FORWARD-LOOKING STATEMENTS

This annual reportAnnual Report on Form 10-K 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 annual report.Annual Report on Form 10-K. We disclaim any intent or obligation to update any forward-looking statements after the date of this annual reportAnnual Report on Form 10-K to conform such statements to actual results or to changes in our opinions or expectations. These forward-looking statements are affected by factors, risks, uncertainties and assumptions that we make, including, without limitation, our participation in highly competitive markets, potential changes in the cost or availability of raw materials, our dependence on a limited number of suppliers, the possible inability to obtain an adequate supply of raw materials, our reliance on a limited number of key customers, the loss of one or more of our key customers, changing consumer demands, developments or changes in technology, risks of international operations and political environments, dependence on our intellectual property, compliance with federal, state or local regulations, the resolution of litigation or other legal proceedings to which we may become involved, restrictions included in the Company’s credit facility, the availability of funds under the Company’s credit facility, damage to or destruction of one or both of the Company’s principal plants, our ability to service our indebtedness, our ability to invest in needed plant or equipment.

PART I

Item No. 1 – Description of Business

Business Overview

We develop, produce, distribute and distributesell a number of consumer products and sell these products throughout the United States and in over 30several other countries, and we produce film products for commercial and industrial uses in the United States. Many of our products utilize flexible films and, for a number of years, we have been a leading developer of innovative products which employ flexible films including novelty balloons, pouches and rolls of film for vacuum sealing and storage of products in the home as well as films for commercial packaging applications.

Our principal lines of products include:

Novelty Products consisting principally of foil and latex balloons and other inflatable toy itemsitems; and

Vacuum Sealing Containers and Sealing Devices for home and consumer use to vacuum seal, store and preserve food and personal items.

Flexible Films for food and other commercial and packaging applications.

In addition to these principleprincipal product lines, for the past several years, we have engaged in (i) the assembly and sale of Candy Blossoms (small containersgift bouquets of arranged candy items often including ribbons and/or a small foil balloon), (ii) the distribution in Mexico of party goods products, and (iii) the sale and distribution of home containers and organizing products (some of which we produce) to and through a related entity which distributes these products through a network of independent distributors..

We leverage our technology to design and develop proprietary products which we develop, market and sell and which we develop for our customers. We have been engaged in the business of developing flexible film products for over 40 years and have acquired significant technology and know-how in that time. We currently hold several patents and have patent applications pending, relatingrelated to flexible film products, including specific films, zipper closures, valves and other features of these products.

We print, process and convert flexible film into finished products and we produce latex balloons and novelty items. Our principal production processes include:

In 1978, we began manufacturing metalized balloons (often referred to as "foil" balloons), which are balloons made of a base material (usually nylon or polyester) often having vacuum deposited aluminum and polyethylene coatings. These balloons remain buoyant when filled with helium for much longer periods than latex balloons and permit the printing of graphic designs on the surface. In 1985, we began marketing latex balloons and, in 1988, we began manufacturing latex balloons. In 1999, we acquired an extrusion coating and laminating machine and began production of coated and laminated films, which we have produced since that time.

For more than 20 years, we have been engaged in the production of flexible containers for the storage of liquids, food products, household goods and other items, and in the coating, laminating and printing of flexible films for our novelty and container products and for the production of laminated and printed films we supply to others.

We market and sell our foil and latex balloons and related novelty items throughout the United States, Canada and Mexico and in a number of other countries in Latin America and Europe.countries. We supply directly to retail stores and chains and through distributors, who in turn sell to retail stores and chains. Our balloon and novelty products are sold to consumers through a wide variety of retail outlets including general merchandise, discount and drugstore chains, grocery chains, card and gift shops and party goods stores, as well as through florists and balloon decorators.

Most of our foil balloons contain printed characters, designs and social expression messages, such as “Happy Birthday,” “Get Well” and similar items. For some of our balloon designs, weWe may obtain licenses from time to time for well-known characters and print those characters and messages on our balloons.

We produce flexible containers and rolls of film for use as flexible containers in a variety of applications, including (i) zippered pouches with valves for vacuum sealing of food and household products and (ii) pouches and rolls of film for use with vacuum sealing machines to vacuum seal, store and protect food and household items. We market and sell flexible containers and rolls of film for consumer storage uses through retail chains and outlets throughout the United States, and we provide flexible containers to others for resale. We market and sell vacuum sealing machines for use with pouches and rolls of film for the vacuum storage of food and household products.

We providecustomized laminated films and printed films to customers who utilize the film to produce bags or pouches for the packaging of food, liquids and other items.

Commencing in In 2014, we began assembling and producing Candyloons and Candy Blossoms - containers including candy items and, often, air-inflated balloons - which we market to food store chains. Since 2014, we have distributed home container and organizing products, some of which we produce, to and through a related entity which distributes those products through a network of independent distributors in the United States. In 2015, we commenced the distribution of party goods in Mexico.balloons.

In 2016,2021, our revenues from our product lines, as a percent of total revenues were:

We are an Illinois corporation with our principal offices and plant at 22160 N. Pepper Road, Lake Barrington, Illinois.

Business Strategies and Developments

Our business strategies, and recent developments related to our business, include:

Products

Foil Balloons. We have designed, produced and sold foil balloons since 1979 and, we believe, are one of the second largest manufacturermanufacturers of foil balloons in the United States. Currently, we produce about 900several hundred foil balloon designs, in different shapes and sizes, including the following:sizes.

In addition to size and shape, a principal element of the Company'sour foil balloon products is the printed design or message contained on the balloon. These designs may include figures and licensed characters, manybut frequently are of whichour own design. We recognize that consumer trends and preferences, and competing products, are well known. We maintain licenses for several well-known characters.constantly changing. In order to compete effectively in this product line we must constantly innovate and develop new designs, shapes and products.

Latex Balloons. Through ourOur former subsidiary in Guadalajara, Mexico, Flexo Universal, S. de R.L. de C.V. (“Flexo Universal”), we manufacture manufactures latex balloons in 17a wide variety of sizes and 57 colors. Many of these balloons are marketed under the name Partyloons^®Partyloons® and balloons are also marketed on a private label basis. We also manufacturemanufactured toy balloon products including punch balls, water bombs and "Animal Twisties."

Vacuum Sealing Pouches Flexo Universal was sold during October 2021. The Company currently sources latex products from a foreign supplier and Systems. We produce, marketresells those products to customers that seek both foil and sell consumer vacuum storage pouches and systems for the vacuum storage of food and other household items. We produce (i) vacuum sealable bags and rolls of film for use with vacuum sealing devices for household storage and (ii) valved, resealable bags also for vacuum storage uses. Our valved, resealable bags function with a small hand or battery-powered pump to evacuate air from the bag when it is sealed. Since 2012, we have produced and marketed vacuum sealable bags and rolls of film under the Ziploc^® brand. We also market vacuum sealing machines, produced for us, under the Ziploc^® Brand Vacuum Sealer System. We have produced and marketed a line of valved, resealable bags under our Zipvac™ line. We have recently introduced a line of valved, resealable bags, including a line of vacuum sealing canisters sold under the brand Clever Fresh™ by our affiliate, Clever Container Company.latex solutions.

Packaging Films and Custom Film Products. A large and increasing number of both consumer and commercial products are packaged in pouches or containers utilizing flexible films. Often such containers include printed labels and designs. We produce and sell films that aremay be utilized for the packaging of variousa wide variety of products principally food products.and liquids. We laminate, extrusion coat and printadhesive coat flexible films for these purposes and sell them to customers who utilizewe provide flexographic printing for the films for packaging applications. Our customers generally use thesewe produce. We can produce a variety of customized film products, and printing services, to convert them to bags or pouches formeet the specific packaging needs of food and other products. We develop and produce for customers unique products composeda wide variety of flexible film.customers.

Other Products.We now distribute, and to some degree produce, home organization and container products for Clever Container Company, an entity consolidated with our company as a variable interest entity. Clever Container engages in the direct sale of such products through a network of independent distributors. In 2014, we began assembly and sale of our Candy Blossom product line. In 2015, we began to distribute party goodsline (typically a presentation of candy with a balloon in Mexico.a decorate arrangement for gifting). We have since supplemented this product line with related products.

Markets

Foil Balloons

The foil balloon came into existence in the late 1970s. During the 1980s, the market for foil balloons grew rapidly. Initially, the product was sold principally to individual vendors, small retail outlets and at fairs, amusement parks, shopping centers and other outdoor facilities and functions. Foil balloons remain buoyant when filled with helium for extended periods of time and they permit the printing and display of graphics and messages. As a result, the product has significant appeal as a novelty and message item. Foil balloons became part of the "social expression" industry, carrying graphics designs, characters and messages like greeting cards. In the mid-1980s, we and other participants in the market began licensing character and cartoon images for printing on the balloons and directed marketing of the balloons to retail outlets including grocery, general merchandise, discount and drug store chains, card and gift shops, party goods stores as well as florists and balloon decorators. These outlets now represent the principal means for the sale of foil balloons throughout the United States and in a number of other countries, although individual “vendors”vendors remain a means of distribution in a number ofcertain areas.

Foil balloons are now sold in virtually every region of the world. The United States however, remains the largest market for these products.

Foil balloons are sold in the United States and foreign countries directly by producers to retail outlets and through distributors and wholesalers. Often the sale of foil balloons by the wholesalers/distributors is accompanied by related products including latex balloons, floral supplies, candy containers, mugs, plush toys, baskets and a variety of party goods.

Latex Balloons

For a number of years, latex balloons and related novelty/toy latex items have been marketed and sold throughout the United States and in many other countries. Latex balloons are sold as novelty/toy items for decorative purposes, as part of floral designs and as party goods and favors. In addition to standard size and shape balloons, inflatable latex items include punch balls, water bombs, balloons to be twisted into shapes, and other specialty designs. Often, latex balloons include printed messages or designs.

Latex balloons are sold principally in retail outlets, including party goods stores, general merchandise stores, discount chains, gift stores and drugstore chains. Latex balloons are also purchased by balloon decorators and floral outlets for use in decorative or floral designs. Printed latex balloons are sold both in retail outlets and for balloon decoration purposes including floral designs.

Latex balloons are sold both through distributors and directly to retail outlets by the producers.

Flexible Containers/Pouches

The market for flexible containers and pouches is large and diverse. Many companies engaged in the production of food items package their products in flexible containers or pouches, and, therefore, represent a market for these containers.

Flexible containers and pouches are sold and utilized in the consumer market in numerous forms. They include simple open-top plastic bags, resealable bags and zippered bags. The market also includes containers and pouches of special design or purpose, including vacuumable bags for storage of food or household items or commercial uses.

We participate in a segment of the market for vacuum sealing and storage of food and household items. These products generally are sold in retail chain stores, and to some degree, in grocery stores, and, recently, in a direct sales channel. The product lines sold include (i) zippered, resealable bags, incorporating a valve through which air can be evacuated by a hand pump or other device; (ii) pouches or rolls of film which can be sealed by vacuum sealing devices and (iii) vacuum sealing devices.

Printed and Specialty Films

The industry and market for printed and specialty films are fragmented and include many participants. There are hundreds of manufacturers of printed and specialty film products in the United States and in other markets. In many cases, companies who provide food and other products in film packages also produce or process the films used for their packages. The market for the Company's film products consists principally of companies who utilize the films for the packaging of their products, including food products and other items, usually by converting the film to a flexible container.

Marketing, Sales and Distribution

Balloon Products

We work in collaboration with our customers on designs, promotions, and other elements of marketing and selling. Our customers are typically retailers who sell our products to individual consumers. These relationships generally can be terminated unilaterally by either us or our customers. We must maintain good relationships with our customers if this sales model is to be successful.

We market and sell our foil balloon, latex balloon and related novelty products throughout the United States and in a number of other countries. We maintain marketing, sales and support staff and a customer service department in the United States. Sales inWe sell directly to foreign customers from the United Kingdom are conducted by CTI Balloons Ltd. (“CTI Balloons”), the Company's subsidiary located in Rugby, England. Sales in Europe are conducted by CTI Europe GmbH (“CTI Europe”), the Company’s subsidiary located in Heusenstamm, Germany. Flexo Universal, our subsidiary in Mexico, conducts sales and marketing activities for the sale of balloon products in Mexico, Latin America, and certain other markets. Sales in other foreign countries are made generally to distributors in those countries and are managed at the Company's principal offices.States.

We sell and distribute our balloon products (i) bythrough our employedsales staff of sales and customer service personnel in the United States, Mexico, the UK and Germany, (ii) through a network of distributors and wholesalers, in the United States, Mexico, the UK and Europe, (iii) through several groups of independent sales representatives, and (iv) to retail chains. Our balloon products are generally sold through retail outlets including grocery, general merchandise and drug store chains, card and gift shops, party goods stores as well as florists and balloon decorators.

