SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB-A
AMENDMENT NO. 1 TO
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 31, 1998
Commission File Number
000-23115
CTI INDUSTRIES CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 36-2848943
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
22160 North Pepper Road
Barrington, Illinois 60010
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(Address of principal executive offices) (Zip Code)
(847) 382-1000
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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, 1999, are as follows:
Name Age Position with Company
- ----------------------- ----- -------------------------------------
John H. Schwan 54 Chairman and Director
Stephen M. Merrick 57 Chief Executive Officer, Secretary,
Chief Financial Officer and Director
Howard W. Schwan 44 President and Director
John C. Davis 65 Director
Sharon Konny 40 Manager of Finance and Administration
Brent Anderson 32 Vice President of Manufacturing
Stanley M. Brown 52 Director
Bret Tayne 40 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 11 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. Mr. Merrick
is a principal of the law firm of Merrick & Klimek, P.C. of Chicago, Illinois
and has been engaged in the practice of law for more than 30 years. He is also
Senior Vice President, Director and a member of the Management Committee
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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 18 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, Director. Mr. Davis has been associated with the Company
since 1975 and has been a director of the Company from that time. Mr. Davis was
President of the Company from 1975 to January, 1996. In January, 1996, Mr. Davis
became Executive Vice President of Sales for the Company, and has since retired
from that position, effective February 1, 1999. Mr. Davis currently provides
consulting on special projects for the Company.
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.
Bret Tayne, Director. Mr. Tayne was appointed as a director of the
Company in December, 1997. Mr. Tayne has been President of Everede Tool Company,
a manufacturer of industrial cutting tools, since January, 1992. Prior to that,
Mr Tayne was Executive Vice President of Unifin, a commercial finance company,
since 1986. Mr. Tayne received a Bachelor of Science Degree from Tufts
University and an MBA from Northwestern University.
John H. Schwan and Howard W. Schwan are brothers.
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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.
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 $100,000
("Named Executive Officers").
Summary Compensation Table
Long Term
Annual Compensation Compensation
---------------------- ------------
Securities All Other
Name and Salary Other Annual Underlying Compensation
Principal Position Year ($) Compensation Options ($)
- ------------------ ---- -------- ------------ ----------- ------------
Stephen M. Merrick 1998 $ 75,000 ---- 40,000(3) ----
Chief Executive 1997 $ 63,750 ---- ---- ----
Officer 1996 $ 45,000 ---- ---- ----
Howard W. Schwan 1998 $135,000 $ 6,145(1) 40,000(4) $ 1,551(5)
President 1997 $121,600 $ 6,145(1) ---- $ 1,115(5)
1996 $108,500 $ 6,957(1) ---- $ 1,250(5)
John C. Davis 1998 $132,115 $ 6,562(2) ---- $ 1,800(5)
Executive Vice 1997 $150,000 $ 8,374(2) ---- $ 1,666(5)
President-Sales 1996 $195,177 $11,438(2) ---- $ 3,252(5)
- ----------------------
(1) Perquisites include country club membership ($5,000).
(2) Perquisites include country club membership ($5,000) and allocated
personal use of Company vehicles ($1,562 in 1998, $3,374 in 1997, and
$5,158 in 1996).
(3) Stock options to purchase 40,000 shares of the Company's Common stock
at $2.75 per share, 36,000 shares exercisable on grant and 4,000 shares
exercisable on September 15, 1999.
(4) Stock options to purchase 40,000 shares of the Company's Common Stock
at $2.50 per share.
(5) Company contribution to the Company 401(k) Plan as pre-tax salary
deferral.
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Certain Named Executive Officers have 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. In
addition to these warrants, the following table sets forth those executive
officers who were granted individual grants of stock options in connection with
their employment under the terms of the Company's 1997 Stock Option Plan.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Name of Percent of
Securities Total Options
Name and Underlying Granted to Exercise or
Principal Options Employees in Base Price Expiration
Position Granted (#) Fiscal Year $/Share Date
- ----------------------- ----------- ----------- ------- ----------
Stephen M. Merrick
Chief Executive Officer 40,000 17.86% $2.75 09/15/2003
Howard W. Schwan
President 40,000 17.86% $2.50 09/15/2008
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-
Shares Value Unexercised Options at the-Money Options
Acquired on Realized Year End (#) at Fiscal Year End ($)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------- ----------- -------- ------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
Stephen M. Merrick 0 0 36,000/4,000 $0/0(1)
Howard W. Schwan 0 0 40,000/0 $0/0(1)
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<FN>
(1) The value of unexercised in-the-money options is based on the
difference between the exercise price and the fair market value of the
Company's Common Stock on October 31, 1998.
</FN>
</TABLE>
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
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not contain a covenant not to compete. Effective February 1, 1999, Mr. Davis
retired from his position as Executive Vice President-Sales with the Company,
and currently provides services to the Company as a special project consultant
under the terms of his Employment Agreement, as it was amended on June 27, 1997.
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 his 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 $48,000 in fiscal 1998 for his services
as Chairman of the Board of Directors. Mr. Schwan also received options to
purchase up to 40,000 shares of the Company's Common Stock at $2.75 per share
under the Company's 1997 Stock Option Plan. Mr. Tayne and Mr. Brown each
received options to purchase up to 5,000 shares of the Company's Common Stock at
$2.50 per share under the Company's 1997 Stock Option Plan.
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, 1999 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
Name and Address(1) Beneficially Owned(2)(3) Owned(2) Percent of Common Stock(4)
- ----------------------------- ------------------------- ------------------- ---------------------------
<S> <C> <C> <C>
Stephen M. Merrick 219,781 361,411(5) 14.37
John H. Schwan 329,670 216,707(6) 13.51
Howard W. Schwan 164,835 139,553(7) 7.67
John C. Davis -- 445,514(8) 11.47
Sharon Konny -- 12,000(9) *
Brent Anderson -- 12,000(9) *
Stanley M. Brown -- 10,000(10) *
747 Glenn Avenue
Wheeling, Illinois
Frances Ann Rohlen 274,725 -- 7.16
c/o Cheshire Partners
1504 Wells
Chicago, Illinois 60610
Philip W. Colburn 109,890 118,266(11) 5.95
Bret Tayne -- 8,510(12) *
6834 N. Kostner Avenue
Lincolnwood, Illinois 60646
All directors and executive 714,286 1,205,695 42.88
officers as a group (8 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.
(footnotes continued on next page)
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(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.
(5) Includes warrants to purchase up to 72,527 shares of Common Stock at
$.91 per share, warrants to purchase up to 100,961 shares of Common
Stock at $3.12 per share and options to purchase up to 36,000 shares of
Common stock at $2.75 per share granted under the Company's 1997 Stock
Option Plan.
(6) Includes warrants to purchase up to 61,923 of Common Stock at $.91 per
share, warrants to purchase up to 112,180 shares of Common Stock at
$3.12 per share and options to purchase up to 36,000 shares of Common
stock at $2.75 per share granted under the Company's 1997 Stock Option
Plan.
(7) Includes warrants to purchase up to 76,923 shares of Common Stock at
$.91 per share, warrants to purchase up to 16,026 shares of Common
Stock at $3.12 per share, and options to purchase up to 40,000 shares
of Common Stock at $2.50 per share granted under the Company's 1997
Stock Option Plan.
(8) Includes warrants to purchase up to 48,077 shares of Common Stock at
$3.12 per share, and 212,002 shares of Common Stock subject to
redemption by the Company. See "Certain Transactions."
(9) Includes options to purchase up to 12,000 shares of Common Stock at
$2.50 per share granted under the Company's 1997 Stock Option Plan.
(10) Includes options to purchase up to 5,000 shares of Common Stock at
$2.50 per share and options to purchase up to 5,000 shares of Common
Stock at $4.00 per share, both granted under the Company's 1997 Stock
Option Plan.
(11) Includes shares held by immediate family members.
(12) Includes options to purchase up to 5,000 shares of Common Stock at
$2.50 per share granted under the Company's 1997 Stock Option Plan.
</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
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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 January 1,
1999, 121,331 shares of Common Stock had 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
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 July, 1998, John H. Schwan
and Stephen M. Merrick exercised 15,000 and 4,396 warrants, respectively.
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 Merrick & Klimek, P.C., which serves as general
counsel of the Company. Mr. Merrick was a principal in the law firm of Fishman,
Merrick, Miller, Genelly, Springer, Klimek & Anderson, P.C., which formerly
served as general counsel to the Company until December 1, 1998. In addition,
Mr. Merrick is a principal stockholder of the Company. (See Item No. 11). Other
principals of the firm of Merrick & Klimek, P.C. own less than 1% of the
Company's outstanding Common Stock. Legal fees incurred from the firm of
Fishman, Merrick, Miller, Genelly, Springer, Klimek & Anderson, P.C. were
$236,071 and $195,200 for the years ended October 31, 1997 and October 31, 1998,
respectively. No fees were paid to Merrick & Klimek,
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P.C. during the years ended October 31, 1997 and October 31, 1998. Mr. Merrick
is also an officer and director of Reliv International, Inc. (NASDAQ-RELV).
John H. Schwan is President and a shareholder of Packaging Systems,
Inc. and affiliated companies. The Company made purchases of packaging materials
from these entities in the amount of $233,842 and $458,347 during each of the
years ended October 31, 1997 and October 31, 1998, 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 26, 1999.
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 26, 1999
- -------------------------
Howard W. Schwan
/s/ John H. Schwan Chairman and Director February 26, 1999
- -------------------------
John H. Schwan
/s/ Stephen M. Merrick Chief Executive Officer, February 26, 1999
- -------------------------
Stephen M. Merrick Secretary, Chief Financial
Officer and Director
/s/ John C. Davis Vice President and Director February 26, 1999
- -------------------------
John C. Davis
/s/ Stanley M. Brown Director February 26, 1999
- -------------------------
Stanley M. Brown
/s/ Bret Tayne Director February 26, 1999
- -------------------------
Bret Tayne
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