CTI INDUSTRIES CORPORATION
22160 N. Pepper Road
Barrington, Illinois 60010
Tel: 847-382-1000/Fax: 847-382-1219
August 11, 2006
Mr. Rufus Decker
Branch Chief
Division of Corporation Finance
Securities and Exchange Commission
Washington, D.C. 20549-7010
RE: | Form 10-K for the Fiscal Year ended December 31, 2005 | |
Form 10-Q for the Fiscal Quarter ended March 31, 2006 | ||
File No. 0-23115 |
Dear Mr. Decker:
This letter is provided in response to your letter to CTI Industries Corporation (“Registrant”) dated July 28, 2006 (“Second Comment Letter”). The responses are keyed to and organized by, the comments set forth in your letter.
Form 10-K for the year ended December 31, 2005
General
1. | Where a comment below requests additional disclosures or other revisions to be made, please show us in your response what the revisions will look like. With the exception of the comments below that specifically request an amendment, all other revisions may be included in your future fillings. |
Response: We will comply with the foregoing request in this response and in future filings.
2. | We remind you that when you refile your amended Form 10-K you should appropriately address the following: |
· | label as restated the appropriate column of your financial statements, |
· | full compliance in your financial statement footnotes with APB 20, |
· | paragraphs 36 and 37, including the effect of your correction on net loss and the related per share amounts in the period in which the error was discovered and detected, |
· | updated Item 9A. disclosures in the amended Form 10-K should include the following: |
i. | a discussion of each restatement |
1
ii. | how the restatement impacted the CEO and CFO’s original conclusion regarding the effectiveness of your disclosure controls and procedures, and |
iii. | anticipated changes to disclosure controls and procedures and/or internal controls over financial reporting to prevent future misstatements of a similar nature. |
Refer to Item 307 and 308 ( c) of regulation S-K.
Response: We will comply with the foregoing request in this response and in future filings.
Financial Statements
Consolidated Statement of Operations, page F-4
3. | We have reviewed your response to comment 4. Please amend your financial statements to include gains on the sale of assets in the amounts of $122,199 in 2004 and $28,007 in 2003 with income (loss) from operations. Please refer to paragraph 45 of SFAS 144. Please also revise your management’s discussion and analysis based on the revised accounting for these transactions. |
Response: We will amend the December 31, 2005 Form 10-K and revise our management’s discussion and analysis. The Consolidated Statement of Operations, as it will be restated, is filed with this letter as Schedule A. We will amend the Management’s Discussion and Analysis to reflect that, for 2004 and 2003, certain items included in Other Income (Expense) have been reclassified to be included in Income (Loss) From Operations, and references to the amount of Income From Operations will be changed in accordance with the restatement. We note that the restatement of our Consolidated Statement of Operations will not result in any change in net income, or earnings per share, for 2003, 2004 or 2005.
Consolidated Statement of Cash Flows, page F-6
4. | We have reviewed your response to comment 5. You stated that you maintain significant cash balances at your UK subsidiary and that over the period from 2003 to 2005, there have been significant fluctuations in exchange rates between the U.S. Dollar and the British Pound which have caused the exchange rate fluctuations in your statements of cash flow. Based on historical foreign exchange rate data, the British Pound appreciated versus the US Dollar by 8.3% over the period from December 31, 2003 to December 31, 2004 while the British Pound depreciated versus the US Dollar by 10.7% over the period from December 31, 2004 to December 31, 2005. Though these fluctuations are not insignificant they do not explain the significant effect of exchange rate changes on your cash balance. More specifically, the $239,797 effect of exchange rate changes on cash in 2005 represent 91% of your cash balances. The $157,884 effect of exchange rate changes on cash in 2004 are equivalent to 30% of your cash balance. These fluctuations are significantly in excess of the fluctuations in the foreign currency exchange rates during these periods. In addition, during a telephone conversation that we had, you requested additional time to respond to our comments since you were in the process of reviewing and modifying your cash flow statements to capture the impact of foreign currencies on your cash position. Please tell us the cash amounts held at your UK and Mexican subsidiaries at December 31, 2003, 2004 and 2005 and any other period that you deem appropriate. Please also provide us with your statements of cash flows worksheets and a reconciliation of the amounts in the cash flow worksheets to the amounts in your statements of cash flows for 2003, 2004 and 2005. |
2
Response: We have filed with this letter Schedule B which includes our worksheets for our Consolidated Statements of Cash Flow for 2003, 2004 and 2005, reconciled to the amounts in our statements of cash flows for each of those years. We have filed with this letter as Schedule C a statement of cash balances of each of our subsidiaries as of the dates requested. We have also prepared a report of cash flows for each of 2003, 2004 and 2005 based upon the specific methods set forth in SFAS 95, Paragraph 146, Appendix C, which is filed with this letter as Schedule D. We have also prepared and are filing with this letter Schedule E which includes our worksheets calculating the amount shown on the line item of Schedule D entitled “Effect of exchange rate changes on cash.” While there is no difference in net changes in cash as we have reported it in our Consolidated Statements of Cash Flow for 2003, 2004 and 2005, and as calculated under Appendix C, there are some differences in certain components of cash flow. Those differences are set forth on Schedule D. We believed the method of calculating cash flow we used for the years 2003, 2004 and 2005, was appropriate, but note that it did result in a greater amount being attributed to Effect of Exchange Rate Changes on Cash than the method prescribed in Appendix C of SFAS 95. If you determine that Consolidated Statements of Cash Flow should be restated, the restated amounts would be as set forth on Schedule D.