We sometimes engage in a variety of advertising and promotional activities to promote the sale of our balloon products. We produce a complete catalogcatalogs of our balloon products, and also prepare various flyers and brochures for special or seasonal products, which we disseminate to thousands of customers, potential customers and others. We participate in several trade shows for the gift, novelty, balloon and other industries and advertise in several trade and other publications. We maintain websites which show images of our products.

Flexible Containers/Pouches

We market several lines of flexible containers or pouches for household use to vacuum seal, store and preserve food and other household items.

We developed and, for several years, we have produced and sold a line of pouches and rolls of film for use with vacuum sealing machines to vacuum seal food and household items. Initially, we marketed these products through various retail channels under our brand or on a private label basis. On December 14, 2011, the Company entered into a Trademark License Agreement with SC Johnson under which the Company is licensed to manufacture and sell a line of vacuum sealing machines and pouches under the Ziploc^®Brand Vacuum Sealer System. The agreement was initially for a three year term expiring on December 31, 2014 and was extended for a term commencing on January 1, 2015 and extending to December 31, 2017. The licensed product line includes vacuum sealing machines manufactured for the Company and pouches and rolls manufactured by the Company for use in the home to vacuum seal food items to preserve freshness and help prevent freezer burn.

During 2007, we introduced a line of re-sealable pouches incorporating a valve permitting the evacuation of air from the sealed pouch by use of a hand pump supplied with the pouches. This line of products has been marketed under the brand name ZipVac^®. We now produce a line of resealable pouches under the brand Clever Fresh™ which we provide to our affiliate Clever Container Company for sale and distribution to its network of independent distributors.

Printed and Specialty Films

We market and sell printed and laminated films directly and through independent sales representatives throughout the United States. We sell laminated and printed films to companies that utilize these films to produce packaging for a variety of products, including food products, in both solid and liquid form, such as cola syrup, coffee, juices and other items. We seek to identify and maintain customer relationships in which we provide added value in the form of technology or systems.

Other Products

Other products are sold by our internal sales force directly to customers and also by independent sales representatives. These products are generally sold directly to consumers or to retail outlets.

Production and Operations

We conduct our operations at our facilities including: (i) our 68,000 square feet facility in Lake Barrington, Illinois, incorporating our headquarters office, production and warehouse space, (ii) our 118,00069,000 square foot facility in Lake Zurich,Elgin, Illinois consisting of warehouse, packaging and office space, and (iii) a 73,000 square foot facility in Guadalajara, Mexico, consisting of office, warehouse and production space (iv) a 9,000 square foot facilityfor Flexo Universal which remained with Flexo Universal upon the sale of that entity in Rugby, England consisting of office and warehouse space, and (v) a 13,000 square foot facility in Heusenstamm, Germany (near Frankfurt), consisting of office and warehouse space.October 2021.

We conduct production operations at our plants in Lake Barrington, Illinois and Guadalajara, Mexico. At our plants, ourOur production operations include (i) lamination and extrusion coating of films, (ii) slitting of film rolls, (iii) printing on film and on latex balloons, (iv) converting film to completed products including balloons, flexible containers and pouches, and (v) production ofproducing latex balloon products.products (until Flexo Universal was sold in October 2021), (vi) inflating of air-filled balloons, and (vii) assembling Candy blossoms. We perform all of the lamination, extrusion coating and slitting activities in our Lake Barrington, Illinois plant and produceproduced all of our latex balloon products at our Guadalajara, Mexico plant. We print on films in Lake Barrington, Illinois and we printprinted on latex balloons in Guadalajara, Mexico. We complete air-filling and assembly of balloons in all our facilities except Lake Barrington, Illinois. We assemble Candy blossoms in our Elgin, Illinois facility.

We warehouse raw materials at our plants in Lake Barrington, Illinois and Guadalajara, Mexico and we warehouse finished goods at our facilities in Lake Barrington, Illinois; Lake Zurich, Illinois; Guadalajara, Mexico; Rugby, EnglandIllinois and Heusenstamm, Germany.Elgin, Illinois. We maintain customer service and fulfillment operations at each of our warehouse locations. We conduct sales operations for the United States and for all other markets except those handled by our Mexico, Germany and England facilities, at the Lake Barrington, Illinois facility. Sales for Mexico and Latin America are handled at our Guadalajara, Mexico facility; sales for the United Kingdom are handled at our Rugby, England facility; sales for Europe are conducted from our facilities in Heusenstamm, Germany. In addition to warehouse and sales activities at these locations, we engage in some assembly, balloon inflation and related activities.

We maintain a graphic arts and development department at our Lake Barrington, Illinois facility which designs our balloon products and graphics. Our creative department operates a networked, computerized graphic arts system for the production of these designs and of printed materials including catalogues, advertisements and other promotional materials. As many of our products are custom designed or created to fulfill promotional schedules, we sometimes have excess inventory that must be sold at a discount or disposed of. Any such disposition will typically negatively impact our profit margin.

We conduct administrative and accounting functions at our headquarters in Lake Barrington, Illinois and at our facilities in Guadalajara, Mexico, Rugby, England and Heusenstamm, Germany.Illinois.

Raw Materials

The principal raw materials we use in manufacturing our products are (i) petroleum or natural gas-based films, (ii) petroleum or natural gas-based resin, (iii) latex, and (iv) printing inks. The cost of raw materials represents a significant portion of the total cost of our products, with the result that fluctuations in the cost of raw materials have a material effect on our profitability. The cost of our raw materials represented approximately 41.5% of our net revenues in 2016 compared to 42.5% in 2015. During the past several years, we have experienced significant fluctuations in the cost of these raw materials. We do not have any long-term agreements for the supply of raw materials and may experience wide fluctuations in the cost of raw materials in the future. Further, although we have been able to obtain adequate supplies of raw materials in the past, there can be no assurance that we will be able to obtain adequate supplies of one or more of our raw materials in the future.

A principal raw material for our latex balloon is natural latex. Over the past five years, the price of natural latex has been volatile, ranging from a low of approximately $2.15 per kilo to a high of $4.49 per kilo. During a portion of that time, when the price of latex rose rapidly, we were unable to increase the selling price of our latex balloons sufficiently to compensate for the increase in the cost of latex with the result that our margins on the sale of latex balloons declined significantly for a period of time. Over the past three years, the market price of natural latex has declined and our margins on the sale of latex balloon products have improved. However, we purchase raw latex in U.S. Dollars for our plant in Mexico and, as the value of the Peso has declined against the Dollar, the effect has been to increase our cost of raw latex.

Many of the foil balloons we produce and sell are intended to be filled with helium in order to be buoyant. Over the past several years, the price of helium has increasedfluctuated substantially and the availability of helium has, on occasion, been limited. LimitedDuring 2018 and 2019, the availability of helium declined and the cost of helium increased. The supply of helium has since improved significantly. Any future occurrence of limited availability and/or an increase in the cost of helium could adversely affect our sales of foil balloons in the future.balloons.

Competition

The balloon and novelty industry is highly competitive, with numerous competitors. We believe there are presently fivethe principal manufacturers of foil balloons whose products are sold in the United States including Anagram International, Inc., Pioneer Balloon Company, Convertidora International S.A. de C.V., and Betallic, LLC. Several companies market and sell foil balloons designed by them and manufactured by others for them. In addition, there are several additional foil balloon manufacturers in Europe and China who participate in our markets.

We compete for the sale of latex balloons in the United States, Canada, Mexico, Latin America, the United Kingdom, Australia and Europe. There are a number of other companies situated in the United States, Mexico, Asia, South America and Europe who manufacture latex balloons and with whom we compete in the markets in which we participate. The markets are highly competitive with respect to price, quality and terms.

Our company competes principally in the United States and Canada for the sale of vacuum sealing products. There are several companies who compete in those markets, principally Jarden Corporation, which was recently acquired by Newell Rubbermaid, Inc.

The market for films, packaging, flexible containers and custom products is fragmented, and competition in this area is difficult to gauge. However, there are numerous participants in this market and the Company can expect to experience intense quality and price competition.

Many of the companies in these markets offer products and services that are the same or similar to those offered by us and our ability to compete depends on many factors within and outside our control. There are a number of well-established competitors in each of our product lines, several of which possess substantially greater financial, marketing and technical resources and have established extensive, direct and indirect channels of distribution for their products and services. As a result, such competitors may be able to respond more quickly to new developments and changes in customer requirements, or devote greater resources to the development, promotion and sale of their products and services than we can. Competitive pressures include, among other things, price competition, new designs and product development and copyright licensing.

Patents, Trademarks and Copyrights

We have developed or acquired a number of intellectual property rights which we believe are significant to our business. As of December 31, 2021, we held 6 issued patents in the United States and 7 issued patents in foreign countries. These patents are scheduled to expire at various times during the 2020s. While these intellectual property rights are helpful, their degree of protection is uncertain. Competitors may violate our intellectual property rights, forcing us to decide whether to challenge them. Such rights may or may not withstand challenge. Conversely, entities may charge us with violating their intellectual property rights. Failure to protect our rights, or conflict with the rights of one or more other entities, may negatively impact our financial and competitive position.

Proprietary Designs and Copyright Licenses. We design the shapes and graphic designs of most of our foil balloon products. We also maintain licenses on certain characters and designs for our balloon products.

Trademarks. We own sevenfive registered trademarks in the United States relating to our balloon products. ManySome of these trademarks are registered in foreign countries, principally in the European Union.

Patent Rights. We own, or have license rights under, or have applied for, patents related to our balloon products, certain film products and certain flexible container products. These include (i) several foil balloon design patents, (ii) patents and applications related to the design and structure of, and method of, inserting and affixing, zipper-closure systems in a bag, (iii) patents related to one-way valves for pouches, (iv) a patent related to methods of embossing film and utilizing such film to produce pouches with fitments, (v) a patent related to vacuumable storage bags with fitments, and (vi) a patent application related to vacuum sealing equipment.

Research and Development

We maintain a product development and research group for the development or identification of new products, product designs, product components and sources of supply. Research and development includes (i) creative product development and design, (ii) creative marketing, and (iii) engineering development. During each of the fiscal years ended December 31, 20162021 and 2015,2020, we estimate that the total amount spent on research and development activities was approximately $496,000$206,000 and $633,000,$317,000, respectively.

Employees

As of December 31, 2016,2021, the Company had 10566 full-time employees in the United States, of whom 1916 are executive or supervisory, 32 are in sales, 6235 are in manufacturing or warehouse functions and 21 are clerical. As of that same date, we had 23 full-time employees in England, of whom 1 is executive or supervisory, 4 are in sales, 16 are in warehousing and 2 are clerical. At Flexo Universal, our Mexico subsidiary, as of December 31, 2016, we had 352 full-time employees, of whom 7 are executive or supervisory, 5 are in sales, 330 are in manufacturing and 10 are clerical. As of December 31, 2016, the Company had 7 full-time employees in Germany, of whom two are executive or supervisory, 1 is in warehousing and 413 are clerical. The Company is not a party to any collective bargaining agreement in the United States, has not experienced any work stoppages, and believes that its relationship with its employees is satisfactory.

Beginning November 2018, the Company experienced severe difficulty in securing adequate seasonal workers in its US operations, forcing it to pay substantially higher costs in the form of overtime and a holiday premium. The Company expects its local labor market in the US (near Chicago) to continue to become more costly over time, which, if not changed, would negatively impact its future profitability.

Regulatory Matters

Our manufacturing operations in the United States are subject to the U.S. Occupational Safety and Health Act ("OSHA"). We believe we are in material compliance with OSHA. The Company generates liquid, gaseous and solid waste materials in its operations in Lake Barrington, Illinois and the generation, emission or disposal of such waste materials are, or may be, subject to various federal, state and local laws and regulations regarding the generation, emission or disposal of waste materials. We believe we are in material compliance with applicable environmental rules and regulations. Several states have enacted laws limiting or restricting the release of helium filled foil balloons. We do not believe such legislation will have any material effect on our operations.

In August 2012,An increasing number of regulations and actions relate to the U.S. Securitiesintegrity and Exchange Commission (SEC) issued a rule under Section 1502security of individually identifiable data. Additionally, we require the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring companies to publicly disclose theireffective use of conflict minerals that originateddata in running our business. While we are not aware of losses in the Democratic Republicpast, access of the Congo (DRC) or an adjoining country. Under the rule, issuers are requiredsuch data by unauthorized persons may expose us to conduct a reasonable countrycosts, fines, penalties, and loss of origin inquiry and, if necessary, exercise due diligence process to ascertain the sourcecustomer confidence.

International Operations

We conductconducted operations in three locationsone location outside of the United States:States until October 2021:

We rely, and are dependent, on our operations in Mexico for the supply of latex balloons in the United States, Mexico, Europe and other markets. Interruption of that supply would have a materially adverse effect on the business of the Company.

