10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________

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 September 30, 2020

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 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	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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 November 20, 2020 was 5,783,646 (excluding treasury shares).

INDEX

Part I – Financial Information
Item No. 1.	Financial Statements
	Condensed Consolidated Balance Sheets at September 30, 2020 (unaudited) and December 31, 2019 (audited)	1
	Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 2020 and September 30, 2019	2
	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2020 and September 30, 2019	3
	Condensed Consolidated Statements of Shareholders' Equity (unaudited) for the three and nine months ended September 30, 2020 and September 30, 2019	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item No. 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item No. 3	Quantitative and Qualitative Disclosures Regarding Market Risk	23
Item No. 4	Controls and Procedures	23
Part II – Other Information
Item No. 1	Legal Proceedings	24
Item No. 1A	Risk Factors	24
Item No. 2	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item No. 3	Defaults Upon Senior Securities	24
Item No. 4	Submission of Matters to a Vote of Security Holders	24
Item No. 5	Other Information	24
Item No. 6	Exhibits	25
	Signatures	25
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32

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

Condensed Consolidated Balance Sheets

	September 30, 2020			December 31, 2019
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	-		$	845,098
Accounts receivable		5,297,701			9,011,569
Inventories, net		10,643,911			13,959,499
Prepaid expenses		633,223			353,183
Other current assets		1,155,266			1,312,205
Receivable from related party		1,026,813			1,387,131
Current assets of discontinued operations		748,386			756,031
Total current assets		19,505,300			27,624,716
Property, plant and equipment:
Machinery and equipment		21,796,644			23,822,808
Building		3,374,334			3,374,334
Office furniture and equipment		2,221,195			2,289,444
Intellectual property		783,179			783,179
Land		250,000			250,000
Leasehold improvements		390,624			415,737
Fixtures and equipment at customer locations		518,450			518,450
Projects under construction		68,738			74,929
		29,403,164			31,528,881
Less : accumulated depreciation and amortization		(27,397,950	)		(28,997,809	)
Total property, plant and equipment, net		2,005,214			2,531,072
Other assets:
Operating lease right-of-use		359,802			1,046,438
Other assets		78,259			118,857
Total other assets		438,061			1,165,295
TOTAL ASSETS	$	21,948,575		$	31,321,083
LIABILITIES AND EQUITY
Current liabilities:
Bank overdraft	$	29,837		$	-
Trade payables		6,135,867			7,021,580
Line of credit		5,613,063			14,518,107
Notes payable - current portion		2,467,741			3,451,880
Advance from investor		1,500,000			-
Notes payable affiliates - current portion		9,937			12,684
Operating Lease Liabilities		311,678			658,374
Accrued liabilities		1,262,139			1,205,027
Current liabilities of discontinued operations		273,782			656,753
Total current liabilities		17,604,044			27,524,405
Long-term liabilities:
Notes payable - affiliates		10,632			14,340
Notes payable, net of current portion		1,445,683			1,024,441
Operating Lease Liabilities		48,123			388,064
Notes payable - officers, subordinated		1,107,080			1,058,486
Deferred gain (non current)		-			184,840
Total long-term liabilities		2,611,518			2,670,171
TOTAL LIABILITIES		20,215,562			30,194,576
Stockholders' Equity
Yunhong CTI, Ltd stockholders' equity:
Preferred Stock -- no par value, 3,000,000 shares authorized, 548,200 shares issued and outstanding at September 30, 2020 and nil at December 31, 2019 respectively (liquidation preference - $5.482 million as of September 30, 2020)		3,132,600			-
Common stock - no par value, 15,000,000 shares authorized, 5,271,698 and 3,835,930 shares issued and 5,228,040 and 3,835,930 shares outstanding at September 30, 2020 and December 31, 2019 respectively		14,537,828			13,898,494
Paid-in-capital		4,695,658			3,587,287
Accumulated earnings		(13,112,986	)		(9,992,841	)
Accumulated other comprehensive loss		(6,640,664	)		(5,348,812	)
Less: Treasury stock, 43,658 shares		(160,784	)		(160,784	)
Total Yunhong CTI, Ltd Stockholders' Equity		2,451,652			1,983,344
Noncontrolling interest		(718,639	)		(856,837	)
Total Stockholders' Equity		1,733,013			1,126,507
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	21,948,575		$	31,321,083

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 September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Net Sales	$	5,980,766		$	6,365,352		$	18,793,620		$	24,259,037
Cost of Sales		5,719,824			6,284,645			16,441,524			20,925,512
Gross profit		260,942			80,707			2,352,096			3,333,525
Operating expenses:
General and administrative		1,067,122			1,167,207			3,253,561			3,865,527
Selling		31,723			55,907			112,113			285,015
Advertising and marketing		69,569			92,061			271,563			428,798
Impairment of long-lived assets		-			-			-			1,472,382
Gain on loss of control of VIEs		-			(218,527	)		-			(218,527	)
Gain on sale of assets		-			(23,054	)		(45,700	)		(70,263	)
Total operating expenses		1,168,414			1,073,594			3,591,537			5,762,932
Loss from operations		(907,472	)		(992,887	)		(1,239,441	)		(2,429,407	)
Other (expense) income:
Interest expense		(255,138	)		(464,546	)		(1,033,240	)		(1,493,264	)
Gain on forgiveness of Payroll Protection Program Funding		247,554			-			1,047,700			-
Other Expense		(15,621	)		(82,873	)		(387,961	)		(485,742	)
Foreign currency loss		15,100			(25,747	)		(169,357	)		(27,458	)
Total other expense, net		(8,105	)		(573,166	)		(542,858	)		(2,006,464	)
Loss from continuing operations before taxes		(915,577	)		(1,566,053	)		(1,782,299	)		(4,435,871	)
Income tax expense		-			-			-			-
Loss from continuing operations		(915,577	)		(1,566,053	)		(1,782,299	)		(4,435,871	)
Loss from discontinued operations , net of tax		(113,055	)		(658,518	)		(1,199,648	)		(2,105,755	)
Net Loss	$	(1,028,632	)	$	(2,224,571	)	$	(2,981,947	)	$	(6,541,626	)
Less: Net (loss) income attributable to noncontrolling interest		(74,692	)		(282,985	)		138,198			(861,475	)
Net loss before foreign currency adjustment and Preferred Share Dividends	$	(953,940	)	$	(1,941,586	)	$	(3,120,145	)	$	(5,680,151	)
Other Comprehensive Income (Loss)
Foreign currency adjustment		5,324			(281,817	)		(1,291,852	)		15,603
Comprehensive Loss	$	(1,023,308	)	$	(2,506,388	)	$	(4,273,799	)	$	(6,526,023	)
Deemed Dividends on preferred stock and amortization of beneficial conversion feature	$	(114,561	)	$	-		$	(2,733,329	)	$	-
Net Loss attributable to Yunhong CTI Ltd Shareholders	$	(1,068,501	)	$	(1,941,586	)	$	(5,853,474	)	$	(5,680,151	)
Basic loss per common share
Continuing operations	$	(0.19	)	$	(0.34	)	$	(1.05	)	$	(0.93	)
Discontinued operations		(0.02	)		(0.17	)		(0.27	)		(0.55	)
Basic loss per common share	$	(0.21	)	$	(0.51	)	$	(1.32	)	$	(1.48	)
Diluted loss per common share
Continuing operations	$	(0.19	)	$	(0.34	)	$	(1.05	)	$	(0.93	)
Discontinued operations		(0.02	)		(0.17	)		(0.27	)		(0.55	)
Diluted loss per common share	$	(0.21	)	$	(0.51	)	$	(1.32	)	$	(1.48	)
Weighted average number of shares and equivalent shares of common stock outstanding:
Basic		4,902,131			3,835,950			4,426,420			3,835,950
Diluted		4,902,131			3,835,950			4,426,420			3,835,950

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 Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities:
Net loss	$	(2,981,947	)	$	(6,541,626	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		792,104			835,302
Amortization of deferred gain on sale/leaseback		(45,700	)		(82,422	)
Gain on forgiveness of PPP Funding		(1,047,700	)		-
Provision for losses on accounts receivable		20,666			399,463
Provision for losses on inventories		(40,482	)		1,249,519
Other		-			248,974
Impairment on assets held for sale		-			604,483
Gain on deconsolidation of Clever		-			(218,534	)
Impairment of Related Party Note Receivable		350,000			-
Impairment of Prepaid, Current and Non Current Assets		-			168,931
Impairment of long-lived assets		-			1,252,283
Stock Based Compensation		-			72,401
Loss on disposition of Asset		-			17,480
Change in assets and liabilities:
Accounts receivable		2,915,506			2,776,396
Inventories		2,314,744			1,435,411
Prepaid expenses and other assets		(289,820	)		228,389
Operating Lease Liability		(470,771	)		-
Trade payables		(852,231	)		1,892,670
Accrued liabilities		330,695			(166,823	)
Net cash provided by operating activities		995,064			4,172,297
Cash flows from investing activities:
Purchases of property, plant and equipment		(139,708	)		(144,222	)
Net cash used in investing activities		(139,708	)		(144,222	)
Cash flows from financing activities:
Change in checks written in excess of bank balance		29,837			(391,313	)
Repayment of debt and revolving line of credit		(10,158,387	)		(4,721,867	)
Advance from investor		1,500,000
Proceeds from issuance of stock		5,426,601			-
Cash paid for stock issuance costs		(1,024,313	)		-
Amortization of deferred financing fees		64,887			(82,763	)
Proceeds from PPP		1,047,700			-
Proceeds from issuance of long-term debt		876,791			650,000
Net cash used in financing activities		(2,236,884	)		(4,545,943	)
Effect of exchange rate changes on cash		536,430			205,692
Net decrease in cash and cash equivalents		(845,098	)		(312,176	)
Cash and cash equivalents at beginning of period		845,098			428,150
Cash and cash equivalents at end of period	$	-		$	115,974
The cash flows related to discontinued operations have not been segregated, and are included in the Consolidated Statements of Cash Flows. The cash and equivalents amounts presented above differ from cash and equivalents in the Consolidated Balance Sheets due to cash included in “Current assets of discontinued operations.”
Supplemental disclosure of cash flow information:
Cash payments for interest	$	1,033,350		$	1,558,817
Common stock issued for accounts payable	$	-		$	303,000
Conversion of debt to Series A Preferred	$	478,000		$	-
Accrued Dividend on preferred stock	$	255,000		$	-
Issuance of Placement agent warrants in connection with Series A Preferred offering	$	919,000		$	-
Issuance of Common stock to placement agent	$	306,000		$	-
Amortization of beneficial conversion feature and deemed dividend on Series A Preferred stock	$	2,200,000		$	-
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

	Yunhong CTI, Ltd
	Nine Months Ended September 30, 2020
																	Accumulated
														Accumulated			Other			Less
	Preferred Stock						Common Stock				Paid-in			(Deficit)			Comprehensive			Treasury Stock						Noncontrolling
	Shares			Amount			Shares		Amount		Capital			Earnings			Loss			Shares			Amount			Interest			TOTAL
Balance December 31, 2019		-		$	-			3,879,608	$	13,898,494	$	3,587,287		$	(9,992,841	)	$	(5,348,812	)		(43,658	)	$	(160,784	)	$	(856,837	)	$	1,126,507
Convertible Preferred Stock Issuance - cash		362,660			3,509,933			140,000		116,667		-			-			-			-			-			-			3,626,600
Convertible Preferred Stock Issuance - conversion of debt		48,200			478,017			-		-		-			-			-			-			-			-			478,017
Common stock issued for placement agent fees		-			(306,000	)		200,000		306,000		-			-			-			-			-			-			-
Warrants issued to placement agent and other issuance costs		-			(752,924	)		-		-		752,924			-			-			-			-			-			-
Placement agent fees and issuance costs		-			(820,160	)		-		-		-			-			-			-			-			-			(820,160	)
Beneficial Conversion feature on Preferred Stock		-			(2,328,473	)		-		-		2,328,473			-			-			-			-			-			-
Deemed Dividend on beneficial conversion feature of Preferred Stock		-			2,328,473			-		-		(2,328,473	)		-			-			-			-			-			-
Accrued Deemed Dividend		-			52,741			-		-		(52,741	)		-			-			-			-			-			-
Net Loss		-			-			-		-		-			(638,696	)		-			-			-			144,577			(494,119	)
Foreign Currency Translation		-			-			-		-		-			-			(1,363,503	)		-			-			-			(1,363,503	)
Balance March 31, 2020		410,860		$	2,161,607			4,219,608	$	14,321,161	$	4,287,470		$	(10,631,537	)	$	(6,712,315	)		(43,658	)	$	(160,784	)	$	(712,260	)	$	2,553,342
Convertible Preferred Stock Issuance - cash		180,000			1,583,334			260,000		216,667		-			-			-			-			-			-			1,800,001
Warrants issued to placement agent and other issuance costs		-			(166,181	)		-		-		166,181			-			-			-			-			-			-
Placement agent fees and issuance costs		-			(204,153	)		-		-		-			-			-			-			-			-			(204,153	)
Beneficial Conversion feature on Preferred Stock		-			(140,000	)		-		-		140,000			-			-			-			-			-			-
Deemed Dividend on beneficial conversion feature of Preferred Stock		-			140,000			-		-		(140,000	)		-			-			-			-			-			-
Accrued Deemed Dividend		-			97,554			-		-		(97,554	)		-			-			-			-			-			-
Net Loss		-			-			-		-		-			(1,527,509	)		-			-			-			68,313			(1,459,196	)
Foreign Currency Translation		-			-			-		-		-			-			66,327			-			-			-			66,327
Balance June 30, 2020		590,860		$	3,472,161			4,479,608	$	14,537,828	$	4,356,097			(12,159,046	)	$	(6,645,988	)		(43,658	)	$	(160,784	)	$	(643,947	)	$	2,756,321
Preferred Stock converted		(42,660	)		(444,607	)		444,607		-		444,607			-			-			-			-			-			-
Common stock issued for warrants exercised		-			-			332,483		-		-			-			-			-			-			-			-
Stock based compensation		-			-			15,000		-		-			-			-			-			-			-			-
Accrued Deemed Dividend		-			105,046			-		-		(105,046	)		-			-			-			-			-			-
Net Loss		-			-			-		-		-			(953,940	)		-			-			-			(74,692	)		(1,028,632	)
Foreign Currency Translation		-			-			-		-		-			-			5,324			-			-			-			5,324
Balance September 30, 2020		548,200		$	3,132,600			5,271,698	$	14,537,828	$	4,695,658			(13,112,986	)	$	(6,640,664	)		(43,658	)	$	(160,784	)	$	(718,639	)	$	1,733,013