Note 9 - Other Income/Expense, page F-15
5. | We have reviewed your response to comment 9. Please amend your financial statements to classify the reversal of liabilities in the amounts of $395,489 in 2004 and $428,125 in 2003 within income (loss) from operations. Please also revise your management’s discussion and analysis based on the revised accounting for these transactions. |
Response: We will amend the December 31, 2005 Form 10-K and revise our management’s discussion and analysis accordingly.
3
Note 15 - Sale Leaseback of Building - Related Party, page F-18
6. | We have reviewed your response to comment 11. Please amend your financial statements to include the deferred gain of $160,000 on the sale and leaseback within income (loss) from operations. Please refer to paragraph 45 of SFAS 144. Please also revise your management’s discussion and analysis based on the revised accounting for these transactions. |
Response: We will amend our December 31, 2005 Form 10-K and management’s discussion and analysis as requested. Note that the $160,000 referred above is the gross amount of gain recognized in the referenced transaction, the net amount being $122,000 after deduction of certain losses on the disposal of assets, which is referred in Item 3 of your letter. The net amount of $122,000 will be restated in the amended Form 10-K and we will revise our management’s discussion and analysis accordingly.
Sincerely, | ||
| | |
Stephen M. Merrick | ||
Executive Vice President and | ||
Chief Financial Officer |
4
SCHEDULE A
CTI Industries Corporation and Subsidiaries
Consolidated Statements of Operations
Year Ended December 31, | ||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2003 | ||||||||||||
As Reported | Restated | As Reported | Restated | |||||||||||||
Net sales | $ | 29,189,974 | $ | 37,193,109 | $ | 37,193,109 | $ | 36,259,638 | $ | 36,259,638 | ||||||
Cost of sales | 22,725,825 | 30,840,989 | 30,840,989 | 29,626,450 | 29,626,450 | |||||||||||
Gross profit | 6,464,149 | 6,352,120 | 6,352,120 | 6,633,188 | 6,633,188 | |||||||||||
Operating expenses: | ||||||||||||||||
General and administrative | 3,846,538 | 4,410,595 | 4,410,595 | 4,054,607 | 4,054,607 | |||||||||||
Selling | 1,064,944 | 1,495,257 | 1,495,257 | 1,441,501 | 1,441,501 | |||||||||||
Advertising and marketing | 776,571 | 1,014,463 | 1,014,463 | 1,816,301 | 1,816,301 | |||||||||||
(Gain) on sale of assets | (122,499 | ) | (28,007 | ) | ||||||||||||
Other (income) | (395,489 | ) | (428,125 | ) | ||||||||||||
Asset impairment loss | 124,000 | |||||||||||||||
Total operating expenses | 5,812,053 | 6,920,315 | 6,402,327 | 7,312,409 | 6,856,277 | |||||||||||
Income (loss) from operations | 652,096 | (568,195 | ) | (50,207 | ) | (679,221 | ) | (223,089 | ) | |||||||
Other income (expense): | ||||||||||||||||
Interest expense | (1,230,964 | ) | (1,350,085 | ) | (1,350,085 | ) | (1,103,395 | ) | (1,103,395 | ) | ||||||
Interest income | - | - | - | 13,618 | 13,618 | |||||||||||
Gain (loss) on sale of assets | - | 122,499 | 28,007 | |||||||||||||
Foreign currency (loss) gain | 45,128 | 208,213 | 208,213 | (36,132 | ) | (36,132 | ) | |||||||||
Other | 395,489 | 428,125 | ||||||||||||||
Total other (expense) income | (1,185,836 | ) | (623,884 | ) | (1,141,872 | ) | (669,777 | ) | (1,125,909 | ) | ||||||
Loss before income taxes and minority interest | (533,740 | ) | (1,192,079 | ) | (1,192,079 | ) | (1,348,998 | ) | (1,348,998 | ) | ||||||
Income tax (benefit) expense | (200,392 | ) | 1,286,232 | 1,286,232 | (782,468 | ) | (782,468 | ) | ||||||||
Loss before minority interest | (333,348 | ) | (2,478,311 | ) | (2,478,311 | ) | (566,530 | ) | (566,530 | ) | ||||||
Minority interest in (loss) income of subsidiary | (139 | ) | 1,063 | 1,063 | (483 | ) | (483 | ) | ||||||||
Net loss | $ | (333,209 | ) | $ | (2,479,374 | ) | $ | (2,479,374 | ) | $ | (566,047 | ) | $ | (566,047 | ) | |
Loss applicable to common shares | $ | (333,209 | ) | $ | (2,479,374 | ) | $ | (2,479,374 | ) | $ | (566,047 | ) | $ | (566,047 | ) | |
Basic loss per common share | $ | (0.17 | ) | $ | (1.28 | ) | $ | (1.28 | ) | $ | (0.30 | ) | $ | (0.30 | ) | |