Our domestic and international sales to outside customers and assets by area over the period 2015-2016 have been as follows:

Available Information

We maintain our corporate website at www.ctiindustries.com and we make available, free of charge, through this website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports that we file with, or furnish to, the Securities and Exchange Commission (“SEC”), as soon as reasonably practicable after we electronically file that material with, or furnish it to, the SEC. You may also read and copy material filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, and you may obtain information on the operation of the Public Reference Room by calling the SEC in the U.S. at 1-800-SEC-0330. In addition, the SEC maintains an Internet website, www.sec.gov, thatwhich contains reports, proxy and information statements and other information that we file electronically with the SEC. Our website also includes corporate governance information, including our Code of Ethics and our Board Committee Charters. The information contained on our website does not constitute a part of this report.

Item No. 1A – Risk Factors

Our business and results of operations have been and may continue to be negatively impacted by the spread of COVID-19.

We sell our products throughout the United States and in many foreign countries and may be impacted by public health crises beyond our control. This could disrupt our operations and negatively impact consumer spending and confidence levels, and supply availability and costs, all of which can affect our financial results, condition, and outlook. Our customers, suppliers and distributors may experience similar disruption. Importantly, the global pandemic resulting from COVID-19 has disrupted global health, economic and market conditions

Throughout 2021 and into 2022 the landscape improved from 2020, but the issue continues to drive elements of disruption in the ability to travel, attract and retain workers, manage production configurations and protocols, the supply chain and customer base. While we cannot predict the duration or scope of the COVID-19 pandemic, the resurgence of infections in one or more markets, or the impact of vaccines across the globe, the COVID-19 pandemic has negatively impacted our business and is expected to continue to impact our financial results, condition and outlook in a way that may be material.

COVID-19 has also delayed certain strategic transactions the Company intended to close during 2020, most notably its attempted sale of Flexo Universal which was ultimately realized during October 2021 and the potential relocation of certain activities to the Laredo, Texas area, which is no longer a consideration of the Company.

Our business and results of operations have been and may continue to be negatively impacted by supply chain disruptions and inflationary pressure.

2021 saw material shortages, supply chain interruption, and reduced ability to transport goods throughout the United States and on a global scale. These pressures forced us to take steps to ensure the availability of product, including buying materials at higher prices and more aggressively managing lead times. Despite these efforts, our ability to fulfill customer demands was challenged. We also were forced to pass cost increases on to customers in the form of price increases, which threatened our ability to maintain sales volume. While we believe we were largely successful in passing along these increased costs, such pressures may negatively impact our financial results and book of business going forward.

Item No. 1B––Unresolved Staff Comments

As of the filing of this Annual report on Form 10-K, we had no unresolved comments from the staff of the Securities and Exchange Commission that were received not less than 180 days before the endCommission.

Item No. 2 – Properties

We ownexecuted a sale and leaseback transaction during 2021 on our principal plant and offices located in Lake Barrington, Illinois, approximately 45 miles northwest of Chicago, Illinois. The facility includes approximately 68,000 square feet of office, manufacturing and warehouse space. This facilityThe lease is subjectfor ten years, and annual rent increases from $500,000 the first year to a mortgage loan with an initial principal of $2,300,000 as of April 29, 2010, having a term of approximately 7 years, with payments amortized over 25 years. The balance due on this loan on July 18, 2017 will be $1,664,000.$652,000 during the final year.

In September 2012,During 2021 we entered into a leasesublease agreement, expiring on February 28, 2017August 30, 2022 to rent approximately 117,00069,000 square feet of warehouse and officeassembly space in Lake Zurich,Elgin, Illinois. Effective March 1, 2017,The annual lease cost for this lease has been renewed for three years, at a basic rental cost per month of:

In August 2015, CTI Balloons, entered into a 5-year lease agreement for approximately 9,000 square feet of office and warehouse space in Rugby, England at a cost of $6,000 per month. This facility is utilized$408,000. The Company is currently engaged in discussions to warehouse balloon products and to manage and service the Company's operations in England.extend that lease.

In August 2011,2017, Flexo Universal entered into a 5-year lease agreement, expiring July 31, 2016,March 2022, for the lease of approximately 73,000 square feet of manufacturing, warehouse and office space in Guadalajara, Mexico at a cost of $22,000 per month.Mexico. The lease was extended to February 28, 2017. Effective March 1, 2017, Flexo Universal entered into a five year leasecost for these premises at a cost ofis 493,090 Mexican Pesos per month (currently, approximately $26,000(approximately $20,000 per month).

On November 22, 2016, CTI Europe entered into a lease agreement for 13,000 square feet This property continues with Flexo Universal after the October 2021 sale of office and warehouse space in Heusenstamm, Germany for a term commencing on February 1, 2017 and ending on February 1, 2022, at a rate per month of $9,000.that subsidiary.

We believe that our properties have been adequately maintained, are in generally good condition and are suitable for our business as presently conducted. We believe our existing facilities provide sufficient production capacity for our present needs and for our presently anticipated needs in the foreseeable future. We also believe that, with respect to leased properties, upon the expiration of our current leases, we will be able to either secure renewal terms or to enter into leases for alternative locations at market terms.

Item No. 3 – 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.

Benchmark Investments, Inc. v. Yunhong CTI Ltd., Case No. 1:21-cv-02279, was filed a case in the United States District Court for the Southern District of New York on March 16, 2021 and served on the Company on March 31, 2021. The complaint seeks damages in excess of $500,000. The Company has filed its Answer and Counterclaim to the complaint. The matter is currently still pending. The Company is currently unable to estimate the probability of any potential loss and thus no accrual has been recorded.

During February 2022, Engie Resources LLC filed a claim against the Company, seeking payment of $94,000 related to utilities provided during 2019.  During March 2022, the parties agreed to settle all claims for a series of payments to be made by the Company during 2022 totaling $75,000.

Item No. 4. – Mine Safety Disclosures

Not Applicable. 

PART II

Item No. 5 – Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The Company's Common Stockcommon stock was admitted to trading on the NASDAQ SmallCap Market (now the NASDAQ Capital Market) under the symbol CTIB“CTIB” on November 5, 1997.

The high and low sales prices for the last eight fiscal quarters according to the NASDAQ Stock Market's Stock Price History Report, were:

As of December 31, 20162021 there were approximately 53400 holders of record of the Company’s Common Stock. The Company’s total number of beneficial owners of common stock of the Company iswas approximately 486.30.

The Company did not pay any cash dividends on its Common Stock during 20162021 or 2015.2020 and has no plans to pay dividends in the foreseeable future. Under the terms of the Company’s current loan agreements, the amount of dividends the Company may pay is limited by the terms of the financial covenants. During 2022 the Company received two deficiency notices from NASDAQ – one for the failure to hold an annual meeting of shareholders during 2021, and the other for failure to maintain the required $1 bid price during a 30 day period in 2022.  The Company must hold, and plans to hold, an annual meeting on or before June 17, 2022 to satisfy the first deficiency, and has 180 days, with a possible further extension of 180 days, to satisfy the bid price issue.  On March 30, 2022, the NASDAQ informed the Company that it had regained compliance with the minimum bid price issue and that the matter was resolved. 

On March 28, 2022, our common stock closed at $1.19 per share.

Equity Compensation Plan Information

There were no stock option incentive plans outstanding as of December 31, 2021. Effective January 2022, the Company issued an inducement grant to its newly hired Chief Executive Officer for 250,000 shares of restricted stock. 25,000 of those shares vested during January 2022, while the remaining shares are subject to achievement of certain performance conditions.

Item No. 6 – Selected Financial Data

We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this item.

Item No. 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company produces film products for novelty, packaging container and custom film product applications. These products include foil balloons, latex balloons (sourced from an external party) and related latex toy products, films for packaging applications, flexible containers for packaging and storage applications, and custom film products. We produce all of our film products for packaging and container applications at our facilities 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 applications and flexible containers for packaging and storage are sold to customers in the United States. We market and sell our novelty items – principally foil balloons and latex balloons – in the United States Mexico, the United Kingdom and a number of additional countries. In addition, the Company assembles and sells Candy Blossoms (containers of arranged candy items) in the United States, distributes party goodsStates.

As determined by the Board of Directors beginning in Mexico2019, we have been exiting our foreign operations in order to focus on our North America operations, particularly on foil balloons and provides home organizationrelated products. The sales entity in the UK was liquidated in 2019. The sales and containerdistribution entity in Germany was fully closed during 2021. As noted herein, we sold Flexo Universal, our Mexican manufacturing subsidiary, during October 2021. Additionally, we stopped selling our vacuum sealing products as of March 30, 2020, after allowing the related license agreement to expire. More discussion is available in discontinued operations in this Annual Report on Form 10-K (see Note 23).

We have also changed our capital structure, beginning January 2020. This includes:

Series A Preferred Stock

On January 3, 2020, the Company entered into a stock purchase agreement (as amended on February 24, 2020 and April 13, 2020 (the “LF Purchase Agreement”)), pursuant to which the Company agreed to issue and sell, and LF International Pte. Ltd., a Singapore private limited company (“LF International”), which is controlled by Company Chairman, Mr. Yubao Li, agreed to purchase, up to 500,000 shares of the Company’s newly created shares of Series A Preferred Stock (“Series A Preferred”), with each share of Series A Preferred initially convertible into ten shares of the Company’s common stock, at a purchase price of $10.00 per share, for aggregate gross proceeds of $5,000,000 (the “LF International Offering”). As permitted by the Purchase Agreement, the Company may, in its discretion issue up to an affiliated company who marketsadditional 200,000 shares of Series A Preferred for a purchase price of $10.00 per share (the “Additional Shares Offering,” and sells these products incollectively with the United StatesLF International Offering, the “Offering”). Approximately $1 million of Series A Preferred has been sold as of June 30, 2021, including to a networkan investor which converted an account receivable of independent distributors. These additional products, and certain accessory products sold$478,000 owed to the investor by the Company in exchange for 48,200 shares of Series A Preferred. The Company completed several closings with LF International from January 2020 through June 2020. The majority of the funds received reduced our bank debt. We issued a total of 400,000 shares of common stock to LF International and, pursuant to the LF Purchase Agreement, changed our name from CTI Industries Corporation to Yunhong CTI Ltd. LF International had the right to name three directors to serve on our Board. They were Mr. Yubao Li, Ms. Wan Zhang and Ms. Yaping Zhang, the latter two of whom retired from our Board of Directors during January 2022.

Series B Preferred Stock

In November 2020, we issued 170,000 shares of Series B Preferred for an aggregate purchase price of $1,500,000. The Series B Preferred have an initial stated value of $10.00 per share and liquidation preference over common stock. The Series B Preferred is convertible into shares of our common stock equal to the number of shares determined by dividing the sum of the stated value and any accrued and unpaid dividends by the conversion price of $1.00. The Series B Preferred accrues dividends at a rate of 8 percent per annum, payable at our election either in cash or shares of the Company’s common stock. Initially, the Series B Preferred, in whole or part, was redeemable at the option of the holder (but not mandatorily redeemable) at any time on or after November 30, 2021 for the stated value, plus any accrued and unpaid dividends and thus was classified as mezzanine equity and initially recognized at fair value of $1.5 million (the proceeds on the date of issuance). In March 2021, the terms of the Series B Preferred were modified to eliminate the ability of the holder to redeem the Series B Preferred.

Series C Preferred Stock

In January 2021 we entered into an agreement with a related party, LF International Pte. Ltd. which is controlled by Company director, Chairman, President and Chief Executive Officer, Mr. Yubao Li, to purchase shares of Series C Preferred stock. We issued 170,000 shares of Series C Preferred for an aggregate purchase price of $1,500,000. The Series C Preferred have an initial stated value of $10.00 per share and liquidation preference over common stock. The Series C Preferred is convertible into shares of our common stock equal to the number of shares determined by dividing the sum of the stated value and any accrued and unpaid dividends by the conversion price of $1.00.

Series D Preferred Stock

In June 2021, the Company received $1.5 million from an unrelated third party as an advance on a proposed sale of Series D Redeemable Convertible Preferred Stock, which was ultimately completed. The Series D Preferred have an initial stated value of $10.00 per share and liquidation preference over common stock. The Series D Preferred is convertible into shares of our common stock equal to the number of shares determined by dividing the sum of the stated value and any accrued and unpaid dividends by the conversion price of $1.00. We issued 170,000 shares of Series D Preferred for an aggregate price of $1.5 million. Additionally, 128,000 warrants were issued pursuant to this transaction which are recorded as “Other Products” inconvertible into our common stock at the following product category table.lesser of $1.75 per share or 85% of the volume weighted average price of the shares over the ten trading days prior to conversion.

