YHGJ 10-K
Yunhong Green Cti Ltd. (YHGJ)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
INDEX
FORWARD LOOKING STATEMENTS
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes both historical and “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. 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 Annual Report on Form 10-K. We disclaim any intent or obligation to update any forward-looking statements after the date of this Annual Report on Form 10-K 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, our participation in highly competitive markets, potential changes in the cost or availability of raw materials, our dependence on a limited number of suppliers, the possible inability to obtain an adequate supply of raw materials, our reliance on a limited number of key customers, the loss of one or more of our key customers, changing consumer demands, developments or changes in technology, risks of international operations and political environments, dependence on our intellectual property, compliance with federal, state or local regulations, the resolution of litigation or other legal proceedings to which we may become involved, restrictions included in the Company’s credit facility, the availability of funds under the Company’s credit facility, damage to or destruction of one or both of the Company’s principal plants, our ability to service our indebtedness, our ability to invest in needed plant or equipment.
PART I
Item No. 1 –Business
Business Overview
We develop, produce, distribute and sell a number of consumer products throughout the United States and in several other countries, and we produce film products for commercial and industrial uses in the United States. Many of our products utilize flexible films and, for a number of years, we have been a leading developer of innovative products which employ flexible films including novelty balloons, pouches and films for commercial packaging applications.
Our principal lines of products include:
Novelty Products consisting principally of foil and latex balloons and related gift items; and
Flexible Films for food and other commercial and packaging applications.
In addition to these principal product lines, for the past several years, we have engaged in the assembly and sale of balloon-inspired gift items (small gift bouquets of arranged candy items often including ribbons and/or a small foil balloon).
During 2023 we expanded to include samples of compostable material intended to replace single-use plastic and other materials. Adding these materials to our Company inspired us to ask our shareholders to include “Green” in our name and to reflect our name in new trading symbol “YHGJ”. Our shareholders approved of these actions during August 2023.
We leverage our technology to design and develop proprietary products which we develop, market and sell for our customers. We have been engaged in the business of developing flexible film products for over 40 years and have acquired significant technology and know-how in that time. We currently hold several patents related to flexible film products, including specific films, zipper closures, valves and other features of these products.
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We print, process and convert flexible film into finished products and we produce balloons and novelty items. Our principal production processes include:
| ● | Coating and laminating rolls of flexible film. Generally, we adhere polyethylene film to another film such as nylon or polyester; |
| ● | Printing film and latex balloons. We print on plastic films, with a variety of graphics, for use as packaging film or for balloons; |
| ● | Converting printed film to balloons; |
| ● | Converting film to flexible containers; |
| ● | Producing or reselling latex balloons and other latex novelty items; and |
| ● | Assembling and inflating of novelty products and balloons and Candy Blossoms. |
In 1978, we began manufacturing metalized balloons (often referred to as “foil” balloons), which are balloons made of a base material (usually nylon or polyester) often having vacuum deposited aluminum and polyethylene coatings. These balloons remain buoyant when filled with helium for much longer periods than latex balloons and permit the printing of graphic designs on the surface. In 1985, we began marketing latex balloons and, in 1988, we began manufacturing latex balloons. In 1999, we acquired an extrusion coating and laminating machine and began production of coated and laminated films, which we have produced since that time.
For more than 20 years, we have been engaged in the coating, laminating and printing of flexible films for our novelty and container products and for the production of laminated and printed films we supply to others.
We market and sell our foil and latex balloons and related novelty items throughout the United States, Canada and Mexico and in a number of other countries. We supply directly to retail stores and chains and through distributors, who in turn sell to retail stores and chains. Our balloon and novelty products are sold to consumers through a wide variety of retail outlets including general merchandise, discount and drugstore chains, grocery chains, card and gift shops and party goods stores, as well as through florists and balloon decorators.
Most of our foil balloons contain printed characters, designs and social expression messages, such as “Happy Birthday,” “Get Well” and similar items. We may obtain licenses from time to time for well-known characters and print those characters and messages on our balloons.
We provide customized laminated films and printed films to customers who utilize the film to produce bags or pouches for the packaging of food, liquids and other items. In 2014, we began assembling and producing balloon-inspired gifts - containers including candy items and, often, air-inflated balloons.
In 2024, our revenues from our product lines, as a percent of total revenues were:
| ● | Novelty Products | 64% of revenues |
| ● | Flexible Film Products | 5% of revenues |
| ● | Balloon-inspired gifts and Other Products | 31% of revenues |
We are an Illinois corporation with our principal offices and plant at 22160 N. Pepper Road, Lake Barrington, Illinois.
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Business Strategies and Developments
Our business strategies, and recent developments related to our business, include:
| ● | Management. During 2024 Ms. Jana Schwan became our Chief Executive Officer after having served as Chief Operating Officer since 2020, Vice President of Operations and a number of other roles of increasing responsibility during her 20 years with the Company. During 2021, Mr. Cesario rejoined the Company’s Board of Directors. During January 2022, Mr. Cesario rejoined the Company as Chief Executive Officer and Acting Chief Financial Officer until November 2024 when he resigned from his employee positions but retained his role on the Board of Directors. Mr. Yubao Li has been Chairman of the Board of Directors since 2020. |
| ● | Financing. We entered into a credit facility during September 2021 that was extended during 2023 expiring September 2025. We have been in compliance with this credit facility since inception. |
| ● | Strategy. Our management determined to focus on achieving growth and profitability within the current scope of our core product lines – foil balloons and related products – from our United States based business. In addition, we seek to leverage advancements in compostable materials from a group of companies based in China that are directly or indirectly controlled by our Chairman and director, Mr. Yubao Li (collectively, and including LF International plc, these other companies are referred to herein as the “Yunhong Companies” or “Yunhong Group”). We believe the combination of traditional product optimization with risk-managed investment in new materials is the right combination for our company. |
| ● | Focus on our Core Assets and Expertise. We have been engaged in the development, production and sale of film and container products for 40 years and have developed assets, technology and expertise which, we believe, enable us to develop, manufacture, purchase, market and sell innovative products of high quality within our areas of knowledge and expertise. We have focused our efforts on these core assets and areas of expertise – film novelty products, specialty film products, laminated films and printed films – to develop new products, to market and sell our products and to build our revenues. |
| ● | Develop New Products, Product Improvements and Technologies. We engage in research, design, innovation and development for the purpose of developing and improving products, materials, methods and technologies within our core product categories. We work to develop and identify new products, to improve existing products and to develop new technologies within our core product areas in order to enhance our competitive position and increase our sales. We seek to leverage our technology to develop innovative and proprietary products. In our novelty product lines, our development work includes new designs, new character licenses, new product developments, new materials and improved production methods. We work with customers to develop custom film products which serve the unique needs or requirements of the customer. We seek to leverage the advancements of other Yunhong Companies. |
| ● | Develop New Channels of Distribution and New Sales Relationships. We seek to organically develop new channels of distribution and new sales relationships, both for existing and new products. Over the past several years, we have developed new distributors and customers for our products in the United States and in Europe, Mexico, Latin America and Australia. We also look to leverage resources within the Yunhong China Group for a wide range of topics, from sales to sourcing. |
| ● | Product and Line Extensions. We intend to pursue new product lines and product line extensions, through internal developments. |
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Products
Foil Balloons. We have designed, produced and sold foil balloons since 1979 and, we believe, are one of the larger manufacturers of foil balloons in the United States. Currently, we produce several hundred foil balloon designs, in different shapes and sizes.
In addition to size and shape, a principal element of our foil balloon products is the printed design or message contained on the balloon. These designs may include figures and licensed characters, but typically are of our own design. We recognize that consumer trends and preferences, and competing products, are constantly changing. In order to compete effectively in this product line we must constantly innovate and develop new designs, shapes and products.
Latex Balloons. Our former subsidiary in Guadalajara, Mexico, Flexo Universal, S. de R.L. de C.V. (“Flexo Universal”) manufactures latex balloons in a wide variety of sizes and colors. Flexo Universal was sold during October 2021. The Company currently sources latex products from a foreign supplier and resells those products to customers that seek both foil and latex solutions.
Packaging Films and Custom Film Products. A large and increasing number of both consumer and commercial products are packaged in pouches or containers utilizing flexible films. Often such containers include printed labels and designs. We produce and sell films that may be utilized for the packaging of a wide variety of products and liquids. We laminate, extrusion coat and adhesive coat flexible films for these purposes and we provide flexographic printing for the films we produce. We can produce a variety of customized film products, and printing services, to meet the specific packaging needs of a wide variety of customers.
Other Products. In 2014, we began assembly and sale of our balloon-inspired gifts product line (typically a presentation of candy with a balloon in a decorative arrangement for gifting). We have since supplemented this product line with related products.
Markets
Foil Balloons
The foil balloon came into existence in the late 1970s. During the 1980s, the market for foil balloons grew rapidly. Initially, the product was sold principally to individual vendors, small retail outlets and at fairs, amusement parks, shopping centers and other outdoor facilities and functions. Foil balloons remain buoyant when filled with helium for extended periods of time and they permit the printing and display of graphics and messages. As a result, the product has significant appeal as a novelty and message item. Foil balloons became part of the “social expression” industry, carrying graphics designs, characters and messages like greeting cards. In the mid-1980s, we and other participants in the market began licensing character and cartoon images for printing on the balloons and directed marketing of the balloons to retail outlets including grocery, general merchandise, discount and drug store chains, card and gift shops, party goods stores as well as florists and balloon decorators. These outlets now represent the principal means for the sale of foil balloons throughout the United States and in a number of other countries, although individual vendors remain a means of distribution in certain areas.
Foil balloons are now sold in virtually every region of the world. The United States remains the largest market for these products.
Foil balloons are sold in the United States and foreign countries directly by producers to retail outlets and through distributors and wholesalers. Often the sale of foil balloons by the wholesalers/distributors is accompanied by related products including latex balloons, floral supplies, candy containers, mugs, plush toys, baskets and a variety of party goods.
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Latex Balloons
For a number of years, latex balloons and related novelty/toy latex items have been marketed and sold throughout the United States and in many other countries. Latex balloons are sold as novelty/toy items for decorative purposes, as part of floral designs and as party goods and favors. In addition to standard size and shape balloons, inflatable latex items include punch balls, water bombs, balloons to be twisted into shapes, and other specialty designs. Often, latex balloons include printed messages or designs.
Latex balloons are sold principally in retail outlets, including party goods stores, general merchandise stores, discount chains, gift stores and drugstore chains. Latex balloons are also purchased by balloon decorators and floral outlets for use in decorative or floral designs. Printed latex balloons are sold both in retail outlets and for balloon decoration purposes including floral designs.
Latex balloons are sold both through distributors and directly to retail outlets by the producers.
Printed and Specialty Films
The industry and market for printed and specialty films are fragmented and include many participants. There are hundreds of manufacturers of printed and specialty film products in the United States and in other markets. In many cases, companies who provide food and other products in film packages also produce or process the films used for their packages. The market for the Company’s film products consists principally of companies who utilize the films for the packaging of their products, including food products and other items, usually by converting the film to a flexible container.
Marketing, Sales and Distribution
Balloon Products
We work in collaboration with our customers on designs, promotions, and other elements of marketing and selling. Our customers are typically retailers who sell our products to individual consumers. These relationships generally can be terminated unilaterally by either us or our customers. We must maintain good relationships with our customers if this sales model is to be successful.
We market and sell our foil balloon, latex balloon and related novelty products throughout the United States and in a number of other countries. We maintain marketing, sales and support staff and a customer service department in the United States. We sell directly to foreign customers from the United States.
We sell and distribute our balloon products (i) through our sales staff and customer service personnel in the United States, (ii) through a network of distributors and wholesalers, (iii) through several groups of independent sales representatives, and (iv) to retail chains. Our balloon products are generally sold through retail outlets including grocery, general merchandise and drug store chains, card and gift shops, party goods stores as well as florists and balloon decorators.
We sometimes engage in advertising and promotional activities to promote the sale of our balloon products. We produce catalogs of our balloon products and also prepare various flyers and brochures for special or seasonal products, which we disseminate to customers, potential customers and others. We maintain websites which show images of our products.
Printed and Specialty Films
We market and sell printed and laminated films directly and through independent sales representatives throughout the United States. We sell laminated and printed films to companies that utilize these films to produce packaging for a variety of products, including food products, in both solid and liquid form, such as cola syrup, coffee, juices and other items. We seek to identify and maintain customer relationships in which we provide added value in the form of technology or systems.
Other Products
Other products are sold by our internal sales force directly to customers and also by independent sales representatives. These products are generally sold directly to retail outlets or other intermediaries to the ultimate consumer (for example, to a florist).
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Production and Operations
We conduct our operations at our facilities including: (i) our 69,000 square feet facility in Lake Barrington, Illinois, incorporating our headquarters office, production and warehouse space, and (ii) our 69,000 square foot facility in Elgin, Illinois consisting of warehouse, packaging and office space.
Our production operations include (i) lamination and extrusion coating of films, (ii) slitting of film rolls, (iii) printing on film and on latex balloons, (iv) converting film to completed products including balloons, flexible containers and pouches, (v) distributing latex balloon products, (vi) inflating of air-filled balloons, and (vii) assembling Candy blossoms. We perform all of the lamination, extrusion coating and slitting activities in our Lake Barrington, Illinois plant. We complete air-filling and assembly of balloons and balloon-inspired gifts in our Elgin, Illinois facility.
We warehouse raw materials in Lake Barrington, Illinois and we warehouse finished goods at our facilities in Lake Barrington, Illinois and Elgin, Illinois. We maintain customer service and fulfillment operations at each of our locations. We conduct sales operations for the United States and for all other markets at the Lake Barrington, Illinois facility.
We maintain a graphic arts and development department at our Lake Barrington, Illinois facility which designs our balloon products and graphics. Our creative department operates a networked, computerized graphic arts system for the production of these designs and of printed materials including catalogues, advertisements and other promotional materials. As many of our products are custom designed or created to fulfill promotional schedules, we sometimes have excess inventory that must be sold at a discount or disposed of. Any such disposition will typically negatively impact our profit margin.
