YUNHONG GREEN CTI LTD. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Note Regarding Forward Looking Statements This Quarterly Report on Form 10-Q includes both historical and “forward-looking statements” within the meaning of federal securities law. All such statements are qualified by this cautionary note, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future results. Words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or similar words are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from the views and expectations set forth in this Quarterly Report on Form 10-Q. We disclaim any intent or obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform such statements to actual results or to changes in our opinions or expectations. These forward-looking statements are affected by factors, risks, uncertainties and assumptions that we make, including, without limitation, those discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 under the heading “Risk Factors.” Overview We produce film products for novelty, packaging and container applications. These products include foil balloons, latex balloons and related products, films for packaging and custom product applications, and flexible containers for packaging and consumer storage applications. We produce all of our film products for packaging, container applications and most of our foil balloons at our plant in Lake Barrington, Illinois. The Company purchases latex balloons from an unrelated vendor and distributes in the United States, particularly to those customers that prefer a combined solution for foil and latex balloons. Substantially all our film products for packaging and custom product applications are sold to customers in the United States. We market and sell our novelty items, Balloon inspired gifts (balloons and candy arranged to look like a flower bouquet for gifting) and flexible containers for consumer use primarily in the United States. The Company incorporated “Green” into the Company name to communicate our intention to supply biodegradable and compostable materials to the marketplace that are developed by our partners in Asia. We created a new subsidiary, in part, for this purpose. In recent periods, the U.S. government has imposed tariffs on certain goods imported from countries including China. Existing and future trade tariffs, import duties and quotas could also materially increase our costs of procuring the materials we use and disrupt the markets for the products we handle, which in turn could have a material adverse effect on our financial position, results of operations and cash flows. Summary of Significant Events On October 21, 2024, Yunhong Green CTI Ltd. received written notice from Nasdaq indicating that the Company’s common stock had not maintained a minimum closing bid price of $1.00 per share for 30 consecutive business days, thereby failing to comply with Nasdaq Listing Rule 5550(a)(2). The notice provided the Company with an initial 180-day grace period, through April 21, 2025, to regain compliance. As the Company did not meet the minimum bid requirement by the end of the initial period, Nasdaq granted a second 180-day compliance period on April 24, 2025, extending the deadline to October 19, 2025. To facilitate compliance, the Company implemented a 1-for-10 reverse stock split effective October 1, 2025, which increased the per-share trading price of its common stock. On October 21, 2025, the Company received a written notice from Nasdaq Listing Qualifications confirming that, for the ten consecutive trading days ended October 14, 2025, the closing bid price of the Company’s common stock had been at or above $1.00 per share. Accordingly, the Company has regained compliance with Nasdaq Listing Rule 5550(a)(2), and the matter is now closed. Senior Credit Facilities As of September 30, 2025, the Company maintained senior secured credit facilities with Line Financial, consisting of a $7.0 million revolving credit facility and a $0.7 million term loan. The facilities are secured by substantially all Company assets. Borrowings under the revolving credit facility bear interest at the prime rate plus 7.82% (15.07% as of September 30, 2025), while the term loan bears interest at the prime rate plus 1.45% and is repaid in monthly installments of approximately $15,000. The facilities include standard financial and operational covenants, including a minimum tangible net worth requirement of $4.0 million, with which the Company was in compliance as of September 30, 2025. In September 2025, the Company executed a Fifth Amendment extending maturity to April 30, 2027 and increasing the revolving commitment from $6.0 million to $7.0 million. The amendment also introduced a 0.75% renewal fee payable in two equal installments (October 2025 and September 2026) and a $12,500 commitment fee associated with the expanded facility. At September 30, 2025, the Company had $4.6 million outstanding on the revolving facility and $0.6 million on the term loan, with $2.4 million of remaining borrowing capacity. 