	Nine Months Ended September 30, 2019
														Accumulated
											Accumulated			Other			Less
	Preferred Stock				Common Stock				Paid-in		(Deficit)			Comprehensive			Treasury Stock						Noncontrolling
	Shares		Amount		Shares		Amount		Capital		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
Note Conversion - Schwan		-		-		180,723		-		600,000		-			-			-			-			-			600,000
Stock Issued		-		-		20,000		-		-		-			-			-			-			-			-
Stock Option Expense		-		-		-		-		28,967		-			-			-			-			-			28,967
Net Income		-		-		-		-		-		(2,494,089	)		-			-			-			(62,388	)		(2,556,477	)
Other comprehensive income, net of taxes		-		-		-		-		-		-			-			-			-			-			-
Foreign currency translation		-		-		-		-		-		-			235,876			-			-			-			235,876
Balance March 31, 2019		-	$	-		3,779,608	$	13,898,494	$	3,135,404	$	(5,359,575	)	$	(5,814,471	)		(43,658	)	$	(160,784	)	$	(1,134,973	)	$	4,564,095
Note Conversion - Schwan		-		-		-		-		-		-			-			-			-			-			-
Stock Issued		-		-		100,000		-		303,000		-			-			-			-			-			303,000
Stock Option Expense		-		-		-		-		23,429		-			-			-			-			-			23,429
Net Income		-		-		-		-		-		(1,244,477	)		-			-			-			(516,102	)		(1,760,579	)
Other comprehensive income, net of taxes		-		-		-		-		-		-			-			-			-			-			-
Foreign currency translation		-		-		-		-		-		-			61,333			-			-			-			61,333
Balance June 30, 2019		-	$	-		3,879,608	$	13,898,494	$	3,461,833	$	(6,604,052	)	$	(5,753,138	)		(43,658	)	$	(160,784	)	$	(1,651,075	)	$	3,191,278
Note conversion - Schwan		-		-		-		-		-		-			-			-			-			-			-
Less deconsolidation of VIE		-		-		-		-		-		-			-			-			-			1,087,035			1,087,035
Stock Issued		-		-		-		-		-		-			-			-			-			-			-
Stock Option Expense		-		-		-		-		20,005		-			-			-			-			-			20,005
Net Income		-		-		-		-		-		(1,941,586	)		-			-			-			(282,985	)		(2,224,571	)
Other comprehensive income, net of taxes		-		-		-		-		-		-			15,603			-			-			-			15,603
Foreign currency translation		-		-		-		-		-		-			(297,209	)		-			-			-			(297,209	)
Balance September 30, 2019		-	$	-		3,879,608	$	13,898,494	$	3,481,838	$	(8,545,638	)	$	(6,034,744	)		(43,658	)	$	(160,784	)	$	(847,025	)	$	1,792,141

See accompanying notes to condensed consolidated unaudited financial statements 

4

Yunhong CTI Ltd. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 - Basis of Presentation

The accompanying condensed (a) consolidated balance sheet as of September 30, 2020, which has been derived from unaudited 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 and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. 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, 2019.

Principles of consolidation and nature of operations:

Yunhong CTI Ltd. (formerly CTI Industries Corporation), its former United Kingdom subsidiary (CTI Balloons Limited), its Mexican subsidiary (Flexo Universal, S. de R.L. de C.V.), its German subsidiary (CTI Europe GmbH) and CTI Supply, Inc. (collectively, the “Company”) (i) design, manufacture and distribute metalized and latex balloon products throughout the world and (ii) operate 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. As discussed in Note 2 Discontinued Operations, effective in the third quarter of 2019, the Company determined that it was exiting CTI Balloons Limited (“CTI Balloons”) and CTI Europe GmbH (“CTI Europe”). CTI Balloons has been fully liquidated as of the fourth quarter 2019.Accordingly, the operations of these entities are classified as discontinued operations in these financial statements.

The consolidated financial statements include the accounts of Yunhong CTI Ltd., its wholly owned subsidiaries CTI Balloons Limited and CTI Supply, Inc. and its majority owned subsidiaries, Flexo Universal and CTI Europe, as well as the accounts of Venture Leasing S. A. de R. L., Venture Leasing L.L.C. (“VL”), and Clever Organizing Solutions (formerly Clever Container Company, L.L.C. “Clever”). The last three entities have been consolidated as variable interest entities. All significant intercompany accounts and transactions have been eliminated upon consolidation. The treatment of VL and Clever changed during 2019 as described in the next section.

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.

The Company has variable interests in VL and Clever. Through June 30, 2019, the Company had determined that it was the primary beneficiary of these entities and included them in our consolidated results. In the third quarter 2019, we determined that operationally material changes in our involvement with Clever and VL resulted in us having no power over the decisions which impact their financial performance. Therefore, we are no longer the primary beneficiary of these entities. Effective July 1, 2019, we deconsolidated these entities and their results are not included in our Consolidated Statements of Comprehensive Income subsequent to June 30, 2019. Upon deconsolidation of these entities, we recognized a gain of $219,000. In accordance with ASC 810-10 because the carrying value of the noncontrolling interest of Clever which was eliminated exceeded the net carrying value of the assets and liabilities of Clever. The Company determined that there was no fair value associated with its remaining noncontrolling interest in Clever based on an income approach.

Use of estimates:

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the amounts reported of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period in the financial statements and accompanying notes. Actual results may differ from those estimates. The Company’s significant estimates include valuation allowances for doubtful accounts, inventory valuation, deferred tax assets, goodwill and intangible asset valuation, and assumptions used as inputs in the Black-Scholes option-pricing model. In addition, issues pertaining to COVID-19 have added assumptions related to 2020 sales activities well as the timing of recovery and condition of the broader market after COVID-19 related shutdowns and limitations.

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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 September 30, 2020 and 2019, shares to be issued upon the exercise of options and warrants aggregated 479,802 and 471,144, respectively. The number of shares included in the determination of earnings on a diluted basis for the three months ended September 30, 2020 and 2019 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, 2019. There were no significant changes to these accounting policies during the three or nine months ended September 30, 2020.

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.

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.

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Note 2 – Discontinued Operations

In July 2019 management and the Board engaged in a review of CTI Balloons and CTI Europe 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 CTI Balloons and CTI Europe. These actions are being taken to focus our resources and efforts on our core business activities, particularly foil balloons and ancillary products based in North America. The Company determined that these entities met the held-for-sale and discontinued operations accounting criteria. Accordingly, the Company has reported the results of these operations as discontinued operations in the Consolidated Statements of Comprehensive Income and presented the related assets and liabilities as held-for-sale in the Consolidated Balance Sheets. These changes have been applied for all periods presented. The Company divested its CTI Balloons (United Kingdom) subsidiary in the fourth quarter 2019.

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. 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 therefore, this product line has been presented as discontinued operations.

CTI Balloons recorded losses from discontinued operations, net of taxes of ($433,000) and ($996,000) for the three and nine months ended September 30, 2019.

CTI Europe recorded a loss from discontinued operations, net of taxes of $(76,000) for the three months ended September 30, 2020, compared to a gain from discontinued operations, net of taxes of $313,000 for the nine months ended September 30, 2020. The net losses, net of taxes, were ($566,000) and ($1,735,000) for the three and nine month periods ended September 30, 2019, respectively.

Our Ziploc product line recorded a loss from discontinued operations, net of taxes of ($37,000) for the three months ended September 30, 2020, compared to a loss from discontinued operations, net of taxes of ($1,513,000) for the nine months ended September 30, 2020. The net gain, net of taxes, was $340,000 for the three months ended September 30, 2019 compared to a gain from discontinued operations, net of taxes of $625,000 for the nine-month period ended September 30, 2019, respectively.

Summarized Discontinued Operations Financial Information

The following table summarizes the major line items for the operations that are included in the income from discontinued operations, net of tax line item in the Consolidated Statements of Income for the three months ended:

	September 30, 2020			September 30, 2019
Income Statement
Net Sales	$	655,896		$	3,130,382
Cost of Sales		412,663			2,588,927
Gross profit (Loss)		243,233			541,454
SG&A		194,300			627,452
Operating income (loss)		48,933			(85,998	)
Other Expense		(10,848	)		(31,962	)
Total pretax income (loss) from discontinued operations		38,085			(54,035	)
Loss from classification to held for sale		(151,140	)		(604,483	)
Income Tax Expense		-			-
Net loss prior to non-controlling interest		(113,055	)		(658,518	)
Non-controlling Interest share of profit/loss		(72,211	)		(760,813	)
Net loss	$	(40,844	)	$	102,295

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The following table summarizes the major line items for the operations that are included in the income from discontinued operations, net of tax line item in the Consolidated Statements of Income for the nine months ended:

	September 30, 2020			September 30, 2019
Income Statement	$			$
Net Sales		2,328,341			10,191,188
Cost of Sales		2,527,937			9,607,692
Gross Margin		(199,597	)		583,496
Impairment of Long-Lived Assets		-
SG&A		1,049,295			2,025,778
Operating Loss		(1,248,892	)		(1,442,283	)
Other Expense		(33,301	)		(58,990	)
Total pretax loss from discontinued operations		(1,282,193	)		(1,501,273	)
Gain  (loss) from classification to held for sale		82,545			(604,483	)
Net Income prior to non-controlling interest		(1,199,648	)		(2,105,756	)
Non-controlling Interest share of profit/loss		150,458			(837,136	)
Net Loss	$	(1,350,106	)	$	(1,268,620	)

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The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations for each of the periods presented:

Yunhong CTI Ltd.

Consolidated Balance Sheet

	September 30, 2020			December 31, 2019
Balance Sheet
Assets
Current Assets
Cash on hand and Banks	$	222,707		$	4,307
Accounts Receivable		481,732			539,910
Inventory		-			74,383
Prepaid & Other		90,308			135,912
TOTAL Current Assets		794,747			754,512
NET Property, Plant, and Equipment		7,633			53,919
Other Assets
Operating lease right-of-use		151,817			220,541
Other		32,543			47,958
TOTAL Other Assets		184,360			268,499
TOTAL Non-Current Assets		191,993			322,418
Valuation Allowance on Assets Held for Sale		(238,354	)		(320,899	)
TOTAL Assets	$	748,386		$	756,031
Liabilities
Current Liabilities
Trade Accounts Payable		68,013			384,333
Operating Lease Liabilities - Current		89,119			203,291
Other/Accrued Liabilities		19,276			19,562
TOTAL Current Liabilities		176,408			607,187
Non-Current Liabilities
Operating Lease Liabilities - Non Current		62,698			17,250
Other Non-Current		34,676			32,317
TOTAL Non-Current Liabilities		97,374			49,567
TOTAL Liabilities	$	273,782		$	656,753

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The cash flows related to discontinued operations have not been segregated and are included in the Consolidated Statements of Cash Flows. The following table summarizes depreciation from discontinued operations for each of the periods presented:

	Nine Months Ended
	September 30,
	2020		2019
Depreciation	$	320,731	$	266,784

Note 3 – 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”) (the “Credit Agreement”) (see Note 4). As indicated in Note 4, twice during 2018 we violated covenants in our credit facility and during March 2019 we entered into a forbearance agreement with PNC. Under the terms of this agreement, financial covenants as of March 31, 2019 were not considered and all previously identified compliance failures were waived, but we remained out of compliance with the terms of our credit facility, as amended, including the covenants as of June 30, 2019 calculated on or about July 31, 2019. On August 1, 2019, PNC issued a Default and Reservation of Rights letter to the Company, in which PNC advised that line of credit advances would continue to be available to the Company at PNC’s sole discretion, and subject to its terms and conditions. On October 18, 2019, we entered into a new forbearance agreement with PNC (“Amendment 4”). Identified events of default were waived until January 10, 2020 with respect to CTI Industries Corporation, but not its Mexican subsidiary (Flexo), subject to its terms and conditions. On January 13, 2020, we entered into a new forbearance agreement with PNC (“Amendment 5”). PNC agreed to (i) waive the Loan Agreement’s requirement that the Company apply the net proceeds of the Offering first to the Term Loans (as defined in the Loan Agreement), and agreed that the Company shall instead apply the net proceeds of the Offering to the Revolving Advances (as defined in the Loan Agreement) and in connection therewith the Revolving Commitment Amount (as defined in the Loan Agreement) shall be reduced on a dollar for dollar basis by the amount so applied to the Revolving Advances, and (ii) forebear from exercising the rights and remedies in respect of the Existing Defaults afforded to PNC under the Loan Agreement for a period ending no later than December 31, 2020.

