10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________to_________

Commission File Number

000-23115

CTI INDUSTRIES CORPORATION

(Exact name of Registrant as specified in its charter)

Illinois	36-2848943
(State or other jurisdiction of	(I.R.S. Employer Identification Number)
incorporation or organization)
22160 N. Pepper Road
Lake Barrington, Illinois	60010
(Address of principal executive offices)	(Zip Code)

(847) 382-1000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	CTIB	NASDAQCM

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☐     No ☐

Indicate by check mark whether the registrant has submitted electronically on its corporate Web site, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☑
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐     No ☐

The number of shares outstanding of the Registrant’s common stock as of May 1, 2019 was 3,735,950.

INDEX

Part I – Financial Information
Item No. 1.	Financial Statements
	Condensed Consolidated Balance Sheets at March 31, 2019 (unaudited) and December 31, 2018	1
	Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2019 and March 31, 2018	2
	Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2019 and March 31, 2018	3
	Condensed Consolidated Statements of Stockholders' Equity	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item No. 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item No. 3	Quantitative and Qualitative Disclosures Regarding Market Risk	20
Item No. 4	Controls and Procedures	21
Part II – Other Information
Item No. 1	Legal Proceedings	21
Item No. 1A	Risk Factors	21
Item No. 2	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item No. 3	Defaults Upon Senior Securities	21
Item No. 4	Submission of Matters to a Vote of Security Holders	21
Item No. 5	Other Information	22
Item No. 6	Exhibits	22
	Signatures
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32

CTI Industries Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

	March 31, 2019			December 31, 2018
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents (VIE $3,000 and $57,000, respectively)	$	175,442		$	428,150
Accounts receivable, (less allowance for doubtful accounts of $92,000 and $85,000, respectively)		10,602,710			10,830,555
Inventories, net (VIE $315,000 and $340,000, respectively)		20,837,907			20,007,488
Prepaid expenses (VIE $106,000 and $127,000, respectively)		646,164			858,158
Other current assets		1,419,371			886,383
Total current assets		33,681,594			33,010,734
Property, plant and equipment:
Machinery and equipment		23,842,559			23,807,985
Building		3,374,334			3,367,082
Office furniture and equipment (VIE $303,000 and $303,000, respectively)		2,656,519			2,649,280
Intellectual property		783,179			783,179
Land		250,000			250,000
Leasehold improvements		411,426			409,188
Fixtures and equipment at customer locations		518,450			518,450
Projects under construction		188,181			150,272
		32,024,648			31,935,436
Less : accumulated depreciation and amortization (VIE $106,000 and $104,000, respectively)		(28,427,729	)		(28,120,455	)
Total property, plant and equipment, net		3,596,919			3,814,981
Other assets:
Goodwill (VIE $440,000 and $440,000, respectively)		1,473,176			1,473,176
Net deferred income tax asset		495,586			135,094
Operating lease right-of-use		2,110,723
Other assets		26,088			326,849
Total other assets		4,105,573			1,935,119
TOTAL ASSETS	$	41,384,086		$	38,760,834
LIABILITIES AND EQUITY
Current liabilities:
Checks written in excess of bank balance (VIE $4,000 and $7,000, respectively)	$	654,646		$	636,142
Trade payables (VIE $142,000 and $62,000, respectively)		8,680,004			6,679,670
Line of credit (VIE $249,000 and $267,000, respectively)		15,351,709			16,582,963
Notes payable - current portion		4,414,581			4,432,320
Notes payable affiliates - current portion		11,271			10,821
Operating Lease Liabilities		1,016,687			0
Accrued liabilities (VIE $47,000 and $89,000, respectively)		2,082,161			1,866,796
Total current liabilities		32,211,059			30,208,712
Long-term liabilities:
Notes payable - affiliates		175,512			199,122
Notes payable, net of current portion (VIE $30,000 and $27,000, respectively)		639,327			399,912
Operating Lease Liabilities		1,094,036
Notes payable - officers, subordinated		1,012,024			1,597,019
Deferred gain (non current)		74,364			100,340
Deferred income tax liability		-
Total long-term debt, net of current portion		2,995,263			2,296,393
Total long-term liabilities		2,995,263			2,296,393
Equity:
CTI Industries Corporation stockholders' equity:
Preferred Stock -- no par value, 3,000,000 shares authorized, 0 shares issued and outstanding		-			-
Common stock - no par value, 15,000,000 shares authorized, 3,779,608 shares issued and 3,730,950 shares outstanding		13,898,494			13,898,494
Paid-in-capital		3,135,404			2,506,437
Accumulated earnings		(3,745,907	)		(2,865,486	)
Accumulated other comprehensive loss		(5,814,471	)		(6,050,347	)
Less: Treasury stock, 43,658 shares		(160,784	)		(160,784	)
Total CTI Industries Corporation stockholders' equity		7,312,736			7,328,314
Noncontrolling interest		(1,134,972	)		(1,072,585	)
Total Equity		6,177,764			6,255,729
TOTAL LIABILITIES AND EQUITY	$	41,384,086		$	38,760,834

See accompanying notes to condensed consolidated unaudited financial statements

1

CTI Industries Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

	For the Three Months Ended March 31,
	2019			2018
Net Sales	$	12,536,389		$	13,979,177
Cost of Sales		10,540,218			11,110,786
Gross profit		1,996,171			2,868,391
Operating expenses:
General and administrative		2,056,073			1,884,046
Selling		437,565			858,537
Advertising and marketing		273,880			296,880
Gain on sale of assets		(23,547	)		(24,414	)
Total operating expenses		2,743,971			3,015,049
Income from operations		(747,800	)		(146,658	)
Other (expense) income:
Interest expense		(546,906	)		(564,060	)
Interest income		-			(345	)
Change in fair value of warrants		-			-
Foreign currency loss		(8,594	)		31,028
Total other expense, net		(555,500	)		(533,377	)
Net income before taxes		(1,303,300	)		(680,035	)
Income tax expense		(360,492	)		(209,484	)
Net income		(942,808	)		(470,551	)
Less: Net (loss) income attributable to noncontrolling interest		(62,387	)		(7,543	)
Net income attributable to CTI Industries Corporation	$	(880,421	)	$	(463,008	)
Other Comprehensive Income (Loss)
Foreign currency adjustment		235,876			433,065
Comprehensive Income (Loss)	$	(644,545	)	$	(29,943	)
Basic income per common share	$	(0.24	)	$	(0.13	)
Diluted income per common share	$	(0.24	)	$	(0.13	)
Weighted average number of shares and equivalent shares of common stock outstanding:
Basic		3,735,950			3,530,227
Diluted		3,735,950			3,530,227

See accompanying notes to condensed consolidated unaudited financial statements

2

CTI Industries Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

	For the Three Months Ended March 31,
	2019			2018
Cash flows from operating activities:
Net income	$	(942,808	)	$	(470,551	)
Depreciation and amortization		308,084			376,920
Operating cash flows from operating leases		248,757			-
Amortization of deferred gain on sale/leaseback		(27,474	)		(28,486	)
Provision for losses on accounts receivable		6,085			(17,781	)
Provision for losses on inventories		(10,656	)		(35,503	)
Deferred income taxes		(360,492	)		(133,982	)
Change in assets and liabilities:
Accounts receivable		249,950			(465,865	)
Inventories		(827,084	)		(1,995,477	)
Prepaid expenses and other assets		(235,701	)		109,567
Trade payables		1,971,593			1,572,804
Accrued liabilities		(149,957	)		127,038
Net cash provided by (used in) operating activities		230,297			(961,316	)
Cash flows from investing activities:
Purchases of property, plant and equipment		(52,243	)		63,533
Net cash provided by (used in) investing activities		(52,243	)		63,533
Cash flows from financing activities:
Change in checks written in excess of bank balance		18,504			(442,992	)
Net change in revolving line of credit		(1,235,126	)		2,123,582
Repayment of long-term debt		771,113			(432,942	)
Proceeds from issuance of stock		28,967			61,975
Cash paid for deferred financing fees		3,800			(24,568	)
Net cash provided by (used in) financing activities		(412,742	)		1,285,055
Effect of exchange rate changes on cash		(18,020	)		27,307
Net increase/(decrease) in cash and cash equivalents		(252,708	)		414,579
Cash and cash equivalents at beginning of period		428,150			181,026
Cash and cash equivalents at end of period	$	175,442		$	595,605
	$	-		$	-
Supplemental disclosure of cash flow information:
Cash payments for interest		366,688		$	408,001
Supplemental Disclosure of non-cash investing and financing activity
Property, Plant & Equipment acquisitions funded by liabilities	$	11,869		$	25,387

See accompanying notes to condensed consolidated unaudited financial statements

3

CTI Industries Corporation and Subsidiaries

Consolidated Statements of Stockholders' Equity

	CTI Industries Corporation
										Accumulated
										Other			Less
	Common Stock				Paid-in		Accumulated			Comprehensive			Treasury Stock						Noncontrolling
	Shares		Amount		Capital		(Deficit) Earnings			Loss			Shares			Amount			Interest			TOTAL
Balance December 31, 2018	$	3,578,885	$	13,898,494	$	2,506,437	$	(2,865,486	)	$	(6,050,347	)	$	(43,658	)	$	(160,784	)	$	(1,072,585	)		6,255,729
Stock Issued		20,000
Shareholder note to equity		180,723				600,000																	600,000
Stock Option Expense						28,967																	28,967
Net Income								(880,421	)											(62,387	)		(942,808	)
Other comprehensive income, net of taxes
Foreign currency translation											235,876												235,876
Balance March 31, 2019	$	3,779,608	$	13,898,494	$	3,135,404	$	(3,745,907	)	$	(5,814,470	)	$	(43,658	)	$	(160,784	)	$	(1,134,972	)	$	6,177,764

See accompanying notes to condensed consolidated unaudited financial statements

4

CTI Industries Corporation and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 - Basis of Presentation

The accompanying condensed (a) consolidated balance sheet as of December 31, 2018, which has been derived from audited consolidated financial statements, and (b) the unaudited interim condensed consolidated financial statements have been prepared and, in the opinion of management, contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the consolidated financial position and the consolidated statements of comprehensive income and consolidated cash flows for the periods presented in conformity with generally accepted accounting principles for interim consolidated financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2018.

Principles of consolidation and nature of operations:

The condensed consolidated financial statements include the accounts of CTI Industries Corporation and its wholly-owned subsidiaries, CTI Balloons Limited and CTI Supply, Inc., its majority-owned subsidiaries, Flexo Universal, S. de R.L. de C.V. and CTI Europe gmbH, as well as the accounts of Venture Leasing S. A. de R. L., Venture Leasing L.L.C and Clever Container Company, L.L.C. (the “Company”). The last three entities have been consolidated as variable interest entities. All significant intercompany transactions and accounts have been eliminated in consolidation. The Company (i) designs, manufactures and distributes balloon and related novelty (candy and party related) products throughout the world, (ii) operates systems for the production, lamination, coating and printing of films used for food packaging and other commercial uses and for conversion of films to flexible packaging containers and other products, and (iii) distributes vacuum sealing products and home organization products in the United States. We have announced our intention to divest our interest in Clever Container and deconsolidate that entity from our group. As we still hold an equity interest in Clever Container as of March 31, 2019, it remains consolidated as a variable interest entity.

Variable Interest Entities (“VIE’s”):

The determination of whether or not to consolidate a variable interest entity under U.S. GAAP requires a significant amount of judgment concerning the degree of control over an entity by its holders of variable interest. To make these judgments, management has conducted an analysis of the relationship of the holders of variable interest to each other, the design of the entity, the expected operations of the entity, which holder of variable interests is most “closely associated” to the entity and which holder of variable interests is the primary beneficiary required to consolidate the entity. Upon the occurrence of certain events, management reviews and reconsiders its previous conclusion regarding the status of an entity as a variable interest entity. There are three entities that have been consolidated as variable interest entities.

5

Use of estimates:

In preparing condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of revenue and expenses during the reporting period in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates. The Company’s significant estimates include reserves for doubtful accounts, reserves for the lower of cost or market of inventory, reserves for deferred tax assets and recovery value of goodwill.

Earnings per share:

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during each period.

Diluted earnings per share is computed by dividing the net income by the weighted average number of shares of common stock and equivalents (stock options and warrants), unless anti-dilutive, during each period.

As of March 31, 2019 and 2018, shares to be issued upon the exercise of options and warrants aggregated 471,144 for each period. The number of shares included in the determination of earnings on a diluted basis for the three months ended March 31, 2019 and 2018 were none, as doing so would have been anti-dilutive.

