x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended June 30, 2009
|
|
OR
|
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Illinois
|
36-2848943
|
||
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification Number)
|
||
incorporation
or organization)
|
|||
22160
N. Pepper Road
|
|||
Barrington, Illinois
|
60010
|
||
(Address
of principal executive offices)
|
(Zip
Code)
|
PART
I – FINANCIAL INFORMATION
|
||
Item
No. 1
|
Financial
Statements
|
|
Condensed
Consolidated Interim Balance Sheet at June 30, 2009
(unaudited)
|
||
and
December 31, 2008
|
3
|
|
Condensed
Consolidated Interim Statements of Income (unaudited) for
the
|
||
three
and six months ended June 30, 2009 and June 30, 2008
|
4
|
|
Condensed
Consolidated Interim Statements of Cash Flows (unaudited)
for
|
||
the
three and six months ended June 30, 2009 and June 30, 2008
|
5
|
|
Condensed
Consolidated Interim Consolidated Earnings per Share
(unaudited)
|
||
for
the three and six months ended June 30, 2009 and June 30,
2008
|
6
|
|
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
7
|
|
Item
No. 2
|
Management’s
Discussion and Analysis of
|
|
Financial
Condition and Results of Operations
|
19
|
|
Item
No. 3
|
Quantitative
and Qualitative Disclosures Regarding Market Risk
|
27
|
Item
No. 4
|
Controls
and Procedures
|
27
|
PART
II – OTHER INFORMATION
|
||
Item
No. 1
|
Legal
Proceedings
|
28
|
Item
No. 1A
|
Risk
Factors
|
28
|
Item
No. 2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
28
|
Item
No. 3
|
Defaults
Upon Senior Securities
|
28
|
Item
No. 4
|
Submission
of Matters to a Vote of Security Holders
|
29
|
Item
No. 5
|
Other
Information
|
30
|
Item
No. 6
|
Exhibits
|
31
|
Signatures
|
||
Exhibit
31.1
|
||
Exhibit
31.2
|
||
Exhibit
32.1
|
||
Exhibit
32.2
|
June 30, 2009
|
December 31, 2008
|
|||||||
|
(unaudited)
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 202,656 | $ | 180,578 | ||||
Accounts
receivable, (less allowance for doubtful accounts of $89,000 and $39,000,
respectively)
|
6,617,105 | 5,821,593 | ||||||
Inventories,
net
|
10,169,120 | 10,504,769 | ||||||
Net
deferred income tax asset
|
719,411 | 674,872 | ||||||
Prepaid
expenses and other current assets
|
646,045 | 506,225 | ||||||
Total
current assets
|
18,354,337 | 17,688,037 | ||||||
Property,
plant and equipment:
|
||||||||
Machinery
and equipment
|
22,043,341 | 21,612,995 | ||||||
Building
|
3,179,909 | 3,179,909 | ||||||
Office
furniture and equipment
|
1,980,993 | 1,898,642 | ||||||
Intellectual
property
|
345,092 | 345,092 | ||||||
Land
|
250,000 | 250,000 | ||||||
Leasehold
improvements
|
425,657 | 409,797 | ||||||
Fixtures
and equipment at customer locations
|
2,541,881 | 2,539,033 | ||||||
Projects
under construction
|
959,875 | 1,017,737 | ||||||
31,726,748 | 31,253,205 | |||||||
Less
: accumulated depreciation and amortization
|
(21,601,066 | ) | (20,677,223 | ) | ||||
Total
property, plant and equipment, net
|
10,125,682 | 10,575,982 | ||||||
Other
assets:
|
||||||||
Deferred
financing costs, net
|
83,448 | 123,229 | ||||||
Goodwill
|
989,108 | 989,108 | ||||||
Net
deferred income tax asset
|
257,054 | 341,714 | ||||||
Other
assets (due from related party $105,000 and $63,000,
respectively)
|
369,358 | 270,121 | ||||||
Total
other assets
|
1,698,968 | 1,724,172 | ||||||
TOTAL
ASSETS
|
30,178,987 | 29,988,191 | ||||||
LIABILITIES
AND EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Checks
written in excess of bank balance
|
883,505 | 680,348 | ||||||
Trade
payables
|
3,375,537 | 3,153,005 | ||||||
Line
of credit
|
7,226,273 | 7,960,765 | ||||||
Notes
payable - current portion
|
1,101,221 | 1,091,489 | ||||||
Notes
payable - officers, current portion, net of debt discount of $89,000 and
$89,000
|
1,368,564 | 1,363,255 | ||||||
Accrued
liabilities
|
2,344,052 | 1,973,318 | ||||||
Total
current liabilities
|
16,299,152 | 16,222,180 | ||||||
Long-term
liabilities:
|
||||||||
Notes
Payable - Affiliates
|
854,254 | 894,620 | ||||||
Notes
payable, net of current portion
|
3,666,986 | 4,220,071 | ||||||
Notes
payable - officers, subordinated, net of debt discount of $52,000 and
$96,000
|
948,298 | 903,964 | ||||||
Total
long-term liabilities
|
5,469,538 | 6,018,655 | ||||||
|
||||||||
Equity:
|
||||||||
CTI
Industries Corporation stockholders' equity:
|
||||||||
Preferred
Stock — no par value 2,000,000
shares authorized
|
||||||||
0
shares issued and outstanding
|
$ | - | $ | - | ||||
Common
stock - no par value, 5,000,000 shares
authorized,
|
||||||||
2,808,720
and 2,808,720 shares issued and 2,739,641 and 2,808,720 outstanding,
respectively
|
3,764,020 | 3,764,020 | ||||||
Paid-in-capital
|
8,716,025 | 8,703,265 | ||||||
Warrants
issued in connection with subordinated debt and bank debt
|
443,313 | 443,313 | ||||||
Accumulated
deficit
|
(2,707,922 | ) | (3,209,868 | ) | ||||
Accumulated
other comprehensive loss
|
(1,694,518 | ) | (1,966,130 | ) | ||||
Less: Treasury
stock, 69,079 shares and 0 shares
|
(124,874 | ) | - | |||||
Total
CTI Industries Corporation stockholders' equity
|
8,396,044 | 7,734,600 | ||||||
Noncontrolling
interest
|
14,253 | 12,756 | ||||||
Total
Equity
|
8,410,297 | 7,747,356 | ||||||
TOTAL
LIABILITIES AND EQUITY
|
$ | 30,178,987 | $ | 29,988,191 |
For the Three Months Ended June 30,
|
For the Six Months Ended June 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
Sales
|
$ | 10,778,903 | $ | 12,460,945 | $ | 20,382,324 | $ | 23,195,646 | ||||||||
Cost
of Sales
|
8,178,204 | 9,548,061 | 15,715,122 | 17,951,083 | ||||||||||||
Gross
profit
|
2,600,699 | 2,912,884 | 4,667,202 | 5,244,563 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
General
and administrative
|
1,301,032 | 1,456,109 | 2,340,669 | 2,614,596 | ||||||||||||
Selling
|
203,734 | 277,062 | 380,791 | 463,642 | ||||||||||||
Advertising
and marketing
|
421,002 | 424,903 | 809,063 | 771,810 | ||||||||||||
Total
operating expenses
|
1,925,768 | 2,158,074 | 3,530,523 | 3,850,048 | ||||||||||||
Income
from operations
|
674,931 | 754,810 | 1,136,679 | 1,394,515 | ||||||||||||
Other
income (expense):
|
||||||||||||||||
Interest
expense
|
(280,964 | ) | (287,263 | ) | (576,628 | ) | (557,840 | ) | ||||||||
Interest
income
|
8,398 | 859 | 8,511 | 1,175 | ||||||||||||
Foreign
currency gain
|
2,599 | 11,889 | (18,998 | ) | 42,211 | |||||||||||
Total
other expense, net
|
(269,967 | ) | (274,515 | ) | (587,115 | ) | (514,454 | ) | ||||||||
Net
Income before taxes
|
404,964 | 480,295 | 549,564 | 880,061 | ||||||||||||
Income
tax (benefit) expense
|
(4,037 | ) | (4,818 | ) | 46,121 | 115,839 | ||||||||||
Net
Income
|
409,001 | 485,113 | 503,443 | 764,222 | ||||||||||||
Less:
Net income attributable to noncontrolling interest
|
263 | (24 | ) | 1,497 | 264 | |||||||||||
Net
income attributable to CTI Industries Corporation
|
$ | 408,738 | $ | 485,137 | $ | 501,946 | $ | 763,958 | ||||||||
Other
Comprehensive Income
|
||||||||||||||||
Unrealized
gain on derivative instruments
|
$ | 61,351 | $ | 144,610 | $ | 88,055 | $ | 7,749 | ||||||||
Foreign
currency adjustment
|
$ | 332,457 | $ | 91,134 | $ | 183,556 | $ | 100,759 | ||||||||
Comprehensive
income
|
$ | 802,546 | $ | 720,881 | $ | 773,557 | $ | 872,466 | ||||||||
Basic
income per common share
|
$ | 0.15 | $ | 0.17 | $ | 0.18 | $ | 0.28 | ||||||||
Diluted
income per common share
|
$ | 0.15 | $ | 0.17 | $ | 0.18 | $ | 0.26 | ||||||||
Weighted
average number of shares and equivalent shares of common stock
outstanding:
|
||||||||||||||||
Basic
|
2,775,902 | 2,781,025 | 2,792,220 | 2,721,646 | ||||||||||||
Diluted
|
2,776,797 | 2,929,548 | 2,797,256 | 2,885,783 |
For the Six Months Ended June 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 501,946 | $ | 763,958 | ||||
Adjustment
to reconcile net income to cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
945,438 | 760,304 | ||||||
Amortization
of debt discount
|
44,334 | 44,334 | ||||||
Stock
based compensation
|
44,698 | 30,000 | ||||||
Noncontrolling
interest in income of subsidiary
|
1,497 | 280 | ||||||
Provision
for losses on accounts receivable
|
56,102 | 90,000 | ||||||
Provision
for losses on inventories
|
24,000 | 15,000 | ||||||
Deferred
income taxes
|
40,121 | 115,837 | ||||||
Change
in assets and liabilities:
|
||||||||
Accounts
receivable
|
(703,853 | ) | (1,105,695 | ) | ||||
Inventories
|
436,308 | (548,802 | ) | |||||
Prepaid
expenses and other assets
|
(306,180 | ) | 183,556 | |||||
Trade
payables
|
231,149 | 1,018,922 | ||||||
Accrued
liabilities
|
372,023 | (439,769 | ) | |||||
Net
cash provided by operating activities
|
1,687,583 | 927,925 | ||||||
Cash
used in investing activity - purchases of property, plant and
equipment
|
(433,481 | ) | (848,060 | ) | ||||
Net
cash used in investing activity
|
(433,481 | ) | (848,060 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Change
in checks written in excess of bank balance
|
197,714 | (391,231 | ) | |||||
Net
change in revolving line of credit
|
(734,492 | ) | 432,772 | |||||
Proceeds
from issuance of long-term debt and warrants
|
- | 1,224,267 | ||||||
Repayment
of long-term debt (related parties $52,000
and $36,000)
|
(617,128 | ) | (563,873 | ) | ||||
Proceeds
from exercise of stock options
|
- | 5,625 | ||||||
Cash
paid for purchase of stock
|
(55,036 | ) | - | |||||
Cash
paid for deferred financing fees
|
(40,555 | ) | (15,000 | ) | ||||
Net
cash (used in) provided by financing activities
|
(1,249,497 | ) | 692,560 | |||||
Effect
of exchange rate changes on cash
|
17,473 | 4,879 | ||||||
Net
increase in cash and cash equivalents
|
22,078 | 777,304 | ||||||
Cash
and cash equivalents at beginning of period
|
180,578 | 483,113 | ||||||
Cash
and cash equivalents at end of period
|
$ | 202,656 | $ | 1,260,417 | ||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
payments for interest
|
$ | 420,907 | $ | 545,166 | ||||
Cash
payments for taxes
|
$ | 6,000 | $ | - | ||||
Supplemental Disclosure of non-cash investing and financing activity | ||||||||
Stock
issued under consulting agreement
|
$ | 23,313 | $ | 221,000 | ||||
Exercise
of Warrants and payment of Subordinated Debt
|
$ | - | $ | 793,810 | ||||
Property,
Plant & Equipment acquisitions funded by liabilities
|
$ | 61,985 | $ | 35,588 |
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Basic
|
||||||||||||||||
Average
shares outstanding:
|
||||||||||||||||
Weighted
average number of common shares
|
||||||||||||||||
outstanding
|
2,775,902 | 2,781,025 | 2,792,220 | 2,721,646 | ||||||||||||
Net
income:
|
||||||||||||||||
Net
income:
|
$ | 408,738 | $ | 485,137 | $ | 501,946 | $ | 763,958 | ||||||||
Per
share amount
|
$ | 0.15 | $ | 0.17 | $ | 0.18 | $ | 0.28 | ||||||||
Diluted
|
||||||||||||||||
Average
shares outstanding:
|
||||||||||||||||
Weighted
average number of common shares
|
||||||||||||||||
outstanding
|
2,775,902 | 2,781,025 | 2,792,220 | 2,721,646 | ||||||||||||
Effect
of dilutive shares
|
895 | 148,523 | 5,036 | 164,137 | ||||||||||||
Weighted
average number of shares and
|
||||||||||||||||
equivalent
shares of common stock
|
||||||||||||||||
outstanding
|
2,776,797 | 2,929,548 | 2,797,256 | 2,885,783 | ||||||||||||
Net
income:
|
||||||||||||||||
Net
income
|
$ | 408,738 | $ | 485,137 | $ | 501,946 | $ | 763,958 | ||||||||
Per
share amount
|
$ | 0.15 | $ | 0.17 | $ | 0.18 | $ | 0.26 |
Shares under
Option
|
Weighted
Avgerage
Exercise Price
|
Weighted
Average
Contractual
Life
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Balance
at December 31, 2008
|
272,502 | $ | 2.95 | |||||||||||||
Granted
|
- | - | ||||||||||||||
Cancelled
|
37,858 | $ | 2.30 | |||||||||||||
Exercised
|
- | - | ||||||||||||||
Outstanding
at June 30, 2009
|
234,644 | $ | 3.05 | 3.40 | $ | 15,174 | ||||||||||
Exercisable
at June 30, 2009
|
147,019 | $ | 2.94 | 3.70 | $ | 8,049 |
Shares under
Warrant
|
Weighted
Avgerage
Exercise Price
|
Weighted
Average
Contractual
Life
|
Aggregate
Intrinsic Value
|
||||||||||
Outstanding
and Exercisable at December 31, 2008
|
343,030 | $ | 3.47 | ||||||||||
Granted
|
- | - | |||||||||||
Cancelled
|
- | - | |||||||||||
Exercised
|
- | ||||||||||||
Outstanding
and Exercisable at June 30, 2009
|
343,030 | $ | 3.47 |
1.70
|
$ |
-
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||||||||||||
Options by Grant Date
|
Shares
|
Wtd Avg
|
Remain. Life
|
Intrinsic Val
|
Shares
|
Wtd Avg
|
Remain. Life
|
Intrinsic Val
|
||||||||||||||||||||||||
Mar
2000
|
25,786 | $ | 1.89 | 0.7 | $ | 2,579 | 25,786 | $ | 1.89 | 0.7 | $ | 2,579 | ||||||||||||||||||||
Dec
2001
|
5,953 | $ | 1.47 | 2.5 | $ | 3,096 | 5,953 | $ | 1.47 | 2.5 | $ | 3,096 | ||||||||||||||||||||
Apr
2002
|
11,905 | $ | 2.10 | 2.8 | $ | - | 11,905 | $ | 2.10 | 2.8 | $ | - | ||||||||||||||||||||
Dec
2005
|
52,000 | $ | 2.88 | 6.5 | $ | - | 52,000 | $ | 2.88 | 6.5 | $ | - | ||||||||||||||||||||
Oct
2007
|
66,500 | $ | 4.76 | 2.3 | $ | - | 33,250 | $ | 4.76 | 2.3 | $ | - | ||||||||||||||||||||
Aug
2008
|
6,000 | $ | 6.14 | 3.1 | $ | - | 1,500 | $ | 6.14 | 3.1 | $ | - | ||||||||||||||||||||
Oct
2008
|
2,500 | $ | 4.97 | 3.3 | $ | - | 625 | $ | 4.97 | 3.3 | $ | - | ||||||||||||||||||||
Nov
2008
|
64,000 | $ | 1.84 | 3.4 | $ | 9,500 | 16,000 | $ | 1.84 | 3.4 | $ | 2,375 | ||||||||||||||||||||
TOTAL
|
234,644 | $ | 3.05 | 3.4 | $ | 15,174 | 147,019 | $ | 2.94 | 3.7 | $ | 8,049 |
Foreign
Currency
Items
|
Unrealized Gains
(Loss) on
Derivatives
|
Accumulated Other
Comprehensive
(Loss)
|
||||||||||
Beginning
balance as of January 1, 2009
|
$ | (1,625,000 | ) | $ | (341,000 | ) | $ | (1,966,000 | ) | |||
Current
period change, net of tax
|
184,000 | 88,000 | 272,000 | |||||||||
Ending
Balance as of June 30, 2009
|
$ | (1,441,000 | ) | $ | (253,000 | ) | $ | (1,694,000 | ) |
|
·
|
Level 1 –
inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets are liabilities in active
markets.
|
|
·
|
Level 2 –
inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs are observable for
the asset or liability, either directly or indirectly, for substantially
the full term of the financial
instrument.
|
|
·
|
Level 3 –
inputs to the valuation methodology are unobservable and significant to
the fair value measurement.
|
Description
|
6/30/2009
|
Level
1
|
Level
2
|
Level
3
|
|||||||
Interest
Rate Swap 2006-1
|
$ | (30,000 | ) | $ | (30,000 | ) | |||||
Interest
Rate Swap 2006-2
|
(108,000 | ) | (108,000 | ) | |||||||
Interest
Rate Swap 2008
|
(115,000 | ) | (115,000 | ) | |||||||
$ | (253,000 | ) | $ | (253,000 | ) |
June 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Raw
materials
|
$ | 1,756,000 | $ | 1,676,000 | ||||
Work
in process
|
794,000 | 1,075,000 | ||||||
Finished
goods
|
7,985,000 | 8,183,000 | ||||||
Allowance
for excess quantities
|
(366,000 | ) | (429,000 | ) | ||||
Total
inventories
|
$ | 10,169,000 | $ | 10,505,000 |
Net Sales to Outside Customers
|
Net Sales to Outside Customers
