FORM 10-QSB/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 September 30, 2001
Commission File No. 000-23115
CTI INDUSTRIES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2848943
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
22160 North Pepper Road, Barrington, Illinois 60010
(Address of principal executive offices) (Zip Code)
(847) 382-1000
(Registrant's telephone number, including area code)
Registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.
APPLICABLE ONLY TO CORPORATE ISSUERS:
COMMON STOCK, $.195 par value, 841,644 outstanding Shares and CLASS B
COMMON STOCK, $2.73 par value, 366,300 outstanding Shares, as of September 30,
2001.
THIS FORM 10-QSB/A IS BEING FILED FOR THE PURPOSE OF AMENDING AND
RESTATING PARTS OF FORM 10-QSB TO REFLECT THE RESTATEMENT OF OUR CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30,
2000 AND 2001. THESE REVISIONS RELATE TO SUBORDINATED DEBT ROLLFORWARDS AND THE
RECALCULATION OF EXPENSES ASSOCIATED WITH CERTAIN WARRANTS ISSUED BY THE
COMPANY. ALL PORTIONS OF THE FORM 10-QSB THAT ARE EFFECTED BY THESE REVISIONS
HAVE BEEN ADJUSTED ACCORDINGLY. ALL INFORMATION IN THIS FORM 10-QSB/A IS AS OF
SEPTEMBER 30, 2001 AND DOES NOT REFLECT ANY SUBSEQUENT INFORMATION OR EVENTS
OTHER THAN THE RESTATEMENT.
1
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THIS FORM 10-QSB/A IS BEING FILED FOR THE PURPOSE OF AMENDING AND
RESTATING PARTS OF FORM 10-QSB TO REFLECT THE RESTATEMENT OF OUR CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30,
2000 AND 2001. THESE REVISIONS RELATE TO SUBORDINATED DEBT ROLLFORWARDS AND THE
RECALCULATION OF EXPENSES ASSOCIATED WITH CERTAIN WARRANTS ISSUED BY THE
COMPANY. ALL PORTIONS OF THE FORM 10-QSB THAT ARE EFFECTED BY THESE REVISIONS
HAVE BEEN ADJUSTED ACCORDINGLY. ALL INFORMATION IN THIS FORM 10-QSB/A IS AS OF
SEPTEMBER 30, 2001 AND DOES NOT REFLECT ANY SUBSEQUENT INFORMATION OR EVENTS
OTHER THAN THE RESTATEMENT.
The following consolidated financial statements of the Registrant are
attached to this Form 10-QSB:
1. Interim Balance Sheet as of September 30, 2001 and Balance Sheet
as of December 31, 2000.
2. Interim Statements of Operations for the three and nine month
periods ending September 30, 2001, and September 30, 2000.
3. Interim Statements of Cash Flows for the nine month periods
ending September 30, 2001 and September 30, 2000.
The Financial Statements reflect all adjustments which are, in the opinion
of management, necessary to a fair statement of results for the periods
presented.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
On August 19, 2002, we reported that we had discovered accounting
inaccuracies in certain prior period financial statements requiring restatement
of the financial statements for those periods. This statement involved
inaccuracies related to the recording of expenses associated with the issuance
of certain warrants by the Company. We are restating our statements of
operations, cash flows, and stockholders' equity for the years ended December
31, 2001 and 2000 and for the interim periods ended March 31, June 30 and
September 30 of 2001 and 2002, and the balance sheets as of December 31, 2001
and 2000.
We have determined that in 2000 and 2001, the Company did not record the
proper amount of expense associated with the issuance of warrants by the Company
in connection with the issuance of certain subordinated debt and certain senior
debt by the Company. Based upon the fair value of the warrants at the time of
issuance, a debt discount was to be recorded in the amount of such warrant value
with respect to the subordinated and senior debt with which the warrants were
associated. This discount was to be amortized and expensed over the term of the
debt. The total amount of this debt discount related to the warrants was
$487,440 and was to be recorded over the period from November, 1999 through
September 30, 2002. During that time, the total amount actually recorded was
$14,273, which was recorded for the quarter ended December 31, 2001.
