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 September 30, 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 GREEN 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

YHGJ

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 November 1, 2023 was 20,096,755 (excluding treasury shares).

INDEX

PART I – FINANCIAL INFORMATION

Item No. 1.	Financial Statements
	Condensed Consolidated Balance Sheets at September 30, 2023 (unaudited) and December 31, 2022	1
	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2023 and September 30, 2022	2
	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2023 and September 30, 2022	3
	Condensed Consolidated Statements of Shareholders’ Equity (unaudited) for the three and nine months ended September 30, 2023 and September 30, 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	13
Item No. 3	Quantitative and Qualitative Disclosures Regarding Market Risk	17
Item No. 4	Controls and Procedures	17

PART II – OTHER INFORMATION

Item No. 1	Legal Proceedings	18
Item No. 1A	Risk Factors	18
Item No. 2	Unregistered Sales of Equity Securities and Use of Proceeds	18
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	19
	Signatures	20
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32

	September 30, 2023			December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	64,000		$	146,000
Accounts receivable, net		933,000			1,618,000
Inventories		8,528,000			8,325,000
Prepaid expenses		411,000			389,000

Total current assets		9,936,000			10,478,000

Property, plant and equipment:
Machinery and equipment		17,926,000			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		41,000			108,000
Property, plant and equipment, gross		21,392,000			21,256,000
Less : accumulated depreciation and amortization		(20,545,000	)		(20,334,000	)

Total property, plant and equipment, net		847,000			922,000

Other assets:
Operating lease right-of-use		3,488,000			3,882,000

1Total other assets		3,488,000			3,882,000

TOTAL ASSETS	$	14,271,000		$	15,282,000

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade payables	$	1,400,000		$	1,313,000
Line of credit		3,371,000			2,878,000
Notes payable - current portion		528,000			289,000
Notes payable – related party, subordinated		1,324,000			-
Notes payable		1,324,000			-
Operating Lease Liabilities		512,000			518,000
Accrued liabilities		1,234,000			2,480,000

Total current liabilities		8,369,000			7,478,000
Long-term liabilities:
Notes payable - noncurrent		-			427,000
Notes payable – related party, subordinated		-			1,267,000
Notes payable		-			1,267,000
Operating Lease Liabilities – noncurrent		2,976,000			3,364,000
Total long-term liabilities		2,976,000			5,058,000

TOTAL LIABILITIES		11,345,000			12,536,000

Equity:
Yunhong CTI, Ltd stockholders’ equity:
Series B Preferred Stock — no par value, 170,000 shares authorized, none and 170,000 issued and outstanding at September 30, 2023 and December 31, 2022, respectively		-			1,851,000
Common Stock – no par value, 2,000,000,000 and 50,000,000 shares authorized, 20,140,413 and 16,102,749 shares issued and 20,096,755 and 16,059,991 shares outstanding at September 30, 2023 and December 31, 2022, respectively		21,283,000			21,283,000
Paid-in-capital		6,646,000			3,895,000
Accumulated deficit		(24,842,000	)		(24,122,000	)
Less: Treasury stock, 43,658 shares		(161,000	)		(161,000	)

Total Stockholders’ Equity		2,926,000			2,746,000

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	14,271,000		$	15,282,000

	2023			2022			2023			2022
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2023			2022			2023			2022

Net Sales	$	1,923,000		$	2,263,000		$	11,033,000		$	12,478,000

Cost of Sales		1,903,000			2,021,000			9,372,000			10,394,000

Gross profit		20,000			242,000			1,661,000			2,084,000

Operating expenses:
General and administrative		677,000			896,000			2,294,000			2,731,000
Selling		33,000			32,000			98,000			104,000
Advertising and marketing		139,000			71,000			376,000			331,000

Total operating (income) expenses		849,000			999,000			2,768,000			3,166,000

Loss from operations		(829,000	)		(757,000	)		(1,107,000	)		(1,082,000	)

Other (expense) income:
Interest expense		(124,000	)		(120,000	)		(421,000	)		(325,000	)
Deferred income recognition		-			-			895,000			-
Other income/(expense)		(14,000	)		(92,000	)		(87,000	)		18,000

Total other (expense)/income, net		(138,000	)		(212,000	)		387,000			(307,000	)

(Loss) from continuing operations before taxes		(967,000	)		(969,000	)		(720,000	)		(1,389,000	)

Income tax expense		-			-			-			-

Net loss	$	(967,000	)	$	(969,000	)	$	(720,000	)	$	(1,389,000	)

Other Comprehensive Income (Loss)
Foreign currency adjustment		-			-			-			-
Comprehensive (loss) / income	$	(967,000	)	$	(969,000	)	$	(720,000	)	$	(1,389,000	)

Deemed Dividends on preferred stock and amortization of beneficial conversion feature	$	-		$	(146,000	)	$	(11,000	)	$	(550,000	)

Net (Loss) / income attributable to Yunhong CTI Ltd common Shareholders	$	(967,000	)	$	(1,115,000	)	$	(731,000	)	$	(1,939,000	)

Basic (loss) / income per common share
Basic (loss) / income per common share	$	(0.05	)	$	(0.12	)	$	(0.04	)	$	(0.28	)

Diluted (loss) / income per common share
Diluted (loss) / income per common share	$	(0.05	)	$	(0.12	)	$	(0.04	)	$	(0.28	)

Weighted average number of shares and equivalent shares of common stock outstanding:
Basic		20,096,955			9,261,972			19,243,656			7,028,920

Diluted		20,096,955			9,261,972			19,243,656			7,028,920

	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					267,000																								(267,000	)												-
Conversion Series A Preferred Stock		(500,000	)		(3,422,000	)																		6,278,990		3,422,000
Accrued Deemed Dividend - Series B Preferred Stock										102,000																			(102,000	)												-
Accrued Deemed Dividend - Series C Preferred Stock															91,000														(91,000	)												-
Conversion Series C Preferred Stock												(170,000	)		(1,721,000	)								1,985,702		1,721,000
Accrued Deemed Dividend - Series D Preferred Stock																					91,000								(91,000	)												-
Conversion Series D Preferred Stoock																		(170,000	)		(1,603,000	)		1,826,399		1,603,000
Stock Issuance																								81,250		(1,000	)		1,000													-
Equity Compensation Charge																													153,000													153,000
Net Income (Loss)		-			-			-		-		-			-			-			-			-		-			-			(1,389,000	)	-		-			-			(1,389,000	)
Balance September 30, 2022		-		$	-			170,000	$	1,817,000		-		$	-			-		$	-			16,102,749	$	21,283,000		$	3,920,000		$	(24,044,000	)	-		(44,000	)	$	(161,000	)		2,815,000

	-	Replace the asset monitoring fee on the Revolving Credit Facility with an increase in interest rate, to Prime plus 7.82% per annum. This change was intended by the parties to be financially neutral while easier to administrate.
	-	Reduce the interest rate on the Term Loan to Prime plus 1.45% per annum, with lender making a one-time additional advance of $206,000 to reset the Term Loan to $731,000.
	-	Reduce the renewal fee for this transaction to $50,000 from the formula described above.
	-	Set the Term Loan asset monitoring fee to 0.385% per month.

	-	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 2020 - 2023 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 September 30, 2023		128,000		1.75

Exercisable at September 30, 2023		128,000	$	1.75

2021 Warrants			128,000
Shares reserved as of September 30, 2023			128,000

	September 30, 2023		December 31, 2022
Raw materials	$	1,172,000	$	1,457,000
Work in process		2,695,000		2,513,000
Finished goods		4,661,000		4,355,000
Total inventories	$	8,528,000	$	8,325,000

	Three Months Ended					Three Months Ended
	September 30, 2023					September 30, 2022
Customer	Net Sales		% of Net Sales			Net Sales		% of Net Sales
Customer A	$	1,097,000		56	%	$	1,104,000		49	%
Customer B	$	239,000		12	%	$	176,000		8	%

	Nine Months Ended					Nine Months Ended
	September 30, 2023					September 30, 2022
Customer	Net Sales		% of Net Sales			Net Sales		% of Net Sales
Customer A	$	6,007,000		53	%	$	5,438,000		44	%
Customer B	$	2,559,000		23	%	$	2,846,000		23	%

	September 30, 2023					September 30, 2022
	$					$
Product Category	(000) Omitted		% of Net Sales			(000) Omitted		% of Net Sales			Variance			% change

Foil Balloons		8,113		74	%		8,118		65	%		(5	)		(1	)%

Film Products		746		7	%		1,900		15	%		(1,154	)		(61	)%

Other		2,174		19	%		2,460		20	%		(286	)		(12	)%

Total		11,330		100	%		12,478		100	%		(1,445	)		(12	)%

	Three Months Ended September 30,
	% of Sales
	2023			2022

Top 3 Customers		75	%		79	%

Top 10 Customers		87	%		96	%

	Nine Months Ended September 30,
	% of Sales
	2023			2022

Top 3 Customers		80	%		89	%

Top 10 Customers		91	%		92	%

	●	A decrease in accounts receivable of $685,000 compared to a decrease in accounts receivable of $2,032,000 in the same period of 2022.

	●	An increase in inventory of $203,000 compared to an increase in inventory of $1,286,000 in 2022.

	●	An increase in trade payables of $87,000 compared to an decrease in trade payables of $54,000 in 2022.

	●	A decrease in prepaid expenses and other assets of $22,000 compared to an increase of $562,000 in 2022.

	●	A decrease in accrued liabilities of $496,000 compared to an increase in accrued liabilities of $878,000 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 September 30, 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).

Date: November 13, 2023	Yunhong CTI Ltd.

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

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

SEC Form 10-Q filed by Yunhong CTI Ltd.