Revenue and Sales Performance - In 2022, revenue breakdown was as follows: Novelty Products accounted for 60% of total revenues, Flexible Film Products for 11%, and Candy Blossoms and Other Products for 29%[20]. - The company's total revenues from continuing operations for the year ended December 31, 2022, were $18.048 million, a decrease of 25.1% from $24.086 million in 2021[100]. - Foil balloons accounted for 60% of total net sales in 2022, down from 76% in 2021, while the "Other" category increased to 29% from 14%[100]. - Sales to the top 10 customers represented 90% of net revenues in 2022, compared to 85% in 2021, indicating a high customer concentration risk[104]. - Sales of foil balloons decreased by 40% to $10,858,000 in 2022 from $18,235,000 in 2021, primarily due to increased helium prices[108]. - Sales of film products decreased by 15% to $2,036,000 in 2022 from $2,386,000 in 2021, as the second largest customer had excess inventory[109]. - Sales of other products increased by 49% to $5,154,000 in 2022 from $3,464,000 in 2021, driven by larger holiday orders and new product offerings[110]. - Consolidated net sales for the fiscal year ended December 31, 2022, were $18,048,000, a decrease of 25% compared to $24,086,000 in 2021[107]. Operational Changes and Strategy - The company plans to focus on growth and profitability within its core product lines, specifically foil balloons and related products, while liquidating non-core subsidiaries[22]. - The company has successfully transitioned to a new credit facility since September 2021, remaining in compliance since inception[22]. - The company relocated its warehousing and light assembly facility to Elgin, IL in March 2021, instead of Laredo, TX due to various factors including the Covid-19 pandemic[22]. - The company has developed new distribution channels and sales relationships in the United States, Europe, Mexico, Latin America, and Australia[22]. - The company has introduced additional automation features in production lines during 2022 and plans to continue implementing automation tools in 2023 and beyond to manage labor costs[59]. - The company has exited foreign operations since 2019, focusing on North American operations, particularly foil balloons and related products[86]. Financial Performance and Challenges - The company experienced significant fluctuations in the cost of raw materials, which represent a substantial portion of total product costs, impacting profitability[46]. - The price of helium, crucial for the company's foil balloons, increased dramatically beginning in February 2022, negatively affecting revenue by several million dollars from May 2022 through the end of 2022[69]. - Cash generated by operating activities amounted to $2,368,000 in 2022, compared to cash used of ($3,710,000) in 2021[118]. - The company incurred net interest expense of $450,000 in 2022, down from $564,000 in 2021, due to a lower average outstanding balance of debt[115]. - The company has a cumulative net loss of approximately $24 million from inception to December 31, 2022, raising concerns about its ability to continue as a going concern[122]. - The company has received approximately $160,000 in Employee Retention Tax Credits (ERTC) and sold remaining claims for $1.2 million to a third party for $0.9 million[134]. Research and Development - The company engages in research and development to create innovative and proprietary products within its core product categories[22]. - Research and development expenditures were approximately $200,000 for the fiscal year ended December 31, 2022, compared to $206,000 in 2021, indicating a slight decrease in investment[56]. Leadership and Governance - The company has experienced significant leadership changes, with Frank Cesario rejoining as Chief Executive Officer in January 2022 after previously serving in various roles since 2017[171]. - The Board of Directors consists of five members, with three identified as independent according to NASDAQ standards[181]. - The Audit Committee met three times during 2022 to oversee financial risks and ensure compliance with accounting standards[190]. - The Compensation Committee, which met twice in 2022, is responsible for reviewing executive compensation and employee benefit plans[191]. - The Company aims to improve board diversity, having transitioned from a 100% Caucasian, 100% male board to three Asian directors, two of whom are female[197]. - The Company has established a goal for broad representation on its Board of Directors, reflecting its commitment to diversity[197]. Compliance and Internal Controls - The company is subject to various federal, state, and local regulations regarding waste management and environmental compliance, which it believes it is in material compliance with[60]. - Management identified material weaknesses in internal control over financial reporting, concluding that there is a reasonable possibility of material misstatements in the consolidated financial statements[162]. - The Company maintains disclosure controls and procedures to ensure compliance with the Securities Exchange Act of 1934[156]. - The Company has adopted a complaint monitoring procedure for confidential reporting of accounting or auditing concerns[189]. Employee Compensation - In 2022, Frank Cesario, the Chief Executive Officer, received total compensation of $338,077, which included a salary of $235,577 and stock awards of $102,500[203]. - Jana M. Schwan, the Chief Operating Officer, earned total compensation of $254,410 in 2022, with a salary of $201,910 and stock awards of $43,000[203]. - Jennifer M. Connerty, the Chief Financial Officer, had total compensation of $32,013 in 2022, reflecting her salary[203]. - The compensation expense for stock awards in 2022 was recognized under ASC Topic 718 as reported in the Company's audited financial statements[205]. - The Company had no employment agreements with Named Executive Officers until January 2022, when Mr. Cesario entered into his agreement[208].

