What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-20 compared with 2024-11-08 · 123 added, 183 removed, 85 unchanged (78% of the section changed)

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

Looking Statements

Quarterly Report on Form 10-Q 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 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, 2023 under the heading “Risk Factors.”

Note Regarding Forward Looking Statements

Quarterly Report on Form 10-Q includes both historical and “forward-looking statements” within the meaning of federal securities

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.”

produce film products for novelty, packaging and container applications.

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We produce all of our film products for packaging, container applications and most of our foil balloons at our plant in Lake Barrington,

We used to produce our latex balloons and latex products at a majority-owned facility in Guadalajara, Mexico (Flexo Universal,

This facility was sold during October 2021.

Now 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

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, 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.

During 2023 we changed our name to include “Green”, to communicate our intention

to supply biodegradable and compostable materials to the marketplace that our developed by our partners in Asia.

We created a new subsidiary,

in part, for this purpose.

30, 2021 financing, amended and extended to September 30, 2025

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.

During 2023 we changed

our name to include “Green”, 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

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.

of Significant Events

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.

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.

The Company intends to continue actively monitoring the closing bid price

of its common stock and will evaluate all available options to regain compliance, including, if necessary, effecting a reverse stock

at any time before the extended deadline, the Company’s common stock closes at or above $1.00 per share for a minimum of 10 consecutive

business days, Nasdaq will provide written confirmation that the Company has regained compliance with the Minimum Bid Price Rule.

Credit Facilities

September 30, 2021 (the “Closing Date”), the Company entered into a loan and security agreement (the “Agreement”)

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all assets of the Company.

This Agreement and the Senior Facilities were extended on similar terms during September 2023 with a termination

date of September 30, 2025.

The Company has been in compliance with the terms of these Senior Facilities since inception in September

on the Senior Facilities was set at the prime rate published from time to time published in the Wall Street Journal (8.0% as of September

The Company believes it has been in compliance with the terms of these Senior Facilities since their inception

in September 2021.

on the Senior Facilities was set at the prime rate published from time to time published in the Wall Street Journal (7.5% as of March

31, 2025), plus 1.45% per annum, accruing daily and payable monthly.

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of 4.62% of the eligible accounts receivable, inventory, and equipment supporting the Revolving Credit Facility and the Term Loan.

Senior Facilities matured on September 30, 2023 and were amended to extend the maturity date to September 30, 2025.

Senior Facilities matured on September 30, 2023 and were extended with a maturity date of September 30, 2025.

The facility automatically

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Term Loan Prepayment Fee (as defined the Agreement) in whole, but not in part, upon not less than 60 days prior written notice to the

With the September 30, 2023 amendment, the parties agreed changes in terms including:

Replace the asset monitoring

fee on the Revolving Credit Facility with an increase in interest rate, to Prime plus 7.82% per annum.

This change was intended by

the parties to be financially neutral while easier to administer.

Reduce the interest rate

on the Term Loan to Prime plus 1.45% per annum, with lender making a one-time additional advance of $206,000 to reset the Term Loan

Reduce the renewal fee

for this transaction to $50,000 from the formula described above.

Set the Term Loan asset

monitoring fee to 0.385% per month.

Senior Facilities require that the Company maintain Tangible Net Worth of at least $4,000,000 or greater (“Minimum Tangible Net

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The Company believes it was in compliance with this covenant for all relevant months,

including as of September 30, 2024 and December 31, 2023, respectively.

including as of March 31, 2025 and December 31, 2024, respectively.

Senior Facilities contain certain affirmative and negative covenants that limit the ability of the Company, among other things and subject

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pay dividends and make other restricted payments, or make capital expenditures exceeding $1,000,000 in the aggregate in any fiscal year.

of September 30, 2024 and December 31, 2023, the term loan balance amounted to $0.6 million and $0.7 million, respectively, which consisted

of the principal and interest payable balance of $0.6 million and $0.7 million, respectively, and deferred financing costs of approximately

$24,000 and $40,000, respectively.