Significant Accounting Policies:

The Company’s significant accounting policies are summarized in Note 2 of the Company’s consolidated financial statements for the year ended December 31, 2018. There were no significant changes to these accounting policies during the three months ended March 31, 2019, except for the adoption of Accounting Standards Codification (ASC) Topic 842, Leases.

On January 1, 2019, we adopted ASC Topic 842 (Leases). The adoption of this standard significantly increased our assets and liabilities and further discussed in Note 12. ASC 842 requires a lessee to recognize assets and liabilities related to leases with terms in excess of 12 months. Such assets are typically considered Right-Of-Use (“ROU”) assets. Prior information has not been restated and continues to be reported under the accounting standards in effect for those periods.

On January 1, 2018, we adopted ASC 606 (Revenue From Contracts With Customers) using the modified retrospective method. The adoption of ASC 606 did not have a material impact on our consolidated financial position or results of operations, as our revenue arrangements generally consist of a single performance obligation to transfer promised goods at a fixed price.

6

Net sales include revenues from sales of products and shipping and handling charges, net of estimates for product returns. Revenue is measured at the amount of consideration the Company expects to receive in exchange for the transferred products. Revenue is recognized at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. The Company recognizes revenue for shipping and handling charges at the time the goods are shipped to the customer, and the costs of outbound freight are included in cost of sales, as we have elected the practical expedient included in ASC 606.

The Company provides for product returns based on historical return rates. While we incur costs for sales commissions to our sales employees and outside agents, we recognize commission costs concurrent with the related revenue, as the amortization period is less than one year and we have elected the practical expedient included in ASC 606. We do not incur incremental costs to obtain contracts with our customers. Our product warranties are assurance-type warranties, which promise the customer that the products are as specified in the contract. Therefore, the product warranties are not a separate performance obligation and are accounted for as described herein. Sales taxes assessed by governmental authorities are accounted for on a net basis and are excluded from net sales.

Auditor Replacement Process:

During April 2019, our independent registered accounting firm, Plante & Moran PLLC, declined to stand for reappointment as auditor. We are currently seeking a replacement audit firm. This quarterly report on Form 10Q is being prepared without the benefit of auditor review, and we intend to amend its filing upon the hiring of a replacement independent registered accounting firm.

Note 2 – Liquidity and Going Concern

The Company’s primary sources of liquidity are cash and cash equivalents as well as availability under the Credit Agreement with PNC Bank, National Association (“PNC”) (see Note 3). As indicated in Note 3, twice during 2018 we violated covenants in our credit facility and as of March 2019 we entered into a forbearance agreement with PNC. Under the terms of this agreement, financial covenants as of March 31, 2019 will not be considered and all previously identified compliance failures will be waived, but we remain out of compliance with the terms of our credit facility, as amended.

In addition to the above, due to financial performance in 2016, 2017 and 2018, including net income/(losses) attributable to the Company of $0.7 million, ($1.6 million), and ($3.6 million), respectively, we believe that substantial doubt about our ability to continue as a going concern exists at March 31, 2019.

Additionally, we have experienced challenges in maintaining adequate seasonal working capital balances, made more challenging by increases in financing and labor costs. These changes in cash flows have created strain within our operations, and have therefore increased our desire to incorporate additional funding resources.

7

Management’s plans include:

(1)     Pursuing a strategically significant major capital event.

(2)     Working with our bank to resolve our compliance failure on a long-term basis.

(3)     Evaluating and potentially executing a sale/leaseback transaction of our facility in Lake Barrington, IL.

(4)     Continuing to monitor the equity market for the potential to complete the transaction attempted during 2018, and

(5)     Exploring alternative funding sources.

Management Assessment

Considering both quantitative and qualitative information, we continue to believe that our plans to obtain additional financing will provide us with an ability to finance our operations through 2019 and, if adequately executed, will mitigate the substantial doubt about our ability to continue as a going concern.

Note 3 - Debt

During December 2017, we terminated a prior credit arrangement and entered in new financing agreements with PNC Bank, National Association (“PNC”). The “PNC Agreements” include a $6 million term loan and an $18 million revolving credit facility, with a termination date of December 2022.

Available credit under the Revolving Credit facility is determined by eligible receivables and inventory at CTI Industries (U.S.) and Flexo Universal (Mexico). We notified PNC of our failure to meet two financial covenants as of March 31, 2018. On June 8, 2018, we entered into Waiver and Amendment No. 1 (the “Amendment 1”) to our PNC Agreements. The Amendment modified certain covenants, added others, waived our failure to comply as previously reported, and included an amendment fee and temporary increase in interest rate. During September 2018, we filed a preliminary prospectus on Form S-1 for a planned equity issuance. On October 8, 2018, we entered into Consent and Amendment No. 2 (the “Amendment 2”) to our PNC Agreements. Amendment 2 reduced the amount of new funding proceeds that must be used to repay the term loan from $5 million to $2 million and waived the calculation of financial ratios for the period ended September 30, 2018, in exchange for a new covenant committing to raise at least $7.5 million in gross proceeds from our equity issuance by November 15, 2018 and pay an amendment fee. Market conditions ultimately forced us to postpone the offering, and thus no proceeds were received by the November 15, 2018 requirement.

We engaged PNC to resolve this failure to meet our amended covenant, and as of March 2019 entered into a forbearance agreement. Under the terms of this agreement, previously identified compliance failures will be waived and financial covenants as of March 31, 2019 will not be considered, with the next calculation due for the period ending June 30, 2019. We received a temporary over-advance of $1.2 million, which declined to zero over a six-week period under the terms of this agreement and paid a fee of $250,000. As forbearance is a temporary condition and we remain out of compliance with the terms of our facility, we have reclassified long-term bank debt to current liabilities on our balance sheet.

8

Available credit under the Revolving Credit facility is determined by eligible receivables and inventory at CTI Industries (U.S.) and Flexo Universal (Mexico).

Certain terms of the PNC Agreements include:

● Restrictive Covenants: The Credit Agreement includes several restrictive covenants under which we are prohibited from, or restricted in our ability to:

o Borrow money;

o Pay dividends and make distributions;

o Make certain investments;

o Use assets as security in other transactions;

o Create liens;

o Enter into affiliate transactions;

o Merge or consolidate; or

o Transfer and sell assets.

● Financial Covenants: The Credit Agreement includes a series of financial covenants we are required to meet including:

o We are required to maintain a "Leverage Ratio", which is defined as the ratio of (a) Funded Debt (other than the Shareholder Subordinated Loan) as of such date of determination to (b) EBITDA (as defined in the PNC Agreements) for the applicable period then ended. The highest values for this ratio allowed by the PNC Agreements are:

Fiscal Quarter Ratio

December 31, 2017	4.75	to	1.00
March 31, 2018	4.50	to	1.00
June 30, 2018	4.25	to	1.00
September 30, 2018	not applicable
December 31, 2018	3.50	to	1.00
March 31, 2019	not applicable
June 30, 2019	3.00	to	1.00
September 30, 2019 and thereafter	2.75	to	1.00

o We are required to maintain a "Fixed Charge Coverage Ratio", which is defined as the ratio of (a) EBITDA for such fiscal period, minus Unfinanced Capital Expenditures made during such period, minus distributions (including tax distributions) and dividends made during such period, minus cash taxes paid during such period to (b) all Debt Payments made during such period. This ratio must not exceed 1.1 : 1.0 for any quarterly calculation.

The credit agreement provides for interest at varying rates in excess of the prime rate, depending on the level of senior debt to EBITDA over time. We also entered into a swap agreement with PNC Bank to fix the rate of interest for $3 million of the notes over 3 years at 2.25%. This contract was made at market value upon December 14, 2017 execution and accounted for as a hedge. This contract is expected to terminate during 2019 at no cost or benefit to the Company under the terms of the forbearance agreement.

9

Failure to comply with these covenants has caused us to pay a higher rate of interest (by 2% per the Agreements), and other potential penalties may impact the availability of the credit facility itself, and thus might negatively impact our ability to remain a going concern. As described above in this Note as well as in Note 2, we were not in compliance with this credit facility as of December 31, 2018 and have entered into a forbearance agreement with our bank as of March 2019.

As of December 2017, Mr. Schwan was owed a total of $1,099,000, with additional accrued interest of $400,000, by the Company. As part of the December 2017 financing with PNC, Mr. Schwan executed a subordination agreement related to these amounts due him, as evidenced by a related note representing the amount owed to Mr. Schwan. During January 2019, Mr. Schwan converted $600,000 of his balance into approximately 181,000 shares of our common stock at the then market rate. No payments were issued to Mr. Schwan during 2018 or the three months ended March 31, 2019, with $15,000 of interest recorded as an expense.

Note 4 - Stock-Based Compensation; Changes in Equity

The Company has adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the condensed consolidated financial statements based on their grant-date fair values.

The Company has applied the Black-Scholes model to value stock-based awards and issued warrants related to notes payable. That model incorporates various assumptions in the valuation of stock-based awards relating to the risk-free rate of interest to be applied, the estimated dividend yield and expected volatility of our common stock. The risk-free rate of interest is the related U.S. Treasury yield curve for periods within the expected term of the option at the time of grant. The dividend yield on our common stock is estimated to be 0%, as the Company did not issue dividends during 2019 and 2018. The expected volatility is based on historical volatility of the Company’s common stock.

The Company’s net loss for the three months ended March 31, 2019 and 2018 includes approximately $29,000 and $62,000, respectively, of compensation costs related to share based payments. As of March 31, 2019, there is $164,000 of unrecognized compensation expense related to non-vested stock option grants and stock grants. We expect approximately $63,000 of additional stock-based compensation expense to be recognized over the remainder of 2019, and $56,000 to be recognized during 2020.

On April 10, 2009, the Board of Directors approved for adoption, and on June 5, 2009, the shareholders of the Corporation approved, a 2009 Stock Incentive Plan (“2009 Plan”). The 2009 Plan and subsequent awards categorized as inducement of employment authorized the issuance of up to 510,000 shares of stock or options to purchase stock of the Company (including cancelled shares reissued under the plan.) On June 8, 2018, our shareholders approved the 2018 Stock Incentive Plan (“2018 Plan”). The 2018 Plan authorizes the issuance of up to 300,000 shares of our common stock in the form of equity-based awards. As of March 31, 2019, options for 471,144 shares remain outstanding.

10

A summary of the Company’s stock option activity, which includes grants of restricted stock, non-qualified stock options, incentive stock options, warrants and related information, is as follows:

	Shares under Option		Weighted Average Exercise Price
Balance at December 31, 2018		471,144	$	3.95
Granted		-		-
Cancelled/Expired		-		-
Exercised/Issued		-		-
Outstanding at March 31, 2019		471,144	$	3.95
Exercisable at March 31, 2019		165,264	$	4.05

The instruments above have an aggregate intrinsic value of $78,000, which represents the total pre-tax intrinsic value (the difference between the closing price of the Company’s common stock on the last trading day of the quarter ended March 31, 2019 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all the holders exercised their options on March 31, 2019.

As described in Note 5, we issued 20,000 shares of common stock to Gary Page in a legal settlement during January 2019. The value of those shares on the date of issuance was approximately $67,000.

On January 11, 2019, the Company and its Chairman, Mr. John Schwan, completed an exchange debt for equity upon receipt of consent for the transaction from the Company’s lender. Mr. Schwan surrendered $600,000 in notes from the Company in exchange for 180,723 shares of the Company’s common stock. The value was set at the $3.32 per share closing price of the Company’s common stock on the NASDAQ stock market on December 20, 2018.

Note 5 - Legal Proceedings

The Company may be party to certain lawsuits or claims arising in the normal course of business. The ultimate outcome of these matters is unknown but, in the opinion of management, we do not believe any of these proceedings will have, individually or in the aggregate, a material adverse effect upon our financial condition, cash flows or future results of operation.

11

In July 2017, God’s Little Gift, Inc. (d\b\a) Helium and Balloons Across America and Gary Page (“Claimants”) filed an action against the Company based on disputed compensation amounts over several years. This action was resolved by mutual agreement between the parties during January 2019. Mr. Page received 20,000 shares of CTI common stock, $5,000 in cash, and a minimum payout in his monthly royalty calculation of $7,667 beginning March 1, 2019 and ending August 1, 2021. The Company accrued the $0.3 million in committed costs under this settlement in its December 31, 2018 financial statements.

Note 6 - Other Comprehensive Income

In the three months ended March 31, 2018, the Company incurred other comprehensive income of approximately $236,000, all from foreign currency translation adjustments.

The following table sets forth the accumulated balance of other comprehensive income and each component.

