SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB-A
AMENDMENT NO. 2 TO
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 31, 1997
Commission File Number
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. EmployerIdentification Number)
incorporation or organization)
22160 North Pepper Road
Barrington, Illinois 60010
(Address of principal executive offices) (Zip Code)
(847) 382-1000
Registrant's telephone number, including area code
Amendment to include Part III information. Portions of Registrant's
Proxy Statement will not be incorporated by reference into this Form 10KSB-A.
<PAGE>
PART III
Item No. 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Directors and Executive Officers
The Company's current directors and executive officers and their ages,
as of January 15, 1998, are as follows:
Name Age Position with Company
- -------------------------- ----- -----------------------------------
John H. Schwan 53 Chairman and Director
Stephen M. Merrick 55 Chief Executive Officer, Secretary,
Chief Financial Officer and Director
Howard W. Schwan 43 President and Director
John C. Davis 64 Executive Vice President and Director
Sharon Konny 39 Manager of Finance and Administration
Brent Anderson 31 Vice President of Manufacturing
Stanley M. Brown 51 Director
All directors hold office until the annual meeting of stockholders next
following their election and/or until their successors are elected and
qualified. Officers are elected annually by the Board of Directors and serve at
the discretion of the Board. Information with respect to the business experience
and affiliation of the directors and the executive officers of the Company is
set forth below.
John H. Schwan, Chairman. Mr. Schwan has been an officer and director
of the Company since January, 1996. Mr. Schwan has been the President and
principal executive officer of Packaging Systems, Inc. and affiliated companies
for over the last 10 years. Mr. Schwan devotes approximately 20% of his time to
his position as Chairman of the Company and the balance of his time to Packaging
Systems, Inc. and affiliates. Mr. Schwan has over 20 years of general management
experience, including manufacturing, marketing and sales. Mr. Schwan served in
the U.S. Army Infantry in Vietnam from 1966 to 1969, where he attained the rank
of First Lieutenant.
Stephen M. Merrick, Chief Executive Officer and Secretary. Mr. Merrick
was President of the Company from January, 1996 to June, 1997 when he became
Chief Executive Officer of the Company. Mr. Merrick devotes approximately 20% of
his time to his position as Chief Executive Officer of the Company and the
balance of his time is devoted to the practice of law. He has been a director
and Secretary of the Company since inception. Mr. Merrick is a principal of the
law firm of Fishman Merrick Miller Genelly Springer Klimek & Anderson, P.C. of
Chicago, Illinois and has
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been engaged in the practice of law for more than 30 years. He is also
Secretary, Director and a member of the Management Committee of Reliv
International, Inc. (NASDAQ), a manufacturer and direct marketer of nutritional
supplements and food products.
Howard W. Schwan, President. Mr. Schwan has been associated with the
Company for 17 years principally in the management of the production and
engineering operations of the Company. Mr. Schwan was appointed as Vice
President of Manufacturing in November, 1990, was appointed as a director in
January, 1996, and was appointed as President in June, 1997. Mr. Schwan manages
administration, production and engineering functions as well as the sales
function for latex balloons and custom and created films.
John C. Davis, Executive Vice President-Sales. Mr. Davis has been
associated with the Company since 1975 and was President and a director of the
Company from that time to January, 1996. Mr. Davis has been active in a sales
and marketing capacity and, in January, 1996, became Executive Vice President of
Sales.
Sharon Konny, Manager of Finance and Administration. Ms. Konny has been
Manager of Finance and Administration at the Company since October, 1996. From
November of 1992 to 1996, she was an Assistant Vice President of First Chicago
Corporation, initially as Loan Servicing Manager of the Mortgage Services
Division and in December, 1994, achieving the position of Manager of Financial
Administration for the First Card Division. She became a Certified Public
Accountant in 1992.
Brent Anderson, Vice President of Manufacturing. Mr. Anderson has been
employed by the Company since January, 1989, and has held a number of
engineering positions with the Company including Plant Engineer and Plant
Manager. In such capacities Mr. Anderson was responsible for the design and
manufacture of much of the Company's manufacturing equipment. Mr. Anderson was
appointed Vice President of Manufacturing in June, 1997.