The balance of the Revolving Line of Credit as of September 30, 2024 and December 31, 2023 amounted

to $4,062,000 and $4,991,000, respectively.

of both March 31, 2025 and December 31, 2024, the term loan balance amounted to $0.6 million, which consisted of the principal and interest

payable balance of $0.6 million and deferred financing costs of approximately $11,000 and $17,000 respectively.

The balance of the Revolving

Line of Credit as of March 31, 2025 and December 31, 2024 amounted to $5.6 million and $6.6 million, respectively.

Payable, Related Party

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of Operations

For the three month periods ended September 30, 2024 and 2023, net sales were $2,540,000 and $1,923,000, respectively.

the three-month period ended September 30, 2024 and 2023, net sales by product category were as follows:

Net sales for the three-month periods ended March 31, 2025 and 2024 were approximately $4.80 million and $4.89 million, respectively,

representing a slight decrease of $92,000, or 1.9% year-over-year.

the three-month period ended March 31, 2025 and 2024, net sales by product category were as follows:

Three Months Ended

September 30, 2024

September 30, 2023

Product Category

Foil Balloons

Film Products

the nine month periods ended September 30, 2024 and 2023, net sales were $11,788,000 and $11,033,000, respectively.

the nine month period ended September 30, 2024 and 2023, net sales by product category were as follows:

September 30, 2024

September 30, 2023

March 31, 2025

March 31, 2024

Product Category

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Film Products

Revenues from the sale of foil balloons increased during the three months period from $1,701,000 ending September 30, 2023

compared to $2,322,000 during the three month period of 2024.

Revenues from the sale of foil balloons increased during the nine month

period from $8,113,000 ending September 30, 2023 compared to $8,493,000 during the nine month period of 2024.

Order flow from our largest

customer was the cause of this increase.

Revenues from the sale of commercial films were $129,000 and $605,000 during the three and nine month periods ended September 30, 2024,

compared to $68,000 and $746,000 during the same periods of 2023.

Order flow in this area has been historically inconsistent, impacted

in part by consolidation in the industry, including our customers, as well as a large number of competitors.

Revenues from the sale of other products were $89,000 and $2,690,000 during the three and nine month periods ended

September 30, 2024, compared to $154,000 and $2,174,000 during the same periods of 2023.

The revenues from the sale of other

products during these periods include (i) sales of a line of balloon-inspired gift items and similar products consisting of candy

and small inflated balloons sold in small containers, (ii) latex balloons, and (iii) the sale of accessories and supply items

related to balloon products.

The increase in Other Revenues during the nine months ended September 30, 2024 was driven by increased orders for

balloon-inspired gifts from the Company’s second largest customer.

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 September 30, 2024 and 2023.

Three Months Ended September 30,

Top 3 Customers

Top 10 Customers

Nine Months Ended September 30,

Revenues from the sale of foil balloons increased during the three-month period ended March 31, 2025 to $4,234,000 compared

to $2,919,000 during the same period of 2024.

The majority of 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.

This increase is related to the timing

of orders and shipments.

Revenues from the sale of commercial films increased during the three-month period ended March 31, 2025 to $427,000 compared to $305,000

during the same period of 2024.

Sales in this area have been inconsistent due to a small number of customers and a significant number

of competitors.

Other revenues decreased to $141,000 for the three-month period ended March 31 , 2025, compared to $1,670,000 for

the same period in 2024.

The primary reason for the decrease was the timing of spring product shipments, which will occur in the second

quarter of 2025 rather than the first quarter, as they did in 2024.

Other revenues during these periods primarily consisted of:

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

The table below illustrates the impact on sales of our top three and ten customers for the three-month periods ended March

31, 2025 and 2024.

Three Months Ended March 31,

Top 3 Customers

Top 10 Customers

the three and nine months ended September 30, 2024 and 2023, 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, 2024 and 2023 are

Three Months Ended

September 30, 2024

September 30, 2023

% of Net Sales

Nine Months Ended

September 30, 2024

September 30, 2023

% of Net Sales

of September 30, 2024, the total amounts owed to the Company by these customers were approximately $2,077,000 or 95% of the Company’s

consolidated net accounts receivable.