	Foreign Currency Items			Total Accumulated Other Comprehensive Income
Beginning balance as of January 1, 2019	$	(6,050,347	)	$	(6,050,347	)
Current period change, net of tax		235,876			235,876
Ending Balance as of March 31, 2019		(5,814,471	)		(5,814,471	)

Note 7 - Inventories, Net

	March 31, 2019			December 31, 2018
Raw materials	$	2,402,974		$	1,994,741
Work in process		3,133,953			3,052,224
Finished goods		15,239,946			14,934,581
In Transit		451,588			480,716
Allowance for excess quantities		(390,554	)		(454,774	)
Total inventories	$	20,837,907		$	20,007,488

Note 8 - Geographic Segment Data

The Company has determined that it operates primarily in one business segment that designs, manufactures and distributes film and film related products for use in packaging, storage and novelty balloon products. The Company operates in foreign and domestic regions. Information about the Company's operations by geographic area is as follows:

	Net Sales to Outside Customers
	For the Three Months Ended				Total Assets at
	March 31,				March 31,		December 31,
	2019		2018		2019		2018
United States	$	8,760,000	$	9,738,000	$	25,151,000	$	25,354,000
Europe		1,275,000		1,362,000		3,366,000		3,052,000
Mexico		2,081,000		2,186,000		11,406,000		9,476,000
United Kingdom		420,000		693,000		1,461,000		879,000
	$	12,536,000	$	13,979,000	$	41,384,000	$	38,761,000

12

Note 9 - Concentration of Credit Risk

Concentration of credit risk with respect to trade accounts receivable is generally limited due to the large number of entities comprising the Company's customer base. The Company performs ongoing credit evaluations and provides an allowance for potential credit losses against the portion of accounts receivable which is estimated to be uncollectible. Such losses have historically been within management's expectations. During the three months ended March 31, 2019 and 2018, there were two customers whose purchases represented more than 10% of the Company’s consolidated net sales, respectively. Sales to these customers for the three months ended March 31, 2019 and 2018 are as follows:

	Three Months Ended					Three Months Ended
	March 31, 2019					March 31, 2018
Customer	Net Sales		% of Net Sales			Net Sales		% of Net Sales
Customer A	$	3,861,000		30.8	%	$	4,450,000		31.8	%
Customer B	$	2,159,000		17.2	%	$	2,471,000		17.7	%

As of March 31, 2019, the total amounts owed to the Company by these customers were approximately $2,933,000 or 27.7%, and $2,279,000 or 21.5%, of the Company’s consolidated net accounts receivable, respectively. The amounts owed at March 31, 2018 by these customers were approximately $3,643,000 or 33.4%, and $2,657,000 or 24.3% of the Company’s consolidated net accounts receivable, respectively.

Note 10 - Related Party Transactions

Stephen M. Merrick, Director, General Counsel and former Chief Executive Officer of the Company, was, until 2018, of counsel to the law firm of Vanasco Genelly and Miller PC which used to provide legal services to the Company. Legal fees paid by the Company to this firm for the three months ended March 31, 2019 and 2018, respectively, were none and $72,000.

13

John H. Schwan, through an investment entity, and Stephen M. Merrick, also through an investment entity own, in aggregate, a 50% interest in Clever Container Company L.L.C., an Illinois limited liability company (“Clever Container”). During the three months ended March 31, 2019 and 2018, Clever Container purchased various products from the Company in the amount of $62,000 and $237,000, respectively. As of March 31, 2019 and 2018, the balance of accounts receivable from Clever Container to the Company were $1,373,000 and $1,102,000, respectively. The Company owns a 28.5% interest in Clever Container, though has announced the intention to divest its interest in Clever Container, which has not been completed as of the filing of this report.

Note 11 - Derivative Instruments; Fair Value

The Company accounts for derivative instruments in accordance with U.S. GAAP, which requires that all derivative instruments be recognized on the balance sheet at fair value. We may enter into interest rate swaps to fix the interest rate on a portion of our variable interest rate debt to reduce the potential volatility in our interest expense that would otherwise result from changes in market interest rates. Our derivative instruments are recorded at fair value and are included in accrued liabilities of our consolidated balance sheet. Our accounting policies for these instruments are based on whether they meet our criteria for designation as hedging transactions, which include the instrument’s effectiveness, risk reduction and, in most cases, a one-to-one matching of the derivative instrument to our underlying transaction. As of March 31, 2019 and December 31, 2018, we had one derivative instrument accounted for as a hedge, with the same instrument accounted for as a hedge as of March 31, 2018. Gains and losses from changes in fair values of derivatives that are not designated as hedges for accounting purposes are recognized in the consolidated statement of operations. We have no such derivative financial instruments as of December 31, 2018. Changes in fair value for the respective periods were recognized in the consolidated statement of operations.

The interest rate swap we entered into December 14, 2017 had a three year term (ending December 14, 2020) and a notional amount of $3 million. The Company purchased a 2.25% fixed rate in exchange for the variable rate on a portion of the notes payable under the PNC Agreements, which was 1.47% at time of execution. The fair value of the swap was insignificant as of March 31, 2018 and December 31, 2018 and March 31, 2019. It is expected that this instrument will be eliminated with no gain or loss to the Company as a result of the forbearance agreement entered into during March 2019.

Note 12 - Leases

We adopted ASC Topic 842 (Leases) on January 1, 2019. This standard requires us to record certain operating lease liabilities and corresponding right-of-use assets on our balance sheet. Results for periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 840. We elected the package of practical expedients available for expired or existing contracts, which allowed us to carryforward our historical assessments of whether contracts are (or contain) leases, as well as lease classification tests and treatment of initial direct costs. We also elected to not separate lease components from non-lease components for all fixed payments, and we exclude variable lease payments in the measurement of right-of-use assets and lease obligations.

14

Upon adoption of ASC 842 we recorded a $2.4 million increase in other assets, a $1.0 million increase in current liabilities, and a $1.4 million increase in non-current liabilities. We did not record any cumulative effect adjustments in opening retained earnings, and adoption of ASC 842 had no impact on cash flows from operating, investing, or financing activities.

We determine if an arrangement is a lease at inception. Most of our operating leases do not provide an implicit rate of interest so we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. We lease various assets in the course of ordinary business including: warehouses and manufacturing facilities, as well as vehicles and equipment used in our operations. Leases with an initial term of 12 months or less are not recorded on the balance sheet as we recognize lease expense for these leases on a straight-line basis over the lease term. The depreciable life of assets and related improvements are limited by the expected lease term, unless there is a reasonably certain expected transfer or title or purchase option. Some lease agreements include renewal options at our sole discretion. Any guaranteed residual value is included in our lease liability.

The table below describes our lease position as of March 31, 2019: 

Assets	As of March 31, 2019
Operating lease right-of-use assets		2,360,000
Accumulated amortization		(249,000	)
Net lease assets		2,111,000
Liabilities
Current
Operating		1,017,000
Noncurrent
Operating		1,094,000
Total lease liabilities		2,111,000
Weighted average remaining term (years) – operating leases		3
Weighted average discount rate – operating leases		10	%

During the three months ended March 31, 2019, we recorded expenses related to

Operating right-of-use lease asset amortization	249,000
Financing lease asset amortization	0
Related interest expense	0
Total expense for three months ended March 31, 2019	249,000

15

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This quarterly report includes both historical and “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future results. Words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or similar words are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from the views and expectations set forth in this quarterly report on Form 10-Q. We disclaim any intent or obligation to update any forward-looking statements after the date of this quarterly report to conform such statements to actual results or to changes in our opinions or expectations.

Overview

We produce film products for novelty, packaging and container applications. These products include foil balloons, latex balloons and related products, films for packaging and custom product applications, and flexible containers for packaging and consumer storage applications. We produce all of our film products for packaging, container applications and most of our foil balloons at our plant in Lake Barrington, Illinois. We produce all of our latex balloons and latex products at our facility in Guadalajara, Mexico. Substantially all of our film products for packaging and custom product applications are sold to customers in the United States. We market and sell our novelty items and flexible containers for consumer use in the United States, Mexico, Latin America, and Europe. We also market and sell vacuum sealing machines, home organizing and container products, Candy Blossoms and party goods.

As of January 1, 2018, we adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, using the modified retrospective method. The adoption of ASC 606 did not have a material impact on our consolidated financial position or results of operations, as our revenue arrangements generally consist of a single performance obligation to transfer promised goods at a fixed price.

Net sales include revenues from sales of products and shipping and handling charges, net of estimates for product returns. Revenue is measured at the amount of consideration we expect to receive in exchange for the transferred products. Revenue is recognized at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. We recognize revenue for shipping and handling charges at the time the goods are shipped to the customer, and the costs of outbound freight are included in cost of sales, as we have elected the practical expedient included in ASC 606.

We provide for product returns based on historical return rates. While we incur costs for sales commissions to our sales employees and outside agents, we recognize commission costs concurrent with the related revenue, as the amortization period is less than one year and we have elected the practical expedient included in ASC 606. We do not incur incremental costs to obtain contracts with our customers. Our product warranties are assurance-type warranties, which promise the customer that the products are as specified in the contract. Therefore, the product warranties are not a separate performance obligation and are accounted for as described herein. Sales taxes assessed by governmental authorities are accounted for on a net basis and are excluded from net sales.

16

As of January 1, 2019, we adopted ASC Topic 842, Leases (“ASC Topic 842”). Refer to Note 12 for additional information. Our primary leases relate to the facilities we use in Lake Zurich, IL (USA), Mexico, Germany and the UK. We also have ancillary leases for items ranging from forklifts to printers. The majority of our leases are classified as operating lease right-of-use (“ROU”) assets and related operating lease liabilities. Finance leases are included in property and equipment and related liabilities. ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at the commencement date for leases that exceed 12 months. The expected lease term includes options to renew when it is reasonably certain that we will exercise such option.

Operating lease expense is recognized on a straight-line basis over the lease term and is included in the cost of sales or sales, general and administrative expense areas. Finance leases are amortized on a straight-line basis and included in similar areas of expense classification. Variable lease payments, non-lease component payments, and short-term rentals (leases less than 12 months in duration) are expensed as incurred.

Results of Operations

Net Sales. For the three months ended March 31, 2019, net sales were $12,536,000 compared to net sales of $13,979,000 for the same period of 2018, a decrease of 10%. For the quarters ended March 31, 2019 and 2018, net sales by product category were as follows:

	Three Months Ended
	March 31, 2019					March 31, 2018
	$		% of			$		% of
Product Category	(000) Omitted		Net Sales			(000) Omitted		Net Sales
Foil Balloons		6,482		52	%		7,766		56	%
Latex Balloons		1,987		16	%		2,149		15	%
Vacuum Sealing Products		2,152		17	%		1,589		11	%
Film Products		762		6	%		438		3	%
Other Sales		1,153		9	%		2,037		15	%
Total		12,536		100	%		13,979		100	%

Foil Balloons. During the three months ended March 31, 2019, revenues from the sale of foil balloons decreased by 17% compared to the prior year period from $7,766,000 to $6,482,000. Sales to our largest balloon customer decreased from $4,450,000 in the first quarter of 2018 to $3,861,000 in the first quarter of 2019. As we and others in the industry have reported, the supply of helium has declined and pricing has increased. We expect the helium market to improve during the next twelve months, but remains a negative factor in the sale of helium-based products such as many foil balloons.

17

Latex Balloons. During the three months ended March 31, 2019, revenues from the sale of latex balloons decreased by 8% compared to the prior year period, from $2,149,000 to $1,987,000.

Vacuum Sealing Products. During the three months ended March 31, 2019, revenues from the sale of pouches and vacuum sealing machines increased by 35% compared to the prior year, from $1,589,000 to $2,152,000. The new, smaller format machine introduced late during 2018 has sold well, and customers have largely accepted the cost pass-throughs related to tariffs.

Films. During the three months ended March 31, 2019, revenues from the sale of laminated film products increased 74% compared to the prior year period from $438,000 to $762,000.

Other Revenues. During the three months ended March 31, 2019, revenues from the sale of various other products decreased by 43% to $1,153,000 compared to revenues from other products in the same period in 2018 of $2,037,000. The revenues from the sale of other products during the first quarter of 2019 include (i) sales of a line of “Candy Blossoms” and similar products consisting of candy and small inflated balloons sold in small containers in the amount of $67,000, (ii) the sale of accessories and supply items related to balloon products, (iii) sales by Clever Container Company, L.L.C. which engages in the sale of container and organizing products in the amount of $161,000 and (iv) sales of party goods in Mexico by Flexo Universal in the amount of $341,000. Total Candy Blossom revenue is expected to increase during the twelve months ending December 31, 2019, as compared to the same period of 2018, but substantial initial shipments began during April of 2019, as opposed to March of 2018. Additionally, Clever Container changed its business model to one of both lower costs and revenues compared to its prior business model, reducing the revenues shown in Other Revenues. This business is expected to be divested during 2019.