Stanley M. Brown, Director. Mr. Brown was appointed as a director of
the Company in January, 1996. Mr. Brown has been President of Inn-Room Systems,
Inc., a manufacturer and lessor of in-room vending systems for hotels since
March, 1996 and, since 1990, has been President of Surface Preparation Systems,
Inc., a company engaged in the business of developing and marketing equipment
for the preparation, cleaning and profiling of concrete and other surfaces. From
1968 to 1989, Mr. Brown was with the United States Navy as a naval aviator,
achieving the rank of Captain.
John H. Schwan and Howard W. Schwan are brothers.
Section 16(a) Beneficial Ownership Reporting Compliance
There were no late filings required by Section 16(a) during the most
recent fiscal year or prior years by any officer, director or 10% shareholder.
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Item No. 10 Executive Compensation
Executive Compensation
The following table sets forth certain information with respect to the
compensation paid or accrued by the Company to its President, Chief Executive
Officer and any other officer who received compensation in excess of $100,000
("Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------------------------
Other Annual All Other
Name and Salary Bonus Compensation Compensation
Principal Position Year ($) ($) ($) ($)
------------------------- ------ -------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Stephen M. Merrick 1997 $ 63,750 -- -- --
Chief Executive Officer 1996 $ 45,000 -- -- --
1995 -- -- -- --
Howard W. Schwan 1997 $121,600 -- $ 6,145(1) $ 1,115(3)
President 1996 $108,500 -- $ 6,957(1) $ 1,250(3)
1995 $ 94,231 -- $ 6,933(1) $ 1,242(3)
John C. Davis 1997 $150,000 -- $ 8,374(2) $ 1,666(3)
Executive Vice 1996 $195,177 -- $ 11,438(2) $ 3,252(3)
President-Sales 1995 $280,000 $248,000 $ 23,747(2) $ 5,150(3)
- ------------
<FN>
(1) Perquisites include country club membership ($5,000).
(2) Perquisites include country club membership ($5,000) and allocated
personal use of Company vehicles ($3,374 in 1997, $5,158 in 1996 and
$16,767 in 1995).
(3) Company contribution to the Company 401(k) Plan as pre-tax salary
deferral.
</FN>
</TABLE>
No Named Executive Officer owns any options or warrants issued in
connection with their employment. Certain Named Executive Officers received
warrants to purchase Common Stock of the Company in connection with their
guarantee of certain bank loans secured by the Company and in connection with
their participation in a private offering of notes and warrants conducted by the
Company. See Item 12. No Named Executive Officer received or exercised any stock
options during the fiscal year ended October 31, 1997.
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Employment Agreements
In April, 1996, the Company entered into an employment agreement with
John C. Davis as Executive Vice President-Sales, which provided for an annual
salary of $150,000. The term of the agreement was through January 31, 1998. On
June 27, 1997, the agreement was amended to extend the term through January 31,
2000, and to provide for an annual salary of $120,000 per year. The agreement
contains covenants of Mr. Davis not to use the Company's confidential
information while such information remains confidential and establishing the
Company's rights to inventions created by Mr. Davis during the term of
employment. Mr. Davis' agreement does not contain a covenant not to compete.
In June, 1997, the Company entered into an Employment Agreement with
Howard W. Schwan as President, which provides for an annual salary of not less
than $135,000. The term of the Agreement is through June 30, 2002. The Agreement
contains covenants of Mr. Schwan with respect to the use of the Company's
confidential information, establishes the Company's right to inventions created
by Mr. Schwan during the term of employment, and includes a covenant of Mr.
Schwan not to compete with the Company for a period of three years after the
date of termination of the Agreement.
Director Compensation
Directors are not compensated for their services as directors. John
Schwan was compensated in the amount of $12,000 in fiscal 1997 for his services
as Chairman of the Board of Directors.
Item No. 11 Security Ownership of Certain Beneficial Owners and Management
Principal Stockholders
The following table sets forth certain information with respect to the
beneficial ownership of the Company's capital stock, as of January 15, 1998 by
(i) each stockholder who is known by the Company to be the beneficial owner of
more than 5% of the Company's Common Stock or Class B Common Stock, (ii) each
director and executive officer of the Company who owns any shares of Common
Stock or Class B Common Stock, and (iii) all executive officers and directors as
a group. Except as otherwise indicated, the Company believes that the beneficial
owners of the shares listed below have sole investment and voting power with
respect to such shares.
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<TABLE>
<CAPTION>
Shares of Class B Shares of Common
Common Stock Stock Beneficially Percent of
Name and Address(1) Beneficially Owned(2)(3) Owned(2) Common Stock(4)
- ---------------------- ------------------------ ------------------- ---------------
<S> <C> <C> <C>
Stephen M. Merrick 219,781 318,807(5) 13.42
John H. Schwan 329,670 189,103(6) 12.89
Howard W. Schwan 164,835 92,949(7) 6.56
John C. Davis -- 464,281(8) 11.96
Sharon Konny -- 12,000(9) *
Brent Anderson -- 12,000(9) *
Stanley M. Brown -- 5,000(10) *
747 Glenn Avenue
Wheeling, IIllinois
Frances Ann Rohlen 274,725 -- 7.17
c/o Cheshire Partners
1504 Wells
Chicago, Illinois 60610
Philip W. Colburn 109,890 118,267(11) 5.95
All directors and executive 714,286 1,094,140 41.37
officers as a group (7 persons)
*less than one percent
<FN>
(1) Except as otherwise indicated, the address of each stockholder listed
above is c/o CTI Industries Corporation, 22160 North Pepper Road,
Barrington, Illinois 60010.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the
exercise of any option, warrant or right. Shares of Common Stock
subject to options, warrants or rights that are currently exercisable
or exercisable within 60 days are deemed outstanding for purposes of
computing the percentage ownership of the person holding such options,
warrants or rights, but are not deemed outstanding for purposes of
computing the percentage ownership of any other person.
(3) Figures below represent all Class B Common Stock outstanding.
Beneficial ownership of shares of Class B Common Stock for Messrs.
Merrick, John Schwan, Howard Schwan and Ms. Rohlen include indirect
ownership of such shares through CTI Investors, L.L.C. See "Certain
Transactions."
(4) Assumes conversion of all shares of Class B Common Stock into shares of
Common Stock.
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(5) Includes warrants to purchase up to 76,923 shares of Common Stock at
$.91 per share and warrants to purchase up to 100,961 shares of Common
Stock at $3.12 per share.
(6) Includes warrants to purchase up to 76,923 shares of Common Stock at
$.91 per share and warrants to purchase up to 112,180 shares of Common
Stock at $3.12 per share.
(7) Includes warrants to purchase up to 76,923 shares of Common Stock at
$.91 per share and warrants to purchase up to 16,026 shares of Common
Stock at $3.12 per share.
(8) Includes warrants to purchase up to 48,077 shares of Common Stock at
$3.12 per share, and 230,769 shares of Common Stock subject to
redemption by the Company. See "Certain Transactions."
(9) Includes incentive stock options to purchase up to 12,000 shares of
Common Stock at the initial public offering price per share of Common
Stock.
(10) Includes non-qualified stock options to purchase up to 5,000 shares of
Common Stock at the initial public offering price per share of Common
Stock.
(11) Includes shares held by immediate family members.
</FN>
</TABLE>
Item No. 12 Certain Relationships and Related Transactions
Certain Transactions
In March 1996, the Company entered into a Stock Redemption Agreement
with John C. Davis which was subsequently amended June 27, 1997. Under the
amended Stock Redemption Agreement the Company was obligated to redeem 102,564
shares of Common Stock and has the right, but not the obligation, to redeem up
to an additional 230,769 shares of Common Stock owned by Mr. Davis at the price
of $1.95 per share at any time through January 31, 1998. Commencing March 1,
1998 through February 28, 2000, the Company is obligated to pay to Mr. Davis,
for the redemption of shares at $1.95 per share (i) an amount equal to 2% of the
Company's pretax profits each fiscal quarter (beginning with the quarter ended
February 28, 1998) and (ii) an amount equal to 2% (but not to exceed $8,000) of
the amount by which latex and mylar balloon revenues exceed $1.3 million in any
month. The Company's obligations terminate once a total of 333,333 shares of
Common Stock have been redeemed under the Stock Redemption Agreement. The
Company also has the right to redeem additional shares of Common Stock from Mr.