Our revenues from continuing operations from each of our product categories in each of the past two years have been as follows:

Our primary expenses include the cost of products sold and selling, general and administrative expenses.

Cost of products sold primarily consists of expenses related to raw materials, labor, quality control and overhead expenses such as supervisory labor, depreciation, utilities expense and facilities expense directly associated with production of our products, warehousing and fulfillment expenses and shipping costs relating to the shipment of products to customers. Cost of products sold is impacted by the cost of the raw materials used in our products, the cost of shipping, along with our efficiency in managing the production of our products.

Selling, general and administrative expenses include the compensation and benefits paid to our employees, all other selling expenses, marketing, promotional expenses, travel and other corporate administrative expenses. These other corporate administrative expenses include professional fees, depreciation of equipment and facilities utilized in administration, occupancy costs, communication costs and other similar operating expenses. Selling, general and administrative expenses can be affected by a number of factors, including staffing levels and the cost of providing competitive salaries and benefits, the cost of regulatory compliance and other administrative costs.

Purchases by a limited number of customers represent a significant portion of our total revenues. In 2016,During 2021 and 2020, respectively, sales to our top 10 customers represented 72.5%85% and 85%, respectively, of net revenues.revenues for each year. During 2016,2021 and 2020, there were two customers to whom our sales represented more than 10% of net revenues.

Our principal customer sales for 20162021 and 20152020 were:

The loss of one or both of these principal customers, or a significant reduction in purchases by one or both of them, could have a material adverse effect on our business.

We generally do not have agreements with our customers under which customers are obligated to purchase any specific or minimum amount of product from us.

Results of Operations

The following table sets forth selected results of our operations expressed as a percentage of net sales for the years ended December 31, 2016 and 2015. Our results of operations for the periods described below are not necessarily indicative of results of operations for future periods.

Year Ended December 31, 20162021 Compared to Year Ended December 31, 20152020

Net Sales

For the fiscal year ended December 31, 2016,2021, consolidated net sales from continuing operations of the sale of all products were $64,268,000$24,086,000 compared to consolidated net sales of $59,365,000$21,059,000 for the year ended December 31, 2015,2020, an increase of 8.3%.14% as more fully described below.

Sales of foil balloons from continuing operations were $25,187,000$18,235,000 in 20152021 and $26,530,000$16,853,000 in 2016, an2020, a increase of 5.3%8%. Our largest customer for foil balloons was Dollar Tree Stores. The remaining sales were made to nearly 900hundreds of customers including distributors and retail stores or chains in the United States, Canada, Mexico, the United Kingdom, Europe and Latin America. Sales to these other customers increased by 10.9% from $9,704,000 in 2015 to $10,762,000 in 2016. The Dollar volume of sales in Mexico, the United Kingdom and Europe was affected by the decline in the value of currency in those countries in relation to the Dollar.stores.

Sales of latex balloons from continuing operations were $9,739,000less than $100,000 in 2015 and $8,250,000 in 2016, aeach period. The decrease of 15.3%. The decline is attributable to: (i) a decline in sales of $455,000 to a particular customer and (ii)from prior years resulted principally from the lower Dollar value of Peso denominated sales by Flexo Universal for 2016 compared to 2015 due to the decline in value of the Peso, as more than 50%sale of Flexo Universal, sales were denominatedour latex balloon manufacturing facility. We intend to continue to sell outsourced latex balloons in Pesos.

Sales of vacuum sealing products including pouch and related products and vacuum sealing machines were $13,206,000 in 2015 and $17,455,000 in 2016, an increase of 32.2%. Sales in thisorder to offer a complete product line, during 2015 and 2016 consisted of two categories: (i) vacuum sealing systems including open-top pouches or rolls and vacuum sealing machines and (ii) zippered, resealable vacuum pouches. For 2016 and 2015, sales of products in these categories have been as follows:

Our sales of vacuum sealing systems during 2015 and 2016 have been made principally to two retail chains in the United States. In 2016, $7.85 million of our sales of vacuum sealing systems were to one retail chain for a promotional sales program at that chain in November, 2016.but it will be much smaller than prior years.

Sales of film products from continuing operations were $4,523,000$2,386,000 in 20152021 and $4,856,000$804,000 in 2016,2021, an increase of 7.4%nearly 200%. Approximately 99% of these sales wereOur largest customer in this area underwent a merger and has now come back with more regular purchases. The inability for some vendors to Rapak, L.L.C. but includes sales to two other customers.meet customer requirements has also helped us gain more business in this area.

Sales of other products increased from $6,710,000continuing operations decreased to $3,370,000 in 20152021 from $3,395,000 in 2020, for virtually no difference from year to $7,177,000 in 2016.year. This category includes (i) sales of helium and accessory items for our balloon products, (ii) sales of Candy Blossoms and Candyloons, (iii) sales by Clever Container Company, L.L.C. which engages in the direct sale of container and organizing products through a network of independent distributors and (iv) sales of party goods in Mexico by Flexo Universal.Blossoms.

Cost of Sales

Cost of sales from continuing operations increased to $20,321,000 in 2021 from 72.5%$17,970,000 in 2020, an increase of sales in 2015 to 73.4% of sales in 2016.13%. The increase in cost of sales was primarily attributable principally to (i) an increase in the cost to Flexo Universal of latex purchased in U.S. Dollars and (ii) the increase in costsales, and secondarily related to each of our Mexico, UK and Europe subsidiaries of purchasing goods fromthe broad increase in prices during 2021, which occurred faster than the Company in Dollars with depreciated currencies.could effectively update its pricing. 

General and Administrative Expenses

General and administrative expenses from continuing operations increased to $3,815,000 in 2021 from $7,134,000 or 12% of net sales$3,655,000 in 2015 to $7,378,000 or 11.5% of net sales in 2016. The increase reflects primarily2020, an increase of $205,0005%. We had financial services consulting expenses, forbearance costs, and other financing costs of approximately $0.8 million that concluded when we changed lenders in audit expense.September 2021.

Selling and Marketing

Selling expenses from continuing operations increased to $131,000 in 2021 from $3,511,000 or 5.9%$129,000 in 2020, as total sales increased. Marketing and advertising expense decreased to $323,000 in 2021, from $350,000 in 2020, a decrease of sales in 2015 to $4,748,000 or 7.4% of sales in 2016. The increase in selling expenses is attributable to (i) increased license royalty payments arising from an increase in sales of our branded vacuum sealing systems, (ii)8%. This area was also impacted by increased sales commissionsvolume, but with fewer ancillary expenses as many customers were coming back from high sales of vacuum sealing systems and balloons and (iii) increased commissions, bonus and incentive payments by Clever Container Company to independent distributors.

Advertising and Marketing

Advertising and marketing expenses decreased from $2,890,000 or 4.9% of sales in 2015 to $2,190,000 or 3.4% of sales in 2016, representing principally a decline in warranty expense.Covid related issues.

Other Income or Expense

During 2016,2021, we incurred net interest expense from continuing operations of $1,253,000$564,000 compared to net interest expense of $1,542,000$1,167,000 during 20152020. The decrease in interest expense was primarily attributable to the lower average outstanding balance of debt in 2021 as compared to 2020. Additionally, in 2020, we recorded a $1,047,700 net gain on the forgiveness of our Payroll Protection Plan loan.

During 2016,2021 we realizedengaged in a foreign currencySale and Leaseback transaction of our principal headquarters in Lake Barrington, IL. This transaction resulted in a gain of $3.4 million. We also recorded an expense related to the disposition of our Flexo Universal subsidiary. We recorded an approximately $10 million expense in Other Expense and a $6 million gain in the amount of $43,000 comparedOther Comprehensive Income related to foreign currency gain in 2015 of $32,000.this transaction, all non-cash items.  

Net Income or LossDeemed Dividends on Preferred Stock and Amortization of Beneficial Conversion Feature

During 2016,In 2020 the Company issued Series A Preferred Stock and Series B Preferred Stock. In connection with these preferred stock issuances, and the related beneficial conversion features, the Company had income from operationsdeemed dividends of $2,840,000 compared to income from operations of $2,816,000$4.4 million in 2015.2020. During 2016, we had net income after provisions for interest and taxes of $653,000 on a consolidated basis compared to net income after provisions for interest and taxes of $1,047,000 in 2015.

Income Taxes

In 2016,2021, the Company recognized income tax expense, on a consolidated basis,issued Series C Preferred Stock and Series D Preferred Stock. In connection with all of $703,000. This income tax expense is composed of an income tax expense inthese preferred stock issuances, and the United States of $560,000, an income tax benefit realized by CTI Balloons, our United Kingdom subsidiary, in the amount of $129,000, an income tax expense realized by CTI Europe, our Germany subsidiary, in the amount of $11,000 and an income tax expense by Flexo Universal, our Mexico subsidiary, in the amount of $261,000. In 2015,related beneficial conversation features, the Company recognized income tax expense, on a consolidated basis,had deemed dividends of $370,000. This income tax expense is composed of an income tax benefit in the United States of $52,000, an income tax expense realized by$3.6 million during 2021. Although these deemed dividends do not impact Net loss attributable to Yunhong CTI, Balloons, our United Kingdom subsidiary, in the amount of $36,000, an income tax expense realized byLtd., they do impact Net loss attributable to Yunhong CTI Europe, our Germany subsidiary, in the amount of $6,000Ltd. Common Shareholders and an income tax expense of our Mexico subsidiaries, in the amount of $380,000.EPS.

Financial Condition, Liquidity and Capital Resources

Cash Used In(Used In) Provided By Operating Activities 

During fiscal 2016,2021, cash used inby operating activities amounted to $449,000,($3,709,000), compared to cash provided by operating activities during fiscal 20152020 of $2,596,000.$1,322,000. Significant changes in working capital items affecting cash flow used in operating activities were:

Cash Provided By (Used In) Investing Activities

During the first quarter of 2017, we expect accounts receivable to decrease as we receive payments on outstanding receivables and trade payables to decrease as payments are made toward those balances. We expect inventory levels to moderate over the course of 2017.

Cash Provided by Investing Activities During fiscal 2016,2021, cash provided by investing activities amounted to $65,000$3,378,000 compared to cash used in investing activities during fiscal 20152020 of $682,000. During 2016, the Company had purchases($115,000).

Cash Provided By (Used In) Financing Activities

Cash Provided by Financing ActivitiesDuring fiscal 2016,2021, cash provided by financing activities amounted to $681,000,$626,000, compared to cash used in financing activities of $1,694,000($2,267,000) during fiscal 2015.2020

As discussed in Note 3, in the Series A Offering, during 2020 the Company sold 500,000 shares of Series A Preferred and 400,000 shares of common stock for aggregate gross proceeds of $5,000,000.

In November 2020, we issued 170,000 shares of Series B Preferred for an aggregate purchase price of $1,500,000.

In October 2020, we received an advance of $1,500,000 from an investor. In January 2021, we finalized the transaction with the investor and issued 170,000 shares of newly authorized Series C Preferred Stock.

In June 2021, the Company received $1.5 million from an investor as an advance on a proposed sale of Series D Redeemable Convertible Preferred Stock, which has since occurred. We issued 170,000 shares of newly authorized Series D Preferred Stock and 128,000 warrants to purchase our common stock.

Going Concern, Liquidity and Financial Condition

The Company’s financial statements are prepared using account principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has a cumulative net loss from inception to December 31, 2021 in excess of $20 million. The accompanying financial statements for the year ended December 31, 2021 have been prepared assuming the Company will continue as a going concern. The Company’s cash resources may be insufficient to meet its anticipated needs during the next twelve months. The Company may require additional financing to fund it future planned operations. The ability of the Company to continue as a going concern is dependent on the Company’s execution of its business plans and the ability to raise any needed additional capital at acceptable terms to the Company. While Management plans to mitigate this issue with improved performance now that it has disposed of subsidiaries and their related losses, there can be no guarantee this will be successful. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

During December 2017, we entered in new financing agreements with PNC Bank, National Association (“PNC”). The financing agreements with PNC (the “PNC Agreements”) included a $6 million term loan and an $18 million revolving credit facility (the “Revolving Credit Facility”), with a credit facility termination date of December 2022. Available credit under the Revolving Credit facility was determined by eligible receivables and inventory at CTI Industries (U.S.) and Flexo Universal (Mexico). 