During 2019, we attempted to execute a major capital event with a partner that would infuse money, among other attributes. That effort was unsuccessful as envisioned. We were subsequently successful in obtaining new financing during 2020. 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 Ltd., a Singapore private limited company (the “LF International”), which is controlled by Company Chairman Mr. Yubao Li, pursuant to which we sold to LF International 500,000 shares of our Series A Convertible Preferred Stock at a purchase price of $10.00 per share and for aggregate proceeds of $5,000,000. Pursuant to the LF Purchase Agreement, we were authorized to sell an additional $2 million shares of Series A to other investors under similar financial terms, approximately $1 million of which has been sold as of September 30, 2020, including to an investor which converted an accounts receivable of $478,000 owed to the investor by the Company in exchange for 48,200 shares of Series A Preferred. There were several closings with the LF International from January 2020 through June 2020. The majority of the funds received reduced our bank debt. We issued a total of 400,000 shares of common stock to LF International and, pursuant to the LF Purchase Agreement, changed our name from CTI Industries Corporation to Yunhong CTI Ltd. During the transaction and subsequent interim closings, LF International had the right to name three directors to serve on our Board. They are Mr. Yubao Li, our Chairman of the Board, Ms. Wan Zhang and Ms. Yaping Zhang.     

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 believe that, during the first three months of 2020, the Company’s standalone US business would have complied with the Credit Agreement’s requirement that the Company maintain a fixed charge coverage ratio of 0.75 to 1.00 for the three-month period ended March 31, 2020 (the “Fixed Charge Coverage Ratio”).The Company, as a consolidated group, however, did not comply with the Fixed Charge Coverage Ratio, resulting in the noncompliance.

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The Lender has continued to make advances to the Company (“Discretionary Advances”), although it is not required to do so under the terms of the Loan Agreement due to the Events of Default. On July 17, 2020, the Lender provided the Company notice that multiple previously disclosed events, which each constitute an Event of Default, are continuing to occur. Additionally, the Lender required that the Company obtain a commitment for third-party equity funding in an amount not less than $3,000,000 by no later than July 31, 2020. Absent such commitment, the Lender advised that it may cease making discretionary advances to the Company. On July 22, 2020, the Company’s board of directors authorized the Company to seek such funding and, to ensure that the Company met the Lender’s equity funding commitment deadline. Mr. Yubao Li, the Company’s Chairman, committed that, in the event the Company does not obtain funding of at least $3,000,000, he would provide the necessary funding. In September 2020, the Company received $1.5 million from an unrelated third party as an advance on a proposed sale of Series B Convertible Preferred Stock (the terms of which are currently being negotiated and finalized).  Additionally, in October, the Company received a $1.5 million advance on a separate proposed equity financing for which the terms have not yet been finalized.   The Lender has continued to make the Discretionary Advances throughout this period and has indicated that we have complied with their request.    

In addition to the above, financial performance in 2017, 2018 and 2019, included net losses attributable to the Company of $1.6 million, $3.6 million, and $7.1 million, respectively. While these results included significant charges related to the disposition of subsidiaries, we believe that the result raises substantial doubt about our ability to continue as a going concern one year from the date these financial statements are issued.

Additionally, we have experienced challenges in maintaining adequate seasonal working capital balances, made more challenging by increases in financing and labor costs, along with a supply disruption in the helium market during 2019. These changes in cash flows have created very significant strain within our operations and have therefore increased our attempts to obtain additional funding resources.

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.

Finally, claims have been filed in court by certain vendors regarding claims of non-payment pursuant to contractual obligations. While many have been resolved, the sum of the outstanding claims made or threatened exceeds $0.5 million in the aggregate. The cost of defense and potential ultimate resolution increases the strain on our financial resources.

Management’s plans include:

(1) Working with our new investor group to expand our business in profitable ways.

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

(3) Relocating our existing operation in Lake Zurich, IL to a lower cost environment in Laredo, TX and Nuevo Laredo, Mexico.

(4) Evaluating and potentially executing a transaction of our facility in Lake Barrington, IL.

(5) Simplifying our group structure, focusing on the most profitable products and markets, and

(6) Exploring alternative funding sources.

Management Assessment

Considering both quantitative and qualitative information, we believe that our plans to obtain additional financing may provide us with an ability to finance our operations through 2020 and, if successfully executed, may mitigate the substantial doubt about our ability to continue as a going concern.

Note 4 - Debt

During December 2017, we terminated a prior credit arrangement and entered in new financing agreements (the “PNC 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.

11

Available credit under the Revolving Credit facility is determined by eligible receivables and inventory at CTI Industries (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 were waived and financial covenants as of March 31, 2019 were not considered, with the next calculation due July 31, 2019 for the period ended 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.

On August 1, 2019, PNC issued a Notice of Default and Reservation of Rights letter, indicating the end of the forbearance period and continued events of default with our credit agreement, as amended. We entered into a new forbearance agreement during October 2019 which completed January 2020. In conjunction with new equity financing, on January 13, 2020, a Limited Waiver, Consent, Amendment No. 5 and Forbearance Agreement (the “Forbearance Agreement”) between PNC and the Company became effective, pursuant to which PNC agreed to (i) waive the Loan Agreement’s requirement that the Company apply the net proceeds of the Offering first to the Term Loans (as defined in the Loan Agreement), and agreed that the Company shall instead apply the net proceeds of the Offering to the Revolving Advances (as defined in the Loan Agreement) and in connection therewith the Revolving Commitment Amount (as defined in the Loan Agreement) shall be reduced on a dollar for dollar basis by the amount so applied to the Revolving Advances, and (ii) forebear from exercising the rights and remedies in respect of the Existing Defaults afforded to PNC under the Loan Agreement for a period ending no later than December 31, 2020. In addition, on June 15, 2020, we received a notice of noncompliance and reservation of rights letter from the bank related to failing the covenant calculation during the first quarter of 2020. We remain noncompliant with the terms of our facility and have thus 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 CTI Industries (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 were 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. This requirement was removed during the January 2020 Amendment 5.

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. The highest values allowed for each quarterly calculation are as follow:

Fiscal Quarter Ratio

March 31, 2020	0.75	to	1.00
June 30, 2020	0.85	to	1.00
September 30, 2020	0.95	to	1.00
December 31, 2020	1.05	to	1.00
March 31, 2021 and thereafter	1.15	to	1.00

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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 believe that, during the first three months of 2020, the standalone US business would have complied with the fixed charge coverage ratio, but consolidated group did not result in a new condition of noncompliance.

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 3, we remain out of compliance with the terms of this facility.

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 2019 or the nine months ended September 30, 2020, with $49,000 and $46,000, respectively, of interest recorded as an expense during the first nine months of 2020 and 2019, respectively.

During 2020, Flexo replaced a $260,000 line of credit with three line of credit totaling $260,000.  Flexo’s total debt instruments are $1.75 million.   

On April 30, 2020, the Company executed a promissory note (the “Note”) with PNC Bank National Association (the “Lender”) evidencing an unsecured loan in the aggregate principal amount of $1,047,700 (the “PPP Loan”), which was made pursuant to the Paycheck Protection Program (the “PPP”). The PPP was established under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which was enacted on March 27, 2020, and is administered by the U.S. Small Business Administration (“SBA”). All the funds under the PPP Loan were disbursed to the Company on April 23, 2020. The Note provides for a fixed interest rate of one percent per year with a maturity date of April 30, 2022 (the “Maturity Date”). Monthly principal and interest payments due on the PPP Loan are deferred for a six-month period beginning from the date of disbursement of the PPP Loan. The PPP Loan may be prepaid by the Company at any time prior to the Maturity Date with no prepayment penalties or premiums. The Note contains customary event of default provisions. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loans granted under the PPP. Such forgiveness will be subject to approval by the SBA and the Lender and determined, subject to limitations, based on factors set forth in the CARES Act, including verification of the use of loan proceeds for payment of payroll costs and payments of mortgage interest, rent and utilities. In the event the PPP Loan, or any portion thereof, is forgiven, the amount forgiven is applied to outstanding principal. The terms of any forgiveness may also be subject to further regulations and guidelines that the SBA may adopt. The Company carefully monitored all qualifying expenses and other requirements necessary to attain loan forgiveness; however, no assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part. The Company has used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments.  During the three months ended June 30, 2020 the Company recorded $800,000 in other income for the PPP anticipated grant related to payroll utility and rent payment. During the three months ended September 30, 2020 the Company recorded $248,000 in other income for the PPP anticipated grant related to payroll utility and rent payment, which resulted in no deferred other income liability balance as of September 30, 2020.  

Note 5 - 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, 0.42% - 1.65%, to be applied, the estimated dividend yield and expected volatility, 153.73% - 161.48%,  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 2020 and 2019. The expected volatility is based on historical volatility of the Company’s common stock.

The Company’s net loss for the three months ended September 30, 2020 and 2019 includes approximately none and $20,000, respectively, of compensation costs related to share based payments. The Company’s net loss for the nine months ended September 30, 2020 and 2019 includes approximately none and $72,000, respectively, of compensation costs related to share based payments. As of September 30, 2020, there was no unrecognized compensation expense related to non-vested stock option grants and stock grants.

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On April 10, 2009, the Board 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 authorized the issuance of up to 300,000 shares of our common stock in the form of equity-based awards. Because no registration on Form S-8 was filed for these additional shares within 12 months of approval by our shareholders, those additional shares are not available for issuance in the normal course. As of September 30, 2020, options for 20,000 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, 2019		471,144		$	3.95
Granted		792,660			1.00
Cancelled/Expired		(436,519	)		3.95
Exercised/Issued		(347,483	)		1.19
Outstanding at September 30, 2020		479,802			1.10
Exercisable at September 30, 2020		19,625		$	5.49

The instruments above have no aggregate intrinsic value (the difference between the closing price of the Company’s common stock on the last trading day of the quarter ended September 30, 2020 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 September 30, 2020.

On January 3, 2020, the Company entered into a stock purchase agreement, as amended on February 24, 2020 and April 13, 2020 (the “LF Purchase Agreement”), pursuant to which the Company agreed to issue and sell, and LF International Pte. Ltd., a Singapore private limited company (the “LF International”), which is controlled by Company director Mr. Yubao Li, agreed to purchase, up to 500,000 shares of the Company’s newly created shares of 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 permitted by the 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 (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 the sale of 250,000 shares of Series A Preferred for 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 (the “Board”) (subject to certain adjustments), effective as of the first closing. 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.

On January 30, 2020, the Company sold 20,600 shares of Series A Preferred to an investor for an aggregate purchase price of $206,000.

On February 21, 2020, the Company sold 22,060 shares of Series A Preferred to an investor for an aggregate purchase price of $220,600.

The Purchase Agreement contemplates a second closing for the purchase and sale of an additional 250,000 shares of Series A Preferred (the “Second Closing”). On February 24, 2020, to permit an interim closing prior to the satisfaction of the relevant closing conditions to, and the consummation of, the Second Closing, the Company and LF International entered into an amendment to the Purchase Agreement (the “Purchase Agreement Amendment”), pursuant to which the Company agreed to issue and sell, and LF International agreed to purchase, 70,000 shares of Series A Preferred at a purchase price of $10.00 per share, for aggregate gross proceeds of $700,000 (the “Interim Closing”). As an inducement to enter into the Purchase Agreement Amendment, the Company i) granted to the Investor the right to appoint and elect a second member to the Company’s Board of Directors and ii) agreed to issue to LF International 140,000 shares of the Company’s common stock. On February 28, 2020, the Company and LF International closed on the Interim Closing.

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.

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On April 13, 2020, to permit an additional interim closing prior to the satisfaction of the relevant closing conditions to, and the consummation of, the Second Closing, the Company and LF International entered into a second amendment to the Purchase Agreement (the “Second Purchase Agreement Amendment”), pursuant to which the Company agreed to issue and sell, and LF International agreed to purchase, 130,000 shares of Series A Preferred at a purchase price of $10.00 per share, for aggregate gross proceeds of $1,300,000 (the “Additional Interim Closing”). As an inducement to enter into the Second Purchase Agreement Amendment, the Company i) granted to LF International the right to appoint and elect a third member to the Board and ii) agreed to issue to LF International 260,000 shares of common stock.

On June 5, 2020, the Company and LF International conducted the Second Closing, as modified by the Interim Closing and Additional Interim Closing (the “Final Closing”), and closed on the issuance of 50,000 shares of Series A Preferred at a purchase price of $10.00 per share to LF International for aggregate gross proceeds of $500,000 to the Company. As a result of the Final Closing, LF International held, in the aggregate, approximately 57% of the voting control of the Company, resulting in a change in control of the Company.

The issuance of the Company’s Series A Preferred Stock generated a beneficial conversion feature (BCF), which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. The fair value of the common stock into which the Series A Preferred was convertible exceeded the allocated purchase price fair value of the Series A Preferred Stock at the closing dates by approximately $2.5 million as of the closing dates.  We recognized this BCF by allocating the intrinsic value of the conversion option, to additional paid-in capital, resulting in a discount on the Series A Preferred Stock. As the Series A Preferred Stock is immediately convertible, the Company accreted the discount on the date of issuance.  The accretion was recognized as dividend equivalents.  Holders of the Series A Preferred will be entitled to receive quarterly dividends at the annual rate of 8% of the stated value ($10 per share). Such dividends may be paid in cash or in shares of common stock at the Company’s discretion.  In the nine months ending September 30, 2020 the Company accrued $255,341 of these dividends. 

During the three months ended September 30, 2020, 332,000 shares of the Company’s common stock were issued upon the exercise of 500,000 warrants. During the third quarter 2020, 42,660 convertible preferred shares were converted into 426,600 shares of common stock.  An additional 18,007 shares of common stock were issued as satisfaction of the accrued dividend on the preferred shares.