Financial Data and Key Metrics Changes - The company reported an adjusted EBITDA of less than $100,000 for 2022, which is considered unsatisfactory and needs to be improved [7] - Overall gross margin improved from 15% to 17% despite a $7 million decline in foil balloon sales [6] Business Line Data and Key Metrics Changes - Sales of foil balloons, the top-selling product line, were significantly impacted by elevated helium prices, leading to a $7 million decrease in revenue [5][6] - Sales of unrelated products increased by approximately $1.4 million, indicating diversification efforts [6] Market Data and Key Metrics Changes - The price of helium roughly doubled in the first half of 2022 but began to decline in the second half, leading to a recovery in demand [5] - Improved availability and pricing of helium are expected to positively impact the foil balloon market in 2023 [12] Company Strategy and Development Direction - The company is focusing on reducing its debt load, successfully decreasing it from about $20 million to approximately $5 million [9] - Investments in robotic technology are ongoing, with expected payback in less than nine months, enhancing operational efficiency [11] - The company is exploring compostable materials as part of its sustainability initiatives, although commercial readiness is still in progress [17][19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges faced in 2022, including inflation and supply chain issues, but expressed optimism for recovery in 2023 [14][24] - The company believes that a potential recession could be beneficial for its countercyclical business model [24] Other Important Information - The company ended 2022 with a modest debt position, a significant improvement from previous years [6] - Management highlighted the importance of adapting to changing consumer behavior and market conditions post-pandemic [8] Q&A Session Summary Question: What technology or revenues are expected from the Yunhong Group in 2023? - Management discussed new technology related to compostability, emphasizing the need for sustainable solutions, but indicated that commercial readiness is still uncertain [17][19] Question: Concerns about insider purchases of stock - Management acknowledged the concern regarding insider stock purchases and noted that insiders are often unable to transact stock throughout the year [20][21]

Financial Performance - Net sales for the three months ended September 30, 2022, were $2.263 million, a decrease of 56.3% compared to $5.184 million for the same period in 2021[8]. - Gross profit for the nine months ended September 30, 2022, was $2.084 million, down 29.1% from $2.936 million in the same period of 2021[8]. - The company reported a net loss of $1.389 million for the nine months ended September 30, 2022, compared to a net income of $1.465 million in the same period of 2021[8]. - Basic loss per common share for the three months ended September 30, 2022, was $(0.12), compared to $(0.14) for the same period in 2021[8]. - For the nine months ended September 30, 2022, the Company recorded a net loss from discontinued operations of $1,232,000, compared to none for the same period in 2021[28]. - The Company reported a cumulative net loss of approximately $24 million from inception to September 30, 2022[32]. Assets and Liabilities - As of September 30, 2022, total assets decreased to $16.314 million from $17.282 million as of December 31, 2021, representing a decline of approximately 5.6%[6]. - Total current liabilities decreased to $8.289 million as of September 30, 2022, from $10.371 million as of December 31, 2021, a reduction of 20.1%[6]. - The company’s accumulated deficit increased to $24.044 million as of September 30, 2022, compared to $22.655 million as of December 31, 2021[6]. - Cash and cash equivalents increased to $101,000 as of September 30, 2022, from $66,000 as of December 31, 2021, marking a growth of 53.0%[6]. - The term loan balance as of September 30, 2022, was $0.5 million, down from $0.6 million as of December 31, 2021[77]. Cash Flow and Financing Activities - Cash provided by operating activities was $1,187,000 for the nine months ended September 30, 2022, compared to cash used of $1,204,000 in 2021[9]. - Cash used in financing activities for the nine months ended September 30, 2022, was $1,031,000, an increase from $650,000 for the same period in 2021[95]. - Cash balances at September 30, 2022, were $101,000, down from $379,000 in the same period of 2021[97]. - The company incurred interest expense of $120,000 for Q3 2022, compared to $89,000 in Q3 2021, reflecting changes in the senior debt facility[91]. Inventory and Sales - As of September 30, 2022, total inventories increased to $9,162,000 from $7,876,000 as of December 31, 2021, representing a growth of approximately 16.3%[57]. - Revenues from foil balloons dropped significantly, with sales of $1,612,000 in Q3 2022 compared to $4,295,000 in Q3 2021, a decline of 62%[81]. - Customer A accounted for 49% of net sales in the three months ended September 30, 2022, generating $1,104,000, compared to 66% and $3,398,000 in the same period of 2021[58]. Operational Changes and Challenges - The company faces substantial doubt about its ability to continue as a going concern for one year from the issuance of the financial statements due to operating losses and external pressures[98]. - Management's plans to continue as a going concern include raising additional capital and focusing on the most profitable elements of the business[33]. - The financial statements indicate that the operating results for the three and six months ended September 30, 2022, are not necessarily indicative of future performance[14]. Equity and Stock - The company issued 170,000 shares of Series C Convertible Preferred Stock, raising $1,681,000[13]. - The carrying value of Series B Preferred Stock as of September 30, 2022, amounted to $1,817,000, which includes $270,000 in accrued dividends[47]. - The carrying value of Series C Preferred Stock as of September 30, 2022, amounted to $1,698,000, with the issuance generating a beneficial conversion feature of approximately $1.5 million[49]. Lease and Facility - The annual base rent for the leased Lake Barrington Facility is $500,000 for the first year, escalating to $652,386 in the last year of the lease[35]. - The Company sold its Lake Barrington Facility for $3,500,000, receiving $2,000,000 in cash and a $1,500,000 promissory note[100].

Yunhong CTI Ltd. (CTIB) Q3 2022 Earnings Conference Call November 16, 2022 10:00 AM ET Company Participants Frank Cesario - CEO Jana Schwan - COO Conference Call Participants Operator Good day and welcome to the Yunhong CTI Third Quarter 2022 Earnings Conference Call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, November 16, 2022. The earnings press release accompanying t ...

Yunhong CTI Ltd. (CTIB) Q2 2022 Earnings Conference Call August 16, 2022 10:00 AM ET Company Participants Frank Cesario - CEO Jana Schwan - COO Conference Call Participants Michael Khorassani - Orion Capital Operator Good day and welcome to the Yunhong CTI's Second Quarter 2022 Earnings Conference Call. During today's presentation all parties will be in listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, August 16, 2022. The earn ...