We notified PNC of our failure to meet certain financial covenants and conditions during multiple occasions between 2018 and 2021, resulting in amendments to the loan documents, and in some cases forbearance agreements, along with related fees, penalties and other conditions. Pursuant to an April 2021 forbearance agreement, the Company agreed to pay PNC a Forbearance Fee of $1,000,000. Provided, however, that, so long as no event of default under the Loan Agreement has occurred (including as a result of a failure of the Company to pay down the Revolving Loans by $1,500,000 with the proceeds of the Purchaser Promissory Note, (i) if the Company consummates the Equity Investment (as defined in the agreement) by June 30, 2021, the Forbearance Fee shall be reduced by $250,000, to $750,000, and (ii) if the Company causes all of the obligations under the Loan Agreement to be paid in full, in cash, on or before September 30, 2021, the Forbearance Fee shall be reduced by an additional $500,000, to $250,000. As the Company repaid all obligations under the Loan Agreement by September 30, 2021 and the Equity Investment was consummated by June 30, 2021, the forbearance fee was $250,000. During 2021, the Company recorded a forbearance expense of $250,000.

On April 29, 2010,September 30, 2021 (the “Closing Date”), the Company entered into a Credit Agreementloan and associated documentssecurity agreement (the “Agreement”) with Harris N.A.Line Financial (the “Lender”), now BMO Harris Bank, N.A. (“BMO Harris”) under which BMO Harris agreed to extend to the Companyprovides for a senior secured financing consisting of a revolving credit facility (the “Revolving Credit Facility) in thean aggregate principal amount of $14,417,000. The facility included (i) a Revolving Credit providing for maximum advances to the Company, and letters of credit, based upon the level of availability measured by levels of eligible receivables and inventory of the Company of $9,000,000, (ii) an Equipment Loan of up to $2,500,000 providing for$6 million (the “Maximum Revolver Amount”) and term loan facility (the “Term Loan Facility”) in an aggregate principal amount of $731,250 (“Term Loan Amount” and, together with the Revolving Credit Facility, the “Senior Facilities”). Proceeds of loans borrowed under the Senior Facilities were used to repay all amounts outstanding under the Company's PNC Agreements and for the purchaseCompany’s working capital. The Senior Facilities are secured by substantially all assets of equipment, (iii)the Company.

Interest on the Senior Facilities shall be the prime rate published from time to time published in the Wall Street Journal (3.25% as of September 30, 2021), plus 1.95% per annum, accruing daily and payable monthly. Interest shall be calculated on the basis of a Mortgage360-day year for the actual number of days elapsed. The Term Loan Facility shall be repaid by the Company to Lender in 48 equal monthly installments of $2,333,350,principal and (iv) a Term Loaninterest, each in the amount of $583,333. The amount$15,234, commencing on November 1, 2021, and continuing on the first day of each month thereafter until the Term Loan Maturity Date (as defined in the Agreement). Also, the Company can borrow onwill pay the Lender collateral monitoring fees of 4.62% of the eligible accounts receivable, inventory, and equipment supporting the Revolving Credit includes 85%Facility and the Term Loan. In addition, the Company paid the Lender a loan fee of eligible accounts and 60% of eligible inventory. The Mortgage Loan is amortized over a term of 25 years. The maturity date1.25% of the facility was April 30, 2013, which was subsequently extended to July 17, 2017.

Certain termsMaximum Revolver Amount and the Term Loan Amount upon the execution of the credit agreement, as amended, include:

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. The initial interest rate under the agreement was 4.00% per annum. On a quarterly basis, this ratio will be measured and the interest rate changed in accordance to the table below.

At December 31, 2016 the Company was paying a premium of 0.50% over prime.

On July 17, 2012, the Company entered into Amendment Number 3 to the Credit Agreement among the Company and BMO Harris pursuant to which (i) the amount of the loan commitment on the revolver loan of BMO Harris was increased from $9 million to $12 million, (ii) BMO Harris consented to a transaction among the Company and BMO Equity and (iii) the term of credit and loans to the Company provided in the Credit Agreement and BMO Harris was extended to July 17, 2017.

Also, on July 17, 2012, the Company entered into a Note and Warrant Purchase Agreement with BMO Private Equity (U.S.) (“BMO Equity”) pursuant to which (i) BMO Equity advanced to the Company the sum of $5 million and (ii) the Company issued to BMO Equity a warrant to purchase up to Four Percent (4%) of the outstanding shares of common stock of the Company on a fully-diluted basis (140,048 shares of common stock of the Company) at the price of One Cent ($0.01) per share. The term of the loan provided for in this Agreement is five and a half years. Interest is payable on the outstanding balance of the loan at the rate of 11.5% per annum.Agreement.

The NoteSenior Facilities mature on September 30, 2023 and Warrant Purchase Agreement includes provisions for:

On April 12, 2013,shall automatically be extended for successive periods of one year each, unless the Company entered into Amendment No. 4 toor the Credit Agreement amongLender gives the Company and BMO Harris, and Amendment No. 1 to the Note and Warrant Purchase Agreement among the Company and BMO Equity. In the Amendments, non-compliance with financial covenantsother party written notice of termination not less than 90 days prior to the dateend of such term or renewal term, as applicable. If the Senior Facilities are renewed, the Company shall pay the Lender a renewal fee of 1.25% of the Amendments was waived and both the Credit AgreementMaximum Revolver Amount and the NoteTerm Loan Amount upon each renewal on the anniversary of the Closing Date. The Company has the option to prepay the Term Loan Facility (together with all accrued but unpaid interest and Warrant Purchase Agreement were amended (i)a Term Loan Prepayment Fee (as defined the Agreement) in whole, but not in part, upon not less than 60 days prior written notice to modifythe Lender.

The Senior Facilities require that the Company shall, commencing December 31, 2021, maintain Tangible Net Worth of at least $4,000,000 or greater (“Minimum Tangible Net Worth”). Minimum Tangible Net Worth may be adjusted downward by the Lender, from time to time, in its sole and absolute discretion, based on the effect of non-cash charges and other factors on the calculation of Tangible Net Worth. Other debt subordinated to Lender is not considered as a reduction of this calculation.

The Senior Facilities contain certain affirmative and negative covenants that limit the ability of the Company, among other things and subject to certain significant exceptions, to incur debt or liens, make investments, enter into certain mergers, consolidations, and acquisitions, pay dividends and make other restricted payments, or make capital expenditures exceeding $1,000,000 in the aggregate in any fiscal year.

As of January 1, 2019, the Company had a note payable to John H. Schwan, Director and former Chairman of the Board, for $1.6 million, including accrued interest. This loan accrues interest, is due on demand, and is subordinate to the Senior Leverage Ratio and Total Leverage Ratio requirements for the fiscal quarter ending June 30, 2013 and each quarter thereafter during the termFacilities. During January 2019, Mr. Schwan converted $600,000 of the Credit Agreementnote into approximately 181,000 shares of our common stock at the then market rate of $3.32 per share. As a result of the conversion, the loan balance decreased to $1.0 million. The loan and the Noteinterest payable to Mr. Schwan amounted to $1.2 million and Warrant Purchase Agreement and (ii) to modify the definitions of EBITDA and Total Funded Debt in the Credit Agreement and the Note and Warrant Purchase Agreement.

On December 23, 2014, the Company entered into Amendment No. 5 to the Credit Agreement among the Company and BMO Harris, and Amendment No. 2 to the Note and Warrant Purchase Agreement among the Company and BMO Equity. In the Amendments, BMO Harris and BMO Equity waived certain anticipated events of default$1.1 million as of December 31, 2014 by the Company with respect the amount of capital expenditures and the change of name of a subsidiary, and both the Credit Agreement and the Note and Warrant Purchase Agreement were amended (i) to exclude from the definition of Senior Funded Debt and Total Funded Debt certain indebtedness of a variable interest entity, (ii) to require Registrant to provide financial reports and variance reports to the Bank within 45 days after the end of each calendar month, (iii) to change the Senior Leverage Ratio and Total Leverage Ratio requirements for fiscal quarters ending December 31, 2014 and for each fiscal quarter thereafter to the maturity of the loans, and (iv) to provide for the engagement by the Company of a financial consultant to provide business financial planning and advisory services to the Company.

On July 29, 2016, the Company and certain accredited investors entered into a Securities Purchase Agreement in which the investors purchased 152,850 shares of common stock at the price of $6.00 per share. As additional consideration for the purchase of shares in the Company, each investor received one-half of a warrant, with one warrant entitling the investor to purchase one share of common stock at the price of $7.00 per share. The warrants are exercisable between six months and three years from the investment date. In addition to the Purchase Agreement, the Company and the investors entered into a Registration Rights Agreement under which the Company agreed to file a Registration Statement with the SEC on or before August 29, 2016 to register the common stock purchased by the investors.

The issuance of shares in this placement resulted in gross proceeds to the Company of $917,000, and after commissions and fees, net proceeds to the Company of approximately $638,328. The Company used these proceeds for general working capital purposes.

On August 5, 2016, the Company entered into Amendment No. 8 to the Credit Agreement among the Company and BMO Harris and Amendment No. 3 to the Note and Warrant Purchase Agreement among the Company and BMO Equity. In the Amendments, (i) for the period from August 1, 2016 through February 28, 2017, the Bank agreed to increase the revolving credit commitment from $12 million to $14 million, (ii) for the period from August 1, 2016 through November 2016, the Bank agreed to increase the borrowing base inventory cap from $6.5 million to $9 million, (iii) for the quarters ended September 302021 and December 31, 2016, BMO Harris agreed2020, respectively. No payments were made to increase the senior leverage ratioMr. Schwan during 2020 or 2021. Interest expense related to 3.5this loan amounted to 1,approximately $70,000 and $65,000 for the quarter ended September 30, 2016, the total leverage ratio to 4.75 to 1, and for the quartertwelve months ended December 31, 2016, the total leverage ratio to 4.50 to 12021 and (iv) for the periods ended September 30, 2016 and December 31, 2016, BMO Equity agreed to increase the senior leverage ratio for BMO Equity to 3.85 to 1, for the periods ended September 30, 2016, to increase the total leverage ratio to 5.225 to 1 and for December 31, 2016 to raise the total leverage ratio to 4.95 to 1.

On September 30, 2016, John H. Schwan advanced to the Company the sum of $530,000 and on the same date, Stephen M. Merrick advanced to the Company the sum of $370,000 to provide short-term working capital to the Company to fund the Company’s obligation to purchase and produce inventory for a substantial order for vacuum sealing systems to be delivered in November 2016. In consideration of such advances, the Company issued a Promissory Note to Mr. Schwan in the principal amount of $530,000 and to Mr. Merrick in the amount of $370,000 dated September 30, 2016 and bearing interest at the rate of 6% per annum. Effective on the same date, Mr. Schwan and Mr. Merrick entered into Subordination Agreements with BMO Harris and BMO equity pursuant to which each of them agreed to subordinate the Company’s obligation to them under the Promissory Notes to the Company’s obligations to BMO Harris and BMO Equity, subject to certain rights of payment as provided in the Agreements. Further, effective on September 30, 2016, the Company and BMO Harris entered into Amendment No. 9 to the Credit Agreement and the Company and BMO Equity entered into Amendment No. 4 to the Note and Warrant Purchase Agreement pursuant to which each of BMO Harris and BMO Equity agreed to consent to payments of principal and interest to Mr. Schwan and Mr. Merrick under the Promissory Notes out of the proceeds received by the Company from the sale of vacuum sealing machines to a major retail chain in a promotional program. The principle balance of these notes were paid in December 2016 and January 2017.2020, respectively.

As of December 31, 2016,2021, the Company had a note payable to Alex Feng for $166,667. This loan accrues interest at 3% and is subordinate to the Senior Facilities. The subordination agreement signed September 30, 2021 changes the term of the maturity date from November 2023 to March 2024 and payment date starting April 2022.

In October 2020, the Company received $1.5 million from an unrelated third party as an advance on a proposed sale of Series C Redeemable Convertible Preferred Stock.   As of December 31, 2020, the Company was in compliance with the financial covenants provided inprocess of negotiating and finalizing the Credit Agreement and in the Note and Warrant Purchase Agreement, as amended.

Current Assets. As of December 31, 2016, the total current assetsterms of the Company were $35,732,000, compared to total current assets of $32,437,000 at December 31, 2015.

Current Liabilities. Total current liabilities increased from $20,201,000arrangement, which has since occurred.  As the agreement was not finalized as of December 31, 20152020, the $1.5 million advance was classified as Advance from Investor within liabilities on the accompanying balance sheet and subsequently reclassified as stockholders equity. During 2021, $1.5 million was received for a series D Redeemable Convertible Preferred Stock and 128,000 warrants to $23,880,000 as of December 31, 2016.

Liquidity and Capital Resources;Working Capital. As of December 31, 2016,purchase our current assets exceeded our current liabilities by $11,853,000, we had cash and cash equivalents of $563,000 and there was available under our line of credit $4,491,000 in additional funds. Management believes that these available funds, our internally generated funds and the borrowing capacity under our revolving line of credit facility will be sufficient to meet working capital requirements for the remainder of 2017.

CTI Industries Corporation Stockholders’ Equity.Stockholders’ equity was $12,717,000 as of December 31, 2016 compared to $12,787,000 as of December 31, 2015.common stock.

