UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________to_________
Commission File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
The
(The Nasdaq Capital Market) |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The number of shares outstanding of the registrant’s common stock, no par value per share, as of November 1, 2023 was (excluding treasury shares).
INDEX
Yunhong Green CTI, LTD
Condensed Consolidated Balance Sheets
| September 30, 2023 | December 31, 2022 | |||||||
| 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 at customer locations | ||||||||
| Projects under construction | ||||||||
| Less : accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total property, plant and equipment, net | ||||||||
| Other assets: | ||||||||
| Operating lease right-of-use | ||||||||
| 1Total other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Trade payables | $ | $ | ||||||
| Line of credit | ||||||||
| Notes payable - current portion | ||||||||
| Notes payable – related party, subordinated | ||||||||
| Operating Lease Liabilities | ||||||||
| Accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Notes payable - noncurrent | ||||||||
| Notes payable – related party, subordinated | ||||||||
| Operating Lease Liabilities – noncurrent | ||||||||
| Total long-term liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Equity: | ||||||||
| Yunhong CTI, Ltd stockholders’ equity: | ||||||||
| Series B Preferred Stock — | ||||||||
| Common Stock – | ||||||||
| Paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Less: Treasury stock, shares | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to condensed consolidated unaudited financial statements
| 1 |
Yunhong Green CTI, LTD
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Selling | ||||||||||||||||
| Advertising and marketing | ||||||||||||||||
| Total operating (income) expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income: | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deferred income recognition | ||||||||||||||||
| Other income/(expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other (expense)/income, net | ( | ) | ( | ) | ( | ) | ||||||||||
| (Loss) from continuing operations before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other Comprehensive Income (Loss) | ||||||||||||||||
| Foreign currency adjustment | ||||||||||||||||
| Comprehensive (loss) / income | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Deemed Dividends on preferred stock and amortization of beneficial conversion feature | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net (Loss) / income attributable to Yunhong CTI Ltd common Shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic (loss) / income per common share | ||||||||||||||||
| Basic (loss) / income per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted (loss) / income per common share | ||||||||||||||||
| Diluted (loss) / income per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares and equivalent shares of common stock outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes to condensed consolidated unaudited financial statements
| 2 |
Yunhong Green CTI, LTD
Condensed Consolidated Statements of Cash Flows (Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income / (loss) from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Equity compensation expense | ||||||||
| Change in assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Trade payables | ( | ) | ||||||
| Accrued liabilities | ( | ) | ||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash (used in) investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance/(Repayment) of long-term debt and revolving line of credit | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net (decrease) / increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash payments for interest | $ | $ | ||||||
| Accrued Divided and Accretion on preferred stock | $ | $ | ||||||
| Lease right-of-use assets and lease liability | $ | $ | ||||||
| Conversion of notes and deposits into common stock | $ | $ | ||||||
| Conversion of Series B preferred stock into common stock | $ | $ | ||||||
See accompanying notes to condensed consolidated unaudited financial statements
| 3 |
Yunhong Green CTI, Ltd
Consolidated Statements of Stockholders’ Equity SEE ATTACHED
| Yunhong CTI, Ltd | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common Stock | Paid-in | Accumulated (Deficit) | Less Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount |
Capital | Earnings | Shares | Amount | TOTAL | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Accrued Deemed Dividend - Series A Preferred Stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion Series A Preferred Stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accrued Deemed Dividend - Series B Preferred Stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accrued Deemed Dividend - Series C Preferred Stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion Series C Preferred Stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accrued Deemed Dividend - Series D Preferred Stock | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion Series D Preferred Stoock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Issuance | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity Compensation Charge | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Yunhong Green CTI, Ltd
Consolidated Statements of Stockholders’ Equity SEE ATTACHED
| Yunhong CTI, Ltd | ||||||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Series B Preferred Stock | Common Stock | Paid-in | Accumulated (Deficit) | Other Comprehensive | Less Treasury Stock | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Loss | Shares | Amount | TOTAL | |||||||||||||||||||||||||||||||
| Balance December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
| Series B Convertible Preferred Stock Issuance | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Common stock issued for notes payable and investor deposit | ||||||||||||||||||||||||||||||||||||||||
| Accrued Deemed Dividend - Series B Preferred Stock | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Equity compensation | ||||||||||||||||||||||||||||||||||||||||
| Broker issuance | ||||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Foreign Currency Translation | ||||||||||||||||||||||||||||||||||||||||
| Balance JuneSeptember 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||
See accompanying notes to condensed consolidated unaudited financial statements
| 4 |
Yunhong Green CTI Ltd. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 - Basis of Presentation
The accompanying condensed (a) consolidated balance sheet as of September 30, 2023 and (b) the unaudited interim condensed consolidated financial statements have been prepared and, in the opinion of management, contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the consolidated financial position and the consolidated statements of comprehensive income and consolidated cash flows for the periods presented in conformity with generally accepted accounting principles for interim consolidated financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2022, filed on April 15, 2023, which can be found on the Company’s website (www.ctiindustries.com) or www.sec.gov.
Principles of consolidation and nature of operations:
Yunhong Green CTI Ltd and CTI Supply, Inc. (collectively, the “Company”) (i) design, manufacture and distribute metalized balloon products throughout the world, including balloon-inspired gift items, (ii) distribute purchased latex balloons and related products, (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, and are beginning to (iv) offer for sale purchased compostable material solutions.
The condensed consolidated financial statements include the accounts of Yunhong Green CTI Ltd., and CTI Supply, Inc. At the annual meeting of stockholders (August 28, 2023), our stockholders approved changing our company name from “Yunhong CTI Ltd.” to “Yunhong Green CTI Ltd.” We also changed our trading symbol from “CTIB” to “YHGJ” to be more reflective of our name. There were no changes with respect to outstanding shares of common or preferred stock or other attributes.
The determination of whether or not to consolidate a variable interest entity under U.S. GAAP requires a significant amount of judgment concerning the degree of control over an entity by its holders of variable interest. To make these judgments, management has conducted an analysis of the relationship of the holders of variable interest to each other, the design of the entity, the expected operations of the entity, which holder of variable interests is most “closely associated” to the entity and which holder of variable interests is the primary beneficiary required to consolidate the entity. Upon the occurrence of certain events, management reviews and reconsiders its previous conclusion regarding the status of an entity as a variable interest entity.
Reclassification:
Certain amounts in the Company’s condensed consolidated financial statements for prior periods have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.
Use of estimates:
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the amounts reported of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period in the financial statements and accompanying notes. Actual results may differ from those estimates. The Company’s significant estimates include valuation allowances for doubtful accounts and inventory valuation, preferred stock dividends and beneficial conversion features, and assumptions used as inputs in the Black-Scholes option-pricing model.
Segments:
The Company operates as a single segment, both in terms of geography and operations, particularly in light of the October 2021 sale of its Flexo Universal subsidiary (Mexico). After that date, all manufacturing occurs in the United States.
| 5 |
Basic income (loss) per share is computed by dividing net income (loss) attributable to Yunhong Green CTI Ltd shareholders by the weighted average number of shares of common stock outstanding during each period.
Diluted income (loss) per share is computed by dividing the net income (loss) attributable to Yunhong Green CTI Ltd shareholders by the weighted average number of shares of common stock and equivalents (stock options and warrants), unless anti-dilutive, during each period.
As of September 30, 2023 and 2022, shares to be issued upon the exercise of options and warrants aggregated in each period.
Significant Accounting Policies:
The Company’s significant accounting policies are summarized in Note 2 of the Company’s consolidated financial statements for the year ended December 31, 2022. There were no significant changes to these accounting policies during the three and nine months ended September 30, 2023.
Net sales include revenues from sales of products and shipping and handling charges, net of estimates for product returns. Revenue is measured at the amount of consideration the Company expects to receive in exchange for the transferred products. Revenue is recognized at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. The Company recognizes revenue for shipping and handling charges at the time the goods are shipped to the customer, and the costs of outbound freight are included in cost of sales, as we have elected the practical expedient included in ASC 606.
The Company provides for product returns based on historical return rates. While we incur costs for sales commissions to our sales employees and outside agents, we recognize commission costs concurrent with the related revenue, as the amortization period is less than one year and we have elected the practical expedient included in ASC 606. We do not incur incremental costs to obtain contracts with our customers. Our product warranties are assurance-type warranties, which promise the customer that the products are as specified in the contract. Therefore, the product warranties are not a separate performance obligation and are accounted for as described herein. Sales taxes assessed by governmental authorities are accounted for on a net basis and are excluded from net sales.
| 6 |
Note 2 – Liquidity and Going Concern
The
Company’s financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”)
applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
The Company has a cumulative net loss from inception to September 30, 2023 of approximately $
The
ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses.
Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing,
continuing to focus our Company on the most profitable elements, and exploring alternative funding sources on an as needed basis. However,
management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The COVID-19 pandemic,
supply chain challenges, and inflationary pressures (including cost and availability of helium) 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. In addition,
as described in Note 3, the Company has a related party, subordinated note in the amount of $
The Company’s primary sources of liquidity have traditionally been comprised of cash and cash equivalents as well as availability under the Credit Agreement in place at the time (see Note 3). We endured compliance failures with covenants until September 2021 when we refinanced our credit facility. We believe we have been in compliance with our new credit facility since that time. This credit facility concluded on September 30, 2023 but we executed an extension with the same lender until September 30, 2025.
| 7 |
Note 3 - Debt
On
September 30, 2021 (the “Closing Date”), the Company entered into a loan and security agreement (the “Agreement”)
with Line Financial (the “Lender”), which provides for a senior secured financing consisting of a revolving credit facility
(the “Revolving Credit Facility) in an aggregate principal amount of up to $
Interest
on the Senior Facilities was set at the prime rate published from time to time published in the Wall Street Journal (
The
Senior Facilities matured on
| - | 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 shall, commencing December 31, 2021, 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 September 30, 2023, the term loan balance amounted to $
As
of January 1, 2019, the Company had a note payable to John H. Schwan, former Director and former Chairman of the Board, for $
As
of December 31, 2022, the Company had a note payable to Alex Feng for $
| 8 |
Note 4 - Shareholders’ Equity
Series A Convertible Preferred Stock
On
January 3, 2020, the Company entered into a stock purchase agreement (as amended on February 24, 2020 and April 13, 2020 (the “LF
Purchase Agreement”)), pursuant to which the Company agreed to issue and sell, and LF International Pte. Ltd., a Singapore private
limited company (“LF International”), which is controlled by Company director, Chairman, President and Chief Executive Officer,
Mr. Yubao Li, agreed to purchase, up to shares of the Company’s newly created shares of Series A Preferred Stock (“Series
A Preferred”), with each share of Series A Preferred initially convertible into ten shares of the Company’s common stock,
at a purchase price of $ per share, for aggregate gross proceeds of $
The
issuance of the Series A Preferred generated a beneficial conversion feature (BCF), which arises when a debt or equity security is issued
with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has
an effective strike price that is less than the market price of the underlying stock at the commitment date. The fair value of the common
stock into which the Series A Preferred was convertible exceeded the allocated purchase price fair value of the Series A Preferred Stock
at the closing dates by approximately $
Series B Convertible Preferred Stock
In
November 2020, we issued shares of Series B Preferred for an aggregate purchase price of $
Series C Convertible Preferred Stock
In
January 2021 we entered into an agreement with a related party, LF International Pte. Ltd. which is controlled by Company director and
Chairman, Mr. Yubao Li, to purchase shares of Series C Preferred stock. We issued shares of Series C Preferred for an aggregate
purchase price of $
| 9 |
Series D Convertible Preferred Stock
In
June 2021, the Company received $ million from an unrelated third party as an advance on a proposed sale of Series D Redeemable Convertible
Preferred Stock. As of September 30, 2021, the Company was in the process of negotiating and finalizing the terms of the arrangement.
As the agreement was not finalized as of September 30, 2021, the $
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 $
Investment Banking Fee
The Company had an agreement with Garden State Securities beginning December 2019 and ending during 2020, wherein Garden State Securities sought equity and debt investment opportunities and was due a fee related to successful investment. That agreement had a tail provision wherein Garden State Securities would be entitled to compensation related to investments from identified parties during a fixed period of time following the termination of the agreement, which has now expired. Pursuant to negotiation between the parties during April 2023, it was agreed that a total presentation of restricted shares of common stock would result in the final resolution of compensation due Garden State Securities, including that related to Series C Preferred Stock, subsequently converted to common stock, and that the agreement and all related potential claims were concluded. The proceeds from this investment were not impacted by this resolution.
Warrants
In
connection with the Series A Offering, in 2020 the Company issued warrants to purchase
The Company has applied the Black-Scholes model to value stock-based awards. That model incorporates various assumptions in the valuation of stock-based awards relating to the risk-free rate of interest to be applied, the estimated dividend yield and expected volatility of the Company’s Common Stock. The risk-free rate of interest is the U.S. Treasury yield curve for periods within the expected term of the option at the time of grant. The expected volatility is based on historical volatility of the Company’s Common Stock.
The valuation assumptions we have applied to determine the value of warrants granted in 2021 and 2020 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 a range from % - %. | |
| - | Expected life: The expected life of the warrants represents the period of time warrants were expected to be outstanding. The Company used an expected life of years. | |
| - | Dividend yield: The estimate for dividend yield is %, as the Company did not issue dividends during 2020 - 2023 and does not expect to do so in the foreseeable future. | |
| - | Estimated forfeitures: When estimating forfeitures, the Company considers historical terminations as well as anticipated retirements. |
| 10 |
A summary of the Company’s stock warrant activity is as follows:
Shares under Option | Weighted Average Exercise Price | |||||||
| Balance at December 31, 2022 | $ | |||||||
| Granted | ||||||||
| Cancelled/Expired | ||||||||
| Exercised/Issued | ||||||||
| Outstanding at September 30, 2023 | ||||||||
| Exercisable at September 30, 2023 | $ | |||||||
| 2021 Warrants | ||||
| Shares reserved as of September 30, 2023 |
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
● The restrictions on shares of the award will lapse and the award will
●
The restrictions on shares of the award lapsed and the award vested when the Company’s operating cash flow, calculated cumulatively
from the date of employment, equaled or exceeded $
● The restrictions on shares of the award lapsed and the award vested 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 shares of restricted stock. of these shares vested over a 12 month period while the remaining shares vest each based on the performance conditions above.
The Audit Committee (as defined in the Plan) is 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. Without such visibility, it considers such probability as de minimis until additional information is available.
Note 5 - Legal Proceedings
The Company may be party to certain lawsuits or claims arising in the normal course of business. The ultimate outcome of these matters is unknown but, in the opinion of management, we do not believe any of these proceedings will have, individually or in the aggregate, a material adverse effect upon our financial condition, cash flows or future results of operation.
| 11 |
Note 6 - Inventories
| September 30, 2023 | December 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
Note 7 - Concentration of Credit Risk
Concentration
of credit risk with respect to trade accounts receivable is generally limited due to the large number of entities comprising the Company’s
customer base. The Company performs ongoing credit evaluations and provides an allowance for potential credit losses against the portion
of accounts receivable which is estimated to be uncollectible. Such losses have historically been within management’s expectations.
During the three and nine months ended September 30, 2023 and 2022, there were
| Three Months Ended | Three Months Ended | |||||||||||||||
| September 30, 2023 | September 30, 2022 | |||||||||||||||
| Customer | Net Sales | % of Net Sales | Net Sales | % of Net Sales | ||||||||||||
| Customer A | $ | % | $ | % | ||||||||||||
| Customer B | $ | % | $ | % | ||||||||||||
| Nine Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2023 | September 30, 2022 | |||||||||||||||
| Customer | Net Sales | % of Net Sales | Net Sales | % of Net Sales | ||||||||||||
| Customer A | $ | % | $ | % | ||||||||||||
| Customer B | $ | % | $ | % | ||||||||||||
As
of September 30, 2023, the total amounts owed to the Company by these customers were approximately $
Note 8 - Related Party Transactions
John
H. Schwan, who resigned as Chairman of the Board on June 1, 2020, has made loans to the Company which had outstanding balances of $
Note 9 - Leases
We
adopted ASC Topic 842 (Leases) on January 1, 2019. In July 2020, the Company entered into a lease agreement for a building through June
2021 (with no extension options). The monthly lease payments were $
When
this lease was extended during March 2022, the ROU (right of use) asset increased to $
| 12 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q. We disclaim any intent or obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform such statements to actual results or to changes in our opinions or expectations. These forward-looking statements are affected by factors, risks, uncertainties and assumptions that we make, including, without limitation, those discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 under the heading “Risk Factors.”
Overview
We produce film products for novelty, packaging and container applications. These products include foil balloons, latex balloons and related products, films for packaging and custom product applications, and flexible containers for packaging and consumer storage applications. We produce all of our film products for packaging, container applications and most of our foil balloons at our facility in Lake Barrington, Illinois. We used to produce our latex balloons and latex products at a majority-owned facility in Guadalajara, Mexico (Flexo Universal, or Flexo). This facility was sold during October 2021. Now the Company purchases latex balloons from an unrelated vendor and distributes in the United States, particularly to those customers that prefer a combined solution for foil and latex balloons.. Substantially all of our film products for packaging and custom product applications are sold to customers in the United States. We market and sell our novelty items, including balloon-inspired gift items (e.g., balloons and candy arranged to look like a flower bouquet for gifting) and flexible containers for consumer use primarily in the United States. We have also begun to support and offer for sale compostable material solutions intended for the North American market.