The amounts owed at September 30, 2023 by these customers were approximately $806,000 or 81% of

the Company’s consolidated net accounts receivable.

During the three and nine month period ended September 30, 2024, the cost of sales was $2,560,000 and $10,220,000, compared

to $1,903,000 and $9,372,000 respectively for the same periods of 2023, with the change driven largely by changes in sales volume.

a percentage of sales, cost of sales was 101% and 87% during the three and nine months ended September 30, 2024, compared to 99% and

85% during the three and nine months ended September 30, 2023.

During July 2024 we experienced a fire sprinkler failure in our warehouse

which forced us to dispose of $0.2 million of product.

Net of insurance proceeds, our inventory loss was approximately $40,000.

fourth quarter 2024 shipments are scheduled later in the quarter than in 2023, which reduced the amount of manufacturing cost capitalized

into the annual seasonal inventory build.

the three-month period ended March 31, 2025, 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, 2025 were $3,091,000 and $523,000, or 64%

and 11%, respectively of consolidated net sales.

Sales to these customers for the three months ended March 31, 2024 were $2,226,000 and

$1,710,000, or 46% and 35%, respectively of consolidated net sales.

As of March 31, 2025, the total amount owed to the Company by these

customers was approximately $4,335,000, or 89% of the Company’s consolidated net accounts receivable.

During the three-month period ended March 31, 2025, the cost of sales was $3,936,000, compared to $3,999,000 for the same

period of 2024.

Even though the volume was lower than 2024, the gross margin of 18% remained the same for both periods

and Administrative .

During the three and nine month periods ended September 30, 2024, general and administrative expenses were $751,000

and $2,449,000 compared to $677,000 and $2,294,000, respectively, for the same periods in 2023.

The Company had higher than usual audit

fees in both years.

Of note are the one-time costs associated with reperforming audit procedures related to 2023 due to the Company’s

former auditor being suspended from practicing before the SEC during May 2024.

This resulted in $170,000 higher audit expenses during

the three months ended September 2024 as compared to the same period of 2023.

During the three-month period ended March 31, 2025, general and administrative expenses were $839,000 as compared

to $1,040,000 for the same period in 2024.

The largest change was due to decrease in audit fees by $167,000 this was because of the timing

of the audit by Borgers CPA LLC.

Advertising and Marketing .

During the three and nine month periods ended September 30, 2024, selling, advertising and marketing expenses

were $220,000 and $633,000 as compared to $172,000 and $474,000, respectively, for the same periods in 2023.

2023 marked a low point

in these expenses while 2024 inflected higher, including $45,000 in additional sales commissions based on product mix and the payroll

cost associated with new product design.

During the three-month period ended March 31, 2025, selling, advertising and marketing expenses were $205,000

as compared to $208,000 for the same period in 2024.

Income (Expense) .

During the three and nine month periods ended September 30, 2024, the Company incurred interest expense of $201,000

and $655,000 compared to interest expense of $124,000 and $421,000, respectively, during the same periods of 2023.

Interest expense increased

as a result of market rate increases that remained elevated throughout 2024.

The September 2023 refinance caused a shift from bank fees

to interest, with the net result of this process change being approximately even.

The Company applied for Employee Retention Tax Credits

during 2021, most of which were factored during 2022 and cash received.

Income related to the factored credit filings was recognized

when the returns were processed by the US Government during 2023.

As such, income of $895,000 was recognized during the nine months ended

September 30, 2023, respectively, for which cash was received during 2022.

During the three-month period ended March 31, 2025, the Company incurred interest expense of $237,000 as compared

to interest expense of $218,000 during the same period of 2024.

The Company changed its borrowing structure to replace lender fees with

interest payments.

Condition, Liquidity and Capital Resources

During the nine months ended September 30, 2024, net cash provided by operations was $862,000, compared to net cash used

in operations during the nine months ended September 30, 2023 of $442,000.

changes in working capital items during the nine months ended September 30, 2024 included:

A decrease in accounts

receivable of $1,779,000 compared to a decrease in accounts receivable of $685,000 in the same period of 2023.