Seasonality

In the foil balloon product line, sales have historically been seasonal with approximately 40% occurring in the period from December through Marchseasonal. Approximately half of the succeeding year and 24% being generated in the period July through October in recent years. Vacuum sealing productthese sales are also seasonal; approximately 60%considered “everyday” in nature while the other half tend to be event driven (certain holidays, graduation season, and other events). The COVID-19 pandemic changed the shape of salesgraduation season for 2020, resulting in this product line occura lower demand for balloons during the second quarter 2020, but then a surge of demand related to at-home parties and events. This increase in the period from July through December.demand continued into 2021.

Critical Accounting Policies

The financial statements of the Company are based on the selection and application of significant accounting policies which require management to make various estimates and assumptions. The following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operation.

Revenue Recognition. Substantially all of the Company's revenues are derived from the sale of products. With respect to the sale of products, revenue from a transaction is recognized whenonce it has (i) identified the contract(s) with a definitive arrangement exists forcustomer, (ii) identified the sale ofperformance obligations in the product, (ii) delivery ofcontract, (iii) determined the product has occurred, (iii)transaction price, (iv) allocated the transaction price to the buyer has been fixed or is determinable,performance obligations in the contract, and (iv) collectibility is reasonably assured.(v) recognized revenue as the company satisfies a performance obligation. The Company generally recognizes revenue for the sale of products when the products have been shipped and invoiced. In some cases, product is provided on consignment to customers. In those cases, revenue is recognized when the customer reports a sale of the product.

The Company adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. 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.

Allowance for Doubtful Accounts. We estimate our allowance for doubtful accounts based on an analysis of specific accounts, an analysis of historical trends, payment and write-off histories. Our credit risks are continually reviewed, and management believes that adequate provisions have been made for doubtful accounts. However, unexpected changes in the financial condition of customers or changes in the state of the economy could result in write-offs which exceed estimates and negatively impact our financial results.

Inventory Valuation.Inventories are stated at the lower of cost or market.net realizable value. Cost is determined using standard costs which approximate costing determined on a first-in, first out basis. Standard costs are reviewed and adjusted at the time of introduction of a new product or design, periodically and at year-end based on actual direct and indirect production costs. On a periodic basis, the Company reviews its inventory levels for estimated obsolescence or unmarketable items, in reference to future demand requirements and shelf life of the products. As of December 31, 2016,2021, the Company had established a reserve for obsolescence, marketability or excess quantities with respect to inventory in the aggregate amount of $794,000.$290,000. As of December 31, 2015,2020, the amount of the reserve was $823,000.$311,000. In addition, on a periodic basis, the Company disposes of inventory deemed to be obsolete or unsaleable and, at such time, charges reserve for the value of such inventory. We record freight income as a component of net sales and record freight costs as a component of cost of goods sold.

Valuation of Long-Lived Assets. We evaluate whether events or circumstances have occurred which indicate that the carrying amounts of long-lived assets (principally property and equipment and goodwill) may be impaired or not recoverable. Significant factors which may trigger an impairment review include: changes in business strategy, market conditions, the manner of use of an asset, underperformance relative to historical or expected future operating results, and negative industry or economic trends. We apply the provisions of generally accepted accounting principles in the United States of America (“U.S. GAAP”) U.S. GAAP, USA under which goodwill is evaluated at least annually for impairment.

The Company identified an impairment indicator related to the goodwill associated with Clever Container, a VIE that was until June 30, 2019. As a result of an impairment test, the Company fully impaired the goodwill related to Clever in the first quarter of 2019 and recorded an impairment charge of $220,000. In the first quarter of 2019, the Company identified an impairment indicator related to the goodwill associated with Flexo. As a result of an impairment test, the Company fully impaired the goodwill related to Flexo in the first quarter of 2019 and recorded an impairment charge of approximately $1 million. We performed a quantitative assessment for the year ended December 31, 20162019 in which we considered the assets and liabilities of the Company as one operating segment, both recognized and unrecognized, as well as the cash flows necessary to operate the business relating to the assets and liabilities. We conducted a quantitative assessment

Foreign Currency Translation. All balance sheet accounts are translated using the exchange rates in effect at the balance sheet date. Statements of operations amounts are translated using the average exchange rates for the year-to-date periods. The gains and losses resulting from the changes in exchange rates during the period have been reported in other comprehensive income or loss, except that, on November 30, 2012, the Company determined that it does have an expectation of receiving payment with respect to indebtedness of Flexo Universal to the Company, and accordingly, as of and after that date foreign currency gains and losses with respect to such indebtedness will behas been reported in the statement of operations. This issue became moot with the sale of Flexo Universal during October 2021, which followed the elimination of other foreign subsidiaries (UK and Germany).

Stock-Based Compensation. We follow U.S. GAAP USA which requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the consolidated financial statements based on their grant-date fair values.

We use the Black-Scholes option pricing model to determine the fair value of stock options which requires us to estimate certain key assumptions. In accordance with the application of U.S. GAAP, USA, we incurred no employee stock-based compensation cost of $34,000 for the year ended December 31, 2016.2021. At December 31, 2016,2021, we had $26,000 ofno unrecognized compensation cost relating to stock options. We will have compensation cost related to such equity instruments during 2022, including the inducement grants of restricted stock to the Chief Executive Officer beginning January 2022.

On July 17, 2012, the Company issued detachable warrants in connection with the Note and Warrant Purchase Agreement with BMO Equity. The fair value of the detachable warrants was estimated on the date of the grant using the Black-Scholes option-pricing model. Changes in the fair value of the warrants have been recognized in the consolidated statement of operations.

Income Taxes and Deferred Tax Assets. Income taxes are accounted for as prescribed in GAAP USA.U.S. GAAP. Under the asset and liability method of U.S. GAAP, USA, the Company recognizes the amount of income taxes currently payable. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years these temporary differences are expected to be recovered or settled.

We evaluate all available positive and negative evidence in each tax jurisdiction regarding the recoverability of any asset recorded in our Consolidated Balance Sheets and provide valuation allowances to reduce our deferred tax assets to an amount we believe is more likely than not to be realized. We regularly review our deferred tax assets for recoverability considering historical profitability, our ability to project future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. If we continue to operate at a loss in certain jurisdictions or are unable to generate sufficient future taxable income within the defined lives of such assets, we could be required to increase our valuation allowance against all or a significant portion of our deferred tax assets. This increase in valuation allowance could result in substantial increases in our effective tax rate and could have a material adverse impact on our operating results. Conversely, if and when our operations in some jurisdictions become sufficiently profitable before what we have estimated in our current forecasts, we would be required to reduce all or a portion of our current valuation allowance and such reversal would result in an increase in our earnings in such period.

Prior to September 30, 2021, we had been out of compliance with the terms of our credit facility and operating under a forbearance agreement, and had related going concern disclosure. We therefore established a valuation allowance reserve for substantially all of our deferred tax assets.  As of December 31, 2016, the Company had net deferred tax assets of $1,697,000 representing the amount the Company may recover in future years from future taxable income. As of December 31, 2015,2021, the amount of the net deferred tax asset was $1,747,000.none, as we continued to record a valuation allowance against the gross value of the deferred tax asset.  Each quarter and year-end, management makes a judgment to determine the extent to which the deferred tax asset will be recovered from future taxable income.  This value was reduced, in large part, due to changes in US tax law effective 2018 which will impact the value of future deductions. 

Fair Value Measurements. In September 2006, the FASB issuedU.S. GAAP USA which defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. U.S. GAAP USA clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. U.S. GAAP USA also requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based upon the best information available. In February 2008, the FASB issued guidance now codified in U.S. GAAP USA which provides for delayed application of certain guidance related to non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).

In February 2007,

Variable Interest Entities

Primarily due to Clever and VLU having the FASB issued GAAP USA which permits companies to choose to measureattribution of related party beneficial ownership and certain financial instruments and other itemsoperational support, these entities are considered to be variable interest entities, or VIEs, under current accounting guidance. A company with interests in a VIE must consolidate the entity if the company is deemed to be the primary beneficiary of the VIE; that is, if it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Such a determination requires management to evaluate circumstances and relationships that may be difficult to understand and to make a significant judgment, and to repeat the evaluation at fair value. The standard requireseach subsequent reporting date. Prior to July 1, 2019, we had determined that unrealized gainsthe Company was the primary beneficiary of Clever and losses are reportedVL (despite not having a majority ownership interest). As discussed in earnings for items measured usingNote 2 to the fair value option. GAAP USA was effective for us on January 1, 2008. We did not elect the fair value option for any assets or liabilities that were not previously carried at fair value. Accordingly, the adoption of GAAP USA had no impact on ouraccompanying consolidated financial statements.

In October 2008,statements, events that occurred during the FASB issued clarificationstart of the third quarter of 2019, caused us to GAAP USA which clarifiesreconsider the application of GAAP USA inprimary beneficiary determination for Clever and VL. As a market that is not active, and addresses application issues such asresult, the use of internal assumptions when relevant observable data does not exist, the use of observable market information when the market is not active, and the use of market quotes when assessing the relevance of observable and unobservable data. GAAP USA is effective for all periods presented. The adoption of GAAP USA did not have a significant impact on our consolidated financial statements.statements as of December 31, 2019 and 2020 excluded the assets, liabilities and operating results of Clever and VL. We also recognized a gain in the amount of $219,000 in connection with the deconsolidation of this VIE.

Item No. 7A – Qualitative and Quantitative Disclosures Regarding Market Risk

Not applicable.

Item No. 8 – Financial Statements and Supplementary Data

Reference is made to the Consolidated Financial Statements contained in Part IV hereof.

Item No. 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item No. 9A – Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

AsWe maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required by Rule 13a-15(b)to be disclosed in the reports filed or submitted under the Exchange Act, we conductedis recorded, processed, summarized, and reported within the time periods specified by the Commission's rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are properly recorded, processed, summarized and reported within the time periods required by the Commission's rules and forms.

We carried out an evaluation, under the supervision and with the participation of our management, including our PrincipalChief Executive Officer (principal executive officer) and PrincipalChief Financial Officer (principal financial officer), of the effectiveness of the design and operation of these disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e), as of December 31, 2021. Based on this evaluation, the Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) concluded that our disclosure controls and procedures were not effective as of December 31, 2016,2021, the end of the period covered by this report. Based upon that evaluation,Annual Report on Form 10-K, due to the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2016, 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. There were no material changes in our internal control over financial reporting during the fourth quarter of 2016 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.weaknesses described below.

Management’s(b) Management's Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. InternalBecause of its inherent limitations, internal control over financial reporting includes those policies and procedures that (i) pertainmay not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the maintenancerisk that controls may become inadequate because of recordschanges in conditions, or that in reasonable detail, accurately and fairly reflect the transactions and dispositionsdegree of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordancecompliance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the management and the Board; and (iii) provide reasonable assurance regarding preventionpolicies or timely detection of unauthorized acquisition, use or disposition of Company assets that could have a material effect on the financial statements.procedures may deteriorate.

Our management conducted an evaluation ofManagement has assessed the effectiveness of our internal control over financial reporting based onas of December 31, 2021. In making our assessment of the frameworkeffectiveness of internal control over financial reporting, management used the criteria set forth in Internal Control – —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included reviewCommission ("COSO").

A material weakness is a control deficiency, or combination of controls, evaluation of the design effectiveness of controls, testing of the operation effectiveness of controls and a conclusion on this evaluation. Although there are inherent limitationscontrol deficiencies, in the effectiveness of any system of internal controlscontrol over financial reporting basedsuch that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will not be prevented or detected on a timely basis. As a result of our evaluation management has concludedof our internal controlscontrol over financial reporting, management identified the following material weaknesses in our internal control over financial reporting:

Management concluded that there is a reasonable possibility that a material misstatement could occur in the consolidated financial statements if the control deficiencies were not remediated. Accordingly, management concluded that the matters described above are material weaknesses in the Company’s internal control over financial reporting and that the Company did not maintain effective internal control over financial reporting as of December 31, 2016.2021.

Plan for Remediation of Material Weakness

Management has enhanced its available resource base and adjusted its processes with respect to the areas listed above.  Additional procedures are in the process of being established and will be evaluated for effectiveness in the future.  A controller has been brought on to provide assistance in this area. Further, the Company views the combination of Acting Chief Financial Officer duties with the Chief Executive Officer as temporary in nature.

This annual report does not include an attestation report of the company’sour registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’sits registered public accounting firm pursuant to temporary rules of the SecuritiesDodd-Frank Wall Street Reform and Exchange Commission that permitConsumer Protection Act, which permits the companyCompany to provide only management’s report in this annual report.