Davis during this period at $1.95 per share, provided that the total number of
shares subject to redemption under the Stock Redemption Agreement does not
exceed 333,333. As of the date of this Offering 102,564 shares of Common Stock
have been redeemed pursuant to the Stock Redemption Agreement.
In March and May of 1996, a group of investors made an equity
investment of $1,000,000 in the Company in return for 1,098,901 shares of
Preferred Stock, $.91 par value. Each share of Preferred Stock was entitled to
an annual cumulative dividend of 13% of the purchase price, and was convertible
into one share of Common Stock. The shares of Preferred Stock, voting separately
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as a class, were entitled to elect four of the Company's directors. CTI
Investors, L.L.C., an Illinois limited liability company, invested $900,000 in
the shares of Preferred Stock. Members of CTI Investors, L.L.C. include Howard
W. Schwan, John H. Schwan and Stephen M. Merrick, members of management, and
Frances Ann Rohlen.
In December, 1996, Howard W. Schwan, John H. Schwan and Stephen M.
Merrick were each issued warrants to purchase 76,923 shares of the Company's
Common Stock at an exercise price of $.91 per share in consideration of their
facilitating and guaranteeing a bank loan to the Company in the amount of $6.3
million. The warrants have a term of six years.
In June, 1997, the Company issued in a private placement notes in the
principal amount of $865,000, together with warrants to purchase up to 277,244
shares of the Company's Common Stock at an exercise price of $3.12 per share.
The warrants have a term of five years. Howard W. Schwan, John H. Schwan,
Stephen M. Merrick and John C. Davis, members of management, purchased $50,000,
$350,000 and $315,000 and $150,000, respectively, of the notes and warrants. Mr.
John Schwan and Mr. Merrick applied advances of $200,000 each, made to the
Company in January, 1997, toward the purchase of notes and warrants.
Stephen M. Merrick, Chief Executive Officer of the Company, is a
principal of the law firm of Fishman Merrick Miller Genelly Springer Klimek &
Anderson, P.C. which serves as general counsel of the Company. In addition, Mr.
Merrick owns 219,781 shares of Class B Common Stock, 140,923 shares of Common
Stock, warrants to purchase 76,923 shares of Common Stock at $.91 per share, and
warrants to purchase 100,961 shares of Common Stock at $3.12 per share. Other
members of the firm of Fishman Merrick Miller Genelly Springer Klimek &
Anderson, P.C. own an aggregate of 53,561 shares of Common Stock. Legal fees
incurred from the firm were $123,872 and $236,071 for the years ended October
31, 1996 and 1997, respectively.
John H. Schwan is the president and shareholder of Packaging Systems,
Inc. and affiliated companies. The Company made purchases of packaging materials
from these entities in the amount of $1,106,649 and $233,842 during the year
ended October 31, 1996 and 1997, respectively.
The Company believes that each of the transactions set forth above were
entered into, and any future related party transactions will be entered into, on
terms as fair as those obtainable from independent third parties. All related
party transactions, including loans and forgiveness of debt, must be approved by
a majority of disinterested directors.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized on February 27, 1998.
CTI INDUSTRIES CORPORATION
By: /s/ Howard W. Schwan
------------------------------
Howard W. Schwan, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant in the capacities and on
the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Howard W. Schwan President and Director February 27, 1998
- ------------------------
Howard W. Schwan
/s/ John H. Schwan Chairman and Director February 27, 1998
- ------------------------
John H. Schwan
/s/ Stephen M. Merrick Chief Executive Officer, February 27, 1998
- ------------------------
Stephen M. Merrick Secretary, Chief Financial
Officer and Director
/s/ John C. Davis Vice President and Director February 27, 1998
- ------------------------
John C. Davis
/s/ Stanley M. Brown Director February 27, 1998
- ------------------------
Stanley M. Brown
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