An increase in inventory

of $61,000 compared to an increase in inventory of $203,000 in 2023.

An increase in trade payables

of $651,000 compared to an increase in trade payables of $87,000 in 2023.

An increase in prepaid

expenses and other assets of $23,000 compared to an increase of $22,000 in 2023.

An increase in accrued

liabilities of $384,000 compared to a decrease in accrued liabilities of $496,000 in 2023.

During the nine months ended September 30, 2024, cash used in investing activity was $302,000, compared to cash used investing

During the three months ended March 31, 2025, net cash provided by operations was $970,000, compared to net cash used

in operations during the three months ended March 31, 2024 of $767,000.

changes in working capital items during the three months ended March 31, 2025 included:

decrease in accounts receivable of $772,000 compared to an increase in accounts receivable of $423,000 in the same period of 2024.

increase in inventory of $175,000 compared to a decrease in inventory of $81,000 in 2024.

increase in trade payables of $334,000 compared to an increase in trade payables of $47,000 in 2024.

decrease in prepaid expenses and other assets of $63,000 compared to an increase of $62,000 in 2024.

increase in accrued liabilities of $220,000 compared to a decrease in accrued liabilities of $18,000 in 2024.

During the three months ended March 31, 2025, cash used in investing activity was $20,000, compared to cash used in investing

activity for the same period of 2024 in the amount of $154,000.

During the nine months ended September 30, 2024, cash used in financing activities was $1,476,000 compared to cash provided

During the three months ended March 31, 2025, cash used in financing activities was $998,000 compared to cash provided

by financing activities for the same period of 2024 in the amount of $49,000.

Uses of cash in financing activity during the nine months

ended September 30, 2024 consisted principally of changes in the balance of revolving debt of $0.9 million and a $1.0 million repayment

of the related party note payable.

$0.5 million of cash was provided by the issuances of convertible preferred stock during the nine

months ended September 30, 2024.

Financing activity during 2025 consisted principally of

changes in the balances of revolving and long-term debt.

During the period ended March 31, 2024, $0.5 million was received for convertible

preferred stock while $1.0 million of Notes Payable was repaid.

and Capital Resources .

September 30, 2024, the Company had cash balances of $5,000 compared to a cash balance of $64,000 as of September 30, 2023.

March 31, 2025, the Company had cash balances of $172,000 compared to cash balances of $49,000 for the same period of 2024.

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,

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any of its plans.

The COVID-19 pandemic, supply chain constraints, inflationary pressures, and the cost and commercial availability of

helium have impacted the Company’s business operations to some extent and is expected to continue to do so and, these impacts may

include reduced access to capital.

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

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the Credit Agreement.

We believe that we have been in compliance with covenants since refinancing with Line Financial in September 2021.

That Credit Agreement expires per its terms on September 30, 2025, unless it is extended by the parties or replaced.

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.

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.

the foil balloon product line, sales have historically been seasonal with approximately 40% occurring in the period from December through

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since December 31, 2024.

in and Disagreements with Accountants on Accounting and Financial Disclosure

April 1, 2024, the Company made a change with respect to its independent auditing firm, ending the relationship with BF Borgers, CPA

PC (BFB) and engaging Wolf & Company, P.C.

On May 3, 2024, the Company became aware that BFB had agreed to be suspended from appearing

or practicing before the SEC.

Because of this, the Company was no longer use audit reports or consent from BFB in future filings.

the 2023 audit report, the Company’s new auditors needed to perform procedures related to 2023 balances in order to be able to

perform an effective review of required 2024 filings, including the Form 10-Q for the periods ended March 31, 2024 and June 30, 2024.

Until this was completed, the Company was not able to issue filings during 2024.

The Company issued these filings on September 25 and

September 26, 2024, respectfully.

Quantitative and Qualitative Disclosures Regarding Market Risk

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis