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 March 31, 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 March 31, 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 MARCH 31, 2000
AND 2001. THESE REVISIONS HAVE BEEN MADE CONCERNING 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 MARCH 31, 2001 AND DOES NOT REFLECT ANY SUBSEQUENT INFORMATION
OR EVENTS OTHER THAN THE RESTATEMENT.
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 MARCH 31, 2000
AND 2001. THESE REVISIONS HAVE BEEN MADE CONCERNING 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 MARCH 31, 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 March 31, 2001 and Balance Sheet as of
December 31, 2000.
2. Interim Statements of Operations for the three month periods ending
March 31, 2001, and March 31, 2000.
3. Interim Statements of Cash Flows for the three month periods ending
March 31, 2001 and March 31, 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 three months ended March 31, 2001, net sales were
$6,081,000, as compared to sales of $7,162,000 for the three months ended March
31, 2000, a decrease of 15.1%. The decline in sales is due to a decrease in
metallized balloon sales of approximately $1,400,000, which was partially offset
by an increase in printed and laminated film sales of $350,000.
Cost of Sales. For the three months ended March 31, 2001, cost of sales
increased to 73.3% of net sales as compared to 69.1% of net sales for the same
period in 2000. The increase was primarily the result of lower than expected
margins in the production and sale of latex balloons.
Administrative. For the three months ended March 31, 2001, administrative
expenses were $747,000 or 12.3% of sales as compared to $858,000, or 12.0% of
sales for the same period in 2000. The majority of the decrease in
administrative expense dollars came from reduced expenditures in the Company's
Mexico operation.
Selling. For the three months ended March 31, 2001, selling expenses were
$426,000 or 7.0% of sales, as compared to $523,000, or 7.3% of net sales for the
same period in 2000. The decline in selling expense dollars is primarily related
to the decline in sales volume and the selling expenses directly associated with
those sales.
Advertising and Marketing. For the three months ended March 31, 2001,
advertising and marketing expenses were $271,000 or 4.5% of net sales as
compared to $314,000 or 4.4% of net sales in the same period 2000. The decrease
in advertising and marketing expense dollars came from several items, mainly
reduced spending for printed
2
advertising media, and reduced expenditures related to the Company's
participation in trade shows.
Other Income or Expense. Interest expense increased to $342,000 for the
three months ended March 31, 2001, as compared to $331,000 for the three months
ended March 31, 2000. The increase in interest expense is due to the Company's
increased level of borrowings.
Net Income or Loss. For the three months ended March 31, 2001, the Company
had a loss before taxes and minority interest of $190,000, as compared to income
before taxes and minority interest of $217,000 for the same three month period
in 2000. The provision for income taxes for the three-month period ended March
31, 2001 was $9,000, resulting in a net loss of $176,000. The provision for
income taxes for the three-month period ended March 31, 2000 was $57,000,
resulting in net income of $131,000.
Financial Condition
Liquidity and Capital Resources. Cash flow used in operations during the
three months ended March 31, 2001 was $1,085,000, which resulted principally
from an increase accounts receivable. During the three months ended March 31,
2000, cash flow provided by operations was $86,000, mainly a result of non-cash
depreciation and amortization expense and lower inventory levels.
Investment Activities. During the three months ended March 31, 2001 cash
flow used in investing activities for the purchase of machinery and equipment
was $82,000. In the three months ended March 31, 2000, $152,000 was used in
investing activities, primarily for the purchase of machinery and equipment, and
the purchase of additional equity ownership in CTI Mexico.
Financing Activities. For the three months ended March 31, 2001, cash flow
provided by financing activities was $1,208,000. The two primary sources of this
cash flow were the refinancing of the Company's debt which netted additional
cash of approximately $800,000, and the cash flow provided by the short-term
revolving line of credit. Cash flow provided by financing activities for the
three months ended March 31, 2000 was $171,000, resulting from the use of the
short-term revolving line of credit.
At March 31, 2001, the Company had a cash balance of $435,000. 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 $393,000. At March 31,
2001, the Company had working capital of ($1,180,000), and at December 31, 2000,
working capital was ($3,862,000).