We conduct administrative and accounting functions at our headquarters in Lake Barrington, Illinois.
Raw Materials
The principal raw materials we use in manufacturing our products are (i) petroleum or natural gas-based films, (ii) petroleum or natural gas-based resin, (iii) printing inks, and (iv) bulk candy. The cost of raw materials represents a significant portion of the total cost of our products, with the result that fluctuations in the cost of raw materials have a material effect on our profitability. During the past several years, we have experienced significant fluctuations in the cost of these raw materials. We do not have any long-term agreements for the supply of raw materials and may experience wide fluctuations in the cost of raw materials in the future. Further, although we have been able to obtain adequate supplies of raw materials in the past, there can be no assurance that we will be able to obtain adequate supplies of one or more of our raw materials in the future.
Many of the foil balloons we produce and sell are intended to be filled with helium in order to be buoyant. Over the past several years, the price of helium has fluctuated substantially and the availability of helium has, on occasion, been limited. During 2018 and 2019, the availability of helium declined and the cost of helium increased. The supply of helium improved significantly until 2022, when another set of supply disruptions caused significant price escalation of helium. The price of helium has gradually decreased during the second half of 2022 and through 2024. Any future occurrence of limited availability and/or an increase in the cost of helium could adversely affect our sales of foil balloons.
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Competition
The balloon and novelty industry is highly competitive, with numerous competitors. We believe the principal manufacturers of foil balloons whose products are sold in the United States include Anagram International, Inc., Pioneer Balloon Company, Convertidora International S.A. de C.V., and Betallic, LLC. Several companies market and sell foil balloons designed by them and manufactured by others for them. In addition, there are several additional foil balloon manufacturers in Europe and China who participate in our markets.
We compete for the sale of latex balloons in the United States, Canada, Mexico, Latin America, the United Kingdom, Australia and Europe. There are a number of other companies situated in the United States, Mexico, Asia, South America and Europe who manufacture latex balloons and with whom we compete in the markets in which we participate. The markets are highly competitive with respect to price, quality and terms.
The market for films, packaging, and custom products is fragmented, and competition in this area is difficult to gauge. However, there are numerous participants in this market and the Company can expect to experience intense quality and price competition.
Many of the companies in these markets offer products and services that are the same or similar to those offered by us and our ability to compete depends on many factors within and outside our control. There are a number of well-established competitors in each of our product lines, several of which possess substantially greater financial, marketing and technical resources and have established extensive, direct and indirect channels of distribution for their products and services. As a result, such competitors may be able to respond more quickly to new developments and changes in customer requirements, or devote greater resources to the development, promotion and sale of their products and services than we can. Competitive pressures include, among other things, price competition, new designs and product development and copyright licensing.
Patents, Trademarks and Copyrights
We have developed or acquired a number of intellectual property rights which we believe are significant to our business. While intellectual property rights are helpful, we believe that their degree of protection is uncertain. Competitors may violate our intellectual property rights, forcing us to decide whether to challenge them. Such rights may or may not withstand challenge. Conversely, entities may charge us with violating their intellectual property rights. Failure to protect our rights, or conflict with the rights of one or more other entities, may negatively impact our financial and competitive position.
Proprietary Designs and Copyright Licenses. We design the shapes and graphic designs of most of our foil balloon products.
Trademarks. We own nine registered trademarks in the United States relating to our balloon products, including trademark applications. Some of these trademarks are registered in foreign countries, principally in the European Union.
Patent Rights. We own, or have license rights under, or have applied for, patents related to our balloon products, certain film products and certain flexible container products.
Research and Development
We maintain a product development and research group for the development or identification of new products, product designs, product components and sources of supply. Research and development includes (i) creative product development and design, (ii) creative marketing, and (iii) engineering development. During each of the fiscal years ended December 31, 2024 and 2023, we estimate that the total amount spent on research and development activities was approximately $200,000 and $200,000, respectively.
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Employees
As of December 31, 2024, the Company had 52 full-time employees in the United States, of whom 12 are executive or supervisory, 2 are in sales, 25 are in manufacturing or warehouse functions and 13 are clerical. The Company is not a party to any collective bargaining agreement in the United States, has not experienced any work stoppages, and believes that its relationship with its employees is satisfactory.
Beginning November 2018, the Company experienced severe difficulty in securing adequate seasonal workers in its US operations, forcing it to pay substantially higher costs in the form of overtime and a holiday premium. The Company expects its local labor market in the US (near Chicago) to continue to become more costly over time, which, if not changed, would negatively impact its future profitability. The Company has introduced additional automation features in its production lines beginning 2022 and expects to continue to implement automation tools.
Regulatory Matters
Our manufacturing operations in the United States are subject to the U.S. Occupational Safety and Health Act (“OSHA”). We believe we are in material compliance with OSHA. The Company generates liquid, gaseous and solid waste materials in its operations in Lake Barrington, Illinois and the generation, emission or disposal of such waste materials are, or may be, subject to various federal, state and local laws and regulations regarding the generation, emission or disposal of waste materials. We believe we are in material compliance with applicable environmental rules and regulations. Several states have enacted laws limiting or restricting the release of helium filled foil balloons. We do not believe such legislation will have any material effect on our operations.
An increasing number of regulations and actions relate to the integrity and security of individually identifiable data. Additionally, we require the effective use of data in running our business. While we are not aware of losses in the past, access of such data by unauthorized persons may expose us to costs, fines, penalties, and loss of customer confidence.
International Operations
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 pursuant to an Asset Purchase Agreement and in exchange for 5 million shares of the Company’s common stock, which was valued at $6.25 million.
Available Information
We maintain our corporate website at www.ctiindustries.com and we make available, free of charge, through this website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports that we file with, or furnish to, the Securities and Exchange Commission (“SEC”), as soon as reasonably practicable after we electronically file that material with, or furnish it to, the SEC. You may also read and copy material filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, and you may obtain information on the operation of the Public Reference Room by calling the SEC in the U.S. at 1-800-SEC-0330. In addition, the SEC maintains an Internet website, www.sec.gov, which contains reports, proxy and information statements and other information that we file electronically with the SEC. Our website also includes corporate governance information, including our Code of Ethics, Clawback Policy and our Board Committee Charters. The information contained on our website does not constitute a part of this report.
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Item No. 1A – Risk Factors
Our business and results of operations have been and may continue to be negatively impacted by supply chain disruptions and inflationary pressure.
Beginning in 2021 we saw material shortages, supply chain interruption, and reduced ability to transport goods throughout the United States and on a global scale. These pressures forced us to take steps to ensure the availability of products, including buying materials at higher prices and more aggressively managing lead times. Despite these efforts, our ability to fulfill customer demands was challenged. We also were forced to pass cost increases on to customers in the form of price increases, which threatened our ability to maintain sales volume. While we believe we were largely successful in passing along these increased costs, such pressures may negatively impact our financial results and book of business going forward.
Our business and results of operations have been and may continue to be negatively impacted by public health crises or similar issues.
We sell our products throughout the United States and in many foreign countries and may be impacted by public health crises beyond our control. This could disrupt our operations and negatively impact consumer spending and confidence levels, and supply availability and costs, all of which can affect our financial results, condition, and outlook. Our customers, suppliers and distributors may experience similar disruption. Importantly, the global pandemic resulting from COVID-19 has disrupted global health, economic and market conditions.
Throughout 2021 and into 2022 the landscape improved from 2020, but the issue drove elements of disruption in the ability to travel, attract and retain workers, manage production configurations and protocols, the supply chain and customer base. While we cannot predict the duration or scope of any issue similar to the COVID-19 pandemic, the resurgence of infections in one or more markets, or the impact of vaccines across the globe, this has negatively impacted our business and is expected to continue to impact our financial results, condition and outlook in a way that may be material.
COVID-19 has also delayed certain strategic transactions the Company intended to close during 2020, most notably its attempted sale of its former subsidiary Flexo Universal which was ultimately realized during October 2021 and the potential relocation of certain activities to the Laredo, Texas area, which is no longer a consideration of the Company.
The price and availability of helium may negatively impact our largest product line.
Beginning in February 2022 we saw a dramatic increase in the price of helium. We understand Russia to be a net exporter of helium prior to February 2022, and at that time one of the largest manufacturing facilities in the United States was damaged by fire. Our largest product line consists of balloons that are filled with helium by customers. When the cost of helium increases, our customers become more likely to temporarily not carry helium, or to increase prices to customers that may have a negative impact on ultimate demand. From May 2022 through the end of 2023, we believe our revenue was negatively impacted by several million dollars due to the price of helium. The price of helium gradually reduced during 2022, 2023 and 2024. To the extent that the price of helium exceeds a normal range, the more negatively our business will be impacted.
Staffing levels
As a lean manufacturer our employees perform multiple roles within our company. While we have managed succession in the past and intend to continue doing so, any failure to recruit and retain qualified individuals may negatively impact our financial results and ability to perform as intended.
Machinery and Equipment
During the first half of 2024 we had multiple instances of equipment failure. While this equipment has been repaired or replaced, the repair costs and in certain cases the need to run product on third party equipment negatively impacted our financial results. To the extent equipment does not perform as intended, our results may be negatively impacted.
Subsidiary in China
As of June 30, 2024, our wholly owned subsidiary, Yunhong Technology Industry (Hubei) Co,. Ltd., acquired certain assets of Yunhong Environmental Protection Technology Co., Ltd. and Yunhong China Group (together the “Selling Parties”) pursuant to an Asset Purchase Agreement. 5 million shares of our common stock were used to acquire manufacturing equipment, as well as an obligation for the Selling Parties to pay for certain expenses of our entity. This arrangement is new for the Company. Any failures to manage and realize productivity in this new subsidiary would negatively impact our financial results.
Our common stock may not trade efficiently
During 2024 we were informed by Nasdaq that the bid price of our common stock had been below $1 for an extended period of time and that we risked being delisted if that problem was not satisfactorily resolved. We have until April 21, 2025 to regain compliance with the minimum bid requirement for continued listing or else expect to be removed from Nasdaq.
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Item No. 1B – Unresolved Staff Comments
As of the filing of this Annual report on Form 10-K, we had no unresolved comments from the staff of the Securities and Exchange Commission.
Item No. 1C -– Cybersecurity
Risk Management and Strategy
As part of our cybersecurity risk management process, we:
● Research and consider recommendations and “best practices” in the field, including procedures with respect to evaluation and monitoring of cybersecurity threats and incidents;
● Consider whether and when to engage third-party security firms to monitor and respond to cybersecurity threats and incidents, including those associated with our use of third-party vendors and service providers, and conduct periodic penetration tests with the aim of identifying and remediating vulnerabilities.
●
● Provide employees with the training, tools and resources designed to protect the Company from cybersecurity threats and incidents and to identify and report such threats and incidents. Our employees receive training and reminders on cybersecurity protocols throughout the year; and
● Seek to minimize the amount of personal information collected to support business needs and use storage and transfer protocols leveraging encryption of critical information, including confidential or personal information.
Governance
Management has primary responsibility for identifying, assessing and managing our exposure to cybersecurity threats and incidents, subject to oversight by our Board of Directors of the processes we establish to assess, monitor and mitigate that exposure.
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If management determines that a cybersecurity threat or incident could be material to the Company, our management will notify the Audit Committee, and to our full Board of Directors.
Item No. 2 – Properties
We executed a sale and leaseback transaction during 2021 on our principal plant and offices located in Lake Barrington, Illinois, approximately 45 miles northwest of Chicago, Illinois. The facility includes approximately 69,000 square feet of office, manufacturing and warehouse space. The lease is for ten years, and annual rent increases from $500,000 the first year to $652,000 during the final year.
During 2021 we entered into a sublease agreement, which was most recently extended during 2024, now expiring on December 31, 2028 to rent approximately 69,000 square feet of warehouse and assembly space in Elgin, Illinois. The annual lease cost for this facility will rise to $510,000 during the final year of the lease.
We believe that our properties have been adequately maintained, are in generally good condition and are suitable for our business as presently conducted. We believe our existing facilities provide sufficient production capacity for our present needs and for our presently anticipated needs in the foreseeable future. We also believe that, with respect to leased properties, upon the expiration of our current leases, we will be able to either secure renewal terms or to enter into leases for alternative locations at market terms.
Item No. 3 – 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 No. 4. – Mine Safety Disclosures
Not Applicable.
PART II
Item No. 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The Company’s common stock was admitted to trading on the NASDAQ SmallCap Market (now the NASDAQ Capital Market) under the symbol “CTIB” on November 5, 1997. During September 2023 we changed our symbol to “YHGJ” when we renamed our company “Yunhong Green CTI Ltd.” These changes did not otherwise impact our shareholders or other attributes.
As of December 31, 2024 there were approximately 400 holders of record of the Company’s Common Stock. The Company’s total number of beneficial owners of common stock of the Company was approximately 30.
The Company did not pay any cash dividends on its Common Stock during 2024 or 2023 and has no plans to pay dividends in the foreseeable future. Under the terms of the Company’s current loan agreements, the amount of dividends the Company may pay is limited by the terms of the financial covenants. During 2024 the Company received a deficiency notice from NASDAQ for failure to maintain the required $1 bid price during a 30 day period in 2024. The Company has until April 21, 2025 to regain compliance with the continued listing standard related to minimum bid price which is required to keep this listing.
On March 19, 2025, our common stock closed at $1.08 per share.
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Equity Compensation Plan Information
There were no stock option incentive plans outstanding as of December 31, 2024. Effective January 2022, and in accordance with the Employment Agreement of Chief Executive Officer Frank Cesario, a grant of restricted stock was made in the amount of 250,000 shares. 25,000 shares vested immediately, while the remaining 225,000 are subject to performance conditions as further detailed in the share grant. During 2024, Frank Cesario departed the Company, and as such any unvested restricted stock was forfeited.