|
|||||||||||||||
For the Three Months Ended
|
For the Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
United
States
|
$ | 8,623,000 | $ | 9,941,000 | $ | 15,891,000 | $ | 18,308,000 | ||||||||
Mexico
|
1,559,000 | 1,848,000 | 3,241,000 | 3,404,000 | ||||||||||||
United
Kingdom
|
597,000 | 672,000 | 1,250,000 | 1,484,000 | ||||||||||||
$ | 10,779,000 | $ | 12,461,000 | $ | 20,382,000 | $ | 23,196,000 |
Total
Assets at
|
||||||||
June
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
United
States
|
$ | 24,047,000 | $ | 24,709,000 | ||||
Mexico
|
5,150,000 | 4,539,000 | ||||||
United
Kingdom
|
982,000 | 740,000 | ||||||
$ | 30,179,000 | $ | 29,988,000 |
Three Months Ended
June 30, 2009
|
Three Months Ended
June 30, 2008
|
|||||||||||||||
Customer
|
Net
Sales
|
%
of Net
Sales
|
Net
Sales
|
%
of Net
Sales
|
||||||||||||
Customer
A
|
$ | 3,907,000 |
36.3%
|
$ | 2,876,000 |
23.1%
|
||||||||||
Customer
B
|
$ | 1,538,000 |
14.3%
|
$ | 1,821,000 |
14.6%
|
Six Months Ended
June 30, 2009
|
Six Months Ended
June 30, 2008
|
|||||||||||||||
Customer
|
Net
Sales
|
%
of Net
Sales
|
Net
Sales
|
%
of Net
Sales
|
||||||||||||
Customer
A
|
$ | 6,407,000 |
31.4%
|
$ | 4,746,000 |
20.5%
|
||||||||||
Customer
B
|
$ | 3,250,000 |
15.9%
|
|
$ | 3,584,000 |
15.4%
|
Item 2
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
Three Months Ended
|
||||||||||||||||
June 30, 2009
|
June 30, 2008
|
|||||||||||||||
$
|
%
of
|
$
|
%
of
|
|||||||||||||
Product Category
|
(000) Omitted
|
Net Sales
|
(000) Omitted
|
Net Sales
|
||||||||||||
Metalized
Balloons
|
5,747
|
53%
|
4,918
|
39%
|
||||||||||||
|
||||||||||||||||
Films
|
1,644
|
15%
|
2,008
|
16%
|
||||||||||||
Pouches
|
1,577
|
15%
|
3,441
|
28%
|
||||||||||||
Latex
Balloons
|
1,653
|
15%
|
1,969
|
16%
|
||||||||||||
Helium/Other
|
158
|
2%
|
125
|
1%
|
||||||||||||
Total
|
|
10,779
|
100%
|
12,461
|
100%
|
Six Months Ended
|
||||||||||||||||
June 30, 2009
|
June 30, 2008
|
|||||||||||||||
$
|
%
of
|
$
|
%
of
|
|||||||||||||
Product Category
|
(000) Omitted
|
Net Sales
|
(000) Omitted
|
Net Sales
|
||||||||||||
Metalized
Balloons
|
10,786
|
53%
|
9,516
|
41%
|
||||||||||||
|
||||||||||||||||
Films
|
3,519
|
17%
|
3,951
|
17%
|
||||||||||||
Pouches
|
2,562
|
13%
|
5,889
|
25%
|
||||||||||||
Latex
Balloons
|
3,196
|
16%
|
3,471
|
15%
|
||||||||||||
Helium/Other
|
319
|
1%
|
369
|
2%
|
||||||||||||
Total
|
20,382
|
100%
|
23,196
|
100%
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
% of Net Sales
|
% of Net Sales
|
|||||||||||||||
June 30, 2009
|
June 30, 2008
|
June 30, 2009
|
June 30, 2008
|
|||||||||||||
Top
3 Customers
|
59.8%
|
58.9%
|
54.4%
|
52.0%
|
||||||||||||
Top
10 Customers
|
75.7%
|
75.0%
|
70.2%
|
73.2%
|
Period
|
Total Number of
Shares Purchased
(1)
|
Average price
Paid per Share
|
Total Number of
Shares Purchased
as Part of Publicly
Announced
Programs
|
Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plans or
Programs (2) (3)
|
||||||||||||