Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________

 

FORM 10-Q/A

AMENDMENT NO. 1 TO FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

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

000-23115

 

YUNHONG CTI LTD.

(Exact name of registrant as specified in its charter)

 

Illinois

 

36-2848943

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

22160 N. Pepper Road

 

 

Barrington, Illinois

 

60010

(Address of principal executive offices)

 

(Zip Code)

 

(847)382-1000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

 CTIB

 

The Nasdaq Stock Market LLC

 (The Nasdaq Capital Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑     No ☐

 

 Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☑     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

   

Emerging growth company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐     No ☑

 

The number of shares outstanding of the registrant’s common stock as of May 1, 2019 was 3,735,950 (excluding treasury shares).

 



 

 

 

QUARTERLY REPORT ON FORM 10-Q/A

For the quarterly period ended March 31, 2019

 

EXPLANATORY NOTE

 

Amendment No. 1 on Form 10-Q/A amends and restates certain items noted below in the Quarterly Report on Form 10-Q of Yunhong CTI Ltd. (formerly CTI Industries Corporation) (the “Company”) for the quarter ended March 31, 2019, as originally filed with the Securities and Exchange Commission on May 21, 2019  (the “Original Filing”).  This Form 10-Q/A amends the Original Filing to reflect the following changes.  First, the Original Filing was made without the benefit of auditor review, as noted in the Original Filing, and this amendment reflects the inclusion of outside auditor participation.  Second, additional information of subsequent events is detailed in this amended filing.  Third, a non-cash impairment for goodwill and an adjustment in the deferred tax asset (DTA) was determined to be appropriate and reflected in this amended filing.  Finally, we adjusted our lease accounting entry on the balance sheet. 

 

As of January 3, 2020, the Audit Committee of the Board approved the engagement of RBSM, LLP (“RBSM”) as the Company’s independent registered public accounting firm for the Company’s fiscal year ended December 31, 2019.  This Form 10-Q/A is being prepared with the benefit of auditor review and will constitute our amended filing.

 

This Form 10-Q/A has also been updated to reflect disclosure of subsequent events that have occurred after the balance sheet date, but before the issuance of the associated financial statements.  The subsequent events include the Company’s decision to exit its underperforming international subsidiaries, exit a significant product line, change its capital structure and focus its efforts on its US-based foil balloon and related product offerings.  

 

The Company determined that the DTA at March 31, 2019 should have been $135,094 and, therefore, the Company should have recorded a valuation allowance on the income tax benefit of $360,492 generated during the quarter.  Therefore, the Company believes that is necessary to restate the Original Filing. 

 

For the convenience of the reader, this Amendment No. 1 on Form 10-Q/A contains only the sections of the Original Filing that are being amended.  Other than as set forth herein, the sections and exhibits to the Original Filing are unchanged and continue in full force and effect as previously filed.  This Form 10-Q/A amends and restates only the following financial statements and disclosures that were impacted from the correction of the error:

 

 

Item No. 1 – Financial Statements

 

Item No. 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

  Item No. 4 – Controls and Procedures 
 

Item No. 6 – Exhibits

 

Except as described above, no other changes have been made to the Original Filing.

 

 

 

 

 

INDEX

 

Part I – Financial Information  
     

Item No. 1.

Financial Statements

 

 

Condensed Consolidated Balance Sheets at March 31, 2019 (unaudited) and December 31, 2018 1

 

Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2019 and March 31, 2018 2

 

Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2019 and March 31, 2018

3

 

Notes to Condensed Consolidated Financial Statements (unaudited)

5

Item No. 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item No. 3

Quantitative and Qualitative Disclosures Regarding Market Risk

 25

Item No. 4

Controls and Procedures

 25

     

Part II – Other Information

 
     

Item No. 1

Legal Proceedings

27

Item No. 1A

Risk Factors

27

Item No. 2

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item No. 3

Defaults Upon Senior Securities

27

Item No. 4

Submission of Matters to a Vote of Security Holders

27

Item No. 5

Other Information

27

Item No. 6

Exhibits

28
  Signatures

29

  Exhibit 31.1

 

  Exhibit 31.2

 

  Exhibit 32

 

 

 

 
 

Item 1.   Financial Statements

 

Yunhong CTI, LTD (f/k/a CTI Industries Corporation)

Condensed Consolidated Balance Sheets

 

   

March 31, 2019

   

December 31, 2018

 
   

Restated/Unaudited

         
ASSETS                

Current assets:

               

Cash and cash equivalents (VIE $3,000 and $57,000, respectively)

  $ 175,442     $ 428,150  

Accounts receivable, (less allowance for doubtful accounts of $524,000 and $85,000, respectively)

    10,170,256       10,830,555  

Inventories, net (VIE $315,000 and $340,000, respectively)

    20,837,907       20,007,488  

Prepaid expenses (VIE $106,000 and $127,000, respectively)

    658,164       858,158  

Other current assets

    1,407,371       886,383  
                 

Total current assets

    33,249,140       33,010,734  
                 

Property, plant and equipment:

               

Machinery and equipment

    23,842,559       23,807,985  

Building

    3,374,334       3,367,082  

Office furniture and equipment (VIE $303,000 and $303,000, respectively)

    2,656,519       2,649,280  

Intellectual property

    783,179       783,179  
Land     250,000       250,000  

Leasehold improvements

    411,426       409,188  

Fixtures and equipment at customer locations

    518,450       518,450  

Projects under construction

    188,181       150,272  
      32,024,648       31,935,436  

Less : accumulated depreciation and amortization (VIE $106,000 and $104,000, respectively)

    (28,427,729 )     (28,120,455 )
                 

Total property, plant and equipment, net

    3,596,919       3,814,981  
                 

Other assets:

               

Goodwill (VIE $0 and $440,000, respectively)

    0       1,473,176  

Net deferred income tax asset

    135,094       135,094  

Operating lease right-of-use

    2,477,817          

Other assets

    246,088       326,849  
                 

Total other assets

    2,858,999       1,935,119  
                 

TOTAL ASSETS

  $ 39,705,058     $ 38,760,834  
                 

LIABILITIES AND EQUITY

               

Current liabilities:

               

Checks written in excess of bank balance (VIE $4,000 and $7,000, respectively)

  $ 654,646     $ 636,142  

Trade payables (VIE $142,000 and $62,000, respectively)

    8,680,004       6,679,670  

Line of credit (VIE $249,000 and $267,000, respectively)

    15,351,709       16,582,963  

Notes payable - current portion

    4,414,581       4,432,320  

Notes payable affiliates - current portion

    11,271       10,821  

Operating Lease Liabilities

    1,300,827       0  

Accrued liabilities (VIE $47,000 and $89,000, respectively)

    1,649,707       1,866,796  
                 

Total current liabilities

    32,062,745       30,208,712  
                 

Long-term liabilities:

               

Notes payable - affiliates

    175,512       199,122  

Notes payable, net of current portion (VIE $30,000 and $27,000, respectively)

    639,327       399,912  

Operating Lease Liabilities

    1,176,990          

Notes payable - officers, subordinated

    1,012,024       1,597,019  

Deferred gain (non current)

    74,364       100,340  
                 

Total long-term debt, net of current portion

    3,078,217       2,296,393  
                 

Total liabilities

    35,140,962       32,505,105  
                 
Equity:                

Yunhong CTI, LTD stockholders' equity:

               

Preferred Stock -- no par value, 3,000,000 shares authorized, 0 shares issued and outstanding

    -       -  

Common stock - no par value, 15,000,000 shares authorized, 3,779,608 shares issued and 3,730,950 shares outstanding

    13,898,494       13,898,494  

Paid-in-capital

    3,135,404       2,506,437  

Accumulated earnings

    (5,359,575 )     (2,865,486 )

Accumulated other comprehensive loss

    (5,814,471 )     (6,050,347 )

Less: Treasury stock, 43,658 shares

    (160,784 )     (160,784 )

Total Yunhong CTI, LTD stockholders' equity

    5,699,068       7,328,314  

Noncontrolling interest

    (1,134,972 )     (1,072,585 )

Total Equity

    4,564,096       6,255,729  

TOTAL LIABILITIES AND EQUITY

  $ 39,705,058     $ 38,760,834  

 

See accompanying notes to condensed consolidated unaudited financial statements

 

1

 

 

Yunhong CTI, LTD (f/k/a CTI Industries Corporation)

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

   

For the Three Months Ended March 31,

 
   

2019

   

2018

 
   

Restated

         

Net Sales

  $ 12,536,389     $ 13,979,177  
                 

Cost of Sales

    10,540,218       11,110,786  
                 

Gross profit

    1,996,171       2,868,391  
                 

Operating expenses:

               

General and administrative

    1,841,898       1,884,046  

Selling

    437,565       858,537  

Advertising and marketing

    172,577       296,880  

Impairment on long-lived assets

    1,253,176          

Gain on sale of assets

    (23,547 )     (24,414 )

Total operating expenses

    3,681,669       3,015,049  
                 

Loss from operations

    (1,685,498 )     (146,658 )
                 

Other (expense) income:

               

Interest expense

    (546,906 )     (564,060 )
Other Income/(expense)     (315,478)          

Interest income

    -       (345 )

Foreign currency loss

    (8,594 )     31,028  
                 

Total other expense, net

    (870,978 )     (533,377 )
                 

Net loss before taxes

    (2,556,476 )     (680,035 )
                 

Income tax benefit

            (209,484 )
                 

Net loss

    (2,556,476 )     (470,551 )
                 

Less: Net (loss) income attributable to noncontrolling interest

    (62,388 )     (7,543 )
                 

Net income attributable to Yunhong CTI, LTD

  $ (2,494,088 )   $ (463,008 )
                 

Other Comprehensive Income (Loss)

               

Foreign currency adjustment

    235,876       433,065  

Comprehensive Income (Loss)

  $ (2,258,212 )   $ (29,943 )
                 

Basic loss per common share

  $ (0.67 )   $ (0.13 )
                 

Diluted loss per common share

  $ (0.67 )   $ (0.13 )
                 

Weighted average number of shares and equivalent shares of common stock outstanding:

               

Basic

    3,735,950       3,530,227  
                 

Diluted

    3,735,950       3,530,227  

 

See accompanying notes to condensed consolidated unaudited financial statements

 

2

 

 

Yunhong CTI, LTD (f/k/a CTI Industries Corporation)

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

   

For the Three Months Ended March 31,

 
   

2019

   

2018

 
   

Restated

         

Cash flows from operating activities:

               

Net loss

  $ (2,556,476 )   $ (470,551 )

Depreciation and amortization

    308,084       376,920  

Amortization of deferred gain on sale/leaseback

    (27,474 )     -  

Provision for losses on accounts receivable

    6,085       (28,486 )

Provision for losses on inventories

    (10,656 )     (17,781 )

Impairment of long-lived assets

    1,253,176       (35,503 )

Deferred income taxes

            (133,982 )
   Stock based compensation     28,967       61,975  

Change in assets and liabilities:

               

Accounts receivable

    660,299       (465,865 )

Inventories

    (827,084 )     (1,995,477 )

Prepaid expenses and other assets

    (20,233 )     109,567  

Trade payables

    2,000,334       1,572,804  

Accrued liabilities

    (149,957 )     127,038  
                 

Net cash provided by (used in) operating activities

    665,065       (899,341 )
                 
                 

Cash flows from investing activities:

               

Purchases of property, plant and equipment

    (52,243 )     63,533  
                 

Net cash provided by (used in) investing activities

    (52,243 )     63,533  
                 

Cash flows from financing activities:

               

Change in checks written in excess of bank balance

    18,504       (442,992 )

Net change in revolving line of credit

    (1,235,126 )     2,123,582  

Repayment of long-term debt

    (213,521)       (432,942 )

Cash paid for deferred financing fees

    (27,585)       (24,568 )
   Proceeds from issuance of long-term note payable     650,000          
                 

Net cash provided by (used in) financing activities

    (807,728 )     1,223,080  
                 

Effect of exchange rate changes on cash

    (57,802)       27,307  
                 

Net increase/(decrease) in cash and cash equivalents

    (252,708 )     414,579  
                 

Cash and cash equivalents at beginning of period

    428,150       181,026  
                 

Cash and cash equivalents at end of period

  $ 175,442     $ 595,605  
                 
                 

Supplemental disclosure of cash flow information:

               

Cash payments for interest

  $ 366,688     $ 408,001  
       Common stock issued for notes payable   $ 600,000          
                 
                 
                 
                 

 

See accompanying notes to condensed consolidated unaudited financial statements

 

3

 

 

Yunhong CTI, LTD (f/k/a CTI Industries Corporation)

Consolidated Statements of Stockholders' Equity (Unaudited)

 

   

Yunhong CTI, LTD

                 
                                   

Accumulated

                                 
                           

(restated)

   

Other

   

Less

           

(restated)

 
   

Common Stock

   

Paid-in

   

Accumulated

   

Comprehensive

   

Treasury Stock

   

Noncontrolling

         
   

Shares

   

Amount

   

Capital

   

(Deficit) Earnings

   

Loss

   

Shares

   

Amount

   

Interest

   

TOTAL

 

Balance December 31, 2018

    3,578,885     $ 13,898,494     $ 2,506,437     $ (2,865,486 )   $ (6,050,347 )     (43,658 )   $ (160,784 )   $ (1,072,585 )     6,255,729  
                                                                         

Stock Issued

    20,000                                                                  

Shareholder note to equity

    180,723               600,000                                               600,000  

Stock Option Expense

                    28,967                                               28,967  

Net Income

                                           (2,494,089 )                             (62,388 )     (2,556,475 )

Other comprehensive income, net of taxes

                                                                       

Foreign currency translation

                                    235,876                               235,876  
                                                                         

Balance March 31, 2019, restated

    3,779,608     $ 13,898,494     $ 3,135,404     $ (5,359,575 )   $ (5,814,470 )     (43,658 )   $ (160,784 )   $ (1,134,973 )   $ 4,564,096  

 

See accompanying notes to unaudited consolidated financial statements

 

4

 

Yunhong CTI Ltd. (formerly CTI Industries Corporation) and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

Note 1 - Basis of Presentation

 

The accompanying condensed (a) consolidated balance sheet as of December 31, 2018, which has been derived from audited consolidated financial statements, 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 months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019. 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, 2018.

 

Principles of consolidation and nature of operations:

 

The condensed consolidated financial statements include the accounts of Yunhong CTI Ltd. (formerly CTI Industries Corporation) and its wholly-owned subsidiaries, CTI Balloons Limited and CTI Supply, Inc., its majority-owned subsidiaries, Flexo Universal, S. de R.L. de C.V. and CTI Europe gmbH, as well as the accounts of Venture Leasing S. A. de R. L., Venture Leasing L.L.C and Clever Container Company, L.L.C. (the “Company”). The last three entities have been consolidated as variable interest entities. All significant intercompany transactions and accounts have been eliminated in consolidation. The Company (i) designs, manufactures and distributes balloon and related novelty (candy and party related) products throughout the world, (ii) operates 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 (iii) distributes vacuum sealing products and home organization products in the United States. We have announced our intention to divest our interest in Clever Container and deconsolidate that entity from our group. As we are still the entity most closely associated with Clever Container in our related party group as of March 31st, 2019 it remains consolidated as a variable interest entity.

 

Variable Interest Entities (“VIEs”):

 

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. There are three entities that have been consolidated as variable interest entities.

 

5

 

Use of estimates:

 

In preparing condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of revenue and expenses during the reporting period in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates. The Company’s significant estimates include reserves for doubtful accounts, reserves for the lower of cost or market of inventory, reserves for deferred tax assets and recovery value of goodwill.

 

Earnings per share:

 

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during each period.

 

Diluted earnings per share is computed by dividing the net income by the weighted average number of shares of common stock and equivalents (stock options and warrants), unless anti-dilutive, during each period.

 

As of March 31, 2019 and 2018, shares to be issued upon the exercise of options and warrants aggregated 471,144 for each period. The number of shares included in the determination of earnings on a diluted basis for the three months ended March 31, 2019 and 2018 were none, as doing so would have been anti-dilutive.

 

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, 2018. There were no significant changes to these accounting policies during the three months ended March 31, 2019, except for the adoption of Accounting Standards Codification (ASC) Topic 842, Leases.

 

On January 1, 2019, we adopted ASC Topic 842 (Leases). The adoption of this standard significantly increased our assets and liabilities and further discussed in Note 12. ASC 842 requires a lessee to recognize assets and liabilities related to leases with terms in excess of 12 months. Such assets are typically considered Right-Of-Use (“ROU”) assets. Prior information has not been restated and continues to be reported under the accounting standards in effect for those periods.

 

On January 1, 2018, we adopted ASC 606 (Revenue From Contracts With Customers) using the modified retrospective method. The adoption of ASC 606 did not have a material impact on our consolidated financial position or results of operations, as our revenue arrangements generally consist of a single performance obligation to transfer promised goods at a fixed price.

 

6

 

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.

 

Auditor Replacement Process:

 

During April 2019, our independent registered accounting firm, Plante & Moran PLLC, declined to stand for reappointment as auditor. As of January 3rd, 2020, the Audit Committee of the Board approved the engagement of RBSM, LLP (“RBSM”) as the Company’s independent registered public accounting firm for the Company’s fiscal year ended December 31st, 2019. Previously, the quarterly report on Form 10-Q was prepared without the benefit of auditor review. This Form 10-Q/A is filed with review from RBSM.

 

Prior Period Reclassification

 

Certain amounts in prior periods have been reclassified to conform with current period presentation and had no effect on prior period net loss or stockholders’ equity.

 

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02 Leases (Topic 842), also referred to as “ASC 842” or “New Lease Standard”, which supersedes ASC 840 Leases (Topic 840), and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The FASB has continued to clarify this guidance through the issuance of additional ASUs. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less may be accounted for similar to existing guidance for operating leases. ASC 842 was effective for the Company for the year ending December 31, 2019. We reported our financial information for fiscal years ending before December 31, 2018 under the Topic 840 lease accounting standard. The Company applied the modified retrospective transition method and elected the transition option to use the effective date of January 1, 2019 as the date of initial application. The Company recognized the cumulative effect of the transition adjustment as of the effective date and will not provide any new lease disclosures for periods before the effective date. The Company elected the package of practical expedients and did not elect the use of the hindsight practical expedient. As a result, the Company will, in effect, continue to account for existing leases as classified in accordance with ASC 840, throughout the entire lease term, including periods after the effective date, with the exception that the Company will apply the new balance sheet recognition guidance for operating leases and apply ASC 842 for remeasurements and modifications after the transition date. 

 

Other key practical expedients elected by the Company (as a lessee) relate to maintaining leases with an initial term of 12 months or less off the balance sheet; not separating lease and non-lease components and the use of the portfolio approach to determine the incremental borrowing rate. For transition purposes, the Company used the incremental borrowing rate based on the total lease term and total minimum rental payments. The Company completed its identification of leases which comprised two building leases and two equipment leases. Further, the Company analyzed service contracts and parts assembly arrangements from suppliers and did not identify any material leases of production equipment. On the date of initial application, the Company recognized right-of-use ("ROU") assets and leasing liabilities on its condensed consolidated balance sheets of approximately $2.8 million. The adoption had no significant impact on the Company's condensed consolidated statement of operations.

 

 

 

 

 

Note 2 – Liquidity and Going Concern

 

The Company’s primary sources of liquidity are cash and cash equivalents as well as availability under the Credit Agreement with PNC Bank, National Association (“PNC”) (see Note 3). As indicated in Note 3, twice during 2018 we violated covenants in our credit facility and as of March 2019 we entered into a forbearance agreement with PNC. Under the terms of this agreement, financial covenants as of March 31, 2019 will not be considered and all previously identified compliance failures will be waived, but we remain out of compliance with the terms of our credit facility, as amended.

 

In addition to the above, due to financial performance in 2016, 2017 and 2018, including net income/(losses) attributable to the Company of $0.7 million, ($1.6 million), and ($3.6 million), respectively, we believe that substantial doubt about our ability to continue as a going concern exists at March 31, 2019.

 

Additionally, we have experienced challenges in maintaining adequate seasonal working capital balances, made more challenging by increases in financing and labor costs. These changes in cash flows have created strain within our operations and have therefore increased our desire to incorporate additional funding resources.

 

7

 

Management’s plans include:

 

(1)     Pursuing a strategically significant major capital event.

(2)     Working with our bank to resolve our compliance failure on a long-term basis.

(3)     Evaluating and potentially executing a sale/leaseback transaction of our facility in Lake Barrington, IL.

(4)     Continuing to monitor the equity market for the potential to complete the transaction attempted during 2018, and

(5)     Exploring alternative funding sources.

 

Management Assessment

 

Considering both quantitative and qualitative information, we continue to believe that our plans to obtain additional financing will provide us with an ability to finance our operations through 2019 and, if adequately executed, will mitigate the substantial doubt about our ability to continue as a going concern.

 

 

Note 3 - Debt

 

During December 2017, we terminated a prior credit arrangement and entered in new financing agreements with PNC Bank, National Association (“PNC”). The “PNC Agreements” include a $6 million term loan and an $18 million revolving credit facility, with a termination date of December 2022.

 

Available credit under the Revolving Credit facility is determined by eligible receivables and inventory at Yunhong CTI, LTD (U.S.) and Flexo Universal (Mexico). We notified PNC of our failure to meet two financial covenants as of March 31, 2018. On June 8, 2018, we entered into Waiver and Amendment No. 1 (the “Amendment 1”) to our PNC Agreements. The Amendment modified certain covenants, added others, waived our failure to comply as previously reported, and included an amendment fee and temporary increase in interest rate. During September 2018, we filed a preliminary prospectus on Form S-1 for a planned equity issuance. On October 8, 2018, we entered into Consent and Amendment No. 2 (the “Amendment 2”) to our PNC Agreements. Amendment 2 reduced the amount of new funding proceeds that must be used to repay the term loan from $5 million to $2 million and waived the calculation of financial ratios for the period ended September 30, 2018, in exchange for a new covenant committing to raise at least $7.5 million in gross proceeds from our equity issuance by November 15, 2018 and pay an amendment fee. Market conditions ultimately forced us to postpone the offering, and thus no proceeds were received by the November 15, 2018 requirement.

 

We engaged PNC to resolve this failure to meet our amended covenant, and as of March 2019 entered into a forbearance agreement. Under the terms of this agreement, previously identified compliance failures will be waived and financial covenants as of March 31, 2019 will not be considered, with the next calculation due for the period ending June 30, 2019. We received a temporary over-advance of $1.2 million, which declined to zero over a six-week period under the terms of this agreement and paid a fee of $250,000. As forbearance is a temporary condition and we remain out of compliance with the terms of our facility, we have reclassified long-term bank debt to current liabilities on our balance sheet.