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 mylar product line, sales have historically been
seasonal with approximately 20% to 27% of annual sales of mylar being generated
in December and January and 11% to 13% of annual mylar sales being generated in
June and July in recent
3
years. The sale of latex balloons and laminated film products have not
historically been seasonal.
Safe Harbor Provision of the Private Securities Litigation Act of 1995 and
Forward Looking Statements. The Company operates in a dynamic and rapidly
changing environment that involves numerous risks and uncertainties. The market
for mylar and latex balloon products is generally characterized by intense
competition, frequent new product introductions and changes in customer tastes
which can render existing products unmarketable. The statements contained in
Item 2 (Management's Discussion and Analysis of Financial Condition and Results
of Operation) that are not historical facts may be forward-looking statements
(as such term is defined in the rules promulgated pursuant to the Securities
Exchange Act of 1934) that are subject to a variety of risks and uncertainties
more fully described in the Company's filings with the Securities and Exchange
Commission including, without limitation, those described under "Risk Factors"
in the Company's Form SB-2 Registration Statement (File No. 333-31969) effective
November 5, 1997. The forward-looking statements are based on the beliefs of the
Company's management, as well as assumptions made by, and information currently
available to the Company's management. Accordingly, these statements are subject
to significant risks, uncertainties and contingencies which could cause the
Company's actual growth, results, performance and business prospects and
opportunities in 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 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.
4
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
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/ Howard W. Schwan
---------------------------------
Howard W. Schwan, President
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 March 31, 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 March 31, 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 Balance Sheets
March 31, December 31,
2001 2000
(Unaudited) (Audited)
As Restated
------------ ------------
ASSETS
Current assets:
Cash $ 434,803 $ 392,534
Accounts receivable (less allowance
for doubtful accounts of $328,086
and $312,572 at March 31, 2001 and
December 31,2000, respectively) 4,150,754 2,573,577
Inventories 6,930,016 7,060,996
Deferred tax assets 65,700 65,700
Other 727,888 659,371
------------ ------------
Total current assets 12,309,161 10,752,178
Property and equipment:
Machinery and equipment 13,482,893 13,472,187
Building 2,383,530 2,370,644
Office furniture and equipment 1,672,143 1,652,823
Land 250,000 250,000
Leasehold improvements 161,885 161,885
Fixtures and equipment at customer locations 2,202,743 2,202,743
Projects under construction 495,155 405,748
------------ ------------
20,648,349 20,516,030
Less: accumulated depreciation (11,720,171) (11,342,792)
------------ ------------
Total property and equipment, net 8,928,178 9,173,238
Other assets:
Deferred financing costs, net 125,958 11,412
Goodwill associated with acquisition
of CTI Mexico, net 1,179,493 1,199,771
Deferred tax assets 811,202 812,591
Other assets 360,765 269,600
------------ ------------
Total other assets 2,477,418 2,293,374
------------ ------------
TOTAL ASSETS $ 23,714,757 $ 22,218,790
============ ============
See accompanying notes
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2001 2000
(Unaudited) (Audited)
As Restated
------------ ------------
Current liabilities:
Accounts payable $ 5,123,753 $ 5,045,773
Line of credit 4,520,311 3,609,541
Notes payable - current portion 1,715,918 4,176,934
Accrued liabilities 2,129,481 1,781,985
------------ ------------
Total current liabilities 13,489,463 14,614,233
Long-term liabilities:
Other liabilities 824,809 802,596
Notes payable 4,091,362 1,301,022
Subordinated debt 630,141 597,670
------------ ------------
Total long-term liabilities 5,546,312 2,701,288
Minority interest 215,300 238,787
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 351,978 351,978
Accumulated deficit (1,927,218) (1,751,478)
Accumulated other comprehensive earnings (67,306) (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 4,463,682 4,664,482
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 23,714,757 $ 22,218,790
============ ============
See accompanying notes
CTI Industries Corporation and Subsidiaries
Consolidated Statements of Operations
Quarter Ended March 31
2001 2000
(Unaudited) (Unaudited)
----------- -----------
Net Sales $ 6,080,573 $ 7,162,326
Cost of Sales 4,457,778 4,948,329
----------- -----------
Gross profit on sales 1,622,795 2,213,997
Operating expenses:
Administrative 746,925 857,522
Selling 425,581 522,774
Advertising and marketing 271,199 314,226
----------- -----------
Total operating expenses 1,443,705 1,694,522
----------- -----------
Income from operations 179,090 519,475
Other income (expense):
Interest expense (342,375) (330,934)
Interest income 741 9,580
Gain on sale of assets 7,512 7,512
Other (35,072) 11,592
----------- -----------
Total other income (expense) (369,194) (302,250)
----------- -----------
Income (loss) before income taxes and
minority interest (190,104) 217,225
Income tax expense 9,123 57,251
----------- -----------
Income (loss) before minority interest (199,227) 159,974
Minority interest in profit (loss)
of subsidiary (23,487) 29,287
----------- -----------
Net income (loss) $ (175,740) $ 130,687
=========== ===========
Income (loss) applicable to common shares $ (175,740) $ 130,687
=========== ===========
Basic income (loss) per common and common
equivalent shares $ (0.15) $ 0.11
=========== ===========
Diluted income (loss) per common and common
equivalent shares $ (0.15) $ 0.10
=========== ===========
Weighted average number of shares and
equivalent shares of common stock
outstanding:
Basic 1,207,944 1,207,944
=========== ===========
Diluted 1,207,944 1,315,442
=========== ===========
See accompanying notes
CTI Industries Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Quarter Ended March 31
2001 2000
(Unaudited) (Unaudited)
----------- ---------
Cash flows from operating activities:
Net income (loss) $ (175,740) $ 130,687
Adjustment to reconcile net income (loss) to cash (used in)
provided by operating activities:
Depreciation and amortization 390,936 440,293
Amortization of Debt Discount 42,471 45,523
Minority interest in profit (loss) of subsidiary (23,487) 29,287
Gain on sale of fixed assets (7,512) (7,512)
Provision for losses on accounts receivable & inventory 50,000 49,500
Change in assets and liabilities:
Accounts receivable (1,338,556) (478,582)
Inventory (215,727) 286,218
Other assets 204,184 (153,813)
Accounts payable and accrued expenses (11,642) (255,323)
----------- ---------
Net cash (used in) provided by operating activities (1,085,073) 86,278
Cash flows from investing activities:
Purchases of property and equipment (81,938) (66,752)
Purchase additional interest in CTI Mexico -- (85,652)
----------- ---------
Net cash (used in) investing activities (81,938) (152,404)
Cash flows from financing activities:
Net change in revolving line of credit 910,770 422,166
Proceeds from issuance of long-term debt 4,655,035 --
Proceeds from issuance of short-term debt 1,131,819 --
Repayment of long-term debt (4,464,216) (236,654)
Repayment of short-term debt (1,014,920) --
Repayment of subordinated debt (10,000) (15,000)
----------- ---------
Net cash provided by financing activities 1,208,488 170,512
Effect of exchange rate changes on cash 792 8,475
----------- ---------
Net increase in cash 42,269 112,861
Cash and Equivalents at Beginning of Period 392,534 130,103
----------- ---------
Cash and Equivalents at End of Period $ 434,803 $ 242,964
=========== =========
See accompanying notes
March 31, 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 three month period ended March 31, 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 ended March 31, 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 March 31, 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 3 - 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 March 31, 2001 and 2000 was computed as
follows:
CTI Industries Corporation and Subsidiaries
Quarter Ended March 31
2001 2000
(Unaudited) (Unaudited)
----------- -----------
Basic
Average shares outstanding:
Weighted average number of shares of
common stock outstanding during the
period 1,207,944 1,207,944
=========== ==========
Net income:
Net income (loss) $ (175,740) $ 130,687
Amount for per share computation $ (175,740) $ 130,687
=========== ==========
Per share amount $ (0.15) $ 0.11
=========== ==========
Diluted
Average shares outstanding:
Weighted average number of shares of
common stock outstanding during the
period 1,207,944 1,207,944
Net additional shares assuming stock
options and warrants exercised and
proceeds used to purchase treasury
stock -- 107,498
----------- ----------
Weighted average number of shares and
equivalent shares of common stock
outstanding during the period 1,207,944 1,315,442
=========== ==========
Net income:
Net income (loss) $ (175,740) $ 130,687
Amount for per share computation $ (175,740) $ 130,687
=========== ==========
Per share amount $ (0.15) $ 0.10
=========== ==========