● The restrictions on 56,250 shares of the award will lapse and the award will vest when the Company’s trailing-twelve-month EBITDA equals or exceeds $1 million at any time on or after January 1, 2022. During April 2024 the Compensation Committee determined this condition had been satisfied.
● The restrictions on 56,250 shares of the award would have lapsed and the award vested in the event the Company’s common shares trade at or above $5/share for ten or more consecutive trading days. This grant has expired unvested.
● The restrictions on 56,250 shares of the award will lapse and the award will vest when the Company’s operating cash flow, calculated cumulatively from the date of employment, equals or exceeds $1.5 million. On January 30, 2023, the Compensation Committee determined this condition had been satisfied.
● The restrictions on 56,250 shares of the award will lapse and the award will vest in the event the Company is able to refinance its current lender with a traditional lender on terms and conditions customary for such financing. On August 23, 2022, the Compensation Committee determined this condition had been satisfied with an amended agreement with the Company’s lender.
During 2022 the Compensation Committee awarded the Chief Operating Officer a grant of 100,000 shares of restricted stock. 20,000 of these shares vested over a 12 month period while the remaining shares vest 20,000 each based on the performance conditions above.
Upon taking the role of Chief Executive Officer during November 2024, Ms. Schwan was granted restricted stock in the amount of 250,000 shares. 25,000 shares vested upon 30 days of service, while the remaining 225,000 are subject to performance conditions as further detailed in the share grant. Specifically, the restrictions on the remaining 225,000 shares will lapse based on satisfaction of the following performance goals and objectives and continued employment through the date of meeting such targets:
● The restrictions on 56,250 shares of the award will lapse and the award will vest when the Company’s trailing-twelve-month EBITDA equals or exceeds $0.7 million at any time on or after January 1, 2026.
● The restrictions on 56,250 shares of the award will lapse and the award will vest in the event the Company’s common shares trade at or above $3/share for ten or more consecutive trading days.
● The restrictions on 56,250 shares of the award will lapse and the award will vest if Ms. Schwan remains an employee of the Company as of January 1, 2027.
● The restrictions on 56,250 shares of the award will lapse and the award will vest in the event the Company is able to refinance its credit facility which concludes per its terms during September 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.
Asset acquisition in exchange for common stock
As of June 30, 2024, our wholly owned subsidiary, Yunhong Technology Industry (Hubei) Co,. Ltd., acquired certain assets of Yunhong Environmental Protection Technology Co., Ltd. and Yunhong China Group (together the “Selling Parties”) pursuant to an Asset Purchase Agreement. The Selling Parties are affiliated entities of certain stockholders of the Company. In accordance with the terms and conditions of the Asset Purchase Agreement, Yunhong Green CTI Industries agreed to issue 5 million shares of the Company’s common share at a fair value of $6.25 million as consideration. As of December 31, 2024, the shares of common stock are in process of being formally issued to the Selling Parties. The Company has initially assigned a fair value of $4.05 million to machinery and equipment and $2.2 million represents prepayment to the Selling Parties for the Company’s anticipated operational expenses, which the Selling Parties will pay on the Company’s behalf. This prepayment balance is classified as prepaid expenses, non-current on the Consolidated Balance Sheets as of December 31, 2024. No other assets or liabilities were transferred as part of this transaction. The Asset Purchase Agreement was evaluated under the guidance in ASC 805, Business Combinations and management determined this does not constitute the acquisition of a business. As a result, this transaction was treated as an asset purchase. Operations have not yet commenced, with the exception of the Company $0.1 million of depreciation expense.
During 2023, the Company’s Board of Directors enacted an Executive Compensation Recovery Policy, commonly referred to as a “Clawback” policy. This policy enhances the Company’s ability to recover incentive compensation in the event of a restatement or similar adjustment impacting the achievement of such incentive compensation.
Item No. 6 – Selected Financial Data
We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this item.
Item No. 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company produces film products for novelty, packaging container and custom film product applications. These products include foil balloons, latex balloons (sourced from an external party) and related products, films for packaging applications, and custom film products. We produce all of our film products for packaging and container applications at our facilities in Lake Barrington, Illinois. Substantially all of our film products for packaging applications and flexible containers for packaging and storage are sold to customers in the United States. We market and sell our novelty items – principally foil balloons and latex balloons – in the United States and a number of additional countries. In addition, the Company assembles and sells balloon-inspired gifts (including containers of arranged candy items) in the United States.
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Recent changes in our capital structure include:
Series B Preferred Stock
In November 2020, we issued 170,000 shares of Series B Preferred for an aggregate purchase price of $1,500,000. The Series B Preferred have an initial stated value of $10.00 per share and liquidation preference over common stock. The Series B Preferred is convertible into shares of our common stock equal to the number of shares determined by dividing the sum of the stated value and any accrued and unpaid dividends by the conversion price of $1.00. The Series B Preferred accrues dividends at a rate of 8 percent per annum, payable at our election either in cash or shares of the Company’s common stock. The carrying value as of December 31, 2023 and December 31, 2022 amounted to none and $1,851,000, respectively. On February 1, 2023, the investor converted Series B Preferred into approximately 1.9 million shares of common stock, including accrued dividends.
Series E Convertible Preferred Stock
In March 2024, the Company amended its Articles of Incorporation to authorize the issuance of 130,000 shares of Series E Convertible Preferred Stock (“Series E Preferred”) resulting in gross proceeds of $1.3 million from an unrelated third party. In aggregate, between Series E Preferred and Series F Convertible Preferred Stock (“Series F Preferred”) financings, $1.5 million of the total Series E and F proceeds were received as an advance prior to December 31, 2023. These funds advanced were initially classified as a current liability until the agreement was finalized and shares were issued, at which time it was reclassified as equity. In addition, 361,400 warrants to purchase the Company’s common stock were issued with respect to this transaction. These warrants are exercisable until March 2027, at the lower of $1.52 per share or 90% of the variable price based on the ten-day volume weighted average price (“VWAP”) of the Company’s common stock. The issuance of the Series E Preferred Stock resulted in an allocation of $0.8 million to the convertible preferred stock and $0.5 million to the warrants described below and classified as Additional Paid-In Capital. Holders of the Series E Preferred will be entitled to receive quarterly dividends at the annual rate of 8.5% of the stated value ($10 per share) and have a liquidation preference over common stock. Such dividends may be paid in cash or otherwise based on the terms of the agreement. Accrued dividends $93,000 were recorded for the year ended December 31, 2024.
Series F Convertible Preferred Stock
In March 2024, the Company amended its Articles of Incorporation to authorize the issuance of 70,000 shares of Series F Preferred resulting in gross proceeds of $0.7 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. In addition, warrants to purchase 194,600 shares of the Company’s common stock were issued with respect to this transaction. These warrants are exercisable until March 2027, at the lower of $1.52 per share or 90% of the variable price based on the ten-day volume weighted average price (“VWAP”) of the Company’s common stock prior to exercise. The issuance of the Series F Preferred Stock resulted in an allocation of $0.4 million to the convertible preferred stock and $0.3 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 8.5% of the stated value ($10 per share) and have a liquidation preference over common stock. Such dividends may be paid in cash or stock, at the Company’s discretion, based on the terms of the agreement. Accrued dividends of $50,000 were recorded for the year ended December 31, 2024, respectively.
Deposits and Note Conversion to Common Stock
In connection with the 2021 sale and leaseback transaction of the Company’s primary facility in Lake Barrington, IL, the landlord advanced rent payments in the form of a note. The balance of that note on December 31, 2022 was approximately $172,000. The note paid 3% interest and was due March 2024. In addition, the same entity made investment deposits during 2022 that were recorded as short-term deposit liabilities. On February 1, 2023, our Board of Directors approved the conversion of these liabilities into common stock at a rate of approximately 84% of the volume weighted average price (VWAP) of the Company’s common stock during the period these deposits were received. In total, approximately $0.9 million of liabilities were converted into approximately 1.8 million shares of our common stock during 2023. Upon conversion, both the note and deposit liabilities were fully eliminated.
Warrants
In connection with the Series D Offering in 2021, the Company issued warrants to purchase 128,000 shares of the Company’s common stock for $1 per share. During November 2023, the Company issued 675,183 shares of its common stock to retire all outstanding warrants, as well as a $317,000 deferred liability related to facility rent credits received from the Lake Barrington landlord. The warrants were converted in a cashless transaction based on the terms of the warrants. The Board of Directors determined the conversion price of the deferred liability would be consistent with the approach listed above, 84% of the volume weighted average price during the relevant time period. Both of these items are fully resolved upon this transaction.
As described above, in connection with the Series E and F convertible preferred equity issuances, a total of 556,000 warrants were issued, exercisable for the Company’s common stock at the lower of $1.52 per share or 90% of the 10 day VWAP.
The Company has applied the Black-Scholes model to estimate the fair value these warrants for the purchase of common stock. That model incorporates various assumptions including 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 instrument. The expected volatility is based on historical volatility of the Company’s Common Stock.
The valuation assumptions we have applied to determine the fair value of warrants issued in 2024 were as follows:
| - | Historical stock price volatility: The Company used the weekly closing price to calculate historical annual volatility which was a range from 240% - 243%. | |
| - | 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 1.16%. | |
| - | 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 3 years which is consistent with the contractual term. | |
| - | Dividend yield: The estimate for dividend yield is 0%, as the Company did not issue dividends during 2020 through 2024 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. |
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A summary of the Company’s common stock warrant activity is as follows:
| Shares under Option (warrant) | Weighted Average Exercise Price | |||||||
| Balance at December 31, 2023 | - | $ | - | |||||
| Granted | 556,000 | 1.52 | ||||||
| Cancelled/Expired | - | - | ||||||
| Exercised/Issued | - | - | ||||||
| Outstanding at December 31, 2024 | 556,000 | $ | 1.52 | |||||
| Exercisable at December 31, 2024 | 556,000 | $ | 1.52 | |||||
As of December 31, 2024 the Company reserved the following shares of its common stock for the exercise of warrants, and preferred stock:
| 2024 Common Stock Warrants | 556,000 | |||
| Shares reserved as of December 31, 2024 | 556,000 |
REVENUE FROM OPERATIONS
Our revenues from operations from each of our product categories in each of the past two years have been as follows:
| Year Ended | ||||||||||||||||
| December 31, 2024 | December 31, 2023 | |||||||||||||||
| $ | % of | $ | % of | |||||||||||||
| Product Category | (000) Omitted | Net Sales | (000) Omitted | Net Sales | ||||||||||||
| Foil Balloons | 11,510 | 64 | % | 11,885 | 67 | % | ||||||||||
| Film Products | 847 | 5 | % | 927 | 5 | % | ||||||||||
| Other | 5,596 | 31 | % | 4,992 | 28 | % | ||||||||||
| Total | 17,953 | 100 | % | 17,804 | 100 | % | ||||||||||
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Our primary expenses include the cost of products sold and selling, general and administrative expenses.
Cost of products sold primarily consists of expenses related to raw materials, labor, quality control and overhead expenses such as supervisory labor, depreciation, utilities expense and facilities expense directly associated with production of our products, warehousing and fulfillment expenses and shipping costs relating to the shipment of products to customers. Cost of products sold is impacted by the cost of the raw materials used in our products, the cost of shipping, along with our efficiency in managing the production of our products.
Selling, general and administrative expenses include the compensation and benefits paid to our employees, all other selling expenses, marketing, promotional expenses, travel and other corporate administrative expenses. These other corporate administrative expenses include professional fees, depreciation of equipment and facilities utilized in administration, occupancy costs, communication costs and other similar operating expenses. Selling, general and administrative expenses can be affected by a number of factors, including staffing levels and the cost of providing competitive salaries and benefits, the cost of regulatory compliance and other administrative costs.
Purchases by a limited number of customers represent a significant portion of our total revenues. During 2024 and 2023, respectively, sales to our top 10 customers represented 93% and 94%, respectively, of net revenues for each year. During 2024 and 2023, there were two customers to whom our sales represented more than 10% of net revenues.
Our principal customer sales for 2024 and 2023 were:
| Customer | Product | 2024 Sales | % of 2024 Revenues | 2023 Sales | % of 2023 Revenues | |||||||||||||
| Wal-Mart | Balloons; Gifts | $ | 6,476,000 | 36 | % | $ | 6,466,000 | 36 | % | |||||||||
| Dollar Tree Stores | Balloons | $ | 8,574,000 | 47 | % | $ | 8,174,000 | 46 | % | |||||||||
The loss of one or both of these principal customers, or a significant reduction in purchases by one or both of them, could have a material adverse effect on our business.
We generally do not have agreements with our customers under which customers are obligated to purchase any specific or minimum amount of product from us.
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
Net Sales
For the fiscal year ended December 31, 2024, consolidated net sales of the sale of all products were $17,953,000 compared to consolidated net sales of $17,804,000 for the year ended December 31, 2023, an increase of 1% as more fully described below.
Sales of foil balloons were $11,510,000 in 2024 and $11,885,000 in 2023, a decrease of 3% is attributed to normal fluctuations of order flow and has caused decrease in sales for the year ended 2024 by 3%.
Sales of film products were $847,000 in 2024 and $927,000 in 2023, a decrease of 9%. 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.
Sales of other products increased to $5,596,000 in 2024 from $4,992,000 in 2023, an increase of 12%. This category includes sales of balloon inspired gifts, which featured larger holiday orders than the prior year as well as the launch of an everyday offering.
Cost of Sales
Cost of sales decreased to $14,352,000 in 2024 compared to $14,546,000 in 2023, a decrease of 1.33%, which is negligible compared to an 1% increase in sales.
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General and Administrative Expenses
General and administrative expenses increased to $3,396,000 in 2024 from $2,995,000 in 2023, an increase of 13%. The Company had higher than usual audit fees in 2024. 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 $300,000 higher audit expenses and related legal fees during 2024 as compared to 2023.
Selling and Marketing
Selling expenses increased to $141,000 in 2024 from $131,000 in 2023.
Other Income or Expense
During 2024, we incurred net interest expense of $862,000 compared to net interest expense of $628,000 during 2023.
Financial Condition, Liquidity and Capital Resources
Cash (Used In) Provided By Operating Activities
During 2024, cash used in operating activities amounted to $1,274,000, compared to cash used in operating activities during 2023 of $1,222,000. Significant changes in working capital items affecting cash flow used in operating activities were:
| ● | Depreciation and amortization of $345,000 compared to depreciation and amortization for 2023 of $279,000; | |
| ● | An increase in inventories of $702,000 in 2024 compared to a decrease in inventories of $534,000 in 2023; | |
| ● | An increase in accounts receivable of $1,428,000 and $2,357,000 in 2024 and 2023, respectively; | |
| ● | An increase in prepaid expenses and other assets of $80,000 compared to a decrease in prepaid expenses and other assets of $57,000 in 2023; and | |
| ● | An increase in trade payables of $620,000 compared to a decrease in trade payables of $396,000 in 2023. |
Cash Provided By (Used In) Investing Activities
During fiscal 2024, cash used in investing activities amounted to $331,000 compared to cash used in investing activities during fiscal 2023 of $221,000. This is due to timing of production equipment upgrades and replacement.
Cash Provided By (Used In) Financing Activities
During fiscal 2024, cash provided by financing activities amounted to $904,000, compared to cash provided by financing activities of $2,118,000 during fiscal 2023. This is primarily due to repayment of principal on the related party note.
Going Concern, Liquidity and Financial Condition
The Company’s financial statements are prepared using 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 December 31, 2024 of approximately $26 million and had approximately $0.2 million of cash as of December 31, 2024. The Company’s cash resources from operations may be insufficient to meet its anticipated needs during the next twelve months. If the Company does not execute its plan, it may require additional financing to fund its future planned operations.
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. Supply chain challenges and inflationary pressures have impacted 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.
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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. This credit facility, as amended, matures 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.
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 is set at the prime rate published from time to time published in the Wall Street Journal (7.5% as of December 31, 2024), 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.
The Senior Facilities matured on September 30, 2023 and were amended to extend the maturity date to 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. With the September 30, 2023 amendment, the parties agreed changes in terms including:
| - | 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 administer. |
| - | 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. |
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 December 31, 2024 and December 31, 2023, respectively.
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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 December 31, 2024 and December 31, 2023, the term loan balance amounted to $623,000 and $715,000, respectively, which consisted of the principal and interest payable balance of $623,000 and $715,000, respectively and deferred financing costs of approximately $17,000 and $41,000, respectively. The balance of the Revolving Line of Credit as of December 31, 2024 and December 31, 2023 amounted to $6,578,000 and $4,991,000, respectively. The Revolving Line of Credit exceeded $6,000,000 due to the year-end holiday schedule of the lender, and returned to less than $6,000,000 on January 3, 2025.
Notes 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 due of $1.3 million as of December 31, 2023 and an interest rate of 6%. 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.
As of December 31, 2022, the Company had a note payable to Alex Feng for $0.2 million. This loan accrued interest at a rate of 3% and is subordinated to the Senior Facilities. In accordance with the subordination agreement, payments may be made beginning April 2022 subject to availability under the revolving line of credit, and the maturity date for this loan was March 2024. Along with certain deposits received during 2022, this note was converted into common stock during February 2023.
Through September 30, 2022, the Company has received approximately $160,000 in Employee Retention Tax Credits (“ERTC”) from the United States Government related to claims that were filed during 2021. $123,000 was listed as General and Administrative, while the remainder is in Other Income. During October 2022 the Company executed a financing transaction wherein the remaining open claims for $1.2 million in ERTC was sold to a third party for $0.9 million. Once the $1.2 million was ultimately paid, those funds were immediately transferred to the third party. To the extent any of the $1.2 million in ERTC claims were determined by the United States Government not to be payable, a prorated portion of the $0.9 million would have been returned to that investor. The $0.9 million was listed as a deferred income current liability as of December 31, 2022, which was recognized upon acceptance and processing of the amended returns by the United States Government. During 2023, all claims had been processed and refunds issued, which were forwarded to the third party above. As a result, approximately $0.9 million of the deferred income liability was recognized during 2023.
Seasonality
In the foil balloon product line, sales have historically been seasonal. Approximately half of these sales are considered “everyday” in nature while the other half tend to be event driven (certain holidays, graduation season, and other events). Since 2022, we have seen an enhanced impact of seasonality, with increased order flow related to events, and lower order flow related to everyday items.
Critical Accounting Estimates
The financial statements of the Company are based on the selection and application of significant accounting policies which require management to make various estimates and assumptions. The following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operation.
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Allowance for Doubtful Accounts. We estimate our allowance for doubtful accounts based on an analysis of specific accounts, an analysis of historical trends, payment and write-off histories. Our credit risks are continually reviewed, and management believes that adequate provisions have been made for doubtful accounts. However, unexpected changes in the financial condition of customers or changes in the state of the economy could result in write-offs which exceed estimates and negatively impact our financial results.
Inventory Valuation. Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard costs which approximate costing determined on a first-in, first out basis. Standard costs are reviewed and adjusted at the time of introduction of a new product or design, periodically and at year-end based on actual direct and indirect production costs. On a periodic basis, the Company reviews its inventory levels for estimated obsolescence or unmarketable items, in reference to future demand requirements and shelf life of the products. As of December 31, 2024 and 2023, the Company had established a reserve for obsolescence, marketability or excess quantities with respect to inventory in the aggregate amount of $155,000. In addition, on a periodic basis, the Company disposes of inventory deemed to be obsolete or unsaleable and, at such time, charges reserve for the value of such inventory. We record freight income as a component of net sales and record freight costs as a component of cost of goods sold.
Share-Based Compensation: Compensation expense for time-based restricted stock units is measured at the grant date and recognized ratably over the vesting period. We determine the fair value of time-based and performance-based restricted stock units based on the closing market price of our common stock on the grant date. The recognition of compensation expense associated with performance-based restricted stock units requires judgment in assessing the probability of meeting the performance goals, as well as defined criteria for assessing achievement of the performance-related goals. For the purposes of measuring compensation expense, the number of shares ultimately expected to vest is estimated at each reporting date based on management’s expectations regarding the relevant performance criteria. The performance shares begin vesting only upon the achievement of the performance criteria. The performance shares begin vesting only upon the achievement of the performance criteria. The achievement of the performance goals can impact the valuation and associated expense of the restricted stock units. The assumptions used in accounting for the share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if circumstances change and we use different assumptions, our stock-based compensation expense could be materially different in the future.
Income Taxes and Deferred Tax Assets. Income taxes are accounted for as prescribed in U.S. GAAP. Under the asset and liability method of U.S. GAAP, the Company recognizes the amount of income taxes currently payable. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years these temporary differences are expected to be recovered or settled.
We evaluate all available positive and negative evidence in each tax jurisdiction regarding the recoverability of any asset recorded in our Consolidated Balance Sheets and provide valuation allowances to reduce our deferred tax assets to an amount we believe is more likely than not to be realized. We regularly review our deferred tax assets for recoverability considering historical profitability, our ability to project future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. If we continue to operate at a loss in certain jurisdictions or are unable to generate sufficient future taxable income within the defined lives of such assets, we could be required to increase our valuation allowance against all or a significant portion of our deferred tax assets. This increase in valuation allowance could result in substantial increases in our effective tax rate and could have a material adverse impact on our operating results. Conversely, if and when our operations in some jurisdictions become sufficiently profitable before what we have estimated in our current forecasts, we would be required to reduce all or a portion of our current valuation allowance and such reversal would result in an increase in our earnings in such period.
As of December 31, 2024 and 2023, the amount of the net deferred tax asset was none, as we continued to record a full valuation allowance against the gross value of the deferred tax asset. Each quarter and year-end, management makes a judgment to determine the extent to which the deferred tax asset will be recovered from future taxable income. This value was reduced, in large part, due to changes in US tax law effective 2018 which will impact the value of future deductions.
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Item No. 7A – Qualitative and Quantitative Disclosures Regarding Market Risk
Not applicable.
Item No. 8 – Financial Statements and Supplementary Data
Reference is made to the Consolidated Financial Statements contained in Part IV hereof.
Item No. 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item No. 9A – Controls and Procedures
(a) Evaluation of 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 a member of our Board of Directors (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 December 31, 2024. Based on this evaluation, the Chief Executive Officer (principal executive officer) and Director (principal financial officer) concluded that our disclosure controls and procedures were not effective as of December 31, 2024, the end of the period covered by this Annual Report on Form 10-K, due to the material weaknesses described below.
(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 December 31, 2024. 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”).
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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 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 and a Director, to provide financial reporting oversight within an environment that is highly manual in nature |
Management concluded that there is a reasonable possibility that a material misstatement could occur in the consolidated financial statements if the control deficiencies were not remediated. Accordingly, management concluded that the matters described above are material weaknesses in the Company’s internal control over financial reporting and that the Company did not maintain effective internal control over financial reporting as of December 31, 2024.
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 Director providing support as temporary in nature. The Company recently hired a controller in February 2025 that management believes has the requisite skillset and experience.
This annual 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 annual report.
(c) Changes in Internal Control over Financial Reporting
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.
Item No. 9B – Other Information
PART III
Item No. 10 – Directors, Executive Officers and Corporate Governance of the Registrant
The members of our Board of Directors (the “Board”), and our executive officers, together with their respective ages and certain biographical information are set forth below. Directors hold office until the next annual meeting of our shareholders and until their successors have been duly elected and qualified. Our executive officers are elected by and serve at the designation and appointment of the Board.
The following is a brief account of the business experience of each of our directors and executive officers during the past five years or more.
| Name | Age | Position | ||
| Yubao Li | 43 | Chairman of the Board of Directors | ||
| Jana M. Schwan | 48 | Chief Executive Officer | ||
| Frank J. Cesario | 55 | Director | ||
| Douglas Bosley | 58 | Director | ||
| Gerald (J.D.) Roberts, Jr. | 66 | Director | ||
| Philip Wong | 46 | Director |
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Jana M. Schwan, age 48. Ms. Schwan has been Chief Executive Officer since November 2024 and has been employed by the Company in progressively more responsible roles in operational, purchasing, and product development capacities since September 2002, and currently leads its Sales, Marketing and Business Development activities in addition to all Operations of the Company. Ms. Schwan was named Vice President of Operations in 2017 and Chief Operating Officer in 2020.
Yubao Li, age 43, Chairman of the Board of Directors. Mr. Li has served as a Director of the Company since January 13, 2020 and was elected as Chairman of the Board on June 1, 2020. Mr. Li served as the Company’s Chief Executive Officer from September 2020 until January 2022. Mr. Li has been serving as the Chairman of Yunhong International since its inception in January 2019 and served as its Chief Executive Officer from January 2019 to September 2019. Mr. Li has been serving as the president of Hubei Academy of Science and Technology Service Station since July 2018. Since June 2018, Mr. Li has been serving as the Director of Photoproteins Research Centre at China’s Academy of Management Science, a research institute situated in Beijing where he supports innovation by defining the research focus of the group. Mr. Li also serves as a director and/or officer of several other entities, including as the Executive Director and General Manager of Hubei Teruiga Energy Co., Ltd, a new energy technology company, since November 2017, the Executive Director of Hubei Yunhong Energy Co., Ltd., a solar power and agriculture company, since April 2016, the Executive Director and General Manager of Hubei Yun Hong photovoltaic Co., Ltd., a solar power and agriculture company, since May 2016, the President of Hubei Yunhong Deren Tourism Co., Ltd., a tourism project developer, since May 2016 and the President of Yunhong Group Holdings Co., Ltd., a company engaged in the business of solar power construction and solar photovoltaic power generation, since 2013. In addition, in 2013, Mr. Li founded China Hubei Yunhong Energy Group Co., Ltd., a Chinese nutrition company operating in China and abroad, and he currently serves as the Chairman of its board of directors.
Frank Cesario, age 55, Director; former Chief Executive Officer and former Acting Chief Financial Officer. Mr. Cesario first joined the Company in November 2017 as Chief Financial Officer. In December 2019 he was named President and Chief Executive Officer, and Director. He resigned as Chief Financial Officer in June 2020 and as President and Chief Executive Officer, and Director, in September 2020. During March 2021, he rejoined the Board as a Director. During January 2022 he was rehired by the Company as Chief Executive Officer and he retained his role as a Director. Upon the resignation of the Company’s then-Chief Financial Officer during January 2022, Mr. Cesario also became the Acting Chief Financial Officer. Mr. Cesario resigned from the Company during November 2024 but remained a Director. Mr. Cesario brings 20 years of CFO experience at manufacturing entities. Prior to joining the Company, Mr. Cesario served in similar roles with Nanophase Technologies Corporation and ISCO International, Inc., then publicly traded global suppliers of advanced materials and telecommunications equipment, respectively, as well as Turf Ventures LLC, a privately held chemicals distributor. From September 2020 until January 2022, Mr. Cesario served as Chief Financial Officer of Radiac Abrasives, Inc., a privately held manufacturer. He began his career with KPMG Peat Marwick and then served in progressively responsible finance positions within Material Sciences Corporation and Outokumpu Copper, Inc. Mr. Cesario holds an MBA (Finance) from DePaul University and a B.S. (Accountancy) from the University of Illinois and is a registered CPA in the State of Illinois.
Douglas Bosley, age 58, Director. Mr. Bosley has served as a director of the Company since January 2022 and is a founding partner of Witan Law Group and a member of the firm’s Corporate Transactional and Securities practice. Mr. Bosley represents businesses and entrepreneurs at all stages of growth from inception to exit. Mr. Bosley’s practice focuses on three general areas of financing transactions, mergers and acquisitions and general corporate matters. Mr. Bosley’s financing experience includes representing venture capital firms and venture-backed companies, mezzanine debt transactions, and a wide range of other types of financing and securities transactions, as well as general corporate matters including formation and start-ups; equity compensation; contracts such as licensing, joint ventures, representative agreements, and development and service level agreements; and corporate governance matters. Before founding Witan Law, Mr. Bosley was a partner at Bosley Till Neue & Talerico (BTNT), a law firm, where he headed the transactional and securities practices. Prior to BTNT, Mr. Bosley operated Bosley Business Law, which he founded after more than a decade of sophisticated corporate and securities transactional experience at some of the world’s largest and most reputable corporate law firms. Mr. Bosley also served as general counsel of a Sacramento-based venture capital and professional services firm. He is a frequent speaker on legal issues related to start-ups, mergers and acquisitions and venture capital transactions. Mr. Bosley is a graduate of the Duke University School of Law, graduating with high honors and earning the Order of the Coif. He received his B.A. in Economics from California State University (Sacramento).
Gerald (J.D.) Roberts, Jr., age 66, Director. Mr. Roberts is Vice President of Strategy and Business Development at a Fortune 50 Corporation, having served in that capacity since 2018, and has served as a director of the Company since January 2022. In the previous 20 years, he held several senior roles at Aerojet Rocketdyne Holdings, Inc. and GenCorp/Aerojet. His career began in the aerospace and electronics industries in the United States and Australia, where he worked with companies including E-Systems, McDonnell Douglas, Northrop-Grumman, Gulfstream, Learjet and Hawker de Havilland. Mr. Roberts combined his credentials in engineering, finance and operations and his significant experience in strategic planning, organizational restructuring, and mergers, acquisitions, and divestitures to build value in international business opportunities. He received his MBA (Finance) from the University of California, Davis, and his B.S. in Mechanical Engineering from Virginia Tech.
Philip Wong, age 46, Director. Mr. Wong has served as a director of the Company since January 2022 and is CEO of Shark AI Capital Corporation, an innovative business lending firm which he co-founded in 2020. Previously, he served as Chief Investment Officer of American Credit, Inc., as a Commercial Loan Officer at Applepie Capital, Inc., as Vice President / Senior Relationship Manager at Bank of the West / BNP Paribas, and as First Vice President / Senior Relationship Manager at Preferred Bank, among other roles in banking and business credit. Mr. Wong and has completed certifications in agile software development, software products management, healthcare analytics, and product management and marketing. He received his B.A. in Asian Studies from San Francisco State University.
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Executive Officers Other Than Nominees
Jana Schwan is the daughter of John Schwan, who prior to his retirement from the Company served in several capacities, including as Chairman of the Board of Directors.
Except as disclosed in this Item 10 or Item 13 (Certain Relationships and Related Transactions, and Director Independence), there are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any of our directors or members of senior management were selected as such. In addition, there are no family relationships among our executive officers and directors.
Our future success depends, in significant part, on the continued service of certain key execute officers, managers, and others in various aspects of our business. We may not be able to find an appropriate replacement for any of our key personnel. Any loss or interruption of our key personnel’s service to the Company could adversely affect our ability to implement our business plan.
Corporate Governance
The business and affairs of the Company are managed under the direction of the Board of Directors in accordance with the Illinois Business Corporation Act and the Articles of Incorporation and By-laws of the Company, as amended. Members of the Board of Directors are kept informed of the Company’s business through discussions with the Chairman of the Board of Directors, the Chief Executive Officer, the President and other officers, by reviewing materials provided to them and by participating in meetings of the Board of Directors and its committees.
As of January 2022, the Board of Directors had five members. The Board has determined that each of Douglas Bosley, Gerald (J.D.) Roberts, Jr., and Philip Wong, presently directors of the Company, are independent based upon the application of the rules and standards of the NASDAQ Stock Market.
The Board of Directors met four times during 2024. No Director was absent for more than one meeting during 2024.
Board Leadership Structure
Yubao Li is Chairman of the Board of Directors and Jana Schwan is Chief Executive Officer. Ms. Schwan is responsible for senior management functions and reports into the Board of Directors. The Board of Directors believes that this combination and allocation of roles provides the most efficient and effective leadership model for the Company, providing perspective and direction with regard to business strategies and plans to both the Board and management. The Company has no bylaw or policy in place that mandates that an officer serve as Chairman of the Board. The Board of Directors periodically evaluates its leadership structure.
Mr. Wong has been designated as the lead independent director. Mr. Wong is responsible for (i) communicating regularly with the Chief Executive Officer and other officers of the Company on behalf of the Board of Directors, and particularly the independent members of the Board of Directors, and (ii) calling separate meetings of the independent directors of the Company. At any such meetings, only independent directors are present and the independent directors are free to discuss any aspect of the Company’s business and risk management without the influence of interested directors or management.
All members of the Company’s Audit, Compensation and Nominating and Governance Committees have been determined to be independent based on application of the rules and standards of the NASDAQ Stock Market.
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Board Role in Risk Oversight
The Board of Directors plays an active role, as a whole and at the committee level, in overseeing management of the Company’s risks. The Board regularly reviews information regarding our credit, liquidity and operations, as well as the risks associated with each. The Audit Committee oversees management of financial risks through regular meetings with the Company’s independent registered public accounting firm and the Company’s Chief Executive Officer, President and Chief Financial Officer. The Company’s Compensation Committee evaluates and addresses risks relating to executive compensation, our incentive compensation plans and other compensatory arrangements. The Nominating and Governance Committee manages risks associated with the independence of the Board of Directors and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of those risks, the entire Board of Directors is regularly informed through management and committee reports to the full Board about these and other operational risks.
Committees of the Board of Directors
The Board of Directors has standing Audit, Compensation, and Nominating and Governance Committees.
Audit Committee
Since 2000, the Company has had a standing Audit Committee, which is presently composed of Mr. Wong (Chairman), Mr. Bosley and Mr. Roberts. Each of the members of the Audit Committee is independent based on the application of the rules and standards of the NASDAQ Stock Market and Rule 10a-3(b) under the Securities Exchange Act of 1934. Mr. Wong has been designated as, and is, the Company’s “Audit Committee Financial Expert” in accordance with Item 407(d)(5) of Regulation S-K and meets the requirements for an audit committee expert as set forth in that item. The Audit Committee has primary responsibility meetings with management and independent auditors to discuss the Company’s financial statements. The Company’s Board of Directors has adopted a written charter, as amended, for the Company’s Audit Committee, a copy of which has been posted and can be viewed on the Company’s Internet website at http://www.ctiindustries.com under the section entitled “Investor Relations.” In addition, the Audit Committee has adopted a complaint monitoring procedure to enable confidential and anonymous reporting to the Audit Committee of concerns regarding, among other things, questionable accounting or auditing matters. The Audit Committee has primary responsibility for:
Appointing, compensating, and retaining our registered independent public accounting firm;
Overseeing the work performed by any outside accounting firm;
Assisting the Board of Directors in fulfilling its responsibility by reviewing the financial reports provided by us to the SEC, our shareholders, or to the general public, as well as the Company’s internal financial and accounting controls; and
Recommending, establishing, and monitoring procedures designed to improve the quality and reliability of the disclosure of our financial condition and results of operations.
The Audit Committee met three times during 2024.
Compensation Committee
The Compensation Committee is composed of Mr. Roberts (Chairman), Mr. Bosley and Mr. Wong. The Board has determined that each of the members of the Compensation Committee is independent as defined in the listing standards for the NASDAQ Stock Market. The Compensation Committee reviews and acts on the Company’s executive compensation and employee benefit and retirement plans, including their establishment, modification and administration. It also recommends to the Board of Directors the compensation of the Chief Executive Officer and certain other executive officers. The Compensation Committee has a charter which has been posted and can be viewed on the Company’s Internet website at http://www.ctiindustries.com under the section entitled “Investor Relations.” The Compensation Committee met once in 2024.
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Nominating and Governance Committee
In 2005, the Company established a Nominating and Governance Committee. The Nominating and Governance Committee consists of Mr. Bosley (Chairman), Mr. Roberts and Mr. Wong. The Nominating and Governance Committee does not have a charter. The Board of Directors has determined that each of the members of the Nominating and Governance Committee is independent as defined in the listing standards for the NASDAQ Stock Market.
The Nominating and Governance Committee has not adopted a formal policy with regard to consideration of director candidates recommended by security holders. The Company believes that continuing service of qualified incumbent members of the Board of Directors promotes stability and continuity at the Board level, contributes to the Board’s ability to work as a collective body and provides the benefit of familiarity and insight into the Company’s affairs. Accordingly, the process of the Nominating and Governance Committee for identifying nominees reflects the Company’s practice of re-nominating incumbent directors who continue to satisfy the criteria for membership on the Board. For vacancies that are anticipated on the Board of Directors, the Nominating and Governance Committee intends to seek out and evaluate potential candidates from a variety of sources that may include recommendations by security holders, members of management, the Board of Directors, consultants and others. The minimum qualifications for potential candidates for the Board of Directors include demonstrated business experience, decision-making abilities, personal integrity and a good reputation.
The Board’s statement regarding diversity is below. This has become a larger factor in the Nominating Committee’s evaluation of potential candidates. While there is no formal policy for considering diversity when nominating a potential director, it is a consideration that is evaluated along with other qualifications of potential candidates, and broadly a goal of the Company. In light of the foregoing, it is believed that a formal, written policy and procedure with regard to consideration of director candidates recommended by security holders is not necessary in order for the Nominating and Governance Committee to perform its duties.
The Nominating Committee did not meet in 2024. All of the independent directors of the Board of Directors participated in the nominating process and, in separate session, voted in favor of recommending to the Board of Directors the nomination of each of the nominees for election as directors.
Board Diversity
The current Board has five directors, all male, two of whom are of Asian background and three Caucasian. The Board recently had two female directors who retired from the Board during January 2022. With only five directors, the Company has limited opportunity to maintain the breadth of diversity it seeks. The Company has made diversity a goal, particularly as it moved from a 100% Caucasian, 100% male Board of Directors at the beginning of 2020 to three Asian directors, two of whom female, later that year. The Company plans to continue to strive for broad representation on its Board of Directors.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers and directors, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and with the NASDAQ Stock Market. Officers, directors and greater than ten-percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on a review of such forms furnished to the Company, the Company believes that during calendar year 2024, all Section 16(a) filing requirements applicable to the officers, directors and ten-percent beneficial shareholders were satisfied.
Code of Ethics
The Company has adopted a code of ethics that applies to its senior executive and financial officers. The Company’s Code of Ethics seeks to promote (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, (ii) full, fair, accurate, timely and understandable disclosure of information to the Commission, (iii) compliance with applicable governmental laws, rules and regulations, (iv) prompt internal reporting of violations of the Code to predesignated persons, and (v) accountability for adherence to the Code. A copy of the Code of Ethics has been posted and may be viewed on the Company’s Internet website at http://www.ctiindustries.com under the heading “Investor Relations.” The Company will provide to any person without charge upon request a copy of the Code of Ethics. You may make such request by sending a written request to the Corporate Secretary at 22160 N. Pepper Road, Lake Barrington, Illinois 60010 and providing a return address.
Executive Compensation Recovery (“Clawback”) Policy
During 2023, the Company adopted an Executive Compensation Recovery (“Clawback”) Policy, wherein certain performance-based executive compensation may be recovered by the Company if subsequent restatement or other adjustment negatively impacts the awarding of such incentive compensation during a three year lookback period and under certain conditions as further defined in the policy.
Item No. 11 – Executive Compensation
The following table sets forth summary compensation information with respect to the Principal Executive Officer and each of the two other most highly compensated executive officers. These individuals, including the Principal Executive Officer, are collectively referred to in this proxy statement as the Named Executive Officers.
| Non-Equity | ||||||||||||||||||||||
| Stock | Incentive Plan | All other | ||||||||||||||||||||
| Name/Title | Year | Salary | Awards | Compensation | compensation | Total | ||||||||||||||||
| (1) | (2) | (3) | ||||||||||||||||||||
| Frank Cesario | 2024 | $ | 250,000 | $ | 85,500 | $ | - | $ | - | $ | 335,500 | |||||||||||
| Chief Executive Officer (4) | 2023 | $ | 250,000 | $ | 39,400 | $ | - | $ | - | $ | 289,400 | |||||||||||
| Jana M. Schwan | 2024 | $ | 239,500 | $ | 48,657 | $ | - | $ | 9,500 | $ | 297,657 | |||||||||||
| Chief Executive Officer (5) | 2023 | $ | 225,166 | $ | 14,000 | $ | - | $ | 9,500 | $ | 248,666 | |||||||||||
SUMMARY COMPENSATION TABLE
| (1) | Reflects the compensation expense recognized in 2024 and 2023 for stock awards under ASC Topic 718 as reported in the Company’s audited financial statements. |
| (2) | Amounts determined under the Company’s incentive compensation program. |
| (3) | Insurance premiums |
| (4) | Mr. Cesario terminated employment with the Company in November 2024 as Chief Executive Officer and Acting Chief Financial Officer. |
| (5) | Ms. Schwan became Chief Operating Officer during 2020 and Chief Executive Officer in 2024. |
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Narrative Disclosure for Summary Compensation Table
Employment Agreements with Our Named Executive Officers
No employment agreements existed until January 2022, when Mr. Cesario entered into an employment agreement with the Company. That agreement includes a base salary of $250,000 per year. Mr. Cesario received an inducement grant of stock in the amount of 250,000 shares, 25,000 of which vested immediately, with the remaining shares scheduled to vest based upon the achievement of certain goals and objectives as set forth in the agreement. Mr. Cesario was eligible to receive a performance-based bonus of $300,000. In the event that Mr. Cesario is terminated without cause, he is eligible to receive twelve (12) months of salary in accordance with the agreement. Mr. Cesario resigned from employment, while remaining a Director, during November 2024.
Ms. Jana Schwan entered into an employment agreement with the Company during November 2024. That agreement includes a base salary of $275,000 per year. Ms. Schwan received an inducement grant of stock in the amount of 250,000 shares, 25,000 of which vested immediately, with the remaining shares scheduled to vest based upon the achievement of certain goals and objectives as set forth in the agreement. Ms. Schwan was eligible to receive a performance-based bonus of $250,000. In the event that Ms. Schwan is terminated without cause, she is eligible to receive twelve (12) months of salary in accordance with the agreement.
Information Relating to Cash Incentives
The Board of Directors previously had adopted an Incentive Compensation Plan providing for annual incentive compensation to be paid to executive and managerial employees of the Company. Under the Plan, designated Named Executive Officers and several other executive officers and managers may receive incentive compensation payments, determined on a quarterly and annual basis, based upon the income of the Company before provision for income tax or for incentive compensation if the net income exceeds a threshold amount of profit for any quarter of $100,000 and, for the year, of $250,000. The benefits under the Plan are divided into two Pools of compensation. Pool I (representing the largest pool of incentive compensation) covers senior executive officers and managers who participate in the pool of incentive compensation based upon a percentage allocation recommended by the Compensation Committee and determined by the Board of Directors each year. Pool II covers other executives and managers who are selected to participate in proportions determined by management. The Compensation Committee recommends the amount of the incentive compensation awards which, in the aggregate, may not exceed sixteen percent of the net income of the Company (before provision for income tax or incentive compensation under the Plan). Further, the amount of incentive compensation to any participant may not exceed the annual base compensation of the participant. The Compensation Committee believed such incentive compensation motivates participants to achieve strong profitability which is viewed as the most significant element of corporate performance, provides rewards for strong corporate performance and aligns the incentive with the interests of the shareholders. Incentive compensation participation levels are generally determined during the first quarter of each fiscal year.
In determining the executives who participate in the incentive compensation awards in Pool I each year, and the relative amount of the award to each participant, the Compensation Committee considers and takes into account (i) the position of the executive, (ii) the level of responsibility and authority of the executive, (iii) the performance of the executive, and (iv) the extent to which the executive is in a position to affect the financial results and profitability of the Company. The current Board of Directors is considering a revised incentive plan and terminating the plan described in this section. No replacement plan has yet been adopted, but the Board of Directors and Management have both indicated their desire to change this program.
Long-Term Equity Incentives
The Board of Directors adopted and approved a new incentive option plan in April 2018 which was submitted to, and approved by, our shareholders at the annual meeting of shareholders on June 8, 2018 (the “Plan”). This Plan updated and replaced the prior Stock Incentive Plan from 2009. Under the Plan, the Compensation Committee of the Board of Directors is authorized to issue incentive options, non-statutory options, restricted stock awards and stock grants to officers, directors, management personnel and consultants of the Company. The Board of Directors determined that no further options would be granted under the 2009 Incentive Stock Plan.
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Stock awards and option grants under the Plan will be determined from time to time by the Compensation Committee in consultation with management. The actual grant for each executive is determined by taking into consideration (i) individual performance, (ii) corporate performance and (iii) prior grants to, or stock ownership of the Company by, the executive or director. Generally, stock options are granted with an exercise price equal to or greater than the closing price of the Company’s common stock on the NASDAQ Stock Market on the date of the grant.
During 2024, each of the three independent Directors was granted 5,000 shares of restricted stock that vest over 12 months.
During 2023, each of the three independent Directors was granted 5,000 shares of restricted stock that vest over 12 months.
Retirement Benefits
The Company maintains a 401(k) employee savings plan in which all salaried employees are eligible to participate. The plan is a tax qualified retirement plan.
Under the 401(k) Plan, employees may contribute up to 15% of their eligible compensation to the Plan and the Company will contribute a matching amount to the Plan each year. Participating employees may direct the investment of individual and company contributions into one or more of the investment options offered by the Plan. The Company has the ability to make matching contributions under the Plan, but none were made during 2024 or 2023.
These are unvested restricted stock awards provided to Jana M. Schwan, and will be vested based on milestone performance goals set by the Board of Directors.
OUTSTANDING EQUITY AWARDS
| Number of Securities Underlying | ||||
| Name | Unvested Performance Grants | |||
| Jana M. Schwan | 222,750 | |||
EQUITY COMPENSATION PLAN INFORMATION
The total approved equity compensation plan is for 500,000 shares, out of these unvested shares are 242,750. Vested and unissued shares are 172,250, total shares outstanding and unissued are 415,000 as of December 31, 2024.
Payments Upon Termination or Change of Control
The employment agreement with Jana Schwan, effective November 2024, includes payment of twelve months salary upon termination except for cause as is defined by that agreement.
| 28 |
Director Compensation
The following table sets forth the compensation of directors of the Company during the year ended December 31, 2024:
DIRECTOR COMPENSATION
| Director’s | Stock | All other | ||||||||||||||
| Name | Fees | Awards (1) | compensation | Total | ||||||||||||
| Yubao Li | $ | - | $ | - | $ | - | $ | - | ||||||||
| Frank Cesario | $ | - | $ | - | $ | - | $ | - | ||||||||
| Douglas Bosley | $ | 12,000 | $ | 4,750 | $ | - | $ | 16,750 | ||||||||
| JD Roberts | $ | 12,000 | $ | 4,750 | $ | - | $ | 16,750 | ||||||||
| Philip Wong | $ | 12,000 | $ | 4,750 | $ | - | $ | 16,750 | ||||||||
| (1) | Reflects the compensation expense recognized in 2024 for stock awards under ASC Topic 718 as reported in the Company’s audited financial statements. |
Narrative Description of Director Compensation
Payments to non-employee directors were suspended during 2019, and restarted as of January 2022.
Agreements Between Third Parties and Directors
There are no agreements or arrangements by which any directors or nominees are to receive compensation or other payments from third parties in return for serving on the Board of Directors.
| 29 |
Item No. 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
BENEFICIAL OWNERSHIP OF SHARES BY MANAGEMENT
AND SIGNIFICANT SHAREHOLDERS
The following table provides information concerning the beneficial ownership of the Company’s Common Stock by each director and nominee for director, certain executive officers, and by all directors and officers of the Company as a group as of December 31, 2024. In addition, the table provides information concerning the current beneficial owners, if any, known to the Company to hold more than 5 percent of the outstanding Common Stock of the Company.
The amounts and percentage of stock beneficially owned are reported based on regulations of the Securities and Exchange Commission (“SEC”) governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days after December 31, 2024. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities in which he has no economic interest. The percentage of Common Stock beneficially owned is based on 26,019,837 shares of Common Stock outstanding as of December 31, 2024.
| Name of Beneficial Owners | Number of Shares | Percent of Class | ||||||
| Directors and Executive Officers | ||||||||
| Yubao Li, Chairman, Director** | 12,100,000 | 46.6 | % | |||||
| Frank Cesario, Director | 195,750 | * | ||||||
| Jana Schwan, Chief Executive Officer | 110,725 | * | ||||||
| Douglas Bosley, Director | 15,000 | * | ||||||
| Gerald (J.D.) Roberts, Jr., Director | 15,000 | * | ||||||
| Philip Wong, Director | 15,000 | * | ||||||
| All directors and executive officers as a group (6 persons) | 12,451,475 | 47.9 | % | |||||
| Other Principal Shareholders | ||||||||
| Mr. Shuai Wang | 1,888,078 | 7.3 | % | |||||
| Icy Mellon LLC | 1,826,399 | 7.0 | % | |||||
| Mitzners Consulting | 1,564,691 | 6.0 | % | |||||
| Yaping Zhang | 1,000,000 | 3.8 | % | |||||
| Tu Li | 766,594 | 2.9 | % | |||||
| Others | 6,522,600 | 25.2 | % | |||||
| Total Other Principal Shareholders | 13,568,362 | 52.1 | % | |||||
| Total Shareholders | 26,019,837 | 100.0 | % | |||||
Notes:
* Less than 1% of beneficial ownership
** Includes shares held by LF International PTE, a Singapore private limited company controlled by Mr. Li, as well Yunhong Environmental Protection Technology Co., Ltd. as part of the Yunhong China Group controlled by Mr. Li.
| 30 |
Item No. 13 – Certain Relationships and Related Transactions
As of December 2017, Mr. John H. Schwan was owed a total of $1.1 million, with additional accrued interest of $0.4 million, by the Company. Mr. Schwan is the father of Jana Schwan. As part of the December 2017 financing with PNC Bank, Mr. Schwan executed a subordination agreement related to these amounts due to him, as evidenced by a related note representing the amount owed to Mr. Schwan. During January 2019, Mr. Schwan and the Company agreed to an exchange of $0.6 million of his debt for approximately 181,000 shares of CTI common stock at the then market rate of $3.32 per share. As of December 31, 2023, the balance of Mr. Schwan’s note was approximately $1.3 million, including accrued interest. Per agreement between the parties, this note was repaid in installments: $0.5 million on January 2, 2024, another $0.5 million on January 16, 2024, with the remaining $0.3 million outstanding as of December 31, 2024 with an ultimate payment date subject to mutual determination by the parties.
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 pursuant to an Asset Purchase Agreement and in exchange for 5 million shares of the Company’s common stock, which was valued at $6.25 million. Certificates representing these common shares were not issued as of December 31, 2024, however, we deem this an administrative action which will be resolved during 2025.
Relationships and transactions in which the Company and its directors and executive officers or their immediate family members are participants or have conflicts of interest are reviewed and approved by the Audit Committee. While the Audit Committee has not adopted a written policy for the review and approval of related party transactions, in determining whether to approve or ratify any such transaction, the Audit Committee considers, in addition to such other factors it may deem appropriate in the circumstances, whether (i) the transaction is fair and reasonable to the Company, (ii) under all of the circumstances, the transaction is in, or not inconsistent with, the Company’s best interests, and (iii) the transaction will be on terms no less favorable to the Company than could have been obtained in an arms’ length transaction with an unrelated third party. The Audit Committee, in its discretion, may request information from any party to facilitate its consideration of the matter. The Audit Committee does not allow a director to participate in any review, approval or ratification of any transaction if he or she, or his or her immediate family member, has a direct or indirect material interest in the transaction.
Item No. 14 – Principal Accountant Fees and Services
| · | On April 1, 2024, the Board of Directors of the Company dismissed BF Borgers CPA, PC, (“Borgers”) as the Company’s independent registered public accounting firm. |
| · | On April 1, 2024, the Board of Directors of the Company approved the engagement of Wolf & Company, P.C. (“Wolf”) as the Company’s new independent registered public accounting firm. |
The following table sets forth the amount of fees billed to us by Wolf, our current auditor, and Borgers, our previous auditor, for professional services during the years ended December 31, 2024 and 2023, respectively, as described below:
| 2024 | 2023 | |||||||
| Audit Fees – BF Borgers CPA (1) | - | $ | 357,500 | |||||
| Audit Fees – Wolf & Company, P.C. (1) (2) | $ | 629,500 | - | |||||
| Audit Related Fees (3) | - | - | ||||||
| All Other Fees (4) | - | - | ||||||
| Total Fees | $ | 629,500 | $ | 357,500 | ||||
(1) Includes the annual financial statement audit and limited quarterly reviews and expenses.
(2) Wolf was engaged to re-audit fiscal year 2023
(3) Includes fees and expenses for other audit related activity.
(4) May represent tax services and other consulting services.
All audit, tax and other services to be performed for the Company must be pre-approved by the Audit Committee. The Audit Committee reviews the description of services and an estimate of the anticipated costs to perform those services. Services not previously approved cannot commence until such approval has been granted. Pre-approval is granted usually at regularly scheduled meetings. If unanticipated items arise between meetings of the Audit Committee, the Audit Committee has delegated approval authority to the Chairman of the Audit Committee, in which case the Chairman communicates such pre-approvals to the full Committee at its next meeting.
The Audit Committee of the Board of Directors reviews all relationships with its independent auditors, including the provision of non-audit services, which may relate to the independent registered public accounting firm’s independence.
| 31 |
PART IV
Item No. 15 – Exhibits and Financial Statement Schedules
(a)(1) The following documents are filed under pages F-1 through F-20 and are included as part of this Form 10-K:
(a)(2) All financial statement schedules are omitted because the information is inapplicable or presented in the notes to the financial statements, except for Schedule II – Valuation and qualifying accounts.
(a)(3) Exhibits required by Item 601 of Regulation S-K are incorporated herein by reference and are listed on the attached Exhibit Index.
| 32 |
| (a) | The Exhibits listed in subparagraph (a)(3) of this Item 15 are attached hereto unless incorporated by reference to a previous filing. | |
| (b) | The Schedule listed in subparagraph (a)(2) of this Item 15 is attached hereto. |
Item No. 16 – Summary
None.
| 33 |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized on April 14, 2025.
| Yunhong Green CTI, LTD | ||
| By: | /s/ Jana M. Schwan | |
Chief Executive Officer | ||
| By: | /s/ Frank Cesario | |
| Frank Cesario, Principal Accounting Officer, Director | ||
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
| Signatures | Title | Date | ||
| /s/ Yubao Li | Chairman of the Board of Directors | April 14, 2025 | ||
| Yubao Li | ||||
| /s/ Douglas Bosley | Director | April 14, 2025 | ||
| Douglas Bosley | ||||
| /s/ Gerald (J.D.) Roberts, Jr. | Director | April 14, 2025 | ||
| Gerald (J.D.) Roberts, Jr. | ||||
| /s/ Philip Wong | Director | April 14, 2025 | ||
| Philip Wong |
| 34 |
Yunhong Green CTI LTD
Consolidated Financial Statements
Years ended December 31, 2024 and 2023
Contents
Financial Statement Schedule:
All other schedules for which a provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
| 35 |
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of Yunhong Green CTI Ltd.
Opinion on the Financial Statements
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters also are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
| F-1 |
Auditing procedures over inventory
Due to the timing of our engagement, we were unable to perform an inventory observation over the opening balance of inventory and the ending balance of inventory for the year ending December 31, 2023. Therefore, auditor judgment was applied when determining the nature and extent of our audit procedures and sufficiency of audit evidence relating to the existence of inventory for the year ending December 31, 2023.
Addressing this critical audit matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included, among others: i) completion of an observation at the Company’s facilities with test counts of inventory soon after initially being engaged for the audit of the 2023 financial statements, and ii) testing a rollback of inventory transactions for completeness and accuracy to support recorded inventory balances in the 2023 financial statements.
/s/
We have served as the Company’s auditor since 2024.
April 14, 2025
| F-2 |
Yunhong Green CTI, Ltd
Consolidated Balance Sheets
As of December 31
| 2024 | 2023 | |||||||
| 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 asset | ||||||||
| Prepaid expenses, noncurrent | ||||||||
| Total other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Trade payables | $ | $ | ||||||
| Line of credit | ||||||||
| Notes payable - current portion | ||||||||
| Notes payable related party | ||||||||
| Operating lease liabilities – current portion | ||||||||
| Advance investor deposit | ||||||||
| Accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Notes payable – net of current portion | ||||||||
| 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 report of independent registered public accounting firm and notes to consolidated financial statements.
| F-3 |
Yunhong Green CTI, Ltd
Consolidated Statements of Operations and Comprehensive Loss
For the years ended December 31
| 2024 | 2023 | |||||||
| Net Sales | $ | $ | ||||||
| Cost of Sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| General and administrative | ||||||||
| Selling | ||||||||
| Advertising and marketing | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other (expense) income: | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income/(expense) | ( | ) | ||||||
| Total other expense, net | ( | ) | ||||||
| Net Loss | ( | ) | ( | ) | ||||
| Deemed dividends on preferred stock | ( | ) | ( | ) | ||||
| Net loss attributable to Yunhong 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 report of independent registered public accounting firm and notes to consolidated financial statements.
| F-4 |
Yunhong Green CTI, Ltd
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 | - | - | - | ( | ) | - | ||||||||||||||||||||||||||||||||||||||
| Stock Issuance | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Common Stock Issued for Assets Acquired | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock Issuance - Vesting Milestone | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Equity Compensation Charge | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance December 31, 2024 | $ | $ | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Series B Preferred Stock | Common Stock | Additional Paid-in | Accumulated (Deficit) | Less Treasury Stock | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Shares | Amount | TOTAL | ||||||||||||||||||||||||||||
| Balance December 31, 2022 | $ | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||
| Series B Conversion of Preferred Stock to Common stock | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||
| Common Stock issued for notes payable and investor deposit | - | - | ||||||||||||||||||||||||||||||||||
| Series B Accrued Deemed Dividend | ( | ) | - | |||||||||||||||||||||||||||||||||
| Equity Compensation Charge | - | - | ||||||||||||||||||||||||||||||||||
| Broker issuance | - | - | ||||||||||||||||||||||||||||||||||
| Conversion of warrants and deferred liability | - | - | ||||||||||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||
| Balance December 31, 2023 | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
See report of independent registered public accounting firm and notes to consolidated financial statements.
| F-5 |
Yunhong Green CTI, Ltd
Consolidated Statements of Cash Flows
For the years ended December 31
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Issuance of common stock for consulting services | ||||||||
| Equity compensation charge | ||||||||
| Non-cash interest and fees | ||||||||
| Change in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Trade payables | ( | ) | ||||||
| Advance investor deposit | ||||||||
| 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 | ( | ) | ||||||
| Net advances (repayments) of term loan | ( | ) | ||||||
| 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 year | ||||||||
| Cash and cash equivalents at end of year | $ | $ | ||||||
| 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 assets acquired | ||||||||
| Allocation of proceeds from preferred stock financing to the issuance of warrants for common stock | ||||||||
| Reclassification of investor advances upon issuances of preferred stock | ||||||||
| Adjustment to right-of-use asset and lease liability upon extension | ||||||||
| Conversion of notes and liabilities into common stock | ||||||||
| Conversion of preferred stock into common stock | ||||||||
See report of independent registered public accounting firm and notes to the consolidated financial statements.
| F-6 |
Yunhong Green CTI Ltd.
Notes to Consolidated Financial Statements
Years Ended December 31, 2024 and 2023
1. Nature of Business
Nature of Operations
Yunhong Green CTI Ltd. (formerly Yunhong CTI Ltd. and prior to that CTI Industries Corporation), its (inactive) subsidiary CTI Supply, Inc., and its wholly-owned subsidiary, Yunhong Technology (Hubei) Co. Ltd., in the Hubei Province of China (collectively, the “Company”) (i) design, manufacture and distribute metalized and latex balloon products throughout the world and (ii) 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 including balloon-inspired gift products. The Company is exploring ways to commercialize compostable and biodegradable materials, as well as sourcing additional products and materials through its subsidiary.
The Company formed a wholly owned subsidiary, Yunhong
Technology (Hubei) Co. Ltd., in the Hubei Province of China. As further described in Note 13, on June 30, 2024, the Company, through
the China subsidiary, acquired certain production assets pursuant to an Asset Purchase Agreement and in exchange for million shares
of the Company’s common stock, which was valued at $
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements and accompanying notes have been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and are presented in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”).
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
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 consolidated financial statements include the accounts of Yunhong Green CTI Ltd., CTI Supply, Inc., and Yunhong Technology (Hubei) Co., Ltd.
Foreign Currency Translation
Substantially all activities occur in US Dollars. Operations have not yet begun at Yunhong Technology (Hubei) Co, Ltd.
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 doubtful accounts, inventory valuation, deferred tax assets, and valuation of shared-based awards and warrants.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and short-term investments with original maturities of three months or less.
Accounts Receivable and Allowance for Doubtful Accounts
Trade receivables are carried at the original invoice amount less an estimate for doubtful receivables based on a review of all outstanding amounts on a monthly basis. A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for a period in excess of the customer’s normal terms.
Our allowance for doubtful accounts represents our
estimate of expected credit losses related to our trade receivables. We pool our trade receivables based on similar risk characteristics,
such as the age of receivables. To estimate our allowance for doubtful accounts, we leverage information on historical losses, asset-specific
risk characteristics, current conditions, and reasonable and supportable forecasts of future conditions. Account balances are written
off against the allowance when we deem the amount is uncollectible. Accounts receivable are stated at their estimated net realizable
value $
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard costs which approximates costing determined on a first-in first-out basis, to reflect the actual cost of production of inventories.
Production costs of work in process and finished goods include material, labor and overhead. Inventory is not recorded in excess of net realizable value.
| F-7 |
Property, Plant and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to operations as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized on a straight-line method over the lesser of the estimated useful life or the lease term. The estimated useful lives range as follows:
| (in years) | ||
| Building | ||
| Machinery and equipment | ||
| Projects that prolong the life and increase efficiency of machinery | ||
| Light machinery | ||
| Heavy machinery | ||
| Office furniture and equipment | ||
| Intellectual property | ||
| Leasehold improvements |
Light machinery consists of forklifts, scissor lifts,
and other warehouse machinery. Heavy machinery consists of production equipment including laminating, printing and converting equipment.
Projects in process represent those costs capitalized in connection with construction of new assets and/or improvements to existing assets
including a factor for interest on funds committed to projects in process of $
Valuation of Long-Lived Assets
The Company evaluates whether events or circumstances have occurred which indicates that the carrying amounts of long-lived assets (principally property, plant and equipment) may be impaired or not recoverable. The significant factors that are considered that could trigger an impairment review include: changes in business strategy, market conditions, or the manner of use of an asset; underperformance relative to historical or expected future operating results; and negative industry or economic trends. In evaluating an asset for possible impairment, management estimates that asset’s future undiscounted cash flows and appraised values to measure whether the asset is recoverable. The Company measures the impairment based on the projected discounted cash flows of the asset over its remaining life.
Leases
We account for our leases in accordance with ASC 842, “Leases” (“ASC 842”). ASC 842 requires a lessee to recognize assets and liabilities on the balance sheet for all leases, with the result being the recognition of a right of use (“ROU”) asset and a lease liability. The lease liability is equal to the present value of the minimum lease payments for the term of the lease, including any optional renewal periods determined to be reasonably certain to be exercised, using a discount rate determined at lease commencement. This discount rate is the rate implicit in the lease, if known; otherwise, the incremental borrowing rate for the expected lease term is used. Our incremental borrowing rate approximates the rate we would have to pay to borrow on a collateralized basis over a similar term at lease inception. The value of the ROU asset is equal to the initial measurement of the lease liability plus any lease payments made to the lessor at or before the commencement date and any unamortized initial direct costs incurred by the lessee, less any unamortized lease incentives received. Several of our lease contracts include options to extend the lease term and we include the renewal options for these leases in the determination of the ROU asset and lease liability when the likelihood of renewal is determined to be reasonably certain.
We enter into leases in the course of ordinary business including warehouses and manufacturing facilities, as well as vehicles and equipment used in our operations. Leases with an initial term of 12 months or less are not recorded on the balance sheet as we recognize lease expense for these leases on a straight-line basis over the lease term. The depreciable life of assets and related improvements are limited by the expected lease term, unless there is a reasonably certain expected transfer or title or purchase option. Some lease agreements include renewal options at our sole discretion. Any guaranteed residual value is included in our lease liability.
There are two types of leases, operating leases and finance leases. Lease classification is determined at lease commencement. We have made an accounting policy election to apply the short-term exception, which does not require the capitalization of leases with terms of 12 months or less. All of our leases are classified as operating leases. Operating lease expense is recognized on a straight-line basis over the lease term and included in general and administrative expense on the consolidated statement of income. ROU assets are classified as such on the consolidated balance sheets, short-term lease liabilities and long-term lease liabilities are classified as such in the consolidated balance sheets. In the statements of cash flow, payments for operating leases are classified as operating activities.
| F-8 |
The Company has stock-based incentive plans which may grant stock option, restricted stock and unrestricted stock awards. The Company recognizes stock-based compensation expense based on the grant date fair value of the award and the related vesting terms.
The recognition of compensation expense associated with performance-based restricted stock units requires judgment in assessing the probability of meeting the performance goals, as well as defined criteria for assessing achievement of the performance-related goals. For purposes of measuring compensation expense, the number of shares ultimately expected to vest is estimated at each reporting date based on management’s expectations regarding the relevant performance criteria. The performance shares begin vesting only upon the achievement of the performance criteria. The achievement of the performance goals can impact the valuation and associated expense of the restricted stock units. The assumptions used in accounting for the share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if circumstances change and we use different assumptions, our stock-based compensation expense could be materially different in the future. See Note 13 for additional information.
Investor Advances
The Company has received advances from investors during recent years prior to the execution of a related financing arrangement. Such advances are treated as current liabilities until such time as a final investment vehicle is executed by the parties. Investor advances in prior year financial statements have been reclassified to conform to the current year presentation.
Basic income (loss) per share is computed by dividing net income (loss) attributable to Yunhong Green CTI Ltd. Common shareholders by the weighted average number of shares of common stock outstanding during each period.
Diluted earnings (loss) per share is computed by dividing the net loss attributable to Yunhong Green CTI Ltd. Common shareholders 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.
As of December 31, 2024, and 2023, shares to be issued upon the exercise of warrants aggregated and , respectively. options were outstanding as of December 31, 2024 and 2023. The number of shares included in the determination of earnings on a diluted basis for the year ended December 31, 2024, and 2023 were none, as doing so would have been anti-dilutive.
Fair Value Measurements
Current professional accounting guidance applies to all assets and liabilities that are being measured and reported on a fair value basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. The requirements prescribe a fair value hierarchy that has three levels of inputs, both observable and unobservable, with use of the lowest possible level of input to determine fair value. A Level 1 input includes a quoted market price in an active market or the price of an identical asset or liability. Level 2 inputs are market data other than Level 1 inputs that are observable either directly or indirectly including quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data.
The carrying value amounts of the Company’s cash and cash equivalents, accounts and notes receivable, accounts payable and other current liabilities are reasonable estimates of their fair values due to the short-term nature of these instruments.
Deferred Financing Costs
Deferred financing costs are amortized over the term of the loan. Upon refinancing, existing unamortized deferred financing costs are expensed.
| F-9 |
Income Taxes
The Company accounts for income taxes using the asset and liability method. As such, deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.
Deferred tax assets and liabilities are measured
using enacted tax rates expected to be in effect when the anticipated reversal of these differences is scheduled to occur. Deferred tax
assets are reduced by a valuation allowance when management cannot determine, in its opinion, that it is more likely than not that the
Company will recover that recorded value of the deferred tax asset. The Company is subject to U.S. Federal, state and local taxes as
well as certain foreign taxes in Mexico (through October 2021) and China. U.S. income tax expense and foreign withholding taxes are provided
on remittances of foreign earnings and on unremitted foreign earnings that are not indefinitely reinvested.
We utilize a two step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. See Note 9 for further discussion.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification (“ASC”) 606 “Revenue from Contracts with Customers (“ASC 606”).” The core principle of ASC 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASC 606 defines a five-step process to recognize revenue and requires judgment and estimates within the revenue recognition process, including identifying contracts with customers, identifying performance obligations in the contract, determining and estimating the amount of any variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation and recognizing revenue when the entity satisfies each performance obligation.
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. In most cases, the Company has a single product delivery performance obligation. Accrued product returns are estimated based on historical data and evaluation of current information.
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.
A disaggregation of product net sales is presented in Note 14.
Research and Development
The Company conducts product development and research
activities which include (i) creative product development and (ii) engineering. During the years ended December 31, 2024 and 2023, research
and development activities totaled approximately $
Advertising Costs
The Company expenses advertising costs as incurred.
Note 3 – Liquidity and Going Concern
The Company’s financial statements are prepared
using 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 December 31, 2024 of approximately $
Management’s plans include executing on its business plan and raising external funds to the extent needed. These factors are indicators that there is substantial doubt about the ability to continue as a going concern for one year from the issuance of the accompanying consolidated financial statements. The accompanying 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 a Credit Agreement. During September 2021,
we entered into a new credit agreement with Line Financial. The new agreement with Line Financial includes a revolving credit facility
for up to $
| F-10 |
4. New Accounting Pronouncements
Recent Accounting Pronouncements
Recent Accounting Guidance Adopted in the Current Year
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-07 to improve segment disclosure requirements under Accounting Standards Codification (“ASC”) 280, Segment Reporting, primarily through enhancing disclosures about significant segment expenses. The guidance requires entities to provide significant segment expenses that are regularly provided to the CODM and other segment expenses included in each reported measure of segment profitability. This ASU also enhances interim segment reporting requirements by aligning interim disclosures with information that must be disclosed annually in accordance with ASC 280. We adopted this ASU in the fourth quarter of 2024. Note 14 has been adjusted for the impacts of our adoption of this ASU.
Recent Accounting Guidance Not Yet Adopted
In December 2023, FASB issued ASU 2023-09, which requires enhanced income tax disclosures, including disaggregation of information in the rate reconciliation table and disaggregated information related to income taxes paid. The amendments in ASU 2023-09 are effective for the fiscal year ending after December 15, 2025. The Company is currently evaluating the impact that this update will have on its disclosures in the consolidated financial statements.
In November 2024, FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40). The ASU requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions. This ASU also requires disclosure of the total amount of selling expenses along with the definition of selling expenses. The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Adoption of this ASU can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated financial statements. Early adoption is also permitted. This ASU will likely result in the required additional disclosures being included in our consolidated financial statements, once adopted. We are currently evaluating the provisions of this ASU.
No other new accounting pronouncements recently adopted or issued had or are expected to have a material impact on the consolidated financial statements.
5. Fair Value Disclosures
U.S. GAAP clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. U.S. GAAP also requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based upon the best information available.
U.S. GAAP establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:
| ● | Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs are observable for the asset or liability, or unobservable but corroborated by market data, for substantially the full term of the financial instrument. | |
| ● | Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
A financial instrument’s categorization within
the valuation hierarchy is based upon the lowest level of the input that is significant to the fair value measurement. The Company’s
assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors
specific to the asset or liability. There were
| F-11 |
6. Major Customers
For the year ended December 31, 2024, the Company
had two customers that accounted for approximately
7. Inventories
The components of inventories are as follows:
December 31, 2024 | December 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work in Process | ||||||||
| Finished Goods | ||||||||
| Total inventories | $ | $ | ||||||
8. Debt
Senior 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 $
Interest on the Senior Facilities is 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 amended to extend the maturity date to 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
| - | Replace the asset monitoring fee on the Revolving Credit Facility with
an increase in interest rate, to Prime plus |
| - | Reduce the interest rate on the Term Loan to Prime plus |
| - | Reduce the renewal fee for this transaction to $ |
| - | Set the Term Loan asset monitoring fee to |
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 December 31, 2024 and December 31, 2023, the
term loan balance amounted to $
Notes 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 due of $
| F-12 |
9. Income Taxes
Due to an ownership change in the first quarter of 2020, the future utilization of certain post-change income tax attributes of Yunhong CTI Ltd , including net operating loss carryovers, are anticipated to be limited for U.S. income tax purposes.
Income tax provision (benefit) related to operations
differ from the amounts computed by applying the statutory income tax rate of
| Year Ended December 31, | ||||||||
| U.S. Federal provision (benefit) | 2024 | 2023 | ||||||
| At Statutory Rate | $ | ( | ) | $ | ( | ) | ||
| State Taxes | ( | ) | ( | ) | ||||
| Change in Valuation Allowance | ||||||||
| Foreign Tax Differential | ( | ) | ||||||
| Foreign Valuation Allowance | ||||||||
| Other | ( | ) | ||||||
| Total provision (benefit) | $ | $ | ||||||
| F-13 |
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:
| Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Deferred Tax Assets: | ||||||||
| Federal & State NOL Carryforward | $ | $ | ||||||
| Foreign Tax Credit & Other Credits | ||||||||
| Capitalized R&D | ||||||||
| Reserves and Accruals | ||||||||
| Capital Loss Carryforward | ||||||||
| Unicap 263A Adjustment | ||||||||
| Lease liability | ||||||||
| Foreign NOL Carryforward | ||||||||
| Fixed Assets & Intangibles | ||||||||
| Total Gross deferred tax assets | ||||||||
| Less: Val. Allowance | ( | ) | ( | ) | ||||
| Total Deferred Tax Assets | ||||||||
| Deferred Tax Liabilities: | ||||||||
| Right of use operating leases | ||||||||
| Total Gross deferred tax liabilities | ||||||||
| Net Deferred Tax Assets | $ | $ | ||||||
Realization of our deferred tax assets is dependent
upon future earnings, if any, the timing and amount of which are uncertain. Because of our lack of U.S. earnings history the net U.S.
deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $
Net Operating Loss and Tax Credit Carryforwards
As of December 31, 2024, we
had a net operating loss carryforward for federal income tax purposes of approximately $
We have federal credits of approximately
$
10. 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 8, Mr. John H. Schwan was owed approximately $
Icy Mellon LLC, the landlord of the Company’s Barrington Facility, is also a shareholder of the Company.
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 pursuant to an Asset Purchase Agreement and in exchange for million shares of the Company’s common stock, which
was valued at $
| F-14 |
11. 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. On December 18th, 2024, our lease agreement for the Elgin facility was extended through December 31st, 2028.
The table below describes our lease position as of December 31, 2024, and 2023:
| Operating Leases | 2024 | 2023 | ||||||
| Right of use assets | $ | $ | ||||||
| Lease Liabilities - Current | $ | $ | ||||||
| Lease Liabilities – Long Term | $ | $ | ||||||
During the years ended December 31, 2024 and 2023,
we recorded operating lease expenses to general and administrative expense of $
At December 31, 2024, maturities of operating lease liabilities are as follows:
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total Lease Payments | ||||
| Less: Imputed interest | ( | ) | ||
| Total Lease Liabilities | $ |
As of December 31,2024, the weighted average remaining
lease term and weighted average discount rate for our operating leases are
over a similar term.
See report of independent registered public accounting firm and notes to consolidated financial statements.
| F-15 |
12. Convertible Preferred Stock
Series B Convertible Preferred Stock
In November 2020, we issued shares of Series
B Preferred stock for an aggregate purchase price of $
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. These Series F Convertible Preferred Stock can be converted to common stock based on
meeting certain conditions set forth in the document at ten (10) shares of the company’s common stock, no par value. In
addition, warrants to purchase
| F-16 |
13. Other Shareholders’ Equity
Common Stock
As of June 30, 2024, our wholly owned subsidiary,
Yunhong Technology Industry (Hubei) Co,. Ltd., acquired certain assets of Yunhong Environmental Protection Technology Co., Ltd. and Yunhong
China Group (together the “Selling Parties”) pursuant to an Asset Purchase Agreement. The Selling Parties are affiliated
entities of certain stockholders of the Company. In accordance with the terms and conditions of the Asset Purchase Agreement, Yunhong
Green CTI Ltd. agreed to issue million shares of the Company’s common share at a fair value of $
During December 2024, the Company issued
shares of common stock, valued at $
Deposits and Note Conversion to Common Stock
In connection with the 2021 sale and leaseback transaction
of the Company’s primary facility in Lake Barrington, IL, the landlord advanced rent payments in the form of a note. The balance
of that note on December 31, 2022 was approximately $
Warrants
In connection with the Series D Offering in 2021,
the Company issued warrants to purchase
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 estimate the fair value these warrants for the purchase of common stock. That model incorporates various assumptions including 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 instrument. The expected volatility is based on historical volatility of the Company’s Common Stock.
The valuation assumptions we have applied to determine the fair value of warrants issued in 2024 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 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 %. | |
| - | 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 which is consistent with the contractual term. | |
| - | Dividend yield: The estimate for dividend yield is %, as the Company did not issue dividends during 2020 through 2024 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. |
| F-17 |
A summary of the Company’s common stock warrant activity is as follows:
| Shares under Option (warrant) | Weighted Average Exercise Price | |||||||
| Balance at December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Cancelled/Expired | ||||||||
| Exercised/Issued | ||||||||
| Outstanding at December 31, 2024 | ||||||||
| Exercisable at December 31, 2024 | $ | |||||||
| 2024 Common Stock Warrants | ||||
| Shares reserved as of December 31, 2024 |
During November 2023, the Company issued
shares of its common stock to retire all outstanding warrants, as well as a $
Restricted Stock
Effective January 2022, and in accordance with the Employment Agreement of Chief Executive Officer Frank Cesario, a grant of restricted stock was made in the amount of shares. shares vested immediately, while the remaining are subject to performance conditions as further detailed in the share grant. Specifically, the restrictions on the remaining shares will lapse based on satisfaction of the following performance goals and objectives and continued employment through the date of meeting such targets:
● The restrictions on shares of the award will lapse and the award will During April 2024 the Compensation Committee determined this condition had been satisfied.
● The restrictions on shares of the award will lapse and the award will This award was terminated in November 2024.
● The restrictions on shares of the award will lapse and the award will On January 30, 2023, the Compensation Committee determined this condition had been satisfied.
● The restrictions on shares of the award will lapse and the award will On August 23, 2022, the Compensation Committee determined this condition had been satisfied with an amended agreement with the Company’s lender.
During 2022 the Compensation Committee awarded the Chief Operating Officer a grant of shares of restricted stock. of these shares vested over the initial 12 month period while the remaining shares vest each based on the performance conditions above.
| F-18 |
Upon taking the role of Chief Executive Officer during November 2024, Ms. Schwan was granted restricted stock in the amount of shares. shares vested immediately, while the remaining are subject to performance conditions as further detailed in the share grant. Specifically, the restrictions on the remaining shares will lapse based on satisfaction of the following performance goals and objectives and continued employment through the date of meeting such targets:
● The restrictions on shares of the award will lapse and the award will
● The restrictions on shares of the award will lapse and the award will
● The restrictions on shares of the award will lapse and the award will
● The restrictions on shares of the award will lapse and the award will
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.
The Company recognized share-based compensation expense relating to vesting of restricted stock of approximately $ and $ in 2024 and 2023, respectively. As of December 31, 2024 and 2023, respectively, there was $ and $ unrecognized compensation expense related to unvested restricted shares. There were approximately performance-based grants for which the underlying performance threshold had not been met as of December 31, 2024.
Aggregated information regarding RSUs, PSUs and RSAs granted under the Plan is summarized below:
| RSUs, PSUs & RSAs | Weighted Average Grant-Date Fair Value | |||||||
| Outstanding at December 31, 2022 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Outstanding at December 31, 2023 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Outstanding at December 31, 2024 | ||||||||
Stock Options
The Compensation Committee (“Committee”) administers the Company’s stock-based plans. The exercise price of the stock options shall be fixed by the Committee at whatever price the Committee may determine in good faith. Unless the Committee determines otherwise, options generally had a -year term with a -year vesting schedule. Unless the Committee provides otherwise, options terminate upon the termination of a participant’s employment, except that the participant may exercise an option to the extent it was exercisable on the date of termination and for a period of time after termination.
In 2009, the shareholders of the Corporation approved, a 2009 Stock Incentive Plan (“2009 Plan”). The 2009 Plan and subsequent awards categorized as inducement of employment authorized the issuance of up to shares of stock or options to purchase stock of the Company (including cancelled shares reissued under the plan.).
On June 8, 2018, our shareholders approved the 2018 Stock Incentive Plan (“2018 Plan”). The 2018 Plan authorized the issuance of up to shares of our common stock in the form of equity-based awards. Because no registration on Form S-8 was filed for these additional shares within 12 months of approval by our shareholders, those additional shares are not available for issuance in the normal course. On June 17, 2022, our shareholders approved of the issuance of additional shares to this plan.
The Company, at the discretion of the board, may issue options in excess of the total available, if options related to that stock plan are cancelled. In some cases, not all shares that are available to a stock plan are issued, as the Company is unable to issue options to a previous plan when a new plan is in place.
See report of independent registered public accounting firm and notes to consolidated financial statements.
| F-19 |
14. Product and Geographic Segment Data
We manage our business activities as a single segment as our business contains similar products and services managed by the Company, and are economically similar, and share similar types of customers, production and distribution. The company designs, manufactures and distributes ballon products throughout the world. The company also laminates, coats, prints and converts films used for food packaging and other commercial uses and for the conversion of films into flexible packaging containers and other products including balloon-inspired gift products.
The customers represent a single market or segment with similar stringent and well-defined requirements. The company makes operating decisions and assesses financial performance only for the Company as a whole and does not make operating decisions or assess financial performance by the end markets which ultimately use the products. Our chief operating decision maker (CODM) is Jana Schwan, CEO. The Company’s CODM regularly reviews financial information presented and does not evaluate the Company’s operating segment using asset or liability information. Instead, the CODM uses revenue, gross margin, and net income or loss to allocate operating and capital resources and assess performance by comparing actual results to historical results and previously forecasted financial information. There are no significant segment expenses reported to the CODM. Due to the single reportable segment, this financial information is presented on the Statements of Operations and Comprehensive Loss.
The following table provides a breakdown of product net sales from operations in each of the years indicated (in thousands):
| Twelve Months Ended | ||||||||||||||||
| December 31, 2024 | December 31, 2023 | |||||||||||||||
| $ | % of | $ | % of | |||||||||||||
| Product Category | (000) Omitted | Net Sales | (000) Omitted | Net Sales | ||||||||||||
| Foil Balloons | % | % | ||||||||||||||
| Film Products | % | % | ||||||||||||||
| Other | % | % | ||||||||||||||
| Total | % | % | ||||||||||||||
15. Contingencies
In the ordinary conduct of our business, we are from time to time subject to lawsuits, investigations and claims, including environmental claims and employee-related matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, including civil penalties or other enforcement actions, we do not believe that any currently pending legal proceeding or proceedings to which we are a party will have a material adverse effect on our business, financial condition or results of operations.
16. 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.
17. Retirement Benefits
The Company maintains a 401(k) employee savings plan in which all salaried employees are eligible to participate. The plan is a tax qualified retirement plan.
Under
the 401(k) Plan, employees may contribute up to
18. Subsequent Events
On January 8, 2025, the Company issued shares
of common stock to its landlord in exchange for rent payable. The fair value of the shares issued were $
| F-20 |