UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐	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

000-23115

YUNHONG CTI LTD.

(Exact name of registrant as specified in its charter)

Illinois

36-2848943

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

22160 N. Pepper Road
Barrington, Illinois		60010
(Address of principal executive offices)		(Zip Code)

(847)382-1000

(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

Common Stock, no par value per share

CTIB

The Nasdaq Stock Market LLC

(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. Yes ☒ No ☐

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). Yes ☒ No ☐

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	☐
Non-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 10, 2023 was 19,971,755 (excluding treasury shares).

INDEX

PART I – FINANCIAL INFORMATION

Item No. 1.	Financial Statements
	Condensed Consolidated Balance Sheets at March 31, 2023 (unaudited) and December 31, 2022 (audited)	1
	Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2023 and March 31, 2022	2
	Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2023 and March 31, 2022	3
	Condensed Consolidated Statements of Shareholders’ Equity (unaudited) for the three months ended March 31, 2023 and March 31, 2022	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item No. 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item No. 3	Quantitative and Qualitative Disclosures Regarding Market Risk	18
Item No. 4	Controls and Procedures	18

PART II – OTHER INFORMATION

Item No. 1	Legal Proceedings	19
Item No. 1A	Risk Factors	19
Item No. 2	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item No. 3	Defaults Upon Senior Securities	19
Item No. 4	Mine Safety Disclosures	19
Item No. 5	Other Information	19
Item No. 6	Exhibits	20
	Signatures	21
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32

	March 31, 2023			December 31, 2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	130,000		$	146,000
Accounts receivable, net		3,344,000			1,618,000
Inventories		7,944,000			8,325,000
Prepaid expenses		489,000			389,000

Total current assets		11,907,000			10,478,000

Property, plant and equipment:
Machinery and equipment		17,723,000			17,723,000
Office furniture and equipment		2,084,000			2,084,000
Intellectual property		783,000			783,000
Leasehold improvements		39,000			39,000
Fixtures and equipment at customer locations		519,000			519,000
Projects under construction		164,000			108,000
Property, plant and equipment, gross		21,312,000			21,256,000
Less : accumulated depreciation and amortization		(20,414,000	)		(20,334,000	)

Total property, plant and equipment, net		898,000			922,000

Other assets:
Operating lease right-of-use		3,757,000			3,882,000

Total other assets		3,757,000			3,882,000

TOTAL ASSETS	$	16,562,000		$	15,282,000

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade payables	$	1,278,000		$	1,313,000
Line of credit		4,284,000			2,878,000
Notes payable - current portion		540,000			289,000
Notes payable - officers, subordinated		1,286,000			-
Notes payable		1,286,000			-
Operating Lease Liabilities		518,000			518,000
Accrued liabilities		1,382,000			2,480,000

Total current liabilities		9,288,000			7,478,000

Long-term liabilities:
Notes payable - noncurrent		-			427,000
Notes payable - officers, subordinated		-			1,267,000
Notes payable		-			1,267,000
Operating Lease Liabilities		3,239,000			3,364,000

Total long-term liabilities		3,239,000			5,058,000

TOTAL LIABILITIES		12,527,000			12,536,000

Shareholders’ Equity:
Yunhong CTI, Ltd shareholders’ equity:
Series B Preferred Stock — no par value, 170,000 shares authorized, none and 170,000 issued and outstanding at March 31, 2023 and December 31, 2022, respectively		-			1,851,000
Common Stock – no par value, 50,000,000 shares authorized, 20,015,413 and 16,102,749 shares issued and 19,971,755 and 16,059,991 shares outstanding at March 31, 2023 and December 31, 2022, respectively		21,283,000			21,283,000
Paid-in-capital		6,637,000			3,895,000
Accumulated deficit		(23,724,000	)		(24,122,000	)
Less: Treasury stock, 43,658 shares		(161,000	)		(161,000	)

Total Shareholders’ Equity		4,035,000			2,746,000

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	16,562,000		$	15,282,000

	2023			2022
	For the Three Months Ended March 31,
	2023			2022

Net Sales	$	5,051,000		$	5,797,000

Cost of Sales		3,924,000			4,758,000

Gross profit		1,127,000			1,039,000

Operating expenses:
General and administrative		961,000			837,000
Selling		32,000			38,000
Advertising and marketing		122,000			183,000

Total operating expenses		1,115,000			1,058,000

Income / (Loss) from operations		12,000			(19,000	)

Other (expense) / income:
Interest expense		(142,000	)		(96,000	)
Other (expense) / income		526,000			94,000

Total other (expense) / income, net		384,000			(2,000	)

Income / (Loss) from continuing operations before taxes		396,000			(21,000	)

Income tax expense		-			-

Net Income / (Loss)	$	396,000		$	(21,000	)

Net Loss attributable to noncontrolling interest		-			-

Net Loss attributable to Yunhong CTI Ltd.		396,000			(21,000	)

Other Comprehensive Income (Loss)
Foreign Currency adjustment		-
Comprehensive Loss		396,000			(21,000	)

Deemed Dividends on preferred stock and amortization of beneficial conversion feature	$	(11,000	)	$	(202,000	)

Net Loss attributable to Yunhong CTI Ltd Common Shareholders	$	385,000		$	(223,000	)

Basic income (loss) per common share	$	0.02		$	(0.04	)

Diluted income (loss) per common share	$	0.02		$	(0.04	)

Weighted average number of shares and equivalent shares of common stock outstanding:
Basic		17,689,552			5,900,639

Diluted		17,689,552			5,900,639

	2023			2022
	For the Three Months Ended March 31,
	2023			2022

Cash flows from operating activities:
Net income/loss from continuing operations	$	396,000		$	(21,000	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Depreciation and amortization		80,000			98,000
Equity compensation expense		7,000			31,000
Provision for losses on accounts receivable		-			-
Change in assets and liabilities:
Accounts receivable		(1,726,000	)		125,000
Inventories		381,000			(620,000	)
Prepaid expenses and other assets		(100,000	)		339,000
Trade payables		(35,000	)		215,000
Accrued liabilities		(372,000	)		(167,000	)

Net cash (used in) provided by operating activities		(1,369,000	)		2,000

Cash flows from investing activities:
Purchases of property, plant and equipment		(56,000	)		(15,000	)

Net cash used in investing activities		(56,000	)		(15,000	)

Cash flows from financing activities:
Proceeds from issuance of long-term debt and revolving line of credit		1,409,000			155,000

Net cash provided by financing activities		1,409,000			155,000

Net (decrease) / increase in cash and cash equivalents		(16,000	)		142,000

Cash and cash equivalents at beginning of period		146,000			66,000

Cash and cash equivalents at end of period	$	130,000		$	208,000

Supplemental disclosure of cash flow information and noncash investing and financing activities:
Cash payments for interest	$	118,000		$	78,000
Accrued Divided and Accretion on preferred stock	$	11,000		$	202,000
Lease right-of-use assets and lease liability	$	-		$	747,000
Conversion of notes and deposits into common stock	$	885,000		$	-

	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital			Earnings				Shares			Amount			TOTAL
	Yunhong CTI, Ltd
	Series A Preferred Stock				Series B Preferred Stock				Series C Preferred Stock				Series D Preferred Stock				Common Stock				Paid-in			Accumulated (Deficit)				Less Treasury Stock
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital			Earnings				Shares			Amount			TOTAL

Balance December 31, 2021		500,000	$	3,155,000		170,000	$	1,715,000		170,000	$	1,630,000		170,000	$	1,512,000		5,930,408	$	14,538,000	$	4,317,000		$	(22,655,000	)	-		(44,000	)	$	(161,000	)		4,051,000
Accrued Deemed Dividend - Series A Preferred Stock				100,000																		(100,000	)												-
Accrued Deemed Dividend - Series B Preferred Stock								34,000														(34,000	)												-
Accrued Deemed Dividend - Series C Preferred Stock												34,000										(34,000	)												-
Accrued Deemed Dividend - Series D Preferred Stock																34,000						(34,000	)												-
Stock Issuance																		25,000																	-
Equity Compensation Charge																						31,000													31,000
Net Income (Loss)		-																							(21,000	)	-		-			-			(21,000	)
Balance March 31, 2022		500,000	$	3,255,000		170,000	$	1,749,000		170,000	$	1,664,000		170,000	$	1,546,000		5,955,408	$	14,538,000	$	4,146,000		$	(22,676,000	)	-		(44,000	)	$	(161,000	)		4,061,000

	-	Historical stock price volatility: The Company used the weekly closing price to calculate historical annual volatility which was a range from 68% - 167%.

	-	Risk-free interest rate: The Company bases the risk-free interest rate on the rate payable on US treasury securities with a similar maturity in effect at the time of the grant, which was a range from .42% - 1.65%.

	-	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 5 years.

	-	Dividend yield: The estimate for dividend yield is 0%, as the Company did not issue dividends during 2021 or 2020 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.

	Shares under Option		Weighted Average Exercise Price
Balance at December 31, 2022		128,000	$	1.75
Granted		-		-
Cancelled/Expired		-		-
Exercised/Issued		-		-
Outstanding at March 31, 2023		128,000		1.75

Exercisable at March 31, 2023		128,000	$	1.75

2021 Warrants			128,000
Shares reserved as of March 31, 2023			128,000

	March 31, 2023		December 31, 2022
Raw materials	$	1,374,000	$	1,457,000
Work in process		2,631,000		2,513,000
Finished goods		3,939,000		4,355,000
Total inventories	$	7,944,000	$	8,325,000

	Three Months Ended					Three Months Ended
	March 31, 2023					March 31, 2022
Customer	Net Sales		% of Net Sales			Net Sales		% of Net Sales
Customer A	$	2,563,000		50	%	$	2,502,000		43	%
Customer B		1,652,000		32			1,347,000		23

	Three Months Ended
	March 31, 2023					March 31, 2022
	$		% of			$		% of
	(000)		Net			(000)		Net						%
Product Category	Omitted		Sales			Omitted		Sales			Variance			change

Foil Balloons	$	3,474		69	%	$	3,832		66	%	$	(358	)		(9	)%

Film Products		89		2	%		828		14	%		(739	)		(89	)%

Other	$	1,488		29	%	$	1,112		19	%	$	376			34	%

Total	$	5,051		100	%	$	5,797		100	%	$	(746	)		(13	)%

	Three Months Ended March 31,
	% of Sales
	2023			2022

Top 3 Customers		86	%		80	%

Top 10 Customers		91	%		90	%

	●	An increase in accounts receivable of $1,726,000 compared to a decrease in accounts receivable of $125,000 in the same period of 2022.

	●	An decrease in inventory of $381,000 compared to an increase in inventory of $620,000 in 2022.

	●	An increase in trade payables of $35,000 compared to an increase in trade payables of $215,000 in 2022.

	●	An increase in prepaid expenses and other assets of $100,000 compared to a decrease of $339,000 in 2022.

	●	A decrease in accrued liabilities of $372,000 compared to a decrease in accrued liabilities of $165,000 in 2022.

	●	We lacked a sufficient number of accounting professionals with the necessary knowledge, experience and training to adequately account for significant, unusual transactions that resulted in misapplications of GAAP, particularly with regard to the timing of recognition of certain non-cash charges, and

	●	We are overly dependent upon our Acting Chief Financial Officer, who at present is our Chief Executive Officer, within an environment that is highly manual in nature.

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 Chief 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 and Chief 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, 2023, 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

Date: May 15, 2023	Yunhong CTI Ltd.

	By:	/s/ Frank J. Cesario
		Frank J. Cesario
		Chief Executive Officer

	By:	/s/ Frank J. Cesario
		Frank J. Cesario
		Acting Chief Financial Officer

SEC Form 10-Q filed by Yunhong CTI Ltd.