ 0.12 $ (0.29) ============ ============ ============ ============ Weighted average number of shares and equivalent shares of common stock outstanding: Basic 1,918,420 1,918,420 1,918,420 1,918,420 ============ ============ ============ ============ Diluted 1,918,420 2,139,754 2,032,665 1,918,098 ============ ============ ============ ============
See accompanying notes to condensed consolidated unaudited statements CTI Industries Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
For the Six Month Period Ended June 30, 2004 June 30, 2003 ---------------------------------- Cash flows from operating activities: Net income (loss) $ 236,220 $ (556,611) Adjustment to reconcile net income (loss) to cash (used in) provided by operating activities: Depreciation and amortization 909,605 710,934 Deferred gain on sale/leaseback (15,024) 15,024 Amortization of Debt Discount 125,746 55,051 Minority interest in loss of subsidiary 967 (321) Provision for losses on accounts receivable 90,000 30,000 Provision for loss on inventory 115,000 90,000 Deferred income taxes 175,129 (189,289) Change in assets and liabilities: Accounts receivable (937,381) 368,085 Inventory (240,375) (269,938) Other assets (156,246) (2,475) Accounts payable, accrued expenses and other changes (1,297,813) 892,374 -------------------------------- Net cash (used in) provided by operating activities (994,172) 1,142,834 Cash flows from investing activities: Cash aquired in acquisition of CTI Mexico (5,000) Purchases of property, plant and equipment (171,875) (1,318,971) Proceeds from sale of property and equipment 2,225 -------------------------------- Net cash used in investing activities (169,650) (1,323,971) Cash flows from financing activities: Checks written in excess of bank balance 389,921 366,193 Net change in revolving line of credit 2,301,280 (2,085,057) Proceeds from issuance of long-term debt 71,270 4,675,665 Proceeds from issuance of notes due to officer 820,000 Proceeds from the issuance of short-term debt 900,000 Repayment of long-term debt (1,635,559) (3,247,329) Repayment of short-term debt 0 (1,116,736) Proceeds from debt to equity swap 15,750 Purchase of treasury stock (15,226) -------------------------------- Net cash provided by financing activities 1,126,912 313,260 Effect of exchange rate changes on cash 128,598 (105,368) -------------------------------- Net increase in cash 91,688 26,755 Cash at Beginning of Period 329,742 160,493 -------------------------------- Cash at End of Period $ 421,430 $ 187,248 ================================ Supplemental Disclosure of non-cash activity Settlement of liability with third party via ownership transfer of long-term asset $ 241,268 $ 0
See accompanying notes to condensed consolidated unaudited statements June 30, 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 necessary 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 U.S. generally accepted accounting principles for complete financial statements. Operating results for the six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the full 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/A Amendment No. 2 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 U.S. generally accepted accounting principles 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 As of June 30, 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 or six months ended June 30, 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 would be 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 vigorously to defend this action and to pursue its counterclaim. Currently, the parties are engaged in pre-trial discovery proceedings. The case is set for a final pre-trial conference on January 3, 2005. On June 4, 2004, Spar Group, Inc. initiated an arbitration proceeding in New York City against the Company. In the proceeding, Spar Group claims that there is due from the Company to Spar Group for services rendered in the amount of $180,043, plus interest. Spar Group claims to have rendered services to the Company in various Eckerd stores with respect to the display and ordering of metalized and latex balloons for sale in those stores. The Company has filed an answer denying liability with respect to the claim and asserting a counterclaim for damages against Spar Group for breach of its agreement to provide such services. The Company belives it has made adequate provision for any settlement of this matter based on dicussions with counsel. 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 (Loss) Comprehensive Income was $46,029 for the three months ended June 30, 2004 and of $290,328 for the three months ended June 30, 2003. Comprehensive income was $128,598 for the six months ended June 30, 2004 and there was a comprehensive loss of ($375,874) for the six months ended June 30, 2003. Note 4 - Earnings (Loss) Per Share Basic earnings (loss) per common share is computed by dividing the net income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock and common stock equivalents (redeemable common stock, stock options and warrants), unless anti-dilutive, during each period. Potential dilutive securities include 417,470 options and 308,129 warrants. Geographic Segment Data The Company's operations consist of a business segment which designs, manufactures, and distributes balloon products. Transfers between geographic areas were primarily at cost. The Company's subsidiaries have assets consisting primarily of trade accounts receivable, inventory and machinery and equipment. Sales and selected Note 4 - Inventories, net
June 30, 2004 December 31, 2003 ------------- ----------------- (unaudited) Raw material and work in process $ 2,240,179 $ 2,231,428 Finished goods 7,681,604 7,523,889 ----------- ----------- Inventory, Gross 9,921,780 9,755,317 Less: Inventory Reserves (533,248) (492,157) ----------- ----------- Inventories, net 9,388,535 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 Net Sales to External Customers For the Three Months Ended June 30, For the Six Months Ended June 30, 2004 2003 2004 2003 ---- ---- ---- ---- United States $ 8,403,000 $ 7,920,000 $ 17,674,000 $ 17,003,000 Mexico 539,000 543,000 1,411,000 1,070,000 United Kingdom 650,000 199,000 1,401,000 751,000 ------------ ------------ ------------ ------------ $ 9,592,000 $ 8,662,000 $ 20,486,000 $ 18,824,000 ============ ============ ============ ============
Total Assets at June 30, December 31, 2004 2003 ---- ---- United States $ 27,388,000 $ 27,603,000 Mexico 4,702,000 5,476,000 United Kingdom 1,853,000 1,412,000 Eliminations (3,595,000) (4,221,000) ------------ ------------ $ 30,348,000 $ 30,270,000 ============ ============ Note 6 - Concentration of Credit Risk Concentration of credit risk with respect to trade accounts receivable beyond our significant customers noted below 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 uncollectible. Such losses have historically been within management's expectations. For the six months ended June 30, 2004, the Company had 4 customers that accounted for approximately $3,946,000 or 19.3%, $2,423,000 or 11.8%, $2,256,000 or 11.0%, and $2,175,000 or 10.6%, respectively, of consolidated net sales. For the three months ended March 31, 2004, the Company had three 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. As of June 30, 2004 Accounts Receivable balances for the four customers were $883,915 (16%), $204,927 (4%), $556,088 (10%) and $778,663 (14%) respectively. In 2003, the two customers had receivable balances of $548,694 (12%) and $458,162 (10%) respectively. Note 7 - Subsequent Event - Standby Equity Distribution Agreement On July 1, 2004, the Company entered into a Standby Equity Distribution Agreement ("SEDA") with an investment firm. Under the SEDA, the investment firm has committed to provide up to $5 million of funding to be drawn down at the Company's discretion by the purchase of the Company's common stock. The Company may request up to $100,000 in any seven-day period in exchange for issuing shares of its common stock to the investment firm. The purchase price of any shares purchased under the SEDA with respect to any advance will be equal to 100% of the volume weighted average price of the Company's common stock on the NASDAQ SmallCap Stock Market for the five days immediately following the notice date for the advance, subject to payment to the investment firm of a commitment fee of 5% of the amount of each advance. The facility may be used in whole or in part entirely at the Company's discretion, subject to an effective registration of the related shares. As of June 30, 2004, no shares have been issued or funds received by the Company under this agreement. EX-10.2 2 d60880_ex10-2.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.2 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of June 1, 2004 by and between CTI INDUSTRIES CORPORATION, a Illinois Corporation (the "Company"), and CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the "Investor"). WHEREAS: A. In connection with the Standby Equity Distribution Agreement by and between the parties hereto of even date herewith (the "Standby Equity Distribution Agreement"), the Company has agreed, upon the terms and subject to the conditions of the Standby Equity Distribution Agreement, to issue and sell to the Investor that number of shares of the Company's common stock, no par value per share (the "Common Stock"), which can be purchased pursuant to the terms of the Equity Line Credit Agreement for an aggregate purchase price of up to Five Million Dollars ($5,000,000). Capitalized terms not defined herein shall have the meaning ascribed to them in the Standby Equity Distribution Agreement. B. To induce the Investor to execute and deliver the Standby Equity Distribution Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "1933 Act"), and applicable state securities laws. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: a. "Person" means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency. b. "Register," "registered," and "registration" refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous or delayed basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the "SEC"). c. "Registrable Securities" means the Investor's Shares, as defined in the Standby Equity Distribution Agreement and shares of Common Stock issuable to Investors pursuant to the Standby Equity Distribution Agreement. d. "Registration Statement" means a registration statement under the 1933 Act which covers the Registrable Securities. 2. REGISTRATION. a. Mandatory Registration. The Company shall prepare and file with the SEC a Registration Statement on Form S-1, S-3 or on such other form as is available. The Company shall use reasonable commercial efforts to cause such Registration Statement to be declared effective by the SEC prior to the first sale to the Investor of the Company's Common Stock pursuant to the Standby Equity Distribution Agreement. b. Sufficient Number of Shares Registered. In the event the number of shares available under a Registration Statement filed pursuant to Section 2(a) is insufficient to cover all of the Registrable Securities which the Investor has purchased pursuant to the Standby Equity Distribution Agreement, the Company shall amend the Registration Statement, or file a new Registration Statement (on the short form available therefore, if applicable), or both, so as to cover all of such Registrable Securities which the Investor has purchased pursuant to the Standby Equity Distribution Agreement as soon as practicable, but in any event not later than fifteen (15) days after the necessity therefore arises. The Company shall use it best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. For purposes of the foregoing provision, the number of shares available under a Registration Statement shall be deemed "insufficient to cover all of the Registrable Securities" if at any time the number of Registrable Securities issuable on an Advance Notice Date is greater than the number of shares available for resale under such Registration Statement. 3. RELATED OBLIGATIONS. a. The Company shall keep the Registration Statement effective pursuant to Rule 415 at all times until the date on which the Investor shall have sold all the Registrable Securities covered by such Registration Statement (the "Registration Period"), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. b. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the 2 Company's filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the "1934 Act"), the Company shall have incorporated such report by reference into the Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the 1934 Act report is filed which created the requirement for the Company to amend or supplement the Registration Statement. c. The Company shall furnish to the Investor without charge, (i) at least one copy of such Registration Statement as declared effective by the SEC and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, all exhibits and each preliminary prospectus, (ii) ten (10) copies of the final prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor. d. The Company shall use reasonable commercial efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under such other securities or "blue sky" laws of such jurisdictions in the United States as the Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (w) make any change to its certificate of incorporation or by-laws, (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify the Investor of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threat of any proceeding for such purpose. e. As promptly as practicable after becoming aware of such event or development, the Company shall notify the Investor in writing of the happening of any event as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to each Investor. The Company shall also promptly notify the Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to the Investor by 3 facsimile on the same day of such effectiveness), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. f. The Company shall use reasonable commercial efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction within the United States of America and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify the Investor of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose. g. At the reasonable request of the Investor, the Company shall furnish to the Investor, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as the Investor may reasonably request (i) a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Investor. h. The Company shall make available for inspection by (i) the Investor and (ii) one firm of accountants or other agents retained by the Investor (collectively, the "Inspectors") all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably deemed necessary by each Inspector, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector shall agree, and the Investor hereby agrees, to hold in strict confidence and shall not make any disclosure (except to an Investor) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the 1933 Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which the Inspector and the Investor has knowledge. The Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. i. The Company shall hold in confidence and not make any disclosure of information concerning the Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration 4 Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning the Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to the Investor and allow the Investor, at the Investor's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. j. The Company shall use reasonable commercial efforts either to cause all the Registrable Securities covered by a Registration Statement (i) to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange or to secure the inclusion for quotation on the National Association of Securities Dealers, Inc. OTC Bulletin Board for such Registrable Securities. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(j). k. The Company shall cooperate with the Investor to the extent applicable, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investor may reasonably request and registered in such names as the Investor may request. l. The Company shall use reasonable commercial efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities. m. The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder. n. Within two (2) business days after a Registration Statement which covers Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investor) confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A. o. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investor of Registrable Securities pursuant to a Registration Statement. 4. OBLIGATIONS OF THE INVESTOR. The Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e), the Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until the Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(e) or receipt of notice that no 5 supplement or amendment is required. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended certificates for shares of Common Stock to a transferee of the Investor in accordance with the terms of the Standby Equity Distribution Agreement in connection with any sale of Registrable Securities with respect to which the Investor has entered into a contract for sale prior to the Investor's receipt of a notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e) and for which the Investor has not yet settled. 5. EXPENSES OF REGISTRATION. All expenses incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers, legal and accounting fees shall be paid by the Company. 6. INDEMNIFICATION. With respect to Registrable Securities which are included in a Registration Statement under this Agreement: a. To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Investor, the directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls the Investor within the meaning of the 1933 Act or the 1934 Act (each, an "Indemnified Person"), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys' fees, amounts paid in settlement or expenses, joint or several (collectively, "Claims") incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ("Indemnified Damages"), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other "blue sky" laws of any jurisdiction in which Registrable Securities are offered ("Blue Sky Filing"), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation there under relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations"). The Company shall reimburse the Investor and each such controlling person promptly as such expenses are incurred and are due and payable, for any legal fees or disbursements or other reasonable expenses incurred by them in connection with investigating or 6 defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (x) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (y) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(e); and (z) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person. b. In connection with a Registration Statement, the Investor agrees to indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement and each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (each an "Indemnified Party"), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or is based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by the Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(d), the Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to the Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the prospectus was corrected and such new prospectus was delivered to the Investor prior to the Investor's use of the prospectus to which the Claim relates. c. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the 7 Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for such Indemnified Person or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. d. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred. e. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law. 7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in 8 amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. 8. REPORTS UNDER THE 1934 ACT. With a view to making available to the Investor the benefits of Rule 144 promulgated under the 1933 Act or any similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration ("Rule 144") the Company agrees to: a. make and keep public information available, as those terms are understood and defined in Rule 144; b. file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company's obligations under Section 6.3 of the Standby Equity Distribution Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and c. furnish to the Investor so long as the Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration. 9. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only by a written agreement. Any amendment or waiver effected in accordance with this Section 9 shall be binding upon the Investor and the Company. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement. 10. MISCELLANEOUS. a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. b. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated 9 and kept on file by the sending party); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company, to: CTI Industries Corporation 22160 N. Pepper Road Barrington, IL 60010 Attention: Stephen M. Merrick Telephone: (847) 382-1000 Facsimile: (847) 382-1219 With a copy to: Merrick & Klimek 33 N. LaSalle Street Chicago, IL 60602 Attention: John M. Klimek, Esq. Telephone: (312) 284-1520 Facsimile: (312) 284-1521 If to the Investor, to: Cornell Capital Partners, LP 101 Hudson Street - Suite 3700 Jersey City, NJ 07302 Attention: Mark Angelo Portfolio Manager Telephone: (201) 985-8300 Facsimile: (201) 985-8266 With copy to: Butler Gonzalez LLP 1416 Morris Avenue - Suite 207 Union, NJ 07083 Attention: David Gonzalez, Esq. Telephone: (908) 810-8588 Facsimile: (908) 810-0973 Any party may change its address by providing written notice to the other parties hereto at least five days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. 10 d. The corporate laws of the State of Illinois shall govern all issues concerning the relative rights of the Company and the Investor. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New Jersey, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New Jersey or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New Jersey. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the Superior Courts of the State of New Jersey, sitting in Hudson County, New Jersey and the Federal District Court for the District of New Jersey sitting in Newark, New Jersey, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. e. This Agreement, the Standby Equity Distribution Agreement, the Escrow Agreement and the Placement Agent Agreement constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Standby Equity Distribution Agreement, the Escrow Agreement and the Placement Agent Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. f. This Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto. g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. h. This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. 11 i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. j. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party. k. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 12 IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of day and year first above written. COMPANY: CTI INDUSTRIES CORPORATION By: /s/ Stephen M. Merrick -------------------------------- Name: Stephen M. Merrick Title: Executive Vice-President INVESTOR: CORNELL CAPITAL PARTNERS, LP By: Yorkville Advisors, LLC Its: General Partner By: /s/ Mark Angelo -------------------------------- Name: Mark Angelo Title: Portfolio Manager 13 EXHIBIT A FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT INSERT Attention: _____________ Re: CTI INDUSTRIES CORPORATION Ladies and Gentlemen: We are counsel to CTI Industries Corporation, a Illinois corporation (the "Company"), and have represented the Company in connection with that certain Standby Equity Distribution Agreement (the "Standby Equity Distribution Agreement") entered into by and between the Company and Cornell Capital Partners, LP (the "Investor") pursuant to which the Company issued to the Investor shares of its Common Stock, no par value per share (the "Common Stock"). Pursuant to the Standby Equity Distribution Agreement, the Company also has entered into a Registration Rights Agreement with the Investor (the "Registration Rights Agreement") pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement) under the Securities Act of 1933, as amended (the "1933 Act"). In connection with the Company's obligations under the Registration Rights Agreement, on ____________ ____, the Company filed a Registration Statement on Form ________ (File No. 333-_____________) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities which names the Investor as a selling stockholder thereunder. In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement. Very truly yours, By: ----------------------------------- cc: Cornell Capital Partners, LP EX-31.1 3 d60880_ex31-1.txt CERTIFICATION EXHIBIT 31.1 CERTIFICATIONS I, Howard W. Schwan, President of CTI Industries Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q/A Amendment No. 1 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: October 8, 2004 CTI INDUSTRIES CORPORATION By: /s/ Howard W. Schwan ------------------------------- Howard W. Schwan, President EX-31.2 4 d60880_ex31-2.txt CERTIFICATION EXHIBIT 31.2 CERTIFICATIONS 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/A Amendment No. 1 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: October 8, 2004 CTI INDUSTRIES CORPORATION By: /s/ Stephen M. Merrick ------------------------------------- Stephen M. Merrick, Executive Vice-President and Chief Financial Officer EX-32.1 5 d60880_ex32-1.txt CERTIFICATION 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/A Amendment No. 1 for the period ending June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Howard W. Schwan, President 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. By: /s/ Howard W. Schwan ----------------------------- President EX-32.2 6 d60880_ex32-2.txt CERTIFICATION 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/A Amendment No. 1 for the period ending June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stephen M. Merrick, Executive Vice-President and 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. CTI INDUSTRIES CORPORATION By: /s/ Stephen M. Merrick -------------------------------------------- Stephen M. Merrick, Executive Vice-President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----