Sales to a limited number of customers continue to represent a large percentage of our net sales. The table below illustrates the impact on sales of our top three and ten customers for the three months ended March 31, 2019 and 2018.

	Three Months Ended March 31,
	% of Sales
	2019		2018
Top 3 Customers		55%		54%
Top 10 Customers		73%		70%

During the three months ended March 31, 2019, there were two customers whose purchases represented more than 10% of the Company’s consolidated net sales. Sales to these customers for the three months ended March 31, 2019 were $3,861,000 or 31%, and $2,159,000 or 17%, of consolidated net sales, respectively. Sales to these customers for the three months ended March 31, 2018 were $4,450,000 or 32%, and $2,471,000 or 18%, of consolidated net sales, respectively. The amounts owed at March 31, 2019 by these customers were $2,933,000 or 28%, and $2,279,000 or 22%, of the Company’s consolidated net accounts receivable, respectively. As of March 31, 2018, the total amounts owed to the Company by these customers were $3,643,000 or 33%, and $2,657,000 or 24% of the Company’s consolidated net accounts receivable, respectively.

18

Cost of Sales. During the three months ended March 31, 2019, the cost of sales was $10,540,000, a 5% decrease from $11,111,000 for the three months ended March 31, 2018. The reduction in cost of sales was largely due to lower sales volume, net of related inefficiencies.

General and Administrative. During the three months ended March 31, 2019, general and administrative expenses were $2,056,000, an increase of 9% compared to $1,884,000 for the same period in 2018. A one-time fee associated with the forbearance agreement in the amount of $250,000 was included in the first three months of 2019 general and administrative expenses.

Selling, Advertising and Marketing. During the three months ended March 31, 2019, selling, advertising and marketing expenses were $711,000, a 38% decrease compared to $1,155,000 for the same period in 2018. This reduction was primarily due to the full year benefit of cost reduction programs implemented during the past year.

Other Income (Expense). During the three months ended March 31, 2019, the Company incurred interest expense of $546,000, compared to interest expense during the same period of 2018 in the amount of $564,000.

For the three months ended March 31, 2019, the Company had a foreign currency transaction loss of $9,000 compared to a foreign currency transaction gain of $31,000 during the same period of 2018.

Financial Condition, Liquidity and Capital Resources

Cash Flow Items.

Operating Activities. During the three months ended March 31, 2019, net cash provided by operations was $230,000, compared to net cash used by operations during the three months ended March 31, 2018 of $899,000.

Significant changes in working capital items during the three months ended March 31, 2019 included:

● A decrease in accounts receivable of $250,000 compared to an increase in accounts receivable of $466,000 in the same period of 2018.

● An increase in inventory of $827,000 compared to an increase in inventory of $1,995,000 in 2018.

● An increase in trade payables of $1,972,000 compared to an increase in trade payables of $1,573,000 in 2018.

● A decrease in accrued liabilities of $150,000 compared to an increase in accrued liabilities of $127,000 in 2018.

Investing Activity. During the three months ended March 31, 2019, cash used in investing activity was $52,000, compared to cash provided by investing activity for the same period of 2018 in the amount of $64,000.

19

Financing Activities. During the three months ended March 31, 2019, cash used in financing activities was $413,000 compared to cash provided by financing activities for the same period of 2018 in the amount of $1,223,000. Financing activity consisted principally of changes in the balances of revolving and long-term debt.

Liquidity and Capital Resources.

At March 31, 2019, the Company had cash balances of $175,000 compared to cash balances of $596,000 for the same period of 2018.

Also, at March 31, 2019, the Company had a working capital balance of $1,471,000 compared to a working capital balance of $2,802,000 on December 31, 2018.

As of March 31, 2019, the Company was not in compliance with its credit facility, operating under a forbearance agreement. For this reason, $3.3 million of long-term debt was reclassified as current debt as of March 31, 2019. Failure to ultimately regain compliance with the terms of our credit agreement, or enter into a suitable replacement financing vehicle, could negatively impact our ability to carry on our business up to and including our ability to continue as a going concern. Additionally, we have encountered difficulties with seasonal cash flow needs, including increased costs associated with recruiting and retaining workers in the Chicago area. The failure to properly manage seasonal cash needs could put a strain on the Company, up to and including our ability to continue as a going concern. See Note 2 for additional discussion.

Seasonality

In the foil balloon product line, sales have historically been seasonal with approximately 40% occurring in the period from December through March of the succeeding year and 24% being generated in the period July through October in recent years. Vacuum sealing product sales are also seasonal; approximately 60% of sales in this product line occur in the period from July through December.

Critical Accounting Policies

Please see pages 24-27 of our Annual Report on Form 10-K for the year ended December 31, 2018 for a description of policies that are critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. Except for the adoption of ASC Topic 842 (Leases) as described herein, no material changes to such information have occurred during the three months ended March 31, 2019.

Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk

Not applicable.

20

Item 4. Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, we conducted an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2019, the end of the period covered by this report. This evaluation specifically considered the material weakness in our internal controls over financial reporting which we reported in our Annual Report on Form 10-K as of December 31, 2018. We determined at that time that certain subsequent events were not properly captured in our analyses of investment impairment, inventory reserves and deferred tax asset valuation allowances. Management adjusted its processes to include additional closing procedures designed to address this weakness. This evaluation of effectiveness and design specifically looked at the effectiveness of the new procedures on the identified material weakness in internal controls.

Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2019, to ensure that the information required to be disclosed by us in the reports that we file or submit under Security Exchange Act of 1934, as amended, (a) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) is accumulated and communicated to our management, including officers, as appropriate, to allow for timely decisions regarding required disclosure. Except as noted above, there were no material changes in our internal control over financial reporting during the three months ended March 31, 2019 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company may be party to certain lawsuits or claims arising in the normal course of business. The ultimate outcome of these matters is unknown but, in the opinion of management, we do not believe any of these proceedings will have, individually or in the aggregate, a material adverse effect upon our financial condition, cash flows or future results of operation.

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

21

Item 5. Other Information

The Certifications of the Chief Executive Officer and the Chief Financial Officer of the Company Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are attached as Exhibits to this Report on Form 10-Q.

Item 6. Exhibits

The following are being filed as exhibits to this report:

Exhibit Number	Description
3.1	Restated Articles of Incorporation (Incorporated by reference to Exhibit A to Registrant’s Schedule 14A Definitive Proxy Statement filed April 29, 2015).
3.2	Amended and Restated By-Laws of CTI Industries Corporation (Incorporated by reference to Exhibit 3.2, contained in Registrant’s Form 8-K filed on March 17, 2017).
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended (filed herewith).
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended (filed herewith).
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101	Interactive Data Files, including the following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to Consolidated Financial Statements.

22

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 thereunto duly authorized.

Dated: May 21, 2019	CTI INDUSTRIES CORPORATION
	By:	/s/ Jeffrey S. Hyland
		Jeffrey S. Hyland
		President and Chief Executive Officer
	By:	/s/ Frank J. Cesario
		Frank J. Cesario
		Chief Financial Officer

23

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Jeffrey S. Hyland, certify that:

1.            I have reviewed this quarterly report on Form 10-Q of CTI Industries Corporation.

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.            The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the condensed consolidated financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.            The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 21, 2019

/s/ Jeffrey S. Hyland

Jeffrey S. Hyland

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Frank J. Cesario, certify that:

1.            I have reviewed this quarterly report on Form 10-Q of CTI Industries Corporation.

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.            The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the condensed consolidated financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.            The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 21, 2019

By: /s/ Frank J. Cesario

Frank J. Cesario

Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of CTI Industries Corporation (the “Company”) for the quarterly period ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jeffrey S. Hyland, as Chief Executive Officer of the Company, and Frank J. Cesario, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jeffrey S. Hyland                             

Jeffrey S. Hyland

President and Chief Executive Officer

Date: May 21, 2019

/s/ Frank J. Cesario                               

Frank J. Cesario

Chief Financial Officer

Date: May 21, 2019

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not being “filed” as part of the Form 10-Q or as a separate disclosure document for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liability under that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act except to the extent that this Exhibit 32 is expressly and specifically incorporated by reference in any such filing.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 01, 2019
Document Information [Line Items]
Entity Registrant Name	CTI INDUSTRIES CORP
Entity Central Index Key	0001042187
Trading Symbol	ctib
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		3,735,950
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents (VIE $3,000 and $57,000, respectively)	$ 175,442	$ 428,150
Accounts receivable, (less allowance for doubtful accounts of $92,000 and $85,000, respectively)	10,602,710	10,830,555
Inventories, net (VIE $315,000 and $340,000, respectively)	20,837,907	20,007,488
Prepaid expenses (VIE $106,000 and $127,000, respectively)	646,164	858,158
Other current assets	1,419,371	886,383
Total current assets	33,681,594	33,010,734
Property, plant and equipment:
Machinery and equipment	23,842,559	23,807,985
Building	3,374,334	3,367,082
Office furniture and equipment (VIE $303,000 and $303,000, respectively)	2,656,519	2,649,280
Intellectual property	783,179	783,179
Land	250,000	250,000
Leasehold improvements	411,426	409,188
Fixtures and equipment at customer locations	518,450	518,450
Projects under construction	188,181	150,272
Property, Plant and Equipment, Gross	32,024,648	31,935,436
Less : accumulated depreciation and amortization (VIE $106,000 and $104,000, respectively)	(28,427,729)	(28,120,455)
Total property, plant and equipment, net	3,596,919	3,814,981
Other assets:
Goodwill (VIE $440,000 and $440,000, respectively)	1,473,176	1,473,176
Net deferred income tax asset	495,586	135,094
Operating lease right-of-use	2,110,723
Other assets	26,088	326,849
Total other assets	4,105,573	1,935,119
TOTAL ASSETS	41,384,086	38,760,834
Current liabilities:
Checks written in excess of bank balance (VIE $4,000 and $7,000, respectively)	654,646	636,142
Trade payables (VIE $142,000 and $62,000, respectively)	8,680,004	6,679,670
Line of credit (VIE $249,000 and $267,000, respectively)	15,351,709	16,582,963
Notes payable - current portion	4,414,581	4,432,320
Notes payable affiliates - current portion	11,271	10,821
Operating Lease Liabilities	1,016,687	0
Accrued liabilities (VIE $47,000 and $89,000, respectively)	2,082,161	1,866,796
Total current liabilities	32,211,059	30,208,712
Long-term liabilities:
Notes payable - affiliates	175,512	199,122
Notes payable, net of current portion (VIE $30,000 and $27,000, respectively)	639,327	399,912
Operating Lease Liabilities	1,094,036
Notes payable - officers, subordinated	1,012,024	1,597,019
Deferred gain (non current)	74,364	100,340
Deferred income tax liability
Total long-term debt, net of current portion	2,995,263	2,296,393
Total long-term liabilities	2,995,263	2,296,393
CTI Industries Corporation stockholders' equity:
Preferred Stock -- no par value, 3,000,000 shares authorized, 0 shares issued and outstanding
Common stock - no par value, 15,000,000 shares authorized, 3,779,608 shares issued and 3,730,950 shares outstanding	13,898,494	13,898,494
Paid-in-capital	3,135,404	2,506,437
Accumulated earnings	(3,745,907)	(2,865,486)
Accumulated other comprehensive loss	(5,814,471)	(6,050,347)
Less: Treasury stock, 43,658 shares	(160,784)	(160,784)
Total CTI Industries Corporation stockholders' equity	7,312,736	7,328,314
Noncontrolling interest	(1,134,972)	(1,072,585)
Total Equity	6,177,764	6,255,729
TOTAL LIABILITIES AND EQUITY	$ 41,384,086	$ 38,760,834

