Note

– Liquidity and Going Concern

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

). As indicated in Note

twice during

2018

we violated covenants in our credit facility and as of

March 2019

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

March 31, 2019

were

not

considered and all previously identified compliance failures were waived, but we remain out of compliance with the terms of our credit facility, as amended, including the covenants as of

June 30, 2019

calculated on or about

July 31, 2019.

August 1, 2019,

PNC issued a Default and Reservation of Rights letter to the Company, in which PNC advised that line of credit advances would continue to be available to the Company at PNC’s sole discretion, and subject to its terms and conditions. On

October 18, 2019,

we entered into a new forbearance agreement with PNC (“Amendment

4”

). Identified events of default were waived until

January 10, 2020

with respect to CTI Industries Corporation, but

not

its Mexican subsidiary (Flexo), subject to its terms and conditions.

During

2019

we attempted to execute a major capital event with a partner that would infuse money, among other attributes. That effort was unsuccessful as envisioned. We are currently seeking to execute on

one

or more smaller transactions, as well as pursue other financing options. There is

assurance that any of these efforts will be successful.

In addition to the above, due to financial performance in

2016,

2017

and

2018,

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

$0.7

million, (

$1.6

million), and (

$3.6

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

September 30, 2019.

Additionally, we have experienced challenges in maintaining adequate seasonal working capital balances, made more challenging by increases in financing and labor costs, along with a supply disruption in the helium market. These changes in cash flows have created very significant strain within our operations and have therefore increased our attempts to obtain additional funding resources. On

October 21, 2019,

we issued notices under the Worker Adjustment and Retraining Notification Act (“WARN”) and related state laws. The notices indicated that our primary facility, in Lake Barrington, IL, might close in late

December 2019

or early

January 2020.

While we continue to seek an appropriate financing structure that would allow us to continue operations, the possibility of closure caused the issuance of these notices.

Finally,

four

claims have been filed in court by vendors,

one

current and

three

former, regarding claims of non-payment pursuant to contractual obligations. The sum of these claims is approximately

$0.7

million. The cost of defense and potential ultimate resolution increases the strain on our financial resources.

Management’s plans include:

	( 1 )	Pursuing a smaller strategically significant capital event.
	( 2 )	Working with our bank to resolve our compliance failure on a long-term basis.
	( 3 )	Evaluating and potentially executing a transaction of our facility in Lake Barrington, IL.
	( 4 )	Simplifying our group structure,
	( 5 )	Exploring alternative funding sources,
	( 6 )	Implementing significant expense reductions for benefit beginning 2020, including changes in locations, certain operational functions, and equipment, and
	( 7 )	Pursue the divestiture of non-performing assets and/or non-growth product lines and businesses.

Management Assessment

Considering both quantitative and qualitative information, we believe that our plans to obtain additional financing

may

provide us with an ability to finance our operations through

2019

and, if successfully executed,

may

mitigate the substantial doubt about our ability to continue as a going concern.