In 2020, the Company issued 15,000 shares to its former president in satisfaction of his stock compensation plan which accelerated upon his resignation.

In September 2020, the Company received $1.5 million from an unrelated third party as an advance on a proposed sale of Series B Redeemable Convertible Preferred Stock.   As of September 30, 2020, the Company was in the process of negotiating and finalizing the terms of the arrangement.  On November 17, 2020, the Company finalized the associated stock purchase agreement for the sale of 170,000 new issued shares of Series B Redeemable Convertible Preferred Stock.   Each share is convertible into ten shares of the Company’s common stock and Holders of the Series B Preferred will be entitled to receive quarterly dividends at the annual rate of 8% of the stated value ($10 per share). Such dividends may be paid in cash or in shares of common stock at the Company’s discretion. The stock purchase agreement is subject to customary conditions for closing.  As the agreement was not finalized as of September 30, 2020, the $1.5 million advance is classified as Advance from Investor within liabilities on the accompanying balance sheet.

Note 6 - 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.

During 2019 and 2020, claims have been filed against us claiming failure to pay contractually obligated amounts. Approximately $760,000 in aggregate claims are outstanding as of September 30, 2020. These claims are being disputed, the ultimate outcome of which is unknown.

FedEx Trade Networks Transport sought $163,965 in damages, plus interest and court costs. On October 15, 2020, the case was dismissed with leave to reinstate pursuant to settlement. The settlement calls for the payment of $100,400 in monthly installments of $10,000 per month for a period of ten (10) months and with the last payment being in the amount of $10,400. The first payment came due and was made on October 30, 2020.

Note 7 - Other Comprehensive Income

In the nine months ended September 30, 2020, the Company incurred other comprehensive loss of approximately $1,292,000 from foreign currency translation adjustments. The main contributing factor was a sudden approximate 25% decline in the valuation of the Mexican peso related to the COVID-19 pandemic discussed above and resulting large-scale, rapid impacts to the world economy.

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 continuing operations by geographic area is as follows:

	Net Sales to Outside Customers
	For the Nine Months Ended
	September 30,
	2020		2019
United States	$	14,718,000	$	17,911,000
Mexico		4,076,000		6,348,000
	$	18,794,000	$	24,259,000

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	Net Sales to Outside Customers
	For the Three Months Ended
	September 30,
	2020		2019
United States	$	4,749,000	$	4,120,000
Mexico		1,232,000		2,245,000
	$	5,981,000	$	6,365,000

	Total Assets at
	September 30,		December 31,
	2020		2019
United States	$	13,215,000	$	19,668,000
Mexico		7,986,000		10,897,000
Assets Held for Sale International Subsidiaries		748,000		756,000
	$	21,949,000	$	31,321,000

Note 9 - Inventories, Net of Continuing Operations

	September 30, 2020			December 31, 2019
Raw materials	$	1,385,000		$	1,545,000
Work in process		2,808,000			3,110,000
Finished goods		6,837,000			9,766,000
In Transit		115,000			100,000
Allowance for excess quantities		(501,000	)		(562,000	)
Total inventories	$	10,644,000		$	13,959,000

Note 10 - 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 nine months ended September 30, 2020 and 2019, there was one customer whose purchases represented more than 10% of the Company’s consolidated net sales. Sales to this customer for the nine months ended September 30, 2020 and 2019 are as follows:

	Three Months Ended					Three Months Ended
	September 30, 2020					September 30, 2019
Customer	Net Sales		% of Net Sales			Net Sales		% of Net Sales
Customer A	$	3,737,000		63	%	$	1,559,000		25	%

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	Nine Months Ended					Nine Months Ended
	September 30, 2020					September 30, 2019
Customer	Net Sales		% of Net Sales			Net Sales		% of Net Sales
Customer A	$	9,412,000		50	%	$	8,890,000		37	%

As of September 30, 2020, the total amounts owed to the Company by this customer were approximately $1,724,000 or 33% of the Company’s consolidated net accounts receivable. The amounts owed at September 30, 2019 by this customer was approximately $831,000 or 16% of the Company’s consolidated net accounts receivable.

Note 11 - Related Party Transactions

John H. Schwan, who resigned as Chairman of the Board on June 1, 2020, is the brother of Gary Schwan, one of the owners of Schwan Incorporated, which provides building maintenance services to the Company. The Company made payments to Schwan Incorporated of approximately $2,700 and $12,000 during the nine months ended September 30, 2020 and 2019, respectively. Jana M. Schwan, Chief Operating Officer of the Company, is the daughter of John H. Schwan.  As of September 30, 2020 the payable balance amounted to $8,800 and is included in trade payables. 

During the period from January 2003 to the present, John H. Schwan has made loans to the Company which had outstanding balances, for the Company of $1.6 million as of December 31, 2018. During January 2019 he converted $0.6 million to equity at the then market price of our stock. Including accrued interest, his balance was $1.1 million as of September 30, 2020. During the first nine months of 2020 and 2019, interest expense on these outstanding loans was $49,000 and $46,000, respectively.

Items identified as Notes Payable Affiliates in the Company's Consolidated Balance Sheet as of September 30, 2020 and 2019 include loans by shareholders to Flexo Universal totaling $20,000 and $12,000, respectively.

On July 1, 2019, the Company deconsolidated Clever which resulted in a note receivable at that time of $1.387 million.  During the nine months ended September 30, 2020 the Company recorded a reserve of $350,000. One of owners of Clever is Mr. Schwan, above.  The balance as of September 30, 2020 amounted to $1,026,813.

Note 12 - 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 September 30, 2020, we had no such instrument.

Note 13 - 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 $1.1 million increase in current liabilities, and a $1.7 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.

In July 2020, the Company entered into a lease agreement for a building through June 2021 (with no extension options).   The monthly lease payments are $38,000.  The Company made a policy election to not recognize right of use assets and lease liabilities that arise from leases with an initial term of twelve months or less on the Consolidated Balance Sheets.   However, the Company recognized these lease payments in the Consolidated Statement of Operations on a straight-line basis over the lease term and variable lease payments in the period in which the expense was incurred.

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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 depreciable 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 table below describes our lease position as of September 30, 2020:

Assets	As of September 30, 2020
Operating lease right-of-use assets	$	1,457,000
Accumulated amortization		(1,097,000	)
Net lease assets	$	360,000
Liabilities
Current
Operating		312,000
Noncurrent
Operating		48,000
Total lease liabilities	$	360,000
Weighted average remaining term (years) – operating leases (in years)		2
Weighted average discount rate – operating leases		11.25	%

During the nine months ended September 30, 2020, we recorded expenses related to:

Operating right-of-use lease asset amortization	$	471,000
Total expense during nine months ended September 30, 2020	$	471,000

Operating lease expenses were approximately $471,000 for the nine months ended September 30, 2020. 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 $471,000 for the nine months ended September 30, 2020.

The following table summarizes the maturities of our lease liabilities for all operating leases as of September 30, 2020:

(in thousands)
2020	$	111
2021		373
2022 and thereafter		51
Total lease payments		535
less: Imputed interest		(175	)
Present value of lease liabilities	$	360

Note 14 - Subsequent Events

In September 2020, the Company received $1.5 million from an unrelated third party as an advance on a proposed sale of Series B Redeemable Convertible Preferred Stock.   As of September 30, 2020, the Company was in the process of negotiating and finalizing the terms of the arrangement.  On November 17, 2020, the Company finalized the associated stock purchase agreement for the sale of 170,000 new issued shares of Series B Redeemable Convertible Preferred Stock.   Each share is convertible into ten shares of the Company’s common stock and Holders of the Series B Preferred will be entitled to receive quarterly dividends at the annual rate of 8% of the stated value ($10 per share). Such dividends may be paid in cash or in shares of common stock at the Company’s discretion. The stock purchase agreement is subject to customary conditions for closing.  As the agreement was not finalized as of September 30, 2020, the $1.5 million advance is classified as Advance from Investor within liabilities on the accompanying balance sheet.  In October 2020, the Company received a $1.5 million advance on a proposed equity financing for which the terms have not yet been finalized.

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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 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 the Company expects to receive in exchange for the transferred 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. Revenue Recognition. Substantially all of the Company's revenues are derived from the sale of products. With respect to the sale of products, revenue from a transaction is recognized once it has (i) identified the contract(s) with a customer, (ii) identified the performance obligations in the contract, (iii) determined the transaction price, (iv) allocated the transaction price to the performance obligations in the contract, and (v) recognized revenue as the company satisfies a performance obligation. The Company generally recognizes revenue for the sale of products when the products have been shipped and invoiced. In some cases, product is provided on consignment to customers. In those cases, revenue is recognized when the customer reports a sale of the product.

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.

As of January 1, 2019, we adopted ASC Topic 842, Leases (“ASC Topic 842”). Refer to Note 13 for additional information. Our primary leases relate to the facilities we use in Mexico. 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, non-lease component payments, and short-term rentals (leases less than 12 months in duration) are expensed as incurred.

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Summary of Subsequent Events 

As previously disclosed on a Current Report on Form 8-K of Yunhong CTI Ltd., on December 14, 2017, the Company entered into a Revolving Credit, Term Loan and Security Agreement (the “Loan Agreement”) with PNC Bank, National Association (“Lender”).

Prior to January 13, 2020, certain events of default under the Loan Agreement had occurred (the "Prior Defaults"). On January 13, 2020, a Limited Waiver, Consent, Amendment No. 5 and Forbearance Agreement (the “Forbearance Agreement”) between Lender and the Company became effective, pursuant to which Lender agreed to, among other things, forebear from exercising the rights and remedies in respect of the Prior Defaults afforded to Lender under the Loan Agreement for a period ending no later than December 31, 2020 (the “Forbearance Period”).

On June 15, 2020, the Lender provided the Company notice (the “Default Notice”) that (i) an additional Event of Default (as defined in the Loan Agreement) had occurred and is continuing as a result of the Company's failure to maintain a Fixed Charge Coverage Ratio (as defined in the Loan Agreement) of 0.75 to 1.00 for the three-month period ended March 31, 2020 (the "March FCCR Default"), (ii) as a result of the occurrence and continuance of the March FCCR Default, the Forbearance Period has ended, and (iii) as a result of the termination of the Forbearance Period, the Lender is entitled to exercise immediately all of its rights and remedies under the Loan Agreement including, without limitation, ceasing to make further advances to the Company and declaring all obligations to be immediately due and payable in accordance with the Loan Agreement.

The Lender has continued to make advances to the Company (“Discretionary Advances”), although it is not required to do so under the terms of the Loan Agreement due to the Events of Default. On July 17, 2020, the Lender provided the Company notice that multiple previously disclosed events, which each constitute an Event of Default, are continuing to occur. Additionally, the Lender required that the Company obtain a commitment for third-party equity funding in an amount not less than $3,000,000 by no later than July 31, 2020. Absent such commitment, the Lender advised that it may cease making discretionary advances to the Company. On July 22, 2020, the Company’s board of directors authorized the Company to seek such funding and, to ensure that the Company met the Lender’s equity funding commitment deadline. Mr. Yubao Li, the Company’s Chairman, committed that, in the event the Company does not obtain funding of at least $3,000,000, he would provide the necessary funding. In September 2020, the Company received $1.5 million from an unrelated third party as an advance on a proposed sale of Series B Convertible Preferred Stock (the terms of which are currently being negotiated and finalized).  Additionally, in October 2020, the Company received a $1.5 million advance on a separate proposed equity financing for which the terms have not yet been finalized.   The Lender has continued to make the Discretionary Advances throughout this period and has indicated that we have complied with their request.    

Comparability

In July 2019, management and the Board engaged in a review of CTI Balloons and CTI Europe 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 these international subsidiaries. These actions were taken to focus our resources and efforts on our core business activities, particularly foil balloons and ancillary products based in North America. The Company determined that these entities met the held-for-sale and discontinued operations accounting criteria. Accordingly, the Company has reported the results of these International operations as discontinued operations in the Consolidated Statements of Comprehensive Income and presented the related assets and liabilities as held-for-sale in the Consolidated Balance Sheets. These changes have been applied for all periods presented. The Company divested its CTI Balloons (United Kingdom) subsidiary in the fourth quarter 2019 and is divesting its CTI Europe (Germany) subsidiary and Ziploc product line in 2020.

Results of Operations

Net Sales. For the three and nine month periods ended September 30, 2020, net sales were $5,981,000 and $18,794,000, compared to net sales of $6,365,000 and $24,259,000 for the same periods of 2019, respectively.

For the three month period ended September 30, 2020 and 2019, net sales by product category were as follows:

	Three Months Ended
	September 30, 2020					September 30, 2019
	$		% of			$		% of
Product Category	(000) Omitted		Net Sales			(000) Omitted		Net Sales
Foil Balloons		4,516		76	%		3,681		62	%
Latex Balloons		1,014		17	%		2,059		34	%
Film Products		78		1	%		236		4	%
Other		374		6	%		9		0	%
Total		5,981		100	%		5,985		100	%

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For the nine month period ended September 30, 2020 and 2019 net sales by product category were as follows:

	Nine Months Ended
	September 30, 2020					September 30, 2019
	$		% of			$		% of
Product Category	(000) Omitted		Net Sales			(000) Omitted		Net Sales
Foil Balloons		12,380		66	%		13,325		56	%
Latex Balloons		3,712		20	%		5,640		23	%
Film Products		664		4	%		1,475		6	%
Other		2,038		11	%		3,571		15	%
Total		18,794		100	%		24,011		100	%

Foil Balloons. Revenues from the sale of foil balloons increased during the three months period from $3,681,000 ending September 30, 2019 compared to $4,516,000 during the three month period of 2020. Revenues from the sale of foil balloons decreased during the nine month period from $13,325,000 ending September 30, 2019 compared to $12,380,000 during the nine month period of 2020 mainly due to decreased foil sales in our Mexican subsidiary. 

