UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________to__________
Commission File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
| ||||
| (The Nasdaq Capital Market) |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares outstanding of the registrant’s common stock, no par value per share, as of May 19, 2025 was (excluding treasury shares).
INDEX
Yunhong Green CTI, Ltd
Unaudited Condensed Consolidated Balance Sheets
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment: | ||||||||
| Machinery and equipment | ||||||||
| Office furniture and equipment | ||||||||
| Intellectual property | ||||||||
| Leasehold improvements | ||||||||
| Fixtures and equipment | ||||||||
| Projects under construction | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total property, plant and equipment, net | ||||||||
| Other assets: | ||||||||
| Operating lease right-of-use | ||||||||
| Prepaid expenses, noncurrent | ||||||||
| Total other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Trade payables | $ | $ | ||||||
| Line of credit | ||||||||
| Notes payable | ||||||||
| Notes payable related party | ||||||||
| Operating lease liabilities – current portion | ||||||||
| Advance investor deposit | ||||||||
| Accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Operating lease liabilities – noncurrent | ||||||||
| Total long-term liabilities | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Series
E Preferred Stock — | ||||||||
| Series
F Preferred Stock — | ||||||||
| Common
stock - | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Less: Treasury stock, shares, at cost | ( | ) | ( | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to condensed consolidated unaudited financial statements.
| 1 |
Yunhong Green CTI, LTD
Unaudited Condensed Consolidated Statements of Income (Loss)
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| General and administrative | ||||||||
| Selling | ||||||||
| Advertising and marketing | ||||||||
| Total operating expenses | ||||||||
| Income / (loss) from operations | ( | ) | ( | ) | ||||
| Other (expense) / income: | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other (expense) / income | ( | ) | ( | ) | ||||
| Total other (expense) / income, net | ( | ) | ( | ) | ||||
| Net income / (loss) | $ | ( | ) | $ | ( | ) | ||
| Deemed dividends on preferred stock | $ | ( | ) | $ | ( | ) | ||
| Net income / (loss) attributable to Yunhong Green CTI Ltd common shareholders | $ | ( | ) | $ | ( | ) | ||
| Basic income (loss) per common share | $ | ( | ) | $ | ( | ) | ||
| Diluted income (loss) per common share | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares and equivalent shares of common stock outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
See accompanying notes to condensed consolidated unaudited financial statements.
| 2 |
Yunhong Green CTI, Ltd
Unaudited Condensed Consolidated Statements of Cash Flows
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating | ||||||||
| Depreciation and amortization | ||||||||
| Equity compensation charge | ||||||||
| Change in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Trade payables | ||||||||
| Accrued liabilities | ( | ) | ||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash (used in) provided by investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Receipt for preferred stock issuance | ||||||||
| Repayment of note payable, related party | ( | ) | ||||||
| Repayment of note payable | ( | ) | ( | ) | ||||
| Net advances (repayments) on revolving line of credit | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information and noncash investing and financing activities: | ||||||||
| Cash payments for interest | $ | $ | ||||||
| Accretion of dividends on preferred stock | ||||||||
| Common stock issued in exchange for rent due to Icy Melon | ||||||||
| Allocation of proceeds from preferred stock financing to the issuance of warrants for preferred stock | ||||||||
| Reclassification of advances upon issuances of preferred stock | ||||||||
See accompanying notes to condensed consolidated unaudited financial statements.
| 3 |
Yunhong Green CTI, Ltd
Unaudited Condensed Consolidated Statements of Shareholders’ Equity
| Series
E Preferred Stock | Series
F Preferred Stock | Common Stock | Additional
Paid-in | Accumulated (Deficit) | Less
Treasury Stock | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Shares | Amount | TOTAL | ||||||||||||||||||||||||||||||||||
| Balance December 31, 2024 | $ | $ | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Series E Accrued Deemed Dividend | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||||||||
| Series F Accrued Deemed Dividend | - | - | - | ( | ) | - | ||||||||||||||||||||||||||||||||||||||
| Common Stock Issuance for Rent | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Equity Compensation Charge | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance March 31, 2025 | $ | $ | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
Yunhong Green CTI, Ltd
Unaudited Condensed Consolidated Statements of Shareholders’ Equity
| Series
E Preferred Stock | Series
F Preferred Stock | Common Stock | Additional Paid-in | Accumulated (Deficit) | Less
Treasury Stock | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Shares | Amount | TOTAL | ||||||||||||||||||||||||||||||||||
| Balance December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Series E Preferred Stock Issuance | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Series F Preferred Stock Issuance | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Series E Accrued Deemed Dividend | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||||||||
| Series F Accrued Deemed Dividend | - | - | - | ( | ) | - | ||||||||||||||||||||||||||||||||||||||
| Equity Compensation Charge | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated unaudited financial statements.
| 4 |
Yunhong Green CTI Ltd. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 - Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed consolidated interim financial statements have been prepared and, in the opinion of management, contain all material adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the consolidated financial position and the consolidated statements of income (loss) and consolidated cash flows for the periods presented in conformity with generally accepted accounting principles for interim consolidated financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2025. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2024, filed on April 15, 2025, which can be found on the Company’s website (www.ctiindustries.com) or www.sec.gov.
The financial information presented in these financial statements has been rounded to the nearest thousand dollars ($000), which is in accordance with our policy to simplify the presentation. The financial information is not presented in thousand-dollar increments.
Principles of consolidation and nature of operations:
Yunhong Green CTI Ltd., its wholly owned subsidiary Yunhong Technology Industry (Hubei) Co,. Ltd., and its inactive subsidiary CTI Supply, Inc. (collectively, the “Company”) (i) design, manufacture and distribute metalized balloon products throughout the world, (ii) distribute purchased latex balloons products, and (iii) operate systems for the production, lamination, coating and printing of films used for food packaging and other commercial uses and for conversion of films to flexible packaging containers and other products.
The condensed consolidated financial statements include the accounts of Yunhong Green CTI Ltd., CTI Supply, Inc., and Yunhong Technology Industry (Hubei) Co., Ltd. All intercompany accounts and transactions have been eliminated in consolidation. See Note 2 Form 10-K for the fiscal year ended December 31, 2024.
Reclassification:
Certain amounts in the Company’s condensed consolidated financial statements for prior periods have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.
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 credit losses and inventory valuation, and the valuation of warrants to purchase preferred stock.
Segments:
The Company views its operations and manages its business as one segment, both in terms of geography and operations. All manufacturing occurs in the United States. Due to the single reportable segment, this financial information is presented on the Consolidated Statements of Income (Loss). There are no significant segment expenses reported to the chief operating decision maker (CODM). On June 30, 2024, the Company acquired production assets in China but has not yet commenced operations within this subsidiary.
| 5 |
Basic (loss) per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period.
Diluted (loss) per share is computed by dividing the net loss by the weighted average number of shares of common stock and equivalents (stock options and warrants), unless anti-dilutive, during each period. In periods for which there is a net loss, diluted loss per common share is equal to basic loss per common share, since the effect of including any common stock equivalents would be antidilutive.
For both March 31, 2025 and 2024, shares to be issued upon the exercise of warrants aggregated . No options were outstanding for the three months ended March 31, 2025 and 2024. The number of shares included in the determination of earnings on a diluted basis for the three months ended March 31, 2025 and 2024 were none, as doing so would have been anti-dilutive.
Revenue recognition:
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.
Note 2 – Liquidity and Going Concern
The
Company’s financial statements are prepared using accounting 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 March 31, 2025 of approximately $
The ability of the Company to continue as a going concern is dependent on the Company having adequate capital to fund its operating plan and performance. Management’s plans to continue as a going concern may include raising additional capital through sales of equity securities and borrowing, continuing to focus our Company on the most profitable elements, and exploring alternative funding sources on an as needed basis. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The supply chain challenges, inflationary pressures and tariffs have impacted on the Company’s business operations to some extent and is expected to continue to do so and these impacts may include reduced access to capital. The ability of the Company to continue as a going concern may be dependent upon its ability to successfully secure other sources of financing and attain profitable operations. There is substantial doubt about the ability of the Company to continue as a going concern for one year from the issuance of the accompanying consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company’s primary sources of liquidity have traditionally been comprised of cash and cash equivalents as well as availability under the Credit Agreement in place at the time (see Note 3 ). This credit facility, as amended, concludes on September 30, 2025. While we expect to have sufficient financial resources available on acceptable terms, there can be no assurance this will occur, particularly in light of increasingly conservative financial markets.
| 6 |
Note 3 - Debt
On
September 30, 2021 (the “Closing Date”), the Company entered into a loan and security agreement (the “Agreement”)
with Line Financial (the “Lender”), which provides for a senior secured financing consisting of a revolving credit facility
(the “Revolving Credit Facility) in an aggregate principal amount of up to $
Interest
on the Senior Facilities was set at the prime rate published from time to time published in the Wall Street Journal (
The
Senior Facilities matured on September 30, 2023 and were extended with a maturity date of September 30, 2025. The facility automatically
extends for successive periods of one year each, unless the Company or the Lender gives the other party notice of termination not less
than 90 days prior to the end of such term or renewal term, as applicable. If the Senior Facilities are renewed, the Company shall pay
the Lender a renewal fee of
The
Senior Facilities require that the Company maintain Tangible Net Worth of at least $
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 $
As
of March 31, 2025 and December 31, 2024, the term loan balance amounted to $
The
Company is party to a note payable to John H. Schwan, Director and former Chairman of the Board, with a loan balance due of $
| 7 |
Note 4 - Shareholders’ Equity
Series E Convertible Preferred Stock
In
March 2024, the Company amended its Articles of Incorporation to authorize the issuance of shares of Series E Convertible Preferred
Stock (“Series E Preferred”) resulting in gross proceeds of $
Series F Convertible Preferred Stock
In
March 2024, the Company amended its Articles of Incorporation to authorize the issuance of shares of Series F Preferred resulting
in gross proceeds of $ million from an unrelated third party. As disclosed above certain of these proceeds were received as an advance
prior to December 31, 2023. This investment was initially classified as a current liability until the agreement was finalized and shares
were issued, at which time it was classified as equity, similar to the prior Convertible Preferred issuances. The issuance of the Series
F Preferred Stock resulted in an allocation of $ million to the convertible preferred stock and $ million to the warrants described
below and classified as Additional Paid-In Capital. Holders of the Series F Preferred will be entitled to receive quarterly dividends
at the annual rate of
Warrants
As
described above, in connection with the Series E and F convertible preferred equity issuances, a total of
The Company has applied the Black-Scholes model to value stock-based awards. That model incorporates various assumptions in the valuation of stock-based awards relating to the risk-free rate of interest to be applied, the estimated dividend yield and expected volatility of the Company’s Common Stock. The risk-free rate of interest is the U.S. Treasury yield curve for periods within the expected term of the option at the time of grant. The expected volatility is based on historical volatility of the Company’s Common Stock.
The valuation assumptions we have applied to determine the value of warrants granted in 2025 were as follows:
| - | Historical stock price volatility: The Company used the weekly closing price to calculate historical annual volatility which was a range from % - %. | |
| - | Risk-free interest rate: The Company used the U.S. Treasury yield curve in effect at the time of grant for securities with maturities matching the expected term of the warrants. As of Q1 2025, the applicable yield was approximately %, based on the 10-year Treasury rate. | |
| - | Expected life: The expected life of the warrants represents the period of time warrants were expected to be outstanding. The Company used an expected life of years. | |
| - | Dividend yield: The estimate for dividend yield is %, as the Company did not issue dividends during 2020 through 2025 and does not expect to do so in the foreseeable future. | |
| - | Estimated forfeitures: When estimating forfeitures, the Company considers historical terminations as well as anticipated retirements. |
| 8 |
A summary of the Company’s stock warrant activity is as follows:
| Shares under Option (warrant) | Weighted Average Exercise Price | |||||||
| Balance at December 31, 2024 | $ | |||||||
| Granted | ||||||||
| Cancelled/Expired | ||||||||
| Exercised/Issued | ||||||||
| Outstanding at March 31, 2025 | ||||||||
| Exercisable at March 31, 2025 | $ | |||||||
| 2024 Warrants | ||||
| Shares reserved as of March 31, 2025 |
Restricted Stock Awards
Aggregated information regarding RSUs, PSUs and RSAs granted under the Plan is summarized below:
| RSUs, PSUs & RSAs | Weighted Average Grant-Date Fair Value | |||||||
| Outstanding, unvested at December 31, 2024 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Outstanding, unvested at March 31, 2025 | ||||||||
The Compensation Committee (as defined in the Plan) shall be responsible for determining when the conditions above have been satisfied. The Company records compensation expense with each vesting, and records a likelihood of vesting weighted analysis to the extent it has visibility to do so with a related grant date market value when such visibility is present. Without such visibility, it considers such probability as de minimis until additional information is available.
Note 5 - Legal Proceedings
The Company may be party to certain lawsuits or claims arising in the normal course of business. The ultimate outcome of these matters is unknown but, in the opinion of management, we do not believe any of these proceedings will have, individually or in the aggregate, a material adverse effect upon our financial condition, cash flows or future results of operation.
| 9 |
Note 6 - Inventories
| March 31, 2025 | December 31, 2024 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
Note 7 - Concentration of Credit Risk
Concentration of credit risk with respect to trade accounts receivable is generally limited due to the large number of entities comprising the Company’s customer base. The Company performs ongoing credit evaluations and provides an allowance for potential credit losses against the portion of accounts receivable which is estimated to be uncollectible. Such losses have historically been within management’s expectations.
During
the three months ended March 31, 2025 and 2024, there were two customers whose purchases represented more than
| Three Months Ended | Three Months Ended | |||||||||||||||
| March 31, 2025 | March 31, 2024 | |||||||||||||||
| Customer | Net Sales | % of Net Sales | Net Sales | % of Net Sales | ||||||||||||
| Customer A | $ | % | $ | % | ||||||||||||
| Customer B | $ | % | $ | % | ||||||||||||
As
of March 31, 2025, the outstanding accounts receivable balance from these customers was $
Note 8 - Related Party Transactions
Ms.
Jana M. Schwan is the Company’s Chief Executive Officer. Her father, John H. Schwan, held several positions with the Company over
many years, most recently as Chairman of the Board until June 2020 as discussed in Note 3, Mr. John H. Schwan was owed approximately
$
Icy
Melon LLC, the landlord of the Company’s Barrington Facility, is also a shareholder of the Company. On January 13, 2025, the Company
issued common shares, with a fair value of $
The
Company formed a wholly owned subsidiary, Yunhong Technology (Hubei) Co. Ltd., in the Hubei Province of China. On June 30, 2024, the
Company, through the China subsidiary, acquired certain production assets and prepaid expenses asset pursuant to an Asset Purchase Agreement
and in exchange for million shares of the Company’s common stock, which was valued at $
Note 9 - Leases
We enter into lease contracts for certain of our facilities at two locations. Our leases have remaining lease terms of three and six years.
The
weighted average discount rate for our operating leases is
Note 10 - Subsequent Events
On
October 21, 2024,
The Notice has no immediate effect on the Nasdaq listing or trading of the Company’s common stock. The Notice provided an initial 180 calendar day period, or until April 21, 2025, in which to regain compliance, pursuant to Listing Rule 5810(c)(3)(A).
The Company was unable to gain compliance within the initial 180-day grace period, therefore on April 24, 2025, a second grace period was granted by Nasdaq which allows the Company an additional 180-day period or until October 19, 2025 to regain compliance. The Company intends to actively monitor the closing bid price of its common stock and will evaluate available options to regain compliance with the Minimum Bid Price Rule. If, at any time before that date the bid price of the Company’s common stock closes at $ per share or more for a minimum of 10 consecutive business days, Nasdaq will notify the Company that it has achieved compliance with the Minimum Bid Price Rule. If the Company fails to cure the deficiency during the second compliance period, the Company will effect a reverse stock split, if necessary.
| 10 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q includes both historical and “forward-looking statements” within the meaning of federal securities law. All such statements are qualified by this cautionary note, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future results. Words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or similar words are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from the views and expectations set forth in this Quarterly Report on Form 10-Q. We disclaim any intent or obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q 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, those discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 under the heading “Risk Factors.”
Overview
We produce film products for novelty, packaging and container applications. These products include foil balloons, latex balloons and related products, films for packaging and custom product applications, and flexible containers for packaging and consumer storage applications. We produce all of our film products for packaging, container applications and most of our foil balloons at our plant in Lake Barrington, Illinois. The Company purchases latex balloons from an unrelated vendor and distributes in the United States, particularly to those customers that prefer a combined solution for foil and latex balloons. Substantially all our film products for packaging and custom product applications are sold to customers in the United States. We market and sell our novelty items, Balloon inspired gifts (balloons and candy arranged to look like a flower bouquet for gifting) and flexible containers for consumer use primarily in the United States. During 2023 we changed our name to include “Green”, to communicate our intention to supply biodegradable and compostable materials to the marketplace that are developed by our partners in Asia. We created a new subsidiary, in part, for this purpose. In recent periods, the U.S. government has imposed tariffs on certain goods imported from countries including China. Existing and future trade tariffs, import duties and quotas could also materially increase our costs of procuring the materials we use and disrupt the markets for the products we handle, which in turn could have a material adverse effect on our financial position, results of operations and cash flows.
Summary of Significant Events
On October 21, 2024, Yunhong Green CTI Ltd. received written notice from Nasdaq indicating that the Company’s common stock had not maintained a minimum closing bid price of $1.00 per share for 30 consecutive business days, thereby failing to comply with Nasdaq Listing Rule 5550(a)(2). The notice provided the Company with an initial 180-day grace period, through April 21, 2025, to regain compliance.
As the Company did not meet the minimum bid requirement by the end of the initial period, Nasdaq granted a second 180-day compliance period on April 24, 2025, extending the deadline to October 19, 2025. The Company intends to continue actively monitoring the closing bid price of its common stock and will evaluate all available options to regain compliance, including, if necessary, effecting a reverse stock split.
If, at any time before the extended deadline, the Company’s common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written confirmation that the Company has regained compliance with the Minimum Bid Price Rule.
Senior Credit Facilities
On September 30, 2021 (the “Closing Date”), the Company entered into a loan and security agreement (the “Agreement”) with Line Financial (the “Lender”), which provides for a senior secured financing consisting of a revolving credit facility (the “Revolving Credit Facility) in an aggregate principal amount of up to $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”). The Senior Facilities are secured by substantially all assets of the Company. The Company believes it has been in compliance with the terms of these Senior Facilities since their inception in September 2021.
Interest on the Senior Facilities was set at the prime rate published from time to time published in the Wall Street Journal (7.5% as of March 31, 2025), plus 1.45% per annum, accruing daily and payable monthly. Interest shall be calculated on the basis of a 360-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 principal and interest, each in the amount of $15,000, 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 paid the Lender collateral monitoring fees of 4.62% of the eligible accounts receivable, inventory, and equipment supporting the Revolving Credit Facility and the Term Loan.
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The Senior Facilities matured on September 30, 2023 and were extended with a maturity date of September 30, 2025. The facility automatically extends for successive periods of one year each, unless the Company or the Lender gives the other party written notice of termination not less than 90 days prior to the end 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 Maximum Revolver Amount and the Term 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 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 the Lender.
The Senior Facilities require that the Company 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 Company believes it was in compliance with this covenant for all relevant months, including as of March 31, 2025 and December 31, 2024, respectively.
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 both March 31, 2025 and December 31, 2024, the term loan balance amounted to $0.6 million, which consisted of the principal and interest payable balance of $0.6 million and deferred financing costs of approximately $11,000 and $17,000 respectively. The balance of the Revolving Line of Credit as of March 31, 2025 and December 31, 2024 amounted to $5.6 million and $6.6 million, respectively.
Note Payable, Related Party
The Company is party to a note payable to John H. Schwan, Director and former Chairman of the Board, with a loan balance of $1.3 million and interest rate of 6% as of December 31, 2023. The Company repaid $1 million to Mr. Schwan during January 2024. The parties agreed to the payment of the remaining $0.3 million at a future date to be determined. This related party note payable is subordinate to the Senior Facilities.
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Results of Operations
Net Sales: Net sales for the three-month periods ended March 31, 2025 and 2024 were approximately $4.80 million and $4.89 million, respectively, representing a slight decrease of $92,000, or 1.9% year-over-year.
For the three-month period ended March 31, 2025 and 2024, net sales by product category were as follows:
| Three Months Ended | ||||||||||||||||||||||||
| March 31, 2025 | March 31, 2024 | |||||||||||||||||||||||
| Product Category | $ (000) Omitted | % of Sales | $ (000) Omitted | % of Sales | Variance | % change | ||||||||||||||||||
| Foil Balloons | $ | 4,234 | 88 | % | $ | 2,919 | 60 | % | $ | 1,315 | 45 | % | ||||||||||||
| Film Products | 427 | 9 | % | 305 | 6 | % | 122 | 40 | % | |||||||||||||||
| Other | 141 | 3 | % | 1,670 | 34 | % | (1,529 | ) | -92 | % | ||||||||||||||
| Total | $ | 4,802 | 100 | % | $ | 4,894 | 100 | % | $ | (92 | ) | -2 | % | |||||||||||
Foil Balloons. Revenues from the sale of foil balloons increased during the three-month period ended March 31, 2025 to $4,234,000 compared to $2,919,000 during the same period of 2024. The majority of valentine’s day foil balloons this year were shipped in Q1 2025, whereas last year the majority of our valentine’s day foil balloons were shipped in Q4 2023. This increase is related to the timing of orders and shipments.
Films. Revenues from the sale of commercial films increased during the three-month period ended March 31, 2025 to $427,000 compared to $305,000 during the same period of 2024. Sales in this area have been inconsistent due to a small number of customers and a significant number of competitors.
Other Revenues: Other revenues decreased to $141,000 for the three-month period ended March 31 , 2025, compared to $1,670,000 for the same period in 2024. The primary reason for the decrease was the timing of spring product shipments, which will occur in the second quarter of 2025 rather than the first quarter, as they did in 2024. Other revenues during these periods primarily consisted of: (i) sales of balloon-inspired gift products, including candy and small inflated balloons packaged in small containers; and(ii) sales of accessories and supply items related to balloon products. Sales to a limited number of customers continue to represent a large percentage of our net sales. The table below illustrates the impact on sales of our top three and ten customers for the three-month periods ended March 31, 2025 and 2024.
| Three Months Ended March 31, | ||||||||
| % of Sales | ||||||||
| 2025 | 2024 | |||||||
| Top 3 Customers | 81 | % | 86 | % | ||||
| Top 10 Customers | 93 | % | 93 | % | ||||
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During the three-month period ended March 31, 2025, there were two customers whose purchases represented more than 10% of the Company’s consolidated net sales. Sales to these customers for the three-month period ended March 31, 2025 were $3,091,000 and $523,000, or 64% and 11%, respectively of consolidated net sales. Sales to these customers for the three months ended March 31, 2024 were $2,226,000 and $1,710,000, or 46% and 35%, respectively of consolidated net sales. As of March 31, 2025, the total amount owed to the Company by these customers was approximately $4,335,000, or 89% of the Company’s consolidated net accounts receivable.
Cost of Sales. During the three-month period ended March 31, 2025, the cost of sales was $3,936,000, compared to $3,999,000 for the same period of 2024. Even though the volume was lower than 2024, the gross margin of 18% remained the same for both periods
General and Administrative. During the three-month period ended March 31, 2025, general and administrative expenses were $839,000 as compared to $1,040,000 for the same period in 2024. The largest change was due to decrease in audit fees by $167,000 this was because of the timing of the audit by Borgers CPA LLC.
Selling, Advertising and Marketing. During the three-month period ended March 31, 2025, selling, advertising and marketing expenses were $205,000 as compared to $208,000 for the same period in 2024.
Other Income (Expense). During the three-month period ended March 31, 2025, the Company incurred interest expense of $237,000 as compared to interest expense of $218,000 during the same period of 2024. The Company changed its borrowing structure to replace lender fees with interest payments.
Financial Condition, Liquidity and Capital Resources
Cash Flow Items.
Operating Activities. During the three months ended March 31, 2025, net cash provided by operations was $970,000, compared to net cash used in operations during the three months ended March 31, 2024 of $767,000.
Significant changes in working capital items during the three months ended March 31, 2025 included:
| ● | A decrease in accounts receivable of $772,000 compared to an increase in accounts receivable of $423,000 in the same period of 2024. | |
| ● | An increase in inventory of $175,000 compared to a decrease in inventory of $81,000 in 2024. | |
| ● | An increase in trade payables of $334,000 compared to an increase in trade payables of $47,000 in 2024. | |
| ● | A decrease in prepaid expenses and other assets of $63,000 compared to an increase of $62,000 in 2024. | |
| ● | An increase in accrued liabilities of $220,000 compared to a decrease in accrued liabilities of $18,000 in 2024. |
Investing Activity. During the three months ended March 31, 2025, cash used in investing activity was $20,000, compared to cash used in investing activity for the same period of 2024 in the amount of $154,000.
Financing Activities. During the three months ended March 31, 2025, cash used in financing activities was $998,000 compared to cash provided by financing activities for the same period of 2024 in the amount of $49,000. Financing activity during 2025 consisted principally of changes in the balances of revolving and long-term debt. During the period ended March 31, 2024, $0.5 million was received for convertible preferred stock while $1.0 million of Notes Payable was repaid.
Liquidity and Capital Resources.
At March 31, 2025, the Company had cash balances of $172,000 compared to cash balances of $49,000 for the same period of 2024.
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The ability of the Company to continue as a going concern is dependent on the Company executing its business plan and, if unable to do so, in obtaining adequate capital on acceptable terms to fund any operating losses. Management’s plans to continue as a going concern include executing its business plan, continuing to focus our Company on the most profitable elements, and exploring alternative funding sources on an as needed basis. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The supply chain constraints, inflationary pressures and tariffs are expected to impact to some extent our operations and reduced access to capital. The ability of the Company to continue as a going concern is dependent upon its ability to successfully generate or otherwise secure other sources of financing and attain profitable operations. There is substantial doubt about the ability of the Company to continue as a going concern for one year from the issuance of the accompanying consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company’s primary sources of liquidity have traditionally been comprised of cash and cash equivalents as well as availability under the Credit Agreement. While the Company expects to have access to needed capital at reasonable cost, there can be no assurance of success, and as such, might negatively impact the Company’s ability to continue as a going concern.
Seasonality
In the foil balloon product line, sales have historically been seasonal with approximately 40% occurring in the period from December through March of the succeeding year and 24% being generated in the period July through October in recent years.
Critical Accounting Estimates
The critical accounting estimates utilized by the Company in preparation of the accompanying financial statements are set forth in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. There have been no material changes to these policies since December 31, 2024.
Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk
Not applicable.
Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures
We 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 to be disclosed in the reports filed or submitted under the Exchange Act, is 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 Chief Executive Officer (principal executive officer) and Corporate Controller (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 March 31, 2025. Based on this evaluation, the Chief Executive Officer and Corporate Controller concluded that our disclosure controls and procedures were not effective as of March 31, 2025, the end of the period covered by this Quarterly Report on Form 10-Q, due to the material weaknesses described below.
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(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 generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may 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 risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of our internal control over financial reporting as of March 31, 2025. In making our assessment of the effectiveness 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 (“COSO”).
A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such 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 of our internal control over financial reporting, management identified the following material weaknesses in our internal control over financial reporting:
| ● | We lacked a sufficient number of accounting professionals with the necessary knowledge, experience and training to adequately account for significant, unusual transactions that have resulted in misapplications of GAAP, particularly with regard to equity financing arrangements and the timing of recognition of certain non-cash charges. Additionally, we have not implemented processes to consistently review for appropriate labor and overhead absorption to inventory and make timely adjustments to standard costs | |
| ● | We are overly dependent upon certain personnel, including our Chief Executive Officer, to provide financial reporting oversight within an environment that is highly manual in nature. |
As a result of the material weaknesses, we have concluded that we did not maintain effective internal control over financial reporting as of March 31, 2025.
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. The Company views the combination of the Chief Executive Officer and Corporate Controller will help in strengthening financial oversight, improving internal controls, and ensuring continuity in leadership during this transitional period. On April 25, 2025, Frank Cesario notified the Board of Directors of his resignation as Director, effective immediately, due to personal reasons. Mr. Cesario’s departure was not due to any disagreement with the Company on any matter relating to its operations, policies, or practices. Mr. Cesario had been the Company’s Principal Financial Officer until the date of his resignation. The Company recently hired a controller in March 2025 that management believes has the requisite skillset and experience to improve segregation of duties and address accounting and reporting requirements for significant, unusual transactions.
This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by its registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permits the Company to provide only management’s report in this quarterly report.
(c) Changes in Internal Control over Financial Reporting
On April 25, 2025, Frank Cesario notified the Broad of Directors of his resignation as Director, effective immediately, due to personal reasons. Mr. Cesario’s departure was not due to any disagreement with the Company on any matter relating to its operations, policies, or practices.
Other than as described in the Plan for Remediation of Material Weakness section above relating to the departure of the Principal Financial Officer and hiring of a Corporate Controller, 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.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company may be party to certain lawsuits or claims arising in the normal course of business. The ultimate outcome of these matters is unknown but, in the opinion of management, we do not believe any of these proceedings will have, individually or in the aggregate, a material adverse effect upon our financial condition, cash flows or future results of operation.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
The following are being filed as exhibits to this report:
Exhibit Number |
Description | |
| 31.1* | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended (filed herewith). | |
| 31.2* | Certification of Corporate Controller and Principal Financial Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended (filed herewith). | |
| 32** | Certification of Chief Executive Officer, Corporate Controller and Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |
| 101* | Interactive Data Files, including the following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, formatted in inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to Consolidated Financial Statements. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |
| * | Filed herewith | |
| ** | furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: May 19, 2025 | Yunhong Green CTI Ltd. | |
| By: | /s/ Jana M. Schwan | |
| Jana M. Schwan | ||
| Chief Executive Officer | ||
| By: | /s/ Sree Kommana | |
| Sree Kommana | ||
| Corporate Controller and Principal Financial Officer | ||
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