Knobias Clip Report (9-21-2007)

Sumbmited From Knobias ClipReport

CTIB: Balloon Maker Inflating Revenue with New Product

Friday’s session saw the Dow gain 53 points with the focus shifting from the Fed’s recent announcement and onto third quarter earnings which are beginning to be released. Nike and Oracle surprised and spurred optimism amid heavy volume caused by expiring futures and options contracts.

For the time being, the market seems to be focused on future earnings though it will undoubtedly keep an ear to the ground as many Fed governors are scheduled to speak over the coming weeks. In this type of environment, it might be wise to find cheap places to park cash while the market decides which direction it plans to move.

One company that fits the bill is CTI Industries Corporation (CTIB). The Company and its subsidiaries design, manufacture, and distribute metallized and latex balloon products and operate systems for the production, lamination, coating and printing of films.

Trailing twelve month numbers for the Company display revenue of $35.8 million, net income of $1.8 million, and diluted earnings per share of 81c. Much of the trailing twelve month EPS number come from the fourth quarter in which the Company reported earnings of 49c. Fourth quarter income included a tax benefit of $834,000. Absent the tax benefit, CTIB's earnings before tax for the fourth quarter were $319,000 or 13c a share. Subtracting the tax benefit in the fourth quarter from trailing EPS gives the Company an EPS of 45c which shows shares trading at a trailing P/E ratio of 9.93.

What probably isn’t factored into the price is that sales may receive a boost from a new product. During the second quarter of 2007, the Company commenced marketing and sales efforts for its new line of zippered vacuum pouches directed to the sportsman market which is being offered under the name Zip Vac.(TM) The product line includes a package containing three quart and two gallon zippered vacuum pouches, a hand pump and a battery-operated pump. Additional pouches are offered in a separate container. The pouches are intended for use in the storage and vacuum sealing of food and other items to protect against exposure and to extend freshness or useful life.

In the earnings release on August 15th, John Schwan, Chairman and Executive Vice President of the Company said, “We have received a purchase order from one retail chain for our ZipVac(TM) line and indications of interest from several others. We anticipate that production and deliveries of the ZipVac(TM) line will commence during the third quarter of 2007.”

The Company is also involved in the development of zippered bags with a consumer product company but has not received a purchase commitment from the Company.

With continued growth in revenue expected over the coming quarters, the Company could become one to follow over the coming quarters. The only risk, though it is a fairly large one, is further dilution due to lack of cash. According to their latest earnings statement, the Company only had some $528 thousand in cash on hand. Accounts receivable was $5.6 million but a company can not fund operations using it without off balance sheet, accounts receivable financing. The Company does have a Standby Equity Distribution Agreement (SEDA) with Cornell Capital Partners, LP in place, which as of their latest 10-K still had some 260 thousand shares that could be sold for capital needs. Further, the terms are fairly favorable with shares being priced at their proceeding 5 day average volume weighted average price (VWAP).

Also relevant was the Company’s $9 million dollar short term debt balance. If the Company can withstand this cash crunch while still concentrating on capitalizing from their new ZipVac product line especially with the annual hunting season approaching, the name could be one investors would be wise to watch.


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