(c) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item No. 9B – Other Information

None

PART III

Item No. 10–Directors, Executive Officers and Corporate Governance of the Registrant

The members of our Board of Directors (the “Board”), and our executive officers, together with their respective ages and certain biographical information are set forth below. Directors hold office until the next annual meeting of our stockholders and until their successors have been duly elected and qualified. Our executive officers are elected by and serve at the designation and appointment of the Board.

The following is a brief account of the business experience of each of our directors and executive officers during the past five years or more.

Yubao Li, Chairman of the Board of Directors. Mr Li has served as a Director of the Company since January 13, 2020 and was elected as Chairman of the Board on June 1, 2020. Mr. Li has been serving as the Chairman of Yunhong International since its inception in January 2019 and served as its Chief Executive Officer from January 2019 to September 2019. Mr. Li has been serving as the president of Hubei Academy of Science and Technology Service Station since July 2018, one of the key multi-disciplinary universities in the province of Hubei.Since June 2018, Mr. Li has been serving as the Director of Photoproteins Research Centre at China’s Academy of Management Science, a research institute situated in Beijing where he supports innovation by defining the research focus of the group. Mr. Li also serves as a director and/or officer of several other entities, including as the Executive Director and General Manager of Hubei Teruiga Energy Co., Ltd, a new energy technology company, since November 2017, the Executive Director of Hubei Yuntong Energy Co., Ltd., a solar power and agriculture company, since April 2016, the Executive Director and General Manager of Hubei Yun Hong photovoltaic Co., Ltd., a solar power and agriculture company, since May 2016, the President of Hubei Yunhong Deren Tourism Co., Ltd., a tourism project developer, since May 2016 and the President of Yunhong Group Holdings Co., Ltd., a company engaged in the business of solar power construction and solar photovoltaic power generation, since 2013. In addition, in 2013, Mr. Li founded China Hubei Yunhong Energy Group Co., Ltd., a Chinese nutrition company operating in China and abroad, and he currently serves as the Chairman of its board of directors.

Frank Cesario, Chief Executive Officer and Director; Acting Chief Financial Officer. Mr. Cesario first joined the Company in November 2017 as Chief Financial Officer. In December 2019 he was named President and Chief Executive Officer, and Director. He resigned as Chief Financial officer in June 2020 and President and Chief Executive Officer, and Director, in September 2020. During March 2021 he rejoined the Board as a Director. During January 2022 he was hired by the Company as Chief Executive Officer and Director. Upon the resignation of then Chief Financial Officer Jennifer Connerty during January 2022, Mr. Cesario also became the Acting Chief Financial Officer. Mr. Cesario brings 20 years of CFO experience at manufacturing entities. Prior to joining the Company, Mr. Cesario served in similar roles with Nanophase Technologies Corporation and ISCO International, Inc., then publicly traded global suppliers of advanced materials and telecommunications equipment, respectively, as well as Turf Ventures LLC, a privately held chemicals distributor. From September 2020 until January 2022, Mr. Cesario served as Chief Financial Officer of Radiac Abrasives, Inc., a privately held manufacturer. He began his career with KPMG Peat Marwick and then served in progressively responsible finance positions within Material Sciences Corporation and Outokumpu Copper, Inc. Mr. Cesario holds an MBA (Finance) from DePaul University and a B.S. (Accountancy) from the University of Illinois, and is a registered CPA in the State of Illinois.

Douglas Bosley is a founding partner of Witan Law Group and a member of the firm’s Corporate Transactional and Securities practice. Mr. Bosley represents businesses and entrepreneurs at all stages of growth from inception to exit. Mr. Bosley’s practice focuses on three general areas of financing transactions, mergers and acquisitions and general corporate matters. Mr. Bosley’s financing experience includes representing venture capital firms and venture-backed companies, mezzanine debt transactions, and a wide range of other types of financing and securities transactions, as well as general corporate matters including formation and start-ups; equity compensation; contracts such as licensing, joint ventures, representative agreements, and development and service level agreements; and corporate governance matters. Before founding Witan Law, Mr. Bosley was a partner at Bosley Till Neue & Talerico (BTNT), a law firm, where he headed the transactional and securities practices. Prior to BTNT, Mr. Bosley operated Bosley Business Law, which he founded after more than a decade of sophisticated corporate and securities transactional experience at some of the world’s largest and most reputable corporate law firms. Mr. Bosley also served as general counsel of a Sacramento-based venture capital and professional services firm. He is a frequent speaker on legal issues related to start-ups, mergers and acquisitions and venture capital transactions. Mr. Bosley is a graduate of the Duke University School of Law, graduating with high honors and earning Order of the Coif. He received his B.A. in Economics from California State University, Sacramento.

Gerald (J.D.) Roberts, Jr. is Vice President of Strategy and Business Development at a Fortune 50 Corporation, having served in that capacity since 2018. In the previous 20 years, he held several senior roles at Aerojet Rocketdyne Holdings, Inc. and GenCorp/Aerojet. His career began in the aerospace and electronics industries in the United States and Australia, where he worked with companies including E-Systems, McDonnell Douglas, Northrop-Grumman, Gulfstream, Learjet and Hawker de Havilland. Mr. Roberts combined his credentials in engineering, finance and operations and his significant experience in strategic planning, organizational restructuring, and mergers, acquisitions, and divestitures to build value in international business opportunities. Mr. Roberts holds a Six Sigma greenbelt certification and has completed post-graduate coursework in Mergers and Acquisitions, leadership, strategic alliances, negotiation, innovation, and financial analysis. He received his MBA (Finance) from the University of California, Davis, and his B.S. in Mechanical Engineering from Virginia Tech.

Philip Wong is CEO of Shark AI Capital Corporation, an innovative business lending firm which he co-founded in 2020. Previously, he served as Chief Investment Officer of American Credit, Inc., as a Commercial Loan Officer at Applepie Capital, Inc., as Vice President / Senior Relationship Manager at Bank of the West / BNP Paribas, and as First Vice President / Senior Relationship Manager at Preferred Bank, among other roles in banking in business credit. Mr. Wong and has completed certifications in agile software development, software products management, healthcare analytics, and product management and marketing. He received his B.A. in Asian Studies from San Francisco State University.

Executive Officers Other Than Nominees

Jana Schwan.  Ms. Schwan has been employed by the Company in various operational, purchasing, and product development capacities since September 2002, and currently leads its Sales, Marketing and Business Development activities in addition to all Operations of the Company. Ms. Schwan was named Vice President of Operations in 2017 and Chief Operating Officer in 2020.

Jana Schwan is the daughter of John Schwan, who prior to his retirement from the Company served in several capacities, including as Chairman of the Board of Directors.

Except as disclosed in this Item 10 or Item 13 (Certain Relationships and Related Transactions, and Director Independence), there are no arrangements or understandings with major stockholders, customers, suppliers or others pursuant to which any of our directors or members of senior management were selected as such. In addition, there are no family relationships among our executive officers and directors.

Our future success depends, in significant part, on the continued service of certain key execute officers, managers, and others in various aspects of our business. We may not be able to find an appropriate replacement for any of our key personnel. Any loss or interruption of our key personnel’s service to the Company could adversely affect our ability to implement our business plan.

Corporate Governance

The business and affairs of the Company are managed under the direction of the Board of Directors in accordance with the Illinois Business Corporation Act and the Articles of Incorporation and By-laws of the Company, as amended. Members of the Board of Directors are kept informed of the Company’s business through discussions with the Chairman of the Board of Directors, the Chief Executive Officer, the President and other officers, by reviewing materials provided to them and by participating in meetings of the Board of Directors and Executive Officersits committees.

As of January 2022, the Board of Directors had five members. The Board has determined that each of Douglas Bosley, Gerald (J.D.) Roberts, Jr., and Philip Wong, presently directors of the RegistrantCompany, are independent based upon the application of the rules and standards of the NASDAQ Stock Market.

Information calledThe Board of Directors met 17 times during 2021. Each of the Directors was present for by Item 9at least 75% of Part IIIsuch meetings.

Board Leadership Structure

Yubao Li is incorporated by referenceChairman of the Board of Directors, Frank Cesario is Chief Executive Officer and Jana Schwan is Chief Operating Officer. Mr. Cesario and Ms. Schwan are responsible for senior management functions. Mr. Cesario reports into the Board of Directors. The Board of Directors believes that this combination and allocation of roles provides the most efficient and effective leadership model for the Company, providing perspective and direction with regard to business strategies and plans to both the Board and management. The Company has no bylaw or policy in place that mandates that an officer serve as Chairman of the Board. The Board of Directors periodically evaluates its leadership structure.

Mr. Wong has been designated as the lead independent director. Mr. Wong is responsible for (i) communicating regularly with the Chief Executive Officer and other officers of the Company on behalf of the Board of Directors, and particularly the independent members of the Board of Directors, and (ii) calling separate meetings of the independent directors of the Company. At any such meetings, only independent directors are present and the independent directors are free to discuss any aspect of the Company’s business and risk management without the influence of interested directors or management.

All members of the Company’s Audit, Compensation and Nominating and Governance Committees have been determined to be independent based on application of the rules and standards of the NASDAQ Stock Market.

Board Role in Risk Oversight

The Board of Directors plays an active role, as a whole and at the committee level, in overseeing management of the Company’s risks. The Board regularly reviews information regarding our credit, liquidity and operations, as well as the risks associated with each. The Audit Committee oversees management of financial risks through regular meetings with the Company’s independent registered public accounting firm and the Company’s Chief Executive Officer, President and Chief Financial Officer. The Company’s Compensation Committee evaluates and addresses risks relating to executive compensation, our incentive compensation plans and other compensatory arrangements. The Nominating and Governance Committee manages risks associated with the independence of the Board of Directors and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of those risks, the entire Board of Directors is regularly informed through management and committee reports to the definitive Proxy Statementfull Board about these and other operational risks.

Committees of the Board of Directors

The Board of Directors has standing Audit, Compensation and Nominating and Governance Committees.

Audit Committee

Since 2000, the Company has had a standing Audit Committee, which is presently composed of Mr. Wong (Chairman), Mr. Bosley and Mr. Roberts. Each of the members of the Audit Committee is independent based on the application of the rules and standards of the NASDAQ Stock Market and Rule 10a-3(b) under the Securities Exchange Act of 1934. Mr. Wong has been designated as, and is, the Company’s “Audit Committee Financial Expert” in accordance with Item 407(d)(5) of Regulation S-K and meets the requirements for an audit committee expert as set forth in that item. The Audit Committee has primary responsibility meetings with management and independent auditors to discuss the Company’s financial statements. The Company’s Board of Directors has adopted a written charter, as amended, for the 2017 Annual MeetingCompany’s Audit Committee, a copy of Shareholders which has been posted and can be viewed on the Company’s Internet website at http://www.ctiindustries.com under the section entitled “Investor Relations.” In addition, the Audit Committee has adopted a complaint monitoring procedure to enable confidential and anonymous reporting to the Audit Committee of concerns regarding, among other things, questionable accounting or auditing matters. The Audit Committee has primary responsibility for:

The Audit Committee met four times during 2021.

Compensation Committee

The Compensation Committee is expectedcomposed of Mr. Roberts (Chairman), Mr. Bosley and Mr. Wong. The Board has determined that each of the members of the Compensation Committee is independent as defined in the listing standards for the NASDAQ Stock Market. The Compensation Committee reviews and acts on the Company’s executive compensation and employee benefit and retirement plans, including their establishment, modification and administration. It also recommends to the Board of Directors the compensation of the Chief Executive Officer and certain other executive officers. The Compensation Committee has a charter which has been posted and can be filedviewed on the Company’s Internet website at http://www.ctiindustries.com under the section entitled “Investor Relations.” The Compensation Committee did not meet in 2021.

Nominating and Governance Committee

In 2005, the Company established a Nominating and Governance Committee. The Nominating and Governance Committee consists of Mr. Bosley (Chairman), Mr. Roberts and Mr. Wong. The Nominating and Governance Committee does not have a charter. The Board of Directors has determined that each of the members of the Nominating and Governance Committee is independent as defined in the listing standards for the NASDAQ Stock Market.

The Nominating and Governance Committee has not adopted a formal policy with regard to consideration of director candidates recommended by security holders. The Company believes that continuing service of qualified incumbent members of the Board of Directors promotes stability and continuity at the Board level, contributes to the Board’s ability to work as a collective body and provides the benefit of familiarity and insight into the Company’s affairs. Accordingly, the process of the Nominating and Governance Committee for identifying nominees reflects the Company’s practice of re-nominating incumbent directors who continue to satisfy the criteria for membership on the Board. For vacancies that are anticipated on the Board of Directors, the Nominating and Governance Committee intends to seek out and evaluate potential candidates from a variety of sources that may include recommendations by security holders, members of management, the Board of Directors, consultants and others. The minimum qualifications for potential candidates for the Board of Directors include demonstrated business experience, decision-making abilities, personal integrity and a good reputation.

The Board’s statement regarding diversity is below. This has become a larger factor in the Nominating Committee’s evaluation of potential candidates. While there is no formal policy for considering diversity when nominating a potential director, it is a consideration that is evaluated along with other qualifications of potential candidates, and broadly a goal of the Company. In light of the foregoing, it is believed that a formal, written policy and procedure with regard to consideration of director candidates recommended by security holders is not necessary in order for the Nominating and Governance Committee to perform its duties.

The Nominating Committee did not meet in 2021. All of the independent directors of the Board of Directors participated in the nominating process and, in separate session, voted in favor of recommending to the Board of Directors the nomination of each of the nominees for election as directors.

Board Diversity

The current Board has five directors, all male, two of whom are of Asian background and three Caucasian. The Board recently had two female directors who retired from the Board during January 2022. With only five directors, the Company has limited opportunity to maintain the breadth of diversity it seeks at all times. The Company has made diversity a goal, particularly as it moved from a 100% Caucasian, 100% male Board of Directors at the beginning of 2020 to three Asian directors, two of whom female, later that year. The Company plans to continue to strive for broad representation on its Board of Directors.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers and directors, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission within 120 days after December 31, 2016.and with the NASDAQ Stock Market. Officers, directors and greater than ten-percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

Code of Ethics

The Company has adopted a code of ethics that applies to its senior executive and financial officers. The Company’s Code of Ethics seeks to promote (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, (ii) full, fair, accurate, timely and understandable disclosure of information to the Commission, (iii) compliance with applicable governmental laws, rules and regulations, (iv) prompt internal reporting of violations of the Code to predesignated persons, and (v) accountability for adherence to the Code. A copy of the Code of Ethics has been posted and may be viewed on the Company’s Internet website at http://www.ctiindustries.com under the heading “Investor Relations.” The Company will provide to any person without charge upon request a copy of the Code of Ethics. You may make such request by sending a written request to the Corporate Secretary at 22160 N. Pepper Road, Lake Barrington, Illinois 60010 and providing a return address

Item No. 11 – Executive Compensation

Information called for by Item 10 of Part III is incorporated by referenceThe following table sets forth summary compensation information with respect to the definitive Proxy StatementPrincipal Executive Officer and each of the two other most highly compensated executive officers. These individuals, including the Principal Executive Officer, are collectively referred to in this proxy statement as the Named Executive Officers.

SUMMARY COMPENSATION TABLE

Narrative Disclosure for Summary Compensation Table

Employment Agreements with Our Named Executive Officers

No employment agreements existed until January 2022, when Mr. Cesario entered into an employment agreement with the Company. That agreement includes a base salary of $250,000 per year. Mr. Cesario received an inducement grant of stock in the amount of 250,000 shares, 25,000 of which vested immediately, with the remaining shares scheduled to vest based upon the achievement of certain goals and objectives as set forth in the agreement. Mr. Cesario is eligible to receive a performance-based bonus of $300,000. In the event that Mr. Cesario is terminated without cause, he is eligible to receive twelve (12) months of salary in accordance with the agreement.

Information Relating to Cash Incentives

The Board of Directors previously had adopted an Incentive Compensation Plan providing for annual incentive compensation to be paid to executive and managerial employees of the Company. Under the Plan, designated Named Executive Officers and several other executive officers and managers may receive incentive compensation payments, determined on a quarterly and annual basis, based upon the income of the Company before provision for income tax or for incentive compensation if the net income exceeds a threshold amount of profit for any quarter of $100,000 and, for the 2017year, of $250,000. The benefits under the Plan are divided into two Pools of compensation. Pool I (representing the largest pool of incentive compensation) covers senior executive officers and managers who participate in the pool of incentive compensation based upon a percentage allocation recommended by the Compensation Committee and determined by the Board of Directors each year. Pool II covers other executives and managers who are selected to participate in proportions determined by management. The Compensation Committee recommends the amount of the incentive compensation awards which, in the aggregate, may not exceed sixteen percent of the net income of the Company (before provision for income tax or incentive compensation under the Plan). Further, the amount of incentive compensation to any participant may not exceed the annual base compensation of the participant. The Compensation Committee believed such incentive compensation motivates participants to achieve strong profitability which is viewed as the most significant element of corporate performance, provides rewards for strong corporate performance and aligns the incentive with the interests of the shareholders. Incentive compensation participation levels are generally determined during the first quarter of each fiscal year.

In determining the executives who participate in the incentive compensation awards in Pool I each year, and the relative amount of the award to each participant, the Compensation Committee considers and takes into account (i) the position of the executive, (ii) the level of responsibility and authority of the executive, (iii) the performance of the executive, and (iv) the extent to which the executive is in a position to affect the financial results and profitability of the Company. The current Board of Directors is considering a revised incentive plan and terminating the plan described in this section. No replacement plan has yet been adopted, but the Board of Directors and Management have both indicated their desire to change this program.

Long-Term Equity Incentives

From time to time, upon the recommendation and action of the Compensation Committee and Board of Directors, stock options or grants under the 2009 Incentive Stock Plan have been awarded to officers, directors, or management personnel of the Company. At the Company’s Annual Meeting of Shareholders held in May 2009, the Company’s 2009 Incentive Stock Plan was approved by the shareholders.

The Board of Directors adopted and approved a new incentive option plan in April 2018 which was submitted to, and approved by, our stockholders at the annual meeting of stockholders on June 8, 2018 (the “Plan”). Under the Plan, the Compensation Committee of the Board of Directors is expectedauthorized to issue incentive options, non-statutory options, restricted stock awards and stock grants to officers, directors, management personnel and consultants of the Company. The Board of Directors determined that no further options would be filedgranted under the 2009 Incentive Stock Plan.

Stock and option grants under the Plan will be determined from time to time by the Compensation Committee in consultation with management. The actual grant for each executive is determined by taking into consideration (i) individual performance, (ii) corporate performance and (iii) prior grants to, or stock ownership of the Commission within 120 days afterCompany by, the executive or director. Generally, stock options are granted with an exercise price equal to or greater than the closing price of the Company’s common stock on the NASDAQ Stock Market on the date of the grant.

No stock options or grants were awarded or issued during 2021.

Retirement Benefits

The Company maintains a 401(k) employee savings plan in which all salaried employees are eligible to participate. The plan is a tax qualified retirement plan.

Under the 401(k) Plan, employees may contribute up to 15% of their eligible compensation to the Plan and the Company will contribute a matching amount to the Plan each year. Participating employees may direct the investment of individual and company contributions into one or more of the investment options offered by the Plan. Under the terms of the Plan, the Company has made a matching contribution equal to 100% of employee contributions that do not exceed 1% of eligible compensation plus 50% of employee contributions between 1% and 5% of eligible compensation. During 2017, the Board of Directors determined to cease matching contributions under the 401(k) Plan for the balance of the year. No such matching contributions were made during 2020 or 2021.

Outstanding Equity Awards

There are no outstanding equity awards as of December 31, 2016.2021

Payments Upon Termination or Change of Control

None as of December 31, 2021. The employment agreement with Frank Cesario, effective January 2022, includes payment of twelve months salary upon termination except for cause as is defined by that agreement.

Director Compensation

The following table sets forth the compensation of directors of the Company during the year ended December 31, 2021:

DIRECTOR COMPENSATION

Narrative Description of Director Compensation

Payments to non-employee directors were suspended during 2019, and had not restarted as of December 31, 2021. The Company intends to begin paying non-employee directors during 2022.

Agreements Between Third Parties and Directors

There are no agreements or arrangements by which any directors or nominees are to receive compensation or other payments from third parties in return for serving on the Board of Directors.

Item No. 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information calledThe Board of Directors knows of no other matters to be presented for shareholder action at the Annual Meeting. On matters which may be raised at the Annual Meeting that are not covered by Item 11this Proxy Statement, the persons named in the proxy will have full discretionary authority to vote.

BENEFICIAL OWNERSHIP OF SHARES BY MANAGEMENT

AND SIGNIFICANT SHAREHOLDERS

The following table provides information concerning the beneficial ownership of the Company’s Common Stock by referenceeach director and nominee for director, certain executive officers, and by all directors and officers of the Company as a group as of December 31, 2021. In addition, the table provides information concerning the current beneficial owners, if any, known to the definitive Proxy Statement forCompany to hold more than 5 percent of the 2017 Annual Meetingoutstanding Common Stock of Shareholders whichthe Company.

The amounts and percentage of stock beneficially owned are reported based on regulations of the Securities and Exchange Commission (“SEC”) governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is expecteddeemed to be filed witha “beneficial owner” of a security if that person has or shares “voting power,” which includes the Commissionpower to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 12060 days after December 31, 2016.2021. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities in which he has no economic interest. The percentage of Common Stock beneficially owned is based on 5,886,750 shares of Common Stock outstanding as of December 31, 2021.

Represents 400,000 shares of common stock and 6,700,000 shares of common stock issuable upon conversion of 670,000 shares of Series A preferred and Series C preferred

Represents approximately 100% of the outstanding shares of the Company’s Series A & C Preferred.

These shares are held by LF Investments Pte. Ltd., a Singapore private limited company controlled by Mr. Li.

Pursuant to the Series A Certificate of Designation (as defined below), no holder of Series A Preferred may convert any portion of the Series A Preferred which would result in the holder beneficially owning more than 4.99% of the outstanding common stock of the Company. This limitation may be waived upon sixty-one (61) days’ prior notice from the holder to the Company.  

Represents 1,700,000 shares of common stock issuable upon conversion of 170,000 shares of Series B preferred

Represents 1,700,000 shares of common stock issuable upon conversion of 170,000 shares of Series D preferred including 128,000 warrants

*Less than one percent

Item No. 13 – Certain Relationships and Related Transactions

Information calledAs of December 2017, Mr. John H. Schwan was owed a total of $1.1 million, with additional accrued interest of $0.4 million, 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 and the Company agreed to an exchange of $0.6 million of his debt for approximately 181,000 shares of CTI common stock at the then market rate of $3.32 per share. As of December 31, 2021, the balance of Mr. Schwan’s note was approximately $1.2 million, including accrued interest. Mr. Schwan is the father of Jana Schwan.

Relationships and transactions in which the Company and its directors and executive officers or their immediate family members are participants or have conflicts of interest are reviewed and approved by Item 12the Audit Committee. While the Audit Committee has not adopted a written policy for the review and approval of Part IIIrelated party transactions, in determining whether to approve or ratify any such transaction, the Audit Committee considers, in addition to such other factors it may deem appropriate in the circumstances, whether (i) the transaction is incorporated by referencefair and reasonable to the definitive Proxy Statement forCompany, (ii) under all of the 2017 Annual Meeting of Shareholders whichcircumstances, the transaction is expected to be filedin, or not inconsistent with, the Commission within 120 days after December 31, 2016.Company’s best interests, and (iii) the transaction will be on terms no less favorable to the Company than could have been obtained in an arms’ length transaction with an unrelated third party. The Audit Committee, in its discretion, may request information from any party to facilitate its consideration of matter. The Audit Committee does not allow a director to participate in any review, approval or ratification of any transaction if he or she, or his or her immediate family member, has a direct or indirect material interest in the transaction.

Item No. 14 – Principal Accountant Fees and Services

Information calledThe following table sets forth the amount of fees billed by RBSM LLP, our independent registered public accounting firm, for professional services during the years ended December 31, 2021 and 2020:

All audits, tax and other services to be performed by Item 13RBSM LLP for the Company must be pre-approved by the Audit Committee. The Audit Committee reviews the description of Part IIIservices and an estimate of the anticipated costs to perform those services. Services not previously approved cannot commence until such approval has been granted. Pre-approval is incorporated by referencegranted usually at regularly scheduled meetings. If unanticipated items arise between meetings of the Audit Committee, the Audit Committee has delegated approval authority to the definitive Proxy Statement forChairman of the 2017 Annual Meeting of ShareholdersAudit Committee, in which is expectedcase the Chairman communicates such pre-approvals to be filed with the Commission within 120 days after December 31, 2016.full Committee at its next meeting.

The Audit Committee of the Board of Directors reviews all relationships with its independent auditors, including the provision of non-audit services, which may relate to the independent registered public accounting firm’s independence.

PART IV

Item No. 15 – Exhibits and Financial Statement Schedules

(a)(1) The following documents are filed under pages F-1 through F-29 and are included as part of this Form 10-K:

(a)(2) All financial statement schedules are omitted because the information is inapplicable or presented in the notes to the financial statements, except for Schedule II – Valuation and qualifying accountsaccounts.

All other financial schedules(a)(3) Exhibits required by Item 601 of Regulation S-K are not required underincorporated herein by reference and are listed on the related instructions or are inapplicable and therefore have been omitted.attached Exhibit Index.