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Yunhong CTI Ltd., including the balance sheets, statements of comprehensive income (loss), cash flows, and shareholders' equity, along with detailed notes explaining the basis of presentation, discontinued operations, liquidity, debt, shareholders' equity, legal proceedings, inventories, credit risk, related party transactions, and leases [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets | Metric | June 30, 2022 ($) | December 31, 2021 ($) | | :-------------------------------- | :------------------ | :-------------------- | | **ASSETS** | | | | Total current assets | 11,772,000 | 12,474,000 | | Total property, plant and equipment, net | 1,041,000 | 1,143,000 | | Total other assets | 4,319,000 | 3,665,000 | | **TOTAL ASSETS** | **17,132,000** | **17,282,000** | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Total current liabilities | 8,072,000 | 10,371,000 | | Total long-term liabilities | 5,337,000 | 2,860,000 | | **TOTAL LIABILITIES** | **13,409,000** | **13,231,000** | | Total Yunhong CTI, Ltd Stockholders' Equity | 3,723,000 | 4,051,000 | | **TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY** | **17,132,000** | **17,282,000** | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric | Three Months Ended June 30, 2022 ($) | Three Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2022 ($) | Six Months Ended June 30, 2021 ($) | | :------------------------------------------------ | :----------------------------------- | :----------------------------------- | :--------------------------------- | :--------------------------------- | | Net Sales | 4,418,000 | 5,712,000 | 10,215,000 | 12,311,000 | | Gross profit | 803,000 | 994,000 | 1,842,000 | 2,280,000 | | (Loss)/income from operations | (306,000) | 3,196,000 | (325,000) | 3,494,000 | | Net (Loss) / income | (399,000) | 2,484,000 | (420,000) | 2,103,000 | | Net (loss) / income attributable to Yunhong CTI, Ltd common Shareholders | (601,000) | 1,614,000 | (824,000) | (517,000) | | Basic (loss) / income per common share | (0.10) | 0.27 | (0.14) | (0.09) | | Diluted (loss) / income per common share | (0.10) | 0.27 | (0.14) | (0.09) | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows | Metric | Six Months Ended June 30, 2022 ($) | Six Months Ended June 30, 2021 ($) | | :------------------------------------------ | :--------------------------------- | :--------------------------------- | | Net cash provided by (used in) operating activities | 303,000 | (617,000) | | Net cash (used in) provided by investing activities | (94,000) | 3,454,000 | | Net cash used in financing activities | (221,000) | (2,695,000) | | Net cash provided by (used in) discontinued operations | - | 538,000 | | Net (decrease) / increase in cash and cash equivalents | (12,000) | 199,000 | | Cash and cash equivalents at end of period | 54,000 | 265,000 | [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Preferred Stock Rollforward Balance | Metric | June 30, 2022 ($) | December 31, 2021 ($) | | :------------------------------------ | :------------------ | :-------------------- | | Total Yunhong CTI, Ltd Stockholders' Equity | 3,723,000 | 4,051,000 | | Accumulated Deficit | (23,075,000) | (22,655,000) | | Paid-in-capital | 4,005,000 | 4,317,000 | | Common stock amount | 14,538,000 | 14,538,000 | | Series A Preferred Stock amount | 3,355,000 | 3,155,000 | | Series B Preferred Stock amount | 1,783,000 | 1,715,000 | | Series C Preferred Stock amount | 1,698,000 | 1,630,000 | | Series D Preferred Stock amount | 1,580,000 | 1,512,000 | - Accrued Deemed Dividends for Series A, B, C, and D Preferred Stock were recognized during the three months ended June 30, 2022, impacting the accumulated deficit[10](index=10&type=chunk) - Equity compensation charge of **$61,000** was recorded for the three months ended June 30, 2022[10](index=10&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Note 1 - Basis of Presentation](index=10&type=section&id=Note%201%20-%20Basis%20of%20Presentation) This note outlines the basis for preparing the unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP, emphasizing that operating results are not necessarily indicative of the full fiscal year - The Company operates as a single segment, with all manufacturing occurring in the United States following the October 2021 sale of its Flexo Universal subsidiary[20](index=20&type=chunk) - Revenue is recognized at the point in time when promised products are transferred to the customer and control is obtained, with shipping and handling charges included in net sales and costs in cost of sales[24](index=24&type=chunk) - Basic and diluted earnings per share are calculated based on net income (loss) attributable to Yunhong CTI Ltd shareholders and weighted average common shares outstanding, with no assumed conversions included for diluted EPS in H1 2022 due to anti-dilutive effect[21](index=21&type=chunk)[22](index=22&type=chunk) [Note 2 – Discontinued Operations](index=12&type=section&id=Note%202%20%E2%80%93%20Discontinued%20Operations) This note details the Company's divestiture of non-core international operations, including the October 2021 sale of its Mexican subsidiary, Flexo Universal, and the decision to divest CTI Balloons and CTI Europe to focus on its core North American foil balloon business - The Company sold its Mexican subsidiary, Flexo Universal, in October 2021 for **$100,000** cash, a **$400,000** note, and manufacturing equipment[27](index=27&type=chunk) - Divestiture of CTI Balloons (UK) in Q4 2019 and CTI Europe (Germany) (expected to complete in next three months) was initiated to focus on core North American foil balloon and ancillary products[28](index=28&type=chunk) Summarized Discontinued Operations Financial Information (Six Months Ended) | Metric | June 30, 2022 ($) | June 30, 2021 ($) | | :-------------------------------- | :------------------ | :------------------ | | Net Sales | - | 1,430,000 | | Gross Loss | - | (321,000) | | Operating Income | - | (802,000) | | Net Loss from discontinued operations | - | (816,000) | [Note 3 – Liquidity and Going Concern](index=13&type=section&id=Note%203%20%E2%80%93%20Liquidity%20and%20Going%20Concern) The Company's financial statements are prepared under the going concern assumption, despite a cumulative net loss of approximately **$23 million** as of June 30, 2022, raising substantial doubt about its ability to continue as a going concern - The Company has a cumulative net loss of approximately **$23 million** from inception to June 30, 2022, raising substantial doubt about its ability to continue as a going concern[31](index=31&type=chunk)[32](index=32&type=chunk) - Management plans to address going concern issues by raising additional capital through equity sales and borrowing, focusing on profitable operations, and exploring alternative funding sources[32](index=32&type=chunk) - The Company sold its Lake Barrington facility for **$3.5 million** (cash and promissory note) in April 2021 and concurrently entered into a ten-year lease agreement for the facility[34](index=34&type=chunk) [Note 4 - Debt](index=14&type=section&id=Note%204%20-%20Debt) In September 2021, the Company entered into a new senior secured financing agreement with Line Financial, comprising a **$6 million** revolving credit facility and a **$0.7 million** term loan, used to repay previous lending agreements and for working capital - The Company secured a new senior secured financing agreement with Line Financial in September 2021, including a **$6 million** revolving credit facility and a **$0.7 million** term loan[36](index=36&type=chunk) - The Senior Facilities require the Company to maintain a Tangible Net Worth of at least **$4 million**, with which the Company believes it was in compliance as of June 30, 2022[39](index=39&type=chunk) Debt Balances | Debt Type | June 30, 2022 ($) | December 31, 2021 ($) | | :-------------------------- | :------------------ | :-------------------- | | Term loan balance | 500,000 | 600,000 | | Revolving Line of Credit | 4,782,000 | 5,003,000 | | Notes payable – related party (Schwan) | 1,200,000 | 1,200,000 | | Notes payable (Feng) | 200,000 | 200,000 | [Note 5 - Shareholders' Equity](index=15&type=section&id=Note%205%20-%20Shareholders'%20Equity) This note details the Company's preferred stock issuances (Series A, B, C, D Convertible Preferred Stock), including their purchase prices, conversion features, dividend rates (8% annually), and beneficial conversion features (BCF) recognized as deemed dividends - The Company has issued Series A, B, C, and D Convertible Preferred Stock, each with an **8%** annual dividend rate and beneficial conversion features (BCF) recognized as deemed dividends[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) Preferred Stock Rollforward Balance | Series | Balance as of December 31, 2021 ($) | Accrued Deemed Dividends ($) | Balance as of June 30, 2022 ($) | | :------- | :---------------------------------- | :--------------------------- | :------------------------------ | | Series A | 3,155,000 | 200,000 | 3,355,000 | | Series B | 1,715,000 | 68,000 | 1,783,000 | | Series C | 1,630,000 | 68,000 | 1,698,000 | | Series D | 1,512,000 | 68,000 | 1,580,000 | - **128,000** stock warrants were outstanding at June 30, 2022, with a weighted average exercise price of **$1.75**[51](index=51&type=chunk) - A grant of **250,000** restricted shares was made to the CEO in January 2022, with **25,000** shares vesting immediately and the remainder subject to performance conditions (EBITDA, stock price, operating cash flow, refinancing)[51](index=51&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk) [Note 6 - Legal Proceedings](index=17&type=section&id=Note%206%20-%20Legal%20Proceedings) The Company is involved in various lawsuits and claims arising in the normal course of business, but management does not anticipate a material adverse effect on its financial condition - The lawsuit Benchmark Investments, Inc. v. Yunhong CTI Ltd. was concluded in June 2022[56](index=56&type=chunk) - A claim from Engie Resources LLC for **$94,000** was settled for **$75,000** in March 2022, with **$30,000** remaining to be paid as of June 30, 2022[57](index=57&type=chunk) [Note 7 - Inventories, Net](index=18&type=section&id=Note%207%20-%20Inventories,%20Net) This note provides a breakdown of the Company's inventory, net of an allowance for excess quantities, as of June 30, 2022, and December 31, 2021 Inventories, Net | Category | June 30, 2022 ($) | December 31, 2021 ($) | | :---------------------- | :------------------ | :-------------------- | | Raw materials | 1,664,000 | 1,249,000 | | Work in process | 2,501,000 | 2,492,000 | | Finished goods | 4,420,000 | 4,425,000 | | Allowance for excess quantities | (304,000) | (290,000) | | **Total inventories** | **8,281,000** | **7,876,000** | [Note 8 - Concentration of Credit Risk](index=18&type=section&id=Note%208%20-%20Concentration%20of%20Credit%20Risk) The Company faces significant customer concentration, with two customers (Customer A and Customer B) representing a substantial portion of its net sales and accounts receivable Sales to Key Customers (Three Months Ended June 30) | Customer | 2022 Net Sales ($) | 2022 % of Net Sales | 2021 Net Sales ($) | 2021 % of Net Sales | Variance ($000) | % Change | | :--------- | :----------------- | :------------------ | :----------------- | :------------------ | :-------------- | :------- | | Customer A | 1,829,000 | 41% | 3,421,000 | 60% | (1,889) | (41)% | | Customer B | 1,323,000 | 30% | 812,000 | 14% | 30 | 6% | Sales to Key Customers (Six Months Ended June 30) | Customer | 2022 Net Sales ($) | 2022 % of Net Sales | 2021 Net Sales ($) | 2021 % of Net Sales | Variance ($000) | % Change | | :--------- | :----------------- | :------------------ | :----------------- | :------------------ | :-------------- | :------- | | Customer A | 4,331,000 | 42% | 7,344,000 | 60% | (2,992) | (32)% | | Customer B | 2,670,000 | 26% | 2,106,000 | 17% | 552 | 68% | - As of June 30, 2022, Customer A and Customer B collectively owed approximately **$2,008,000**, representing **73%** of the Company's consolidated net accounts receivable[60](index=60&type=chunk) [Note 9 - Related Party Transactions](index=18&type=section&id=Note%209%20-%20Related%20Party%20Transactions) This note discloses outstanding loans from related parties, including John H. Schwan (approximately **$1.2 million**) and Alex Feng (approximately **$0.2 million**), with associated interest expenses - John H. Schwan, former Chairman, has outstanding loans of approximately **$1.2 million** as of June 30, 2022, with no payments since 2019[61](index=61&type=chunk) - Interest expense related to John H. Schwan's loan was **$36,000** for the six months ended June 30, 2022[61](index=61&type=chunk) - Alex Feng has a note payable of approximately **$0.2 million**, accruing **3%** interest, subordinated to the Senior Facilities[43](index=43&type=chunk) [Note 10 - Leases](index=18&type=section&id=Note%2010%20-%20Leases) The Company adopted ASC Topic 842 (Leases) on January 1, 2019, and extended a building lease in March 2022 to December 31, 2025, resulting in increased Right-of-Use (ROU) assets and liabilities - The Company adopted ASC Topic 842 (Leases) on January 1, 2019[62](index=62&type=chunk) - A building lease was extended in March 2022 to December 31, 2025, with monthly payments of **$34,000**[62](index=62&type=chunk) Right-of-Use (ROU) Assets and Liabilities | Metric | June 30, 2022 ($) | December 31, 2021 ($) | | :-------------------------- | :------------------ | :-------------------- | | ROU asset | 4,319,000 | 3,530,000 | | ROU liabilities (current) | 500,000 | 670,000 | | ROU liabilities (noncurrent) | 3,628,000 | 2,860,000 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%20No.%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations for the three and six months ended June 30, 2022, covering business overview, financing, comparability, operating results, liquidity, and capital resources [Forward Looking Statements](index=19&type=section&id=Forward%20Looking%20Statements) This section contains a standard disclaimer regarding forward-looking statements, indicating that they are based on current expectations and projections, but actual results may differ substantially due to various factors, risks, and uncertainties - Forward-looking statements are based on current expectations and projections, but actual results may differ substantially due to factors, risks, uncertainties, and assumptions[65](index=65&type=chunk) - The Company disclaims any intent or obligation to update forward-looking statements after the report date[65](index=65&type=chunk) [Overview](index=19&type=section&id=Overview) The Company produces film products for novelty, packaging, and container applications, including foil balloons and films for packaging, and now distributes latex balloons after selling its Mexican subsidiary in October 2021 - The Company's core business includes foil balloons, film products for packaging, and flexible containers; it now distributes purchased latex balloons after selling its Mexican subsidiary in October 2021[66](index=66&type=chunk) - The Lake Barrington facility was sold for **$3.5 million** in April 2021, with proceeds used to repay a **$2 million** term loan and **$1.5 million** in revolving credit advances[67](index=67&type=chunk) - A ten-year lease agreement was concurrently entered for the Lake Barrington facility, with annual base rent starting at **$500,000**[67](index=67&type=chunk) - The Company paid a final forbearance fee of **$250,000** to its prior lender after meeting specific conditions related to equity investment and debt repayment[68](index=68&type=chunk) [September 30, 2021 financing](index=19&type=section&id=September%2030,%202021%20financing) On September 30, 2021, the Company secured a new senior secured financing agreement with Line Financial, consisting of a **$6 million** revolving credit facility and a **$0.7 million** term loan, used to repay previous lending agreements and for working capital - The Company entered into a new senior secured financing agreement with Line Financial on September 30, 2021, providing a **$6 million** revolving credit facility and a **$731,250** term loan[69](index=69&type=chunk)[72](index=72&type=chunk) - Proceeds from the new facilities were used to repay all outstanding amounts under previous lending agreements and for working capital[71](index=71&type=chunk) - The Senior Facilities require the Company to maintain a Tangible Net Worth of at least **$4 million**, and the Company believes it was in compliance as of June 30, 2022[74](index=74&type=chunk) Debt Balances (Line Financial) | Debt Type | June 30, 2022 ($) | December 31, 2021 ($) | | :-------------------------- | :------------------ | :-------------------- | | Term loan balance | 500,000 | 600,000 | | Revolving Line of Credit | 4,800,000 | 5,000,000 | [Comparability](index=21&type=section&id=Comparability) The Company's financial results are affected by the divestiture of its international subsidiaries (CTI Balloons, CTI Europe, and Flexo Universal) between 2019 and 2021, streamlining operations and focusing resources on core North American foil balloon and ancillary products - The Company divested CTI Balloons (United Kingdom) in Q4 2019, its Ziploc product line in Q1 2020, CTI Europe (Germany) in 2021, and Flexo Universal (Mexico) in October 2021[77](index=77&type=chunk) - These divestitures were aimed at focusing resources on core North American foil balloons and ancillary products[77](index=77&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) The Company experienced a decrease in net sales and gross profit for both the three and six months ended June 30, 2022, primarily driven by a significant decline in foil balloon sales due to helium price increases and product discontinuations [Net Sales](index=21&type=section&id=Net%20Sales) Net sales decreased by **23%** for the three months and **17%** for the six months ended June 30, 2022, primarily due to a **41%** and **32%** decline in foil balloon sales, respectively, partially offset by increases in film products and other revenues Net Sales by Product Category (Three Months Ended June 30) | Product Category | 2022 Net Sales ($000) | 2022 % of Net Sales | 2021 Net Sales ($000) | 2021 % of Net Sales | Variance ($000) | % Change | | :--------------- | :-------------------- | :------------------ | :-------------------- | :------------------ | :-------------- | :------- | | Foil Balloons | 2,674 | 61% | 4,563 | 80% | (1,889) | (41)% | | Film Products | 535 | 12% | 505 | 9% | 30 | 6% | | Other | 1,209 | 27% | 644 | 11% | 565 | 88% | | **Total** | **4,418** | **100%** | **5,712** | **100%** | **(1,294)** | **(23)%** | Net Sales by Product Category (Six Months Ended June 30) | Product Category | 2022 Net Sales ($000) | 2022 % of Net Sales | 2021 Net Sales ($000) | 2021 % of Net Sales | Variance ($000) | % Change | | :--------------- | :-------------------- | :------------------ | :-------------------- | :------------------ | :-------------- | :------- | | Foil Balloons | 6,506 | 64% | 9,498 | 77% | (2,992) | (32)% | | Film Products | 1,363 | 13% | 811 | 7% | 552 | 68% | | Other | 2,346 | 23% | 2,002 | 16% | 344 | 15% | | **Total** | **10,215** | **100%** | **12,311** | **100%** | **(2,096)** | **(17)%** | Customer Concentration (% of Sales) | Customer Group | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Top 3 Customers | 83% | 79% | 82% | 82% | | Top 10 Customers | 91% | 91% | 90% | 91% | [Cost of Sales](index=23&type=section&id=Cost%20of%20Sales) Cost of sales decreased in absolute terms for both the three and six months ended June 30, 2022, reflecting lower sales volume, while remaining a high percentage of sales at approximately **81.8%** and **82.0%** respectively Cost of Sales | Period | 2022 Cost of Sales ($) | 2021 Cost of Sales ($) | 2022 % of Sales | 2021 % of Sales | | :-------------------------------- | :--------------------- | :--------------------- | :-------------- | :-------------- | | Three months ended June 30 | 3,615,000 | 4,718,000 | 81.8% | 82.6% | | Six months ended June 30 | 8,373,000 | 10,031,000 | 82.0% | 81.5% | [General and Administrative](index=23&type=section&id=General%20and%20Administrative) General and administrative expenses slightly decreased to **$998,000** for the three months and **$1,835,000** for the six months ended June 30, 2022, compared to **$1,048,000** and **$1,897,000** in the prior year periods, respectively General and Administrative Expenses | Period | 2022 G&A Expenses ($) | 2021 G&A Expenses ($) | | :-------------------------------- | :-------------------- | :-------------------- | | Three months ended June 30 | 998,000 | 1,048,000 | | Six months ended June 30 | 1,835,000 | 1,897,000 | [Selling, Advertising and Marketing](index=23&type=section&id=Selling,%20Advertising%20and%20Marketing) Selling, advertising, and marketing expenses increased to **$111,000** for the three months and **$332,000** for the six months ended June 30, 2022, reflecting expanded customer outreach and engagement activities Selling, Advertising and Marketing Expenses | Period | 2022 Expenses ($) | 2021 Expenses ($) | | :-------------------------------- | :---------------- | :---------------- | | Three months ended June 30 | 111,000 | 107,000 | | Six months ended June 30 | 332,000 | 246,000 | - The increase in expenses is attributed to expanding customer outreach and engagement activities during 2022[88](index=88&type=chunk) [Gain on Sale of Assets](index=23&type=section&id=Gain%20on%20Sale%20of%20Assets) In the prior year, the Company recognized a significant gain of **$3,357,000** from the sale of its Lake Barrington, Illinois facility on April 23, 2021 - A gain of **$3,357,000** was recognized in 2021 from the sale of the Lake Barrington, Illinois facility[88](index=88&type=chunk) [Other Income (Expense)](index=23&type=section&id=Other%20Income%20(Expense)) Interest expense decreased to **$109,000** for the three months and **$205,000** for the six months ended June 30, 2022, due to a reduction in the Company's senior debt facility and a change in the lender's fee structure Interest Expense | Period | 2022 Interest Expense ($) | 2021 Interest Expense ($) | | :-------------------------------- | :------------------------ | :------------------------ | | Three months ended June 30 | 109,000 | 148,000 | | Six months ended June 30 | 205,000 | 348,000 | - Interest expense decreased due to the reduction of the Company's senior debt facility and a shift in lender charges from higher interest to lower interest plus a monitoring fee recorded in G&A[89](index=89&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=23&type=section&id=Financial%20Condition,%20Liquidity%20and%20Capital%20Resources) The Company's liquidity and capital resources are under pressure, with cash balances decreasing significantly, and it continues to face substantial doubt about its ability to continue as a going concern, relying on business plan execution and securing additional financing [Cash Flow Items](index=23&type=section&id=Cash%20Flow%20Items) For the six months ended June 30, 2022, net cash provided by operating activities was **$303,000**, a significant improvement from **$617,000** used in the prior year, while investing activities used **$94,000** and financing activities used **$221,000** Net Cash Flow by Activity (Six Months Ended June 30) | Activity | 2022 Cash Flow ($) | 2021 Cash Flow ($) | | :-------------------------- | :----------------- | :----------------- | | Operating activities | 303,000 | (617,000) | | Investing activities | (94,000) | 3,454,000 | | Financing activities | (221,000) | (2,695,000) | | Discontinued operations | - | 538,000 | - Significant changes in working capital for Q2 2022 included a **$707,000** decrease in accounts receivable, a **$405,000** increase in inventory, and a **$112,000** decrease in trade payables[90](index=90&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) The Company's cash balances decreased from **$265,000** in June 2021 to **$54,000** in June 2022, raising substantial doubt about its ability to continue as a going concern, necessitating additional financing and business plan execution Cash Balances | Period | Cash Balances ($) | | :---------------- | :---------------- | | June 30, 2022 | 54,000 | | June 30, 2021 | 265,000 | - Substantial doubt exists about the Company's ability to continue as a going concern for one year from the issuance of the financial statements, requiring successful business plan execution and additional financing[96](index=96&type=chunk) - The Company refinanced its credit facility with Line Capital in September 2021, resolving prior compliance failures with PNC, and believes it has been in compliance since[97](index=97&type=chunk) - The sale of the Lake Barrington facility for **$3.5 million** in April 2021, followed by a ten-year leaseback, was a key liquidity event, with proceeds used to repay **$3.5 million** of prior debt[98](index=98&type=chunk)[99](index=99&type=chunk) [Seasonality](index=26&type=section&id=Seasonality) Sales in the foil balloon product line are historically seasonal, with approximately **40%** of sales occurring from December through March and **24%** from July through October in recent years - Foil balloon sales are seasonal, with **40%** occurring from December to March and **24%** from July to October[101](index=101&type=chunk) [Critical Accounting Policies](index=26&type=section&id=Critical%20Accounting%20Policies) For a description of critical accounting policies and associated risks, the Company refers to its Annual Report on Form 10-K for the year ended December 31, 2021, with no material changes occurring during the current reporting period - Critical accounting policies are detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021[102](index=102&type=chunk) - No material changes to critical accounting policies occurred during the three and six months ended June 30, 2022[102](index=102&type=chunk) [Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk](index=26&type=section&id=Item%20No.%203%20Quantitative%20and%20Qualitative%20Disclosures%20Regarding%20Market%20Risk) This section states that there are no quantitative and qualitative disclosures regarding market risk applicable to the Company for the reported period - This item is not applicable[103](index=103&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%20No.%204%20Controls%20and%20Procedures) Management concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2022, due to identified material weaknesses in internal control over financial reporting [Disclosure Controls and Procedures](index=26&type=section&id=Disclosure%20Controls%20and%20Procedures) Based on an evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2022, due to material weaknesses - Disclosure controls and procedures were deemed not effective as of June 30, 2022[105](index=105&type=chunk) [Management's Report on Internal Control over Financial Reporting](index=27&type=section&id=Management's%20Report%20on%20Internal%20Control%20over%20Financial%20Reporting) Management identified material weaknesses in internal control over financial reporting as of June 30, 2022, including a lack of sufficient accounting professionals and over-dependence on the Acting Chief Financial Officer, leading to a conclusion of ineffectiveness - Material weaknesses identified include a lack of sufficient accounting professionals for significant, unusual transactions, leading to misapplications of GAAP[110](index=110&type=chunk)[115](index=115&type=chunk) - The Company is overly dependent on its Acting Chief Financial Officer (also CEO) within a highly manual environment[115](index=115&type=chunk) - As a result of these material weaknesses, management concluded that internal control over financial reporting was not effective as of June 30, 2022[110](index=110&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=27&type=section&id=Item%20No.%201%20Legal%20Proceedings) The Company is involved in various lawsuits and claims, but management believes these will not have a material adverse effect on its financial condition, with the Benchmark Investments, Inc. case concluded and an Engie Resources LLC claim settled - The Benchmark Investments, Inc. v. Yunhong CTI Ltd. case was concluded in June 2022[112](index=112&type=chunk) - A claim from Engie Resources LLC for **$94,000** was settled for **$75,000** in March 2022, with **$30,000** remaining to be paid as of June 30, 2022[113](index=113&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%20No.%201A%20Risk%20Factors) This section states that there are no new material risk factors applicable to the Company for the reported period - This item is not applicable[114](index=114&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%20No.%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there are no unregistered sales of equity securities or use of proceeds to report for the period - This item is not applicable[115](index=115&type=chunk) [Item 3. Defaults Upon Senior Securities](index=28&type=section&id=Item%20No.%203%20Defaults%20Upon%20Senior%20Securities) The Company previously experienced various events of default under its Loan Agreement with PNC Bank, which were addressed through a Consent, Forbearance and Amendment Agreement and subsequently resolved by refinancing with Line Capital on September 30, 2021 - The Company had various events of default under its prior Loan Agreement with PNC Bank[117](index=117&type=chunk) - These defaults were addressed by refinancing with Line Capital on September 30, 2021[116](index=116&type=chunk)[117](index=117&type=chunk) - The Company believes it has been in compliance with the terms of the Line Capital financing since its inception[118](index=118&type=chunk) [Item 4. Mine Safety Disclosures](index=28&type=section&id=Item%20No.%204%20Mine%20Safety%20Disclosures) This section states that there are no mine safety disclosures applicable to the Company - This item is not applicable[119](index=119&type=chunk) [Item 5. Other Information](index=28&type=section&id=Item%20No.%205%20Other%20Information) This section indicates that there is no other information to report - No other information to report[120](index=120&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%20No.%206%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, and Interactive Data Files formatted in Inline XBRL - Exhibits include certifications (31.1, 31.2, 32) and Interactive Data Files (101, 104) formatted in Inline XBRL[122](index=122&type=chunk) [Signatures](index=30&type=section&id=Signatures) The report was duly signed on August 12, 2022, by Frank J. Cesario in his capacities as Acting Chief Financial Officer and Chief Executive Officer of Yunhong CTI Ltd - The report was signed by Frank J. Cesario, Acting Chief Financial Officer and Chief Executive Officer, on August 12, 2022[125](index=125&type=chunk)

Financial Data and Key Metrics Changes - The company's revenue decreased from $6.6 million to $5.8 million, but the margin rate remained similar despite the volume change, leading to an improved bottom line [9] - The company expects to post more than $1.2 million in adjusted EBITDA for 2022, marking a significant operational performance metric [11] Business Line Data and Key Metrics Changes - The company is experiencing a shift in shipment timing for key events like Valentine's Day and Mother's Day, impacting quarterly results [7][9] - The company has maintained a good receivable position of $3.3 million, which is in line with total revenue and reflects effective collections with negligible bad debt write-offs [20] Market Data and Key Metrics Changes - There is a tightening in helium supply, which is less impactful than the significant shortage experienced in 2019, but still a concern for the industry [13] - The company has ordered materials earlier to mitigate supply chain issues, relying on established relationships with domestic suppliers [14] Company Strategy and Development Direction - The company is focusing on enhancing sales and marketing efforts to support growth and target specific retailers [15] - There is a commitment to operational efficiency through automation and maintaining strong customer relationships to ensure timely product delivery [15] Management's Comments on Operating Environment and Future Outlook - The management expressed confidence in the company's financial and operational position entering Q1 2022, emphasizing a transformational strategy for future growth [16] - The management acknowledged the challenges posed by the current market environment but remains optimistic about the company's trajectory [27] Other Important Information - The first quarter of 2022 is significant as it reflects the results of the reconfigured company without the former Flexo subsidiary, providing clearer insights into its performance [6] Q&A Session Summary Question: Concerns about high receivables of $3.3 million - Management clarified that the receivable position is in line with total revenue and reflects standard retail terms, with good collections and negligible bad debt write-offs [20] Question: Clarification on note payable officers' subordination of $1.2 million - Management explained that the note was present in the previous quarter but classified under current liabilities, which may have caused confusion [21][23]

Financial Performance - Total net sales for the three months ended March 31, 2022, were $5.797 million, a decrease of 12.2% compared to $6.599 million for the same period in 2021[9]. - Gross profit for the first quarter of 2022 was $1.039 million, down from $1.286 million in Q1 2021, reflecting a gross margin of 17.9%[9]. - Operating expenses increased to $1.058 million in Q1 2022, compared to $988,000 in Q1 2021, primarily due to higher advertising and marketing costs[9]. - The company reported a net loss of $21,000 for Q1 2022, an improvement from a net loss of $381,000 in Q1 2021[9]. - For the three months ended March 31, 2022, the net loss was $21,000, compared to a net loss of $473,000 for the same period in 2021, indicating a significant improvement[27]. - The company had a basic loss per common share of $0.04 for Q1 2022, compared to a loss of $0.36 per share for the same period in 2021[9]. - The company has a cumulative net loss of approximately $23 million from inception to March 31, 2022, raising concerns about its ability to continue as a going concern[33]. Cash and Assets - Cash and cash equivalents at the end of Q1 2022 were $208,000, significantly up from $66,000 at the end of Q1 2021[11]. - Total current assets increased to $12.908 million as of March 31, 2022, compared to $12.474 million as of December 31, 2021[7]. - The right of use (ROU) asset increased to $4,277,000 as of March 31, 2022, from $3,530,000 at December 31, 2021[71]. - As of March 31, 2022, total inventories increased to $8,496,000 from $7,876,000 as of December 31, 2021, representing a growth of approximately 7.9%[7]. Liabilities and Equity - Total liabilities rose to $14.200 million as of March 31, 2022, compared to $13.231 million at the end of 2021[7]. - The company’s accumulated deficit increased slightly to $22.676 million as of March 31, 2022, from $22.655 million at the end of 2021[8]. - The total equity as of March 31, 2022, was $4,061,000, a decrease from $4,146,000 as of December 31, 2021[14]. Revenue Sources - The company recognized revenue from product sales and shipping, with revenue being measured at the amount expected to be received upon transfer of products to customers[24]. - Revenue from foil balloons decreased by 22% to $3,832,000 in Q1 2022 from $4,935,000 in Q1 2021, attributed to the timing of shipments and price increases[88]. - Revenue from commercial films increased by 171% to $828,000 in Q1 2022 from $306,000 in Q1 2021, driven by increased demand from the largest customer[90]. Shareholder Information - The weighted average number of shares outstanding for Q1 2022 was 5,900,639, compared to 5,854,861 for Q1 2021[10]. - The company reported a total of 5,955,408 shares of common stock outstanding as of March 31, 2022[14]. - The Company issued 500,000 shares of Series A Preferred Stock at a price of $10.00 per share, generating gross proceeds of $5 million, with approximately $1 million sold by March 31, 2022[46]. - The Series A Preferred has a beneficial conversion feature valued at approximately $2.5 million, leading to a discount on the Series A Preferred recognized as dividend equivalents[47]. Operational Changes - The company divested CTI Balloons and CTI Europe to focus on core business activities, particularly foil balloons and ancillary products in North America[28]. - The company sold its Mexican subsidiary, Flexo Universal, in October 2021, receiving $100,000 in cash and a note receivable, which had a balance of $240,000 as of March 31, 2022[27]. - The company’s operations classified as discontinued include those of CTI Europe and Flexo Universal, which were exited in 2019 and 2021, respectively[15]. Financing and Capital - The company entered into a loan agreement providing for a revolving credit facility of up to $6 million and a term loan facility of $0.7 million[38]. - The company plans to raise additional capital through equity sales and borrowing to fund operating losses[34]. - The Company is required to maintain a minimum tangible net worth of at least $4,000,000 starting December 31, 2021[82]. Legal and Compliance - The Company is currently involved in legal proceedings, including a claim seeking $94,000 related to utilities, which has been settled for $75,000[63]. - The company has been in compliance with its new credit facility since September 2021, following a refinancing[35]. - The Company must deliver a binding term sheet or evidence of available funds to the Lender by August 15, 2021[107]. Market and Customer Information - Customer A accounted for 43% of net sales in Q1 2022, down from 60% in Q1 2021, while Customer B represented 23% of net sales in Q1 2022, up from 19% in Q1 2021[66]. - The amounts owed by Customer A and Customer B as of March 31, 2022, were approximately $696,000 and $1,669,000, representing 20% and 48% of the Company's consolidated net accounts receivable, respectively[67].

Revenue and Sales Performance - In 2021, the revenue breakdown was 76% from Novelty Products, 10% from Flexible Film Products, and 14% from Candy Blossoms and Other Products[20]. - For the fiscal year ended December 31, 2021, consolidated net sales from continuing operations were $24,086,000, an increase of 14% from $21,059,000 in 2020[97]. - Sales of foil balloons increased to $18,235,000 in 2021, up 8% from $16,853,000 in 2020, with Dollar Tree Stores being the largest customer[98]. - Sales of film products surged nearly 200% to $2,386,000 in 2021 from $804,000 in 2020, driven by increased demand from a major customer[100]. - Sales to the top 10 customers represented 85% of net revenues in both 2021 and 2020, indicating a high customer concentration risk[94]. Product Development and Strategy - The company plans to focus on growth and profitability within its core product lines, specifically foil balloons and related products[22]. - The company aims to develop new products and improve existing ones to enhance its competitive position and increase sales[22]. - The company intends to pursue new product lines and extensions through internal developments[22]. - The company has been engaged in the development of flexible film products for over 40 years and holds several patents related to these products[14]. - The company has developed or acquired 6 issued patents in the United States and 7 in foreign countries as of December 31, 2021[53]. Financial Position and Cash Flow - The company executed a sale/leaseback transaction of its Lake Barrington, IL property to improve its financial position[22]. - Cash used by operating activities in 2021 was ($3,709,000), a significant decrease from cash provided of $1,322,000 in 2020[108]. - Cash provided by investing activities amounted to $3,378,000 in 2021, compared to cash used of ($115,000) in 2020[108]. - Cash provided by financing activities was $626,000 in 2021, a turnaround from cash used of ($2,267,000) in 2020[109]. - The Company has a cumulative net loss exceeding $20 million from inception to December 31, 2021, raising concerns about its ability to continue as a going concern[112]. Operational Challenges - The company experienced significant fluctuations in raw material costs, which have materially affected profitability, with no long-term agreements for supply[46]. - The company has faced challenges in securing adequate seasonal workers, leading to increased labor costs due to overtime and holiday premiums[58]. - The company has been impacted by supply chain disruptions and inflationary pressures, which have forced it to manage lead times and pass cost increases to customers[66]. Management and Governance - The Audit Committee met four times during 2021 to oversee financial risks and management discussions[176]. - The Board of Directors had five members as of January 2022, with all members determined to be independent according to NASDAQ standards[168]. - The Company has adopted a Code of Ethics applicable to senior executive and financial officers to promote ethical conduct and compliance[186]. - The Company aims to improve board diversity, having transitioned from a 100% Caucasian, 100% male board to a more diverse composition[182]. - The Board of Directors plays an active role in risk oversight, regularly reviewing credit, liquidity, and operational risks[173]. Compensation and Incentives - Frank Cesario, the Chief Executive Officer, received a total compensation of $149,249 in 2020 and $1,500 in 2021[188]. - Jana M. Schwan, the Chief Operating Officer, earned a total compensation of $175,038 in 2021, up from $163,378 in 2020[188]. - Jennifer M. Connerty, the Chief Financial Officer, had a total compensation of $152,885 in 2021, compared to $145,039 in 2020[188]. - The incentive compensation plan allows for payments based on net income exceeding $100,000 per quarter and $250,000 for the year, with a maximum aggregate payout of 16% of net income[192]. - No stock options or grants were awarded during 2021, and the 401(k) matching contributions were suspended for 2020 and 2021[197][199]. Internal Controls and Compliance - Management identified material weaknesses in internal control over financial reporting, indicating a reasonable possibility of material misstatements in financial statements[151]. - The Company has enhanced its resource base and adjusted processes to address identified material weaknesses, including hiring a controller for assistance[152]. - The Company’s disclosure controls and procedures were deemed ineffective as of December 31, 2021, due to identified material weaknesses[147]. - The Company regularly reviews deferred tax assets for recoverability, which could impact the effective tax rate and operating results if not managed properly[138]. Miscellaneous - The company has relocated its warehousing and light assembly facility to Elgin, IL, instead of Laredo, TX, due to various factors including the Covid-19 pandemic[22]. - The company has transitioned to sourcing latex products from a foreign supplier after selling its former subsidiary in Mexico[25]. - The company has executed a sale and leaseback transaction for its principal plant, with annual rent increasing from $500,000 in the first year to $652,000 in the final year[69]. - The Company recorded a net interest expense of $564,000 in 2021, down from $1,167,000 in 2020, due to a lower average outstanding balance of debt[105]. - The Company entered into a loan agreement with Line Financial on September 30, 2021, providing a revolving credit facility of up to $6 million and a term loan of $731,250[115].

Yunhong CTI Ltd. (CTIB) Q4 2021 Earnings Conference Call April 13, 2022 10:00 AM ET Company Participants Frank Cesario - CEO Jana Schwan - COO Conference Call Participants Operator Good day. And welcome to the Yunhong CTI Fourth Quarter and Year-End 2021 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, April 13, 2022. The earnings press release acc ...