We have determined that the amount of such expense should have been
recorded in the following periods for the following amounts:
Two Months Ended December 31, 1999 $42,556
Quarter Ended March 31, 2000 $45,523
Quarter Ended June 30, 2000 $45,523
Quarter Ended September 30, 2000 $45,523
Quarter Ended December 31, 2000 $45,523
Quarter Ended March 31, 2001 $42,471
Quarter Ended June 30, 2001 $36,368
Quarter Ended September 30, 2001 $43,243
Quarter Ended December 31, 2001 $18,998
Quarter Ended March 31, 2002 $ 6,875
Quarter Ended June 30, 2002 $ 6,875
Quarter Ended September 30, 2002 $ 6,875
The restated financial statements in this Report incorporate the proper
entries for these expenses and all necessary adjustments have been made to the
statement of operations, cash flows, stockholders' equity and balance sheet in
the financial statements.
Results of Operations
Net Sales. For the fiscal quarter ended September 30, 2001, net sales were
$6,808,000, compared to net sales of $4,891,000 for the three months ended
September 30, 2000, an increase of 39%. Net sales for the first nine months of
fiscal 2001 increased 13% to $19,765,000, compared to net sales of $17,477,000
for the nine months ended September 30, 2000. This increase is attributable
primarily to an increase in sales of laminated, specialty and printed films of
84% compared to the same period of the prior year.
Cost of Sales. For the fiscal quarter ended September 30, 2001, cost of
sales decreased to 71% of net sales as compared to 72% of net sales in the three
month period ended September 30, 2000. Cost of goods sold was 72.7% of net sales
for the first nine months of fiscal 2001, compared to 69% for the nine month
period ended September 30, 2000, reflecting a change in the product mix and
margins on certain products for that period.
Administrative. For the fiscal quarter ended September 30, 2001,
administrative expenses were $857,000, or 12.6% of net sales as compared to
$815,000, or 16.6% of net sales for the three month period ended September 30,
2000. For the first nine months of fiscal 2001, administrative expenses were
$2,422,000, or 12.3% of net sales as compared to $2,530,000, or 14.5% of net
sales for the nine month period ended September 30, 2000.
Selling. For the fiscal quarter ended September 30, 2001, selling expenses
were $492,000 or 7.2% of net sales, as compared to $382,000, or 7.2% of net
sales for the three month period ended September 30, 2000. For the first nine
months of fiscal 2001, selling expenses were $1,363,000, or 6.9% of net sales as
compared to $1,460,000, or 8.4% of net sales for the three month period ended
September 30, 2000.
2
Advertising and Marketing. For the fiscal quarter ended September 30, 2001,
advertising and marketing expenses were $296,000, or 4.3% of net sales as
compared to $277,000, or 5.7% of net sales in the three month period ended
September 30, 2000. For the first nine months of fiscal 2001, advertising and
marketing expenses were $874,000, or 4.4% of sales as compared to $902,000, or
5.2% of net sales for the nine month period ended September 30, 2000.
Other Income or Expense. Interest expense decreased to $259,000 for the
quarter ended September 30, 2001, as compared to $284,000 for the three month
period ended September 30, 2000. Interest expense increased to $880,000 for the
nine months ended September 30, 2001, as compared to $841,000 for the nine month
period ended September 30, 2000. The increase in interest expense for the nine
month period is attributable to a higher overall level of borrowings.
Net Income or Loss. For the fiscal quarter ended September 30, 2001, the
Company incurred a loss before taxes and minority interest of $76,000 as
compared to a loss before taxes and minority interest of $359,000 for the three
month period ended September 30, 2000. Income tax expense for the third quarter
of fiscal 2001 was $2,000, resulting in a net loss (after provision for minority
interest) of $58,000. The income tax expense for the three month period ended
September 30, 2000 was ($158,000), resulting in a net loss (after provision for
minority interest) of $202,000. For the nine months ended September 30, 2001,
the net loss was $210,000, as compared to a net loss of $438,000 for the nine
month period ended September 30, 2000.