Latex Balloons. Revenues from the sale of latex balloons were $1,014,000 and $3,712,000 during the three and nine month periods ended September 30, 2020, compared to $2,059,000 and $5,640,000 during the same periods of 2019. Latex balloons encountered a COVID-19 constraint, as production activities were severely limited by the Mexican government.

Films. Revenues from the sale of commercial films were $78,000 and $664,000 during the three and nine month periods ended September 30, 2020, compared to $236,000 and $1,475,000 during the same periods of 2019. Our main customer had restructured their program in the first quarter both related to COVID-19 disruption and also the integration of a merger partner.

Other Revenues. Revenues from the sale of other products were $374,000 and $2,038,000 during the three and nine month periods ended September 30, 2020, compared to $9,000 and $3,571,000 during the same periods of 2019. Revenues in 2019 include a discontinued line of organizing solutions that was fully deconsolidated in 2019.  The revenues from the sale of other products during the first nine months of 2020 include (i) sales of a line of “Candy Blossoms” and similar products consisting of candy and small inflated balloons sold in small containers and (ii) the sale 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 nine month periods ended September 30, 2020 and 2019.

	Three Months Ended September 30,
	% of Sales
	2020			2019
Top 3 Customers		77	%		43	%
Top 10 Customers		88	%		58	%

21

	Nine Months Ended September 30,
	% of Sales
	2020			2019
Top 3 Customers		71	%		53	%
Top 10 Customers		82	%		71	%

During the nine month period ended September 30, 2020, there was one customer whose purchases represented more than 10% of the Company’s consolidated net sales. Sales to this customer for the nine month period ended September 30, 2020 was $9,412,000 or 50% of consolidated net sales. Sales to this customer for the nine months ended September 30, 2019 was $8,190,000, or 34% of consolidated net sales. As of September 30, 2020, the total amount owed to the Company by this customer was approximately $1,725,000, or 33% of the Company’s consolidated net accounts receivable. The amount owed at September 30, 2019 by this customer was approximately $831,000, or 16% of the Company’s consolidated net accounts receivable.

Cost of Sales. During the three and nine month periods ended September 30, 2020, the cost of sales was $5,720,000 and $16,442,000, compared to $6,285,000 and $20,926,000, respectively, for the same periods of 2019. The reduction in cost of sales was largely due to the termination of the vacuum sealing product line, reduced presence in the form of discontinued subsidiaries, and a temporary reduction in orders related to COVID-19. 

General and Administrative. During the three and nine month periods ended September 30, 2020, general and administrative expenses were $1,067,000 and $3,254,000 as compared to $1,167,000 and $3,866,000 respectively, for the same periods in 2019.  Decrease is due mainly to headcount reductions.  

Selling, Advertising and Marketing. During the three and nine month periods ended September 30, 2020, selling, advertising and marketing expenses were $101,000 and $384,000 as compared to $148,000 and $714,000, respectively, for the same periods in 2019. Decrease is due mainly to headcount reductions. 

Other Income (Expense). During the three and nine month periods ended September 30, 2020, the Company incurred interest expense of $255,000 and $1,033,000 as compared to interest expense of $465,000 and $1,493,000 during the same periods of 2019.  During the three months ended September 30, 2020 the Company recorded $248,000 of other income for the Payroll Protection Program, PPP, anticipated grant related to payroll, utility and rent payments. During the nine months ended September 30, 2020 the Company recorded $1,048,000 of other income for the Payroll Protection Program, PPP, anticipated grant related to payroll, utility and rent payments.

For the three month and nine month periods ended September 30, 2020, the Company had a foreign currency transaction gain/(loss) of $15,000 and $(169,000) as compared to a gain/(loss) of $(26,000) and $(27,000) during the same periods of 2019.

Financial Condition, Liquidity and Capital Resources

Cash Flow Items.

Operating Activities. During the nine months ended September 30, 2020, net cash provided by operations was $995,000, compared to net cash provided by operations during the nine months ended September 30, 2019 of $4,172,000.

Significant changes in working capital items during the nine months ended September 30, 2020 included:

● A decrease in accounts receivable of $2,916,000 compared to a decrease in accounts receivable of $2,776,000 in the same period of 2019.

● A decrease in inventory of $2,315,000 compared to an increase in inventory of $1,435,000 in 2019.

● An increase in trade payables of $852,000 compared to a decrease in trade payables of $1,893,000 in 2019.

● A decrease in accrued liabilities of $331,000 compared to an increase in accrued liabilities of $167,000 in 2019.

In September 2020, the Company received $1.5 million from an unrelated third party as an advance on a proposed sale of Series B Redeemable Convertible Preferred Stock.   As of September 30, 2020, the Company was in the process of negotiating and finalizing the terms of the arrangement. As the agreement was not finalized as of September 30, 2020, the $1.5 million advance is classified as Advance from Investor within liabilities on the accompanying balance sheet.

Investing Activity. During the nine months ended September 30, 2020, cash used in investing activity was $140,000, compared to cash used in investing activity for the same period of 2019 in the amount of $144,000.

Financing Activities. During the nine months ended September 30, 2020, cash used in financing activities was $2,237,000 compared to cash used in financing activities for the same period of 2019 in the amount of $4,546,000. Financing activity consisted principally of changes in the balances of revolving and long-term debt.  During 2020, the Company sold 542,660 shares of Series A Preferred to multiple investors for an aggregate purchase price of $5.4 million. The Company has also received an advance of $1.5 million in from an investor for a Series B stock purchase that was not finalized as of September, 30 2020.

Liquidity and Capital Resources.

At September 30, 2020, the Company had cash balances of none compared to cash balances of $115,000 for the same period of 2019.

22

As of September 30, 2020, the Company was not in compliance with its credit facility, operating under a forbearance agreement. For this reason, $1.4 million of long-term debt was reclassified as current debt as of September 30, 2020. 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 either regain compliance with the terms of our credit facility or 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 3 for additional discussion.

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.

Please see pages 25-28 of our Annual Report on Form 10-K for the year ended December 31, 2019 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. No material changes to such information have occurred during the three and nine months ended September 30, 2020.

Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk

Not applicable.

Item 4. Controls and Procedures

(a)   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 September 30, 2020. 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 September 30, 2020, the end of the period covered by this Quarterly Report on Form 10-Q due to the material weaknesses described below.

23

(b)   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 September 30, 2020. 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 within an environment that is highly manual in nature.

        As a result of the material weaknesses, we have concluded that we did not maintain effective internal control over financial reporting as of September 30, 2020.

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

As previously disclosed on a Current Report on Form 8-K of Yunhong CTI Ltd. (the “Company”), on December 14, 2017, the Company entered into a Revolving Credit, Term Loan and Security Agreement (the “Loan Agreement”) with PNC Bank, National Association (“Lender”).

Prior to January 13, 2020, certain events of default under the Loan Agreement had occurred (the "Prior Defaults"). On January 13, 2020, a Limited Waiver, Consent, Amendment No. 5 and Forbearance Agreement (the “Forbearance Agreement”) between Lender and the Company became effective, pursuant to which Lender agreed to, among other things, forebear from exercising the rights and remedies in respect of the Prior Defaults afforded to Lender under the Loan Agreement for a period ending no later than December 31, 2020 (the “Forbearance Period”).

On June 15, 2020, the Lender provided the Company notice (the “Default Notice”) that (i) an additional Event of Default (as defined in the Loan Agreement) had occurred and is continuing as a result of the Company's failure to maintain a Fixed Charge Coverage Ratio (as defined in the Loan Agreement) of 0.75 to 1.00 for the three-month period ended March 31, 2020 (the "March FCCR Default"), (ii) as a result of the occurrence and continuance of the March FCCR Default, the Forbearance Period has ended, and (iii) as a result of the termination of the Forbearance Period, the Lender is entitled to exercise immediately all of its rights and remedies under the Loan Agreement including, without limitation, ceasing to make further advances to the Company and declaring all obligations to be immediately due and payable in accordance with the Loan Agreement.

The Lender has continued to make advances to the Company (“Discretionary Advances”), although it is not required to do so under the terms of the Loan Agreement due to the Events of Default. On July 17, 2020, the Lender provided the Company notice that multiple previously disclosed events, which each constitute an Event of Default, are continuing to occur. Additionally, the Lender required that the Company obtain a commitment for third-party equity funding in an amount not less than $3,000,000 by no later than July 31, 2020. Absent such commitment, the Lender advised that it may cease making discretionary advances to the Company. On July 22, 2020, the Company’s board of directors authorized the Company to seek such funding. In addition, Mr. Yubao Li, the Company’s Chairman, committed that, in the event the Company does not obtain funding of at least $3,000,000 by August 31, 2020, he would provide the necessary funding to ensure the Company meets this requirement.

Item 4. Mine Safety Disclosures

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.

24

Item 6. Exhibits

The following are being filed as exhibits to this report:

Exhibit Number	Description
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 for the quarter and nine months ended September 30, 2020, 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.

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.

Date: November 23, 2020    Yunhong CTI Ltd.

By: /s/ Jennifer M. Connerty

Jennifer M. Connerty

Chief Financial Officer

By: /s/ Yubao Li

Yubao Li

President, Chief Executive Officer

25

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Yubao Li, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Yunhong CTI Ltd. (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: November 23, 2020

/s/ Yubao Li

Yubao Li

President, Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Jennifer M. Connerty, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Yunhong CTI Ltd. (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: November 23, 2020

By:	/s/ Jennifer M. Connerty
	Jennifer M. Connerty
	Chief Financial Officer

EX-32

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 of Yunhong CTI Ltd. (the “Company”) for the quarterly period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Yubao Li, as Chief Executive Officer, and Jennifer M. Connerty, as 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.

Date: November 23, 2020

/s/ Jennifer M. Connerty        

Jennifer M. Connerty

Chief Financial Officer

/s/ Yubao L i        

Yubao Li

President, Chief Executive Officer

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 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.

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Nov. 20, 2020
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)		5,783,646
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Sep. 30, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Amendment Flag	false
Title of 12(b) Security	Common Stock

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents		$ 845,098
Accounts receivable	5,297,701	9,011,569
Inventories, net	10,643,911	13,959,499
Prepaid expenses	633,223	353,183
Other current assets	1,155,266	1,312,205
Receivable from related party	1,026,813	1,387,131
Current assets of discontinued operations	748,386	756,031
Total current assets	19,505,300	27,624,716
Property, plant and equipment:
Machinery and equipment	21,796,644	23,822,808
Building	3,374,334	3,374,334
Office furniture and equipment	2,221,195	2,289,444
Intellectual property	783,179	783,179
Land	250,000	250,000
Leasehold improvements	390,624	415,737
Fixtures and equipment at customer locations	518,450	518,450
Projects under construction	68,738	74,929
Property, Plant and Equipment, Gross	29,403,164	31,528,881
Less : accumulated depreciation and amortization	(27,397,950)	(28,997,809)
Total property, plant and equipment, net	2,005,214	2,531,072
Other assets:
Operating lease right-of-use	359,802	1,046,438
Other assets	78,259	118,857
Total other assets	438,061	1,165,295
TOTAL ASSETS	21,948,575	31,321,083
Current liabilities:
Bank overdraft	29,837
Trade payables	6,135,867	7,021,580
Line of credit	5,613,063	14,518,107
Notes payable - current portion	2,467,741	3,451,880
Advance from investor	1,500,000
Notes payable affiliates - current portion	9,937	12,684
Operating Lease Liabilities	311,678	658,374
Accrued liabilities	1,262,139	1,205,027
Current liabilities of discontinued operations	273,782	656,753
Total current liabilities	17,604,044	27,524,405
Long-term liabilities:
Notes payable - affiliates	10,632	14,340
Notes payable, net of current portion	1,445,683	1,024,441
Operating Lease Liabilities	48,123	388,064
Notes payable - officers, subordinated	1,107,080	1,058,486
Deferred gain (non current)		184,840
Total long-term liabilities	2,611,518	2,670,171
TOTAL LIABILITIES	20,215,562	30,194,576
Yunhong CTI, Ltd stockholders' equity:
Preferred Stock -- no par value, 3,000,000 shares authorized, 548,200 shares issued and outstanding at September 30, 2020 and nil at December 31, 2019 respectively (liquidation preference - $5.482 million as of September 30, 2020)	3,132,600
Common stock - no par value, 15,000,000 shares authorized, 5,271,698 and 3,835,930 shares issued and 5,228,040 and 3,835,930 shares outstanding at September 30, 2020 and December 31, 2019 respectively	14,537,828	13,898,494
Paid-in-capital	4,695,658	3,587,287
Accumulated earnings	(13,112,986)	(9,992,841)
Accumulated other comprehensive loss	(6,640,664)	(5,348,812)
Less: Treasury stock, 43,658 shares	(160,784)	(160,784)
Total Yunhong CTI, Ltd Stockholders' Equity	2,451,652	1,983,344
Noncontrolling interest	(718,639)	(856,837)
Total Stockholders' Equity	1,733,013	1,126,507
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 21,948,575	$ 31,321,083

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ / shares in Thousands	Sep. 30, 2020	Dec. 31, 2019
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)	548,200	0
Preferred stock, shares outstanding (in shares)	548,200	0
Preferred stock, liquidation preference	$ 5,482,000	$ 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)	5,271,698	3,835,930
Common stock, shares outstanding (in shares)	5,228,040	3,835,930
Treasury stock, shares (in shares)	43,658	43,658