September 30, 2021 financing
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”). Proceeds of loans borrowed under the Senior Facilities were used to repay all amounts outstanding under the Company’s prior Agreements and for the Company’s working capital. The Senior Facilities are secured by substantially all assets of the Company.
| 13 |
Interest on the Senior Facilities shall be the prime rate published from time to time published in the Wall Street Journal (8% as of March 31, 2023), plus 1.95% per annum, accruing daily and payable monthly. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. The Term Loan Facility shall be repaid by the Company to Lender in 48 equal monthly installments of principal and interest, each in the amount of $15,000, commencing on November 1, 2021, and continuing on the first day of each month thereafter until the Term Loan Maturity Date (as defined in the Agreement). Also, the Company will pay 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. In addition, the Company paid the Lender a loan fee of 1.25% of the Maximum Revolver Amount and the Term Loan Amount upon the execution of the Agreement. During August 2022 the terms were modified to reduce the collateral monitoring fee to 2.77% and added a provision that barred the Company from repaying the facility prior to September 2023. The September 2023 extension further modified the fee structure, eliminating the Asset Monitoring Fee on the Revolving Credit Facility while increasing the interest rate to Prime plus 7.82% per annum, with the intent of being cash flow neutral between the parties but more straightforward in administration. The Term Loan maintains an asset monitoring fee of 0.385% per month pursuant to the renewal agreement.
The Senior Facilities matured on September 30, 2023 and were extended by agreement between the parties until September 30, 2025. This amended facility shall automatically be extended for successive periods of one year each, unless the Company or the Lender gives the other party written notice of termination not less than 90 days prior to the end of such term or renewal term, as applicable. If the Senior Facilities are renewed, the Company shall pay the Lender a renewal fee of 1.25% of the Maximum Revolver Amount and the Term Loan Amount upon each renewal on the anniversary of the Closing Date. The Company has the option to prepay the Term Loan Facility (together with all accrued but unpaid interest and a Term Loan Prepayment Fee (as defined the Agreement) in whole, but not in part, upon not less than 60 days prior written notice to the Lender.
The Senior Facilities require that the Company shall, commencing December 31, 2021, 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 during every relevant month, including as of December 31, 2022 and September 30, 2023.
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 million in the aggregate in any fiscal year. We have extended this facility with the lender on September 30, 2023.
As of September 30, 2023 and December 31, 2022, the term loan balance amounted to $0.5 million, which consisted of the principal and interest payable balance of $0.6 million and deferred financing costs of less than $0.1 million. The balance of the Revolving Line of Credit as of September 30, 2023 and December 31, 2022 amounted to $3.4 and $2.9 million, respectively. Pursuant to the extension, the Lender advanced the Company $0.2 million and increased the Term Loan to $0.7 million, which will be reflected in the Company’s October 2023 financial statements. Pursuant to agreement between the parties, the Company paid a $50,000 renewal fee for the renewal, as opposed to the formula described above.
Results of Operations
Net Sales. For the three month periods ended September 30, 2023 and 2022, net sales were $1,923,000 and $2,263,000, respectively.
For the three-month period ended September 30, 2023 and 2022, net sales by product category were as follows:
| Three Months Ended | ||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | |||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||
| Product Category | (000) Omitted | % of Net Sales | (000) Omitted | % of Net Sales | Variance | % change | ||||||||||||||||||
| Foil Balloons | 1,701 | 88 | % | 1,612 | 71 | % | 89 | 6 | % | |||||||||||||||
| Film Products | 68 | 4 | % | 537 | 24 | % | (469 | ) | (87 | %) | ||||||||||||||
| Other | 154 | 8 | % | 114 | 5 | % | 40 | 35 | % | |||||||||||||||
| Total | 1,923 | 100 | % | 2,263 | 100 | % | (340 | ) | (15 | )% | ||||||||||||||
For the nine month periods ended September 30, 2023 and 2022, net sales were $11,330,000 and $12,478,000, respectively.
| 14 |
For the nine month period ended September 30, 2023 and 2022, net sales by product category were as follows:
| September 30, 2023 | September 30, 2022 | |||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||
| Product Category | (000) Omitted | % of Net Sales | (000) Omitted | % of Net Sales | Variance | % change | ||||||||||||||||||
| Foil Balloons | 8,113 | 74 | % | 8,118 | 65 | % | (5 | ) | (1 | )% | ||||||||||||||
| Film Products | 746 | 7 | % | 1,900 | 15 | % | (1,154 | ) | (61 | )% | ||||||||||||||
| Other | 2,174 | 19 | % | 2,460 | 20 | % | (286 | ) | (12 | )% | ||||||||||||||
| Total | 11,330 | 100 | % | 12,478 | 100 | % | (1,445 | ) | (12 | )% | ||||||||||||||
Foil Balloons. Revenues from the sale of foil balloons increased during the three months period from $1,612,000 ending September 30, 2022 compared to $1,701,000 during the three month period of 2023. Revenues from the sale of foil balloons decreased during the nine month period from $8,118,000 ending September 30, 2022 compared to $8,113,000 during the nine month period of 2023. An increase in the price of helium during 2022 negatively impacted customers of most types of foil balloons beginning the second quarter 2022. This price increase was the result of both the broad inflationary pressures and restrictions on trade with Russia, as we believe the latter supplied approximately 5% of the helium used in the marketplace. This combined with temporary individual supply issues created increased pricing in the market. The market price of helium remains elevated based on historical norms, but less elevated than during the middle of 2022. We also discontinued certain products during 2022 for which we were not able to secure adequate inflationary price increases. Finally, our seasonality demonstrates a low point in revenue during the third quarter with a high point during the fourth quarter.
Films. Revenues from the sale of commercial films were $68,000 and $746,000 during the three and nine month periods ended September 30, 2023, compared to $537,000 and $1,900,000 during the same periods of 2022. 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.
Other Revenues. Revenues from the sale of other products were $154,000 and $2,174,000 during the three and nine month periods ended September 30, 2023, compared to $114,000 and $2,460,000 during the same periods of 2022. The revenues from the sale of other products during these periods include (i) sales of a line of balloon-inspired gift items and similar products consisting of candy and small inflated balloons sold in small containers, (ii) latex balloons, (iii) the sale of accessories and supply items related to balloon products, and going forward (iv) sales of compostable materials. The largest shipments of candy inspired gift items during 2023 occurred during March, while the same shipments during 2022 occurred during April. In addition, shipments related to Valentine’s Day were complete as of December 2022, while in the prior year they went into January 2022. This timing impacts comparability in an area where total order flow has been increasing.
Sales to a limited number of customers continue to represent a large percentage of our net sales. The table below illustrates the impact on sales of our top three and ten customers for the three month periods ended September 30, 2023 and 2022.
| Three Months Ended September 30, | ||||||||
| % of Sales | ||||||||
| 2023 | 2022 | |||||||
| Top 3 Customers | 75 | % | 79 | % | ||||
| Top 10 Customers | 87 | % | 96 | % | ||||
| Nine Months Ended September 30, | ||||||||
| % of Sales | ||||||||
| 2023 | 2022 | |||||||
| Top 3 Customers | 80 | % | 89 | % | ||||
| Top 10 Customers | 91 | % | 92 | % | ||||
| 15 |
During the three and nine months ended September 30, 2023 and 2022, there were two customer whose purchases represented more than 10% of the Company’s consolidated net sales. Sales to these customers for the three and nine months ended September 30, 2023 and 2022 are as follows:
| Three Months Ended | Three Months Ended | |||||||||||||||
| September 30, 2023 | September 30, 2022 | |||||||||||||||
| Customer | Net Sales | % of Net Sales | Net Sales | % of Net Sales | ||||||||||||
| Customer A | $ | 1,097,000 | 56 | % | $ | 1,104,000 | 49 | % | ||||||||
| Customer B | $ | 239,000 | 12 | % | $ | 176,000 | 8 | % | ||||||||
| Nine Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2023 | September 30, 2022 | |||||||||||||||
| Customer | Net Sales | % of Net Sales | Net Sales | % of Net Sales | ||||||||||||
| Customer A | $ | 6,007,000 | 53 | % | $ | 5,438,000 | 43 | % | ||||||||
| Customer B | $ | 2,559,000 | 23 | % | $ | 2,846,000 | 23 | % | ||||||||
As of September 30, 2023, the total amounts owed to the Company by these customers were approximately $806,000 or 81% of the Company’s consolidated net accounts receivable. The amounts owed at September 30, 2022 by these customers were approximately $679,000 or 45% of the Company’s consolidated net accounts receivable.
Cost of Sales. During the three and nine month period ended September 30, 2023, the cost of sales was $1,903,000 and $9,372,000, compared to $2,021,000 and $10,394,000 respectively for the same periods of 2022 due to lower sales volume. As a percentage of sales, cost of sales was 85% during the nine months ended September 30, 2023, compared to 83% during the nine months ended September 30, 2022. The Company designs its cost structure around its seasonality, with lower revenue and spend during the third quarter and higher activity during the fourth quarter. With revenue for the three months ended September 30, 2023 reduced by $0.3 million from the three months ended September 30, 2022, there were greater inefficiencies and reduced fixed cost coverage during the 2023 quarter, resulting in the nine month period difference noted above.
General and Administrative. During the three and nine month period ended September 30, 2023, general and administrative expenses were $677,000 and $2,294,000 compared to $896,000 and $2,731,000, respectively, for the same periods in 2022. When the price of helium increased during 2022, the Company established greater control over its expenses, resulting in lower personnel, professional, and ancillary service cost during the nine months ended September 30, 2023 as compared to the same period of 2022.
Selling, Advertising and Marketing. During the three and nine month period ended September 30, 2023, selling, advertising and marketing expenses were $172,000 and $474,000 as compared to $103,000 and $435,000, respectively, for the same periods in 2022.
Other Income (Expense). During the three and nine month period ended September 30, 2023, the Company incurred interest expense of $124,000 and $421,000 compared to interest expense of $120,000 and $325,000, respectively, during the same periods of 2022. Interest expense increased as a result of market rate increases throughout 2022. The Company applied for Employee Retention Tax Credits during 2021, most of which were factored during 2022 and cash received. Income related to the factored credit filings was recognized when the returns were processed by the US Government during the first six months of 2023. As such, income of none and $895,000 was recognized during the three and nine months ended September 30, 2023, respectively, for which cash was received during 2022.
Financial Condition, Liquidity and Capital Resources
Cash Flow Items.
Operating Activities. During the nine months ended September 30, 2023, net cash used in operations was $442,000, compared to net cash provided by operations during the nine months ended September 30, 2022 of $1,187,000.
Significant changes in working capital items during the nine months ended September 30, 2023 included:
| ● | A decrease in accounts receivable of $685,000 compared to a decrease in accounts receivable of $2,032,000 in the same period of 2022. | |
| ● | An increase in inventory of $203,000 compared to an increase in inventory of $1,286,000 in 2022. | |
| ● | An increase in trade payables of $87,000 compared to an decrease in trade payables of $54,000 in 2022. | |
| ● | A decrease in prepaid expenses and other assets of $22,000 compared to an increase of $562,000 in 2022. | |
| ● | A decrease in accrued liabilities of $496,000 compared to an increase in accrued liabilities of $878,000 in 2022. |
Investing Activity. During the nine months ended September 30, 2023, cash used in investing activity was $136,000, compared to cash used investing activity for the same period of 2022 in the amount of $121,000.
Financing Activities. During the nine months ended September 30, 2023, cash provided by financing activities was $496,000 compared to cash used in financing activities for the same period of 2022 in the amount of $1,031,000.
Liquidity and Capital Resources.
At September 30, 2023, the Company had cash balances of $64,000 compared to cash balances of $101,000 for the same period of 2022.
| 16 |
The ability of the Company to continue as a going concern is dependent on the Company executing its business plan and, if unable to do so, in obtaining adequate capital on acceptable terms to fund any operating losses. Management’s plans to continue as a going concern include executing its business plan, continuing to focus our Company on the most profitable elements, and exploring alternative funding sources on an as needed basis. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The COVID-19 pandemic, supply chain constraints, inflationary pressures, and the cost and commercial availability of helium 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 is dependent upon its ability to successfully generate or otherwise secure other sources of financing and attain profitable operations. There is substantial doubt about the ability of the Company to continue as a going concern for one year from the issuance of the accompanying consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company’s primary sources of liquidity have traditionally been comprised of cash and cash equivalents as well as availability under the Credit Agreement. We believe that we have been in compliance with covenants since refinancing with Line Financial in September 2021. That Credit Agreement expired per its terms on September 30, 2023, and was replaced by a new agreement between the parties until September 30, 2025. The subordinated note is maturing in the near term. While the Company expects to address the note maturity and find acceptable credit as it requires, there can be no assurance of success, and as such, might negatively impact the Company’s ability to continue as a going concern.
Seasonality
In the foil balloon product line, sales have historically been seasonal with approximately 40% occurring in the period from December through March of the succeeding year and 24% being generated in the period July through October in recent years.
Please see pages 11-20 of our Annual Report on Form 10-K for the year ended December 31, 2022 for a description of policies that are critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. No material changes to such information have occurred during the three and nine months ended September 30, 2023.
Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk
Not applicable.
Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified by the Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are properly recorded, processed, summarized and reported within the time periods required by the Commission’s rules and forms.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (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 September 30, 2023. Based on this evaluation, the Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) concluded that our disclosure controls and procedures were not effective as of September 30, 2023, the end of the period covered by this Quarterly Report on Form 10-Q due to the material weaknesses described below.
| 17 |
(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 September 30, 2023. In making our assessment of the effectiveness of internal control over financial reporting, management used the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis. As a result of our evaluation of our internal control over financial reporting, management identified the following material weaknesses in our internal control over financial reporting:
| ● | We lacked a sufficient number of accounting professionals with the necessary knowledge, experience and training to adequately account for significant, unusual transactions that resulted in misapplications of GAAP, particularly with regard to the timing of recognition of certain non-cash charges, and | |
| ● | We are overly dependent upon our Acting Chief Financial Officer, who at present is our Chief Executive Officer, within an environment that is highly manual in nature. |
As a result of the material weaknesses, we have concluded that we did not maintain effective internal control over financial reporting as of September 30, 2023.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company may be party to certain lawsuits or claims arising in the normal course of business. The ultimate outcome of these matters is unknown but, in the opinion of management, we do not believe any of these proceedings will have, individually or in the aggregate, a material adverse effect upon our financial condition, cash flows or future results of operation.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
| 18 |
Item 3. Defaults Upon Senior Securities
The Company believes that it has been in compliance with the terms of the Line Capital financing since inception on September 30, 2021.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The following are being filed as exhibits to this report:
Exhibit Number |
Description | |
| 31.1* | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended (filed herewith). | |
| 31.2* | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended (filed herewith). | |
| 32** | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |
| 101* | Interactive Data Files, including the following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to Consolidated Financial Statements. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed herewith |
| ** | furnished herewith |
| 19 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: November 13, 2023 | Yunhong CTI Ltd. | |
| By: | /s/ Frank J. Cesario | |
| Frank J. Cesario | ||
| Acting Chief Financial Officer | ||
| By: | /s/ Frank J. Cesario | |
| Frank J. Cesario | ||
| Chief Executive Officer |
| 20 |
EXHIBIT 31.1
CERTIFICATIONS
I, Frank J. Cesario, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Yunhong CTI Ltd. (the “Company”).
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the condensed consolidated financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial revporting. |
Date: November 13, 2023
| /s/ Frank J. Cesario | |
| Frank J. Cesario | |
| Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATIONS
I, Frank J. Cesario, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Yunhong CTI Ltd. (the “Company”).
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the condensed consolidated financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 13, 2023
| By: | /s/ Frank J. Cesario | |
| Frank J. Cesario | ||
| Acting Chief Financial Officer |
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Yunhong CTI Ltd. (the “Company”) for the quarterly period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of Frank J. Cesario, Chief Executive Officer of the Company, and Frank J. Cesario, Acting Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 13, 2023
| /s/ Frank J. Cesario | |
| Frank J. Cesario | |
| Acting Chief Financial Officer | |
| /s/ Frank J. Cesario | |
| Frank J. Cesario | |
| Chief Executive Officer |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Series B preferred stock, par value | $ 0 | $ 0 |
| Series B preferred stock, shares authorized | 170,000 | 170,000 |
| Series B preferred stock, shares issued | 0 | 170,000 |
| Series B preferred stock, shares outstanding | 0 | 170,000 |
| Common stock, no par value | $ 0 | $ 0 |
| Common stock, shares authorized | 2,000,000,000 | 50,000,000 |
| Common stock, shares issued | 20,140,413 | 16,102,749 |
| Common stock, shares outstanding | 20,096,755 | 16,059,991 |
| Treasury stock, shares | 43,658 | 43,658 |
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Income Statement [Abstract] | ||||
| Net Sales | $ 1,923,000 | $ 2,263,000 | $ 11,033,000 | $ 12,478,000 |
| Cost of Sales | 1,903,000 | 2,021,000 | 9,372,000 | 10,394,000 |
| Gross profit | 20,000 | 242,000 | 1,661,000 | 2,084,000 |
| Operating expenses: | ||||
| General and administrative | 677,000 | 896,000 | 2,294,000 | 2,731,000 |
| Selling | 33,000 | 32,000 | 98,000 | 104,000 |
| Advertising and marketing | 139,000 | 71,000 | 376,000 | 331,000 |
| Total operating (income) expenses | 849,000 | 999,000 | 2,768,000 | 3,166,000 |
| Loss from operations | (829,000) | (757,000) | (1,107,000) | (1,082,000) |
| Other (expense) income: | ||||
| Interest expense | (124,000) | (120,000) | (421,000) | (325,000) |
| Deferred income recognition | 895,000 | |||
| Other income/(expense) | (14,000) | (92,000) | (87,000) | 18,000 |
| Total other (expense)/income, net | (138,000) | (212,000) | 387,000 | (307,000) |
| (Loss) from continuing operations before taxes | (967,000) | (969,000) | (720,000) | (1,389,000) |
| Income tax expense | ||||
| Net loss | (967,000) | (969,000) | (720,000) | (1,389,000) |
| Other Comprehensive Income (Loss) | ||||
| Foreign currency adjustment | ||||
| Comprehensive (loss) / income | (967,000) | (969,000) | (720,000) | (1,389,000) |
| Deemed Dividends on preferred stock and amortization of beneficial conversion feature | (146,000) | (11,000) | (550,000) | |
| Net (Loss) / income attributable to Yunhong CTI Ltd common Shareholders | $ (967,000) | $ (1,115,000) | $ (731,000) | $ (1,939,000) |
| Basic (loss) / income per common share | ||||
| Basic (loss) / income per common share | $ (0.05) | $ (0.12) | $ (0.04) | $ (0.28) |
| Diluted (loss) / income per common share | ||||
| Diluted (loss) / income per common share | $ (0.05) | $ (0.12) | $ (0.04) | $ (0.28) |
| Weighted average number of shares and equivalent shares of common stock outstanding: | ||||
| Basic | 20,096,955 | 9,261,972 | 19,243,656 | 7,028,920 |
| Diluted | 20,096,955 | 9,261,972 | 19,243,656 | 7,028,920 |
Consolidated Statements of Stockholders' Equity - USD ($) |
Series A Preferred Stock [Member]
Preferred Stock [Member]
|
Series B Preferred Stock [Member]
Preferred Stock [Member]
|
Series C Preferred Stock [Member]
Preferred Stock [Member]
|
Series D Preferred Stock [Member]
Preferred Stock [Member]
|
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
AOCI Attributable to Parent [Member] |
Treasury Stock, Common [Member] |
Total |
|---|---|---|---|---|---|---|---|---|---|---|
| Beginning balance, value at Dec. 31, 2021 | $ 3,155,000 | $ 1,715,000 | $ 1,630,000 | $ 1,512,000 | $ 14,538,000 | $ 4,317,000 | $ (22,655,000) | $ (161,000) | $ 4,051,000 | |
| Beginning balance, shares at Dec. 31, 2021 | 500,000 | 170,000 | 170,000 | 170,000 | 5,930,408 | (44,000) | ||||
| Accrued Deemed Dividend - Series A Preferred Stock | $ 267,000 | (267,000) | ||||||||
| Conversion Series A Preferred Stoock | $ (3,422,000) | $ 3,422,000 | ||||||||
| Conversion Series A Preferred Stock, shares | (500,000) | 6,278,990 | ||||||||
| Accrued Deemed Dividend - Series B Preferred Stock | $ 102,000 | (102,000) | ||||||||
| Accrued Deemed Dividend - Series C Preferred Stock | $ 91,000 | (91,000) | ||||||||
| Conversion Series C Preferred Stock | $ (1,721,000) | $ 1,721,000 | ||||||||
| Conversion Series C Preferred Stock, shares | (170,000) | 1,985,702 | ||||||||
| Accrued Deemed Dividend - Series D Preferred Stock | $ 91,000 | (91,000) | ||||||||
| Conversion Series D Preferred Stoock | $ (1,603,000) | $ 1,603,000 | ||||||||
| Conversion Series D Preferred Stock, shares | (170,000) | 1,826,399 | ||||||||
| Stock Issuance | $ (1,000) | 1,000 | ||||||||
| Stock Issuance, shares | 81,250 | |||||||||
| Equity Compensation Charge | 153,000 | 153,000 | ||||||||
| Net Income (Loss) | (1,389,000) | (1,389,000) | ||||||||
| Ending balance, value at Sep. 30, 2022 | $ 1,817,000 | $ 21,283,000 | 3,920,000 | (24,044,000) | $ (161,000) | 2,815,000 | ||||
| Ending balance, shares at Sep. 30, 2022 | 170,000 | 16,102,749 | (44,000) | |||||||
| Beginning balance, value at Dec. 31, 2022 | $ 1,851,000 | $ 21,283,000 | 3,895,000 | (24,122,000) | $ (161,000) | 2,746,000 | ||||
| Beginning balance, shares at Dec. 31, 2022 | 170,000 | 16,102,749 | (44,000) | |||||||
| Accrued Deemed Dividend - Series B Preferred Stock | $ 11,000 | (11,000) | ||||||||
| Stock Issuance, shares | 125,000 | |||||||||
| Net Income (Loss) | (720,000) | (720,000) | ||||||||
| Series B Convertible Preferred Stock Issuance | $ (1,862,000) | 1,862,000 | ||||||||
| Series B Convertible Preferred Stock Issuance, shares | (170,000) | 1,888,078 | ||||||||
| Common stock issued for notes payable and investor deposit | 884,000 | 884,000 | ||||||||
| Common stock issued for notes payable and investor deposit, shares | 1,908,336 | |||||||||
| Equity compensation | 16,000 | 16,000 | ||||||||
| Equity compensation, shares | 116,250 | |||||||||
| Foreign Currency Translation | ||||||||||
| Ending balance, value at Sep. 30, 2023 | $ 21,283,000 | $ 6,646,000 | $ (24,842,000) | $ (161,000) | $ 2,926,000 | |||||
| Ending balance, shares at Sep. 30, 2023 | 20,140,413 | (44,000) |
Basis of Presentation |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Basis of Presentation | Note 1 - Basis of Presentation
The accompanying condensed (a) consolidated balance sheet as of September 30, 2023 and (b) the unaudited interim condensed consolidated financial statements have been prepared and, in the opinion of management, contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the consolidated financial position and the consolidated statements of comprehensive income and consolidated cash flows for the periods presented in conformity with generally accepted accounting principles for interim consolidated financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2022, filed on April 15, 2023, which can be found on the Company’s website (www.ctiindustries.com) or www.sec.gov.
Principles of consolidation and nature of operations:
Yunhong Green CTI Ltd and CTI Supply, Inc. (collectively, the “Company”) (i) design, manufacture and distribute metalized balloon products throughout the world, including balloon-inspired gift items, (ii) distribute purchased latex balloons and related products, (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, and are beginning to (iv) offer for sale purchased compostable material solutions.
The condensed consolidated financial statements include the accounts of Yunhong Green CTI Ltd., and CTI Supply, Inc. At the annual meeting of stockholders (August 28, 2023), our stockholders approved changing our company name from “Yunhong CTI Ltd.” to “Yunhong Green CTI Ltd.” We also changed our trading symbol from “CTIB” to “YHGJ” to be more reflective of our name. There were no changes with respect to outstanding shares of common or preferred stock or other attributes.
The determination of whether or not to consolidate a variable interest entity under U.S. GAAP requires a significant amount of judgment concerning the degree of control over an entity by its holders of variable interest. To make these judgments, management has conducted an analysis of the relationship of the holders of variable interest to each other, the design of the entity, the expected operations of the entity, which holder of variable interests is most “closely associated” to the entity and which holder of variable interests is the primary beneficiary required to consolidate the entity. Upon the occurrence of certain events, management reviews and reconsiders its previous conclusion regarding the status of an entity as a variable interest entity.
Reclassification:
Certain amounts in the Company’s condensed consolidated financial statements for prior periods have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.
Use of estimates:
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the amounts reported of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period in the financial statements and accompanying notes. Actual results may differ from those estimates. The Company’s significant estimates include valuation allowances for doubtful accounts and inventory valuation, preferred stock dividends and beneficial conversion features, and assumptions used as inputs in the Black-Scholes option-pricing model.
Segments:
The Company operates as a single segment, both in terms of geography and operations, particularly in light of the October 2021 sale of its Flexo Universal subsidiary (Mexico). After that date, all manufacturing occurs in the United States.
Basic income (loss) per share is computed by dividing net income (loss) attributable to Yunhong Green CTI Ltd shareholders by the weighted average number of shares of common stock outstanding during each period.
Diluted income (loss) per share is computed by dividing the net income (loss) attributable to Yunhong Green CTI Ltd shareholders by the weighted average number of shares of common stock and equivalents (stock options and warrants), unless anti-dilutive, during each period.
As of September 30, 2023 and 2022, shares to be issued upon the exercise of options and warrants aggregated in each period.
Significant Accounting Policies:
The Company’s significant accounting policies are summarized in Note 2 of the Company’s consolidated financial statements for the year ended December 31, 2022. There were no significant changes to these accounting policies during the three and nine months ended September 30, 2023.
Net sales include revenues from sales of products and shipping and handling charges, net of estimates for product returns. Revenue is measured at the amount of consideration the Company expects to receive in exchange for the transferred products. Revenue is recognized at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. The Company recognizes revenue for shipping and handling charges at the time the goods are shipped to the customer, and the costs of outbound freight are included in cost of sales, as we have elected the practical expedient included in ASC 606.
The Company provides for product returns based on historical return rates. While we incur costs for sales commissions to our sales employees and outside agents, we recognize commission costs concurrent with the related revenue, as the amortization period is less than one year and we have elected the practical expedient included in ASC 606. We do not incur incremental costs to obtain contracts with our customers. Our product warranties are assurance-type warranties, which promise the customer that the products are as specified in the contract. Therefore, the product warranties are not a separate performance obligation and are accounted for as described herein. Sales taxes assessed by governmental authorities are accounted for on a net basis and are excluded from net sales.
|
Liquidity and Going Concern |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Liquidity and Going Concern | Note 2 – Liquidity and Going Concern
The Company’s financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has a cumulative net loss from inception to September 30, 2023 of approximately $24 million. The accompanying financial statements for the three and nine months ended September 30, 2023 have been prepared assuming the Company will continue as a going concern. 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 obtaining adequate capital to fund operating losses. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing, continuing to focus our Company on the most profitable elements, and exploring alternative funding sources on an as needed basis. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The COVID-19 pandemic, supply chain challenges, and inflationary pressures (including cost and availability of helium) 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. In addition, as described in Note 3, the Company has a related party, subordinated note in the amount of $1.3 million scheduled to become due and payable on December 31, 2023. While the Company expects to resolve this note using cash and/or equity, there can be no assurance of success. The ability of the Company to continue as a going concern may be dependent upon its ability to successfully secure other sources of financing and attain profitable operations. There is substantial doubt about the ability of the Company to continue as a going concern for one year from the issuance of the accompanying consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company’s primary sources of liquidity have traditionally been comprised of cash and cash equivalents as well as availability under the Credit Agreement in place at the time (see Note 3). We endured compliance failures with covenants until September 2021 when we refinanced our credit facility. We believe we have been in compliance with our new credit facility since that time. This credit facility concluded on September 30, 2023 but we executed an extension with the same lender until September 30, 2025.
|
Debt |
9 Months Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | |||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||
| Debt | Note 3 - Debt
On September 30, 2021 (the “Closing Date”), the Company entered into a loan and security agreement (the “Agreement”) with Line Financial (the “Lender”), which provides for a senior secured financing consisting of a revolving credit facility (the “Revolving Credit Facility) in an aggregate principal amount of up to $6 million (the “Maximum Revolver Amount”) and term loan facility (the “Term Loan Facility”) in an aggregate principal amount of $0.7 million (“Term Loan Amount” and, together with the Revolving Credit Facility, the “Senior Facilities”). Proceeds of loans borrowed under the Senior Facilities were used to repay all amounts outstanding under the Company’s previous lending agreements and for the Company’s working capital. The Senior Facilities are secured by substantially all assets of the Company. Effective September 30, 2023, this credit facility was extended until September 30, 2025, with similar values and terms except as noted herein.
Interest on the Senior Facilities was set at the prime rate published from time to time published in the Wall Street Journal (8% as of March 31, 2023), plus 1.95% per annum, accruing daily and payable monthly. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. The Term Loan Facility shall be repaid by the Company to Lender in 48 equal monthly installments of principal and interest, each in the amount of $15,000, commencing on November 1, 2021, and continuing on the first day of each month thereafter until the Term Loan Maturity Date (as defined in the Agreement). Also, the Company paid the Lender collateral monitoring fees of 4.62% of the eligible accounts receivable, inventory, and equipment supporting the Revolving Credit Facility and the Term Loan. In addition, the Company paid the Lender a loan fee of 1.25% of the Maximum Revolver Amount and the Term Loan Amount upon the execution of the Agreement. During August 2022 the terms were modified to reduce the collateral monitoring fee to 2.77% and added a provision that barred the Company from repaying the facility prior to September 2023. This Term Loan was re-established effective with the September 30, 2023 renewal at the original values on September 30, 2021.
The Senior Facilities matured on September 30, 2023 and were extended by agreement between the parties until 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 this September 30, 2023 renewal, the parties agreed changes in terms including:
The Senior Facilities require that the Company shall, commencing December 31, 2021, 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 September 30, 2023 and December 31, 2022, respectively.
The Senior Facilities contain certain affirmative and negative covenants that limit the ability of the Company, among other things and subject to certain significant exceptions, to incur debt or liens, make investments, enter into certain mergers, consolidations, and acquisitions, pay dividends and make other restricted payments, or make capital expenditures exceeding $1,000,000 in the aggregate in any fiscal year.
As of September 30, 2023, the term loan balance amounted to $0.5 million, which consisted of the principal and interest payable balance of $0.5 million and deferred financing costs of less than $3,000. The balance of the Revolving Line of Credit as of September 30, 2023 and December 31, 2022 amounted to $3,371,000 and $2,878,000, respectively. By virtue of the September 30, 2023 extension above, the Company was advanced $206,000 and the Term Loan was reset to $731,000. Due to the timing of execution, this change will be reflected in the Company’s October 2023 financial statements.
As of January 1, 2019, the Company had a note payable to John H. Schwan, former Director and former Chairman of the Board, for $1.6 million, including accrued interest. This loan accrues interest, is due December 31, 2023, and is subordinate to the Senior Facilities. During January 2019, Mr. Schwan converted $600,000 of the note into approximately shares of our common stock at the then market rate of $ per share. As a result of the conversion, the loan balance decreased to $1 million. The loan and interest payable to Mr. Schwan amounted to $1.3 million as of September 30, 2023 and December 31, 2022, respectively. No payments were made to Mr. Schwan during 2023 or 2022. Interest expense related to this loan amounted to $19,000 and $17,000 for the three months ended September 30, 2023 and 2022, respectively.
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.
|
Shareholders’ Equity |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders’ Equity | Note 4 - Shareholders’ Equity
Series A Convertible Preferred Stock
On January 3, 2020, the Company entered into a stock purchase agreement (as amended on February 24, 2020 and April 13, 2020 (the “LF Purchase Agreement”)), pursuant to which the Company agreed to issue and sell, and LF International Pte. Ltd., a Singapore private limited company (“LF International”), which is controlled by Company director, Chairman, President and Chief Executive Officer, Mr. Yubao Li, agreed to purchase, up to shares of the Company’s newly created shares of Series A Preferred Stock (“Series A Preferred”), with each share of Series A Preferred initially convertible into ten shares of the Company’s common stock, at a purchase price of $ per share, for aggregate gross proceeds of $5,000,000 (the “LF International Offering”). As permitted by the Purchase Agreement, the Company may, in its discretion issue up to an additional shares of Series A Preferred for a purchase price of $ per share (the “Additional Shares Offering,” and collectively with the LF International Offering, the “Offering”). Approximately $1 million of Series A Preferred has been sold, including to an investor which converted an account receivable of $478,000 owed to the investor by the Company in exchange for shares of Series A Preferred. The Company completed several closings with LF International from January 2020 through June 2020. The majority of the funds received reduced our bank debt. We issued a total of shares of common stock to LF International and, pursuant to the LF Purchase Agreement, changed our name from CTI Industries Corporation to Yunhong CTI Ltd. LF International had the right to name three directors to serve on our Board. They were Mr. Yubao Li, Ms. Wan Zhang and Ms. Yaping Zhang. Ms. Wan Zhang and Ms. Yaping Zhang retired from the Board in January 2022.
The issuance of the Series A Preferred generated a beneficial conversion feature (BCF), which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. The fair value of the common stock into which the Series A Preferred was convertible exceeded the allocated purchase price fair value of the Series A Preferred Stock at the closing dates by approximately $2.5 million as of the closing dates. We recognized this BCF by allocating the intrinsic value of the conversion option, to additional paid-in capital, resulting in a discount on the Series A Preferred. As the Series A Preferred is immediately convertible, the Company accreted the discount on the date of issuance. The accretion was recognized as dividend equivalents. Holders of the Series A Preferred were entitled to receive quarterly dividends at the annual rate of 8% of the stated value ($ per share). Such dividends may be paid in cash or in shares of common stock at the Company’s discretion. In the three months ended September 30, 2023 and 2022 the Company accrued none and $67,000 of these dividends in each period, respectively, as the investor converted Series A Convertible Preferred Stock into common stock on September 1, 2022. This conversation resulted in the issuance of million shares of common stock plus an additional approximately million shares of common stock representing the accrued dividends.
Series B Convertible Preferred Stock
In November 2020, we issued shares of Series B Preferred for an aggregate purchase price of $1,500,000. The Series B Preferred have an initial stated value of $ 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. Initially, the Series B Preferred, in whole or part, was redeemable at the option of the holder (but not mandatorily redeemable) at any time on or after November 30, 2021 for the stated value, plus any accrued and unpaid dividends and thus was classified as mezzanine equity and initially recognized at fair value of $1.5 million (the proceeds on the date of issuance). The carrying value as of September 30, 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 million shares of common stock, including accrued dividends.
Series C Convertible Preferred Stock
In January 2021 we entered into an agreement with a related party, LF International Pte. Ltd. which is controlled by Company director and Chairman, Mr. Yubao Li, to purchase shares of Series C Preferred stock. We issued shares of Series C Preferred for an aggregate purchase price of $1,500,000. The Series C Preferred have an initial stated value of $ per share and liquidation preference over common stock. The Series C 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 C 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 issuance of the Series C Preferred generated a beneficial conversion feature (BCF), which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. The fair value of the common stock into which the Series C Preferred was convertible exceeded the allocated purchase price of the Series C Preferred at the closing dates by greater than the allocated purchase price. Therefore, the BCF was the purchase price of the Series C Preferred ($1.5 million) and was allocated to Additional Paid-in Capital, resulting in a discount on the Series C Preferred Stock. As the Series C Preferred Stock is immediately convertible, the Company accreted the discount on the date of issuance. The accretion to the carrying value of the Series C Preferred is treated as a deemed dividend, recorded as a charge to Additional Paid in Capital and deducted in computing earnings per share. On September 1, 2022, the investor converted Series C Preferred into approximately million shares of common stock, including accrued dividends.
Series D Convertible Preferred Stock
In June 2021, the Company received $ million from an unrelated third party as an advance on a proposed sale of Series D Redeemable Convertible Preferred Stock. As of September 30, 2021, the Company was in the process of negotiating and finalizing the terms of the arrangement. As the agreement was not finalized as of September 30, 2021, the $1.5 million advance was classified as Advance from Investor within liabilities on the balance sheet at that time. As of December 31, 2021, the terms had been finalized, the investment was classified as equity, similar to the prior Convertible Preferred issuances, above. The issuance of the Series D Preferred generated a beneficial conversion feature (BCF), which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. The fair value of the common stock into which the Series D Preferred was convertible exceeded the allocated purchase price fair value of the Series D Preferred Stock at the closing dates by approximately $0.3 million as of the closing dates. We recognized this BCF by allocating the intrinsic value of the conversion option, to additional paid-in capital, resulting in a discount on the Series D Preferred. As the Series D Preferred is immediately convertible, the Company accreted the discount on the date of issuance. The accretion was recognized as dividend equivalents. Holders of the Series D Preferred will be entitled to receive quarterly dividends at the annual rate of 8% of the stated value ($ per share). Such dividends may be paid in cash or in shares of common stock at the Company’s discretion. In addition, 128,000 warrants to purchase the Company’s common stock were issued with respect to this transaction. These warrants are exercisable until December 1, 2024, at the lower of $1.75 per share or 85% of the variable price based on the ten day volume weighted average price (“VWAP”) of the Company’s common stock. The value of these warrants was determined to be $230,000 and recorded as an allocation of paid in capital associated with this transaction. On September 1, 2022, the investor converted Series D Preferred into approximately million shares of common stock including accrued dividends.
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 million shares of our common stock. Upon conversion, both the note and deposit liabilities were fully eliminated.
Investment Banking Fee
The Company had an agreement with Garden State Securities beginning December 2019 and ending during 2020, wherein Garden State Securities sought equity and debt investment opportunities and was due a fee related to successful investment. That agreement had a tail provision wherein Garden State Securities would be entitled to compensation related to investments from identified parties during a fixed period of time following the termination of the agreement, which has now expired. Pursuant to negotiation between the parties during April 2023, it was agreed that a total presentation of restricted shares of common stock would result in the final resolution of compensation due Garden State Securities, including that related to Series C Preferred Stock, subsequently converted to common stock, and that the agreement and all related potential claims were concluded. The proceeds from this investment were not impacted by this resolution.
Warrants
In connection with the Series A Offering, in 2020 the Company issued warrants to purchase 792,660 shares of the Company’s common stock for $1 per share. During 2020, warrants to acquire shares of common stock were exercised in cash-less exchange for shares of the Company’s common stock. In January and February 2021, the remaining warrants to acquire 195,160 shares of common stock were exercised in a cash-less exchange for shares of the Company’s common stock. Additional warrants to acquire 128,000 shares of common stock were issued with respect to the Series D transaction above. These warrants can be exercised for the Company’s common stock for $1.75 per share, or based on the ten day volume weighted average price (VWAP) of the Company’s common stock.
The Company has applied the Black-Scholes model to value stock-based awards. That model incorporates various assumptions in the valuation of stock-based awards relating to the risk-free rate of interest to be applied, the estimated dividend yield and expected volatility of the Company’s Common Stock. The risk-free rate of interest is the U.S. Treasury yield curve for periods within the expected term of the option at the time of grant. The expected volatility is based on historical volatility of the Company’s Common Stock.
The valuation assumptions we have applied to determine the value of warrants granted in 2021 and 2020 were as follows:
A summary of the Company’s stock warrant activity is as follows:
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 ● The restrictions on shares of the award will lapse and the award will ● The restrictions on shares of the award lapsed and the award vested when the Company’s operating cash flow, calculated cumulatively from the date of employment, equaled or exceeded $1.5 million. On January 30, 2023, the Compensation Committee determined this condition had been satisfied. ● The restrictions on shares of the award lapsed and the award vested 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 shares of restricted stock. of these shares vested over a 12 month period while the remaining shares vest each based on the performance conditions above.
The Audit Committee (as defined in the Plan) is 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. Without such visibility, it considers such probability as de minimis until additional information is available.
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Legal Proceedings |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Legal Proceedings | Note 5 - Legal Proceedings
The Company may be party to certain lawsuits or claims arising in the normal course of business. The ultimate outcome of these matters is unknown but, in the opinion of management, we do not believe any of these proceedings will have, individually or in the aggregate, a material adverse effect upon our financial condition, cash flows or future results of operation.
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Inventories |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Inventories | Note 6 - Inventories
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Concentration of Credit Risk |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risks and Uncertainties [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Concentration of Credit Risk | Note 7 - Concentration of Credit Risk
Concentration of credit risk with respect to trade accounts receivable is generally limited due to the large number of entities comprising the Company’s customer base. The Company performs ongoing credit evaluations and provides an allowance for potential credit losses against the portion of accounts receivable which is estimated to be uncollectible. Such losses have historically been within management’s expectations. During the three and nine months ended September 30, 2023 and 2022, there were two customers whose purchases represented more than 10% of the Company’s consolidated net sales. Sales to these customers for the three and nine months ended September 30, 2023 and 2022 are as follows:
As of September 30, 2023, the total amounts owed to the Company by these customers were approximately $806,000 or 81% of the Company’s consolidated net accounts receivable. The amounts owed at September 30, 2022 by these customers were approximately $679,000 or 45% of the Company’s consolidated net accounts receivable.
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Related Party Transactions |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | Note 8 - Related Party Transactions
John H. Schwan, who resigned as Chairman of the Board on June 1, 2020, has made loans to the Company which had outstanding balances of $1.3 million as of September 30, 2023 and December 31, 2022, respectively. No payments were made to Mr. Schwan since 2019. Interest expense related to this loan amounted to $19,000 and $17,000 for the three months end September 30, 2023 and 2022, respectively. Mr. Schwan is the father of Jana Schwan, the Company’s Chief Operating Officer.
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Leases |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Leases | |
| Leases | Note 9 - Leases
We adopted ASC Topic 842 (Leases) on January 1, 2019. In July 2020, the Company entered into a lease agreement for a building through June 2021 (with no extension options). The monthly lease payments were $38,000. The Company made a policy election to not recognize right of use assets and lease liabilities that arise from leases with an initial term of twelve months or less on the Consolidated Balance Sheets. However, the Company recognized these lease payments in the Consolidated Statement of Operations on a straight-line basis over the lease term and variable lease payments in the period in which the expense was incurred. This lease terminated during 2021 and was replaced with a new lease. In March 2021, the Company entered into a lease agreement for a building through September 2022. This lease was subsequently extended during March 2022 to extend through December 31, 2025. The monthly lease payments are $35,000. The Company uses the incremental borrowing rate of 11%.
When this lease was extended during March 2022, the ROU (right of use) asset increased to $4,277,000, from $3,530,000 at December 31, 2021. The ROU liabilities also increased to $500,000 (current) and $3,777,000 (noncurrent), from $648,000 and $2,860,000, respectively, as of December 31, 2021. |
Basis of Presentation (Policies) |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Principles of consolidation and nature of operations | Principles of consolidation and nature of operations:
Yunhong Green CTI Ltd and CTI Supply, Inc. (collectively, the “Company”) (i) design, manufacture and distribute metalized balloon products throughout the world, including balloon-inspired gift items, (ii) distribute purchased latex balloons and related products, (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, and are beginning to (iv) offer for sale purchased compostable material solutions.
The condensed consolidated financial statements include the accounts of Yunhong Green CTI Ltd., and CTI Supply, Inc. At the annual meeting of stockholders (August 28, 2023), our stockholders approved changing our company name from “Yunhong CTI Ltd.” to “Yunhong Green CTI Ltd.” We also changed our trading symbol from “CTIB” to “YHGJ” to be more reflective of our name. There were no changes with respect to outstanding shares of common or preferred stock or other attributes.
The determination of whether or not to consolidate a variable interest entity under U.S. GAAP requires a significant amount of judgment concerning the degree of control over an entity by its holders of variable interest. To make these judgments, management has conducted an analysis of the relationship of the holders of variable interest to each other, the design of the entity, the expected operations of the entity, which holder of variable interests is most “closely associated” to the entity and which holder of variable interests is the primary beneficiary required to consolidate the entity. Upon the occurrence of certain events, management reviews and reconsiders its previous conclusion regarding the status of an entity as a variable interest entity.
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| Reclassification | Reclassification:
Certain amounts in the Company’s condensed consolidated financial statements for prior periods have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.
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| Use of estimates | 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 and inventory valuation, preferred stock dividends and beneficial conversion features, and assumptions used as inputs in the Black-Scholes option-pricing model.
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| Segments | Segments:
The Company operates as a single segment, both in terms of geography and operations, particularly in light of the October 2021 sale of its Flexo Universal subsidiary (Mexico). After that date, all manufacturing occurs in the United States.
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| Earnings per share |
Basic income (loss) per share is computed by dividing net income (loss) attributable to Yunhong Green CTI Ltd shareholders by the weighted average number of shares of common stock outstanding during each period.
Diluted income (loss) per share is computed by dividing the net income (loss) attributable to Yunhong Green CTI Ltd shareholders by the weighted average number of shares of common stock and equivalents (stock options and warrants), unless anti-dilutive, during each period.
As of September 30, 2023 and 2022, shares to be issued upon the exercise of options and warrants aggregated in each period.
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| Significant Accounting Policies | Significant Accounting Policies:
The Company’s significant accounting policies are summarized in Note 2 of the Company’s consolidated financial statements for the year ended December 31, 2022. There were no significant changes to these accounting policies during the three and nine months ended September 30, 2023.
Net sales include revenues from sales of products and shipping and handling charges, net of estimates for product returns. Revenue is measured at the amount of consideration the Company expects to receive in exchange for the transferred products. Revenue is recognized at the point in time when we transfer the promised products to the customer and the customer obtains control over the products. The Company recognizes revenue for shipping and handling charges at the time the goods are shipped to the customer, and the costs of outbound freight are included in cost of sales, as we have elected the practical expedient included in ASC 606.
The Company provides for product returns based on historical return rates. While we incur costs for sales commissions to our sales employees and outside agents, we recognize commission costs concurrent with the related revenue, as the amortization period is less than one year and we have elected the practical expedient included in ASC 606. We do not incur incremental costs to obtain contracts with our customers. Our product warranties are assurance-type warranties, which promise the customer that the products are as specified in the contract. Therefore, the product warranties are not a separate performance obligation and are accounted for as described herein. Sales taxes assessed by governmental authorities are accounted for on a net basis and are excluded from net sales. |
Shareholders’ Equity (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Company’s Stock Warrant Activity | A summary of the Company’s stock warrant activity is as follows:
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| Schedule of Reserved Shares of Exercise Warrants |
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Inventories (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventories |
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Concentration of Credit Risk (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risks and Uncertainties [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Concentration Risk |
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Basis of Presentation (Details Narrative) - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
| Shares issued upon the exercise of options and warrants | 128,000 | 128,000 |
Liquidity and Going Concern (Details Narrative) - USD ($) $ in Millions |
24 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Dec. 31, 2023 |
|
| Net loss | $ 24.0 | |
| Forecast [Member] | ||
| Subordinate note | $ 1.3 |
Schedule of Company’s Stock Warrant Activity (Details) - $ / shares |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2023 |
Dec. 31, 2020 |
|
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Exercised/Issued | 597,500 | |
| Ending balance, shares | 792,660 | |
| Warrant [Member] | ||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||
| Beginning balance, shares | 128,000 | |
| Weighted average exercise price, beginning balance | $ 1.75 | |
| Granted | ||
| Weighted average exercise price, granted | ||
| Cancelled/Expired | ||
| Weighted average exercise price, cancelled/expired | ||
| Exercised/Issued | ||
| Weighted average exercise price, Exercised/issued | ||
| Ending balance, shares | 128,000 | |
| Weighted average exercise price, ending balance | $ 1.75 | |
| Exercisable shares | 128,000 | |
| Weighted average exercise price, exercisable | $ 1.75 |
Schedule of Reserved Shares of Exercise Warrants (Details) |
Sep. 30, 2023
shares
|
|---|---|
| Accumulated Other Comprehensive Income (Loss) [Line Items] | |
| Shares reserved (in shares) | 128,000 |
| 2021 Warrants [Member] | |
| Accumulated Other Comprehensive Income (Loss) [Line Items] | |
| Shares reserved (in shares) | 128,000 |
Schedule of Inventories (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials | $ 1,172,000 | $ 1,457,000 |
| Work in process | 2,695,000 | 2,513,000 |
| Finished goods | 4,661,000 | 4,355,000 |
| Total inventories | $ 8,528,000 | $ 8,325,000 |
Schedule of Concentration Risk (Details) - Revenue Benchmark [Member] - Customer Concentration Risk [Member] - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Customer A [Member] | ||||
| Concentration Risk [Line Items] | ||||
| Net Sales | $ 1,097,000 | $ 1,104,000 | $ 6,007,000 | $ 5,438,000 |
| Percentage of Net Sales | 56.00% | 49.00% | 53.00% | 44.00% |
| Customer B [Member] | ||||
| Concentration Risk [Line Items] | ||||
| Net Sales | $ 239,000 | $ 176,000 | $ 2,559,000 | $ 2,846,000 |
| Percentage of Net Sales | 12.00% | 8.00% | 23.00% | 23.00% |
Concentration of Credit Risk (Details Narrative) |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
|
Sep. 30, 2023
USD ($)
Customers
|
Sep. 30, 2023
USD ($)
|
Sep. 30, 2022
USD ($)
Customers
|
|
| Concentration Risk [Line Items] | |||
| Number of major customers | Customers | 2 | 2 | |
| Two Customer A [Member] | Revenue Benchmark [Member] | Customer Concentration Risk [Member] | |||
| Concentration Risk [Line Items] | |||
| Concentration risk, percentage | 10.00% | 10.00% | |
| Customers [Member] | Accounts Receivable [Member] | Customer Concentration Risk [Member] | |||
| Concentration Risk [Line Items] | |||
| Concentration risk, percentage | 81.00% | 45.00% | |
| Net accounts receivable | $ | $ 806,000 | $ 806,000 | $ 679,000 |
Related Party Transactions (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Dec. 31, 2022 |
Jan. 01, 2019 |
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| Related Party Transaction [Line Items] | ||||||
| Interest expense | $ 124,000 | $ 120,000 | $ 421,000 | $ 325,000 | ||
| Related Party [Member] | ||||||
| Related Party Transaction [Line Items] | ||||||
| Due to related parties | 1,300,000 | 1,300,000 | $ 1,300,000 | |||
| Interest expense | 19,000 | 17,000 | ||||
| John H. Schwan [Member] | ||||||
| Related Party Transaction [Line Items] | ||||||
| Due to related parties | $ 1,600,000 | |||||
| Repayments of related party debt | $ 0 | |||||
| Interest expense | $ 19,000 | $ 17,000 | ||||
Leases (Details Narrative) - USD ($) |
1 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Dec. 31, 2022 |
Jul. 31, 2020 |
Sep. 30, 2023 |
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Lessee, Lease, Description [Line Items] | |||||
| Monthly lease payments | $ 172,000 | ||||
| Operating lease, right-of-use asset | 3,882,000 | $ 3,488,000 | |||
| Operating lease, liability, current | 518,000 | 512,000 | |||
| Operating lease, liability, noncurrent | $ 3,364,000 | 2,976,000 | |||
| Lease Agreement [Member] | |||||
| Lessee, Lease, Description [Line Items] | |||||
| Monthly lease payments | $ 38,000 | $ 35,000 | |||
| Lease description | This lease was subsequently extended during March 2022 to extend through December 31, 2025 | ||||
| Incremental borrowing rate | 11.00% | ||||
| Operating lease, right-of-use asset | $ 4,277,000 | $ 3,530,000 | |||
| Operating lease, liability, current | 500,000 | 648,000 | |||
| Operating lease, liability, noncurrent | $ 3,777,000 | $ 2,860,000 |