Financial Condition
Liquidity and Capital Resources. Cash flow used in operations during the
nine months ended September 30, 2001 was $853,000, which was affected by
increases in both accounts receivable and inventory resulting from increased
sales volume and a decrease in the amount of depreciation expense. During the
nine month period ended September 30, 2000, cash flows provided by operations
were $1,399,000.
Investment Activities. During the nine months ended September 30, 2001,
cash flow used in investing activities for the purchase of machinery and
equipment was $682,000. In the nine month period ended September 30, 2000,
$1,396,000 was used in investing activities, primarily for the purchase of an
interest in CTI Mexico.
Financing Activities. For the nine months ended September 30, 2001, cash
flow provided by financing activities was $1,248,000. The primary source of this
cash flow was the net proceeds from new long-term indebtedness (offset by the
payment of prior indebtedness) as well as an increase in the amount advanced
under the Company's revolving line of credit. Cash flow provided by financing
activities for the nine month period ending September 30, 2000 was $195,000,
resulting primarily from the repayment of long term debt.
At September 30, 2001, the Company had a cash balance of $237,000. The
Company's current cash management strategy includes maintaining minimal cash
balances and utilizing the revolving line of credit for liquidity. At December
31, 2000, the Company had cash and cash equivalents of $338,000. At September
30, 2001, the Company had a working capital deficit of ($338,000), and at
December 31, 2000, a working capital deficit of ($3,862,000).
3
The Company believes that existing capital resources and cash generated
from operations will be sufficient to meet the Company's requirements for at
least 12 months.
Seasonality. In the metallized ballooon product line, sales have
historically been seasonal, with approximately 20% to 27% of annual sales of
metallized balloons being generated in December and January and 11% to 13% of
annual mylar sales being generated in June and July in recent years. The sale of
latex balloons and laminated film products have not historically been seasonal.
As sales of latex balloons and laminated film products have increased in
relation to sales of metallized balloons, the effect of this seasonality has
been reduced.
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 foil and latex balloon products is generally characterized by intense
competition, frequent new product introductions and changes in customer tastes
which can render existing products unmarketable. The statements contained in
Item 2 (Management's Discussion and Analysis of Financial Condition and Results
of Operation) that are not historical facts may be forward-looking statements
(as such term is defined in the rules promulgated pursuant to the Securities
Exchange Act of 1934) that are subject to a variety of risks and uncertainties
more fully described in the Company's filings with the Securities and Exchange
Commission including, without limitation, those described under "Risk Factors"
in the Company's Form SB-2 Registration Statement (File No. 333-31969) effective
November 5, 1997. The forward-looking statements are based on the beliefs of the
Company's management, as well as assumptions made by, and information currently
available to the Company's management. Accordingly, these statements are subject
to significant risks, uncertainties and contingencies which could cause the
Company's actual growth, results, performance and business prospects and
opportunities in 2001 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
4
in the future. If the Company is unable to introduce new products and respond to
industry changes or customer preferences on a timely basis, its business could
be materially adversely affected. The Company is not obligated to update or
revise these forward-looking statements to reflect new events or circumstances.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter, the Company was served as a third-party defendant in a
pending action filed by RealFresh, Inc., a California corporation, ("RealFresh")
against Packaging Systems, LLC, an Illinois limited liability company ("PSI").
In the action, RealFresh seeks damages from PSI for losses it claims it incurred
by reason of PSI supplying defective packaging materials. The Company was a
supplier to PSI of certain films utilized by PSI in these packaging materials.
PSI initiated a third-party claim against the Company for indemnity,
contribution and breach of contract. The Company believes the third-party claim
against it is without merit and intends to maintain a vigorous defense. The
Company has notified its insurance carrier of the claim. Final outcome of this
matter is uncertain, and a range of loss (beyond any claims that may be covered
by insurance) cannot reasonably be estimated at this time.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
5
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits* No.
Statement re: Computation of Per Share Earnings 11
(b) The Company has not filed a Current Report on Form 8-K
during the quarter covered by this report.
* Also incorporated by reference the Exhibits filed as part
of the SB-2 Registration Statement of the Registrant,
effective November 5, 1997, and subsequent periodic filings.
6
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: April 30, 2003 CTI INDUSTRIES CORPORATION
By: /s/ Stephen M. Merrick
------------------------------------
Stephen M. Merrick
Executive Vice President and
Chief Financial Officer
7
CERTIFICATIONS
I, Howard W. Schwan, Chief Executive Officer of CTI Industries
Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-QSB/A of CTI
Industries Corporation.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 30, 2003
/s/ Howard W. Schwan
----------------------------------------
Howard W. Schwan
Chief Executive Officer
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-QSB/A of CTI
Industries Corporation.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 30, 2003
/s/ Stephen M. Merrick
----------------------------------------
Stephen M. Merrick
Executive Vice President and
Chief Financial Officer
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-QSB/A for the period ending September 30, 2001 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, John H. Schwan, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations
of the Company.
/s/ Howard W. Schwan
----------------------------------------
Howard W. Schwan
Chief Executive Officer
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-QSB/A for the period ending September 30, 2001 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Stephen M. Merrick, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(3) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(4) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations
of the Company.
/s/ Stephen M. Merrick
----------------------------------------
Stephen M. Merrick
Chief Financial Officer
CTI Industries Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the nine months ended September 30
2001 2000
(Unaudited) (Unaudited)
----------- -----------
Cash flows from operating activities:
Net loss $ (209,969) $ (437,861)
Adjustment to reconcile net loss to cash (used in)
provided by operating activities:
Depreciation and amortization 1,106,493 1,507,591
Amortization of Debt Discount 122,082 136,569
Equity in loss of subsidiary and joint venture -- --
Minority interest in loss of subsidiary 21,114 336
Gain on sale of fixed assets (22,534) (7,512)
Change in assets and liabilities:
Accounts receivable (1,833,704) (365,413)
Inventory (1,416,596) (447,801)
Other assets 548,803 544,705
Accounts payable and accrued expenses 781,149 418,779
----------- -----------
Net cash (used in) provided by operating activities (853,162) 1,399,393
Cash flows from investing activities:
Proceeds from sale of property and equipment -- 182,928
Purchases of property and equipment (682,135) (28,811)
Purchase additional interest in CTI Mexico -- (1,550,510)
----------- -----------
Net cash used in investing activities (682,135) (1,396,393)
Cash flows from financing activities:
Net change in revolving line of credit 1,469,728 39,213
Proceeds from issuance of long-term debt 5,296,264 900,000
Repayment of long-term debt (4,577,989) (669,230)
Repayment of short-term debt (930,000) --
Repayment of subordinated debt (10,000) (75,000)
----------- -----------
Net cash provided by financing activities 1,248,003 194,983
Effect of exchange rate changes on cash 131,596 10,105
----------- -----------
Net (decrease) increase in cash (155,698) 208,088
Cash and Equivalents at Beginning of Period 392,534 130,103
----------- -----------
Cash and Equivalents at End of Period $ 236,836 $ 338,191
=========== ===========
CTI Industries Corporation and Subsidiaries
Consolidated Balance Sheets
September 30, 2001 December 31, 2000
As Restated
------------------ -----------------
(Unaudited) (Audited)
------------------ -----------------
ASSETS
Current assets:
Cash $ 236,836 $ 392,534
Accounts receivable (less allowance for doubtful accounts of $353,065 and
$312,572 at September 30, 2001 and December 31, 2000, respectively) 4,588,691 2,573,577
Inventories 8,136,124 7,060,996
Deferred tax assets 208,926 65,700
Other 534,513 659,371
------------ ------------
Total current assets 13,705,090 10,752,178
Property and equipment:
Machinery and equipment 14,117,067 13,472,187
Building 2,388,229 2,370,644
Office furniture and equipment 1,634,343 1,652,823
Land 250,000 250,000
Leasehold improvements 161,885 161,885
Fixtures and equipment at customer locations 2,202,742 2,202,743
Projects under construction 517,325 405,748
------------ ------------
21,271,591 20,516,030
Less: accumulated depreciation (12,335,266) (11,342,792)
------------ ------------
Total property and equipment, net 8,936,325 9,173,238
Other assets:
