Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The consolidated financial statements include the accounts of CTI Industries Corporation, its wholly owned subsidiaries CTI Balloons Limited

and CTI Supply, Inc. and its majority owned subsidiaries, Flexo Universal and CTI Europe, as well as the accounts of Venture Leasing S. A. de R. L., Venture Leasing L.L.C., and Clever Container Company, L.L.C. (Clever Container). The last

three

entities have been consolidated as variable interest entities. All significant intercompany accounts and transactions have been eliminated upon consolidation.

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

Variable Interest Entities

The determination of whether or

not

to consolidate a variable interest entity under

generally accepted accounting principles in the United States of America (U.S. GAAP) requires a significant amount of judgment concerning the degree of control over an entity by its holders of variable interest. To make these judgments, management has conducted an analysis of the relationship of the holders of variable interest to each other, the design of the entity, the expected operations of the entity, which holder of variable interests is most “closely associated” to the entity and which holder of variable interests is the primary beneficiary required to consolidate the entity. Upon the occurrence of certain events, management reviews and reconsiders its previous conclusion regarding the status of an entity as a variable interest entity.  Management continually reconsiders whether the Company is deemed to be a variable interest entity’s primary beneficiary who consolidates such entity. The Company has

three

entities that have been consolidated as variable interest entities. (See Note

13

)

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Currency Translation

The financial statements of foreign subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities, the historical exchange rate for

stockholders’ equity, and a weighted average exchange rate for each period for revenues and expenses. Translation adjustments are recorded in accumulated other comprehensive income (loss) as the local currencies of the subsidiaries are the functional currencies. Foreign currency transaction gains and losses are recognized in the period incurred and are included in the consolidated statements of operations.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

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

may

differ from those estimates. The Company

’s significant estimates include valuation allowances for doubtful accounts, inventory valuation, deferred tax assets, goodwill and intangible asset valuation, and assumptions used as inputs in the

Black-Scholes option-pricing model

.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, demand deposits and short term investments with original maturities of

three

months or less.

Trade and Other Accounts Receivable, Policy [Policy Text Block]

Accounts Receivable

Trade receivables are carried at original invoice amount less an estimate for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts, evaluating the individual customer receivables through consideration of the customer

’s financial condition, credit history and current economic conditions and use of historical experience applied to an aging of accounts. A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for a period over the customer’s normal terms. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received.

Inventory, Policy [Policy Text Block]

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard costs which approximates costing determined on a

first

-in,

first

-out basis, to reflect the actual cost of production of inventories.

Production costs of work in process and finished goods include material, labor and overhead. Work in process and finished goods are

not

recorded in excess of net realizable value.

Property, Plant and Equipment, Policy [Policy Text Block]

Property, Plant and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to operations as incurred. Depreciation is computed using the straight-line method over

the estimated useful lives of the related assets. Leasehold improvements are amortized on a straight-line method over the lesser of the estimated useful life or the lease term. The estimated useful lives range as follows:

	In years
Building	25	-	30
Machinery and equipment	3	-	15
Projects that prolong the life and increase efficiency of machinery	3	-	5
Light Machinery	5	-	10
Heavy Machinery	10	-	15
Office furniture and equipment	5	-	8
Intellectual Property	9	-	15
Leasehold improvements	5	-	8
Furniture and equipment at customer locations	1	-	3

Light machinery consists of forklifts, scissor lifts, and other warehouse machinery. Heavy machinery consists of production equipment including laminating, printing and converting equipment. Projects in process represent those costs capitalized in connection with construction of new assets and/or improvements to existing assets including a factor for interest on funds committ

ed to projects in process of

$11,000

and

$33,000

for the years ended

December 31, 2017

and

2016,

respectively. Upon completion, these costs are reclassified to the appropriate asset class.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

The Company has stock-based incentive plans which

may

grant stock option, restricted stock and unrestricted stock awards.

