UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 5, 2006
CTI INDUSTRIES CORPORATION
(Exact name of registrant as specified in its charter)
Illinois | 0-23115 | 36-2848943 |
(State or other jurisdiction | (Commission | (IRS Employer |
of incorporation) | File Number) | Identification No.) |
22160 North Pepper Road, Barrington, IL | 60010 |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code (847) 382-1000
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item No. 4.02 - Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review
(a) On September 5, 2006, in connection with a review of comments received from the Securities and Exchange Commission related to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 and its Report on Form 10-Q for the quarterly period ended March 31, 2006, after consultation with the Company’s independent registered public accounting firm, management and the Board of Directors determined that there were incorrect classifications in the calculation of Loss from Operations in the Company’s Consolidated Statement of Operations for the years ended December 31, 2004 and 2003, and that there were incorrect classifications in the calculation of certain items in the Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003.
With respect to the incorrect classifications in the calculation of Loss from Operations for 2004 and 2003, the incorrect classifications resulted from the fact that certain items of gain from the sale of assets and other items of income were classified as Other Income Expense and were not included in Loss from Operations. These incorrect classifications in classification did not result in any error in the reporting of Net Loss or Loss per share for those years.
With respect to the incorrect classifications in the calculation of items in the Consolidated Cash Flows for the years ended December 31, 2005, 2004 and 2003, the incorrect classifications resulted from the method used to calculate the effect of changes in the exchange rate of foreign currencies on items of cash flow.
Management and the Board of Directors of the Company have discussed the matters disclosed in this Report with the Company’s independent registered public accounting firms, Weiser LLP pertaining to 2005 and 2004, and Eisner LLP pertaining to 2003.
Accordingly, the audited Consolidated Statements of Cash Flows and Statements of Operations incorporated in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 should not be relied upon. The Company intends to effect the restatement through filing an amended Annual Report on Form 10-K for the year ended December 31, 2005.
The Company issued a press release on September 11, 2006, a copy of which is attached as Exhibit 99 hereto and is incorporated herein by reference.
The following tables summarize the impact of the restatements:
2
Item No. 9.01 - Financial Statements and Exhibits
CTI Industries Corporation and Subsidiaries | |||||||||||||
2005 Summary Consolidated Statement of Cash Flows | |||||||||||||
As | As | ||||||||||||
Reported | Adjustments | Restated | |||||||||||
Cash flows from operating activities: | |||||||||||||
Net loss | $ | (333,209 | ) | 0 | (333,209 | ) | |||||||
Adjustment to reconcile net loss to cash provided by (used in) operating activities: | |||||||||||||
Depreciation and amortization | 1,463,369 | 16,547 | 1,479,916 | ||||||||||
Deferred gain on sale/leaseback | 0 | 0 | |||||||||||
Amortization of debt discount | 35,967 | 0 | 35,967 | ||||||||||
Minority interest in loss of subsidiary | 65 | 0 | 65 | ||||||||||
Loss on asset impairment | 124,000 | 0 | 124,000 | ||||||||||
Provision for losses on accounts receivable | 145,000 | 0 | 145,000 | ||||||||||
Provision for losses on inventories | 205,000 | 0 | 205,000 | ||||||||||
Shares issued for services | 200,916 | 0 | 200,916 | ||||||||||
Deferred income taxes | (200,392 | ) | 0 | (200,392 | ) | ||||||||
Change in operating assets and liabilities: | 0 | ||||||||||||
Accounts receivable | 1,634,466 | 46,151 | 1,680,617 | ||||||||||
Inventories | 1,120,925 | 8,669 | 1,129,594 | ||||||||||
Other assets | 205,731 | (38,399 | ) | 167,332 | |||||||||
Trade payables, accrued and other liabilities | (1,862,861 | ) | (113,446 | ) | (1,976,307 | ) | |||||||
Net cash provided by (used in) operating activities | 2,738,977 | (80,478 | ) | 2,658,499 | |||||||||
Cash flows from investing activities: | |||||||||||||
Purchases of property, plant and equipment | (549,547 | ) | (1,709 | ) | (551,256 | ) | |||||||
Proceeds from sale of property, plant and equipment | 151,206 | 0 | 151,206 | ||||||||||
Net cash used in investing activities | (398,341 | ) | (1,709 | ) | (400,050 | ) | |||||||
Cash flows from financing activities: | |||||||||||||
Checks written in excess of bank balance | (13,378 | ) | (847 | ) | (14,225 | ) | |||||||
Net change in revolving line of credit | (1,350,472 | ) | 0 | (1,350,472 | ) | ||||||||
Proceeds from issuance of long-term debt (Received from related parties 559,000) | 300,439 | (69,047 | ) | 231,392 | |||||||||
Repayment of long-term debt | (811,776 | ) | (39,210 | ) | (850,986 | ) | |||||||
Repayment of short-term debt (Related parties 60,000 in 2005) | (402,324 | ) | 0 | (402,324 | ) | ||||||||
Proceeds from exercise of stock options | 53,501 | 0 | 53,501 | ||||||||||
Collection of stockholder note | 0 | 0 | |||||||||||
Cash paid for deferred financing fees | (141,316 | ) | 0 | (141,316 | ) | ||||||||
Net cash (used in) provided by financing activities | (2,365,326 | ) | (109,104 | ) | (2,474,430 | ) | |||||||
Effect of exchange rate changes on cash | (239,797 | ) | 191,291 | (48,506 | ) | ||||||||
Net (decrease) increase in cash | (264,487 | ) | 0 | (264,487 | ) | ||||||||
Cash at beginning of period | 526,469 | 0 | 526,469 | ||||||||||
Cash at end of period | $ | 261,982 | 0 | 261,982 |
3
2004 Summary Consolidated Statement of Cash Flows | |||||||||||||
As | As | ||||||||||||
Reported | Adjustments | Restated | |||||||||||
Cash flows from operating activities: | |||||||||||||
Net loss | $ | (2,479,374 | ) | 0 | (2,479,374 | ) | |||||||
Adjustment to reconcile net loss to cash provided by (used in) operating activities: | |||||||||||||
Depreciation and amortization | 1,651,322 | (11,514 | ) | 1,639,808 | |||||||||
Deferred gain on sale/leaseback | (175,271 | ) | 0 | (175,271 | ) | ||||||||
Amortization of debt discount | 251,490 | 0 | 251,490 | ||||||||||
Minority interest in loss of subsidiary | 1,063 | 0 | 1,063 | ||||||||||
Loss on asset impairment | |||||||||||||
Provision for losses on accounts receivable | 288,562 | 0 | 288,562 | ||||||||||
Provision for losses on inventories | 60,000 | 0 | 60,000 | ||||||||||
Shares issued for services | 0 | ||||||||||||
Deferred income taxes | 1,189,135 | 0 | 1,189,135 | ||||||||||
Change in operating assets and liabilities: | |||||||||||||
Accounts receivable | (1,791,423 | ) | 268,149 | (1,523,274 | ) | ||||||||
Inventories | 854,666 | 36,279 | 890,945 | ||||||||||
Other assets | 426,662 | (29,317 | ) | 397,345 | |||||||||
Trade payables, accrued and other liabilities | (847,411 | ) | (77,826 | ) | (925,237 | ) | |||||||
Net cash provided by (used in) operating activities | (570,579 | ) | 185,771 | (384,808 | ) | ||||||||
Cash flows from investing activities: | |||||||||||||
Purchases of property, plant and equipment | (305,546 | ) | 24,052 | (281,494 | ) | ||||||||
Proceeds from sale of property, plant and equipment | 32,094 | (9,971 | ) | 22,123 | |||||||||
Net cash used in investing activities | (273,452 | ) | 14,081 | (259,371 | ) | ||||||||
Cash flows from financing activities: | |||||||||||||
Checks written in excess of bank balance | 172,309 | (18 | ) | 172,291 | |||||||||
Net change in revolving line of credit | 2,706,984 | 0 | 2,706,984 | ||||||||||