Diluted loss per common share | $ | (0.17 | ) | $ | (1.28 | ) | $ | (1.28 | ) | $ | (0.30 | ) | $ | (0.30 | ) |
CTI Industries Corporation | |||||||||||||||||||||||||
Barrington, IL | SCHEDULE B-2003 | ||||||||||||||||||||||||
Consolidated Cash Flows - Worksheet | From | From | Per | ||||||||||||||||||||||
For the Year Ended December 31, 2003 | Beginning | Ending | Change in | ||||||||||||||||||||||
Consolidated | Consolidated | Consolidated | Reconciliation to Form 10K | ||||||||||||||||||||||
Balance Sheet | Balance Sheet | Balance | Reclass/Adjustment | Adjusted | Per | ||||||||||||||||||||
12/31/02 | 12/31/03 | Sheet | Cash Flow | Form 10K | Variance | ||||||||||||||||||||
Cash flows from operating activities: | |||||||||||||||||||||||||
Net Profit (Loss) | (2,962,816 | ) | (3,528,863 | ) | (566,047 | ) | (566,047 | ) | (566,047 | ) | 0 | ||||||||||||||
Adjustment to reconcile net loss to cash | 0 | ||||||||||||||||||||||||
provided by operating activities: | 0 | ||||||||||||||||||||||||
Depreciation and amortization | 14,166,764 | 14,815,596 | 648,832 | 969,731 | 1,618,563 | 1,618,563 | 0 | ||||||||||||||||||
Amortize deferred gain on sale/leaseback | 30,047 | (30,047 | ) | (30,047 | ) | 0 | |||||||||||||||||||
Amortize debt discount | 238,199 | 238,199 | 238,199 | 0 | |||||||||||||||||||||
Minority Interest | 25,865 | 9,263 | (16,602 | ) | 16,119 | (483 | ) | (483 | ) | 0 | |||||||||||||||
Gain on sale of fixed assets | 0 | ||||||||||||||||||||||||
Provision for losses on accounts receivable | 220,000 | 220,000 | 220,000 | 0 | |||||||||||||||||||||
Provision for losses on inventory | 135,000 | 135,000 | 135,000 | 0 | |||||||||||||||||||||
Deferred income taxes | 689,372 | 1,374,116 | (684,744 | ) | 97,724 | (782,468 | ) | (782,468 | ) | 0 | |||||||||||||||
Change in assets and liabilities: | 0 | ||||||||||||||||||||||||
Accounts receivable | 5,384,839 | 4,820,726 | 564,113 | 145,000 | 200,000 | 619,113 | 619,113 | 0 | |||||||||||||||||
Inventory | 10,033,593 | 9,263,160 | 770,433 | 210,000 | 560,433 | 560,433 | 0 | ||||||||||||||||||
Prepaid Expenses and other assets | 1,123,693 | 938,985 | 184,708 | 216,119 | 97,724 | 66,313 | 66,313 | 0 | |||||||||||||||||
Accounts payable, accrued expenses and other non-current liabilities | 11,547,186 | 9,106,237 | (2,440,949 | ) | 14,540 | 3,585,085 | 1,129,596 | 1,129,596 | 0 | ||||||||||||||||
Net cash provided by (used in) operating activities | (1,540,256 | ) | 3,208,172 | 3,208,172 | 0 | ||||||||||||||||||||
Cash flows from investing activities: | |||||||||||||||||||||||||
Proceeds from sale of property and equipment | |||||||||||||||||||||||||
Purchases of property and equipment | 25,881,777 | 27,023,245 | (1,141,468 | ) | 865,636 | (2,007,104 | ) | (2,007,104 | ) | 0 | |||||||||||||||
Net Investment in and advances to Mexico | |||||||||||||||||||||||||
Acquisition of CTF International | |||||||||||||||||||||||||
Cash acquired in acquisition of CTI Mexico | |||||||||||||||||||||||||
Purchase interest in Calidad/Flexo | |||||||||||||||||||||||||
Net cash provided by (used in) investing activities | (1,141,468 | ) | (2,007,104 | ) | (2,007,104 | ) | 0 | ||||||||||||||||||
Cash flows from financing activities: | |||||||||||||||||||||||||
Checks outstanding in excess of bank balance | 113,460 | 341,108 | 227,648 | 227,648 | 227,648 | 0 | |||||||||||||||||||
Net change in revolving line of credit | 5,642,649 | 3,383,343 | (2,259,306 | ) | 238,199 | 549,097 | (1,948,408 | ) | (1,948,408 | ) | 0 | ||||||||||||||
Warrants Issued with Debt | 135,462 | 595,174 | 459,712 | 459,712 | 0 | (459,712 | ) | ||||||||||||||||||
Proceeds from issuance of long-term debt | 7,469,024 | 11,423,628 | 3,954,604 | 4,119,643 | 5,679,062 | 5,514,023 | 6,768,759 | 1,254,736 | |||||||||||||||||
Proceeds from issuance of short-term notes due to officer | 0 | 795,024 | 795,024 | 795,024 | 0 | (795,024 | ) | ||||||||||||||||||
Repayment of long-term debt | 0 | 5,649,014 | (5,649,014 | ) | (5,649,014 | ) | 0 | ||||||||||||||||||
Collection of Stockhoder Note | (56,456 | ) | 0 | 56,456 | 56,456 | 56,456 | 0 | ||||||||||||||||||
Proceeds from exercise of options | 9,302,602 | 9,318,352 | 15,750 | 15,750 | 15,750 | 0 | |||||||||||||||||||