 

8

 

Available credit under the Revolving Credit facility is determined by eligible receivables and inventory at Yunhong CTI, LTD (U.S.) and Flexo Universal (Mexico).

 

Certain terms of the PNC Agreements include:

 

 

Restrictive Covenants: The Credit Agreement includes several restrictive covenants under which we are prohibited from, or restricted in our ability to:

 

o

Borrow money;

 

o

Pay dividends and make distributions;

 

o

Make certain investments;

 

o

Use assets as security in other transactions;

 

o

Create liens;

 

o

Enter into affiliate transactions;

 

o

Merge or consolidate; or

 

o

Transfer and sell assets.

 

 

Financial Covenants: The Credit Agreement includes a series of financial covenants we are required to meet including:

 

o

We are required to maintain a "Leverage Ratio", which is defined as the ratio of (a) Funded Debt (other than the Shareholder Subordinated Loan) as of such date of determination to (b) EBITDA (as defined in the PNC Agreements) for the applicable period then ended. The highest values for this ratio allowed by the PNC Agreements are:

 

Fiscal Quarter Ratio        
         

December 31, 2017

 4.75 to 1.00  

March 31, 2018

 4.50 to 1.00  

June 30, 2018

4.25 to 1.00  

September 30, 2018

not applicable

 

December 31, 2018

 3.50 to 1.00  

March 31, 2019

not applicable

 

June 30, 2019

 3.00 to 1.00  

September 30, 2019 and thereafter

 2.75 to 1.00  

 

 

o

We are required to maintain a "Fixed Charge Coverage Ratio", which is defined as the ratio of (a) EBITDA for such fiscal period, minus Unfinanced Capital Expenditures made during such period, minus distributions (including tax distributions) and dividends made during such period, minus cash taxes paid during such period to (b) all Debt Payments made during such period. This ratio must not exceed 1.1 : 1.0 for any quarterly calculation.

 

9

 

The credit agreement provides for interest at varying rates in excess of the prime rate, depending on the level of senior debt to EBITDA over time. We also entered into a swap agreement with PNC Bank to fix the rate of interest for $3 million of the notes over 3 years at 2.25%. This contract was made at market value upon December 14, 2017 execution and accounted for as a hedge. This contract is expected to terminate during 2019 at no cost or benefit to the Company under the terms of the forbearance agreement.

 

Failure to comply with these covenants has caused us to pay a higher rate of interest (by 2% per the Agreements), and other potential penalties may impact the availability of the credit facility itself, and thus might negatively impact our ability to remain a going concern. As described above in this Note as well as in Note 2, we were not in compliance with this credit facility as of December 31, 2018 and have entered into a forbearance agreement with our bank as of March 2019.

 

As of December 2017, Mr. Schwan was owed a total of $1,099,000, with additional accrued interest of $400,000, by the Company. As part of the December 2017 financing with PNC, Mr. Schwan executed a subordination agreement related to these amounts due him, as evidenced by a related note representing the amount owed to Mr. Schwan. During January 2019, Mr. Schwan converted $600,000 of his balance into approximately 181,000 shares of our common stock at the then market rate. No payments were issued to Mr. Schwan during 2018 or the three months ended March 31, 2019, with $15,000 of interest recorded as an expense.

 

 

Note 4 - Stock-Based Compensation; Changes in Equity

 

The Company has adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the condensed consolidated financial statements based on their grant-date fair values.

 

The Company has applied the Black-Scholes model to value stock-based awards and issued warrants related to notes payable. 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 our common stock. The risk-free rate of interest is the related U.S. Treasury yield curve for periods within the expected term of the option at the time of grant. The dividend yield on our common stock is estimated to be 0%, as the Company did not issue dividends during 2019 and 2018. The expected volatility is based on historical volatility of the Company’s common stock.

 

The Company’s net loss for the three months ended March 31, 2019 and 2018 includes approximately $29,000 and $62,000, respectively, of compensation costs related to share based payments. As of March 31, 2019, there is $164,000 of unrecognized compensation expense related to non-vested stock option grants and stock grants. We expect approximately $63,000 of additional stock-based compensation expense to be recognized over the remainder of 2019, and $56,000 to be recognized during 2020.

 

10

 

On April 10, 2009, the Board of Directors approved for adoption, and on June 5, 2009, the shareholders of the Corporation approved, a 2009 Stock Incentive Plan (“2009 Plan”). The 2009 Plan and subsequent awards categorized as inducement of employment authorized the issuance of up to 510,000 shares of stock or options to purchase stock of the Company (including cancelled shares reissued under the plan.) On June 8, 2018, our shareholders approved the 2018 Stock Incentive Plan (“2018 Plan”). The 2018 Plan authorizes the issuance of up to 300,000 shares of our common stock in the form of equity-based awards. As of March 31, 2019, options for 471,144 shares remain outstanding.

 

A summary of the Company’s stock option activity, which includes grants of restricted stock, non-qualified stock options, incentive stock options, warrants and related information, is as follows:

 

   

Shares under

Option

   

Weighted Average

Exercise Price

 

Balance at December 31, 2018

    471,144     $ 3.95  

Granted

    -       -  

Cancelled/Expired

    -       -  

Exercised/Issued

    -       -  

Outstanding at March 31, 2019

    471,144     $ 3.95  
                 

Exercisable at March 31, 2019

    165,264     $ 4.05  

 

The instruments above have an aggregate intrinsic value of $78,000, which represents the total pre-tax intrinsic value (the difference between the closing price of the Company’s common stock on the last trading day of the quarter ended March 31, 2019 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all the holders exercised their options on March 31, 2019.

 

As described in Note 5, we issued 20,000 shares of common stock to Gary Page in a legal settlement during January 2019. The value of those shares on the date of issuance was approximately $67,000.

 

On January 11, 2019, the Company and its Chairman, Mr. John Schwan, completed an exchange debt for equity upon receipt of consent for the transaction from the Company’s lender. Mr. Schwan surrendered $600,000 in notes from the Company in exchange for 180,723 shares of the Company’s common stock. The value was set at the $3.32 per share closing price of the Company’s common stock on the NASDAQ stock market on December 20, 2018.

 

 

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

 

In July 2017, God’s Little Gift, Inc. (d\b\a) Helium and Balloons Across America and Gary Page (“Claimants”) filed an action against the Company based on disputed compensation amounts over several years. This action was resolved by mutual agreement between the parties during January 2019. Mr. Page received 20,000 shares of CTI common stock, $5,000 in cash, and a minimum payout in his monthly royalty calculation of $7,667 beginning March 1, 2019 and ending August 1, 2021. The Company accrued the $0.3 million in committed costs under this settlement in its December 31, 2018 financial statements.

 

 

Note 6 - Other Comprehensive Income

 

In the three months ended March 31, 2018, the Company incurred other comprehensive income of approximately $236,000, all from foreign currency translation adjustments.

 

The following table sets forth the accumulated balance of other comprehensive income and each component.

 

   

Foreign Currency Items

   

Total

Accumulated Other Comprehensive Income

 
                 

Beginning balance as of January 1, 2019

  $ (6,050,347 )   $ (6,050,347 )
                 

Current period change, net of tax

    235,876       235,876  
                 

Ending Balance as of March 31, 2019

    (5,814,471 )     (5,814,471 )

 

 

Note 7 - Inventories, Net

 

   

March 31,

2019

   

December 31,

2018

 

Raw materials

  $ 2,402,974     $ 1,994,741  

Work in process

    3,133,953       3,052,224  

Finished goods

    15,239,946       14,934,581  

In Transit

    451,588       480,716  

Allowance for excess quantities

    (390,554 )     (454,774 )

Total inventories

  $ 20,837,907     $ 20,007,488  

 

 

Note 8 - Geographic Segment Data

 

The Company has determined that it operates primarily in one business segment that designs, manufactures and distributes film and film related products for use in packaging, storage and novelty balloon products. The Company operates in foreign and domestic regions. Information about the Company's operations by geographic area is as follows:

 

   

Net Sales to Outside Customers

For the Three Months Ended

   

Total Assets at

 
   

March 31,

   

March 31,

    December 31,  
   

2019

   

2018

   

2019

   

2018

 
                                 

United States

  $ 8,760,000     $ 9,738,000     $ 23,472,000     $ 25,354,000  

Europe

    1,275,000       1,362,000       3,366,000       3,052,000  

Mexico

    2,081,000       2,186,000       11,406,000       9,476,000  

United Kingdom

    420,000       693,000       1,461,000       879,000  
    $ 12,536,000     $ 13,979,000     $ 39,705,000     $ 38,761,000  

 

12

 

 

Note 9 - 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 months ended March 31, 2019 and 2018, there were two customers whose purchases represented more than 10% of the Company’s consolidated net sales, respectively. Sales to these customers for the three months ended March 31, 2019 and 2018 are as follows:

 

   

Three Months Ended

   

Three Months Ended

 
   

March 31, 2019

   

March 31, 2018

 

Customer

 

Net Sales

   

% of Net Sales

   

Net Sales

   

% of Net Sales

 

Customer A

  $ 3,861,000       30.8 %   $ 4,450,000       31.8 %

Customer B

  $ 2,159,000       17.2 %   $ 2,471,000       17.7 %

 

As of March 31, 2019, the total amounts owed to the Company by these customers were approximately $2,933,000 or 29%, and $2,279,000 or 22%, of the Company’s consolidated net accounts receivable, respectively. The amounts owed at March 31, 2018 by these customers were approximately $3,643,000 or 33%, and $2,657,000 or 24% of the Company’s consolidated net accounts receivable, respectively.

 

 

Note 10 - Related Party Transactions

 

Stephen M. Merrick, Chief Executive Officer of the Company, is of counsel to the law firm of Vanasco Genelly and Miller PC which used to provide legal services to the Company. Legal fees paid by the Company to this firm for the three months ended March 31, 2019 and 2018, respectively, were none and $72,000.

 

13

 

John H. Schwan, through an investment entity, and Stephen M. Merrick, Chief Executive Officer of the Company, also through an investment entity own, in aggregate, a 50% interest in Clever Container Company L.L.C., an Illinois limited liability company (“Clever Container”). During the three months ended March 31, 2019 and 2018, Clever Container purchased various products from the Company in the amount of $62,000 and $237,000, respectively. As of March 31, 2019 and 2018, the balance of accounts receivable from Clever Container to the Company were $1,373,000 and $1,102,000, respectively.

 

 

Note 11 - Derivative Instruments; Fair Value

 

The Company accounts for derivative instruments in accordance with U.S. GAAP, which requires that all derivative instruments be recognized on the balance sheet at fair value. We may enter into interest rate swaps to fix the interest rate on a portion of our variable interest rate debt to reduce the potential volatility in our interest expense that would otherwise result from changes in market interest rates. Our derivative instruments are recorded at fair value and are included in accrued liabilities of our consolidated balance sheet. Our accounting policies for these instruments are based on whether they meet our criteria for designation as hedging transactions, which include the instrument’s effectiveness, risk reduction and, in most cases, a one-to-one matching of the derivative instrument to our underlying transaction. As of March 31, 2019 and December 31, 2018, we had one derivative instrument accounted for as a hedge, with the same instrument accounted for as a hedge as of March 31, 2018. Gains and losses from changes in fair values of derivatives that are not designated as hedges for accounting purposes are recognized in the consolidated statement of operations. We have no such derivative financial instruments as of December 31, 2018. Changes in fair value for the respective periods were recognized in the consolidated statement of operations.

 

The interest rate swap we entered into December 14, 2017 had a three year term (ending December 14, 2020) and a notional amount of $3 million. The Company purchased a 2.25% fixed rate in exchange for the variable rate on a portion of the notes payable under the PNC Agreements, which was 1.47% at time of execution. The fair value of the swap was insignificant as of March 31, 2018 and December 31, 2018 and March 31, 2019. It is expected that this instrument will be eliminated with no gain or loss to the Company as a result of the forbearance agreement entered into during March 2019.

 

 

Note 12 - Leases

 

We adopted ASC Topic 842 (Leases) on January 1, 2019. This standard requires us to record certain operating lease liabilities and corresponding right-of-use assets on our balance sheet. Results for periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 840. We elected the package of practical expedients available for expired or existing contracts, which allowed us to carryforward our historical assessments of whether contracts are (or contain) leases, as well as lease classification tests and treatment of initial direct costs. We also elected to not separate lease components from non-lease components for all fixed payments, and we exclude variable lease payments in the measurement of right-of-use assets and lease obligations.

 

14

 

Upon adoption of ASC 842 we recorded a $2.8 million increase in other assets, a $1.3 million increase in current liabilities, and a $1.5 million increase in non-current liabilities. We did not record any cumulative effect adjustments in opening retained earnings, and adoption of ASC 842 had no impact on cash flows from operating, investing, or financing activities.

 

We determine if an arrangement is a lease at inception. Most of our operating leases do not provide an implicit rate of interest so we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. We lease various assets in the course of ordinary business including: warehouses and manufacturing facilities, as well as vehicles and equipment used in our operations. Leases with an initial term of 12 months or less are not recorded on the balance sheet as we recognize lease expense for these leases on a straight-line basis over the lease term. The depreciatable life of assets and related improvements are limited by the expected lease term, unless there is a reasonably certain expected transfer or title or purchase option. Some lease agreements include renewal options at our sole discretion. Any guaranteed residual value is included in our lease liability. The amortizable lives of operating and financing leased assets are limited by the expected lease term.  The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating and financing lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralize basis over the term of a lease within a particular currency environment. The Company used incremental borrowing rates as of January 1, 2019 for leases that commenced prior to that date.

 

The table below describes our lease position as of March 31, 2019:

 

Assets

 

As of March 31, 2019

 

Operating lease right-of-use assets

    $2,839,000  

Accumulated amortization

    (361,000 )

Net lease assets

    2,478,000  
         

Liabilities

       

Current

       

Operating

    1,301,000  

Noncurrent

       

Operating

    1,177,000  

Total lease liabilities

    2,478,000  
         

Weighted average remaining term (years) – operating leases

 

3 years

 
         

Weighted average discount rate – operating leases

    11.25 %

 

During the three months ended March 31, 2019, we recorded expenses related to

 

Operating right-of-use lease asset amortization

    $361,000  
         

Total expense for three months ended March 31, 2019

    361,000  

 

 

Operating lease expense were approximately $379,000 for the three months ended March 31, 2019. Operating lease costs are included within selling, general and administrative expenses on the condensed consolidated statements of operations.  The Company does not have any finance leases.  Cash paid for amounts included in the measurement of operating lease liabilities were approximately $361,000 for the three months ended March 31, 2019.

 

The following table summarizes the maturities of our lease liabilities for all operating leases as of March 31, 2019

   

(in thousands)

03/31/2019

2019 $1,210

2020

724

2021

757

2022 and thereafter

167

  Total lease payments

2,858

less:  Imputed interest

(380)

  Present value of lease liabilities

$2,478

 

 

 

15

 

 

Note 13 - Summary of Subsequent Events 

 

In July of 2019 management and the Board engaged in a review of the Company’s international subsidiaries and determined that they are not accretive to the Company overall, add complexity to the Company’s structure and utilize resources.  Therefore, as of July 19, 2019, the board authorized management to divest of all international subsidiaries.   The Company divested its United Kingdom subsidiary in the fourth quarter 2019 and expects to divest its European (German) and Mexican subsidiaries in the first half of 2020.  The operations of these entities will be presented as discontinued operations in the third quarter 2019, the period in which they met the accounting criteria for discontinued operations. These actions are being taken to focus our resources and efforts on our core business activities, particularly foil balloons and ancillary products based in the United States.   In October 2019, we determined that we would not renew our Trademark License Agreement with SC Johnson when it expired on December 31, 2019.   Under this Agreement, we were licensed to manufacture and sell a line of vacuum sealing machines and pouches under the Ziploc® Brand Vacuum Sealer System.   The terms of the Agreement included a run-off provision which allowed us to sell products under the Ziploc® trademark for 90 days after the end of the Agreement.   For the three months ended March 31, 2019, we had revenue of $2.2 million associated with products which utilized the Ziploc® trademark.   Our exit of the Ziploc® product line is considered a strategic shift and will have a major effect on our operations and financial results on a go forward basis.   However, as we continued to utilize the Ziploc® related assets in 2020, those assets will not be considered abandoned until they cease to be used at the end of the first quarter of 2020.   Therefore, our Ziploc® operations cannot be classified as discontinued operations in these financial statements but will be presented as discontinued operations when all of the applicable accounting criteria are met. We have also dramatically changed our capital structure.  On January 3, 2020 we entered into a securities purchase agreement, as amended on February 24, 2020 and April 13, 2020, (the “LF Purchase Agreement”) with LF International Pte., a Singapore private limited company (the “LF International”), which is controlled by Company director Mr. Yubao Li, pursuant to which the Company agreed to issue and sell, and LF International agreed to purchase, up to 500,000 shares of the Company’s newly created Series A Convertible 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 $10.00 per share, for aggregate gross proceeds of $5,000,000 (the “LF International Offering”).  As a result of the LF International Offering, a change of control of the Company may occur. As permitted by the LF Purchase Agreement, the Company may, in its discretion issue up to an additional 200,000 shares of Series A Preferred for a purchase price of $10.00 per share to additional investors (the “Additional Shares Offering,” and collectively with the LF International Offering, the “Offering”). On January 13, 2020, the Company conducted its first closing of the LF International Offering, resulting in aggregate gross proceeds of $2,500,000. Pursuant to the LF Purchase Agreement, LF International received the right to nominate and elect one member to the Company’s board of directors (subject to certain adjustments), effective as of the first closing, as well as a second director by the earlier of (i) the Company’s upcoming 2020 annual meeting of shareholders and (ii) May 15, 2020 and a third director by the Company’s upcoming 2020 annual meeting of shareholders. Pursuant to LF International’s nomination, effective January 13, 2020, the Board appointed Mr. Yubao Li as a director of the Company. Additionally, pursuant to the LF Purchase Agreement, on March 12, 2020, the Company changed its name to Yunhong CTI Ltd. To date, the Company has sold 492,660 shares of Series A Preferred to LF International and other accredited investors for aggregate gross proceeds of $4,926,600. Additionally, on April 1, 2020, an investor converted an accounts receivable of $482,000 owed to the investor by the Company in exchange for 48,200 shares of Series A Preferred.  Our business and results of operations may be negatively impacted by the spread of COVID-19.  We sell our products throughout the United States and in many foreign countries and may be impacted by public health crises beyond our control. This could disrupt our operations and negatively impact sales of our products. Our customers, suppliers and distributors may experience similar disruption. In December 2019, COVID-19 was reported in Wuhan, China. The World Health Organization has since declared the outbreak to constitute a pandemic. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, the impact on our customers and employees, all of which are uncertain and cannot be predicted. The preventative and protective actions that governments have taken to counter the effects of COVID-19 have resulted in a period of business disruption, including delays in shipments of products and raw materials. To the extent the impact of COVID-19 continues or worsens, the demand for our products may be negatively impacted, and we may have difficulty obtaining the materials necessary for the production of our products. In addition, the production facilities of our suppliers may be closed for sustained periods of time and industry-wide shipment of products may be negatively impacted, the severity of which may exceed the $1 million in Payroll Protection Program funds received by the Company from the US Federal Government. COVID-19 has also delayed certain strategic transactions the Company intended to close on in the near future and the Company does not know if and when such transactions will be completed. 

 

 

 

Note 14 Impairment –

 

In the first quarter of 2019, the Company identified an impairment indicator related to the goodwill associated with Clever Container. As a result of an impairment test, the Company fully impaired the goodwill related to Clever Container in the first quarter and recorded an impairment charge of $220,000. In the first quarter of 2019, the Company identified an impairment indicator related to the goodwill associated with Flexo. As a result of an impairment test, the Company fully impaired the goodwill related to Flexo in the first quarter of 2019 and recorded an impairment charge of $1,033,000.

 

 

Note 15 – Restatement of Financial Statements

 

As of January 3, 2020, the Audit Committee of the Board approved the engagement of RBSM, LLP (“RBSM”) as the Company’s independent registered public accounting firm for the Company’s fiscal year ended December 31, 2019. This Form 10-Q/A is being prepared with the benefit of auditor review and will constitute our amended filing.

 

This Form 10-Q/A has also been updated to reflect disclosure of subsequent events that have occurred after the balance sheet date, but before the issuance of the associated financial statements. The subsequent events include the Company’s decision to exit its underperforming international subsidiaries, exit a significant product line, change its capital structure and focus its efforts on its US-based foil balloon and related product offerings.  

 

The Company determined that the deferred tax asset at March 31, 2019 should have been $135,094 and, therefore, the Company should have recorded a valuation allowance on the income tax benefit of $360,492 generated during the quarter. 

 

Finally, the Company determined that  the goodwill associated with Clever Container and Flexo should be impaired and recorded an impairment charge of $1.2M. 

 

The change in the statement in equity was related to the increase in net loss of $1.6 million and the corresponding decrease in stockholders’ equity and period end.

 

16

 

Yunhong CTI, LTD (f/k/a CTI Industries Corporation)

Condensed Consolidated Balance Sheets

 

   

March 31, 2019

 
   

As Previously Reported

   

Adjustments

   

As Restated

 
ASSETS                        

Current assets:

                       

Cash and cash equivalents (VIE $3,000 and $57,000, respectively)

  $ 175,442     $ -     $ 175,442  

Accounts receivable, (less allowance for doubtful accounts of $524,000 and $85,000, respectively)

    10,602,710       (432,454 )     10,170,256  

Inventories, net (VIE $315,000 and $340,000, respectively)

    20,837,907               20,837,907  

Prepaid expenses (VIE $106,000 and $127,000, respectively)

    646,164       12,000       658,164  

Other current assets

    1,419,371       (12,000)       1,407,371  
                         

Total current assets

    33,681,594       (432,454 )     33,249,140  
                         

Property, plant and equipment:

                       

Machinery and equipment

    23,842,559               23,842,559  

Building

    3,374,334               3,374,334  

Office furniture and equipment (VIE $303,000 and $303,000, respectively)

    2,656,519               2,656,519  

Intellectual property

    783,179               783,179  

Land

    250,000               250,000  

Leasehold improvements

    411,426               411,426  

Fixtures and equipment at customer locations

    518,450               518,450  

Projects under construction

    188,181               188,181  
      32,024,648               32,024,648  

Less : accumulated depreciation and amortization (VIE $106,000 and $104,000, respectively)

    (28,427,729 )             (28,427,729 )
              -          

Total property, plant and equipment, net

    3,596,919               3,596,919  
                         

Other assets:

                       

Goodwill (VIE $0 and $440,000, respectively)

    1,473,176       (1,473,176 )     0  

Net deferred income tax asset

    495,586       (360,492 )     135,094  

Operating lease right-of-use

    2,110,723       367,094       2,477,817  

Other assets

    26,088       220,000       246,088  
              -          

Total other assets

    4,105,573       (1,246,574 )     2,858,999  
              -          

TOTAL ASSETS

  $ 41,384,086     $ (1,679,028 )   $ 39,705,058  
                         

LIABILITIES AND EQUITY

                       

Current liabilities:

                       

Checks written in excess of bank balance (VIE $4,000 and $7,000, respectively)

  $ 654,646             $ 654,646  

Trade payables (VIE $142,000 and $62,000, respectively)

    8,680,004               8,680,004  

Line of credit (VIE $249,000 and $267,000, respectively)

    15,351,709               15,351,709  

Notes payable - current portion

    4,414,581               4,414,581  

Notes payable affiliates - current portion

    11,271               11,271  

Operating Lease Liabilities

    1,016,687       284,140       1,300,827  

Accrued liabilities (VIE $47,000 and $89,000, respectively)

    2,082,161       (432,454 )     1,649,707  
              -          

Total current liabilities

    32,211,059       (148,314 )     32,062,745  
              -          

Long-term liabilities:

            -          

Notes payable - affiliates

    175,512               175,512  

Notes payable, net of current portion (VIE $30,000 and $27,000, respectively)

    639,327               639,327  

Operating Lease Liabilities

    1,094,036       82,954       1,176,990  

Notes payable - officers, subordinated

    1,012,024       -       1,012,024  

Deferred gain (non current)

    74,364       -       74,364  

Total long-term debt, net of current portion

    2,995,263       82,954       3,078,217  
              -          

Total liabilities

    35,206,322       (65,360)       35,140,962  
              -          

Equity:

            -          

Yunhong CTI, LTD stockholders' equity:

            -          

Preferred Stock -- no par value, 3,000,000 shares authorized, 0 shares issued and outstanding

    -       -       -  

Common stock - no par value, 15,000,000 shares authorized, 3,779,608 shares issued and 3,730,950 shares outstanding

    13,898,494               13,898,494  

Paid-in-capital

    3,135,404               3,135,404  

Accumulated earnings

    (3,745,907 )     (1,613,668 )     (5,359,575 )

Accumulated other comprehensive loss

    (5,814,471 )             (5,814,471 )

Less: Treasury stock, 43,658 shares

    (160,784 )             (160,784 )

Total Yunhong CTI, LTD stockholders' equity

    7,312,736       (1,613,668 )     5,699,068  

Noncontrolling interest

    (1,134,972 )             (1,134,972 )

Total Equity

    6,177,764       (1,613,668 )     4,564,096  

TOTAL LIABILITIES AND EQUITY

  $ 41,384,086     $ (1,679,028 )   $ 39,705,058  

 

 

17

 

Yunhong CTI, LTD (f/k/a CTI Industries Corporation)

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

   

For the Three Months Ended March 31,

 
   

2019

           

2019

 
   

As Previously Reported

   

Adjustments

   

As Restated

 

Net Sales

  $ 12,536,389     $ -     $ 12,536,389  
              -          

Cost of Sales

    10,540,218       -       10,540,218  
              -          

Gross profit

    1,996,171       -       1,996,171  
              -          

Operating expenses:

            -          

General and administrative

    2,056,073       (214,175)       1,841,898  

Selling

    437,565       -       437,565  

Advertising and marketing

    273,880       (101,303)       172,577  

Impairment on long-lived assets

            1,253,176       1,253,176  

Gain on sale of assets

    (23,547 )     -       (23,547 )

Total operating expenses

    2,743,971       937,698       3,681,669  
              -          

Loss from operations

    (747,800 )     (937,698 )     (1,685,498 )
                         

Other (expense) income:

                       

Interest expense

    (546,906 )     -       (546,906 )
Other income (expense)             (315,478)       (315,478)  

Foreign currency loss

    (8,594 )     -       (8,594 )
                         

Total other expense, net

    (555,500 )     (315,478)       (870,978 )
                         

Net loss before taxes

    (1,303,300 )     (1,253,176 )     (2,556,476 )
                         

Income tax (benefit) expense

    (360,491 )     360,491          
                         

Net loss

    (942,809 )     (1,613,667 )     (2,556,476 )
                         

Less: loss  attributable to noncontrolling interest

    (62,388 )     -       (62,388 )
                         

Net loss attributable to Yunhong CTI, LTD

  $ (880,421 )   $ (1,613,667 )   $ (2,494,088 )
                         

Other Comprehensive Income (Loss)

                       

Foreign currency adjustment

    235,876       -       235,876  

Comprehensive loss

  $ (644,545 )   $ (1,613,667 )   $ (2,258,212 )
                         

Basic loss per common share

  $ (0.24 )   $ (0.43 )   $ (0.67 )
                         

Diluted loss per common share

  $ (0.24 )   $ (0.43 )   $ (0.67 )
                         

Weighted average number of shares and equivalent shares of common stock outstanding:

                       

Basic

    3,735,950               3,735,950  
                         

Diluted

    3,735,950               3,735,950  

 

 

   

 

18

 

Yunhong CTI, LTD (f/k/a CTI Industries Corporation)

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

   

For the Three Months Ended March 31,

 
   

2019

           

2019

 
   

As Previously Reported

   

Adjustments

   

As Restated

 

Cash flows from operating activities:

                       

Net loss

  $ (942,809 )   $ (1,613,667 )   $ (2,556,476 )

Depreciation and amortization

    308,084       -       308,084  
    Operating cash flows from operating leases     248,757       (248,757)          

Amortization of deferred gain on sale/leaseback

    (27,474)               (27,474 )

Provision for losses on accounts receivable

    6,085               6,085  

Provision for losses on inventories

    (10,656)               (10,656 )

Impairment of long-lived assets

            1,253,176       1,253,176  

Deferred income taxes

    (360,491 )     360,491          
   Stock based compensation             28,967       28,967  

Change in assets and liabilities:

            -          

Accounts receivable

    249,950       410,349       660,299  

Inventories

    (827,084 )     -       (827,084 )

Prepaid expenses and other assets

    (235,701 )     215,468       (20,233 )

Trade payables

    1,971,593       28,741       2,000,334  

Accrued liabilities

    (149,957 )             (149,957 )
                         

Net cash provided by  operating activities

    230,297       434,768       665,065  
                         
                         

Cash flows from investing activities:

                       

Purchases of property, plant and equipment

    (52,243 )             (52,243 )
                         

Net cash (used in) investing activities

    (52,243 )             (52,243 )
                         

Cash flows from financing activities:

                       

Change in checks written in excess of bank balance

    18,504               18,504  

Net change in revolving line of credit

    (1,235,126 )             (1,235,126 )

Repayment of long-term debt

    771,113       (984,634)       (213,521)  

Proceeds from issuance of stock

    28,967       (28,967)       -  

Cash paid for deferred financing fees

    3,800       (31,385)       (27,585)  
    Proceeds from issuance of long-term note payable             650,000       650,000  
                         

Net cash (used in) financing activities

    (412,742 )     (394,986)       (807,728 )
                         

Effect of exchange rate changes on cash

    (18,020)       (39,782)       (57,802)  
                         

Net increase/(decrease) in cash and cash equivalents

    (252,708 )             (252,708 )
                         

Cash and cash equivalents at beginning of period

    428,150               428,150  
                         

Cash and cash equivalents at end of period

  $ 175,442     $       $ 175,442  
                         
                         

Supplemental disclosure of cash flow information:

                       

Cash payments for interest

  $ 366,688             $ 366,688  
       Common stock issued for notes payable                   $ 600,000  
                         
                         
                         
                         

 

 

 

19

 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Forward Looking Statements

 

This quarterly report 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 to conform such statements to actual results or to changes in our opinions or expectations.

 

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 plant in Lake Barrington, Illinois. We produce all of our latex balloons and latex products at our facility in Guadalajara, Mexico. 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 and flexible containers for consumer use in the United States, Mexico, Latin America, and Europe. We also market and sell vacuum sealing machines, home organizing and container products, Candy Blossoms and party goods.

 

As of January 1, 2018, we adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, using the modified retrospective method. The adoption of ASC 606 did not have a material impact on our consolidated financial position or results of operations, as our revenue arrangements generally consist of a single performance obligation to transfer promised goods at a fixed price.

 

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 we expect 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. We recognize 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.

 

We provide 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.

 

20

 

As of January 1, 2019, we adopted ASC Topic 842, Leases (“ASC Topic 842”). Refer to Note 12 for additional information. Our primary leases relate to the facilities we use in Lake Zurich, IL (USA), Mexico, Germany and the UK. We also have ancillary leases for items ranging from forklifts to printers. The majority of our leases are classified as operating lease right-of-use (“ROU”) assets and related operating lease liabilities. Finance leases are included in property and equipment and related liabilities. ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at the commencement date for leases that exceed 12 months. The expected lease term includes options to renew when it is reasonably certain that we will exercise such option.

 

Operating lease expense is recognized on a straight-line basis over the lease term and is included in the cost of sales or sales, general and administrative expense areas. Finance leases are amortized on a straight-line basis and included in similar areas of expense classification. Variable lease payments, short-term rentals (leases less than 12 months in duration) are expensed as incurred.

 

Summary of Subsequent Events 

 

In July of 2019 management and the Board engaged in a review of the Company’s international subsidiaries and determined that they are not accretive to the Company overall, add complexity to the Company’s structure and utilize resources.  Therefore, as of July 19, 2019, the board authorized management to divest of all international subsidiaries.   The Company divested its United Kingdom subsidiary in the fourth quarter 2019 and expects to divest its European (German) subsidiary in the first half of 2020.  The operations of these entities will be presented as discontinued operations in the third quarter 2019, the period in which they met the accounting criteria for discontinued operations. These actions are being taken to focus our resources and efforts on our core business activities, particularly foil balloons and ancillary products based in the United States.   In October 2019, we determined that we would not renew our Trademark License Agreement with SC Johnson when it expired on December 31, 2019.   Under this Agreement, we were licensed to manufacture and sell a line of vacuum sealing machines and pouches under the Ziploc® Brand Vacuum Sealer System.  The terms of the Agreement included a run-off provision which allowed us to sell products under the Ziploc® trademark for 90 days after the end of the Agreement.   For the three months ended March 31, 2019, we had revenue of $2.2 million associated with products which utilized the Ziploc® trademark.   Our exit of the Ziploc® product line is considered a strategic shift and will have a major effect on our operations and financial results on a go forward basis.   However, as we continued to utilize the Ziploc® related assets in 2020, those assets will not be considered abandoned until they cease to be used at the end of the first quarter of 2020.   Therefore, our Ziploc® operations cannot be classified as discontinued operations in these financial statements but will be presented as discontinued operations when all of the applicable accounting criteria are met. We have also dramatically changed our capital structure.  On January 3, 2020 we entered into a securities purchase agreement, as amended on February 24, 2020 and April 13, 2020, (the “LF Purchase Agreement”) with LF International Pte., a Singapore private limited company (the “LF International”), which is controlled by Company director Mr. Yubao Li, pursuant to which the Company agreed to issue and sell, and LF International agreed to purchase, up to 500,000 shares of the Company’s newly created Series A Convertible 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 $10.00 per share, for aggregate gross proceeds of $5,000,000 (the “LF International Offering”).  As a result of the LF International Offering, a change of control of the Company may occur. As permitted by the LF Purchase Agreement, the Company may, in its discretion issue up to an additional 200,000 shares of Series A Preferred for a purchase price of $10.00 per share to additional investors (the “Additional Shares Offering,” and collectively with the LF International Offering, the “Offering”). On January 13, 2020, the Company conducted its first closing of the LF International Offering, resulting in aggregate gross proceeds of $2,500,000. Pursuant to the LF Purchase Agreement, LF International received the right to nominate and elect one member to the Company’s board of directors (subject to certain adjustments), effective as of the first closing, as well as a second director by the earlier of (i) the Company’s upcoming 2020 annual meeting of shareholders and (ii) May 15, 2020 and a third director by the Company’s upcoming 2020 annual meeting of shareholders. Pursuant to LF International’s nomination, effective January 13, 2020, the Board appointed Mr. Yubao Li as a director of the Company. Additionally, pursuant to the LF Purchase Agreement, on March 12, 2020, the Company changed its name to Yunhong CTI Ltd. To date, the Company has sold 492,660 shares of Series A Preferred to LF International and other accredited investors for aggregate gross proceeds of $4,926,600. Additionally, on April 1, 2020, an investor converted an accounts receivable of $482,000 owed to the investor by the Company in exchange for 48,200 shares of Series A Preferred.

 

21

 

Results of Operations

 

Net Sales. For the three months ended March 31, 2019, net sales were $12,536,000 compared to net sales of $13,979,000 for the same period of 2018, a decrease of 10%. For the quarters ended March 31, 2019 and 2018, net sales by product category were as follows:

 

   

Three Months Ended

 
   

March 31, 2019

   

March 31, 2018

 

Product Category

 

$

(000) Omitted

   

 

% of

Net Sales

   

$

(000) Omitted

   

 

% of

Net Sales

 
                                 

Foil Balloons

    6,482       52%       7,766       56%  
                                 

Latex Balloons

    1,987       16%       2,149       15%  
                                 

Vacuum Sealing Products

    2,152       17%       1,589       11%  
                                 

Film Products

    762       6%       438       3%  
                                 

Other Sales

    1,153       9%       2,037       15%  
                                 

Total

    12,536       100%       13,979       100%  

 

Foil Balloons. During the three months ended March 31, 2019, revenues from the sale of foil balloons decreased by 17% compared to the prior year period from $7,766,000 to $6,482,000. Sales to our largest balloon customer decreased from $4,450,000 in the first quarter of 2018 to $3,861,000 in the first quarter of 2019. As we and others in the industry have reported, the supply of helium has declined and pricing has increased. We expect the helium market to improve during the next twelve months, but remains a negative factor in the sale of helium-based products such as many foil balloons.

 

Latex Balloons. During the three months ended March 31, 2019, revenues from the sale of latex balloons decreased by 8% compared to the prior year period, from $2,149,000 to $1,987,000.

 

Vacuum Sealing Products. During the three months ended March 31, 2019, revenues from the sale of pouches and vacuum sealing machines increased by 35% compared to the prior year, from $1,589,000 to $2,152,000. The new, smaller format machine introduced late during 2018 has sold well, and customers have largely accepted the cost pass-throughs related to tariffs.

 

Films. During the three months ended March 31, 2019, revenues from the sale of laminated film products increased 74% compared to the prior year period from $438,000 to $762,000.

 

Other Revenues. During the three months ended March 31, 2019, revenues from the sale of various other products decreased by 43% to $1,153,000 compared to revenues from other products in the same period in 2018 of $2,037,000. The revenues from the sale of other products during the first quarter of 2019 include (i) sales of a line of “Candy Blossoms” and similar products consisting of candy and small inflated balloons sold in small containers in the amount of $67,000, (ii) the sale of accessories and supply items related to balloon products, (iii) sales by Clever Container Company, L.L.C. which engages in the direct sale of container and organizing products through a network of independent distributors in the amount of $161,000 and (iv) sales of party goods in Mexico by Flexo Universal in the amount of $341,000. Total Candy Blossom revenue is expected to increase during the twelve months ending December 31, 2019, as compared to the same period of 2018, but substantial initial shipments began during April of 2019, as opposed to March of 2018. Additionally, Clever Container changed its business model to one of both lower costs and revenues compared to its prior business model, reducing the revenues shown in Other Revenues. This business is expected to be divested during 2019.

 

22

 

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 months ended March 31, 2019 and 2018.

 

   

Three Months Ended March 31,

 
   

% of Sales

 
   

2019

   

2018

 
                 

Top 3 Customers

    55 %     54 %
                 

Top 10 Customers

    73 %     70 %

 

During the three months ended March 31, 2019, there were two customers whose purchases represented more than 10% of the Company’s consolidated net sales. Sales to these customers for the three months ended March 31, 2019 were $3,861,000 or 31%, and $2,159,000 or 17%, of consolidated net sales, respectively. Sales to these customers for the three months ended March 31, 2018 were $4,450,000 or 32%, and $2,471,000 or 18%, of consolidated net sales, respectively. The amounts owed at March 31, 2019 by these customers were $2,933,000 or 29%, and $2,279,000 or 22%, of the Company’s consolidated net accounts receivable, respectively. As of March 31, 2018, the total amounts owed to the Company by these customers were $3,643,000 or 33%, and $2,657,000 or 24% of the Company’s consolidated net accounts receivable, respectively.

 

Cost of Sales. During the three months ended March 31, 2019, the cost of sales was $10,540,000, a 5% decrease from $11,111,000 for the three months ended March 31, 2018. The reduction in cost of sales was largely due to lower sales volume, net of related inefficiencies.

 

General and Administrative. During the three months ended March 31, 2019, general and administrative expenses were $1,842,000, as compared to $1,884,000 for the same period in 2018. A one-time fee associated with the forbearance agreement in the amount of $250,000 was included in the first three months of 2019 general and administrative expenses.

 

Selling, Advertising and Marketing. During the three months ended March 31, 2019, selling, advertising and marketing expenses were $610,000, a 47% decrease compared to $1,155,000 for the same period in 2018. This reduction was primarily due to the full year benefit of cost reduction programs implemented during the past year.

 

Other Operating Expense. The Company recognized a $1,253,000 impairment charge on our long-lived assets during March 2019 as we identified an impairment indicator related to goodwill associated with Clever Container and Flexo. As a result of the impairment test, the Company fully impaired the goodwill.

 

23

 

Other Income (Expense). During the three months ended March 31, 2019, the Company incurred interest expense of $546,000, compared to interest expense during the same period of 2018 in the amount of $564,000.

 

For the three months ended March 31, 2019, the Company had a foreign currency transaction loss of $9,000 compared to a foreign currency transaction gain of $31,000 during the same period of 2018.

 

Financial Condition, Liquidity and Capital Resources

 

Cash Flow Items.

 

Operating Activities. During the three months ended March 31, 2019, net cash provided by operations was $665,000, compared to net cash used by operations during the three months ended March 31, 2018 of $899,000.

 

Significant changes in working capital items during the three months ended March 31, 2019 included:

 

 

A decrease in accounts receivable of $660,000 compared to an increase in accounts receivable of $466,000 in the same period of 2018.

 

An increase in inventory of $827,000 compared to an increase in inventory of $1,995,000 in 2018.

 

An increase in trade payables of $2,000,000 compared to an increase in trade payables of $1,573,000 in 2018.

 

An decrease in accrued liabilities of $150,000 compared to an increase in accrued liabilities of $127,000 in 2018.

 

Investing Activity. During the three months ended March 31, 2019, cash used in investing activity was $52,000, compared to cash provided by investing activity for the same period of 2018 in the amount of $64,000.

 

Financing Activities. During the three months ended March 31, 2019, cash used in financing activities was $808,000 compared to cash provided by financing activities for the same period of 2018 in the amount of $1,223,000. Financing activity consisted principally of changes in the balances of revolving and long-term debt.

 

Liquidity and Capital Resources.

 

At March 31, 2019, the Company had cash balances of $175,000 compared to cash balances of $596,000 for the same period of 2018.

 

Also, at March 31, 2019, the Company had a working capital balance of $1,186,000 compared to a working capital balance of $2,802,000 on December 31, 2018.

 

As of March 31, 2019, the Company was not in compliance with its credit facility, operating under a forbearance agreement. For this reason, $3.3 million of long-term debt was reclassified as current debt as of March 31, 2019. Failure to ultimately regain compliance with the terms of our credit agreement, or enter into a suitable replacement financing vehicle, could negatively impact our ability to carry on our business up to and including our ability to continue as a going concern. Additionally, we have encountered difficulties with seasonal cash flow needs, including increased costs associated with recruiting and retaining workers in the Chicago area. The failure to properly manage seasonal cash needs could put a strain on the Company, up to and including our ability to continue as a going concern. See Note 2 for additional discussion.

 

24

 

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. Vacuum sealing product sales are also seasonal; approximately 60% of sales in this product line occur in the period from July through December.

 

Critical Accounting Policies

 

Please see pages 24-27 of our Annual Report on Form 10-K for the year ended December 31, 2018 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. Except for the adoption of ASC Topic 842 (Leases) as described herein, no material changes to such information have occurred during the three months ended March 31, 2019.

 

Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures

 

(a)   Restatement

 

        On May 8, 2020, the Audit Committee of the Board of Directors concluded, based on the recommendation of management, that we would amend and restate our quarterly consolidated financial statements for this interim period ended March 31, 2019, within this Form 10Q/A to correct the following errors:

 

 

Previously, the Company had no external auditor engaged. As noted in the original filing, this filing is being amended now that the Company has hired RBSM as external independent auditors, with the benefit of auditor review, and

 

To correct the timing of recognition of certain noncash charges with respect to the anticipated liquidation of subsidiaries and resulting classifications as they impact goodwill, deferred tax assets and related tax provisions, and reporting discontinued operations.

 

The following additional adjustments were also included in this restatement:

 

 

To reclassify certain accrued expenses between liabilities and contra assets, particularly with respect to accruals for uncollectible accounts receivable, and

 

Other miscellaneous adjustments, none of which were material either individually or in the aggregate.

 

25

 

(b)   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 March 31, 2019. 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 March 31, 2019, the end of the period covered by this Quarterly Report on Form 10-Q/A due to the material weaknesses described below.

 

(c)   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 March 31, 2019. 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 Chief Financial Officer and Controller within an environment that is highly manual in nature.

 

        These material weaknesses resulted in the restatement of the financial statements described in Item 4(a) and material post closing adjustments which have been reflected in the financial statements for the interim periods for the year ended March 31, 2019. Additionally, as a result of the material weaknesses, we have concluded that we did not maintain effective internal control over financial reporting as of March 31, 2019.

 

26

 

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.

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Submission of Matters to a Vote of Security Holders

 

Not applicable.

 

Item 5.      Other Information

 

The Certifications of the Chief Executive Officer and the Chief Financial Officer of the Company Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are attached as Exhibits to this Report on Form 10-Q.

 

27

 

Item 6. Exhibits

 

The following are being filed as exhibits to this report:

 

Exhibit Index

 

Exhibit

Number

 

Description

3.1

 

Restated Articles of Incorporation (Incorporated by reference to Exhibit A to Registrant’s Schedule 14A Definitive Proxy Statement filed April 29, 2015).

3.2

 

Amended and Restated By-Laws of Yunhong CTI LTD (formerly CTI Industries Corporation) (the “Company”) (Incorporated by reference to Exhibit 3.2, contained in Registrant’s Form 8-K filed on March 17, 2017).

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/A for the quarter ended March 31, 2019, formatted in 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.

 

28

 

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.

 

Dated: 05/29/20   Yunhong CTI Ltd. (formerly CTI Industries Corporation)
   
   
    By: /s/ Frank J. Cesario
   

Frank J. Cesario

President and Chief Executive Officer

Chief Financial Officer

  

29
ex_185753.htm

EXHIBIT 31.1

CERTIFICATIONS

 

I, Frank J. Cesario, certify that:

 

1.     I have reviewed this quarterly report on Form 10-Q/A of Yunhong CTI Ltd. (formerly CTI Industries Corporation) (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: 05/29/20

 

 

/s/ Frank J. Cesario

Frank J. Cesario

President and Chief Executive Officer

 

 
ex_185754.htm

EXHIBIT 31.2

CERTIFICATIONS

 

I, Frank J. Cesario, certify that:

 

1.     I have reviewed this quarterly report on Form 10-Q/A of Yunhong CTI Ltd. (formerly CTI Industries Corporation) (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: 05/29/20

 

  By:

/s/ Frank J. Cesario

   

Frank J. Cesario

Chief Financial Officer

 

 
ex_185755.htm

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/A of Yunhong CTI Ltd. (formerly CTI Industries Corporation) (the “Company”) for the quarterly period ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Frank J. Cesario, as Chief Executive Officer and 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.

 

 

/s/ Frank J. Cesario  

Frank J. Cesario

President and Chief Executive Officer

Chief Financial Officer

 

 

Date: 05/29/20

 

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not being “filed” as part of the Form 10-Q/A or as a separate disclosure document for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liability under that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act except to the extent that this Exhibit 32 is expressly and specifically incorporated by reference in any such filing.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

  

 
v3.20.1
Note 12 - Leases (Details Textual) - USD ($)
3 Months Ended
Mar. 31, 2019
Jan. 01, 2019
Dec. 31, 2018
Assets, Noncurrent, Excluding Property, Plant, and Equipment $ 2,858,999   $ 1,935,119
Liabilities, Current, Total 32,062,745   $ 30,208,712
Operating Lease, Expense 379,000    
Operating Lease, Payments $ 361,000    
Accounting Standards Update 2016-02 [Member]      
Assets, Noncurrent, Excluding Property, Plant, and Equipment   $ 2,800,000  
Liabilities, Current, Total   1,300,000  
Liabilities, Noncurrent, Total   $ 1,500,000  
v3.20.1
Note 9 - Concentration of Credit Risk (Details Textual) - Customer Concentration Risk [Member]
3 Months Ended
Mar. 31, 2019
USD ($)
Mar. 31, 2018
USD ($)
Revenue Benchmark [Member]    
Number of Major Customers 2 2
Revenue Benchmark [Member] | Customer One [Member]    
Concentration Risk, Percentage 30.80% 31.80%
Revenue Benchmark [Member] | Customer Two [Member]    
Concentration Risk, Percentage 17.20% 17.70%
Accounts Receivable [Member] | Customer One [Member]    
Accounts Receivable, before Allowance for Credit Loss $ 2,933,000 $ 3,643,000
Concentration Risk, Percentage 29.00% 33.00%
Accounts Receivable [Member] | Customer Two [Member]    
Accounts Receivable, before Allowance for Credit Loss $ 2,279,000 $ 2,657,000
Concentration Risk, Percentage 22.00% 24.00%
v3.20.1
Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Basis of Accounting, Policy [Policy Text Block]
The accompanying condensed (a) consolidated balance sheet as of
December 31, 2018,
which has been derived from audited consolidated financial statements, 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
months ended
March 31, 2019
are
not
necessarily indicative of the results that
may
be expected for the fiscal year ending
December 31, 2019.
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, 2018.
Consolidation, Policy [Policy Text Block]
Principles of consolidation and nature of operations:
 
The condensed consolidated financial statements include the accounts of Yunhong CTI Ltd. (formerly CTI Industries Corporation) and its wholly-owned subsidiaries, CTI Balloons Limited and CTI Supply, Inc., its majority-owned subsidiaries, Flexo Universal, S. de R.L. de C.V. and CTI Europe gmbH, as well as the accounts of Venture Leasing S. A. de R. L., Venture Leasing L.L.C and Clever Container Company, L.L.C. (the “Company”). The last
three
entities have been consolidated as variable interest entities. All significant intercompany transactions and accounts have been eliminated in consolidation. The Company (i) designs, manufactures and distributes balloon and related novelty (candy and party related) products throughout the world, (ii) operates 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 (iii) distributes vacuum sealing products and home organization products in the United States. We have announced our intention to divest our interest in Clever Container and deconsolidate that entity from our group. As we are still the entity most closely associated with Clever Container in our related party group as of
March 31
st
,
2019
it remains consolidated as a variable interest entity.
Consolidation, Variable Interest Entity, Policy [Policy Text Block]
Variable Interest Entities (“VIEs”):
 
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. There are
three
entities that have been consolidated as variable interest entities.
Use of Estimates, Policy [Policy Text Block]
Use of estimates:
 
In preparing condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of revenue and expenses during the reporting period in the condensed consolidated financial statements and accompanying notes. Actual results
may
differ from those estimates. The Company’s significant estimates include reserves for doubtful accounts, reserves for the lower of cost or market of inventory, reserves for deferred tax assets and recovery value of goodwill.
Earnings Per Share, Policy [Policy Text Block]
Earnings per share:
 
Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during each period.
 
Diluted earnings per share is computed by dividing the net income by the weighted average number of shares of common stock and equivalents (stock options and warrants), unless anti-dilutive, during each period.
 
As of
March 31, 2019
and
2018,
shares to be issued upon the exercise of options and warrants aggregated
471,144
for each period. The number of shares included in the determination of earnings on a diluted basis for the
three
months ended
March 31, 2019
and
2018
were
none,
as doing so would have been anti-dilutive.
New Accounting Pronouncements, Policy [Policy Text Block]
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, 2018.
There were
no
significant changes to these accounting policies during the
three
months ended
March 31, 2019,
except for the adoption of Accounting Standards Codification (ASC) Topic
842,
Leases.
 
On
January 1, 2019,
we adopted ASC Topic
842
(Leases). The adoption of this standard significantly increased our assets and liabilities and further discussed in Note
12.
ASC
842
requires a lessee to recognize assets and liabilities related to leases with terms in excess of
12
months. Such assets are typically considered Right-Of-Use (“ROU”) assets. Prior information has
not
been restated and continues to be reported under the accounting standards in effect for those periods.
 
On
January 1, 2018,
we adopted ASC
606
(Revenue From Contracts With Customers) using the modified retrospective method. The adoption of ASC
606
did
not
have a material impact on our consolidated financial position or results of operations, as our revenue arrangements generally consist of a single performance obligation to transfer promised goods at a fixed price.
 
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.
Auditor Replacement Process [Policy Text Block]
Auditor Replacement Process:
 
During
April 2019,
our independent registered accounting firm, Plante & Moran PLLC, declined to stand for reappointment as auditor. As of
January 3
rd
,
2020,
the Audit Committee of the Board approved the engagement of RBSM, LLP (“RBSM”) as the Company’s independent registered public accounting firm for the Company’s fiscal year ended
December 31
st
,
2019.
Previously, the quarterly report on Form
10
-Q was prepared without the benefit of auditor review. This Form
10
-Q/A is filed with review from RBSM.
Reclassification, Comparability Adjustment [Policy Text Block]
Prior Period Reclassification
 
Certain amounts in prior periods have been reclassified to conform with current period presentation and had
no
effect on prior period net loss or stockholders’ equity.
Lessee, Leases [Policy Text Block]
Recently Adopted Accounting Pronouncements
 
In 
February 
2016,
the Financial Accounting Standards Board ("FASB") issued ASU
No.
2016
-
02
 
Leases
(Topic
842
), also referred to as “ASC
842”
or “New Lease Standard”, which supersedes ASC
840
Leases
(Topic
840
), and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The FASB has continued to clarify this guidance through the issuance of additional ASUs. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or
not
the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than
twelve
months regardless of classification. Leases with a term of
twelve
months or less
may
be accounted for similar to existing guidance for operating leases. ASC
842
was effective for the Company for the year ending
December 31, 2019.
We reported our financial information for fiscal years ending before
December 31, 2018
under the Topic
840
lease accounting standard. The Company applied the modified retrospective transition method and elected the transition option to use the effective date of
January 1, 2019
as the date of initial application. The Company recognized the cumulative effect of the transition adjustment as of the effective date and will
not
provide any new lease disclosures for periods before the effective date. The Company elected the package of practical expedients and did
not
elect the use of the hindsight practical expedient. As a result, the Company will, in effect, continue to account for existing leases as classified in accordance with ASC
840
,
throughout the entire lease term, including periods after the effective date, with the exception that the Company will apply the new balance sheet recognition guidance for operating leases and apply ASC
842
for remeasurements and modifications after the transition date. 
 
Other key practical expedients elected by the Company (as a lessee) relate to maintaining leases with an initial term of
12
months or less off the balance sheet;
not
separating lease and non-lease components and the use of the portfolio approach to determine the incremental borrowing rate. For transition purposes, the Company used the incremental borrowing rate based on the total lease term and total minimum rental payments. The Company completed its identification of leases which comprised
two
building leases and
two
equipment leases. Further, the Company analyzed service contracts and parts assembly arrangements from suppliers and did
not
identify any material leases of production equipment. On the date of initial application, the Company recognized right-of-use ("ROU") assets and leasing liabilities on its condensed consolidated balance sheets of approximately
$2.8
million. The adoption had
no
significant impact on the Company's condensed consolidated statement of operations.
v3.20.1
Note 7 - Inventories, Net (Tables)
3 Months Ended
Mar. 31, 2019
Notes Tables  
Schedule of Inventory, Current [Table Text Block]
   
March 31,
201
9
   
December 31,
2018
 
Raw materials
  $
2,402,974
    $
1,994,741
 
Work in process
   
3,133,953
     
3,052,224
 
Finished goods
   
15,239,946
     
14,934,581
 
In Transit
   
451,588
     
480,716
 
Allowance for excess quantities
   
(390,554
)    
(454,774
)
Total inventories
  $
20,837,907
    $
20,007,488
 
v3.20.1
Note 5 - Legal Proceedings (Details Textual) - Disputed Compensation Amounts by Claimants [Member] - God’s Little Gift, Inc. (d\b\a) Helium and Balloons Across America and Gary Page [Member] - USD ($)
1 Months Ended
Jan. 31, 2019
Dec. 31, 2018
Payments for Legal Settlements $ 5,000  
Loss Contingency Accrual, Ending Balance   $ 300,000
Minimum [Member]    
Royalty Monthly Payout, Amount $ 7,667  
Common Stock [Member]    
Stock Issued During Period, Shares, New Issues (in shares) 20,000  
v3.20.1
Note 3 - Debt (Details Textual)
3 Months Ended 12 Months Ended
Jan. 11, 2019
USD ($)
shares
Oct. 08, 2018
USD ($)
Jun. 08, 2018
Dec. 14, 2017
USD ($)
Mar. 31, 2019
USD ($)
Mar. 31, 2018
USD ($)
Dec. 31, 2018
USD ($)
Dec. 31, 2017
USD ($)
Interest Expense, Total         $ 546,906 $ 564,060    
PNC [Member] | Interest Rate Swap [Member] | Designated as Hedging Instrument [Member]                
Derivative Liability, Notional Amount       $ 3,000,000        
Derivative, Term of Contract (Year)       3 years        
Derivative, Fixed Interest Rate       2.25%        
Promissory Note [Member] | John H Schwan [Member]                
Due to Related Parties, Total               $ 1,099,000
Interest Payable               400,000
Debt Conversion, Original Debt, Amount $ 600,000              
Debt Conversion, Converted Instrument, Shares Issued (in shares) | shares 180,723              
Repayments of Related Party Debt             $ 0  
Interest Expense, Total         15,000      
PNC [Member] | PNC Agreements [Member]                
Debt Instrument, Temporary Over-Advance         1,200,000      
Debt Instrument, Temporary Over-Advance, End Balance         $ 0      
Debt Instrument, Temporary Over-Advance, Term (Week)         42 days      
Debt instrument, Amendment Fee         $ 250,000      
Debt Instrument, Interest Rate, Increase (Decrease)     2.00%          
PNC [Member] | PNC Agreements [Member] | Maximum [Member]                
Fixed Charge Coverage Ratio         1.1      
PNC [Member] | PNC Agreements [Member] | Revolving Credit Facility [Member]                
Line of Credit Facility, Maximum Borrowing Capacity               18,000,000
PNC [Member] | PNC Agreements [Member] | Term Loan [Member]                
Long-term Debt, Total               $ 6,000,000
PNC [Member] | PNC Agreements, Amendment Two [Member]                
Debt Instrument, Funding Proceeds Used to Repay Term Loan   $ 2,000,000         $ 5,000,000  
Debt Instrument, Covenant, Required Proceeds from Equity Issuance   7,500,000            
Proceeds from Issuance or Sale of Equity, Total   $ 0            
v3.20.1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities:    
Net loss $ (2,556,476) $ (470,551)
Depreciation and amortization 308,084 376,920
Amortization of deferred gain on sale/leaseback (27,474)
Provision for losses on accounts receivable 6,085 (28,486)
Provision for losses on inventories (10,656) (17,781)
Impairment of long-lived assets 1,253,176 (35,503)
Deferred income taxes (133,982)
Stock based compensation 28,967 61,975
Change in assets and liabilities:    
Accounts receivable 660,299 (465,865)
Inventories (827,084) (1,995,477)
Prepaid expenses and other assets (20,233) 109,567
Trade payables 2,000,334 1,572,804
Accrued liabilities (149,957) 127,038
Net cash provided by (used in) operating activities 665,065 (899,341)
Cash flows from investing activities:    
Purchases of property, plant and equipment (52,243) 63,533
Net cash provided by (used in) investing activities (52,243) 63,533
Cash flows from financing activities:    
Change in checks written in excess of bank balance 18,504 (442,992)
Net change in revolving line of credit (1,235,126) 2,123,582
Repayment of long-term debt (213,521) (432,942)
Cash paid for deferred financing fees (27,585) (24,568)
Proceeds from issuance of long-term note payable (27,585)
Net cash provided by (used in) financing activities (807,728) 1,223,080
Effect of exchange rate changes on cash (57,802) 27,307
Net increase/(decrease) in cash and cash equivalents (252,708) 414,579
Cash and cash equivalents at beginning of period 428,150 181,026
Cash and cash equivalents at end of period 175,442 595,605
Supplemental disclosure of cash flow information:    
Cash payments for interest 366,688 $ 408,001
Conversion from Notes Payable To Common Stock [Member]    
Supplemental disclosure of cash flow information:    
Common stock issued for notes payable $ 600,000  
v3.20.1
Note 4 - Stock-based Compensation; Changes in Equity
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Stockholders' Equity Note Disclosure [Text Block]
Note
4
- Stock-Based Compensation; Changes in Equity
 
The Company has adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic
718
which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the condensed consolidated financial statements based on their grant-date fair values.
 
The Company has applied the Black-Scholes model to value stock-based awards and issued warrants related to notes payable. 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 our common stock. The risk-free rate of interest is the related U.S. Treasury yield curve for periods within the expected term of the option at the time of grant. The dividend yield on our common stock is estimated to be
0%
,
as the Company did
not
issue dividends during
2019
and
2018.
The expected volatility is based on historical volatility of the Company’s common stock.
 
The Company’s net loss for the
three
months ended
March 31, 2019
and
2018
includes approximately
$29,000
and
$62,000,
respectively, of compensation costs related to share based payments. As of
March 31, 2019,
there is
$164,000
of unrecognized compensation expense related to non-vested stock option grants and stock grants. We expect approximately
$63,000
of additional stock-based compensation expense to be recognized over the remainder of
2019,
and
$56,000
to be recognized during
2020.
 
On
April 10, 2009,
the Board of Directors approved for adoption, and on
June 5, 2009,
the shareholders of the Corporation approved, a
2009
Stock Incentive Plan (
“2009
Plan”). The
2009
Plan and subsequent awards categorized as inducement of employment authorized the issuance of up to
510,000
shares of stock or options to purchase stock of the Company (including cancelled shares reissued under the plan.) On
June 8, 2018,
our shareholders approved the
2018
Stock Incentive Plan (
“2018
Plan”). The
2018
Plan authorizes the issuance of up to
300,000
shares of our common stock in the form of equity-based awards. As of
March 31, 2019,
options for
471,144
shares remain outstanding.
 
A summary of the Company’s stock option activity, which includes grants of restricted stock, non-qualified stock options, incentive stock options, warrants and related information, is as follows:
 
   
Shares under
Option
   
Weighted Average
Exercise Price
 
Balance at December 31, 2018
   
471,144
    $
3.95
 
Granted
   
-
     
-
 
Cancelled/Expired
   
-
     
-
 
Exercised/Issued
   
-
     
-
 
Outstanding at March 31, 2019
   
471,144
    $
3.95
 
                 
Exercisable at March 31, 2019
   
165,264
    $
4.05
 
 
The instruments above have an aggregate intrinsic value of
$78,000,
which represents the total pre-tax intrinsic value (the difference between the closing price of the Company’s common stock on the last trading day of the quarter ended
March 31, 2019
and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all the holders exercised their options on
March 31, 2019.
 
As described in Note
5,
we issued
20,000
shares of common stock to Gary Page in a legal settlement during
January 2019.
The value of those shares on the date of issuance was approximately
$67,000.
 
On
January 11, 2019,
the Company and its Chairman, Mr. John Schwan, completed an exchange debt for equity upon receipt of consent for the transaction from the Company’s lender. Mr. Schwan surrendered
$600,000
in notes from the Company in exchange for
180,723
shares of the Company’s common stock. The value was set at the
$3.32
per share closing price of the Company’s common stock on the NASDAQ stock market on
December 20, 2018.
v3.20.1
Note 8 - Geographic Segment Data
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]
Note
8
- Geographic Segment Data
 
The Company has determined that it operates primarily in
one
business segment that designs, manufactures and distributes film and film related products for use in packaging, storage and novelty balloon products. The Company operates in foreign and domestic regions. Information about the Company's operations by geographic area is as follows:
 
   
Net Sales to Outside Customers
For the Three Months Ended
   
Total Assets at
 
   
March 31,
   
March 31,
    December 31,  
   
2019
   
2018
   
2019
   
2018
 
                                 
United States
  $
8,760,000
    $
9,738,000
    $
23,472,000
    $
25,354,000
 
Europe
   
1,275,000
     
1,362,000
     
3,366,000
     
3,052,000
 
Mexico
   
2,081,000
     
2,186,000
     
11,406,000
     
9,476,000
 
United Kingdom
   
420,000
     
693,000
     
1,461,000
     
879,000
 
    $
12,536,000
    $
13,979,000
    $
39,705,000
    $
38,761,000
 
 
v3.20.1
Document And Entity Information - shares
3 Months Ended
Mar. 31, 2019
May 01, 2019
Document Information [Line Items]    
Entity Registrant Name Yunhong CTI LTD.  
Entity Central Index Key 0001042187  
Trading Symbol ctib  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Current Reporting Status Yes  
Entity Emerging Growth Company false  
Entity Small Business true  
Entity Interactive Data Current Yes  
Entity Common Stock, Shares Outstanding (in shares)   3,735,950
Entity Shell Company false  
Document Type 10-Q/A  
Document Period End Date Mar. 31, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Amendment Flag true  
Amendment Description Amendment No1.  
Title of 12(b) Security Common Stock  
v3.20.1
Note 3 - Debt
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Debt Disclosure [Text Block]
Note
3
- Debt
 
During
December 2017,
we terminated a prior credit arrangement and entered in new financing agreements with PNC Bank, National Association (“PNC”). The “PNC Agreements” include a
$6
million term loan and an
$18
million revolving credit facility, with a termination date of
December 2022.
 
Available credit under the Revolving Credit facility is determined by eligible receivables and inventory at Yunhong CTI, LTD (U.S.) and Flexo Universal (Mexico). We notified PNC of our failure to meet
two
financial covenants as of
March 31, 2018.
On
June 8, 2018,
we entered into Waiver and Amendment
No.
1
(the “Amendment
1”
) to our PNC Agreements. The Amendment modified certain covenants, added others, waived our failure to comply as previously reported, and included an amendment fee and temporary increase in interest rate. During
September 2018,
we filed a preliminary prospectus on Form S-
1
for a planned equity issuance. On
October 8, 2018,
we entered into Consent and Amendment
No.
2
(the “Amendment
2”
) to our PNC Agreements. Amendment
2
reduced the amount of new funding proceeds that must be used to repay the term loan from
$5
million to
$2
million and waived the calculation of financial ratios for the period ended
September 30, 2018,
in exchange for a new covenant committing to raise at least
$7.5
million in gross proceeds from our equity issuance by
November 15, 2018
and pay an amendment fee. Market conditions ultimately forced us to postpone the offering, and thus
no
proceeds were received by the
November 15, 2018
requirement.
 
We engaged PNC to resolve this failure to meet our amended covenant, and as of
March 2019
entered into a forbearance agreement. Under the terms of this agreement, previously identified compliance failures will be waived and financial covenants as of
March 31, 2019
will
not
be considered, with the next calculation due for the period ending
June 30, 2019.
We received a temporary over-advance of
$1.2
million, which declined to
zero
over a
six
-week period under the terms of this agreement and paid a fee of
$250,000.
As forbearance is a temporary condition and we remain out of compliance with the terms of our facility, we have reclassified long-term bank debt to current liabilities on our balance sheet.
 
Available credit under the Revolving Credit facility is determined by eligible receivables and inventory at Yunhong CTI, LTD (U.S.) and Flexo Universal (Mexico).
 
Certain terms of the PNC Agreements include:
 
 
Restrictive Covenants
: The Credit Agreement includes several restrictive covenants under which we are prohibited from, or restricted in our ability to:
 
o
Borrow money;
 
o
Pay dividends and make distributions;
 
o
Make certain investments;
 
o
Use assets as security in other transactions;
 
o
Create liens;
 
o
Enter into affiliate transactions;
 
o
Merge or consolidate; or
 
o
Transfer and sell assets.
 
 
Financial Covenants
: The Credit Agreement includes a series of financial covenants we are required to meet including:
 
o
We are required to maintain a "Leverage Ratio", which is defined as the ratio of (a) Funded Debt (other than the Shareholder Subordinated Loan) as of such date of determination to (b) EBITDA (as defined in the PNC Agreements) for the applicable period then ended. The highest values for this ratio allowed by the PNC Agreements are:
 
Fiscal Quarter Ratio
       
         
December 31, 2017
 4.75
to
1.00
 
March 31, 2018
 4.50
to
1.00
 
June 30, 2018
4.25
to
1.00
 
September 30, 2018
not applicable
 
December 31, 2018
 3.50
to
1.00
 
March 31, 2019
not applicable
 
June 30, 2019
 3.00
to
1.00
 
September 30, 2019 and thereafter
 2.75
to
1.00
 
 
 
o
We are required to maintain a "Fixed Charge Coverage Ratio", which is defined as the ratio of (a) EBITDA for such fiscal period, minus Unfinanced Capital Expenditures made during such period, minus distributions (including tax distributions) and dividends made during such period, minus cash taxes paid during such period to (b) all Debt Payments made during such period. This ratio must
not
exceed
1.1
:
1.0
for any quarterly calculation.
 
The credit agreement provides for interest at varying rates in excess of the prime rate, depending on the level of senior debt to EBITDA over time. We also entered into a swap agreement with PNC Bank to fix the rate of interest for
$3
million of the notes over
3
years at
2.25%.
This contract was made at market value upon
December 14, 2017
execution and accounted for as a hedge. This contract is expected to terminate during
2019
at
no
cost or benefit to the Company under the terms of the forbearance agreement.
 
Failure to comply with these covenants has caused us to pay a higher rate of interest (by
2%
per the Agreements), and other potential penalties
may
impact the availability of the credit facility itself, and thus might negatively impact our ability to remain a going concern. As described above in this Note as well as in Note
2,
we were
not
in compliance with this credit facility as of
December 31, 2018
and have entered into a forbearance agreement with our bank as of
March 2019.
 
As of
December 2017,
Mr. Schwan was owed a total of
$1,099,000,
with additional accrued interest of
$400,000,
by the Company. As part of the
December 2017
financing with PNC, Mr. Schwan executed a subordination agreement related to these amounts due him, as evidenced by a related note representing the amount owed to Mr. Schwan. During
January 2019,
Mr. Schwan converted
$600,000
of his balance into approximately
181,000
shares of our common stock at the then market rate.
No
payments were issued to Mr. Schwan during
2018
or the
three
months ended
March 31, 2019,
with
$15,000
of interest recorded as an expense.
v3.20.1
Note 12 - Leases
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Lessee, Operating Leases [Text Block]
Note
12
-
Leases
 
We adopted ASC Topic
842
(Leases) on
January 1, 2019.
This standard requires us to record certain operating lease liabilities and corresponding right-of-use assets on our balance sheet. Results for periods beginning after
January 1, 2019
are presented under Topic
842,
while prior period amounts are
not
adjusted and continue to be reported in accordance with our historic accounting under Topic
840.
We elected the package of practical expedients available for expired or existing contracts, which allowed us to carryforward our historical assessments of whether contracts are (or contain) leases, as well as lease classification tests and treatment of initial direct costs. We also elected to
not
separate lease components from non-lease components for all fixed payments, and we exclude variable lease payments in the measurement of right-of-use assets and lease obligations.
 
Upon adoption of ASC
842
we recorded a
$2.8
million increase in other assets, a
$1.3
million increase in current liabilities, and a
$1.5
million increase in non-current liabilities. We did
not
record any cumulative effect adjustments in opening retained earnings, and adoption of ASC
842
had
no
impact on cash flows from operating, investing, or financing activities.
 
We determine if an arrangement is a lease at inception. Most of our operating leases do
not
provide an implicit rate of interest so we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. We lease various assets in the course of ordinary business including: warehouses and manufacturing facilities, as well as vehicles and equipment used in our operations. Leases with an initial term of
12
months or less are
not
recorded on the balance sheet as we recognize lease expense for these leases on a straight-line basis over the lease term. The depreciatable life of assets and related improvements are limited by the expected lease term, unless there is a reasonably certain expected transfer or title or purchase option. Some lease agreements include renewal options at our sole discretion. Any guaranteed residual value is included in our lease liability. The amortizable lives of operating and financing leased assets are limited by the expected lease term.  The Company's leases generally do
not
provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating and financing lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralize basis over the term of a lease within a particular currency environment. The Company used incremental borrowing rates as of
January 1, 2019
for leases that commenced prior to that date.
 
The table below describes our lease position as of
March 31, 2019:
 
Assets
 
As of March 31, 2019
 
Operating lease right-of-use assets
   
$2,839,000
 
Accumulated amortization
   
(361,000
)
Net lease assets
   
2,478,000
 
         
Liabilities
 
 
 
 
Current
       
Operating
   
1,301,000
 
Noncurrent
       
Operating
   
1,177,000
 
Total lease liabilities
   
2,478,000
 
         
Weighted average remaining term (years) – operating leases
 
3 years
 
         
Weighted average discount rate – operating leases
   
11.25
%
 
During the
three
months ended
March 31, 2019,
we recorded expenses related to
 
Operating right-of-use lease asset amortization
   
$361,000
 
         
Total expense for three months ended March 31, 2019
   
361,000
 
 
 
Operating lease expense were approximately 
$379,000
for the
three
months ended 
March 
31,
2019.
Operating lease costs are included within selling, general and administrative expenses on the condensed consolidated statements of operations.  The Company does
not
have any finance leases.  Cash paid for amounts included in the measurement of operating lease liabilities were approximately 
$361,000
 for the
three
months ended 
March 
31,
2019.
 
The following table summarizes the maturities of our lease liabilities for all operating leases as of March 31, 2019
   
(in thousands)
03/31/2019
2019
$1,210
2020
724
2021
757
2022 and thereafter
167
  Total lease payments
2,858
less:  Imputed interest
(380)
  Present value of lease liabilities
$2,478
 
v3.20.1
Note 14 - Impairment (Details Textual)
3 Months Ended
Mar. 31, 2019
USD ($)
Goodwill, Impairment Loss $ 1,200,000
Clever Container [Member]  
Goodwill, Impairment Loss 220,000
Flexo Universal [Member]  
Goodwill, Impairment Loss $ 1,033,000
v3.20.1
Note 4 - Stock-based Compensation; Changes in Equity - Option Activity (Details)
3 Months Ended
Mar. 31, 2019
$ / shares
shares
Outstanding, beginning of period (in shares) | shares 471,144
Outstanding, beginning of period (in dollars per share) | $ / shares $ 3.95
Granted (in shares) | shares
Granted (in dollars per share) | $ / shares
Cancelled/Expired (in shares) | shares
Cancelled/Expired (in dollars per share) | $ / shares
Exercised/Issued (in shares) | shares
Exercised/Issued (in dollars per share) | $ / shares
Outstanding at the end of period (in shares) | shares 471,144
Outstanding at the end of period (in dollars per share) | $ / shares $ 3.95
Exercisable at the end of period (in shares) | shares 165,264
Exercisable at the end of period (in dollars per share) | $ / shares $ 4.05
v3.20.1
Note 2 - Liquidity and Going Concern (Details Textual) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Net Income (Loss) Attributable to Parent, Total $ (2,494,088) $ (463,008) $ (3,600,000) $ (1,600,000) $ 700,000
v3.20.1
Note 2 - Liquidity and Going Concern
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Liquidity and Going Concern [Text Block]
Note
2
– Liquidity and Going Concern
 
The Company’s primary sources of liquidity are cash and cash equivalents as well as availability under the Credit Agreement with PNC Bank, National Association (“PNC”) (see Note
3
). As indicated in Note
3,
twice during
2018
we violated covenants in our credit facility and as of
March 2019
we entered into a forbearance agreement with PNC. Under the terms of this agreement, financial covenants as of
March 31, 2019
will
not
be considered and all previously identified compliance failures will be waived, but we remain out of compliance with the terms of our credit facility, as amended.
 
In addition to the above, due to financial performance in
2016,
2017
and
2018,
including net income/(losses) attributable to the Company of
$0.7
million, (
$1.6
million), and (
$3.6
million), respectively, we believe that substantial doubt about our ability to continue as a going concern exists at
March 31, 2019.
 
Additionally, we have experienced challenges in maintaining adequate seasonal working capital balances, made more challenging by increases in financing and labor costs. These changes in cash flows have created strain within our operations and have therefore increased our desire to incorporate additional funding resources.
 
Management’s plans include:
 
(
1
)     Pursuing a strategically significant major capital event.
(
2
)     Working with our bank to resolve our compliance failure on a long-term basis.
(
3
)     Evaluating and potentially executing a sale/leaseback transaction of our facility in Lake Barrington, IL.
(
4
)     Continuing to monitor the equity market for the potential to complete the transaction attempted during
2018,
and
(
5
)     Exploring alternative funding sources.
 
Management Assessment
 
Considering both quantitative and qualitative information, we continue to believe that our plans to obtain additional financing will provide us with an ability to finance our operations through
2019
and, if adequately executed, will mitigate the substantial doubt about our ability to continue as a going concern.
v3.20.1
Note 13 - Summary of Subsequent Events
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Subsequent Events [Text Block]
Note
13
- Summary of Subsequent Events
 
 
In
July
of
2019
management and the Board engaged in a review of the Company’s international subsidiaries and determined that they are
not
accretive to the Company overall, add complexity to the Company’s structure and utilize resources.  Therefore, as of
July 19, 2019,
the board authorized management to divest of all international subsidiaries.   The Company divested its United Kingdom subsidiary in the
fourth
quarter
2019
and expects to divest its European (German) and Mexican subsidiaries in the
first
half of
2020.
  The operations of these entities will be presented as discontinued operations in the
third
quarter
2019,
the period in which they met the accounting criteria for discontinued operations. These actions are being taken to focus our resources and efforts on our core business activities, particularly foil balloons and ancillary products based in the United States.   In
October 2019,
we determined that we would
not
renew our Trademark License Agreement with SC Johnson when it expired on
December 31, 2019.  
Under this Agreement, we were licensed to manufacture and sell a line of vacuum sealing machines and pouches under the Ziploc® Brand Vacuum Sealer System.   The terms of the Agreement included a run-off provision which allowed us to sell products under the Ziploc® trademark for
90
days after the end of the Agreement.   For the
three
months ended
March 31, 2019,
we had revenue of
$2.2
million associated with products which utilized the Ziploc® trademark.   Our exit of the Ziploc® product line is considered a strategic shift and will have a major effect on our operations and financial results on a go forward basis.   However, as we continued to utilize the Ziploc® related assets in
2020,
those assets will
not
be considered abandoned until they cease to be used at the end of the
first
quarter of
2020.
   Therefore, our Ziploc® operations cannot be classified as discontinued operations in these financial statements but will be presented as discontinued operations when all of the applicable accounting criteria are met. We have also dramatically changed our capital structure.  On
January 3, 2020
we entered into a securities purchase agreement, as amended on
February 24, 2020
and
April 13, 2020, (
the “LF Purchase Agreement”) with LF International Pte., a Singapore private limited company (the “LF International”), which is controlled by Company director Mr. Yubao Li, pursuant to which the Company agreed to issue and sell, and LF International agreed to purchase, up to
500,000
shares of the Company’s newly created Series A Convertible 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
$10.00
per share, for aggregate gross proceeds of
$5,000,000
(the “LF International Offering”).  As a result of the LF International Offering, a change of control of the Company
may
occur. As permitted by the LF Purchase Agreement, the Company
may,
in its discretion issue up to an additional
200,000
shares of Series A Preferred for a purchase price of
$10.00
per share to additional investors (the “Additional Shares Offering,” and collectively with the LF International Offering, the “Offering”). On
January 13, 2020,
the Company conducted its
first
closing of the LF International Offering, resulting in aggregate gross proceeds of
$2,500,000.
Pursuant to the LF Purchase Agreement, LF International received the right to nominate and elect
one
member to the Company’s board of directors (subject to certain adjustments), effective as of the
first
closing, as well as a
second
director by the earlier of (i) the Company’s upcoming
2020
annual meeting of shareholders and (ii)
May 15, 2020
and a
third
director by the Company’s upcoming
2020
annual meeting of shareholders. Pursuant to LF International’s nomination, effective
January 13, 2020,
the Board appointed Mr. Yubao Li as a director of the Company. Additionally, pursuant to the LF Purchase Agreement, on
March 12, 2020,
the Company changed its name to Yunhong CTI Ltd. To date, the Company has sold
492,660
shares of Series A Preferred to LF International and other accredited investors for aggregate gross proceeds of
$4,926,600.
Additionally, on
April 1, 2020,
an investor converted an accounts receivable of
$482,000
owed to the investor by the Company in exchange for
48,200
shares of Series A Preferred.  Our business and results of operations
may
be negatively impacted by the spread of COVID-
19.
  We sell our products throughout the United States and in many foreign countries and
may
be impacted by public health crises beyond our control. This could disrupt our operations and negatively impact sales of our products. Our customers, suppliers and distributors
may
experience similar disruption. In
December 2019,
COVID-
19
was reported in Wuhan, China. The World Health Organization has since declared the outbreak to constitute a pandemic. The extent of the impact of COVID-
19
on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, the impact on our customers and employees, all of which are uncertain and cannot be predicted. The preventative and protective actions that governments have taken to counter the effects of COVID-
19
have resulted in a period of business disruption, including delays in shipments of products and raw materials. To the extent the impact of COVID-
19
continues or worsens, the demand for our products
may
be negatively impacted, and we
may
have difficulty obtaining the materials necessary for the production of our products. In addition, the production facilities of our suppliers
may
be closed for sustained periods of time and industry-wide shipment of products
may
be negatively impacted, the severity of which
may
exceed the
$1
million in Payroll Protection Program funds received by the Company from the US Federal Government. COVID-
19
has also delayed certain strategic transactions the Company intended to close on in the near future and the Company does
not
know if and when such transactions will be completed. 
v3.20.1
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Net Sales $ 12,536,389 $ 13,979,177
Cost of Sales 10,540,218 11,110,786
Gross profit 1,996,171 2,868,391
Operating expenses:    
General and administrative 1,841,898 1,884,046
Selling 437,565 858,537
Advertising and marketing 172,577 296,880
Impairment of long-lived assets 1,253,176 (35,503)
Gain on sale of assets (23,547) (24,414)
Total operating expenses 3,681,669 3,015,049
Loss from operations (1,685,498) (146,658)
Other (expense) income:    
Interest expense (546,906) (564,060)
Other Income/(expense) (315,478)
Interest income (345)
Foreign currency loss (8,594) 31,028
Total other expense, net (870,978) (533,377)
Net loss before taxes (2,556,476) (680,035)
Income tax benefit (209,484)
Net loss (2,556,476) (470,551)
Less: Net (loss) income attributable to noncontrolling interest (62,388) (7,543)
Net income attributable to Yunhong CTI, LTD (2,494,088) (463,008)
Other Comprehensive Income (Loss)    
Foreign currency adjustment 235,876 433,065
Comprehensive Income (Loss) $ (2,258,212) $ (29,943)
Basic loss per common share (in dollars per share) $ (0.67) $ (0.13)
Diluted loss per common share (in dollars per share) $ (0.67) $ (0.13)
Weighted average number of shares and equivalent shares of common stock outstanding:    
Basic (in shares) 3,735,950 3,530,227
Diluted (in shares) 3,735,950 3,530,227
v3.20.1
Note 5 - Legal Proceedings
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Legal Matters and Contingencies [Text Block]
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.
 
In
July 2017,
God’s Little Gift, Inc. (d\b\a) Helium and Balloons Across America and Gary Page (“Claimants”) filed an action against the Company based on disputed compensation amounts over several years. This action was resolved by mutual agreement between the parties during
January 2019.
Mr. Page received
20,000
shares of CTI common stock,
$5,000
in cash, and a minimum payout in his monthly royalty calculation of
$7,667
beginning
March 1, 2019
and ending
August 1, 2021.
The Company accrued the
$0.3
million in committed costs under this settlement in its
December 31, 2018
financial statements.
v3.20.1
Note 9 - Concentration of Credit Risk
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Concentration Risk Disclosure [Text Block]
Note
9
- 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
months ended
March 31, 2019
and
2018,
there were
two
customers whose purchases represented more than
10%
of the Company’s consolidated net sales, respectively. Sales to these customers for the
three
months ended
March 31, 2019
and
2018
are as follows:
 
   
Three Months Ended
   
Three Months Ended
 
   
March 31, 2019
   
March 31, 2018
 
Customer
 
Net Sales
   
% of Net Sales
   
Net Sales
   
% of Net Sales
 
Customer A
  $
3,861,000
     
30.8
%   $
4,450,000
     
31.8
%
Customer B
  $
2,159,000
     
17.2
%   $
2,471,000
     
17.7
%
 
As of
March 31, 2019,
the total amounts owed to the Company by these customers were approximately
$2,933,000
or
29%,
and
$2,279,000
or
22%,
of the Company’s consolidated net accounts receivable, respectively. The amounts owed at
March 31, 2018
by these customers were approximately
$3,643,000
or
33%,
and
$2,657,000
or
24%
of the Company’s consolidated net accounts receivable, respectively.
v3.20.1
Note 15 - Restatement of Financial Statements (Details Textual) - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Deferred Tax Assets, Net of Valuation Allowance, Total $ 135,094    
Effective Income Tax Rate Reconciliation, Change in Deferred Tax Assets Valuation Allowance, Amount 360,492    
Goodwill, Impairment Loss 1,200,000    
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest, Total (2,556,476) $ (470,551)  
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance (5,359,575)   $ (2,865,486)
Revision of Prior Period, Adjustment [Member]      
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest, Total (1,613,667)    
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance $ (1,613,668)    
v3.20.1
Note 11 - Derivative Instruments; Fair Value (Details Textual) - PNC [Member] - Interest Rate Swap [Member] - Designated as Hedging Instrument [Member]
Dec. 14, 2017
USD ($)
Derivative Liability, Notional Amount $ 3,000,000
Derivative, Fixed Interest Rate 2.25%
Derivative, Variable Interest Rate 1.47%
v3.20.1
Note 8 - Geographic Segment Data - Financial Information by Geographic Area (Details) - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Revenue from Contract with Customer, Including Assessed Tax $ 12,536,389 $ 13,979,177  
Sales to outside customers 39,705,058   $ 38,760,834
UNITED STATES      
Revenue from Contract with Customer, Including Assessed Tax 8,760,000 9,738,000  
Sales to outside customers 23,472,000   25,354,000
Europe [Member]      
Revenue from Contract with Customer, Including Assessed Tax 1,275,000 1,362,000  
Sales to outside customers 3,366,000   3,052,000
MEXICO      
Revenue from Contract with Customer, Including Assessed Tax 2,081,000 2,186,000  
Sales to outside customers 11,406,000   9,476,000
UNITED KINGDOM      
Revenue from Contract with Customer, Including Assessed Tax 420,000 $ 693,000  
Sales to outside customers $ 1,461,000   $ 879,000
v3.20.1
Note 3 - Debt (Tables)
3 Months Ended
Mar. 31, 2019
Notes Tables  
Schedule of Leverage Ratios [Table Text Block]
Fiscal Quarter Ratio
       
         
December 31, 2017
 4.75
to
1.00
 
March 31, 2018
 4.50
to
1.00
 
June 30, 2018
4.25
to
1.00
 
September 30, 2018
not applicable
 
December 31, 2018
 3.50
to
1.00
 
March 31, 2019
not applicable
 
June 30, 2019
 3.00
to
1.00
 
September 30, 2019 and thereafter
 2.75
to
1.00
 
v3.20.1
Note 8 - Geographic Segment Data (Tables)
3 Months Ended
Mar. 31, 2019
Notes Tables  
Schedule of Segment Reporting Information, by Segment [Table Text Block]
   
Net Sales to Outside Customers
For the Three Months Ended
   
Total Assets at
 
   
March 31,
   
March 31,
    December 31,  
   
2019
   
2018
   
2019
   
2018
 
                                 
United States
  $
8,760,000
    $
9,738,000
    $
23,472,000
    $
25,354,000
 
Europe
   
1,275,000
     
1,362,000
     
3,366,000
     
3,052,000
 
Mexico
   
2,081,000
     
2,186,000
     
11,406,000
     
9,476,000
 
United Kingdom
   
420,000
     
693,000
     
1,461,000
     
879,000
 
    $
12,536,000
    $
13,979,000
    $
39,705,000
    $
38,761,000
 
v3.20.1
Consolidated Statements of Stockholders' Equity (Unaudited) - 3 months ended Mar. 31, 2019 - USD ($)
Common Stock Outstanding [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
AOCI Attributable to Parent [Member]
Treasury Stock [Member]
Noncontrolling Interest [Member]
Total
Balance (in shares) at Dec. 31, 2018 3,578,885       (43,658)    
Balance at Dec. 31, 2018 $ 13,898,494 $ 2,506,437 $ (2,865,486) $ (6,050,347) $ (160,784) $ (1,072,585) $ 6,255,729
Stock Issued (in shares) 20,000          
Stock Issued
Shareholder note to equity (in shares) 180,723          
Shareholder note to equity 600,000 600,000
Stock Option Expense 28,967 28,967
Net loss (2,494,089) (62,388) (2,556,476)
Foreign currency translation 235,876 235,876
Balance March 31, 2019, restated (in shares) at Mar. 31, 2019 3,779,608       (43,658)    
Balance at Mar. 31, 2019 $ 13,898,494 $ 3,135,404 $ (5,359,575) $ (5,814,471) $ (160,784) $ (1,134,973) $ 4,564,096
v3.20.1
Note 7 - Inventories, Net
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Inventory Disclosure [Text Block]
Note
7
-
Inventories, Net
 
   
March 31,
201
9
   
December 31,
2018
 
Raw materials
  $
2,402,974
    $
1,994,741
 
Work in process
   
3,133,953
     
3,052,224
 
Finished goods
   
15,239,946
     
14,934,581
 
In Transit
   
451,588
     
480,716
 
Allowance for excess quantities
   
(390,554
)    
(454,774
)
Total inventories
  $
20,837,907
    $
20,007,488
 
v3.20.1
Note 11 - Derivative Instruments; Fair Value
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Derivatives and Fair Value [Text Block]
Note
11
-
Derivative Instruments; Fair Value
 
The Company accounts for derivative instruments in accordance with U.S. GAAP, which requires that all derivative instruments be recognized on the balance sheet at fair value. We
may
enter into interest rate swaps to fix the interest rate on a portion of our variable interest rate debt to reduce the potential volatility in our interest expense that would otherwise result from changes in market interest rates. Our derivative instruments are recorded at fair value and are included in accrued liabilities of our consolidated balance sheet. Our accounting policies for these instruments are based on whether they meet our criteria for designation as hedging transactions, which include the instrument’s effectiveness, risk reduction and, in most cases, a
one
-to-
one
matching of the derivative instrument to our underlying transaction. As of
March 31, 2019
and
December 31, 2018,
we had
one
derivative instrument accounted for as a hedge, with the same instrument accounted for as a hedge as of
March 31, 2018.
Gains and losses from changes in fair values of derivatives that are
not
designated as hedges for accounting purposes are recognized in the consolidated statement of operations. We have
no
such derivative financial instruments as of
December 31, 2018.
Changes in fair value for the respective periods were recognized in the consolidated statement of operations.
 
The interest rate swap we entered into
December 14, 2017
had a
three
year term (ending
December 14, 2020)
and a notional amount of
$3
million. The Company purchased a
2.25%
fixed rate in exchange for the variable rate on a portion of the notes payable under the PNC Agreements, which was
1.47%
at time of execution. The fair value of the swap was insignificant as of
March 31, 2018
and
December 31, 2018
and
March 31, 2019.
It is expected that this instrument will be eliminated with
no
gain or loss to the Company as a result of the forbearance agreement entered into during
March 2019.
v3.20.1
Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)
Mar. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents (VIE $3,000 and $57,000, respectively) $ 175,442 $ 428,150
Accounts receivable, (less allowance for doubtful accounts of $524,000 and $85,000, respectively) 10,170,256 10,830,555
Inventories, net (VIE $315,000 and $340,000, respectively) 20,837,907 20,007,488
Prepaid expenses (VIE $106,000 and $127,000, respectively) 658,164 858,158
Other current assets 1,407,371 886,383
Total current assets 33,249,140 33,010,734
Property, plant and equipment:    
Machinery and equipment 23,842,559 23,807,985
Building 3,374,334 3,367,082
Office furniture and equipment (VIE $303,000 and $303,000, respectively) 2,656,519 2,649,280
Intellectual property 783,179 783,179
Land 250,000 250,000
Leasehold improvements 411,426 409,188
Fixtures and equipment at customer locations 518,450 518,450
Projects under construction 188,181 150,272
Property, Plant and Equipment, Gross 32,024,648 31,935,436
Less : accumulated depreciation and amortization (VIE $106,000 and $104,000, respectively) (28,427,729) (28,120,455)
Total property, plant and equipment, net 3,596,919 3,814,981
Other assets:    
Goodwill (VIE $0 and $440,000, respectively) 0 1,473,176
Net deferred income tax asset 135,094 135,094
Operating lease right-of-use 2,477,817
Other assets 246,088 326,849
Total other assets 2,858,999 1,935,119
TOTAL ASSETS 39,705,058 38,760,834
Current liabilities:    
Checks written in excess of bank balance (VIE $4,000 and $7,000, respectively) 654,646 636,142
Trade payables (VIE $142,000 and $62,000, respectively) 8,680,004 6,679,670
Line of credit (VIE $249,000 and $267,000, respectively) 15,351,709 16,582,963
Notes payable - current portion 4,414,581 4,432,320
Notes payable affiliates - current portion 11,271 10,821
Operating Lease Liabilities 1,300,827 0
Accrued liabilities (VIE $47,000 and $89,000, respectively) 1,649,707 1,866,796
Total current liabilities 32,062,745 30,208,712
Long-term liabilities:    
Notes payable - affiliates 175,512 199,122
Notes payable, net of current portion (VIE $30,000 and $27,000, respectively) 639,327 399,912
Operating Lease Liabilities 1,176,990
Notes payable - officers, subordinated 1,012,024 1,597,019
Deferred gain (non current) 74,364 100,340
Total long-term debt, net of current portion 3,078,217 2,296,393
Total liabilities 35,140,962 32,505,105
Yunhong CTI, LTD stockholders' equity:    
Preferred Stock -- no par value, 3,000,000 shares authorized, 0 shares issued and outstanding
Common stock - no par value, 15,000,000 shares authorized, 3,779,608 shares issued and 3,730,950 shares outstanding 13,898,494 13,898,494
Paid-in-capital 3,135,404 2,506,437
Accumulated earnings (5,359,575) (2,865,486)
Accumulated other comprehensive loss (5,814,471) (6,050,347)
Less: Treasury stock, 43,658 shares (160,784) (160,784)
Total Yunhong CTI, LTD stockholders' equity 5,699,068 7,328,314
Noncontrolling interest (1,134,972) (1,072,585)
Total Equity 4,564,096 6,255,729
TOTAL LIABILITIES AND EQUITY $ 39,705,058 $ 38,760,834
v3.20.1
Note 6 - Other Comprehensive Income (Details Textual)
3 Months Ended
Mar. 31, 2018
USD ($)
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Tax, Total $ 236,000
v3.20.1
Note 3 - Debt - Leverage Ratios (Details)
3 Months Ended
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Maximum [Member]                
Leverage ratio     3.5 4.25 4.5 4.75
Maximum [Member] | Forecast [Member]                
Leverage ratio 2.75 3            
Minimum [Member]                
Leverage ratio     1 1 1 1
Minimum [Member] | Forecast [Member]                
Leverage ratio 1 1            
v3.20.1
Note 15 - Restatement of Financial Statements (Tables)
3 Months Ended
Mar. 31, 2019
Notes Tables  
Schedule of Error Corrections and Prior Period Adjustments [Table Text Block]
   
March 31, 2019
 
   
As Previously Reported
   
Adjustments
   
As Restated
 
ASSETS                        
Current assets:
                       
Cash and cash equivalents (VIE $3,000 and $57,000, respectively)
  $
175,442
    $
-
    $
175,442
 
Accounts receivable, (less allowance for doubtful accounts of $524,000 and $85,000, respectively)
   
10,602,710
     
(432,454
)    
10,170,256
 
Inventories, net (VIE $315,000 and $340,000, respectively)
   
20,837,907
     
 
     
20,837,907
 
Prepaid expenses (VIE $106,000 and $127,000, respectively)
   
646,164
     
12,000
     
658,164
 
Other current assets
   
1,419,371
     
(12,000)
     
1,407,371
 
                         
Total current assets
   
33,681,594
     
(432,454
)    
33,249,140
 
                         
Property, plant and equipment:
                       
Machinery and equipment
   
23,842,559
     
 
     
23,842,559
 
Building
   
3,374,334
     
 
     
3,374,334
 
Office furniture and equipment (VIE $303,000 and $303,000, respectively)
   
2,656,519
     
 
     
2,656,519
 
Intellectual property
   
783,179
     
 
     
783,179
 
Land
   
250,000
     
 
     
250,000
 
Leasehold improvements
   
411,426
     
 
     
411,426
 
Fixtures and equipment at customer locations
   
518,450
     
 
     
518,450
 
Projects under construction
   
188,181
     
 
     
188,181
 
     
32,024,648
     
 
     
32,024,648
 
Less : accumulated depreciation and amortization (VIE $106,000 and $104,000, respectively)
   
(28,427,729
)    
 
     
(28,427,729
)
              -          
Total property, plant and equipment, net
   
3,596,919
     
 
     
3,596,919
 
                         
Other assets:
                       
Goodwill (VIE $0 and $440,000, respectively)
   
1,473,176
     
(1,473,176
)    
0
 
Net deferred income tax asset
   
495,586
     
(360,492
)    
135,094
 
Operating lease right-of-use
   
2,110,723
     
367,094
     
2,477,817
 
Other assets
   
26,088
     
220,000
     
246,088
 
              -          
Total other assets
   
4,105,573
     
(1,246,574
)    
2,858,999
 
              -          
TOTAL ASSETS
  $
41,384,086
    $
(1,679,028
)   $
39,705,058
 
                         
LIABILITIES AND EQUITY
                       
Current liabilities:
                       
Checks written in excess of bank balance (VIE $4,000 and $7,000, respectively)
  $
654,646
     
 
    $
654,646
 
Trade payables (VIE $142,000 and $62,000, respectively)
   
8,680,004
     
 
     
8,680,004
 
Line of credit (VIE $249,000 and $267,000, respectively)
   
15,351,709
     
 
     
15,351,709
 
Notes payable - current portion
   
4,414,581
     
 
     
4,414,581
 
Notes payable affiliates - current portion
   
11,271
     
 
     
11,271
 
Operating Lease Liabilities
   
1,016,687
     
284,140
     
1,300,827
 
Accrued liabilities (VIE $47,000 and $89,000, respectively)
   
2,082,161
     
(432,454
)    
1,649,707
 
              -          
Total current liabilities
   
32,211,059
     
(148,314
)    
32,062,745
 
              -          
Long-term liabilities:
   
 
     
-
     
 
 
Notes payable - affiliates
   
175,512
     
 
     
175,512
 
Notes payable, net of current portion (VIE $30,000 and $27,000, respectively)
   
639,327
     
 
     
639,327
 
Operating Lease Liabilities
   
1,094,036
     
82,954
     
1,176,990
 
Notes payable - officers, subordinated
   
1,012,024
     
-
     
1,012,024
 
Deferred gain (non current)
   
74,364
     
-
     
74,364
 
Total long-term debt, net of current portion
   
2,995,263
     
82,954
     
3,078,217
 
              -          
Total liabilities
   
35,206,322
     
(65,360)
     
35,140,962
 
              -          
Equity:
   
 
     
-
     
 
 
Yunhong CTI, LTD stockholders' equity:
   
 
     
-
     
 
 
Preferred Stock -- no par value, 3,000,000 shares authorized, 0 shares issued and outstanding
   
-
     
-
     
-
 
Common stock - no par value, 15,000,000 shares authorized, 3,779,608 shares issued and 3,730,950 shares outstanding
   
13,898,494
     
 
     
13,898,494
 
Paid-in-capital
   
3,135,404
     
 
     
3,135,404
 
Accumulated earnings
   
(3,745,907
)    
(1,613,668
)    
(5,359,575
)
Accumulated other comprehensive loss
   
(5,814,471
)    
 
     
(5,814,471
)
Less: Treasury stock, 43,658 shares
   
(160,784
)    
 
     
(160,784
)
Total Yunhong CTI, LTD stockholders' equity
   
7,312,736
     
(1,613,668
)    
5,699,068
 
Noncontrolling interest
   
(1,134,972
)    
 
     
(1,134,972
)
Total Equity
   
6,177,764
     
(1,613,668
)    
4,564,096
 
TOTAL LIABILITIES AND EQUITY
  $
41,384,086
    $
(1,679,028
)   $
39,705,058
 
   
For the Three Months Ended March 31,
 
   
2019
           
2019
 
   
As Previously Reported
   
Adjustments
   
As Restated
 
Net Sales
  $
12,536,389
    $
-
    $
12,536,389
 
              -          
Cost of Sales
   
10,540,218
     
-
     
10,540,218
 
              -          
Gross profit
   
1,996,171
     
-
     
1,996,171
 
              -          
Operating expenses:
   
 
     
-
     
 
 
General and administrative
   
2,056,073
     
(214,175)
     
1,841,898
 
Selling
   
437,565
     
-
     
437,565
 
Advertising and marketing
   
273,880
     
(101,303)
     
172,577
 
Impairment on long-lived assets
   
 
     
1,253,176
     
1,253,176
 
Gain on sale of assets
   
(23,547
)    
-
     
(23,547
)
Total operating expenses
   
2,743,971
     
937,698
     
3,681,669
 
              -          
Loss from operations
   
(747,800
)    
(937,698
)    
(1,685,498
)
                         
Other (expense) income:
                       
Interest expense
   
(546,906
)    
-
     
(546,906
)
Other income (expense)    
 
     
(315,478)
     
(315,478)
 
Foreign currency loss
   
(8,594
)    
-
     
(8,594
)
                         
Total other expense, net
   
(555,500
)    
(315,478)
     
(870,978
)
                         
Net loss before taxes
   
(1,303,300
)    
(1,253,176
)    
(2,556,476
)
                         
Income tax (benefit) expense
   
(360,491
)    
360,491
     
 
 
                         
Net loss
   
(942,809
)    
(1,613,667
)    
(2,556,476
)
                         
Less: loss  attributable to noncontrolling interest
   
(62,388
)    
-
     
(62,388
)
                         
Net loss attributable to Yunhong CTI, LTD
  $
(880,421
)   $
(1,613,667
)   $
(2,494,088
)
                         
Other Comprehensive Income (Loss)
                       
Foreign currency adjustment
   
235,876
     
-
     
235,876
 
Comprehensive loss
  $
(644,545
)   $
(1,613,667
)   $
(2,258,212
)
                         
Basic loss per common share
  $
(0.24
)   $
(0.43
)   $
(0.67
)
                         
Diluted loss per common share
  $
(0.24
)   $
(0.43
)   $
(0.67
)
                         
Weighted average number of shares and equivalent shares of common stock outstanding:
                       
Basic
   
3,735,950
     
 
     
3,735,950
 
                         
Diluted
   
3,735,950
     
 
     
3,735,950
 
   
For the Three Months Ended March 31,
 
   
2019
           
2019
 
   
As Previously Reported
   
Adjustments
   
As Restated
 
Cash flows from operating activities:
                       
Net loss
  $
(942,809
)   $
(1,613,667
)   $
(2,556,476
)
Depreciation and amortization
   
308,084
     
-
     
308,084
 
    Operating cash flows from operating leases    
248,757
     
(248,757)
     
 
 
Amortization of deferred gain on sale/leaseback
   
(27,474)
     
 
     
(27,474
)
Provision for losses on accounts receivable
   
6,085
     
 
     
6,085
 
Provision for losses on inventories
   
(10,656)
     
 
     
(10,656
)
Impairment of long-lived assets
   
 
     
1,253,176
     
1,253,176
 
Deferred income taxes
   
(360,491
)    
360,491
     
 
 
   Stock based compensation    
 
     
28,967
     
28,967
 
Change in assets and liabilities:
   
 
     
-
     
 
 
Accounts receivable
   
249,950
     
410,349
     
660,299
 
Inventories
   
(827,084
)    
-
     
(827,084
)
Prepaid expenses and other assets
   
(235,701
)    
215,468
     
(20,233
)
Trade payables
   
1,971,593
     
28,741
     
2,000,334
 
Accrued liabilities
   
(149,957
)    
 
     
(149,957
)
                         
Net cash provided by  operating activities
   
230,297
     
434,768
     
665,065
 
                         
                         
Cash flows from investing activities:
                       
Purchases of property, plant and equipment
   
(52,243
)    
 
     
(52,243
)
                         
Net cash (used in) investing activities
   
(52,243
)    
 
     
(52,243
)
                         
Cash flows from financing activities:
                       
Change in checks written in excess of bank balance
   
18,504
     
 
     
18,504
 
Net change in revolving line of credit
   
(1,235,126
)    
 
     
(1,235,126
)
Repayment of long-term debt
   
771,113
     
(984,634)
     
(213,521)
 
Proceeds from issuance of stock
   
28,967
     
(28,967)
     
-
 
Cash paid for deferred financing fees
   
3,800
     
(31,385)
     
(27,585)
 
    Proceeds from issuance of long-term note payable    
 
     
650,000
     
650,000
 
                         
Net cash (used in) financing activities
   
(412,742
)    
(394,986)
     
(807,728
)
                         
Effect of exchange rate changes on cash
   
(18,020)
     
(39,782)
     
(57,802)
 
                         
Net increase/(decrease) in cash and cash equivalents
   
(252,708
)    
 
     
(252,708
)
                         
Cash and cash equivalents at beginning of period
   
428,150
     
 
     
428,150
 
                         
Cash and cash equivalents at end of period
  $
175,442
    $
 
    $
175,442
 
                         
                         
Supplemental disclosure of cash flow information:
                       
Cash payments for interest
  $
366,688
     
 
    $
366,688
 
       Common stock issued for notes payable    
 
     
 
    $
600,000
 
                         
                         
                         
                         
v3.20.1
Note 13 - Summary of Subsequent Events (Details Textual) - USD ($)
3 Months Ended 5 Months Ended
Apr. 01, 2020
Jan. 13, 2020
Mar. 31, 2019
Mar. 31, 2018
May 18, 2020
Jan. 03, 2020
Revenue from Contract with Customer, Including Assessed Tax     $ 12,536,389 $ 13,979,177    
Subsequent Event [Member]            
Proceeds from Paycheck Protection Program Under CARES Act $ 1,000,000          
Forecast [Member] | Conversion of Accounts Receivable Owed to Investor to Preferred Stock [Member]            
Debt Conversion, Original Debt, Amount $ 482,000          
Forecast [Member] | Series A Preferred Stock [Member] | Conversion of Accounts Receivable Owed to Investor to Preferred Stock [Member]            
Debt Conversion, Converted Instrument, Shares Issued (in shares) 48,200          
Forecast [Member] | Purchase Agreement [Member] | Series A Preferred Stock [Member]            
Sale of Stock, Shares Agreed to Purchase (in shares)           500,000
Convertible Preferred Stock, Shares Issued upon Conversion (in shares)           10
Shares Issued, Price Per Share (in dollars per share)           $ 10
Sale of Stock, Offering Amount           $ 5,000,000
Proceeds from Issuance or Sale of Equity, Total         $ 4,926,600  
Stock Issued During Period, Shares, New Issues (in shares)         492,660  
Forecast [Member] | Additional Offering [Member] | Series A Preferred Stock [Member]            
Shares Issued, Price Per Share (in dollars per share)           $ 10
Sale of Stock, Contingent Additional Offered Shares (in shares)           200,000
Forecast [Member] | First Closing of the Offering [Member] | Series A Preferred Stock [Member]            
Proceeds from Issuance or Sale of Equity, Total   $ 2,500,000        
Ziploc [Member]            
Revenue from Contract with Customer, Including Assessed Tax     $ 2,200,000      
v3.20.1
Note 15 - Restatement of Financial Statements - Restatement of Financial Statements (Details) (Parentheticals) - USD ($)
$ / shares in Thousands
Mar. 31, 2019
Dec. 31, 2018
Cash and cash equivalents $ 175,442 $ 428,150
Allowance for doubtful accounts 10,170,256 10,830,555
Inventories, net 20,837,907 20,007,488
Prepaid expenses 658,164 858,158
Office furniture and equipment 2,656,519 2,649,280
Accumulated depreciation and amortization 28,427,729 28,120,455
Goodwill 0 1,473,176
Checks written in excess of bank balance 654,646 636,142
Trade payables 8,680,004 6,679,670
Line of credit 15,351,709 16,582,963
Accrued liabilities 1,649,707 1,866,796
Notes payable $ 639,327 $ 399,912
Preferred Stock, Par value (in dollars per share) $ 0 $ 0
Preferred Stock, shares authorized (in shares) 3,000,000 3,000,000
Preferred Stock, shares issued (in shares) 0 0
Preferred Stock, shares outstanding (in shares) 0 0
Common stock, no par value (in dollars per share) $ 0 $ 0
Common stock, shares authorized (in shares) 15,000,000 15,000,000
Common stock, shares issued (in shares) 3,779,608 3,779,608
Common stock, shares outstanding (in shares) 3,730,950 3,730,950
Treasury stock, shares (in shares) 43,658 43,658
Variable Interest Entity, Primary Beneficiary [Member]    
Cash and cash equivalents $ 57,000  
Allowance for doubtful accounts 85,000  
Inventories, net 340,000  
Prepaid expenses 106,000  
Office furniture and equipment 303,000  
Accumulated depreciation and amortization 104,000  
Goodwill 440,000  
Checks written in excess of bank balance 7,000  
Trade payables 62,000  
Line of credit 267,000  
Accrued liabilities 89,000  
Notes payable 27,000  
Previously Reported [Member]    
Cash and cash equivalents 175,442 $ 428,150
Allowance for doubtful accounts 10,602,710  
Inventories, net 20,837,907  
Prepaid expenses 646,164  
Office furniture and equipment 2,656,519  
Accumulated depreciation and amortization 28,427,729  
Goodwill 1,473,176  
Checks written in excess of bank balance 654,646  
Trade payables 8,680,004  
Line of credit 15,351,709  
Accrued liabilities 2,082,161  
Notes payable $ 639,327  
Preferred Stock, Par value (in dollars per share) $ 0  
Preferred Stock, shares authorized (in shares) 3,000,000  
Preferred Stock, shares issued (in shares) 0  
Preferred Stock, shares outstanding (in shares) 0  
Common stock, no par value (in dollars per share) $ 0  
Common stock, shares authorized (in shares) 15,000,000  
Common stock, shares issued (in shares) 3,779,608  
Common stock, shares outstanding (in shares) 3,730,950  
Treasury stock, shares (in shares) 43,658  
Previously Reported [Member] | Variable Interest Entity, Primary Beneficiary [Member]    
Cash and cash equivalents $ 3,000  
Allowance for doubtful accounts 524,000  
Inventories, net 315,000  
Office furniture and equipment 303,000  
Accumulated depreciation and amortization 106,000  
Goodwill 0  
Checks written in excess of bank balance 4,000  
Trade payables 142,000  
Line of credit 249,000  
Accrued liabilities 47,000  
Notes payable 30,000  
Revision of Prior Period, Adjustment [Member]    
Cash and cash equivalents
Allowance for doubtful accounts (432,454)  
Inventories, net  
Prepaid expenses 12,000  
Office furniture and equipment  
Accumulated depreciation and amortization  
Goodwill (1,473,176)  
Checks written in excess of bank balance  
Trade payables  
Line of credit  
Accrued liabilities (432,454)  
Notes payable  
Preferred Stock, Par value (in dollars per share)  
Preferred Stock, shares authorized (in shares)  
Preferred Stock, shares issued (in shares)  
Preferred Stock, shares outstanding (in shares)  
Common stock, no par value (in dollars per share)  
Common stock, shares authorized (in shares)  
Common stock, shares issued (in shares)  
Common stock, shares outstanding (in shares)  
Treasury stock, shares (in shares)  
Revision of Prior Period, Adjustment [Member] | Variable Interest Entity, Primary Beneficiary [Member]    
Cash and cash equivalents  
Allowance for doubtful accounts  
Inventories, net  
Office furniture and equipment  
Accumulated depreciation and amortization  
Goodwill  
Checks written in excess of bank balance  
Trade payables  
Line of credit  
Accrued liabilities  
Notes payable  
v3.20.1
Note 12 - Leases - Lease Position (Details) - USD ($)
3 Months Ended
Mar. 31, 2019
Dec. 31, 2018
Operating lease right-of-use assets $ 2,839,000  
Accumulated amortization (361,000)  
Operating Lease, Right-of-Use Asset 2,477,817
Operating 1,300,827 0
Operating 1,176,990
Operating Lease, Liability, Total $ 2,478,000  
Weighted average remaining term (years) – operating leases (Year) 3 years  
Weighted average discount rate – operating leases 11.25%  
v3.20.1
Note 9 - Concentration of Credit Risk - Concentration of Credit Risk, Net Sales (Details) - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Net Sales $ 12,536,389 $ 13,979,177
Customer One [Member]    
Net Sales $ 3,861,000 $ 4,450,000
Customer One [Member] | Customer Concentration Risk [Member] | Revenue Benchmark [Member]    
Percent of net sales 30.80% 31.80%
Customer Two [Member]    
Net Sales $ 2,159,000 $ 2,471,000
Customer Two [Member] | Customer Concentration Risk [Member] | Revenue Benchmark [Member]    
Percent of net sales 17.20% 17.70%
v3.20.1
Note 7 - Inventories, Net - Inventories (Details) - USD ($)
Mar. 31, 2019
Dec. 31, 2018
Raw materials $ 2,402,974 $ 1,994,741
Work in process 3,133,953 3,052,224
Finished goods 15,239,946 14,934,581
In Transit 451,588 480,716
Allowance for excess quantities (390,554) (454,774)
Total inventories $ 20,837,907 $ 20,007,488
v3.20.1
Note 15 - Restatement of Financial Statements
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Accounting Changes and Error Corrections [Text Block]
Note
15
– Restatement of Financial Statements
 
As of
January 3, 2020,
the Audit Committee of the Board approved the engagement of RBSM, LLP (“RBSM”) as the Company’s independent registered public accounting firm for the Company’s fiscal year ended
December 31, 2019.
This Form
10
-Q/A is being prepared with the benefit of auditor review and will constitute our amended filing.
 
This Form
10
-Q/A has also been updated to reflect disclosure of subsequent events that have occurred after the balance sheet date, but before the issuance of the associated financial statements. The subsequent events include the Company’s decision to exit its underperforming international subsidiaries, exit a significant product line, change its capital structure and focus its efforts on its US-based foil balloon and related product offerings.  
 
The Company determined that the deferred tax asset at
March 31, 2019
should have been
$135,094
and, therefore, the Company should have recorded a valuation allowance on the income tax benefit of
$360,492
generated during the quarter. 
 
Finally, the Company determined that  the goodwill associated with Clever Container and Flexo should be impaired and recorded an impairment charge of
$1.2M.
 
 
The change in the statement in equity was related to the increase in net loss of
$1.6
million and the corresponding decrease in stockholders’ equity and period end.
 
Yunhong CTI, LTD (f/k/a CTI Industries Corporation)
Condensed Consolidated Balance Sheets
 
   
March 31, 2019
 
   
As Previously Reported
   
Adjustments
   
As Restated
 
ASSETS                        
Current assets:
                       
Cash and cash equivalents (VIE $3,000 and $57,000, respectively)
  $
175,442
    $
-
    $
175,442
 
Accounts receivable, (less allowance for doubtful accounts of $524,000 and $85,000, respectively)
   
10,602,710
     
(432,454
)    
10,170,256
 
Inventories, net (VIE $315,000 and $340,000, respectively)
   
20,837,907
     
 
     
20,837,907
 
Prepaid expenses (VIE $106,000 and $127,000, respectively)
   
646,164
     
12,000
     
658,164
 
Other current assets
   
1,419,371
     
(12,000)
     
1,407,371
 
                         
Total current assets
   
33,681,594
     
(432,454
)    
33,249,140
 
                         
Property, plant and equipment:
                       
Machinery and equipment
   
23,842,559
     
 
     
23,842,559
 
Building
   
3,374,334
     
 
     
3,374,334
 
Office furniture and equipment (VIE $303,000 and $303,000, respectively)
   
2,656,519
     
 
     
2,656,519
 
Intellectual property
   
783,179
     
 
     
783,179
 
Land
   
250,000
     
 
     
250,000
 
Leasehold improvements
   
411,426
     
 
     
411,426
 
Fixtures and equipment at customer locations
   
518,450
     
 
     
518,450
 
Projects under construction
   
188,181
     
 
     
188,181
 
     
32,024,648
     
 
     
32,024,648
 
Less : accumulated depreciation and amortization (VIE $106,000 and $104,000, respectively)
   
(28,427,729
)    
 
     
(28,427,729
)
              -          
Total property, plant and equipment, net
   
3,596,919
     
 
     
3,596,919
 
                         
Other assets:
                       
Goodwill (VIE $0 and $440,000, respectively)
   
1,473,176
     
(1,473,176
)    
0
 
Net deferred income tax asset
   
495,586
     
(360,492
)    
135,094
 
Operating lease right-of-use
   
2,110,723
     
367,094
     
2,477,817
 
Other assets
   
26,088
     
220,000
     
246,088
 
              -          
Total other assets
   
4,105,573
     
(1,246,574
)    
2,858,999
 
              -          
TOTAL ASSETS
  $
41,384,086
    $
(1,679,028
)   $
39,705,058
 
                         
LIABILITIES AND EQUITY
                       
Current liabilities:
                       
Checks written in excess of bank balance (VIE $4,000 and $7,000, respectively)
  $
654,646
     
 
    $
654,646
 
Trade payables (VIE $142,000 and $62,000, respectively)
   
8,680,004
     
 
     
8,680,004
 
Line of credit (VIE $249,000 and $267,000, respectively)
   
15,351,709
     
 
     
15,351,709
 
Notes payable - current portion
   
4,414,581
     
 
     
4,414,581
 
Notes payable affiliates - current portion
   
11,271
     
 
     
11,271
 
Operating Lease Liabilities
   
1,016,687
     
284,140
     
1,300,827
 
Accrued liabilities (VIE $47,000 and $89,000, respectively)
   
2,082,161
     
(432,454
)    
1,649,707
 
              -          
Total current liabilities
   
32,211,059
     
(148,314
)    
32,062,745
 
              -          
Long-term liabilities:
   
 
     
-
     
 
 
Notes payable - affiliates
   
175,512
     
 
     
175,512
 
Notes payable, net of current portion (VIE $30,000 and $27,000, respectively)
   
639,327
     
 
     
639,327
 
Operating Lease Liabilities
   
1,094,036
     
82,954
     
1,176,990
 
Notes payable - officers, subordinated
   
1,012,024
     
-
     
1,012,024
 
Deferred gain (non current)
   
74,364
     
-
     
74,364
 
Total long-term debt, net of current portion
   
2,995,263
     
82,954
     
3,078,217
 
              -          
Total liabilities
   
35,206,322
     
(65,360)
     
35,140,962
 
              -          
Equity:
   
 
     
-
     
 
 
Yunhong CTI, LTD stockholders' equity:
   
 
     
-
     
 
 
Preferred Stock -- no par value, 3,000,000 shares authorized, 0 shares issued and outstanding
   
-
     
-
     
-
 
Common stock - no par value, 15,000,000 shares authorized, 3,779,608 shares issued and 3,730,950 shares outstanding
   
13,898,494
     
 
     
13,898,494
 
Paid-in-capital
   
3,135,404
     
 
     
3,135,404
 
Accumulated earnings
   
(3,745,907
)    
(1,613,668
)    
(5,359,575
)
Accumulated other comprehensive loss
   
(5,814,471
)    
 
     
(5,814,471
)
Less: Treasury stock, 43,658 shares
   
(160,784
)    
 
     
(160,784
)
Total Yunhong CTI, LTD stockholders' equity
   
7,312,736
     
(1,613,668
)    
5,699,068
 
Noncontrolling interest
   
(1,134,972
)    
 
     
(1,134,972
)
Total Equity
   
6,177,764
     
(1,613,668
)    
4,564,096
 
TOTAL LIABILITIES AND EQUITY
  $
41,384,086
    $
(1,679,028
)   $
39,705,058
 
 
Yunhong CTI, LTD (f/k/a CTI Industries Corporation)
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
   
For the Three Months Ended March 31,
 
   
2019
           
2019
 
   
As Previously Reported
   
Adjustments
   
As Restated
 
Net Sales
  $
12,536,389
    $
-
    $
12,536,389
 
              -          
Cost of Sales
   
10,540,218
     
-
     
10,540,218
 
              -          
Gross profit
   
1,996,171
     
-
     
1,996,171
 
              -          
Operating expenses:
   
 
     
-
     
 
 
General and administrative
   
2,056,073
     
(214,175)
     
1,841,898
 
Selling
   
437,565
     
-
     
437,565
 
Advertising and marketing
   
273,880
     
(101,303)
     
172,577
 
Impairment on long-lived assets
   
 
     
1,253,176
     
1,253,176
 
Gain on sale of assets
   
(23,547
)    
-
     
(23,547
)
Total operating expenses
   
2,743,971
     
937,698
     
3,681,669
 
              -          
Loss from operations
   
(747,800
)    
(937,698
)    
(1,685,498
)
                         
Other (expense) income:
                       
Interest expense
   
(546,906
)    
-
     
(546,906
)
Other income (expense)    
 
     
(315,478)
     
(315,478)
 
Foreign currency loss
   
(8,594
)    
-
     
(8,594
)
                         
Total other expense, net
   
(555,500
)    
(315,478)
     
(870,978
)
                         
Net loss before taxes
   
(1,303,300
)    
(1,253,176
)    
(2,556,476
)
                         
Income tax (benefit) expense
   
(360,491
)    
360,491
     
 
 
                         
Net loss
   
(942,809
)    
(1,613,667
)    
(2,556,476
)
                         
Less: loss  attributable to noncontrolling interest
   
(62,388
)    
-
     
(62,388
)
                         
Net loss attributable to Yunhong CTI, LTD
  $
(880,421
)   $
(1,613,667
)   $
(2,494,088
)
                         
Other Comprehensive Income (Loss)
                       
Foreign currency adjustment
   
235,876
     
-
     
235,876
 
Comprehensive loss
  $
(644,545
)   $
(1,613,667
)   $
(2,258,212
)
                         
Basic loss per common share
  $
(0.24
)   $
(0.43
)   $
(0.67
)
                         
Diluted loss per common share
  $
(0.24
)   $
(0.43
)   $
(0.67
)
                         
Weighted average number of shares and equivalent shares of common stock outstanding:
                       
Basic
   
3,735,950
     
 
     
3,735,950
 
                         
Diluted
   
3,735,950
     
 
     
3,735,950
 
 
Yunhong CTI, LTD (f/k/a CTI Industries Corporation)
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
   
For the Three Months Ended March 31,
 
   
2019
           
2019
 
   
As Previously Reported
   
Adjustments
   
As Restated
 
Cash flows from operating activities:
                       
Net loss
  $
(942,809
)   $
(1,613,667
)   $
(2,556,476
)
Depreciation and amortization
   
308,084
     
-
     
308,084
 
    Operating cash flows from operating leases    
248,757
     
(248,757)
     
 
 
Amortization of deferred gain on sale/leaseback
   
(27,474)
     
 
     
(27,474
)
Provision for losses on accounts receivable
   
6,085
     
 
     
6,085
 
Provision for losses on inventories
   
(10,656)
     
 
     
(10,656
)
Impairment of long-lived assets
   
 
     
1,253,176
     
1,253,176
 
Deferred income taxes
   
(360,491
)    
360,491
     
 
 
   Stock based compensation    
 
     
28,967
     
28,967
 
Change in assets and liabilities:
   
 
     
-
     
 
 
Accounts receivable
   
249,950
     
410,349
     
660,299
 
Inventories
   
(827,084
)    
-
     
(827,084
)
Prepaid expenses and other assets
   
(235,701
)    
215,468
     
(20,233
)
Trade payables
   
1,971,593
     
28,741
     
2,000,334
 
Accrued liabilities
   
(149,957
)    
 
     
(149,957
)
                         
Net cash provided by  operating activities
   
230,297
     
434,768
     
665,065
 
                         
                         
Cash flows from investing activities:
                       
Purchases of property, plant and equipment
   
(52,243
)    
 
     
(52,243
)
                         
Net cash (used in) investing activities
   
(52,243
)    
 
     
(52,243
)
                         
Cash flows from financing activities:
                       
Change in checks written in excess of bank balance
   
18,504
     
 
     
18,504
 
Net change in revolving line of credit
   
(1,235,126
)    
 
     
(1,235,126
)
Repayment of long-term debt
   
771,113
     
(984,634)
     
(213,521)
 
Proceeds from issuance of stock
   
28,967
     
(28,967)
     
-
 
Cash paid for deferred financing fees
   
3,800
     
(31,385)
     
(27,585)
 
    Proceeds from issuance of long-term note payable    
 
     
650,000
     
650,000
 
                         
Net cash (used in) financing activities
   
(412,742
)    
(394,986)
     
(807,728
)
                         
Effect of exchange rate changes on cash
   
(18,020)
     
(39,782)
     
(57,802)
 
                         
Net increase/(decrease) in cash and cash equivalents
   
(252,708
)    
 
     
(252,708
)
                         
Cash and cash equivalents at beginning of period
   
428,150
     
 
     
428,150
 
                         
Cash and cash equivalents at end of period
  $
175,442
    $
 
    $
175,442
 
                         
                         
Supplemental disclosure of cash flow information:
                       
Cash payments for interest
  $
366,688
     
 
    $
366,688
 
       Common stock issued for notes payable    
 
     
 
    $
600,000
 
                         
                         
                         
                         
 
v3.20.1
Note 6 - Other Comprehensive Income (Tables)
3 Months Ended
Mar. 31, 2019
Notes Tables  
Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]
   
Foreign Currency Items
   
Total
Accumulated Other Comprehensive Income
 
                 
Beginning balance as of January 1, 2019
  $
(6,050,347
)   $
(6,050,347
)
                 
Current period change, net of tax
   
235,876
     
235,876
 
                 
Ending Balance as of March 31, 2019
   
(5,814,471
)    
(5,814,471
)
v3.20.1
Note 12 - Leases (Tables)
3 Months Ended
Mar. 31, 2019
Notes Tables  
Lessee, Operating Lease, Assets and Liabilities [Table Text Block]
Assets
 
As of March 31, 2019
 
Operating lease right-of-use assets
   
$2,839,000
 
Accumulated amortization
   
(361,000
)
Net lease assets
   
2,478,000
 
         
Liabilities
 
 
 
 
Current
       
Operating
   
1,301,000
 
Noncurrent
       
Operating
   
1,177,000
 
Total lease liabilities
   
2,478,000
 
         
Weighted average remaining term (years) – operating leases
 
3 years
 
         
Weighted average discount rate – operating leases
   
11.25
%
Lease, Cost [Table Text Block]
Operating right-of-use lease asset amortization
   
$361,000
 
         
Total expense for three months ended March 31, 2019
   
361,000
 
Lessee, Operating Lease, Liability, Maturity [Table Text Block]
The following table summarizes the maturities of our lease liabilities for all operating leases as of March 31, 2019
   
(in thousands)
03/31/2019
2019
$1,210
2020
724
2021
757
2022 and thereafter
167
  Total lease payments
2,858
less:  Imputed interest
(380)
  Present value of lease liabilities
$2,478
v3.20.1
Note 10 - Related Party Transactions (Details Textual) - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Legal Fees $ 0 $ 72,000
John H Schwan And Stephen M Merrick [Member] | Clever Container [Member]    
Ownership Percentage 50.00%  
Schwan Incorporated [Member]    
Related Party Transaction, Amounts of Transaction $ 62,000 237,000
Due to Related Parties, Noncurrent, Total $ 1,373,000 $ 1,102,000
v3.20.1
Note 8 - Geographic Segment Data (Details Textual)
3 Months Ended
Mar. 31, 2019
Number of Operating Segments 1
v3.20.1
Note 12 - Leases - Lease Cost (Details)
3 Months Ended
Mar. 31, 2019
USD ($)
Operating right-of-use lease asset amortization $ 361,000
Total expense for three months ended March 31, 2019 $ 361,000
v3.20.1
Note 9 - Concentration of Credit Risk (Tables)
3 Months Ended
Mar. 31, 2019
Notes Tables  
Schedules of Concentration of Risk, by Risk Factor [Table Text Block]
   
Three Months Ended
   
Three Months Ended
 
   
March 31, 2019
   
March 31, 2018
 
Customer
 
Net Sales
   
% of Net Sales
   
Net Sales
   
% of Net Sales
 
Customer A
  $
3,861,000
     
30.8
%   $
4,450,000
     
31.8
%
Customer B
  $
2,159,000
     
17.2
%   $
2,471,000
     
17.7
%
v3.20.1
Note 14 - Impairment
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Asset Impairment Charges [Text Block]
Note
14
Impairment –
 
In the
first
quarter of
2019,
the Company identified an impairment indicator related to the goodwill associated with Clever Container. As a result of an impairment test, the Company fully impaired the goodwill related to Clever Container in the
first
quarter and recorded an impairment charge of
$220,000.
In the
first
quarter of
2019,
the Company identified an impairment indicator related to the goodwill associated with Flexo. As a result of an impairment test, the Company fully impaired the goodwill related to Flexo in the
first
quarter of
2019
and recorded an impairment charge of
$1,033,000.
v3.20.1
Note 4 - Stock-based Compensation; Changes in Equity (Tables)
3 Months Ended
Mar. 31, 2019
Notes Tables  
Share-based Payment Arrangement, Activity [Table Text Block]
   
Shares under
Option
   
Weighted Average
Exercise Price
 
Balance at December 31, 2018
   
471,144
    $
3.95
 
Granted
   
-
     
-
 
Cancelled/Expired
   
-
     
-
 
Exercised/Issued
   
-
     
-
 
Outstanding at March 31, 2019
   
471,144
    $
3.95
 
                 
Exercisable at March 31, 2019
   
165,264
    $
4.05
 
v3.20.1
Note 1 - Basis of Presentation
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]
Note
1
- Basis of Presentation
 
The accompanying condensed (a) consolidated balance sheet as of
December 31, 2018,
which has been derived from audited consolidated financial statements, 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
months ended
March 31, 2019
are
not
necessarily indicative of the results that
may
be expected for the fiscal year ending
December 31, 2019.
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, 2018.
 
Principles of consolidation and nature of operations:
 
The condensed consolidated financial statements include the accounts of Yunhong CTI Ltd. (formerly CTI Industries Corporation) and its wholly-owned subsidiaries, CTI Balloons Limited and CTI Supply, Inc., its majority-owned subsidiaries, Flexo Universal, S. de R.L. de C.V. and CTI Europe gmbH, as well as the accounts of Venture Leasing S. A. de R. L., Venture Leasing L.L.C and Clever Container Company, L.L.C. (the “Company”). The last
three
entities have been consolidated as variable interest entities. All significant intercompany transactions and accounts have been eliminated in consolidation. The Company (i) designs, manufactures and distributes balloon and related novelty (candy and party related) products throughout the world, (ii) operates 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 (iii) distributes vacuum sealing products and home organization products in the United States. We have announced our intention to divest our interest in Clever Container and deconsolidate that entity from our group. As we are still the entity most closely associated with Clever Container in our related party group as of
March 31
st
,
2019
it remains consolidated as a variable interest entity.
 
Variable Interest Entities (“VIEs”):
 
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. There are
three
entities that have been consolidated as variable interest entities.
 
Use of estimates:
 
In preparing condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of revenue and expenses during the reporting period in the condensed consolidated financial statements and accompanying notes. Actual results
may
differ from those estimates. The Company’s significant estimates include reserves for doubtful accounts, reserves for the lower of cost or market of inventory, reserves for deferred tax assets and recovery value of goodwill.
 
Earnings per share:
 
Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during each period.
 
Diluted earnings per share is computed by dividing the net income by the weighted average number of shares of common stock and equivalents (stock options and warrants), unless anti-dilutive, during each period.
 
As of
March 31, 2019
and
2018,
shares to be issued upon the exercise of options and warrants aggregated
471,144
for each period. The number of shares included in the determination of earnings on a diluted basis for the
three
months ended
March 31, 2019
and
2018
were
none
,
as doing so would have been anti-dilutive.
 
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, 2018.
There were
no
significant changes to these accounting policies during the
three
months ended
March 31, 2019,
except for the adoption of Accounting Standards Codification (ASC) Topic
842,
Leases.
 
On
January 1, 2019,
we adopted ASC Topic
842
(Leases). The adoption of this standard significantly increased our assets and liabilities and further discussed in Note
12.
ASC
842
requires a lessee to recognize assets and liabilities related to leases with terms in excess of
12
months. Such assets are typically considered Right-Of-Use (“ROU”) assets. Prior information has
not
been restated and continues to be reported under the accounting standards in effect for those periods.
 
On
January 1, 2018,
we adopted ASC
606
(Revenue From Contracts With Customers) using the modified retrospective method. The adoption of ASC
606
did
not
have a material impact on our consolidated financial position or results of operations, as our revenue arrangements generally consist of a single performance obligation to transfer promised goods at a fixed price.
 
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.
 
Auditor Replacement Process:
 
During
April 2019,
our independent registered accounting firm, Plante & Moran PLLC, declined to stand for reappointment as auditor. As of
January 3
rd
,
2020,
the Audit Committee of the Board approved the engagement of RBSM, LLP (“RBSM”) as the Company’s independent registered public accounting firm for the Company’s fiscal year ended
December 31
st
,
2019.
Previously, the quarterly report on Form
10
-Q was prepared without the benefit of auditor review. This Form
10
-Q/A is filed with review from RBSM.
 
Prior Period Reclassification
 
Certain amounts in prior periods have been reclassified to conform with current period presentation and had
no
effect on prior period net loss or stockholders’ equity.
 
 
Recently Adopted Accounting Pronouncements
 
In 
February 
2016,
the Financial Accounting Standards Board ("FASB") issued ASU
No.
2016
-
02
 
Leases
(Topic
842
), also referred to as “ASC
842”
or “New Lease Standard”, which supersedes ASC
840
Leases
(Topic
840
), and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The FASB has continued to clarify this guidance through the issuance of additional ASUs. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or
not
the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than
twelve
months regardless of classification. Leases with a term of
twelve
months or less
may
be accounted for similar to existing guidance for operating leases. ASC
842
was effective for the Company for the year ending
December 31, 2019.
We reported our financial information for fiscal years ending before
December 31, 2018
under the Topic
840
lease accounting standard. The Company applied the modified retrospective transition method and elected the transition option to use the effective date of
January 1, 2019
as the date of initial application. The Company recognized the cumulative effect of the transition adjustment as of the effective date and will
not
provide any new lease disclosures for periods before the effective date. The Company elected the package of practical expedients and did
not
elect the use of the hindsight practical expedient. As a result, the Company will, in effect, continue to account for existing leases as classified in accordance with ASC
840
,
throughout the entire lease term, including periods after the effective date, with the exception that the Company will apply the new balance sheet recognition guidance for operating leases and apply ASC
842
for remeasurements and modifications after the transition date. 
 
Other key practical expedients elected by the Company (as a lessee) relate to maintaining leases with an initial term of
12
months or less off the balance sheet;
not
separating lease and non-lease components and the use of the portfolio approach to determine the incremental borrowing rate. For transition purposes, the Company used the incremental borrowing rate based on the total lease term and total minimum rental payments. The Company completed its identification of leases which comprised
two
building leases and
two
equipment leases. Further, the Company analyzed service contracts and parts assembly arrangements from suppliers and did
not
identify any material leases of production equipment. On the date of initial application, the Company recognized right-of-use ("ROU") assets and leasing liabilities on its condensed consolidated balance sheets of approximately
$2.8
million. The adoption had
no
significant impact on the Company's condensed consolidated statement of operations.
v3.20.1
Note 6 - Other Comprehensive Income
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Comprehensive Income (Loss) Note [Text Block]
Note
6
- Other Comprehensive Income
 
In the
three
months ended
March 31, 2018,
the Company incurred other comprehensive income of approximately
$236,000,
all from foreign currency translation adjustments.
 
The following table sets forth the accumulated balance of other comprehensive income and each component.
 
   
Foreign Currency Items
   
Total
Accumulated Other Comprehensive Income
 
                 
Beginning balance as of January 1, 2019
  $
(6,050,347
)   $
(6,050,347
)
                 
Current period change, net of tax
   
235,876
     
235,876
 
                 
Ending Balance as of March 31, 2019
   
(5,814,471
)    
(5,814,471
)
v3.20.1
Note 10 - Related Party Transactions
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Related Party Transactions Disclosure [Text Block]
Note
10
-
Related Party Transactions
 
Stephen M. Merrick, Chief Executive Officer of the Company, is of counsel to the law firm of Vanasco Genelly and Miller PC which used to provide legal services to the Company. Legal fees paid by the Company to this firm for the
three
months ended
March 31, 2019
and
2018,
respectively, were
none
and
$72,000.
 
John H. Schwan, through an investment entity, and Stephen M. Merrick, Chief Executive Officer of the Company, also through an investment entity own, in aggregate, a
50%
interest in Clever Container Company L.L.C., an Illinois limited liability company (“Clever Container”). During the
three
months ended
March 31, 2019
and
2018,
Clever Container purchased various products from the Company in the amount of
$62,000
and
$237,000,
respectively. As of
March 31, 2019
and
2018,
the balance of accounts receivable from Clever Container to the Company were
$1,373,000
and
$1,102,000,
respectively.
v3.20.1
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)
$ / shares in Thousands
Mar. 31, 2019
Dec. 31, 2018
Cash and cash equivalents $ 175,442 $ 428,150
Allowance for doubtful accounts 10,170,256 10,830,555
Inventories, net 20,837,907 20,007,488
Prepaid expenses 658,164 858,158
Office furniture and equipment 2,656,519 2,649,280
Goodwill 0 1,473,176
Checks written in excess of bank balance 654,646 636,142
Trade payables 8,680,004 6,679,670
Line of credit 15,351,709 16,582,963
Accrued liabilities 1,649,707 1,866,796
Notes payable $ 639,327 $ 399,912
Preferred stock, par value (in dollars per share) $ 0 $ 0
Preferred stock, shares authorized (in shares) 3,000,000 3,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, no par value (in dollars per share) $ 0 $ 0
Common stock, shares authorized (in shares) 15,000,000 15,000,000
Common stock, shares issued (in shares) 3,779,608 3,779,608
Common stock, shares outstanding (in shares) 3,730,950 3,730,950
Treasury stock, shares (in shares) 43,658 43,658
Variable Interest Entity, Primary Beneficiary [Member]    
Cash and cash equivalents $ 3,000 $ 57,000
Allowance for doubtful accounts 524,000 85,000
Inventories, net 315,000 340,000
Prepaid expenses 106,000 127,000
Office furniture and equipment 303,000 303,000
Accumulated depreciation and amortization 106,000 104,000
Goodwill 0 440,000
Checks written in excess of bank balance 4,000 7,000
Trade payables 142,000 62,000
Line of credit 249,000 267,000
Accrued liabilities 47,000 89,000
Notes payable $ 30,000 $ 27,000
v3.20.1
Note 4 - Stock-based Compensation; Changes in Equity (Details Textual) - USD ($)
$ / shares in Units, xbrli-pure in Thousands
1 Months Ended 3 Months Ended 12 Months Ended
Jan. 11, 2019
Jan. 31, 2019
Mar. 31, 2019
Dec. 31, 2018
Dec. 20, 2018
Jun. 08, 2018
Apr. 10, 2009
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate     0.00% 0.00%      
Share-based Payment Arrangement, Expense     $ 29,000 $ 62,000      
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total     164,000        
Expected Recognized Compensation Expenses, Remainder of the Fiscal Year     63,000        
Expected Recognized Compensation Expenses in Year Two     $ 56,000        
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance (in shares)     471,144 471,144      
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value     $ 78,000        
Stock Issued During Period, Value, New Issues            
Share Price (in dollars per share)         $ 3.32    
Promissory Note [Member] | John H Schwan [Member]              
Debt Conversion, Original Debt, Amount $ 600,000            
Debt Conversion, Converted Instrument, Shares Issued (in shares) 180,723            
Common Stock [Member] | Disputed Compensation Amounts by Claimants [Member] | God’s Little Gift, Inc. (d\b\a) Helium and Balloons Across America and Gary Page [Member]              
Stock Issued During Period, Shares, New Issues (in shares)   20,000          
Stock Issued During Period, Value, New Issues       $ 67,000      
Stock Incentive Plan 2009 [Member]              
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)           300,000 510,000
Stock Incentive Plan 2018 [Member]              
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance (in shares)     471,144        
v3.20.1
Note 1 - Basis of Presentation (Details Textual) - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Jan. 01, 2019
Dec. 31, 2018
Common Stock, Capital Shares Reserved for Future Issuance (in shares) 471,144 471,144    
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) 0 0    
Operating Lease, Right-of-Use Asset $ 2,477,817    
Operating Lease, Liability, Total $ 2,478,000      
Accounting Standards Update 2016-02 [Member]        
Operating Lease, Right-of-Use Asset     $ 2,800,000  
Operating Lease, Liability, Total     $ 2,800,000  
v3.20.1
Note 6 - Other Comprehensive Income - Accumulated Other Comprehensive Loss Balances (Details)
3 Months Ended
Mar. 31, 2019
USD ($)
Balance $ 6,255,729
Balance 4,564,096
Accumulated Foreign Currency Adjustment Attributable to Parent [Member]  
Balance (6,050,347)
Accumulated Other Comprehensive Loss, Current period change 235,876
Balance (5,814,471)
AOCI Attributable to Parent [Member]  
Balance (6,050,347)
Accumulated Other Comprehensive Loss, Current period change 235,876
Balance $ (5,814,471)
v3.20.1
Note 12 - Leases - Maturities for Operating Lease Liabilities (Details)
Mar. 31, 2019
USD ($)
2019 $ 1,210,000
2020 724,000
2021 757,000
2022 and thereafter 167,000
Total lease payments 2,858,000
less: Imputed interest (380,000)
Present value of lease liabilities $ 2,478,000
v3.20.1
Note 15 - Restatement of Financial Statements - Restatement of Financial Statements (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Mar. 31, 2019
Dec. 31, 2018
Cash and cash equivalents $ 428,150   $ 428,150     $ 175,442 $ 428,150
Allowance for doubtful accounts           10,170,256 10,830,555
Inventories, net           20,837,907 20,007,488
Prepaid expenses           658,164 858,158
Other current assets           1,407,371 886,383
Total current assets           33,249,140 33,010,734
Machinery and equipment           23,842,559 23,807,985
Building           3,374,334 3,367,082
Office furniture and equipment           2,656,519 2,649,280
Intellectual property           783,179 783,179
Land           250,000 250,000
Leasehold improvements           411,426 409,188
Fixtures and equipment at customer locations           518,450 518,450
Projects under construction           188,181 150,272
Property, Plant and Equipment, Gross, Ending Balance           32,024,648 31,935,436
Less : accumulated depreciation and amortization (VIE $106,000 and $104,000, respectively)           (28,427,729) (28,120,455)
Total property, plant and equipment, net           3,596,919 3,814,981
Goodwill           0 1,473,176
Net deferred income tax asset           135,094 135,094
Operating Lease, Right-of-Use Asset           2,477,817
Other assets           246,088  
Assets, Noncurrent, Excluding Property, Plant, and Equipment           2,858,999 1,935,119
Sales to outside customers           39,705,058 38,760,834
Checks written in excess of bank balance           654,646 636,142
Trade payables           8,680,004 6,679,670
Line of credit           15,351,709 16,582,963
Notes payable - current portion           4,414,581 4,432,320
Notes payable affiliates - current portion           11,271 10,821
Operating           1,300,827 0
Accrued liabilities           1,649,707 1,866,796
Liabilities, Current, Total           32,062,745 30,208,712
Notes payable - affiliates           175,512 199,122
Notes payable           639,327 399,912
Operating Lease Liabilities           1,176,990
Notes payable - officers, subordinated           1,012,024 1,597,019
Deferred gain (non current)           74,364 100,340
Total long-term debt, net of current portion           3,078,217 2,296,393
Total liabilities           35,140,962 32,505,105
Preferred Stock -- no par value, 3,000,000 shares authorized, 0 shares issued and outstanding          
Common stock - no par value, 15,000,000 shares authorized, 3,779,608 shares issued and 3,730,950 shares outstanding           13,898,494 13,898,494
Paid-in-capital           3,135,404 2,506,437
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance           (5,359,575) (2,865,486)
Accumulated other comprehensive loss           (5,814,471) (6,050,347)
Less: Treasury stock, 43,658 shares           (160,784) (160,784)
Total Yunhong CTI, LTD stockholders' equity           5,699,068 7,328,314
Noncontrolling interest           (1,134,972) (1,072,585)
Total Equity           4,564,096 6,255,729
TOTAL LIABILITIES AND EQUITY           39,705,058 38,760,834
Revenue from Contract with Customer, Including Assessed Tax 12,536,389 $ 13,979,177          
Cost of Sales 10,540,218 11,110,786          
Gross profit 1,996,171 2,868,391          
General and administrative 1,841,898 1,884,046          
Selling 437,565 858,537          
Advertising and marketing 172,577 296,880          
Impairment on long-lived assets 1,253,176 (35,503)          
Gain on sale of assets (23,547) (24,414)          
Total operating expenses 3,681,669 3,015,049          
Loss from operations (1,685,498) (146,658)          
Interest expense (546,906) (564,060)          
Other income (expense) (315,478)          
Foreign currency loss (8,594) 31,028          
Total other expense, net (870,978) (533,377)          
Net loss before taxes (2,556,476) (680,035)          
Income tax (benefit) expense (209,484)          
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest, Total (2,556,476) (470,551)          
Less: loss attributable to noncontrolling interest (62,388) (7,543)          
Net Income (Loss) Attributable to Parent, Total (2,494,088) (463,008) (3,600,000) $ (1,600,000) $ 700,000    
Foreign currency adjustment 235,876 433,065          
Comprehensive loss $ (2,258,212) $ (29,943)          
Basic loss per common share (in dollars per share) $ (0.67) $ (0.13)          
Diluted loss per common share (in dollars per share) $ (0.67) $ (0.13)          
Basic (in shares) 3,735,950 3,530,227          
Diluted (in shares) 3,735,950 3,530,227          
Depreciation and amortization $ 308,084 $ 376,920          
Operating cash flows from operating leases            
Amortization of deferred gain on sale/leaseback (27,474)          
Provision for losses on accounts receivable 6,085 (28,486)          
Provision for losses on inventories (10,656) (17,781)          
Deferred income taxes (133,982)          
Stock based compensation 28,967 61,975          
Accounts receivable 660,299 (465,865)          
Inventories (827,084) (1,995,477)          
Prepaid expenses and other assets (20,233) 109,567          
Trade payables 2,000,334 1,572,804          
Accrued liabilities (149,957) 127,038          
Net cash provided by operating activities 665,065 (899,341)          
Purchases of property, plant and equipment (52,243) 63,533          
Net cash (used in) investing activities (52,243) 63,533          
Change in checks written in excess of bank balance 18,504 (442,992)          
Net change in revolving line of credit (1,235,126) 2,123,582          
Repayment of long-term debt (213,521) (432,942)          
Proceeds from issuance of stock (27,585) (24,568)          
Cash paid for deferred financing fees (27,585)          
Proceeds from issuance of long-term note payable 650,000            
Net cash (used in) financing activities (807,728) 1,223,080          
Effect of exchange rate changes on cash (57,802)            
Net increase/(decrease) in cash and cash equivalents (252,708) 414,579          
Cash and cash equivalents at beginning of period 428,150            
Cash and cash equivalents at end of period 175,442   428,150        
Cash payments for interest 366,688 $ 408,001          
Conversion from Notes Payable To Common Stock [Member]              
Common stock issued for notes payable 600,000            
Previously Reported [Member]              
Cash and cash equivalents 428,150   428,150     175,442 428,150
Allowance for doubtful accounts           10,602,710  
Inventories, net           20,837,907  
Prepaid expenses           646,164  
Other current assets           1,419,371  
Total current assets           33,681,594  
Machinery and equipment           23,842,559  
Building           3,374,334  
Office furniture and equipment           2,656,519  
Intellectual property           783,179  
Land           250,000  
Leasehold improvements           411,426  
Fixtures and equipment at customer locations           518,450  
Projects under construction           188,181  
Property, Plant and Equipment, Gross, Ending Balance           32,024,648  
Less : accumulated depreciation and amortization (VIE $106,000 and $104,000, respectively)           (28,427,729)  
Total property, plant and equipment, net           3,596,919  
Goodwill           1,473,176  
Net deferred income tax asset           495,586  
Operating Lease, Right-of-Use Asset           2,110,723  
Other assets           26,088  
Assets, Noncurrent, Excluding Property, Plant, and Equipment           4,105,573  
Sales to outside customers           41,384,086  
Checks written in excess of bank balance           654,646  
Trade payables           8,680,004  
Line of credit           15,351,709  
Notes payable - current portion           4,414,581  
Notes payable affiliates - current portion           11,271  
Operating           1,016,687  
Accrued liabilities           2,082,161  
Liabilities, Current, Total           32,211,059  
Notes payable - affiliates           175,512  
Notes payable           639,327  
Operating Lease Liabilities           1,094,036  
Notes payable - officers, subordinated           1,012,024  
Deferred gain (non current)           74,364  
Total long-term debt, net of current portion           2,995,263  
Total liabilities           35,206,322  
Preferred Stock -- no par value, 3,000,000 shares authorized, 0 shares issued and outstanding            
Common stock - no par value, 15,000,000 shares authorized, 3,779,608 shares issued and 3,730,950 shares outstanding           13,898,494  
Paid-in-capital           3,135,404  
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance           (3,745,907)  
Accumulated other comprehensive loss           (5,814,471)  
Less: Treasury stock, 43,658 shares           (160,784)  
Total Yunhong CTI, LTD stockholders' equity           7,312,736  
Noncontrolling interest           (1,134,972)  
Total Equity           6,177,764  
TOTAL LIABILITIES AND EQUITY           41,384,086  
Revenue from Contract with Customer, Including Assessed Tax 12,536,389            
Cost of Sales 10,540,218            
Gross profit 1,996,171            
General and administrative 2,056,073            
Selling 437,565            
Advertising and marketing 273,880            
Impairment on long-lived assets            
Gain on sale of assets (23,547)            
Total operating expenses 2,743,971            
Loss from operations (747,800)            
Interest expense (546,906)            
Other income (expense)            
Foreign currency loss (8,594)            
Total other expense, net (555,500)            
Net loss before taxes (1,303,300)            
Income tax (benefit) expense (360,491)            
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest, Total (942,809)            
Less: loss attributable to noncontrolling interest (62,388)            
Net Income (Loss) Attributable to Parent, Total (880,421)            
Foreign currency adjustment 235,876            
Comprehensive loss $ (644,545)            
Basic loss per common share (in dollars per share) $ (0.24)            
Diluted loss per common share (in dollars per share) $ (0.24)            
Basic (in shares) 3,735,950            
Diluted (in shares) 3,735,950            
Depreciation and amortization $ 308,084            
Operating cash flows from operating leases 248,757            
Amortization of deferred gain on sale/leaseback (27,474)            
Provision for losses on accounts receivable 6,085            
Provision for losses on inventories (10,656)            
Deferred income taxes (360,491)            
Stock based compensation            
Accounts receivable 249,950            
Inventories (827,084)            
Prepaid expenses and other assets (235,701)            
Trade payables 1,971,593            
Accrued liabilities (149,957)            
Net cash provided by operating activities 230,297            
Purchases of property, plant and equipment (52,243)            
Net cash (used in) investing activities (52,243)            
Change in checks written in excess of bank balance 18,504            
Net change in revolving line of credit (1,235,126)            
Repayment of long-term debt 771,113            
Proceeds from issuance of stock 28,967            
Cash paid for deferred financing fees 3,800            
Proceeds from issuance of long-term note payable            
Net cash (used in) financing activities (412,742)            
Effect of exchange rate changes on cash (18,020)            
Net increase/(decrease) in cash and cash equivalents (252,708)            
Cash and cash equivalents at beginning of period 428,150            
Cash and cash equivalents at end of period 175,442   428,150        
Cash payments for interest 366,688            
Previously Reported [Member] | Conversion from Notes Payable To Common Stock [Member]              
Common stock issued for notes payable            
Revision of Prior Period, Adjustment [Member]              
Cash and cash equivalents      
Allowance for doubtful accounts           (432,454)  
Inventories, net            
Prepaid expenses           12,000  
Other current assets           (12,000)  
Total current assets           (432,454)  
Machinery and equipment            
Building            
Office furniture and equipment            
Intellectual property            
Land            
Leasehold improvements            
Fixtures and equipment at customer locations            
Projects under construction            
Property, Plant and Equipment, Gross, Ending Balance            
Less : accumulated depreciation and amortization (VIE $106,000 and $104,000, respectively)            
Total property, plant and equipment, net            
Goodwill           (1,473,176)  
Net deferred income tax asset           (360,492)  
Operating Lease, Right-of-Use Asset           367,094  
Other assets           220,000  
Assets, Noncurrent, Excluding Property, Plant, and Equipment           (1,246,574)  
Sales to outside customers           (1,679,028)  
Checks written in excess of bank balance            
Trade payables            
Line of credit            
Notes payable - current portion            
Notes payable affiliates - current portion            
Operating           284,140  
Accrued liabilities           (432,454)  
Liabilities, Current, Total           (148,314)  
Notes payable - affiliates            
Notes payable            
Operating Lease Liabilities           82,954  
Notes payable - officers, subordinated            
Deferred gain (non current)            
Total long-term debt, net of current portion           82,954  
Total liabilities           (65,360)  
Preferred Stock -- no par value, 3,000,000 shares authorized, 0 shares issued and outstanding            
Common stock - no par value, 15,000,000 shares authorized, 3,779,608 shares issued and 3,730,950 shares outstanding            
Paid-in-capital            
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance           (1,613,668)  
Accumulated other comprehensive loss            
Less: Treasury stock, 43,658 shares            
Total Yunhong CTI, LTD stockholders' equity           (1,613,668)  
Noncontrolling interest            
Total Equity           (1,613,668)  
TOTAL LIABILITIES AND EQUITY           $ (1,679,028)  
Revenue from Contract with Customer, Including Assessed Tax            
Cost of Sales            
Gross profit            
General and administrative (214,175)            
Selling            
Advertising and marketing (101,303)            
Impairment on long-lived assets 1,253,176            
Gain on sale of assets            
Total operating expenses 937,698            
Loss from operations (937,698)            
Interest expense            
Other income (expense) (315,478)            
Foreign currency loss            
Total other expense, net (315,478)            
Net loss before taxes (1,253,176)            
Income tax (benefit) expense 360,491            
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest, Total (1,613,667)            
Less: loss attributable to noncontrolling interest            
Net Income (Loss) Attributable to Parent, Total (1,613,667)            
Foreign currency adjustment            
Comprehensive loss $ (1,613,667)            
Basic loss per common share (in dollars per share) $ (0.43)            
Diluted loss per common share (in dollars per share) $ (0.43)            
Basic (in shares)            
Diluted (in shares)            
Depreciation and amortization            
Operating cash flows from operating leases (248,757)            
Amortization of deferred gain on sale/leaseback            
Provision for losses on accounts receivable            
Provision for losses on inventories            
Deferred income taxes 360,491            
Stock based compensation 28,967            
Accounts receivable 410,349            
Inventories            
Prepaid expenses and other assets 215,468            
Trade payables 28,741            
Accrued liabilities            
Net cash provided by operating activities 434,768            
Purchases of property, plant and equipment            
Net cash (used in) investing activities            
Change in checks written in excess of bank balance            
Net change in revolving line of credit            
Repayment of long-term debt (984,634)            
Proceeds from issuance of stock (28,967)            
Cash paid for deferred financing fees (31,385)            
Proceeds from issuance of long-term note payable 650,000            
Net cash (used in) financing activities (394,986)            
Effect of exchange rate changes on cash (39,782)            
Net increase/(decrease) in cash and cash equivalents            
Cash and cash equivalents at beginning of period            
Cash and cash equivalents at end of period          
Cash payments for interest            
Revision of Prior Period, Adjustment [Member] | Conversion from Notes Payable To Common Stock [Member]              
Common stock issued for notes payable