YUNHONG GREEN CTI LTD

Previous wording

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. We used to produce our latex balloons and latex products at a majority-owned facility in Guadalajara, Mexico (Flexo Universal, or Flexo). This facility was sold during October 2021. Now 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 of 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 our developed by our partners in Asia. We are in the process of creating a new subsidiary for this purpose.

Current wording

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. We used to produce our latex balloons and latex products at a majority-owned facility in Guadalajara, Mexico (Flexo Universal, or Flexo). This facility was sold during October 2021. Now 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 of 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 our developed by our partners in Asia. We created a new subsidiary, in part, for this purpose.

Previous wording

Interest on the Senior Facilities was set at the prime rate published from time to time published in the Wall Street Journal (8.5% as of June 30, 2024), plus 1.95% 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.

Current wording

Interest on the Senior Facilities was set at the prime rate published from time to time published in the Wall Street Journal (8.0% as of September 30, 2024), plus 1.95% 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.

Previous wording

As of June 30, 2024 and December 31, 2023, the term loan balance amounted to $0.6 million and $0.7 million, respectively, which consisted of the principal and interest payable balance of $0.7 million and deferred financing costs of approximately $30,000. The balance of the Revolving Line of Credit as of June 30, 2024 and December 31, 2023 amounted to $4,788,000 and $4,991,000, respectively.

Current wording

As of September 30, 2024 and December 31, 2023, the term loan balance amounted to $0.6 million and $0.7 million, respectively, which consisted of the principal and interest payable balance of $0.6 million and $0.7 million, respectively, and deferred financing costs of approximately $24,000 and $40,000, respectively. The balance of the Revolving Line of Credit as of September 30, 2024 and December 31, 2023 amounted to $4,062,000 and $4,991,000, respectively.

Previous wording

Net Sales. For the three month periods ended June 30, 2024 and 2023, net sales were $4,354,000 and $4,059,000, respectively.

Current wording

Net Sales. For the three month periods ended September 30, 2024 and 2023, net sales were $2,540,000 and $1,923,000, respectively.

Previous wording

For the six month period ended June 30, 2024 and 2023, net sales by product category were as follows:

Current wording

For the nine month period ended September 30, 2024 and 2023, net sales by product category were as follows:

Previous wording

Foil Balloons. Revenues from the sale of foil balloons increased during the three months period from $2,938,000 ending June 30, 2023 compared to $3,252,000 during the three month period of 2024. Revenues from the sale of foil balloons decreased during the six month period from $6,412,000 ending June 30, 2023 compared to $6,171,000 during the six month period of 2024. We believe that our smaller customers are managing their inventory levels more aggressively, negatively impacting order flow.

Current wording

Foil Balloons. Revenues from the sale of foil balloons increased during the three months period from $1,701,000 ending September 30, 2023 compared to $2,322,000 during the three month period of 2024. Revenues from the sale of foil balloons increased during the nine month period from $8,113,000 ending September 30, 2023 compared to $8,493,000 during the nine month period of 2024. Order flow from our largest customer was the cause of this increase.

Previous wording

Films. Revenues from the sale of commercial films were $171,000 and $476,000 during the three and six month periods ended June 30, 2024, compared to $589,000 and $678,000 during the same periods of 2023. Order flow in this area has been historically inconsistent, impacted in part by consolidation in the industry, including our customers, as well as a large number of competitors.

Current wording

Films. Revenues from the sale of commercial films were $129,000 and $605,000 during the three and nine month periods ended September 30, 2024, compared to $68,000 and $746,000 during the same periods of 2023. Order flow in this area has been historically inconsistent, impacted in part by consolidation in the industry, including our customers, as well as a large number of competitors.

Previous wording

Other Revenues. Revenues from the sale of other products were $931,000 and $2,601,000 during the three and six month periods ended June 30, 2024, compared to $532,000 and $2,020,000 during the same periods of 2023. The revenues from the sale of other products during these periods include (i) sales of a line of balloon-inspired gift items and similar products consisting of candy and small inflated balloons sold in small containers, (ii) latex balloons, and (iii) the sale of accessories and supply items related to balloon products.

Current wording

Other Revenues. Revenues from the sale of other products were $89,000 and $2,690,000 during the three and nine month periods ended September 30, 2024, compared to $154,000 and $2,174,000 during the same periods of 2023. The revenues from the sale of other products during these periods include (i) sales of a line of balloon-inspired gift items and similar products consisting of candy and small inflated balloons sold in small containers, (ii) latex balloons, and (iii) the sale of accessories and supply items related to balloon products. The increase in Other Revenues during the nine months ended September 30, 2024 was driven by increased orders for balloon-inspired gifts from the Company’s second largest customer.

Previous wording

During the three and six months ended June 30, 2024 and 2023, there were two customers whose purchases represented more than 10% of the Company’s consolidated net sales. Sales to these customers for the three and six months ended June 30, 2024 and 2023 are as follows:

Current wording

During the three and nine months ended September 30, 2024 and 2023, there were two customers whose purchases represented more than 10% of the Company’s consolidated net sales. Sales to these customers for the three and nine months ended September 30, 2024 and 2023 are as follows:

Previous wording

As of June 30, 2024, the total amounts owed to the Company by these customers were approximately $3,232,000 or 94% of the Company’s consolidated net accounts receivable. The amounts owed at June 30, 2023 by these customers were approximately $2,455,000 or 83% of the Company’s consolidated net accounts receivable.

Current wording

As of September 30, 2024, the total amounts owed to the Company by these customers were approximately $2,077,000 or 95% of the Company’s consolidated net accounts receivable. The amounts owed at September 30, 2023 by these customers were approximately $806,000 or 81% of the Company’s consolidated net accounts receivable.

Previous wording

Cost of Sales. During the three and six month period ended June 30, 2024, the cost of sales was $3,662,000 and $7,660,000, compared to $3,545,000 and $7,469,000 respectively for the same periods of 2023, with the change driven largely by changes in sales volume. As a percentage of sales, cost of sales was 84% and 83% during the three and six months ended June 30, 2024, compared to 87% and 82% during the three and six months ended June 30, 2023.

Current wording

Cost of Sales. During the three and nine month period ended September 30, 2024, the cost of sales was $2,560,000 and $10,220,000, compared to $1,903,000 and $9,372,000 respectively for the same periods of 2023, with the change driven largely by changes in sales volume. As a percentage of sales, cost of sales was 101% and 87% during the three and nine months ended September 30, 2024, compared to 99% and 85% during the three and nine months ended September 30, 2023. During July 2024 we experienced a fire sprinkler failure in our warehouse which forced us to dispose of $0.2 million of product. Net of insurance proceeds, our inventory loss was approximately $40,000. Also, fourth quarter 2024 shipments are scheduled later in the quarter than in 2023, which reduced the amount of manufacturing cost capitalized into the annual seasonal inventory build.

Previous wording

General and Administrative. During the three and six month period ended June 30, 2024, general and administrative expenses were $640,000 and $1,698,000 compared to $656,000 and $1,617,000, respectively, for the same periods in 2023. The Company had higher than usual audit fees in both years. Of note are the “re-audit” costs associated with 2023 due to the Company’s former auditor being suspended from practicing before the SEC during May 2024.

Current wording

General and Administrative. During the three and nine month periods ended September 30, 2024, general and administrative expenses were $751,000 and $2,449,000 compared to $677,000 and $2,294,000, respectively, for the same periods in 2023. The Company had higher than usual audit fees in both years. Of note are the one-time costs associated with reperforming audit procedures related to 2023 due to the Company’s former auditor being suspended from practicing before the SEC during May 2024. This resulted in $170,000 higher audit expenses during the three months ended September 2024 as compared to the same period of 2023.

Previous wording

Selling, Advertising and Marketing. During the three and six month period ended June 30, 2024, selling, advertising and marketing expenses were $223,000 and $413,000 as compared to $148,000 and $302,000, respectively, for the same periods in 2023. 2023 marked a low point in these expenses while 2024 inflected higher, including $30,000 in additional sales commissions based on product mix and the payroll cost associated with new product design.

Current wording

Selling, Advertising and Marketing. During the three and nine month periods ended September 30, 2024, selling, advertising and marketing expenses were $220,000 and $633,000 as compared to $172,000 and $474,000, respectively, for the same periods in 2023. 2023 marked a low point in these expenses while 2024 inflected higher, including $45,000 in additional sales commissions based on product mix and the payroll cost associated with new product design.

Previous wording

Other Income (Expense). During the three and six month period ended June 30, 2024, the Company incurred interest expense of $236,000 and $454,000 compared to interest expense of $155,000 and $297,000, respectively, during the same periods of 2023. Interest expense increased as a result of market rate increases that remained elevated throughout 2024. The Company applied for Employee Retention Tax Credits during 2021, most of which were factored during 2022 and cash received. Income related to the factored credit filings was recognized when the returns were processed by the US Government during 2023. As such, income of $300,000 and $895,000 was recognized during the three and six months ended June 30, 2023, respectively, for which cash was received during 2022.

Current wording

Other Income (Expense). During the three and nine month periods ended September 30, 2024, the Company incurred interest expense of $201,000 and $655,000 compared to interest expense of $124,000 and $421,000, respectively, during the same periods of 2023. Interest expense increased as a result of market rate increases that remained elevated throughout 2024. The September 2023 refinance caused a shift from bank fees to interest, with the net result of this process change being approximately even. The Company applied for Employee Retention Tax Credits during 2021, most of which were factored during 2022 and cash received. Income related to the factored credit filings was recognized when the returns were processed by the US Government during 2023. As such, income of $895,000 was recognized during the nine months ended September 30, 2023, respectively, for which cash was received during 2022.

Previous wording

Operating Activities. During the six months ended June 30, 2024, net cash provided by operations was $108,000, compared to net cash used in operations during the six months ended June 30, 2023 of $1,361,000.

Current wording

Operating Activities. During the nine months ended September 30, 2024, net cash provided by operations was $862,000, compared to net cash used in operations during the nine months ended September 30, 2023 of $442,000.

Previous wording

Significant changes in working capital items during the six months ended June 30, 2024 included:

Current wording

Significant changes in working capital items during the nine months ended September 30, 2024 included:

Previous wording

Investing Activity. During the six months ended June 30, 2024, cash used in investing activity was $274,000, compared to cash used investing activity for the same period of 2023 in the amount of $94,000.

Current wording

Investing Activity. During the nine months ended September 30, 2024, cash used in investing activity was $302,000, compared to cash used investing activity for the same period of 2023 in the amount of $136,000.

Previous wording

Financing Activities. During the six months ended June 30, 2024, cash used in financing activities was $733,000 compared to cash provided by financing activities for the same period of 2023 in the amount of $1,409,000. Uses of cash in financing activity during the six months ended June 30, 2024 consisted principally of changes in the balance of revolving debt of $0.2 million and a $1.0 million repayment of the related party note payable. $0.5 million of cash was provided by the issuances of convertible preferred stock during the six months ended June 30, 2024.

Current wording

Financing Activities. During the nine months ended September 30, 2024, cash used in financing activities was $1,476,000 compared to cash provided by financing activities for the same period of 2023 in the amount of $496,000. Uses of cash in financing activity during the nine months ended September 30, 2024 consisted principally of changes in the balance of revolving debt of $0.9 million and a $1.0 million repayment of the related party note payable. $0.5 million of cash was provided by the issuances of convertible preferred stock during the nine months ended September 30, 2024.

Previous wording

At June 30, 2024, the Company had cash balances of $22,000 compared to a cash balance of $921,000 as of June 30, 2023.

Current wording

At September 30, 2024, the Company had cash balances of $5,000 compared to a cash balance of $64,000 as of September 30, 2023.

Previous wording

On April 1, 2024, the Company made a change with respect to its independent auditing firm, ending the relationship with BF Borgers, CPA PC (BFB) and engaging Wolf & Company, P.C. On May 3, 2024, the Company became aware that BFB had agreed to be suspended from appearing or practicing before the SEC. Because of this, the Company may no longer use audit reports or consent from BFB in future filings. Without the 2023 audit report, the Company’s new auditors need to perform procedures related to 2023 balances in order to be able to perform an effective review of required 2024 filings, including the Form 10-Q for the periods ended March 31, 2024 and June 30, 2024. Until this was completed, the Company was not able to issue filings during 2024. The Nasdaq provided the Company until September 27, 2024 to file its delinquent filings including this Form 10-Q for the period ended June 30, 2024. Failure to file within the provided time would result in the delisting of the Company’s shares from Nasdaq, subject to the opportunity to appeal the result to a Hearings Panel. This filing is the second of two addressing this requirement.

Current wording

On April 1, 2024, the Company made a change with respect to its independent auditing firm, ending the relationship with BF Borgers, CPA PC (BFB) and engaging Wolf & Company, P.C. On May 3, 2024, the Company became aware that BFB had agreed to be suspended from appearing or practicing before the SEC. Because of this, the Company was no longer use audit reports or consent from BFB in future filings. Without the 2023 audit report, the Company’s new auditors needed to perform procedures related to 2023 balances in order to be able to perform an effective review of required 2024 filings, including the Form 10-Q for the periods ended March 31, 2024 and June 30, 2024. Until this was completed, the Company was not able to issue filings during 2024. The Company issued these filings on September 25 and September 26, 2024, respectfully.