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Net Sales	$ 5,980,766	$ 6,365,352	$ 18,793,620	$ 24,259,037
Cost of Sales	5,719,824	6,284,645	16,441,524	20,925,512
Gross profit	260,942	80,707	2,352,096	3,333,525
Operating expenses:
General and administrative	1,067,122	1,167,207	3,253,561	3,865,527
Selling	31,723	55,907	112,113	285,015
Advertising and marketing	69,569	92,061	271,563	428,798
Impairment of long-lived assets				1,252,283
Gain on loss of control of VIEs		(218,527)		(218,534)
Gain on sale of assets		(23,054)	(45,700)	(70,263)
Total operating expenses	1,168,414	1,073,594	3,591,537	5,762,932
Loss from operations	(907,472)	(992,887)	(1,239,441)	(2,429,407)
Other (expense) income:
Interest expense	(255,138)	(464,546)	(1,033,240)	(1,493,264)
Gain on forgiveness of Payroll Protection Program Funding	247,554		1,047,700
Other Expense	(15,621)	(82,873)	(387,961)	(485,742)
Foreign currency loss	15,100	(25,747)	(169,357)	(27,458)
Total other expense, net	(8,105)	(573,166)	(542,858)	(2,006,464)
Loss from continuing operations before taxes	(915,577)	(1,566,053)	(1,782,299)	(4,435,871)
Income tax expense
Loss from continuing operations	(915,577)	(1,566,053)	(1,782,299)	(4,435,871)
Loss from discontinued operations , net of tax	(113,055)	(658,518)	(1,199,648)	(2,105,755)
Net Loss	(1,028,632)	(2,224,571)	(2,981,947)	(6,541,626)
Less: Net (loss) income attributable to noncontrolling interest	(74,692)	(282,985)	138,198	(861,475)
Net loss before foreign currency adjustment and Preferred Share Dividends	(953,940)	(1,941,586)	(3,120,145)	(5,680,151)
Other Comprehensive Income (Loss)
Foreign currency adjustment	5,324	(281,817)	(1,291,852)	15,603
Comprehensive Loss	(1,023,308)	(2,506,388)	(4,273,799)	(6,526,023)
Deemed Dividends on preferred stock and amortization of beneficial conversion feature	(114,561)		(2,733,329)
Net Loss attributable to Yunhong CTI Ltd Shareholders	$ (1,068,501)	$ (1,941,586)	$ (5,853,474)	$ (5,680,151)
Basic loss per common share
Continuing operations (in dollars per share)	$ (0.19)	$ (0.34)	$ (1.05)	$ (0.93)
Discontinued operations (in dollars per share)	(0.02)	(0.17)	(0.27)	(0.55)
Basic loss per common share (in dollars per share)	(0.21)	(0.51)	(1.32)	(1.48)
Diluted loss per common share
Continuing operations (in dollars per share)	(0.19)	(0.34)	(1.05)	(0.93)
Discontinued operations (in dollars per share)	(0.02)	(0.17)	(0.27)	(0.55)
Diluted loss per common share (in dollars per share)	$ (0.21)	$ (0.51)	$ (1.32)	$ (1.48)
Weighted average number of shares and equivalent shares of common stock outstanding:
Basic (in shares)	4,902,131	3,835,950	4,426,420	3,835,950
Diluted (in shares)	4,902,131	3,835,950	4,426,420	3,835,950

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)		9 Months Ended
		Sep. 30, 2020	Sep. 30, 2019
Cash flows from operating activities:
Net loss		$ (2,981,947)	$ (6,541,626)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		792,104	835,302
Amortization of deferred gain on sale/leaseback		(45,700)	(82,422)
Gain on forgiveness of PPP Funding		(1,047,700)
Provision for losses on accounts receivable		20,666	399,463
Provision for losses on inventories		(40,482)	1,249,519
Other			248,974
Impairment on assets held for sale			604,483
Gain on deconsolidation of Clever			(218,534)
Impairment of Related Party Note Receivable		350,000
Impairment of Prepaid, Current and Non Current Assets			168,931
Impairment of long-lived assets			1,252,283
Stock Based Compensation			72,401
Loss on disposition of Asset			17,480
Change in assets and liabilities:
Accounts receivable		2,915,506	2,776,396
Inventories		2,314,744	1,435,411
Prepaid expenses and other assets		(289,820)	228,389
Operating Lease Liability		(470,771)
Trade payables		(852,231)	1,892,670
Accrued liabilities		330,695	(166,823)
Net cash provided by operating activities		995,064	4,172,297
Cash flows from investing activities:
Purchases of property, plant and equipment		(139,708)	(144,222)
Net cash used in investing activities		(139,708)	(144,222)
Cash flows from financing activities:
Change in checks written in excess of bank balance		29,837	(391,313)
Repayment of debt and revolving line of credit		(10,158,387)	(4,721,867)
Proceeds from Issuance of Convertible Preferred Stock		1,500,000
Proceeds from issuance of stock		5,426,601
Cash paid for stock issuance costs		(1,024,313)
Amortization of deferred financing fees		64,887	(82,763)
Proceeds from PPP		1,047,700
Proceeds from issuance of long-term debt		876,791	650,000
Net cash used in financing activities		(2,236,884)	(4,545,943)
Effect of exchange rate changes on cash		536,430	205,692
Net decrease in cash and cash equivalents		(845,098)	(312,176)
Cash and cash equivalents at beginning of period		845,098	428,150
Cash and cash equivalents at end of period	[1]		115,974
Supplemental disclosure of cash flow information:
Cash payments for interest		1,033,350	1,558,817
Common stock issued		306,000
Conversion of debt to Series A Preferred		478,000
Accrued Dividend on preferred stock		255,000
Issuance of Placement agent warrants in connection with Series A Preferred offering		919,000
Amortization of beneficial conversion feature and deemed dividend on Series A Preferred stock		2,200,000
Conversion from Accounts Payable To Common Stock [Member]
Supplemental disclosure of cash flow information:
Common stock issued			303,000
Conversion from Notes Payable To Common Stock [Member]
Supplemental disclosure of cash flow information:
Common stock issued			$ 600,000

[1] The cash flows related to discontinued operations have not been segregated, and are included in the Consolidated Statements of Cash Flows. The cash and equivalents amounts presented above differ from cash and equivalents in the Consolidated Balance Sheets due to cash included in "Current assets of discontinued operations of $170,000."

XML

Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)	Preferred Stock [Member]	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)		3,578,885				(43,658)
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
Share Issued (in shares)		20,000
Share Issued
Conversion of Convertible Securities (in shares)		180,723
Conversion of Convertible Securities			600,000					600,000
Net loss				(2,494,089)				(2,556,477)
Net Income (Loss) Attributable to Noncontrolling Interest							(62,388)
Foreign Currency Translation					235,876			235,876
Stock Option Expense			28,967					28,967
Other comprehensive income, net of taxes
Balance (in shares)		3,779,608				(43,658)
Balance (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)	4,564,095
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
Net loss								(6,541,626)
Net Income (Loss) Attributable to Noncontrolling Interest								(861,475)
Balance (in shares)		3,879,608				(43,658)
Balance (in shares) at Sep. 30, 2019		3,879,608				(43,658)
Balance at Sep. 30, 2019		$ 13,898,494	3,481,838	(8,545,638)	(6,034,744)	$ (160,784)	(847,025)	1,792,141
Balance (in shares)		3,779,608				(43,658)
Balance (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)	4,564,095
Share Issued (in shares)		100,000
Share Issued			303,000					303,000
Conversion of Convertible Securities (in shares)
Conversion of Convertible Securities
Net loss				(1,244,477)				(1,760,579)
Net Income (Loss) Attributable to Noncontrolling Interest							(516,102)
Foreign Currency Translation					61,333			61,333
Stock Option Expense			23,429					23,429
Other comprehensive income, net of taxes
Balance (in shares)		3,879,608				(43,658)
Balance (in shares) at Jun. 30, 2019		3,879,608				(43,658)
Balance at Jun. 30, 2019		$ 13,898,494	3,461,833	(6,604,052)	(5,753,138)	$ (160,784)	(1,651,075)	3,191,278
Balance (in shares)		3,879,608				(43,658)
Conversion of Convertible Securities (in shares)
Conversion of Convertible Securities
Net loss				(1,941,586)				(2,224,571)
Net Income (Loss) Attributable to Noncontrolling Interest							(282,985)	(282,985)
Foreign Currency Translation					(297,209)			(297,209)
Stock Option Expense			20,005					20,005
Other comprehensive income, net of taxes					15,603			15,603
Balance (in shares)		3,879,608				(43,658)
Less deconsolidation of VIE							1,087,035	1,087,035
Balance (in shares) at Sep. 30, 2019		3,879,608				(43,658)
Balance at Sep. 30, 2019		$ 13,898,494	3,481,838	(8,545,638)	(6,034,744)	$ (160,784)	(847,025)	1,792,141
Balance (in shares)		3,879,608				(43,658)
Balance (in shares)		3,879,608				(43,658)
Balance (in shares) at Dec. 31, 2019		3,879,608				(43,658)
Balance at Dec. 31, 2019		$ 13,898,494	3,587,287	(9,992,841)	(5,348,812)	$ (160,784)	(856,837)	1,126,507
Share Issued (in shares)	362,660	140,000
Share Issued	$ 3,509,933	$ 116,667						3,626,600
Conversion of Convertible Securities (in shares)	48,200
Conversion of Convertible Securities	$ 478,017							478,017
Common stock issued for placement agent fees (in shares)		200,000
Common stock issued for placement agent fees	$ (306,000)	$ 306,000
Warrants issued to placement agent and other issuance costs	(752,924)		752,924
Placement agent fees and issuance costs	(820,160)							(820,160)
Beneficial Conversion feature on Preferred Stock	(2,328,473)		2,328,473
Deemed Dividend on beneficial conversion feature of Preferred Stock	2,328,473		(2,328,473)
Accrued Deemed Dividend	52,741		(52,741)
Net loss				(638,696)				(494,119)
Net Income (Loss) Attributable to Noncontrolling Interest							144,577
Foreign Currency Translation					(1,363,503)			(1,363,503)
Balance (in shares)	410,860	4,219,608				(43,658)
Balance (in shares) at Mar. 31, 2020	410,860	4,219,608				(43,658)
Balance at Mar. 31, 2020	$ 2,161,607	$ 14,321,161	4,287,470	(10,631,537)	(6,712,315)	$ (160,784)	(712,260)	2,553,342
Balance (in shares) at Dec. 31, 2019		3,879,608				(43,658)
Balance at Dec. 31, 2019		$ 13,898,494	3,587,287	(9,992,841)	(5,348,812)	$ (160,784)	(856,837)	1,126,507
Net loss								(2,981,947)
Net Income (Loss) Attributable to Noncontrolling Interest								138,198
Balance (in shares)	548,200	5,271,698				(43,658)
Balance (in shares) at Sep. 30, 2020	548,200	5,271,698				(43,658)
Balance at Sep. 30, 2020	$ 3,132,600	$ 14,537,828	4,695,658	(13,112,986)	(6,640,664)	$ (160,784)	(718,639)	1,733,013
Balance (in shares)	410,860	4,219,608				(43,658)
Balance (in shares) at Mar. 31, 2020	410,860	4,219,608				(43,658)
Balance at Mar. 31, 2020	$ 2,161,607	$ 14,321,161	4,287,470	(10,631,537)	(6,712,315)	$ (160,784)	(712,260)	2,553,342
Share Issued (in shares)	180,000	260,000
Share Issued	$ 1,583,334	$ 216,667						1,800,001
Warrants issued to placement agent and other issuance costs	(166,181)		166,181
Placement agent fees and issuance costs	(204,153)							(204,153)
Beneficial Conversion feature on Preferred Stock	(140,000)		140,000
Deemed Dividend on beneficial conversion feature of Preferred Stock	140,000		(140,000)
Accrued Deemed Dividend	97,554		(97,554)
Net loss				(1,527,509)				(1,459,196)
Net Income (Loss) Attributable to Noncontrolling Interest							68,313
Foreign Currency Translation					66,327			66,327
Balance (in shares)	590,860	4,479,608				(43,658)
Balance (in shares) at Jun. 30, 2020	590,860	4,479,608				(43,658)
Balance at Jun. 30, 2020	$ 3,472,161	$ 14,537,828	4,356,097	(12,159,046)	(6,645,988)	$ (160,784)	(643,947)	2,756,321
Balance (in shares)	590,860	4,479,608				(43,658)
Conversion of Convertible Securities (in shares)	(42,660)	444,607
Conversion of Convertible Securities	$ (444,607)		444,607
Accrued Deemed Dividend	105,046		(105,046)
Net loss				(953,940)				(1,028,632)
Net Income (Loss) Attributable to Noncontrolling Interest							(74,692)	(74,692)
Foreign Currency Translation					5,324			$ 5,324
Common stock issued for warrants exercised (in shares)		332,483						332,000
Common stock issued for warrants exercised
Stock based compensation (in shares)		15,000
Stock based compensation
Balance (in shares)	548,200	5,271,698				(43,658)
Balance (in shares) at Sep. 30, 2020	548,200	5,271,698				(43,658)
Balance at Sep. 30, 2020	$ 3,132,600	$ 14,537,828	$ 4,695,658	$ (13,112,986)	$ (6,640,664)	$ (160,784)	$ (718,639)	$ 1,733,013
Balance (in shares)	548,200	5,271,698				(43,658)

XML

Note 1 - Basis of Presentation

9 Months Ended

Sep. 30, 2020

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

September 30, 2020,

which has been derived from unaudited 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

and

nine

months ended

September 30, 2020

are

not

necessarily indicative of the results that

may

be expected for the fiscal year ending

December 31, 2020.