12 Table of Contents Note Payable, Related Party The Company also has a subordinated note payable to Director and former Chairman John H. Schwan bearing 6% interest, with a balance of $0.3 million remaining after a $1.0 million repayment in January 2024. Results of Operations Net Sales: Net sales for the three-month periods ended September 30, 2025 and 2024 were approximately $2,953,000 and $2,540,000, respectively, representing an increase of $413,000 or 16% quarter-over-quarter. For the three-month period ended September 30, 2025 and 2024, net sales by product category were as follows: Three Months Ended September 30, 2025 September 30, 2024 Product Category $ (000) Omitted % of Net Sales $ (000) Omitted % of Net Sales Variance % change Foil Balloons $ 2,352 80 % $ 2,322 91 % $ 30 1 % Film Products 253 8 % 129 5 % 124 96 % Other 348 12 % 89 4 % 259 296 % Total $ 2,953 100 % $ 2,540 100 % $ 413 16 % 13 Table of Contents For the nine-month period ended September 30, 2025 and 2024, net sales were $13,212,000 and $11,788,000 respectively, representing an increase of $1,424,000, or 12%. For the nine-month periods ended September 30, 2025 and 2024, net sales by product category were as follows: Nine Months Ended September 30, 2025 September 30, 2024 Product Category $ (000) Omitted % of Net Sales $ (000) Omitted % of Net Sales Variance % change Foil Balloons $ 9,597 72 % $ 8,493 72 % $ 1,104 13 % Film Products 1,030 7 % 605 5 % 425 70 % Other 2,585 21 % 2,690 23 % (105 ) 4 % Total $ 13,212 100 % $ 11,788 100 % $ 1,424 12 % Foil Balloons . Revenues from the sale of foil balloons increased during the three-month period ended September 30, 2025 to $2,352,000 compared to $2,322,000 during the same period of 2024. The slight increase in revenue is due to the timing of shipments. Revenues from the sale of foil balloons increased during the nine-month period ended September 30, 2025 to $9,597,000 compared to $8,493,000 during the same period of 2024. The main reason for this change can be attributed to the majority of our Valentine’s Day foil balloons this year were shipped in Q1 2025 whereas last year the majority of our Valentine’s Day foil balloons were shipped in Q4 2023. The increase is related to the timing of orders and shipments. Films . Revenues from the sale of commercial films were $253,000 and $1,030,000 during the three and nine month periods ended September 30, 2025, compared to $129,000 and $605,000 during the same periods of 2024. Sales in this area have been inconsistent due to a small number of customers and a significant number of competitors. Other Revenues : Revenues from the sale of other products were $348,000 and $2,585,000 during the three and nine month periods ended September 30, 2025 compared to $89,000 and $2,690,000 during the same periods of 2024. Other revenues during these periods primarily consisted of: (i) sales of balloon-inspired gift products, including candy and small inflated balloons packaged in small containers; and (ii) sales of accessories and supply items related to balloon products. The main reason for the fluctuation of the sales is due to timing of Valentine’s Day related shipments, which occurred in December 2024 compared to Q1 2024 for the following year. 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 and nine month periods ended September 30, 2025 and 2024. Three Months Ended September 30, % of Sales 2025 2024 Top 3 Customers 78 % 79 % Top 10 Customers 92 % 90 % Nine Months Ended September 30, % of Sales 2025 2024 Top 3 Customers 82 % 83 % Top 10 Customers 93 % 93 % 14 Table of Contents During the three and nine months ended September 30, 2025 and 2024, there were two customers whose purchases represented more than 10% of the Company’s consolidated net sales. Sales to these customers for the three and nine months ended September 30, 2025 and 2024 are as follows: Three Months Ended September 30, 2025 2024 Customer Net Sales % of Net Sales Net Sales % of Net Sales Customer A $ 1,433,000 48 % $ 1,731,000 68 % Customer B $ 723,000 24 % $ 129,000 5 % Nine Months Ended September 30, 2025 2024 Customer Net Sales % of Net Sales Net Sales % of Net Sales Customer A $ 6,678,000 50 % $ 6,651,000 56 % Customer B $ 3,702,000 28 % $ 2,823,000 24 % As of September 30, 2025, the total amounts owed to the Company by these customers were approximately $2,595,000 or 93% of the Company’s consolidated net accounts receivable. The amounts owed September 30, 2024 by these customers were $2,077,000 or 95% of the Company’s consolidated net accounts receivable. Cost of Sales . During the three and nine month periods ended September 30, 2025, the cost of sales was $2,886,000 and $11,301,000 compared to $2,560,000 and $10,220,000, respectively for the same periods of 2024, with the change driven largely by changes in sales volume. As a percentage of sales, cost of sales was 98% and 86% during the three and nine months ended September 30, 2025, compared to 101% and 87% during the three and nine months ended September 30, 2024. General and Administrative . During the three and nine months ended September 30, 2025, general and administrative expenses were $869,000 and $2,462,000, respectively, compared to $751,000 and $2,449,000 for the same periods in 2024. The increase was primarily driven by higher legal and litigation expenses of $44,000 and $43,000, respectively, and an additional $43,000 in public company expenses related to the reverse stock split. In addition, audit fees for 2024 were elevated due to re-audit work required following the SEC’s suspension of the Company’s former independent auditor in May 2024. Selling, Advertising and Marketing : During the three and nine month periods ended September 30, 2025, selling, advertising and marketing expenses were $181,000 and $591,000 as compared to $220,000 and $633,000, respectively, for the same period in 2024. Selling costs have decreased by $39,000 and $42,000. Other Income (Expense) : During the three and nine month periods ended September 30, 2025, the Company incurred interest expense of $198,000 and $662,000 as compared to interest expense of $201,000 and $655,000, respectively, during the same periods of 2024. During the three and nine month periods ended September 30, 2025, the Company earned other income of $370,000 and $392,000 as compared to other expense of $1,000 and $13,000, respectively, during the same periods of 2024. During the three months ended September 30, 2025, the Company received a dispute settlement amount of $315,000 from a service provider on July 29, 2025, and also received $55,000 relating to an insurance settlement. Financial Condition, Liquidity and Capital Resources Cash Flow Items. Operating Activities . During the nine months ended September 30, 2025, net cash provided by operations was $2,300,000 , compared to net cash provided by operations during the nine months ended September 30, 2024 of $862,000. Significant changes in working capital items during the nine months ended September 30, 2025 included: ● A decrease in accounts receivable of $2,712,000 compared to a decrease in accounts receivable of $1,779,000 in the same period of 2024 ● An increase in inventory of $187,000 compared to an increase in inventory of $61,000 in 2024. ● An increase in trade payables of $212,000 compared to an increase in trade payables of $651,000 in 2024. ● A decrease in prepaid expenses and other assets of $228,000 compared to an increase of $23,000 in 2024. ● An increase in accrued liabilities of $94,000 compared to an increase in accrued liabilities of $384,000 in 2024. Investing Activity . During the nine months ended September 30, 2025, cash used in investing activity was $68,000, compared to cash used in investing activity for the same period of 2024 in the amount of $302,000. Financing Activities . During the nine months ended September 30, 2025, cash used in financing activities was $2,065,000 compared to cash used by financing activities for the same period of 2024 in the amount of $1,476,000. Financing activity during 2025 consisted principally of changes in the balances of revolving and term loan debt. Liquidity and Capital Resources . At September 30, 2025, the Company had cash balances of $387,000 compared to cash balances of $5,000 for the same period of 2024. 15 Table of Contents The ability of the Company to continue as a going concern is dependent on the Company executing its business plan and, if unable to do so, in obtaining adequate capital on acceptable terms to fund any operating losses. Management’s plans to continue as a going concern include executing its business plan, continuing to focus our Company on the most profitable elements, and exploring alternative funding sources on an as needed basis. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The supply chain constraints, inflationary pressures and tariffs are expected to impact to some extent our operations and reduced access to capital. The ability of the Company to continue as a going concern is dependent upon its ability to successfully generate or otherwise secure other sources of financing and attain profitable operations. There is substantial doubt about the ability of the Company to continue as a going concern for one year from the issuance of the accompanying consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company’s primary sources of liquidity have traditionally been comprised of cash and cash equivalents as well as availability under the Credit Agreement. While the Company expects to have access to needed capital at reasonable cost, there can be no assurance of success, and as such, might negatively impact the Company’s ability to continue as a going concern. Seasonality In the foil balloon product line, sales have historically been seasonal with approximately 40% occurring in the period from December through March of the succeeding year and 24% being generated in the period July through October in recent years. Critical Accounting Estimates The critical accounting estimates utilized by the Company in preparation of the accompanying financial statements are set forth in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. There have been no material changes to these policies since December 31, 2024. Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk Not applicable.