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ / shares in Thousands	Mar. 31, 2019	Dec. 31, 2018
Cash and cash equivalents	$ 175,442	$ 428,150
Allowance for doubtful accounts	92,000	85,000
Inventories, net	20,837,907	20,007,488
Prepaid expenses	646,164	858,158
Office furniture and equipment	2,656,519	2,649,280
Goodwill	1,473,176	1,473,176
Checks written in excess of bank balance	654,646	636,142
Trade payables	8,680,004	6,679,670
Line of credit	15,351,709	16,582,963
Accrued liabilities	2,082,161	1,866,796
Notes payable	$ 639,327	$ 399,912
Preferred Stock, Par value (in dollars per share)	$ 0	$ 0
Preferred Stock, shares authorized (in shares)	3,000,000	3,000,000
Preferred Stock, shares issued (in shares)	0	0
Preferred Stock, shares outstanding (in shares)	0	0
Common stock, no par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	15,000,000	15,000,000
Common stock, shares issued (in shares)	3,779,608	3,779,608
Common stock, shares outstanding (in shares)	3,730,950	3,730,950
Treasury stock, shares (in shares)	43,658	43,658
Variable Interest Entity, Primary Beneficiary, Aggregated Disclosure [Member]
Cash and cash equivalents	$ 3,000	$ 57,000
Inventories, net	315,000	340,000
Prepaid expenses	106,000	127,000
Office furniture and equipment	303,000	303,000
Accumulated depreciation and amortization	106,000	104,000
Goodwill	440,000	440,000
Checks written in excess of bank balance	4,000	7,000
Trade payables	142,000	62,000
Line of credit	249,000	267,000
Accrued liabilities	47,000	89,000
Notes payable	$ 30,000	$ 27,000

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net Sales	$ 12,536,389	$ 13,979,177
Cost of Sales	10,540,218	11,110,786
Gross profit	1,996,171	2,868,391
Operating expenses:
General and administrative	2,056,073	1,884,046
Selling	437,565	858,537
Advertising and marketing	273,880	296,880
Gain on sale of assets	(23,547)	(24,414)
Total operating expenses	2,743,971	3,015,049
Income from operations	(747,800)	(146,658)
Other (expense) income:
Interest expense	(546,906)	(564,060)
Interest income		(345)
Change in fair value of warrants
Foreign currency loss	(8,594)	31,028
Total other expense, net	(555,500)	(533,377)
Net income before taxes	(1,303,300)	(680,035)
Income tax expense	(360,492)	(209,484)
Net income	(942,808)	(470,551)
Less: Net (loss) income attributable to noncontrolling interest	(62,387)	(7,543)
Net income attributable to CTI Industries Corporation	(880,421)	(463,008)
Other Comprehensive Income (Loss)
Foreign currency adjustment	235,876	433,065
Comprehensive Income (Loss)	$ (644,545)	$ (29,943)
Basic income per common share (in dollars per share)	$ (0.24)	$ (0.13)
Diluted income per common share (in dollars per share)	$ (0.24)	$ (0.13)
Weighted average number of shares and equivalent shares of common stock outstanding:
Basic (in shares)	3,735,950	3,530,227
Diluted (in shares)	3,735,950	3,530,227

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash flows from operating activities:
Net income	$ (942,808)	$ (470,551)
Depreciation and amortization	308,084	376,920
Operating cash flows from operating leases	248,757
Amortization of deferred gain on sale/leaseback	(27,474)	(28,486)
Provision for losses on accounts receivable	6,085	(17,781)
Provision for losses on inventories	(10,656)	(35,503)
Deferred income taxes	(360,492)	(133,982)
Change in assets and liabilities:
Accounts receivable	249,950	(465,865)
Inventories	(827,084)	(1,995,477)
Prepaid expenses and other assets	(235,701)	109,567
Trade payables	1,971,593	1,572,804
Accrued liabilities	(149,957)	127,038
Net cash provided by (used in) operating activities	230,297	(961,316)
Cash flows from investing activities:
Purchases of property, plant and equipment	(52,243)	63,533
Net cash provided by (used in) investing activities	(52,243)	63,533
Cash flows from financing activities:
Change in checks written in excess of bank balance	18,504	(442,992)
Net change in revolving line of credit	(1,235,126)	2,123,582
Repayment of long-term debt	771,113	(432,942)
Proceeds from issuance of stock	28,967	61,975
Cash paid for deferred financing fees	3,800	(24,568)
Net cash provided by (used in) financing activities	(412,742)	1,285,055
Effect of exchange rate changes on cash	(18,020)	27,307
Net increase/(decrease) in cash and cash equivalents	(252,708)	414,579
Cash and cash equivalents at beginning of period	428,150	181,026
Cash and cash equivalents at end of period	175,442	595,605
Supplemental disclosure of cash flow information:
Cash payments for interest	366,688	408,001
Supplemental Disclosure of non-cash investing and financing activity
Property, Plant & Equipment acquisitions funded by liabilities	$ 11,869	$ 25,387

XML

Consolidated Statements of Stockholders' Equity (Unaudited) - 3 months ended Mar. 31, 2019 - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Treasury Stock [Member]	Noncontrolling Interest [Member]	Total
Balance (in shares) at Dec. 31, 2018	3,578,885				(43,658)
Balance at Dec. 31, 2018	$ 13,898,494	$ 2,506,437	$ (2,865,486)	$ (6,050,347)	$ (160,784)	$ (1,072,585)	$ 6,255,729
Stock Issued (in shares)	20,000
Stock Issued
Shareholder note to equity (in shares)	180,723
Shareholder note to equity		600,000					600,000
Stock Option Expense		28,967					28,967
Net income			(880,421)			(62,387)	(942,808)
Foreign currency translation				235,876			235,876
Balance (in shares) at Mar. 31, 2019	3,779,608				(43,658)
Balance at Mar. 31, 2019	$ 13,898,494	$ 3,135,404	$ (3,745,907)	$ (5,814,471)	$ (160,784)	$ (1,134,972)	$ 6,177,764

XML

Note 1 - Basis of Presentation

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note

1

- Basis of Presentation

The accompanying condensed (a) consolidated balance sheet as of

December 31, 2018,

which has been derived from audited consolidated financial statements, and (b) the unaudited interim condensed consolidated financial statements have been prepared and, in the opinion of management, contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the consolidated financial position and the consolidated statements of comprehensive income and consolidated cash flows for the periods presented in conformity with generally accepted accounting principles for interim consolidated financial information and the instructions to Form

10

-Q and Article

8

of Regulation S-

X.

Accordingly, they do

not

include all the information and footnotes required by accounting principles generally accepted in the United States of America. Operating results for the

three

months ended

March 31, 2019

are

not

necessarily indicative of the results that

may

be expected for the fiscal year ending

December 31, 2019.

It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form

10

-K for the fiscal year ended

December 31, 2018.

Principles of consolidation and nature of operations:

The condensed consolidated financial statements include the accounts of CTI Industries Corporation and its wholly-owned subsidiaries, CTI Balloons Limited and CTI Supply, Inc., its majority-owned subsidiaries, Flexo Universal, S. de R.L. de C.V. and CTI Europe gmbH, as well as the accounts of Venture Leasing S. A. de R. L., Venture Leasing L.L.C and Clever Container Company, L.L.C. (the “Company”). The last

three

entities have been consolidated as variable interest entities. All significant intercompany transactions and accounts have been eliminated in consolidation. The Company (i) designs, manufactures and distributes balloon and related novelty (candy and party related) products throughout the world, (ii) operates systems for the production, lamination, coating and printing of films used for food packaging and other commercial uses and for conversion of films to flexible packaging containers and other products, and (iii) distributes vacuum sealing products and home organization products in the United States. We have announced our intention to divest our interest in Clever Container and deconsolidate that entity from our group. As we still hold an equity interest in Clever Container as of

March 31, 2019,

it remains consolidated as a variable interest entity.

Variable Interest Entities (“VIE’s”):

The determination of whether or

not

to consolidate a variable interest entity under U.S. GAAP requires a significant amount of judgment concerning the degree of control over an entity by its holders of variable interest. To make these judgments, management has conducted an analysis of the relationship of the holders of variable interest to each other, the design of the entity, the expected operations of the entity, which holder of variable interests is most “closely associated” to the entity and which holder of variable interests is the primary beneficiary required to consolidate the entity. Upon the occurrence of certain events, management reviews and reconsiders its previous conclusion regarding the status of an entity as a variable interest entity. There are

three

entities that have been consolidated as variable interest entities.

Use of estimates:

In preparing condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of revenue and expenses during the reporting period in the condensed consolidated financial statements and accompanying notes. Actual results

may

differ from those estimates. The Company’s significant estimates include reserves for doubtful accounts, reserves for the lower of cost or market of inventory, reserves for deferred tax assets and recovery value of goodwill.

Earnings per share:

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during each period.

Diluted earnings per share is computed by dividing the net income by the weighted average number of shares of common stock and equivalents (stock options and warrants), unless anti-dilutive, during each period.

As of

March 31, 2019

and

2018,

shares to be issued upon the exercise of options and warrants aggregated

471,144

for each period. The number of shares included in the determination of earnings on a diluted basis for the

three

months ended

March 31, 2019

and

2018

were

none

,

as doing so would have been anti-dilutive.

Significant Accounting Policies:

The Company’s significant accounting policies are summarized in Note

2

of the Company’s consolidated financial statements for the year ended

December 31, 2018.

There were

no

significant changes to these accounting policies during the

three

months ended

March 31, 2019,

except for the adoption of Accounting Standards Codification (ASC) Topic

842,

Leases

.

On

January 1, 2019,

we adopted ASC Topic

842

(Leases). The adoption of this standard significantly increased our assets and liabilities and further discussed in Note

12.

ASC

842

requires a lessee to recognize assets and liabilities related to leases with terms in excess of

12

months. Such assets are typically considered Right-Of-Use (“ROU”) assets. Prior information has

not

been restated and continues to be reported under the accounting standards in effect for those periods.

On

January 1, 2018,

we adopted ASC

606

(Revenue From Contracts With Customers) using the modified retrospective method. The adoption of ASC

606

did

not

have a material impact on our consolidated financial position or results of operations, as our revenue arrangements generally consist of a single performance obligation to transfer promised goods at a fixed price.

Net sales include revenues from sales of products and shipping and handling charges, net of estimates for product returns. Revenue is measured at the amount of consideration the Company expects to receive in exchange for the transferred products. Revenue is recognized at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. The Company recognizes revenue for shipping and handling charges at the time the goods are shipped to the customer, and the costs of outbound freight are included in cost of sales, as we have elected the practical expedient included in ASC

606.

The Company provides for product returns based on historical return rates. While we incur costs for sales commissions to our sales employees and outside agents, we recognize commission costs concurrent with the related revenue, as the amortization period is less than

one

year and we have elected the practical expedient included in ASC

606.

We do

not

incur incremental costs to obtain contracts with our customers. Our product warranties are assurance-type warranties, which promise the customer that the products are as specified in the contract. Therefore, the product warranties are

not

a separate performance obligation and are accounted for as described herein. Sales taxes assessed by governmental authorities are accounted for on a net basis and are excluded from net sales.

Auditor Replacement Process:

During

April 2019,

our independent registered accounting firm, Plante & Moran PLLC, declined to stand for reappointment as auditor. We are currently seeking a replacement audit firm. This quarterly report on Form

10Q

is being prepared without the benefit of auditor review, and we intend to amend its filing upon the hiring of a replacement independent registered accounting firm.

XML

Note 2 - Liquidity and Going Concern

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Liquidity and Going Concern [Text Block]

Note

2

– Liquidity and Going Concern

The Company’s primary sources of liquidity are cash and cash equivalents as well as availability under the Credit Agreement with PNC Bank, National Association (“PNC”) (see Note

3

). As indicated in Note

3,

twice during

2018

we violated covenants in our credit facility and as of

March 2019

we entered into a forbearance agreement with PNC. Under the terms of this agreement, financial covenants as of

March 31, 2019

will

not

be considered and all previously identified compliance failures will be waived, but we remain out of compliance with the terms of our credit facility, as amended.

In addition to the above, due to financial performance in

2016,

2017

and

2018,

including net income/(losses) attributable to the Company of

$0.7

million, (

$1.6

million), and (

$3.6

million), respectively, we believe that substantial doubt about our ability to continue as a going concern exists at

March 31, 2019.

Additionally, we have experienced challenges in maintaining adequate seasonal working capital balances, made more challenging by increases in financing and labor costs. These changes in cash flows have created strain within our operations, and have therefore increased our desire to incorporate additional funding resources.

Management’s plans include:

(

1

)     Pursuing a strategically significant major capital event.

(

2

)     Working with our bank to resolve our compliance failure on a long-term basis.

(

3

)     Evaluating and potentially executing a sale/leaseback transaction of our facility in Lake Barrington, IL.

(

4

)     Continuing to monitor the equity market for the potential to complete the transaction attempted during

2018,

and

(

5

)     Exploring alternative funding sources.

Management Assessment

Considering both quantitative and qualitative information, we continue to believe that our plans to obtain additional financing will provide us with an ability to finance our operations through

2019

and, if adequately executed, will mitigate the substantial doubt about our ability to continue as a going concern.

XML

Note 3 - Debt

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

3

- Debt

During

December 2017,

we terminated a prior credit arrangement and entered in new financing agreements with PNC Bank, National Association (“PNC”). The “PNC Agreements” include a

$6

million term loan and an

$18

million revolving credit facility, with a termination date of

December 2022.

Available credit under the Revolving Credit facility is determined by eligible receivables and inventory at CTI Industries (U.S.) and Flexo Universal (Mexico). We notified PNC of our failure to meet

two

financial covenants as of

March 31, 2018.

On

June 8, 2018,

we entered into Waiver and Amendment

No.

1

(the “Amendment

1”

) to our PNC Agreements. The Amendment modified certain covenants, added others, waived our failure to comply as previously reported, and included an amendment fee and temporary increase in interest rate. During

September 2018,

we filed a preliminary prospectus on Form S-

1

for a planned equity issuance. On

October 8, 2018,

we entered into Consent and Amendment

No.

2

(the “Amendment

2”

) to our PNC Agreements. Amendment

2

reduced the amount of new funding proceeds that must be used to repay the term loan from

$5

million to

$2

million and waived the calculation of financial ratios for the period ended

September 30, 2018,

in exchange for a new covenant committing to raise at least

$7.5

million in gross proceeds from our equity issuance by

November 15, 2018

and pay an amendment fee. Market conditions ultimately forced us to postpone the offering, and thus

no

proceeds were received by the

November 15, 2018

requirement.

We engaged PNC to resolve this failure to meet our amended covenant, and as of

March 2019

entered into a forbearance agreement. Under the terms of this agreement, previously identified compliance failures will be waived and financial covenants as of

March 31, 2019

will

not

be considered, with the next calculation due for the period ending

June 30, 2019.

We received a temporary over-advance of

$1.2

million, which declined to

zero

over a

six

-week period under the terms of this agreement and paid a fee of

$250,000.

As forbearance is a temporary condition and we remain out of compliance with the terms of our facility, we have reclassified long-term bank debt to current liabilities on our balance sheet.

Available credit under the Revolving Credit facility is determined by eligible receivables and inventory at CTI Industries (U.S.) and Flexo Universal (Mexico).

Certain terms of the PNC Agreements include:

● Restrictive Covenants : The Credit Agreement includes several restrictive covenants under which we are prohibited from, or restricted in our ability to:

o Borrow money;

o Pay dividends and make distributions;

o Make certain investments;

o Use assets as security in other transactions;

o Create liens;

o Enter into affiliate transactions;

o Merge or consolidate; or

o Transfer and sell assets.

● Financial Covenants : The Credit Agreement includes a series of financial covenants we are required to meet including:

o We are required to maintain a "Leverage Ratio", which is defined as the ratio of (a) Funded Debt (other than the Shareholder Subordinated Loan) as of such date of determination to (b) EBITDA (as defined in the PNC Agreements) for the applicable period then ended. The highest values for this ratio allowed by the PNC Agreements are:

Fiscal Quarter Ratio

December 31, 2017	4.75	to	1.00
March 31, 2018	4.50	to	1.00
June 30, 2018	4.25	to	1.00
September 30, 2018	not applicable
December 31, 2018	3.50	to	1.00
March 31, 2019	not applicable
June 30, 2019	3.00	to	1.00
September 30, 2019 and thereafter	2.75	to	1.00

o We are required to maintain a "Fixed Charge Coverage Ratio", which is defined as the ratio of (a) EBITDA for such fiscal period, minus Unfinanced Capital Expenditures made during such period, minus distributions (including tax distributions) and dividends made during such period, minus cash taxes paid during such period to (b) all Debt Payments made during such period. This ratio must not exceed 1.1 : 1.0 for any quarterly calculation.

The credit agreement provides for interest at varying rates in excess of the prime rate, depending on the level of senior debt to EBITDA over time. We also entered into a swap agreement with PNC Bank to fix the rate of interest for

$3

million of the notes over

3

years at

2.25%.

This contract was made at market value upon

December 14, 2017

execution and accounted for as a hedge. This contract is expected to terminate during

2019

at

no

cost or benefit to the Company under the terms of the forbearance agreement.

Failure to comply with these covenants has caused us to pay a higher rate of interest (by

2%

per the Agreements), and other potential penalties

may

impact the availability of the credit facility itself, and thus might negatively impact our ability to remain a going concern. As described above in this Note as well as in Note

2,

we were

not

in compliance with this credit facility as of

December 31, 2018

and have entered into a forbearance agreement with our bank as of

March 2019.

As of

December 2017,

Mr. Schwan was owed a total of

$1,099,000,

with additional accrued interest of

$400,000,

by the Company. As part of the

December 2017

financing with PNC, Mr. Schwan executed a subordination agreement related to these amounts due him, as evidenced by a related note representing the amount owed to Mr. Schwan. During

January 2019,

Mr. Schwan converted

$600,000

of his balance into approximately

181,000

shares of our common stock at the then market rate.

No

payments were issued to Mr. Schwan during

2018

or the

three

months ended

March 31, 2019,

with

$15,000

of interest recorded as an expense.

XML

Note 4 - Stock-based Compensation; Changes in Equity

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

Note

4

- Stock-Based Compensation; Changes in Equity

The Company has adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic

718

which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the condensed consolidated financial statements based on their grant-date fair values.

The Company has applied the Black-Scholes model to value stock-based awards and issued warrants related to notes payable. That model incorporates various assumptions in the valuation of stock-based awards relating to the risk-free rate of interest to be applied, the estimated dividend yield and expected volatility of our common stock. The risk-free rate of interest is the related U.S. Treasury yield curve for periods within the expected term of the option at the time of grant. The dividend yield on our common stock is estimated to be

0%

,

as the Company did

not

issue dividends during

2019

and

2018.

The expected volatility is based on historical volatility of the Company’s common stock.

The Company’s net loss for the

three

months ended

March 31, 2019

and

2018

includes approximately

$29,000

and

$62,000,

respectively, of compensation costs related to share based payments. As of

March 31, 2019,

there is

$164,000

of unrecognized compensation expense related to non-vested stock option grants and stock grants. We expect approximately

$63,000

of additional stock-based compensation expense to be recognized over the remainder of

2019,

and

$56,000

to be recognized during

2020.

On

April 10, 2009,

the Board of Directors approved for adoption, and on

June 5, 2009,

the shareholders of the Corporation approved, a

2009

Stock Incentive Plan (

“2009

Plan”). The

2009

Plan and subsequent awards categorized as inducement of employment authorized the issuance of up to

510,000

shares of stock or options to purchase stock of the Company (including cancelled shares reissued under the plan.) On

June 8, 2018,

our shareholders approved the

2018

Stock Incentive Plan (

“2018

Plan”). The

2018

Plan authorizes the issuance of up to

300,000

shares of our common stock in the form of equity-based awards. As of

March 31, 2019,

options for

471,144

shares remain outstanding.

A summary of the Company’s stock option activity, which includes grants of restricted stock, non-qualified stock options, incentive stock options, warrants and related information, is as follows:

	Shares under Option		Weighted Average Exercise Price
Balance at December 31, 2018		471,144	$	3.95
Granted		-		-
Cancelled/Expired		-		-
Exercised/Issued		-		-
Outstanding at March 31, 2019		471,144	$	3.95
Exercisable at March 31, 2019		165,264	$	4.05

The instruments above have an aggregate intrinsic value of

$78,000,

which represents the total pre-tax intrinsic value (the difference between the closing price of the Company’s common stock on the last trading day of the quarter ended

March 31, 2019

and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all the holders exercised their options on

March 31, 2019.

As described in Note

5,

we issued

20,000

shares of common stock to Gary Page in a legal settlement during

January 2019.

The value of those shares on the date of issuance was approximately

$67,000.

On

January 11, 2019,

the Company and its Chairman, Mr. John Schwan, completed an exchange debt for equity upon receipt of consent for the transaction from the Company’s lender. Mr. Schwan surrendered

$600,000

in notes from the Company in exchange for

180,723

shares of the Company’s common stock. The value was set at the

$3.32

per share closing price of the Company’s common stock on the NASDAQ stock market on

December 20, 2018.

XML

Note 5 - Legal Proceedings

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Legal Matters and Contingencies [Text Block]

Note

5

- Legal Proceedings

The Company

may

be party to certain lawsuits or claims arising in the normal course of business. The ultimate outcome of these matters is unknown but, in the opinion of management, we do

not

believe any of these proceedings will have, individually or in the aggregate, a material adverse effect upon our financial condition, cash flows or future results of operation.

In

July 2017,

God’s Little Gift, Inc. (d\b\a) Helium and Balloons Across America and Gary Page (“Claimants”) filed an action against the Company based on disputed compensation amounts over several years. This action was resolved by mutual agreement between the parties during

January 2019.

Mr. Page received

20,000

shares of CTI common stock,

$5,000

in cash, and a minimum payout in his monthly royalty calculation of

$7,667

beginning

March 1, 2019

and ending

August 1, 2021.

The Company accrued the

$0.3

million in committed costs under this settlement in its

December 31, 2018

financial statements.

XML

Note 6 - Other Comprehensive Income

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

Note

6

- Other Comprehensive

Income

In the

three

months ended

March 31, 2018,

the Company incurred other comprehensive income of approximately

$236,000,

all from foreign currency translation adjustments.

The following table sets forth the accumulated balance of other comprehensive income and each component.

	Foreign Currency Items			Total Accumulated Other Comprehensive Income
Beginning balance as of January 1, 2019	$	(6,050,347	)	$	(6,050,347	)
Current period change, net of tax		235,876			235,876
Ending Balance as of March 31, 2019		(5,814,471	)		(5,814,471	)

XML

Note 7 - Inventories, Net

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Inventory Disclosure [Text Block]

Note

7

-

Inventories, Net

	March 31, 201 9			December 31, 201 8
Raw materials	$	2,402,974		$	1,994,741
Work in process		3,133,953			3,052,224
Finished goods		15,239,946			14,934,581
In Transit		451,588			480,716
Allowance for excess quantities		(390,554	)		(454,774	)
Total inventories	$	20,837,907		$	20,007,488

XML

Note 8 - Geographic Segment Data

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note

8

- Geographic Segment Data

The Company has determined that it operates primarily in

one

business segment that designs, manufactures and distributes film and film related products for use in packaging, storage and novelty balloon products. The Company operates in foreign and domestic regions. Information about the Company's operations by geographic area is as follows:

	Net Sales to Outside Customers
	For the Three Months Ended				Total Assets at
	March 31,				March 31,		December 31,
	2019		2018		2019		2018
United States	$	8,760,000	$	9,738,000	$	25,151,000	$	25,354,000
Europe		1,275,000		1,362,000		3,366,000		3,052,000
Mexico		2,081,000		2,186,000		11,406,000		9,476,000
United Kingdom		420,000		693,000		1,461,000		879,000
	$	12,536,000	$	13,979,000	$	41,384,000	$	38,761,000

XML

Note 9 - Concentration of Credit Risk

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

Not

e

9

- Concentration of Credit Risk

Concentration of credit risk with respect to trade accounts receivable is generally limited due to the large number of entities comprising the Company's customer base. The Company performs ongoing credit evaluations and provides an allowance for potential credit losses against the portion of accounts receivable which is estimated to be uncollectible. Such losses have historically been within management's expectations. During the

three

months ended

March 31, 2019

and

2018,

there were

two

customers whose purchases represented more than

10%

of the Company’s consolidated net sales, respectively. Sales to these customers for the

three

months ended

March 31, 2019

and

2018

are as follows:

	Three Months Ended					Three Months Ended
	March 31, 201 9					March 31, 201 8
Customer	Net Sales		% of Net Sales			Net Sales		% of Net Sales
Customer A	$	3,861,000		30.8	%	$	4,450,000		31.8	%
Customer B	$	2,159,000		17.2	%	$	2,471,000		17.7	%

As of

March 31, 2019,

the total amounts owed to the Company by these customers were approximately

$2,933,000

or

27.7%,

and

$2,279,000

or

21.5%,

of the Company’s consolidated net accounts receivable, respectively. The amounts owed at

March 31, 2018

by these customers were approximately

$3,643,000

or

33.4%,

and

$2,657,000

or

24.3%

of the Company’s consolidated net accounts receivable, respectively.

XML

Note 10 - Related Party Transactions

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

Note

10

-

Related Party Transactions

Stephen M. Merrick, Director, General Counsel and former Chief Executive Officer of the Company, was, until

2018,

of counsel to the law firm of Vanasco Genelly and Miller PC which used to provide legal services to the Company. Legal fees paid by the Company to this firm for the

three

months ended

March 31, 2019

and

2018,

respectively, were

none

and

$72,000.

John H. Schwan, through an investment entity, and Stephen M. Merrick, also through an investment entity own, in aggregate, a

50%

interest in Clever Container Company L.L.C., an Illinois limited liability company (“Clever Container”). During the

three

months ended

March 31, 2019

and

2018,

Clever Container purchased various products from the Company in the amount of

$62,000

and

$237,000,

respectively. As of

March 31, 2019

and

2018,

the balance of accounts receivable from Clever Container to the Company were

$1,373,000

and

$1,102,000,

respectively. The Company owns a

28.5%

interest in Clever Container, though has announced the intention to divest its interest in Clever Container, which has

not

been completed as of the filing of this report.

XML

Note 11 - Derivative Instruments; Fair Value

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Derivatives and Fair Value [Text Block]

Note

1

1

-

Derivative Instruments; Fair Value

The Company accounts for derivative instruments in accordance with U.S. GAAP, which requires that all derivative instruments be recognized on the balance sheet at fair value. We

may

enter into interest rate swaps to fix the interest rate on a portion of our variable interest rate debt to reduce the potential volatility in our interest expense that would otherwise result from changes in market interest rates. Our derivative instruments are recorded at fair value and are included in accrued liabilities of our consolidated balance sheet. Our accounting policies for these instruments are based on whether they meet our criteria for designation as hedging transactions, which include the instrument’s effectiveness, risk reduction and, in most cases, a

one

-to-

one

matching of the derivative instrument to our underlying transaction. As of

March 31, 2019

and

December 31, 2018,

we had

one

derivative instrument accounted for as a hedge, with the same instrument accounted for as a hedge as of

March 31, 2018.

Gains and losses from changes in fair values of derivatives that are

not

designated as hedges for accounting purposes are recognized in the consolidated statement of operations. We have

no

such derivative financial instruments as of

December 31, 2018.

Changes in fair value for the respective periods were recognized in the consolidated statement of operations.

The interest rate swap we entered into

December 14, 2017

had a

three

year term (ending

December 14, 2020)

and a notional amount of

$3

million. The Company purchased a

2.25%

fixed rate in exchange for the variable rate on a portion of the notes payable under the PNC Agreements, which was

1.47%

at time of execution. The fair value of the swap was insignificant as of

March 31, 2018

and

December 31, 2018

and

March 31, 2019.

It is expected that this instrument will be eliminated with

no

gain or loss to the Company as a result of the forbearance agreement entered into during

March 2019.

XML

Note 12 - Leases

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

Note

12

-

Leases

We adopted ASC Topic

842

(Leases) on

January 1, 2019.

This standard requires us to record certain operating lease liabilities and corresponding right-of-use assets on our balance sheet. Results for periods beginning after

January 1, 2019

are presented under Topic

842,

while prior period amounts are

not

adjusted and continue to be reported in accordance with our historic accounting under Topic

840.

We elected the package of practical expedients available for expired or existing contracts, which allowed us to carryforward our historical assessments of whether contracts are (or contain) leases, as well as lease classification tests and treatment of initial direct costs. We also elected to

not

separate lease components from non-lease components for all fixed payments, and we exclude variable lease payments in the measurement of right-of-use assets and lease obligations.

Upon adoption of ASC

842

we recorded a

$2.4

million increase in other assets, a

$1.0

million increase in current liabilities, and a

$1.4

million increase in non-current liabilities. We did

not

record any cumulative effect adjustments in opening retained earnings, and adoption of ASC

842

had

no

impact on cash flows from operating, investing, or financing activities.

We determine if an arrangement is a lease at inception. Most of our operating leases do

not

provide an implicit rate of interest so we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. We lease various assets in the course of ordinary business including: warehouses and manufacturing facilities, as well as vehicles and equipment used in our operations. Leases with an initial term of

12

months or less are

not

recorded on the balance sheet as we recognize lease expense for these leases on a straight-line basis over the lease term. The depreciable life of assets and related improvements are limited by the expected lease term, unless there is a reasonably certain expected transfer or title or purchase option. Some lease agreements include renewal options at our sole discretion. Any guaranteed residual value is included in our lease liability.

The table below describes our lease position as of

March 31, 2019: 

Assets	As of March 31, 2019
Operating lease right-of-use assets		2,360,000
Accumulated amortization		(249,000	)
Net lease assets		2,111,000
Liabilities
Current
Operating		1,017,000
Noncurrent
Operating		1,094,000
Total lease liabilities		2,111,000
Weighted average remaining term (years) – operating leases		3
Weighted average discount rate – operating leases		10	%

During the

three

months ended

March 31, 2019,

we recorded expenses related to

Operating right-of-use lease asset amortization	249,000
Financing lease asset amortization	0
Related interest expense	0
Total expense for three months ended March 31, 2019	249,000

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

The accompanying condensed (a) consolidated balance sheet as of

December 31, 2018,

which has been derived from audited consolidated financial statements, and (b) the unaudited interim condensed consolidated financial statements have been prepared and, in the opinion of management, contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the consolidated financial position and the consolidated statements of comprehensive income and consolidated cash flows for the periods presented in conformity with generally accepted accounting principles for interim consolidated financial information and the instructions to Form

10

-Q and Article

8

of Regulation S-

X.

Accordingly, they do

not

include all the information and footnotes required by accounting principles generally accepted in the United States of America. Operating results for the

three

months ended

March 31, 2019

are

not

necessarily indicative of the results that

may

be expected for the fiscal year ending

December 31, 2019.

It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form

10

-K for the fiscal year ended

December 31, 2018.

Consolidation, Policy [Policy Text Block]

Principles of consolidation and nature of operations:

The condensed consolidated financial statements include the accounts of CTI Industries Corporation and its wholly-owned subsidiaries, CTI Balloons Limited and CTI Supply, Inc., its majority-owned subsidiaries, Flexo Universal, S. de R.L. de C.V. and CTI Europe gmbH, as well as the accounts of Venture Leasing S. A. de R. L., Venture Leasing L.L.C and Clever Container Company, L.L.C. (the “Company”). The last

three

entities have been consolidated as variable interest entities. All significant intercompany transactions and accounts have been eliminated in consolidation. The Company (i) designs, manufactures and distributes balloon and related novelty (candy and party related) products throughout the world, (ii) operates systems for the production, lamination, coating and printing of films used for food packaging and other commercial uses and for conversion of films to flexible packaging containers and other products, and (iii) distributes vacuum sealing products and home organization products in the United States. We have announced our intention to divest our interest in Clever Container and deconsolidate that entity from our group. As we still hold an equity interest in Clever Container as of

March 31, 2019,

it remains consolidated as a variable interest entity.

Consolidation, Variable Interest Entity, Policy [Policy Text Block]

Variable Interest Entities (“VIE’s”):

The determination of whether or

not

to consolidate a variable interest entity under U.S. GAAP requires a significant amount of judgment concerning the degree of control over an entity by its holders of variable interest. To make these judgments, management has conducted an analysis of the relationship of the holders of variable interest to each other, the design of the entity, the expected operations of the entity, which holder of variable interests is most “closely associated” to the entity and which holder of variable interests is the primary beneficiary required to consolidate the entity. Upon the occurrence of certain events, management reviews and reconsiders its previous conclusion regarding the status of an entity as a variable interest entity. There are

three

entities that have been consolidated as variable interest entities.

Use of Estimates, Policy [Policy Text Block]

Use of estimates:

In preparing condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of revenue and expenses during the reporting period in the condensed consolidated financial statements and accompanying notes. Actual results

may

differ from those estimates. The Company’s significant estimates include reserves for doubtful accounts, reserves for the lower of cost or market of inventory, reserves for deferred tax assets and recovery value of goodwill.

Earnings Per Share, Policy [Policy Text Block]

Earnings per share:

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during each period.

Diluted earnings per share is computed by dividing the net income by the weighted average number of shares of common stock and equivalents (stock options and warrants), unless anti-dilutive, during each period.

As of

March 31, 2019

and

2018,

shares to be issued upon the exercise of options and warrants aggregated

471,144

for each period. The number of shares included in the determination of earnings on a diluted basis for the

three

months ended

March 31, 2019

and

2018

were

none

,

as doing so would have been anti-dilutive.

New Accounting Pronouncements, Policy [Policy Text Block]

Significant Accounting Policies:

The Company’s significant accounting policies are summarized in Note

2

of the Company’s consolidated financial statements for the year ended

December 31, 2018.

There were

no

significant changes to these accounting policies during the

three

months ended

March 31, 2019,

except for the adoption of Accounting Standards Codification (ASC) Topic

842,

Leases

.

On

January 1, 2019,

we adopted ASC Topic

842

(Leases). The adoption of this standard significantly increased our assets and liabilities and further discussed in Note

12.

ASC

842

requires a lessee to recognize assets and liabilities related to leases with terms in excess of

12

months. Such assets are typically considered Right-Of-Use (“ROU”) assets. Prior information has

not

been restated and continues to be reported under the accounting standards in effect for those periods.

On

January 1, 2018,

we adopted ASC

606

(Revenue From Contracts With Customers) using the modified retrospective method. The adoption of ASC

606

did

not

have a material impact on our consolidated financial position or results of operations, as our revenue arrangements generally consist of a single performance obligation to transfer promised goods at a fixed price.

Net sales include revenues from sales of products and shipping and handling charges, net of estimates for product returns. Revenue is measured at the amount of consideration the Company expects to receive in exchange for the transferred products. Revenue is recognized at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. The Company recognizes revenue for shipping and handling charges at the time the goods are shipped to the customer, and the costs of outbound freight are included in cost of sales, as we have elected the practical expedient included in ASC

606.

The Company provides for product returns based on historical return rates. While we incur costs for sales commissions to our sales employees and outside agents, we recognize commission costs concurrent with the related revenue, as the amortization period is less than

one

year and we have elected the practical expedient included in ASC

606.

We do

not

incur incremental costs to obtain contracts with our customers. Our product warranties are assurance-type warranties, which promise the customer that the products are as specified in the contract. Therefore, the product warranties are

not

a separate performance obligation and are accounted for as described herein. Sales taxes assessed by governmental authorities are accounted for on a net basis and are excluded from net sales.

Auditor Replacement Process [Policy Text Block]

Auditor Replacement Process:

During

April 2019,

our independent registered accounting firm, Plante & Moran PLLC, declined to stand for reappointment as auditor. We are currently seeking a replacement audit firm. This quarterly report on Form

10Q

is being prepared without the benefit of auditor review, and we intend to amend its filing upon the hiring of a replacement independent registered accounting firm.

XML

Note 3 - Debt (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Leverage Ratios [Table Text Block]

December 31, 2017	4.75	to	1.00
March 31, 2018	4.50	to	1.00
June 30, 2018	4.25	to	1.00
September 30, 2018	not applicable
December 31, 2018	3.50	to	1.00
March 31, 2019	not applicable
June 30, 2019	3.00	to	1.00
September 30, 2019 and thereafter	2.75	to	1.00

XML

Note 4 - Stock-based Compensation; Changes in Equity (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Share-based Payment Arrangement, Activity [Table Text Block]

	Shares under Option		Weighted Average Exercise Price
Balance at December 31, 2018		471,144	$	3.95
Granted		-		-
Cancelled/Expired		-		-
Exercised/Issued		-		-
Outstanding at March 31, 2019		471,144	$	3.95
Exercisable at March 31, 2019		165,264	$	4.05

XML

Note 6 - Other Comprehensive Income (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

	Foreign Currency Items			Total Accumulated Other Comprehensive Income
Beginning balance as of January 1, 2019	$	(6,050,347	)	$	(6,050,347	)
Current period change, net of tax		235,876			235,876
Ending Balance as of March 31, 2019		(5,814,471	)		(5,814,471	)

XML

Note 7 - Inventories, Net (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	March 31, 201 9			December 31, 201 8
Raw materials	$	2,402,974		$	1,994,741
Work in process		3,133,953			3,052,224
Finished goods		15,239,946			14,934,581
In Transit		451,588			480,716
Allowance for excess quantities		(390,554	)		(454,774	)
Total inventories	$	20,837,907		$	20,007,488

XML

Note 8 - Geographic Segment Data (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Net Sales to Outside Customers
	For the Three Months Ended				Total Assets at
	March 31,				March 31,		December 31,
	2019		2018		2019		2018
United States	$	8,760,000	$	9,738,000	$	25,151,000	$	25,354,000
Europe		1,275,000		1,362,000		3,366,000		3,052,000
Mexico		2,081,000		2,186,000		11,406,000		9,476,000
United Kingdom		420,000		693,000		1,461,000		879,000
	$	12,536,000	$	13,979,000	$	41,384,000	$	38,761,000