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, 2019.

Principles of consolidation and nature of operations:

Yunhong CTI Ltd. (formerly CTI Industries Corporation), its former United Kingdom subsidiary (CTI Balloons Limited), its Mexican subsidiary (Flexo Universal, S. de R.L. de C.V.), its German subsidiary (CTI Europe GmbH) and CTI Supply, Inc. (collectively, the “Company”) (i) design, manufacture and distribute metalized and latex balloon products throughout the world and (ii) operate 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. As discussed in Note

2

Discontinued Operations, effective in the

third

quarter of

2019,

the Company determined that it was exiting CTI Balloons Limited (“CTI Balloons”) and CTI Europe GmbH (“CTI Europe”). CTI Balloons has been fully liquidated as of the

fourth

quarter

2019.Accordingly,

the operations of these entities are classified as discontinued operations in these financial statements.

The consolidated financial statements include the accounts of Yunhong CTI Ltd., its wholly owned subsidiaries CTI Balloons Limited and CTI Supply, Inc. and its majority owned subsidiaries, Flexo Universal and CTI Europe, as well as the accounts of Venture Leasing S. A. de R. L., Venture Leasing L.L.C. (“VL”), and Clever Organizing Solutions (formerly Clever Container Company, L.L.C. “Clever”). The last

three

entities have been consolidated as variable interest entities. All significant intercompany accounts and transactions have been eliminated upon consolidation. The treatment of VL and Clever changed during

2019

as described in the next section.

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.

The Company has variable interests in VL and Clever. Through

June 30, 2019,

the Company had determined that it was the primary beneficiary of these entities and included them in our consolidated results. In the

third

quarter

2019,

we determined that operationally material changes in our involvement with Clever and VL resulted in us having

no

power over the decisions which impact their financial performance. Therefore, we are

no

longer the primary beneficiary of these entities. Effective

July 1, 2019,

we deconsolidated these entities and their results are

not

included in our Consolidated Statements of Comprehensive Income subsequent to

June 30, 2019.

Upon deconsolidation of these entities, we recognized a gain of

$219,000.

In accordance with ASC

810

-

10

because the carrying value of the noncontrolling interest of Clever which was eliminated exceeded the net carrying value of the assets and liabilities of Clever. The Company determined that there was

no

fair value associated with its remaining noncontrolling interest in Clever based on an income approach.

Use of estimates:

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the amounts reported of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period in the financial statements and accompanying notes. Actual results

may

differ from those estimates. The Company's significant estimates include valuation allowances for doubtful accounts, inventory valuation, deferred tax assets, goodwill and intangible asset valuation, and assumptions used as inputs in the Black-Scholes option-pricing model. In addition, issues pertaining to COVID-

19

have added assumptions related to

2020

sales activities well as the timing of recovery and condition of the broader market after COVID-

19

related shutdowns and limitations.

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

September 30, 2020

and

2019,

shares to be issued upon the exercise of options and warrants aggregated

479,802

 and

471,144,

respectively. The number of shares included in the determination of earnings on a diluted basis for the

three

months ended

September 30, 2020

and

2019

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, 2019.

There were

no

significant changes to these accounting policies during the

three

or

nine

months ended

September 30, 2020.

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.

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.

XML

Note 2 - Discontinued Operations

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

Note

2

– Discontinued Operations

In

July 2019

management and the Board engaged in a review of CTI Balloons and CTI Europe 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 CTI Balloons and CTI Europe. These actions are being taken to focus our resources and efforts on our core business activities, particularly foil balloons and ancillary products based in North America. The Company determined that these entities met the held-for-sale and discontinued operations accounting criteria. Accordingly, the Company has reported the results of these operations as discontinued operations in the Consolidated Statements of Comprehensive Income and presented the related assets and liabilities as held-for-sale in the Consolidated Balance Sheets. These changes have been applied for all periods presented. The Company divested its CTI Balloons (United Kingdom) subsidiary in the

fourth

quarter

2019.

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. 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 therefore, this product line has been presented as discontinued operations.

CTI Balloons recorded losses from discontinued operations, net of taxes of (

$433,000

) and (

$996,000

) for the

three

and

nine

months ended

September 30, 2019.

CTI Europe recorded a loss from discontinued operations, net of taxes of $(

76,000

) for the

three

months ended

September 30, 2020,

compared to a gain from discontinued operations, net of taxes of

$313,000

for the

nine

months ended

September 30, 2020.

The net losses, net of taxes, were (

$566,000

) and (

$1,735,000

) for the

three

and

nine

month periods ended

September 30, 2019,

respectively.

Our Ziploc product line recorded a loss from discontinued operations, net of taxes of (

$37,000

) for the

three

months ended

September 30, 2020,

compared to a loss from discontinued operations, net of taxes of (

$1,513,000

) for the

nine

months ended

September 30, 2020.

The net gain, net of taxes, was

$340,000

for the

three

months ended

September 30, 2019

compared to a gain from discontinued operations, net of taxes of

$625,000

for the

nine

-month period ended

September 30, 2019,

respectively.

Summarized Discontinued Operations Financial Information

The following table summarizes the major line items for the operations that are included in the income from discontinued operations, net of tax line item in the Consolidated Statements of Income for the

three

months ended:

	September 30, 2020			September 30, 2019
Income Statement
Net Sales	$	655,896		$	3,130,382
Cost of Sales		412,663			2,588,927
Gross profit (Loss)		243,233			541,454
SG&A		194,300			627,452
Operating income (loss)		48,933			(85,998	)
Other Expense		(10,848	)		(31,962	)
Total pretax income (loss) from discontinued operations		38,085			(54,035	)
Loss from classification to held for sale		(151,140	)		(604,483	)
Income Tax Expense		-			-
Net loss prior to non-controlling interest		(113,055	)		(658,518	)
Non-controlling Interest share of profit/loss		(72,211	)		(760,813	)
Net loss	$	(40,844	)	$	102,295

The following table summarizes the major line items for the operations that are included in the income from discontinued operations, net of tax line item in the Consolidated Statements of Income for the

nine

months ended:

	September 30, 2020			September 30, 2019
Income Statement	$			$
Net Sales		2,328,341			10,191,188
Cost of Sales		2,527,937			9,607,692
Gross Margin		(199,597	)		583,496
Impairment of Long-Lived Assets		-
SG&A		1,049,295			2,025,778
Operating Loss		(1,248,892	)		(1,442,283	)
Other Expense		(33,301	)		(58,990	)
Total pretax loss from discontinued operations		(1,282,193	)		(1,501,273	)
Gain  (loss) from classification to held for sale		82,545			(604,483	)
Net Income prior to non-controlling interest		(1,199,648	)		(2,105,756	)
Non-controlling Interest share of profit/loss		150,458			(837,136	)
Net Loss	$	(1,350,106	)	$	(1,268,620	)

The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations for each of the periods presented:

Yunhong CTI Ltd.

Consolidated Balance Sheet

	September 30, 2020			December 31, 2019
Balance Sheet
Assets
Current Assets
Cash on hand and Banks	$	222,707		$	4,307
Accounts Receivable		481,732			539,910
Inventory		-			74,383
Prepaid & Other		90,308			135,912
TOTAL Current Assets		794,747			754,512
NET Property, Plant, and Equipment		7,633			53,919
Other Assets
Operating lease right-of-use		151,817			220,541
Other		32,543			47,958
TOTAL Other Assets		184,360			268,499
TOTAL Non-Current Assets		191,993			322,418
Valuation Allowance on Assets Held for Sale		(238,354	)		(320,899	)
TOTAL Assets	$	748,386		$	756,031
Liabilities
Current Liabilities
Trade Accounts Payable		68,013			384,333
Operating Lease Liabilities - Current		89,119			203,291
Other/Accrued Liabilities		19,276			19,562
TOTAL Current Liabilities		176,408			607,187
Non-Current Liabilities
Operating Lease Liabilities - Non Current		62,698			17,250
Other Non-Current		34,676			32,317
TOTAL Non-Current Liabilities		97,374			49,567
TOTAL Liabilities	$	273,782		$	656,753

The cash flows related to discontinued operations have

not

been segregated and are included in the Consolidated Statements of Cash Flows. The following table summarizes depreciation from discontinued operations for each of the periods presented:

	Nine Months Ended
	September 30,
	2020		2019
Depreciation	$	320,731	$	266,784

XML

Note 3 - Liquidity and Going Concern

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Liquidity and Going Concern [Text Block]

Note

3

– 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”) (the “Credit Agreement”) (see Note

4

). As indicated in Note

4,

twice during

2018

we violated covenants in our credit facility and during

March 2019

we entered into a forbearance agreement with PNC. Under the terms of this agreement, financial covenants as of

March 31, 2019

were

not

considered and all previously identified compliance failures were waived, but we remained out of compliance with the terms of our credit facility, as amended, including the covenants as of

June 30, 2019

calculated on or about

July 31, 2019.

On

August 1, 2019,

PNC issued a Default and Reservation of Rights letter to the Company, in which PNC advised that line of credit advances would continue to be available to the Company at PNC's sole discretion, and subject to its terms and conditions. On

October 18, 2019,

we entered into a new forbearance agreement with PNC (“Amendment

4”

). Identified events of default were waived until

January 10, 2020

with respect to CTI Industries Corporation, but

not

its Mexican subsidiary (Flexo), subject to its terms and conditions. On

January 13, 2020,

we entered into a new forbearance agreement with PNC (“Amendment

5”

). PNC agreed to (i) waive the Loan Agreement's requirement that the Company apply the net proceeds of the Offering

first

to the Term Loans (as defined in the Loan Agreement), and agreed that the Company shall instead apply the net proceeds of the Offering to the Revolving Advances (as defined in the Loan Agreement) and in connection therewith the Revolving Commitment Amount (as defined in the Loan Agreement) shall be reduced on a dollar for dollar basis by the amount so applied to the Revolving Advances, and (ii) forebear from exercising the rights and remedies in respect of the Existing Defaults afforded to PNC under the Loan Agreement for a period ending

no

later than

December 31, 2020.

During

2019,

we attempted to execute a major capital event with a partner that would infuse money, among other attributes. That effort was unsuccessful as envisioned. We were subsequently successful in obtaining new financing during

2020.

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 Ltd., a Singapore private limited company (the “LF International”), which is controlled by Company Chairman Mr. Yubao Li, pursuant to which we sold to LF International

500,000

shares of our Series A Convertible Preferred Stock at a purchase price of

$10.00

per share and for aggregate proceeds of

$5,000,000.

Pursuant to the LF Purchase Agreement, we were authorized to sell an additional

$2

million shares of Series A to other investors under similar financial terms, approximately

$1

million of which has been sold as of

September 30, 2020,

including to an investor which converted an accounts receivable of

$478,000

owed to the investor by the Company in exchange for

48,200

shares of Series A Preferred. There were several closings with the LF International from

January 2020

through

June 2020.

The majority of the funds received reduced our bank debt. We issued a total of

400,000

shares of common stock to LF International and, pursuant to the LF Purchase Agreement, changed our name from CTI Industries Corporation to Yunhong CTI Ltd. During the transaction and subsequent interim closings, LF International had the right to name

three

directors to serve on our Board. They are Mr. Yubao Li, our Chairman of the Board, Ms. Wan Zhang and Ms. Yaping Zhang.     

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 believe that, during the

first

three

months of

2020,

the Company's standalone US business would have complied with the Credit Agreement's requirement that the Company maintain a fixed charge coverage ratio of

0.75

to

1.00

for the

three

-month period ended

March 31, 2020 (

the “Fixed Charge Coverage Ratio”).The Company, as a consolidated group, however, did

not

comply with the Fixed Charge Coverage Ratio, resulting in the noncompliance.

The Lender has continued to make advances to the Company (“Discretionary Advances”), although it is

not

required to do so under the terms of the Loan Agreement due to the Events of Default. On

July 17, 2020,

the Lender provided the Company notice that multiple previously disclosed events, which each constitute an Event of Default, are continuing to occur. Additionally, the Lender required that the Company obtain a commitment for

third

-party equity funding in an amount

not

less than

$3,000,000

by

no

later than

July 31, 2020.

Absent such commitment, the Lender advised that it

may

cease making discretionary advances to the Company. On

July 22, 2020,

the Company's board of directors authorized the Company to seek such funding and, to ensure that the Company met the Lender's equity funding commitment deadline. Mr. Yubao Li, the Company's Chairman, committed that, in the event the Company does

not

obtain funding of at least

$3,000,000,

he would provide the necessary funding. In

September 2020,

the Company received

$1.5

million from an unrelated

third

party as an advance on a proposed sale of Series B Convertible Preferred Stock (the terms of which are currently being negotiated and finalized).  Additionally, in

October,

the Company received a

$1.5

million advance on a separate proposed equity financing for which the terms have

not

yet been finalized.   The Lender has continued to make the Discretionary Advances throughout this period and has indicated that we have complied with their request.    

In addition to the above, financial performance in

2017,

2018

and

2019,

included net losses attributable to the Company of

$1.6

million,

$3.6

million, and

$7.1

million, respectively. While these results included significant charges related to the disposition of subsidiaries, we believe that the result raises substantial doubt about our ability to continue as a going concern

one

year from the date these financial statements are issued.

Additionally, we have experienced challenges in maintaining adequate seasonal working capital balances, made more challenging by increases in financing and labor costs, along with a supply disruption in the helium market during

2019.

These changes in cash flows have created very significant strain within our operations and have therefore increased our attempts to obtain additional funding resources.

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.