  The Company recognizes stock-based compensation expense based on the grant date fair value of the award and the related vesting terms.  The fair value of stock-based awards is determined using the Black-Scholes model, which incorporates assumptions regarding the risk-free interest rate, expected volatility, expected option life, and dividend yield.  See Note

16

for additional information.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurements

U.S. GAAP

defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements required under other accounting pronouncements.  See Note

4

for further discussion

.

The Company accounts for derivative instruments in accordance with

U.S. GAAP, which requires that all derivative instruments be recognized on the balance sheet at fair value. We

may

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

one

-to-

one

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

December 31, 2017,

we had

one

derivative instrument accounted for as a hedge, compared to

no

such instrument as of December

31,

2016.

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

not

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

no

such derivative financial instruments as of

December 31, 2017.

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

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

Goodwill

The Company

applies the provisions of U.S. GAAP, under which goodwill is tested at least annually for impairment. Goodwill on the accompanying balance sheets relates to the Company’s acquisition of Flexo Universal in a prior year, the investment in CTI Europe in a prior year and the goodwill related to Clever Container, a variable interest entity in which CTI is the primary beneficiary. It is the Company’s policy to perform impairment testing annually as of

December 31,

or as circumstances change. An annual impairment review was completed and

no

impairment was noted for the years ended

December 31, 2017

and

2016

(see Note

14

). While the Company believes that its estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect these evaluations.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Valuation of Long Lived Assets

The Company evaluates whether events or circumstances have occurred which indicate that the carrying amounts of long-lived assets (principally property, plant and equipment)

may

be impaired or

not

recoverable. The significant factors that are considered that could trigger an impairment review include: changes in business strategy, market conditions, or the manner of use of an asset; underperformance relative to historical or expected future operating results; and negative industry or economic trends. In evaluating an asset for possible impairment, management estimates that asset

’s future undiscounted cash flows and appraised values to measure whether the asset is recoverable. The Company measures the impairment based on the projected discounted cash flows of the asset over its remaining life.

Deferred Financing Costs, Policy [Policy Text Block]

Deferred Financing Costs

Deferred financing costs are amortized on a straight line basis over the term of the loan. Upon a refinancing, existing unamortized deferred financing costs are expensed.

Income Tax, Policy [Policy Text Block]

Income Taxes

The Company accounts for income taxes using the liability method. As such, deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect

when the anticipated reversal of these differences is scheduled to occur. Deferred tax assets are reduced by a valuation allowance when management cannot determine, in its opinion, that it is more likely than

not

that the Company will recover that recorded value of the deferred tax asset. The Company is subject to U.S. Federal, state and local taxes as well as foreign taxes in the United Kingdom, Germany and Mexico. U.S. income tax expense and foreign withholding taxes are provided on remittances of foreign earnings and on unremitted foreign earnings that are

not

indefinitely reinvested.

Unrecognized tax benefits are accounted for as required by

U.S. GAAP which prescribes a more likely than

not

threshold for financial statement presentation and measurement of a tax position taken or expected to be taken in a tax return.  See Note

10

for further discussion.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

The Company recognizes revenue when all of the following criteria have been met:

● Persuasive evidence of an arrangement exists;

● Delivery has occurred or a service has been provided;

● The sales price is fixed and determinable; and

● Collection is reasonably assured.

For most of our revenue, these criteria are met at the time that product is shipped.

In some cases, such as when material is sold on consignment, revenue is recognized when those products are reported as sold by the customer. Return rates fluctuate over time. We estimate returns at the time of shipment based on prior experience and relevant information.

Research, Development, and Computer Software, Policy [Policy Text Block]

Research and Development

The Company conducts product development

and research activities which include (i) creative product development and (ii) engineering. During the years ended

December 31, 2017

and

2016,

research and development activities totaled

$345,000

and

$496,000,

respectively.

Advertising Costs, Policy [Policy Text Block]

Advertising Costs

The Company expenses advertising costs as incurred. Advertising expenses amounted to

$119,000

and

$139,000

for the years ended

December 31, 2017

and

2016,

respectively.