Deferred financing costs, net 94,964 11,412
Goodwill associated with acquisition of CTI Mexico, net 1,134,773 1,199,771
Deferred tax assets 649,134 812,591
Other assets 326,629 269,600
------------ ------------
Total other assets 2,205,500 2,293,374
------------ ------------
TOTAL ASSETS $ 24,846,915 $ 22,218,790
============ ============
See accompanying notes
CTI Industries Corporation and Subsidiaries
Consolidated Balance Sheets
September 30, 2001 December 31, 2000
As Restated
------------------ -----------------
(Unaudited) (Audited)
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,982,568 $ 5,045,773
Line of credit 5,079,269 3,609,541
Notes payable - current portion 953,595 4,176,934
Accrued liabilities 2,174,909 1,781,985
------------ ------------
Total current liabilities 14,190,341 14,614,233
Long-term liabilities:
Other liabilities 1,434,205 802,596
Notes payable 3,704,003 1,301,022
Subordinated debt 702,877 597,670
------------ ------------
Total long-term liabilities 5,841,085 2,701,288
Redeemable common stock -- --
Minority interest 217,673 238,787
Stockholders' equity:
Common stock - .195 par value, 5,000,000 shares authorized,
966,327 shares issued, 841,644 shares outstanding 188,434 188,434
Class B Common stock - 2.73 par value, 500,000 shares
authorized, 366,300 shares issued and outstanding 1,000,000 1,000,000
Paid-in-capital 5,554,332 5,554,332
Warrants issued in connection with subordinated debt
and bank debt 487,440 351,978
Accumulated deficit (1,961,447) (1,751,478)
Accumulated other comprehensive earnings (34,403) (42,244)
Less:
Treasury stock -- 124,683 shares (575,384) (575,384)
Stock subscription receivable (4,700) (4,700)
Notes receivable from stockholders (56,456) (56,456)
------------ ------------
Total stockholders' equity 4,597,816 4,664,482
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 24,846,915 $ 22,218,790
============ ============
See accompanying notes
CTI Industries Corporation and Subsidiaries
Consolidated Statements of Operations
Quarter ended September 30 Year to Date September 30
2001 2000 2001 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------------------------- ------------------------------
Net Sales $ 6,807,731 $ 4,890,866 $ 19,764,506 $ 17,476,732
Cost of Sales 4,850,569 3,523,455 14,376,770 12,064,510
---------------------------- ------------------------------
Gross profit on sales 1,957,162 1,367,411 5,387,736 5,412,222
Operating expenses:
Administrative 856,827 798,609 2,422,016 2,513,715
Selling 492,183 382,346 1,363,034 1,460,298
Advertising and marketing 295,809 277,352 874,119 901,973
---------------------------- ------------------------------
Total operating expenses 1,644,819 1,458,307 4,659,169 4,875,986
---------------------------- ------------------------------
Income (loss) from operations 312,343 (90,896) 728,567 536,236
Other income (expense):
Interest expense (258,912) (283,722) (880,041) (840,812)
Interest income (0) 1,104 742 12,439
Gain on sale of assets 7,512 -- 22,534 7,512
Other (136,606) 14,933 (87,612) (231,135)
---------------------------- ------------------------------
Total other income (expense) (388,011) (267,685) (944,377) (1,051,996)
---------------------------- ------------------------------
Loss before income taxes and minority interest (75,668) (358,581) (215,810) (515,760)
Income tax expense (benefit) 2,163 (158,444) 15,273 (78,235)
---------------------------- ------------------------------
Loss before minority interest (77,831) (200,137) (231,083) (437,525)
Minority interest in profit (loss) of subsidiary (20,093) 1,870 (21,114) 336
---------------------------- ------------------------------
Net (Loss) $ (57,738) $ (202,007) $ (209,969) $ (437,861)
============================ ==============================
(Loss) applicable to common shares $ (57,738) $ (202,007) $ (209,969) $ (437,861)
============================ ==============================
Basic (loss) per common and common equivalent shares $ (0.05) $ (0.12) $ (0.17) $ (0.36)
============================ ==============================
Diluted (loss) per common and common equivalent shares $ (0.05) $ (0.12) $ (0.17) $ (0.36)
============================ ==============================
Weighted average number of shares and equivalent shares
of common stock outstanding:
Basic 1,207,944 1,207,944 1,207,944 1,207,944
============================ ==============================
Diluted 1,207,944 1,207,944 1,207,944 1,207,944
============================ ==============================
See accompanying notes
September 30, 2001
