Yunhong Green CTI(YHGJ) - 2021 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The company's financial statements for the nine months ended September 30, 2021, show a net income turnaround driven by asset sales, despite ongoing going concern doubts Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Total current assets | $19,766 | $19,151 | +$615 | | Total property, plant and equipment, net | $1,268 | $1,950 | -$682 | | Total Assets | $24,882 | $21,551 | +$3,331 | | Liabilities & Equity | | | | | Total current liabilities | $16,694 | $18,787 | -$2,093 | | Total Liabilities | $19,586 | $18,831 | +$755 | | Total Shareholders' Equity | $5,297 | $1,187 | +$4,110 | Performance Summary for the Three Months Ended September 30 | Metric | 2021 (in $) | 2020 (in $) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $6,234,231 | $5,980,766 | +4.2% | | Gross Profit | $574,831 | $260,942 | +120.3% | | Income (Loss) from Operations | ($590,824) | ($907,472) | +34.9% | | Net Income (Loss) | ($638,138) | ($1,028,632) | +38.0% | | Basic Loss Per Share | ($0.14) | ($0.21) | +33.3% | Performance Summary for the Nine Months Ended September 30 | Metric | 2021 (in $) | 2020 (in $) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $19,975,640 | $18,793,620 | +6.3% | | Gross Profit | $2,533,841 | $2,352,096 | +7.7% | | Income (Loss) from Operations | $2,100,819 | ($1,239,441) | N/A (Turned to profit) | | Net Income (Loss) | $1,465,091 | ($2,981,947) | N/A (Turned to profit) | | Basic Loss Per Share | ($0.20) | ($1.32) | +84.8% | - The significant improvement in income from operations for the nine-month period was primarily due to a $3.36 million gain on the sale of assets[9] Cash Flow Summary for the Nine Months Ended September 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($2,939) | $995 | | Net cash provided by (used in) investing activities | $3,401 | ($140) | | Net cash used in financing activities | ($650) | ($2,237) | - Cash from investing activities was positive in 2021 due to $3.5 million received from the sale of a building, which was a key source of liquidity[11] - Cash used in operating activities in 2021 was primarily driven by a gain on the sale of the building, an increase in inventories, and a decrease in trade payables, contrasting with cash provided by operations in 2020[11] Notes to Condensed Consolidated Financial Statements - The company has exited the business of its CTI Europe subsidiary, which was fully disposed of in Q2 2021 and is classified as a discontinued operation[18][29] - Management has expressed substantial doubt about the company's ability to continue as a going concern due to a cumulative net loss of over $13 million and dependence on raising additional capital[35][36] - On September 30, 2021, the company entered into a new senior secured financing agreement with Line Financial Corp., including a $6 million revolving credit facility and a $731,250 term loan, to repay its previous debt with PNC Bank[46] - In April 2021, the company sold its Lake Barrington, Illinois facility for $3.5 million and entered into a ten-year leaseback agreement for the same property[39][83] - Subsequent to the quarter end, on October 28, 2021, the company closed the transaction to redeem all of its equity interests in its Mexican subsidiary, Flexo Universal S. de R.L. de C.V., for a purchase price of $500,000[84][85][86] Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales increased for Q3 and the nine-month period, driven by asset sales, with liquidity concerns addressed by new financing and divestitures Net Sales by Product Category (in thousands) | Product Category | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Foil Balloons | $4,295 | $4,515 | $13,900 | $12,380 | | Latex Balloons | $1,052 | $1,014 | $2,359 | $3,712 | | Film Products | $689 | $78 | $1,639 | $664 | | Other | $198 | $374 | $2,078 | $2,038 | | Total | $6,234 | $5,981 | $19,975 | $18,794 | - Latex balloon revenues were negatively impacted by COVID-19 constraints, as production activities were severely limited by the Mexican government[98] - A gain of $3,357,000 was recognized in Q2 2021 from the sale of the company's facility in Lake Barrington, Illinois[105] - The company has a high concentration of sales, with its top 3 customers accounting for 71% of sales in the first nine months of 2021[103] - Management's plans to address going concern issues include raising additional capital, focusing on profitable elements, and exploring alternative funding. The company secured a new credit facility with Line Financial for up to $6.7 million and sold its Mexican subsidiary post-quarter end[90][112][113] Quantitative and Qualitative Disclosures Regarding Market Risk The company has indicated that this section is not applicable for this reporting period - No quantitative or qualitative disclosures regarding market risk were provided[120] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to material weaknesses, including insufficient accounting professionals and over-reliance on the CFO - The CEO and CFO concluded that disclosure controls and procedures were not effective as of September 30, 2021[122] - Management identified material weaknesses in internal control over financial reporting, leading to the conclusion that internal controls were not effective[127] - Specific material weaknesses include: a lack of sufficient accounting professionals with knowledge to account for significant, unusual transactions, and over-dependence on the CFO in a highly manual environment[135] PART II – OTHER INFORMATION Legal Proceedings The company settled several legal cases while a significant claim seeking over $500,000 in damages remains pending with an uncertain outcome - Settled a case with Transportation Solutions Group LLC for $65,000, to be paid in installments[129] - Settled an arbitration with Jules and Associates, Inc. for $90,000, to be paid in installments[130] - Settled a claim with Airgas USA, LLC for $125,000, to be paid over 10 months[131] - A case filed by Benchmark Investments, Inc. seeking over $500,000 in damages is still pending. The company has filed a counterclaim and cannot currently estimate potential loss[132] Risk Factors The company has indicated that this section is not applicable for this reporting period - No risk factors were provided in this section[133] Unregistered Sales of Equity Securities and Use of Proceeds The company has indicated that this section is not applicable for this reporting period - No information on unregistered sales of equity securities was provided[134] Defaults Upon Senior Securities The company has indicated that this section is not applicable for this reporting period - No defaults upon senior securities were reported[136] Mine Safety Disclosures The company has indicated that this section is not applicable for this reporting period - No mine safety disclosures were provided[137] Other Information The company reported no other information for this period - No other information was disclosed[138] Exhibits The report includes certifications from the Chief Executive Officer and Chief Financial Officer as required by the Securities Exchange Act and the Sarbanes-Oxley Act - Filed exhibits include CEO and CFO certifications pursuant to Rule 13a-14(a) and 18 U.S.C. 1350 (Sarbanes-Oxley Act)[139]