Note

–

Discontinued Operations

July 2019

management and the Board engaged in a review of CTI Balloons and CTI Europe and determined that they are

not

accretive to the Company overall, add complexity to the Company’s structure and utilize resources. Therefore, as of

July 19, 2019,

the board authorized management to divest of CTI Balloons and CTI Europe. These actions are being taken to focus our resources and efforts on our core business activities, particularly foil balloons and ancillary products based in North America. The Company determined that these entities met the held-for-sale and discontinued operations accounting criteria. Accordingly, the Company has reported the results of these operations as discontinued operations in the Consolidated Statements of Comprehensive Income and presented the related assets and liabilities as held-for-sale in the Consolidated Balance Sheets. These changes have been applied for all periods presented. The Company divested its CTI Balloons (United Kingdom) subsidiary in the

fourth

quarter

2019

and expects to divest CTI Europe (Germany) in the

first

half of

2020.

In connection with management’s intentions to simplify these operations and organizational structure, we identified write-offs of

$88,000

and

$1.7

million for the

three

and

nine

months ended

September 30, 2019,

respectively, related to CTI Balloons and CTI Europe. The charges for the

three

months ended

September 30, 2019

were comprised of the following:

$78,000

inventory and other assets and

$10,000

allowance for doubtful accounts. The charges for the

nine

months ended

September 30, 2019

were comprised of the following:

$1.3M

inventory,

$76,000

allowance for doubtful accounts; and

$280,000

for other assets. Additionally, it recognized an impairment charge of

$1.0

million, including

$167,000

of previously unrecognized currency translation adjustment losses because the Company is completely exiting its operations in Germany and the UK once the divestitures occur.

CTI Balloons recorded losses from discontinued operations, net of taxes of (

$433,000

) and (

$996,000

) for the

three

and

nine

months ended

September 30, 2019,

respectively (including an estimated loss on sale of

$321,000

). The losses, net of tax were (

$8,000

) and (

$59,000

) for the

three

and

nine

months ended

September 30, 2018,

respectively.

CTI Europe recorded losses from discontinued operations, net of taxes of (

$566,000

) and (

$1,735,000

) for the

three

and

nine

months ended

September 30, 2019,

respectively (including an estimated loss on sale of

$283,000

). The income, net of taxes were

$32,000

and

$96,000

for the

three

and

nine

months ended

September 30, 2018,

respectively.

Summarized Discontinued Operations Financial Information

The following table summarizes the major line items for the International operations that are included in the income from discontinued operations, net of tax line item in the Consolidated Statements of Income for the

three

months ending

	09/30/19			09/30/18
Income Statement
Net Sales	$	1,177,953		$	1,397,033
Cost of Sales		1,163,985			1,041,266

Gross Margin		13,968			355,767

Impairment of Long-Lived Assets
SG&A		373,625			330,898

Operating Income		(359,657)			24,869

Other Expense (income)		35,111			(8,038	)

pretax loss from discontinued operations		(394,768	)		32,907

Loss from classification to held for sale		604,483			-
Income Tax Expense		-			9,214

(Loss)Income prior to non-controlling interest		(999,251	)		23,693

Non-controlling Interest share of profit/loss		(271,807	)		15,411

(Loss) Income attributable to CTI shareholders	$	(727,444	)	$	8,282

nine

months ending

		09/30/19			09/30/18
Income Statement
Net Sales	$	4,152,390		$	4,981,152
Cost of Sales		4,881,526			3,860,225

Gross Margin		(729,136	)		1,120,927

Impairment of Long-Lived Assets		(4,173	)
SG&A		1,342,360			1,103,266

Operating Income		(2,067,323	)		17,662

Other Expense (income)		58,990			(34,219	)

Pretax loss from discontinued operations		(2,126,313	)		51,880

Loss from classification to held for sale		604,483			-
Income Tax Expense		-			14,526

Income (loss) prior to non-controlling interest		(2,730,796	)		37,354

Non-controlling Interest share of (loss)/income		(837,136	)		46,067

Income (loss) attributable to CTI shareholders	$	(1,893,660	)	$	(8,713	)

The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations for each of the periods presented:

	9/30/2019		12/31/2018
Balance Sheet
Assets
Current Assets
Cash on hand and Banks	$	56,769	$	169,912
Accounts Receivable		687,607		584,827
Inventory		453,395		2,618,854
Prepaid & Other		-		125,726

TOTAL Current Assets		1,197,771		3,499,319

NET Property, Plant, and Equipment		105,594		94,069

Other Assets
Operating lease right-of-use		561,120		-
Other		44,303		78,729
TOTAL Other Assets		605,423		78,729
TOTAL Non-Current Assets		711,017		172,798
Less Valuation Allowance on Held for Sale classification		(604,483)
TOTAL Assets	$	1,304,305	$	3,672,117

Liabilities
Current Liabilities
Trade Accounts Payable	$	435,785	$	727,741
Operating Lease Liabilities - Current		382,214		-
Other/Accrued Liabilities		43,425		80,035
TOTAL Current Liabilities		861,424		807,776

Non-Current Liabilities
Operating Lease Liabilities - Non Current		178,906		-
Other Non-Current		31,287		31,874
TOTAL Non-Current Liabilities		210,193		31,874
		-		-
TOTAL Liabilities	$	1,071,617	$	839,650

The cash flows related to discontinued operations have

not

been segregated and are included in the Consolidated Statements of Cash Flows. The following table summarizes depreciation from discontinued operations for each of the periods presented:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Depreciation		7,321		7,963		20,519		21,588