Distributions & Equity of Pepper Road | 0 | 0 | 0 | ||||||||||||||||||||||
Cash paid for deferred financing fees | 51,747 | 222,696 | (170,949 | ) | 104,095 | (275,044 | ) | (275,044 | ) | 0 | |||||||||||||||
Net cash provided by (used in) financing activities | 3,078,939 | (803,853 | ) | (803,853 | ) | 0 | |||||||||||||||||||
Effect of exchange rate changes on cash | (6,002 | ) | (233,968 | ) | (227,966 | ) | (227,966 | ) | (227,966 | ) | 0 | ||||||||||||||
Net increase (decrease) in cash | 169,249 | 169,249 | 169,249 | 0 | |||||||||||||||||||||
Cash and Equivalents at Beginning of Period | 160,493 | 160,493 | 160,493 | 0 | |||||||||||||||||||||
Cash and Equivalents at End of Period | 329,742 | 329,742 | 329,742 | 0 | |||||||||||||||||||||
Per Balance Sheet | 329,742 | 329,742 | 329,742 | ||||||||||||||||||||||
Proof | 0 | 0 |
CTI Industries Corporation | ||||||||||||||||||||||||||||
Barrington, IL | SCHEDULE B-2004 | |||||||||||||||||||||||||||
Consolidated Cash Flows - Worksheet | From | From | ||||||||||||||||||||||||||
For the Year Ended December 31, 2004 | Beginning | Ending | Change in | |||||||||||||||||||||||||
Consolidated | Consolidated | Consolidated | Reconciliation to Form 10K | |||||||||||||||||||||||||
Balance | Balance | Balance | Reclass/Adjustment | Consolidated | Per | |||||||||||||||||||||||
Sheet | Sheet | Sheet | Cash Flow | Form 10K | Variance | |||||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||||||
Net Profit (Loss) | (3,528,063 | ) | (6,007,437 | ) | (2,479,374 | ) | (2,479,374 | ) | (2,479,374 | ) | 0 | |||||||||||||||||
Adjustment to reconcile net loss to cash | 0 | |||||||||||||||||||||||||||
provided by operating activities: | 0 | |||||||||||||||||||||||||||
Depreciation and amortization | 14,815,596 | 15,636,451 | 820,855 | 830,467 | 1,651,322 | 1,651,322 | 0 | |||||||||||||||||||||
Amortize deferred gain on sale/leaseback | 0 | 0 | 0 | 175,272 | (175,272 | ) | (175,271 | ) | 1 | |||||||||||||||||||
Amortize debt discount | 0 | 0 | 0 | 251,490 | 251,490 | 251,490 | 0 | |||||||||||||||||||||
Minority Interest | 9,263 | 10,230 | 967 | 96 | 1,063 | 1,063 | 0 | |||||||||||||||||||||
Gain on sale of fixed assets | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Provision for losses on accounts receivable | 0 | 0 | 0 | 288,562 | 288,562 | 288,562 | 0 | |||||||||||||||||||||
Provision for losses on inventory | 60,000 | 60,000 | 60,000 | 0 | ||||||||||||||||||||||||
Deferred income taxes | 1,374,116 | 152,298 | 1,221,818 | 32,683 | 1,189,135 | 1,189,135 | 0 | |||||||||||||||||||||
Change in assets and liabilities: | 0 | |||||||||||||||||||||||||||
Accounts receivable | 4,620,276 | 6,123,137 | (1,502,861 | ) | 288,562 | (1,791,423 | ) | (1,791,423 | ) | 0 | ||||||||||||||||||
Inventory | 9,263,160 | 8,348,494 | 914,666 | 60,000 | 854,666 | 854,666 | 0 | |||||||||||||||||||||
Prepaid Expenses and other assets | Sch | 1,139,435 | 892,182 | 247,253 | 179,409 | 426,662 | 426,662 | 0 | ||||||||||||||||||||
Accounts payable | 6,799,490 | 6,147,969 | (651,521 | ) | 25,225 | (626,296 | ) | 626,296 | ||||||||||||||||||||
Accrued expenses, other current liabilities | Sch | 2,306,745 | 1,811,775 | (494,970 | ) | 96 | 273,951 | (221,115 | ) | (847,411 | ) | (626,296 | ) | |||||||||||||||
Net cash provided by (used in) operating activities | (1,923,166 | ) | (570,579 | ) | (570,578 | ) | 1 | |||||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||||||
Proceeds from sale of property and equipment | 241,268 | 273,362 | 32,094 | 32,094 | 0 | |||||||||||||||||||||||
Purchases of property and equipment | 27,023,245 | 26,224,962 | 798,283 | 1,103,829 | (305,546 | ) | (305,546 | ) | 0 | |||||||||||||||||||
Net cash provided by (used in) investing activities | 798,283 | (273,452 | ) | (273,452 | ) | 0 | ||||||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||||||
Net change in revolving line of credit | 3,383,343 | 6,341,817 | ||||||||||||||||||||||||||
Add back debt discount netted against this account | 310,898 | 59,408 | ||||||||||||||||||||||||||
Adjusted Net Change in revolving LOC | 3,694,241 | 6,401,225 | 2,706,984 | 2,706,984 | 2,706,984 | 0 | ||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Checks outstanding in excess of bank balance | 341,108 | 513,417 | 172,309 | 172,309 | 172,309 | 0 | ||||||||||||||||||||||
Warrants Issued with Debt | 595,174 | 595,174 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||
Repayment of long-term debt | Sch | 11,907,754 | 10,028,788 | (1,878,966 | ) | 809,567 | 175,272 | (2,513,261 | ) | (2,513,261 | ) | 0 | ||||||||||||||||
Proceeds from issuance of debt | 0 | 0 | 0 | 558,077 | 558,077 | 558,077 | 0 | |||||||||||||||||||||
Repayment of short-term debt | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Collection of short-term debt | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||
Proceeds from exercise of options | 9,318,352 | 9,379,431 | 61,079 | 61,079 | (0 | ) | (0 | ) | 0 | |||||||||||||||||||
Cash paid for deferred financing fees | 222,696 | 120,375 | 102,321 | 143,555 | (41,234 | ) | (41,234 | ) | 0 | |||||||||||||||||||
Net cash provided by (used in) financing activities | 1,163,726 | 882,874 | 882,874 | 0 | ||||||||||||||||||||||||
Effect of exchange rate changes on cash | (234,768 | ) | (76,884 | ) | 157,884 | 157,884 | 157,884 | 0 | ||||||||||||||||||||
Net increase (decrease) in cash | 196,727 | 196,727 | 196,728 | 1 | ||||||||||||||||||||||||
Cash and Equivalents at Beginning of Period | 329,742 | 329,742 | 329,742 | 0 | ||||||||||||||||||||||||
Cash and Equivalents at End of Period | 526,469 | 526,469 | 526,470 | 1 |
CTI Industries Corporation | ||||||||||||||||||||||||||||
Barrington, IL | SCHEDULE B-2005 | |||||||||||||||||||||||||||
Consolidated Cash Flows - Worksheet | From | From | ||||||||||||||||||||||||||
For the Year Ended December 31, 2005 | Beginning | Ending | Change in | |||||||||||||||||||||||||
Consolidated | Consolidated | Consolidated | Reconciliation to Form 10K | |||||||||||||||||||||||||
Balance Sheet | Balance Sheet | Balance | Reclass/Adjustments | Consolidated | Per | |||||||||||||||||||||||
12/31/04 | 12/31/05 | Sheet | Cash Flow | Form 10K | Variance | |||||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||||||
Net Profit (Loss) | (6,007,437 | ) | (6,340,646 | ) | (333,210 | ) | (333,210 | ) | (333,209 | ) | 1 | |||||||||||||||||
Adjustment to reconcile net loss to cash | 0 | |||||||||||||||||||||||||||
provided by operating activities: | 0 | |||||||||||||||||||||||||||
Depreciation and amortization | 15,636,451 | 17,087,622 | 1,451,171 | 23,946 | 36,144 | 1,463,369 | 1,463,369 | (0 | ) | |||||||||||||||||||
Amortize deferred gain on sale/leaseback | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||
Amortize debt discount | 0 | 0 | 0 | 35,967 | 35,967 | 35,967 | 0 | |||||||||||||||||||||
Minority Interest | 10,230 | 11,368 | 1,138 | 1,073 | 65 | 65 | 0 | |||||||||||||||||||||
Loss on asset impairment/Gain on sale of fixed assets | 0 | 124,000 | 124,000 | 124,000 | 0 | |||||||||||||||||||||||
Provision for losses on accounts receivable | 0 | 0 | 0 | 145,000 | 145,000 | 145,000 | 0 | |||||||||||||||||||||
Provision for losses on inventory | 205,000 | 205,000 | 205,000 | 0 | ||||||||||||||||||||||||
Shares issued for services | 200,916 | 200,916 | 200,916 | 0 | ||||||||||||||||||||||||
Deferred income taxes | 152,298 | 352,689 | (200,391 | ) | 0 | (200,391 | ) | (200,392 | ) | (1 | ) | |||||||||||||||||
Change in assets and liabilities: | 0 | |||||||||||||||||||||||||||
Accounts receivable | 6,123,137 | 4,343,671 | 1,779,466 | 145,000 | 1,634,466 | 1,634,466 | 0 | |||||||||||||||||||||
Inventory | 8,348,494 | 7,022,569 | 1,325,925 | 205,000 | 1,120,925 | 1,120,925 | (0 | ) | ||||||||||||||||||||
Prepaid Expenses and other assets | Sch | 892,182 | 874,890 | 17,291 | 188,440 | 205,731 | 205,731 | (0 | ) | |||||||||||||||||||
Accounts payable | 6,147,969 | 4,717,733 | (1,430,236 | ) | 653,275 | (776,961 | ) | 776,961 | ||||||||||||||||||||
Accrued expenses, other current liabilities | Sch | 1,811,775 | 925,717 | (886,058 | ) | (200,916 | ) | 1,073 | (1,085,901 | ) | (1,862,861 | ) | (776,960 | ) | ||||||||||||||
Net cash provided by (used in) operating activities | 1,725,097 | 2,738,977 | 2,738,977 | 0 | ||||||||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||||||
Proceeds from sale of property and equipment | 151,206 | 151,206 | 151,206 | 0 | ||||||||||||||||||||||||
Purchases of property and equipment | 26,224,962 | 26,704,366 | (479,404 | ) | 187,350 | 117,207 | (549,547 | ) | (549,547 | ) | (0 | ) | ||||||||||||||||
Goodwill | 1,113,108 | 989,108 | 124,000 | 124,000 | (0 | ) | ||||||||||||||||||||||
Net cash provided by (used in) investing activities | (355,404 | ) | (398,341 | ) | (398,341 | ) | (0 | ) | ||||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||||||
Net change in revolving line of credit | 6,341,817 | 5,027,312 | ||||||||||||||||||||||||||
Add back debt discount netted against this account | 59,408 | 23,441 | ||||||||||||||||||||||||||
Adjusted Net Change in revolving LOC | 6,401,225 | 5,050,753 | (1,350,472 | ) | (1,350,472 | ) | (1,350,472 | ) | 0 | |||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Checks outstanding in excess of bank balance | 513,417 | 500,039 | (13,378 | ) | (13,378 | ) | (13,378 | ) | 0 | |||||||||||||||||||
Warrants Issued with Debt | 595,174 | 595,174 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||
Repayment of long-term debt | Sch | 10,028,788 | 9,604,597 | (424,191 | ) | 789,909 | 402,324 | (811,776 | ) | (811,776 | ) | 0 | ||||||||||||||||
Proceeds from issuance of debt | 0 | 0 | 0 | 453,503 | 753,942 | 300,439 | 300,439 | 0 | ||||||||||||||||||||
Repayment of short-term debt | 0 | 402,324 | (402,324 | ) | (402,324 | ) | 0 | |||||||||||||||||||||
Collection of short-term debt | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||
Proceeds from exercise of options | 9,379,431 | 9,633,848 | 254,417 | 199,772 | 54,645 | 54,645 | 0 | |||||||||||||||||||||
Cash paid for deferred financing fees | 120,375 | 74,396 | 45,979 | 188,440 | (142,461 | ) | (142,461 | ) | 0 | |||||||||||||||||||
Net cash provided by (used in) financing activities | (1,487,644 | ) | (2,365,326 | ) | (2,365,326 | ) | 0 | |||||||||||||||||||||
Effect of exchange rate changes on cash | (76,884 | ) | (223,420 | ) | (146,536 | ) | 117,207 | 23,946 | (239,797 | ) | (239,797 | ) | 0 | |||||||||||||||
Net increase (decrease) in cash | (264,487 | ) | (264,487 | ) | (264,487 | ) | (0 | ) | ||||||||||||||||||||
Cash and Equivalents at Beginning of Period | 526,469 | 526,469 | 526,469 | 0 | ||||||||||||||||||||||||
Cash and Equivalents at End of Period | 261,982 | 261,982 | 261,982 | 0 | ||||||||||||||||||||||||
Per Balance Sheet | 261,982 | 261,982 | ||||||||||||||||||||||||||
DETAIL SCHEDULES | ||||||||||||||||||||||||||||
Prepaid Expenses and other assets | ||||||||||||||||||||||||||||
Pre Paid Expenses | 181,527 | 130,282 | 51,245 | |||||||||||||||||||||||||
Pre Paid Income Taxes | 281,370 | 161,846 | 119,523 | |||||||||||||||||||||||||
Other current assets | 183,909 | 414,954 | (231,045 | ) | ||||||||||||||||||||||||
Other assets | 245,376 | 167,808 | 77,568 | |||||||||||||||||||||||||
892,182 | 874,890 | 17,291 | ||||||||||||||||||||||||||
Accrued expenses and other non-current liabilities & Equity | ||||||||||||||||||||||||||||
Accrued Liabs | 1,786,662 | 898,477 | (888,185 | ) | ||||||||||||||||||||||||
Advances from customers | 25,113 | 27,241 | 2,128 | |||||||||||||||||||||||||
Deferred income tax liability | 0 | 0 | 0 | |||||||||||||||||||||||||
Less amount netted against Deferred asset | 0 | 0 | 0 | |||||||||||||||||||||||||
Due to related parties | 0 | (0 | ) | (1 | ) | |||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
1,811,775 | 925,717 | (886,058 | ) | |||||||||||||||||||||||||
Proceeds from issuance of long-term debt | ||||||||||||||||||||||||||||
Current portion | 3,560,669 | 3,448,157 | (112,512 | ) | ||||||||||||||||||||||||
Notes payable | 2,864,129 | 4,517,609 | 1,653,480 | 753,942 | ||||||||||||||||||||||||
Other Liabs | 1,348,374 | 1,643,063 | 294,689 | |||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Notes payable Officers | 2,315,024 | 19,209 | (2,295,815 | ) | ||||||||||||||||||||||||
Debt Discount | (59,408 | ) | (23,441 | ) | 35,967 | 35,967 | ||||||||||||||||||||||
Notes payable Officers - NET | 2,255,616 | (4,232 | ) | (2,259,848 | ) | |||||||||||||||||||||||
10,028,788 | 9,604,597 | (424,191 | ) | 789,909 | 0 |
SCHEDULE C | ||||||||||||||||
CTI Industries, Inc. | ||||||||||||||||
Schedule of Cash Balances of Foreign Subsidiaries | ||||||||||||||||
In Local Currency at, | ||||||||||||||||
Subsidiary | Location | 12/31/03 | 12/31/04 | 12/31/05 | ||||||||||||
CTI Balloons, Ltd | UK | 100,916 | 246,773 | 151,679 | ||||||||||||
Flexo Universal | Mexico | 42,525 | 601,703 | 0 | ||||||||||||
CTI Mexico | Mexico | 0 | 0 | 0 | ||||||||||||
CTF International | Mexico | 0 | 0 | 13,560 |
CTI Industries Corporation and Subsidiaries | |||||||||||||||||||||||||
Consolidated Statements of Cash Flows |
SCHEDULE D | |||||||||||||||||||
Year Ended December 31, | |||||||||||||||||||
Restated | Restated | Restated | |||||||||||||||||
Cash flows from operating activities: | 2005 | 2005 | 2004 | 2004 | 2003 | 2003 | |||||||||||||
Net loss | $ | (333,209 | ) | (333,209 | ) | $ | (2,479,374 | ) | (2,479,374 | ) | $ | (566,047 | ) | $ | (566,047 | ) | |||
Adjustment to reconcile net loss to cash provided by (used in) operating activities: | |||||||||||||||||||
Depreciation and amortization | 1,463,369 | 1,479,916 | 1,651,322 | 1,639,808 | 1,618,563 | 1,628,492 | |||||||||||||
Deferred gain on sale/leaseback | 0 | (175,271 | ) | (175,271 | ) | (30,047 | ) | (30,047 | ) | ||||||||||
Amortization of debt discount | 35,967 | 35,967 | 251,490 | 251,490 | 238,199 | 238,199 | |||||||||||||
Minority interest in loss of subsidiary | 65 | 65 | 1,063 | 1,063 | (483 | ) | (483 | ) | |||||||||||
Loss on asset impairment | 124,000 | 124,000 | |||||||||||||||||
Provision for losses on accounts receivable | 145,000 | 145,000 | 288,562 | 288,562 | 220,000 | 220,000 | |||||||||||||
Provision for losses on inventories | 205,000 | 205,000 | 60,000 | 60,000 | 135,000 | 135,000 | |||||||||||||
Shares issued for services | 200,916 | 200,916 | 0 | 0 | |||||||||||||||
Deferred income taxes | (200,392 | ) | (200,392 | ) | 1,189,135 | 1,189,135 | (782,468 | ) | (782,468 | ) | |||||||||
Change in operating assets and liabilities: | |||||||||||||||||||
Accounts receivable | 1,634,466 | 1,680,617 | (1,791,423 | ) | (1,523,274 | ) | 619,113 | 430,362 | |||||||||||
Inventories | 1,120,925 | 1,129,594 | 854,666 | 890,945 | 560,433 | 475,844 | |||||||||||||
Other assets | 205,731 | 167,332 | 426,662 | 397,345 | 66,313 | 60,091 | |||||||||||||
Trade payables, accrued and other liabilities | (1,862,861 | ) | (1,976,307 | ) | (847,411 | ) | (925,237 | ) | 1,129,596 | 1,297,275 | |||||||||
Net cash provided by (used in) operating activities | 2,738,977 | 2,658,499 | (570,579 | ) | (384,808 | ) | 3,208,172 | 3,106,218 | |||||||||||
Cash flows from investing activities: | |||||||||||||||||||
Purchases of property, plant and equipment | (549,547 | ) | (551,256 | ) | (305,546 | ) | (281,494 | ) | (2,007,104 | ) | (2,164,510 | ) | |||||||
Proceeds from sale of property, plant and equipment | 151,206 | 151,206 | 32,094 | 22,123 | 0 | ||||||||||||||
Net cash used in investing activities | (398,341 | ) | (400,050 | ) | (273,452 | ) | (259,371 | ) | (2,007,104 | ) | (2,164,510 | ) | |||||||
Cash flows from financing activities: | |||||||||||||||||||
Checks written in excess of bank balance | (13,378 | ) | (14,225 | ) | 172,309 | 172,291 | 227,648 | 228,041 | |||||||||||
Net change in revolving line of credit | (1,350,472 | ) | (1,350,472 | ) | 2,706,984 | 2,706,984 | (1,948,408 | ) | (1,948,408 | ) | |||||||||
Proceeds from issuance of long-term debt (Received from related parties 559,000, 267,000 and 250,000) | 300,439 | 231,392 | 558,077 | 583,298 | 6,768,759 | 6,725,426 | |||||||||||||
Repayment of long-term debt | (811,776 | ) | (850,986 | ) | (2,513,261 | ) | (2,552,139 | ) | (5,649,014 | ) | (5,571,574 | ) | |||||||
Repayment of short-term debt (Related parties 60,000 in 2005) | (402,324 | ) | (402,324 | ) | |||||||||||||||
Proceeds from exercise of stock options | 53,501 | 53,501 | 0 | 15,750 | 15,750 | ||||||||||||||
Collection of stockholder note | 0 | 0 | 56,456 | 56,456 | |||||||||||||||
Cash paid for deferred financing fees | (141,316 | ) | (141,316 | ) | (41,234 | ) | (41,234 | ) | (275,044 | ) | (275,044 | ) | |||||||
Net cash (used in) provided by financing activities | (2,365,326 | ) | (2,474,430 | ) | 882,875 | 869,200 | (803,853 | ) | (769,353 | ) | |||||||||
Effect of exchange rate changes on cash | (239,797 | ) | (48,506 | ) | 157,884 | (28,293 | ) | (227,966 | ) | (3,106 | ) | ||||||||
Net (decrease) increase in cash | (264,487 | ) | (264,487 | ) | 196,728 | 196,728 | 169,249 | 169,249 | |||||||||||
Cash at beginning of period | 526,469 | 526,469 | 329,742 | 329,742 | 160,493 | 160,493 | |||||||||||||
Cash at end of period | $ | 261,982 | 261,982 | $ | 526,470 | 526,470 | $ | 329,742 | $ | 329,742 | |||||||||
Supplemental disclosure of cash flow information: | 950,280 | 950,280 | 952,682 | 952,682 | 865,196 | 865,196 | |||||||||||||
Cash payments for interest | 88,151 | 88,151 | 47,186 | 47,186 | 42,295 | 42,295 | |||||||||||||
Cash payments for taxes | |||||||||||||||||||
Supplemental disclosure of non-cash activity: | |||||||||||||||||||
Settlement of liability with third party | 241,268 | 241,268 | |||||||||||||||||
via ownership transfer of long-term asset | |||||||||||||||||||
Stock issued to reduce vendor obligations at fair value | 61,079 | 61,079 | |||||||||||||||||
Accounts payable converted to notes payable | 453,503 | 453,503 | 3,534,326 | 3,534,326 | |||||||||||||||
Refinance mortage | 2,671,243 | 2,671,243 |
CTI Industries, Inc. | ||||||||||||||||||||||||||||
Calculation of Effect of Exchange Rate Changes on Cash | ||||||||||||||||||||||||||||
Per FAS 95, Appendix C, Paragraph 146 | ||||||||||||||||||||||||||||
SCHEDULE E | ||||||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||||||
Total | Total | Total | ||||||||||||||||||||||||||
UK | Mexico | Total | UK | Mexico | Total | UK | Mexico | Total | ||||||||||||||||||||
Effect on Beginning Cash | ||||||||||||||||||||||||||||
Beginning Cash | 246,773 | 601,703 | 100,918 | 42,525 | 92,132 | 127,255 | ||||||||||||||||||||||
Change in Rate | (0.1972 | ) | (0.0049 | ) | 0.1657 | (0.0003 | ) | 0.1408 | (0.0064 | ) | ||||||||||||||||||
Effect from Cash | (48,664 | ) | 2,965 | (45,699 | ) | 16,722 | 13 | 16,735 | 12,974 | (896 | ) | 12,078 | ||||||||||||||||
Effect on Operating Activities | ||||||||||||||||||||||||||||
Cash Flow in local currency | (62,410 | ) | (2,425,798 | ) | 146,841 | (23,446,556 | ) | 15,146 | 2,169,802 | |||||||||||||||||||
Year end exchange rate | 1.7188 | 0.0941 | 1.9160 | 0.0892 | 1.7503 | 0.0889 | ||||||||||||||||||||||
Amount based on Year End rate | (107,270 | ) | (228,259 | ) | 281,347 | (2,090,645 | ) | 26,509 | 192,849 | |||||||||||||||||||
Amount per Cash Flow of Sub at weighted average rate | (117,815 | ) | (207,953 | ) | 359,408 | (2,104,224 | ) | 23,156 | 219,226 | |||||||||||||||||||
Effect from Operations | 10,545 | (20,306 | ) | (9,761 | ) | �� | (78,061 | ) | 13,579 | (64,482 | ) | 3,353 | (26,377 | ) | (23,024 | ) | ||||||||||||
Effect on Investing Activities | ||||||||||||||||||||||||||||
Cash Flow in local currency | (32,684 | ) | (36,444 | ) | (984 | ) | 17,816,779 | (6,362 | ) | (12,847,381 | ) | |||||||||||||||||
Year end exchange rate | 1.7188 | 0.0941 | 1.9160 | 0.0892 | 1.7503 | 0.0889 | ||||||||||||||||||||||
Amount based on YE rate | (56,177 | ) | (3,413 | ) | (1,885 | ) | 1,588,660 | (11,136 | ) | (1,141,865 | ) | |||||||||||||||||
Amount per Cash Flow of Sub at weighted average rate | (59,266 | ) | (3,353 | ) | (1,806 | ) | 1,574,163 | (10,422 | ) | (1,190,605 | ) | |||||||||||||||||
Effect from Investing | 3,089 | (60 | ) | 3,029 | (79 | ) | 14,497 | 14,418 | (714 | ) | 48,740 | 48,026 | ||||||||||||||||
Effect on Financing Activities | ||||||||||||||||||||||||||||
Cash Flow in local currency | 0 | 1,874,097 | 0 | 6,188,915 | 0 | 10,592,848 | ||||||||||||||||||||||
Year end exchange rate | 1.7188 | 0.0941 | 1.9160 | 0.0892 | 1.7503 | 0.0889 | ||||||||||||||||||||||
Amount based on YE rate | 0 | 176,332 | 0 | 551,843 | 0 | 941,484 | ||||||||||||||||||||||
Amount per Cash Flow of Sub at weighted average rate | 0 | 172,408 | 0 | 546,807 | 0 | 981,670 | ||||||||||||||||||||||
Effect from Financing | 0 | 3,924 | 3,924 | 0 | 5,036 | 5,036 | 0 | (40,186 | ) | (40,186 | ) | |||||||||||||||||
Total Exchange Rate Effect on Cash | (35,030 | ) | (13,476 | ) | (48,506 | ) | (61,418 | ) | 33,125 | (28,293 | ) | 15,613 | (18,719 | ) | (3,106 | ) |