XML

Note 9 - Concentration of Credit Risk (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	Three Months Ended					Three Months Ended
	March 31, 201 9					March 31, 201 8
Customer	Net Sales		% of Net Sales			Net Sales		% of Net Sales
Customer A	$	3,861,000		30.8	%	$	4,450,000		31.8	%
Customer B	$	2,159,000		17.2	%	$	2,471,000		17.7	%

XML

Note 12 - Leases (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Lessee, Operating Lease, Assets and Liabilities [Table Text Block]

Assets	As of March 31, 2019
Operating lease right-of-use assets		2,360,000
Accumulated amortization		(249,000	)
Net lease assets		2,111,000
Liabilities
Current
Operating		1,017,000
Noncurrent
Operating		1,094,000
Total lease liabilities		2,111,000
Weighted average remaining term (years) – operating leases		3
Weighted average discount rate – operating leases		10	%

Lease, Cost [Table Text Block]

Operating right-of-use lease asset amortization	249,000
Financing lease asset amortization	0
Related interest expense	0
Total expense for three months ended March 31, 2019	249,000

XML

Note 1 - Basis of Presentation (Details Textual) - shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Common Stock, Capital Shares Reserved for Future Issuance	471,144	471,144
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	0

XML

Note 2 - Liquidity and Going Concern (Details Textual) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Net Income (Loss) Attributable to Parent, Total	$ (880,421)	$ (463,008)	$ (3,600,000)	$ (1,600,000)	$ 700,000

XML

Note 3 - Debt (Details Textual)					3 Months Ended		9 Months Ended	12 Months Ended
	Jan. 11, 2019 USD ($) shares	Oct. 08, 2018 USD ($)	Jun. 08, 2018	Dec. 14, 2017 USD ($)	Mar. 31, 2019 USD ($)	Mar. 31, 2018 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Interest Expense, Total					$ 546,906	$ 564,060
PNC [Member] | Interest Rate Swap [Member] | Designated as Hedging Instrument [Member]
Derivative Liability, Notional Amount				$ 3,000,000
Derivative, Term of Contract				3 years
Derivative, Fixed Interest Rate				2.25%
Promissory Note [Member] | John H Schwan [Member]
Due to Related Parties, Total									$ 1,099,000
Interest Payable									400,000
Debt Conversion, Original Debt, Amount	$ 600,000
Debt Conversion, Converted Instrument, Shares Issued | shares	180,723
Repayments of Related Party Debt					0			$ 0
Interest Expense, Total					15,000
PNC [Member] | PNC Agreements [Member]
Debt Instrument, Temporary Over-Advance					1,200,000
Debt Instrument, Temporary Over-Advance, End Balance					$ 0
Debt Instrument, Temporary Over-Advance, Term					42 days
Debt instrument, Amendment Fee					$ 250,000
Debt Instrument, Interest Rate, Increase (Decrease)			2.00%
PNC [Member] | PNC Agreements [Member] | Maximum [Member]
Fixed Charge Coverage Ratio			1.1
PNC [Member] | PNC Agreements [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity									18,000,000
PNC [Member] | PNC Agreements [Member] | Term Loan [Member]
Long-term Debt, Total									$ 6,000,000
PNC [Member] | PNC Agreements, Amendment Two [Member]
Debt Instrument, Funding Proceeds Used to Repay Term Loan		$ 2,000,000					$ 5,000,000
Debt Instrument, Covenant, Required Proceeds from Equity Issuance		7,500,000
Proceeds from Issuance or Sale of Equity, Total		$ 0

XML

Note 3 - Debt - Leverage Ratios (Details)	3 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017
Leverage ratio				3.5		4.25	4.5	4.75
Forecast [Member]
Leverage ratio	2.75	3

XML

Note 4 - Stock-based Compensation; Changes in Equity (Details Textual) - USD ($)		1 Months Ended	3 Months Ended		12 Months Ended
	Jan. 11, 2019	Jan. 31, 2019	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018	Dec. 20, 2018	Jun. 08, 2018	Apr. 10, 2009
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate			0.00%		0.00%
Dividends, Common Stock, Cash			$ 0		$ 0
Share-based Payment Arrangement, Expense			29,000	$ 62,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total			164,000
Expected Recognized Compensation Expenses, Remainder of the Fiscal Year			63,000
Expected Recognized Compensation Expenses in Year Two			$ 56,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance			471,144		471,144
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value			$ 78,000
Stock Issued During Period, Value, New Issues
Share Price						$ 3.32
Promissory Note [Member] | John H Schwan [Member]
Debt Conversion, Original Debt, Amount	$ 600,000
Debt Conversion, Converted Instrument, Shares Issued	180,723
Disputed Compensation Amounts by Claimants [Member] | God’s Little Gift, Inc. (d\b\a) Helium and Balloons Across America and Gary Page [Member]
Stock Issued During Period, Shares, New Issues		20,000
Stock Issued During Period, Value, New Issues		$ 67,000
Stock Incentive Plan 2009 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized								510,000
Stock Incentive Plan 2018 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized							300,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance			471,144

XML

Note 4 - Stock-based Compensation; Changes in Equity - Option Activity (Details)	3 Months Ended
	Mar. 31, 2019 $ / shares shares
Outstanding, beginning of period (in shares) | shares	471,144
Outstanding, beginning of period (in dollars per share) | $ / shares	$ 3.95
Granted (in shares) | shares
Granted (in dollars per share) | $ / shares
Cancelled/Expired (in shares) | shares
Cancelled/Expired (in dollars per share) | $ / shares
Exercised/Issued (in shares) | shares
Exercised/Issued (in dollars per share) | $ / shares
Outstanding at the end of period (in shares) | shares	471,144
Outstanding at the end of period (in dollars per share) | $ / shares	$ 3.95
Exercisable at the end of period (in shares) | shares	165,264
Exercisable at the end of period (in dollars per share) | $ / shares	$ 4.05

XML

Note 5 - Legal Proceedings (Details Textual) - USD ($)	1 Months Ended	3 Months Ended
	Jan. 31, 2019	Mar. 31, 2019
Disputed Compensation Amounts by Claimants [Member] | God’s Little Gift, Inc. (d\b\a) Helium and Balloons Across America and Gary Page [Member]
Stock Issued During Period, Shares, New Issues	20,000
Payments for Legal Settlements	$ 5,000
Loss Contingency Accrual, Ending Balance	300,000
Disputed Compensation Amounts by Claimants [Member] | God’s Little Gift, Inc. (d\b\a) Helium and Balloons Across America and Gary Page [Member] | Minimum [Member]
Royalty Monthly Payout, Amount	$ 7,667
Common Stock [Member]
Stock Issued During Period, Shares, New Issues		20,000
Common Stock [Member] | Disputed Compensation Amounts by Claimants [Member] | God’s Little Gift, Inc. (d\b\a) Helium and Balloons Across America and Gary Page [Member]
Stock Issued During Period, Shares, New Issues	20,000

XML

Note 6 - Other Comprehensive Income (Details Textual)	3 Months Ended
	Mar. 31, 2019 USD ($)
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Tax, Total	$ 236,000

XML

Note 6 - Other Comprehensive Income - Accumulated Other Comprehensive Loss Balances (Details)	3 Months Ended
	Mar. 31, 2019 USD ($)
Balance	$ 6,255,729
Balance	6,177,764
Accumulated Foreign Currency Adjustment Attributable to Parent [Member]
Balance	(6,050,347)
Accumulated Other Comprehensive Loss, Current period change	235,876
Balance	(5,814,471)
AOCI Attributable to Parent [Member]
Balance	(6,050,347)
Accumulated Other Comprehensive Loss, Current period change	235,876
Balance	$ (5,814,471)

XML

Note 7 - Inventories, Net - Inventories (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Raw materials	$ 2,402,974	$ 1,994,741
Work in process	3,133,953	3,052,224
Finished goods	15,239,946	14,934,581
In Transit	451,588	480,716
Allowance for excess quantities	(390,554)	(454,774)
Total inventories	$ 20,837,907	$ 20,007,488

XML

Note 8 - Geographic Segment Data (Details Textual)	3 Months Ended
	Mar. 31, 2019
Number of Operating Segments	1

XML

Note 8 - Geographic Segment Data - Financial Information by Geographic Area (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Sales to outside customers	$ 12,536,389	$ 13,979,177
Sales to outside customers	41,384,086		$ 38,760,834
UNITED STATES
Sales to outside customers	8,760,000	9,738,000
Sales to outside customers	25,151,000		25,354,000
Europe [Member]
Sales to outside customers	1,275,000	1,362,000
Sales to outside customers	3,366,000		3,052,000
MEXICO
Sales to outside customers	2,081,000	2,186,000
Sales to outside customers	11,406,000		9,476,000
UNITED KINGDOM
Sales to outside customers	420,000	$ 693,000
Sales to outside customers	$ 1,461,000		$ 879,000

XML

Note 9 - Concentration of Credit Risk (Details Textual) - Customer Concentration Risk [Member]	3 Months Ended
	Mar. 31, 2019 USD ($)	Mar. 31, 2018 USD ($)
Revenue Benchmark [Member]
Number of Major Customers	2	2
Revenue Benchmark [Member] | Customer One [Member]
Concentration Risk, Percentage	30.80%	31.80%
Revenue Benchmark [Member] | Customer Two [Member]
Concentration Risk, Percentage	17.20%	17.70%
Accounts Receivable [Member] | Customer One [Member]
Accounts Receivable, before Allowance for Credit Loss	$ 2,933,000	$ 3,643,000
Concentration Risk, Percentage	27.70%	33.40%
Accounts Receivable [Member] | Customer Two [Member]
Accounts Receivable, before Allowance for Credit Loss	$ 2,279,000	$ 2,657,000
Concentration Risk, Percentage	21.50%	24.30%

XML

Note 9 - Concentration of Credit Risk - Concentration of Credit Risk, Net Sales (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net Sales	$ 12,536,389	$ 13,979,177
Customer One [Member]
Net Sales	$ 3,861,000	$ 4,450,000
Customer One [Member] | Customer Concentration Risk [Member] | Revenue Benchmark [Member]
Percent of net sales	30.80%	31.80%
Customer Two [Member]
Net Sales	$ 2,159,000	$ 2,471,000
Customer Two [Member] | Customer Concentration Risk [Member] | Revenue Benchmark [Member]
Percent of net sales	17.20%	17.70%

XML

Note 10 - Related Party Transactions (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Legal Fees	$ 0	$ 72,000
Clever Container [Member]
Noncontrolling Interest, Ownership Percentage by Parent	28.50%
John H Schwan And Stephen M Merrick [Member] | Clever Container [Member]
Ownership Percentage	50.00%
Schwan Incorporated [Member]
Related Party Transaction, Amounts of Transaction	$ 62,000	237,000
Due to Related Parties, Noncurrent, Total	$ 1,373,000	$ 1,102,000

XML

Note 11 - Derivative Instruments; Fair Value (Details Textual) - PNC [Member] - Interest Rate Swap [Member] - Designated as Hedging Instrument [Member]	Dec. 14, 2017 USD ($)
Derivative, Term of Contract	3 years
Derivative Liability, Notional Amount	$ 3,000,000
Derivative, Fixed Interest Rate	2.25%
Derivative, Variable Interest Rate	1.47%

XML

Note 12 - Leases (Details Textual) - USD ($)	Jan. 01, 2019	Mar. 31, 2019	Dec. 31, 2018
Assets, Noncurrent, Excluding Property, Plant, and Equipment		$ 4,105,573	$ 1,935,119
Liabilities, Current, Total		32,211,059	30,208,712
Liabilities, Noncurrent, Total		$ 2,995,263	$ 2,296,393
Accounting Standards Update 2016-02 [Member]
Assets, Noncurrent, Excluding Property, Plant, and Equipment	$ 2,400,000
Liabilities, Current, Total	1,000,000
Liabilities, Noncurrent, Total	1,400,000
Cumulative Effect on Retained Earnings, Net of Tax, Total	$ 0

XML

Note 12 - Leases - Lease Position (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Operating lease right-of-use assets	$ 2,360,000
Accumulated amortization	(249,000)
Net lease assets	2,110,723
Operating	1,016,687	0
Operating	1,094,036
Total lease liabilities	$ 2,111,000
Weighted average remaining term (years) – operating leases (Year)	3 years
Weighted average discount rate – operating leases	10.00%

XML

Note 12 - Leases - Lease Cost (Details)	3 Months Ended
	Mar. 31, 2019 USD ($)
Operating right-of-use lease asset amortization	$ 249,000
Financing lease asset amortization	0
Related interest expense	0
Total expense for three months ended March 31, 2019	$ 249,000