Proceeds from issuance of long-term debt (Received from related parties 267,000) | 558,077 | 25,221 | 583,298 | ||||||||||
Repayment of long-term debt | (2,513,261 | ) | (38,878 | ) | (2,552,139 | ) | |||||||
Repayment of short-term debt (Related parties 60,000 in 2005) | |||||||||||||
Proceeds from exercise of stock options | 0 | ||||||||||||
Collection of stockholder note | 0 | ||||||||||||
Cash paid for deferred financing fees | (41,234 | ) | 0 | (41,234 | ) | ||||||||
Net cash (used in) provided by financing activities | 882,875 | (13,675 | ) | 869,200 | |||||||||
Effect of exchange rate changes on cash | 157,884 | (186,177 | ) | (28,293 | ) | ||||||||
Net (decrease) increase in cash | 196,728 | 0 | 196,728 | ||||||||||
Cash at beginning of period | 329,742 | 0 | 329,742 | ||||||||||
Cash at end of period | $ | 526,470 | 0 | 526,470 | |||||||||
4
2003 Summary Consolidated Statement of Cash Flows | |||||||||||||
As | As | ||||||||||||
Reported | Adjustments | Restated | |||||||||||
Cash flows from operating activities: | |||||||||||||
Net loss | $ | (566,047 | ) | 0 | (566,047 | ) | |||||||
Adjustment to reconcile net loss to cash provided by (used in) operating activities: | |||||||||||||
Depreciation and amortization | 1,618,563 | 9,929 | 1,628,492 | ||||||||||
Deferred gain on sale/leaseback | (30,047 | ) | 0 | (30,047 | ) | ||||||||
Amortization of debt discount | 238,199 | 0 | 238,199 | ||||||||||
Minority interest in loss of subsidiary | (483 | ) | 0 | (483 | ) | ||||||||
Loss on asset impairment | |||||||||||||
Provision for losses on accounts receivable | 220,000 | 0 | 220,000 | ||||||||||
Provision for losses on inventories | 135,000 | 0 | 135,000 | ||||||||||
Shares issued for services | 0 | ||||||||||||
Deferred income taxes | (782,468 | ) | 0 | (782,468 | ) | ||||||||
Change in operating assets and liabilities: | |||||||||||||
Accounts receivable | 619,113 | (188,751 | ) | 430,362 | |||||||||
Inventories | 560,433 | (84,589 | ) | 475,844 | |||||||||
Other assets | 66,313 | (6,222 | ) | 60,091 | |||||||||
Trade payables, accrued and other liabilities | 1,129,596 | 167,679 | 1,297,275 | ||||||||||
Net cash provided by (used in) operating activities | 3,208,172 | (101,954 | ) | 3,106,218 | |||||||||
Cash flows from investing activities: | |||||||||||||
Purchases of property, plant and equipment | (2,007,104 | ) | (157,406 | ) | (2,164,510 | ) | |||||||
Proceeds from sale of property, plant and equipment | 0 | ||||||||||||
Net cash used in investing activities | (2,007,104 | ) | (157,406 | ) | (2,164,510 | ) | |||||||
Cash flows from financing activities: | |||||||||||||
Checks written in excess of bank balance | 227,648 | 393 | 228,041 | ||||||||||
Net change in revolving line of credit | (1,948,408 | ) | 0 | (1,948,408 | ) | ||||||||
Proceeds from issuance of long-term debt (Received from related parties 250,000) | 6,768,759 | (43,333 | ) | 6,725,426 | |||||||||
Repayment of long-term debt | (5,649,014 | ) | 77,440 | (5,571,574 | ) | ||||||||
Repayment of short-term debt (Related parties 60,000 in 2005) | |||||||||||||
Proceeds from exercise of stock options | 15,750 | 0 | 15,750 | ||||||||||
Collection of stockholder note | 56,456 | 0 | 56,456 | ||||||||||
Cash paid for deferred financing fees | (275,044 | ) | 0 | (275,044 | ) | ||||||||
Net cash (used in) provided by financing activities | (803,853 | ) | 34,500 | (769,353 | ) | ||||||||
Effect of exchange rate changes on cash | (227,966 | ) | 224,860 | (3,106 | ) | ||||||||
Net (decrease) increase in cash | 169,249 | 0 | 169,249 | ||||||||||
Cash at beginning of period | 160,493 | 0 | 160,493 | ||||||||||
Cash at end of period | $ | 329,742 | 0 | 329,742 | |||||||||
5
CTI Industries Corporation and Subsidiaries | |||||||||||||
2004 Summary Consolidated Statement of Operations | |||||||||||||
As | As | ||||||||||||
Reported | Adjustments | Restated | |||||||||||
Net sales | $ | 37,193,109 | $ | 37,193,109 | |||||||||
Cost of sales | 30,840,989 | 30,840,989 | |||||||||||
Gross profit | 6,352,120 | 0 | 6,352,120 | ||||||||||
Operating expenses: | |||||||||||||
General and administrative | 4,410,595 | - | 4,410,595 | ||||||||||
Selling | 1,495,257 | - | 1,495,257 | ||||||||||
Advertising and marketing | 1,014,463 | - | 1,014,463 | ||||||||||
Gain on sale of assets | (122,499 | ) | (122,499 | ) | |||||||||
Other income | (395,489 | ) | (395,489 | ) | |||||||||
Total operating expenses | 6,920,315 | (517,988 | ) | 6,402,327 | |||||||||
(Loss) from operations | (568,195 | ) | 517,988 | (50,207 | ) | ||||||||
Other income (expense): | |||||||||||||
Interest expense | (1,350,085 | ) | (1,350,085 | ) | |||||||||
Interest income | - | - | |||||||||||
Gain (loss) on sale of assets | 122,499 | (122,499 | ) | ||||||||||
Foreign currency (loss) gain | 208,213 | 208,213 | |||||||||||
Other | 395,489 | (395,489 | ) | ||||||||||
Total other (expense) | (623,884 | ) | (517,988 | ) | (1,141,872 | ) | |||||||
Loss before income taxes and minority interest | (1,192,079 | ) | - | (1,192,079 | ) | ||||||||
Income tax expense | 1,286,232 | - | 1,286,232 | ||||||||||
Loss before minority interest | (2,478,311 | ) | 0 | (2,478,311 | ) | ||||||||
Minority interest in income of subsidiary | 1,063 | - | 1,063 | ||||||||||
Net loss | $ | (2,479,374 | ) | $ | - | $ | (2,479,374 | ) | |||||
Loss applicable to common shares | $ | (2,479,374 | ) | $ | - | $ | (2,479,374 | ) | |||||
Basic loss per common share | $ | (1.28 | ) | $ | (1.28 | ) | |||||||
Diluted loss per common share | $ | (1.28 | ) | $ | (1.28 | ) |
6
2003 Summary Consolidated Statement of Operations | |||||||||||||
As | As | ||||||||||||
Reported | Adjustments | Restated | |||||||||||
Net sales | $ | 36,259,638 | $ | - | $ | 36,259,638 | |||||||
Cost of sales | 29,626,450 | 0 | 29,626,450 | ||||||||||
Gross profit | 6,633,188 | 0 | 6,633,188 | ||||||||||
Operating expenses: | |||||||||||||
General and administrative | 4,054,607 | - | 4,054,607 | ||||||||||
Selling | 1,441,501 | - | 1,441,501 | ||||||||||
Advertising and marketing | 1,816,301 | - | 1,816,301 | ||||||||||
Gain on sale of assets | (28,007 | ) | (28,007 | ) | |||||||||
Other income | (428,125 | ) | (428,125 | ) | |||||||||
Total operating expenses | 7,312,409 | (456,132 | ) | 6,856,277 | |||||||||
(Loss) from operations | (679,221 | ) | 456,132 | (223,089 | ) | ||||||||
Other income (expense): | |||||||||||||
Interest expense | (1,103,395 | ) | (1,103,395 | ) | |||||||||
Interest income | 13,618 | 13,618 | |||||||||||
Gain (loss) on sale of assets | 28,007 | (28,007 | ) | ||||||||||
Foreign currency (loss) gain | (36,132 | ) | (36,132 | ) | |||||||||
Other | 428,125 | (428,125 | ) | ||||||||||
Total other (expense) | (669,777 | ) | (456,132 | ) | (1,125,909 | ) | |||||||
Loss before income taxes and minority interest | (1,348,998 | ) | - | (1,348,998 | ) | ||||||||
Income tax (benefit) | (782,468 | ) | - | (782,468 | ) | ||||||||
Loss before minority interest | (566,530 | ) | 0 | (566,530 | ) | ||||||||
Minority interest in (loss) of subsidiary | (483 | ) | - | (483 | ) | ||||||||
Net loss | $ | (566,047 | ) | $ | - | $ | (566,047 | ) | |||||
Loss applicable to common shares | $ | (566,047 | ) | $ | - | $ | (566,047 | ) | |||||
Basic loss per common share | $ | (0.30 | ) | $ | (0.30 | ) | |||||||
Diluted loss per common share | $ | (0.30 | ) | $ | (0.30 | ) |
7
(d) | Exhibits: |
Exhibit No. | Exhibit |
99 | Press Release dated September 11, 2006, captioned: “CTI Industries Corporation Reports Restatement |
of Certain Financial Statement Items For Fiscal 2005, 2004 and 2003” |
8
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 hereunto duly authorized.
CTI Industries Corporation | ||
(Registrant) | ||
| | |
Date: September 11, 2006 | By: | /s/ Howard W. Schwan |
Howard W. Schwan, President | ||
9