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
2001 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2001. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Registrant Company
and Subsidiaries' annual report on Form 10-KSB for the year ended December 31,
2000.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments considered necessary for a fair presentation, have been
included. The results of operations for the three months and nine months ended
September 30, 2001 are not necessarily indicative of the results to be expected
for the full year or for any future periods. The accompanying unaudited,
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements contained in the Company's Annual
Report on Form 10-KSB/A filed with the Securities and Exchange Commission on
December 31, 2000. The balance sheet at September 30, 2001 has been derived from
the audited financial statement as of and for the year ended December 31, 2000
but does not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
Note 2 - Restatement
The Company restated its balance sheet as of December 31, 2000. The restatement
is further discussed in Note 3 of the Notes to the Consolidated Financial
Statements on Form 10-KSB/A for the year ended December 31, 2000.
Note 3 - Company Debt Restructure
In January 2001, the Company entered into a Loan and Security Agreement with a
new lender under which the lender has provided the Company with a credit
facility in the amount of $9,500,000, secured by equipment, inventory,
receivables, and other assets of the Company. The credit facility includes a
term loan of $1,426,000, at an interest rate of prime plus 0.75%, and a
revolving line of credit at an interest rate of prime plus 0.50%, the amount of
which is based on advances of up to 85% of eligible receivables and 50% of the
value of the Company's inventory. The credit facility is secured by
substantially all assets of the Company. The term of this credit facility is for
a period of three years, which may be extended by either party for an additional
year.
Also in January 2001, another lender loaned to the Company the sum of $2,873,000
in a refinance of the Company's principal office building and property situated
in Barrington, Illinois. The loan is secured by the aforementioned building and
property, and has been made in the form of two notes. The first note is in the
principal amount of $2,700,000, bears interest at the rate of 9.75%, and has a
term of five years with an amortization period of 25 years. The second note is
in the principal amount of $173,000 with an interest rate of 10%, and has a term
of three years.
Note 4 - Warrants Issued
In July, 2001, warrants to purchase up to 100,000 shares of the Company's Common
Stock at $1.78 were issued. The new warrants expire on July 17, 2006.
Note 5 - Change of State of Incorporation
On October 30, 2001, the Company filed the necessary documentation with the
Illinois and Delaware Secretaries of State in order to complete its migratory
merger/state of incorporation change from Delaware to Illinois. As a consequence
of the merger, all shares of the Company's authorized and issued capital stock
shall be of no par value.
Note 6 - Recent Accounting Pronouncements
SFAS NO. 141 "BUSINESS COMBINATIONS", AND SFAS 142, "GOODWILL AND INTANGIBLE
ASSETS"
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, Business Combinations,
and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all
business combinations completed after June 30, 2001. SFAS 142 is effective for
fiscal years beginning after December 15, 2001; however, certain provisions of
this Statement apply to goodwill and other intangible assets acquired between
July 1, 2001 and the effective date of SFAS 142.
Although it is still reviewing the provisions of these Statements, management's
preliminary assessment is that these Statements will not have a material impact
on the Company's financial position or results of operations
Note 7 - Earnings Per Share
The Company adopted SFAS No. 128, "Earnings per Share," for the year ended
October 31, 1998. Adoption of this pronouncement did not have a material impact
on the Company's financial statements.
Basic earnings per share is computed by dividing the income available to common
shareholders by the weighted average number of shares of common stock
outstanding during each period.
Diluted earnings per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents (stock
options and warrants), unless anti-dilutive, during each period.
Earnings per share for the periods ended June 30, 2001 and 2000 was computed as
follows: