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, 2025 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. Senior Credit Facilities As of March 31, 2026 , 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 + 7.82% (14.57% as of March 31, 2026 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 March 31, 2026. 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 March 31, 2026, the company had $6.7 million outstanding on the revolving facility and $0.5 million on the term loan, with $0.3 million of remaining borrowing capacity. 11 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 March 31, 2026 and 2025 were approximately $6.2 million and $4.8 million, respectively, representing an increase of $1.4 million, or 28% year-over-year. For the three-month period ended March 31, 2026 and 2025, net sales by product category were as follows: Three Months Ended March 31, 2026 March 31, 2025 Product Category $ (000) Omitted % of Net Sales $ (000) Omitted % of Net Sales Variance % change Foil Balloons $ 3,487 57 % $ 4,234 88 % $ (747 ) -18 % Film Products 39 0 % 427 9 % (388 ) -91 % Other 2,628 43 % 141 3 % 2,487 1764 % Total $ 6,154 100 % $ 4,802 100 % $ 1,352 28 % Foil Balloons . Revenues from the sale of foil balloons decreased during the three-month period ended March 31, 2026 to $3,487,000 compared to $4,234,000 during the same period of 2025. The decrease is related to the timing of orders and shipments. In the second half of 2025 one of our large mass retail customers made some adjustments to their replenishment system due to a surplus in their supply chain. Films . Revenues from the sale of commercial films decreased during the three-month period ended March 31, 2026 to $39,000 compared to $427,000 during the same period of 2025. Sales in this area have been inconsistent due to a small number of customers and a significant number of competitors. Other Revenues : Other revenues increased to $2,628,000 for the three-month period ended March 31, 2026, compared to $141,000 for the same period in 2025. The primary reason for the increase was the timing of spring product shipments, which occurred in first quarter of 2026 rather than the second quarter in 2025. 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. Sales to a limited number of customers continue to represent a large percentage of our net sales. The table below illustrates the impact on sales of our top three and ten customers for the three-month periods ended March 31, 2026 and 2025. Three Months Ended March 31, % of Sales 2026 2025 Top 3 Customers 90 % 81 % Top 10 Customers 95 % 93 % 12 Table of Contents During the three-month period ended March 31, 2026, there were two customers whose purchases represented more than 10% of the Company’s consolidated net sales. Sales to these customers for the three-month period ended March 31, 2026 were $2,378,000 and $2,969,000 or 39% and 48 %, respectively of consolidated net sales. Sales to these customers for the three months ended March 31, 2025 were $3,091,000 and $523,000, or 64% and 11%, respectively of consolidated net sales. As of March 31, 2026, the total amount owed to the Company by these customers was approximately $6,056,000, or 99% of the Company’s consolidated net accounts receivable. Cost of Sales . During the three-month period ended March 31, 2026, the cost of sales was $5,138,000, compared to $3,936,000 for the same period of 2025. The gross margin for March 31, 2026 is 17% compared to 18% for the same period of 2025, the decrease in gross margin is related to increase in component prices and raw materials due to escalating fuel prices. General and Administrative . During the three-month period ended March 31, 2026, general and administrative expenses were $924,000 as compared to $839,000 for the same period in 2025. The largest increase is attributed to increase in audit fee of $65k and increases in variable rent expenses. Selling, Advertising and Marketing . During the three-month period ended March 31, 2026, selling, advertising and marketing expenses were $190,000 as compared to $205,000 for the same period in 2025. Other Income (Expense) . During the three-month period ended March 31, 2026, the Company incurred interest expense of $242,000 as compared to interest expense of $237,000 during the same period of 2025. Financial Condition, Liquidity and Capital Resources Cash Flow Items. Operating Activities . During the three months ended March 31, 2026, net cash provided by operations was $236,000, compared to net cash provided in operations during the three months ended March 31, 2025 of $970,000. Significant changes in working capital items during the three months ended March 31, 2026 included: ● An increase in accounts receivable of $154,000 compared to a decrease in accounts receivable of $772,000 in the same period of 2025. ● A decrease in inventory of $732,000 compared to an increase in inventory of $175,000 in 2025. ● An increase in trade payables of $105,000 compared to an increase in trade payables of $334,000 in 2025. ● A decrease in prepaid expenses and other assets of $45,000 compared to a decrease of $63,000 in 2025. ● A decrease in accrued liabilities of $358,000 compared to an increase in accrued liabilities of $220,000 in 2025. Investing Activity . During the three months ended March 31, 2026, cash used in investing activity was $27,000, compared to cash used in investing activity for the same period of 2025 in the amount of $20,000. Financing Activities . During the three months ended March 31, 2026, cash used in financing activities was $128,000 compared to cash used in financing activities for the same period of 2025 in the amount of $998,000. Financing activity during 2026 consisted principally of changes in the balances of revolving and long-term debt. Liquidity and Capital Resources . At March 31, 2026, the Company had cash balances of $178,000 compared to cash balances of $172,000 for the same period of 2025. 13 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 on achieving profitable operations, 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, 2025, 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, 2025. Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk Not applicable.