Finally, claims have been filed in court by certain vendors regarding claims of non-payment pursuant to contractual obligations. While many have been resolved, the sum of the outstanding claims made or threatened exceeds

$0.5

million in the aggregate. The cost of defense and potential ultimate resolution increases the strain on our financial resources.

Management's plans include:

( 1 ) Working with our new investor group to expand our business in profitable ways.

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

( 3 ) Relocating our existing operation in Lake Zurich, IL to a lower cost environment in Laredo, TX and Nuevo Laredo, Mexico.

( 4 ) Evaluating and potentially executing a transaction of our facility in Lake Barrington, IL.

( 5 ) Simplifying our group structure, focusing on the most profitable products and markets, and

( 6 ) Exploring alternative funding sources.

Management Assessment

Considering both quantitative and qualitative information, we believe that our plans to obtain additional financing

may

provide us with an ability to finance our operations through

2020

and, if successfully executed,

may

mitigate the substantial doubt about our ability to continue as a going concern.

XML

Note 4 - Debt

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

4

- Debt

During

December 2017,

we terminated a prior credit arrangement and entered in new financing agreements (the “PNC 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 CTI Industries (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 were waived and financial covenants as of

March 31, 2019

were

not

considered, with the next calculation due

July 31, 2019

for the period ended

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.

On

August 1, 2019,

PNC issued a Notice of Default and Reservation of Rights letter, indicating the end of the forbearance period and continued events of default with our credit agreement, as amended. We entered into a new forbearance agreement during

October 2019

which completed

January 2020.

In conjunction with new equity financing, on

January 13, 2020,

a Limited Waiver, Consent, Amendment

No.

5

and Forbearance Agreement (the “Forbearance Agreement”) between PNC and the Company became effective, pursuant to which PNC agreed to (i) waive the Loan Agreement's requirement that the Company apply the net proceeds of the Offering

first

to the Term Loans (as defined in the Loan Agreement), and agreed that the Company shall instead apply the net proceeds of the Offering to the Revolving Advances (as defined in the Loan Agreement) and in connection therewith the Revolving Commitment Amount (as defined in the Loan Agreement) shall be reduced on a dollar for dollar basis by the amount so applied to the Revolving Advances, and (ii) forebear from exercising the rights and remedies in respect of the Existing Defaults afforded to PNC under the Loan Agreement for a period ending

no

later than

December 31, 2020.

In addition, on

June 15, 2020,

we received a notice of noncompliance and reservation of rights letter from the bank related to failing the covenant calculation during the

first

quarter of

2020.

We remain noncompliant with the terms of our facility and have thus 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 CTI Industries (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 were 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. This requirement was removed during the January 2020 Amendment 5.

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. The highest values allowed for each quarterly calculation are as follow:

Fiscal Quarter Ratio

March 31, 2020	0.75	to	1.00
June 30, 2020	0.85	to	1.00
September 30, 2020	0.95	to	1.00
December 31, 2020	1.05	to	1.00
March 31, 2021 and thereafter	1.15	to	1.00

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 believe that, during the

first

three

months of

2020,

the standalone US business would have complied with the fixed charge coverage ratio, but consolidated group did

not

result in a new condition of noncompliance.

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

3,

we remain out of compliance with the terms of this facility.

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

2019

or the

nine

months ended

September 30, 2020,

with

$49,000

and

$46,000,

respectively, of interest recorded as an expense during the

first

nine

months of

2020

and

2019,

respectively.

During

2020,

Flexo replaced a

$260,000

line of credit with

three

line of credit totaling

$260,000.

  Flexo's total debt instruments are

$1.75

million.   

On

April 30, 2020,

the Company executed a promissory note (the “Note”) with PNC Bank National Association (the “Lender”) evidencing an unsecured loan in the aggregate principal amount of 

$1,047,700

 (the “PPP Loan”), which was made pursuant to the Paycheck Protection Program (the “PPP”). The PPP was established under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which was enacted on

March 27, 2020,

and is administered by the U.S. Small Business Administration (“SBA”). All the funds under the PPP Loan were disbursed to the Company on

April 23, 2020. 

The Note provides for a fixed interest rate of 

one

 percent per year with a maturity date of

April 30, 

2022

(the “Maturity Date”). Monthly principal and interest payments due on the PPP Loan are deferred for a 

six

-month period beginning from the date of disbursement of the PPP Loan. The PPP Loan

may

be prepaid by the Company at any time prior to the Maturity Date with

no

prepayment penalties or premiums. The Note contains customary event of default provisions. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loans granted under the PPP. Such forgiveness will be subject to approval by the SBA and the Lender and determined, subject to limitations, based on factors set forth in the CARES Act, including verification of the use of loan proceeds for payment of payroll costs and payments of mortgage interest, rent and utilities. In the event the PPP Loan, or any portion thereof, is forgiven, the amount forgiven is applied to outstanding principal. The terms of any forgiveness

may

also be subject to further regulations and guidelines that the SBA

may

adopt. The Company carefully monitored all qualifying expenses and other requirements necessary to attain loan forgiveness; however,

no

assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part. The Company has used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments.  During the

three

months ended

June 30, 2020

the Company recorded

$800,000

in other income for the PPP anticipated grant related to payroll utility and rent payment. During the

three

months ended

September 30, 2020

the Company recorded

$248,000

in other income for the PPP anticipated grant related to payroll utility and rent payment, which resulted in

no

deferred other income liability balance as of

September 30, 2020.  

XML

Note 5 - Stock-based Compensation; Changes in Equity

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

Note

5

- 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,

0.42%

-

1.65%,

to be applied, the estimated dividend yield and expected volatility,

153.73%

-

161.48%,

  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

2020

and

2019.

The expected volatility is based on historical volatility of the Company's common stock.

The Company's net loss for the

three

months ended

September 30, 2020

and

2019

includes approximately

none

and

$20,000,

respectively, of compensation costs related to share based payments. The Company's net loss for the

nine

months ended

September 30, 2020

and

2019

includes approximately

none

and

$72,000,

respectively, of compensation costs related to share based payments. As of

September 30, 2020,

there was

no

unrecognized compensation expense related to non-vested stock option grants and stock grants.

On

April 10, 2009,

the Board 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 authorized the issuance of up to

300,000

shares of our common stock in the form of equity-based awards. Because

no

registration on Form S-

8

was filed for these additional shares within

12

months of approval by our shareholders, those additional shares are

not

available for issuance in the normal course. As of

September 30, 2020,

options for

20,000

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, 2019		471,144		$	3.95
Granted		792,660			1.00
Cancelled/Expired		(436,519	)		3.95
Exercised/Issued		(347,483	)		1.19
Outstanding at September 30, 2020		479,802			1.10
Exercisable at September 30, 2020		19,625		$	5.49

The instruments above have

no

aggregate intrinsic value (the difference between the closing price of the Company's common stock on the last trading day of the quarter ended

September 30, 2020

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

September 30, 2020.

On

January 3, 2020,

the Company entered into a stock purchase agreement, as amended on

February 24, 2020

and

April 13, 2020 (

the “LF Purchase Agreement”), pursuant to which the Company agreed to issue and sell, and LF International Pte. Ltd., a Singapore private limited company (the “LF International”), which is controlled by Company director Mr. Yubao Li, agreed to purchase, up to

500,000

shares of the Company's newly created shares of 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 permitted by the 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 (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 the sale of

250,000

shares of Series A Preferred for 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 (the “Board”) (subject to certain adjustments), effective as of the

first

closing. 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.

On

January 30, 2020,

the Company sold

20,600

shares of Series A Preferred to an investor for an aggregate purchase price of

$206,000.

On

February 21, 2020,

the Company sold

22,060

shares of Series A Preferred to an investor for an aggregate purchase price of

$220,600.

The Purchase Agreement contemplates a

second

closing for the purchase and sale of an additional

250,000

shares of Series A Preferred (the “Second Closing”). On

February 24, 2020,

to permit an interim closing prior to the satisfaction of the relevant closing conditions to, and the consummation of, the Second Closing, the Company and LF International entered into an amendment to the Purchase Agreement (the “Purchase Agreement Amendment”), pursuant to which the Company agreed to issue and sell, and LF International agreed to purchase,

70,000

shares of Series A Preferred at a purchase price of

$10.00

per share, for aggregate gross proceeds of

$700,000

(the “Interim Closing”). As an inducement to enter into the Purchase Agreement Amendment, the Company i) granted to the Investor the right to appoint and elect a

second

member to the Company's Board of Directors and ii) agreed to issue to LF International

140,000

shares of the Company's common stock. On

February 28, 2020,

the Company and LF International closed on the Interim Closing.

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.

On

April 13, 2020,

to permit an additional interim closing prior to the satisfaction of the relevant closing conditions to, and the consummation of, the Second Closing, the Company and LF International entered into a

second

amendment to the Purchase Agreement (the “Second Purchase Agreement Amendment”), pursuant to which the Company agreed to issue and sell, and LF International agreed to purchase,

130,000

shares of Series A Preferred at a purchase price of

$10.00

per share, for aggregate gross proceeds of

$1,300,000

(the “Additional Interim Closing”). As an inducement to enter into the Second Purchase Agreement Amendment, the Company i) granted to LF International the right to appoint and elect a

third

member to the Board and ii) agreed to issue to LF International

260,000

shares of common stock.

On

June 5, 2020,

the Company and LF International conducted the Second Closing, as modified by the Interim Closing and Additional Interim Closing (the “Final Closing”), and closed on the issuance of

50,000

shares of Series A Preferred at a purchase price of

$10.00

per share to LF International for aggregate gross proceeds of

$500,000

to the Company. As a result of the Final Closing, LF International held, in the aggregate, approximately

57%

of the voting control of the Company, resulting in a change in control of the Company.

The issuance of the Company's Series A Preferred Stock generated a beneficial conversion feature (BCF), which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. The fair value of the common stock into which the Series A Preferred was convertible exceeded the allocated purchase price fair value of the Series A Preferred Stock at the closing dates by approximately

$2.5

million as of the closing dates.  We recognized this BCF by allocating the intrinsic value of the conversion option, to additional paid-in capital, resulting in a discount on the Series A Preferred Stock. As the Series A Preferred Stock is immediately convertible, the Company accreted the discount on the date of issuance.  The accretion was recognized as dividend equivalents.  Holders of the Series A Preferred will be entitled to receive quarterly dividends at the annual rate of

8%

of the stated value (

$10

per share). Such dividends

may

be paid in cash or in shares of common stock at the Company's discretion.  In the

nine

months ending

September 30, 2020

the Company accrued

$255,341

of these dividends. 

During the

three

months ended

September 30, 2020,

332,000

shares of the Company's common stock were issued upon the exercise of

500,000

warrants. During the

third

quarter

2020,

42,660

convertible preferred shares were converted into

426,600

shares of common stock.  An additional

18,007

shares of common stock were issued as satisfaction of the accrued dividend on the preferred shares.

In

2020,

the Company issued

15,000

shares to its former president in satisfaction of his stock compensation plan which accelerated upon his resignation.

In

September 2020,

the Company received

$1.5

million from an unrelated

third

party as an advance on a proposed sale of Series B Redeemable Convertible Preferred Stock.   As of

September 30, 2020,

the Company was in the process of negotiating and finalizing the terms of the arrangement.  On

November 17, 2020,

the Company finalized the associated stock purchase agreement for the sale of

170,000

new issued shares of Series B Redeemable Convertible Preferred Stock.   Each share is convertible into

ten

shares of the Company's common stock and Holders of the Series B Preferred will be entitled to receive quarterly dividends at the annual rate of

8%

of the stated value (

$10

per share). Such dividends

may

be paid in cash or in shares of common stock at the Company's discretion. The stock purchase agreement is subject to customary conditions for closing.  As the agreement was

not

finalized as of

September 30, 2020,

the

$1.5

million advance is classified as Advance from Investor within liabilities on the accompanying balance sheet.

XML

Note 6 - Legal Proceedings

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Legal Matters and Contingencies [Text Block]

Note

6

- 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.

During

2019

and

2020,

claims have been filed against us claiming failure to pay contractually obligated amounts. Approximately

$760,000

in aggregate claims are outstanding as of

September 30, 2020.

These claims are being disputed, the ultimate outcome of which is unknown.

FedEx Trade Networks Transport sought

$163,965

 in damages, plus interest and court costs. On

October 15, 2020,

the case was dismissed with leave to reinstate pursuant to settlement. The settlement calls for the payment of

$100,400

 in monthly installments of

$10,000

per month for a period of

ten

(

10

) months and with the last payment being in the amount of

$10,400.

The

first

payment came due and was made on

October 30, 2020.

XML

Note 7 - Other Comprehensive Income

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

Note

7

- Other Comprehensive Income

In the

nine

months ended

September 30, 2020,

the Company incurred other comprehensive loss of approximately

$1,292,000

from foreign currency translation adjustments. The main contributing factor was a sudden approximate

25%

decline in the valuation of the Mexican peso related to the COVID-

19

pandemic discussed above and resulting large-scale, rapid impacts to the world economy.

XML

Note 8 - Geographic Segment Data

9 Months Ended

Sep. 30, 2020

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 continuing operations by geographic area is as follows:

	Net Sales to Outside Customers
	For the Nine Months Ended
	September 30,
	2020		2019
United States	$	14,718,000	$	17,911,000
Mexico		4,076,000		6,348,000
	$	18,794,000	$	24,259,000

	Net Sales to Outside Customers
	For the Three Months Ended
	September 30,
	2020		2019
United States	$	4,749,000	$	4,120,000
Mexico		1,232,000		2,245,000
	$	5,981,000	$	6,365,000

	Total Assets at
	September 30,		December 31,
	2020		2019
United States	$	13,215,000	$	19,668,000
Mexico		7,986,000		10,897,000
Assets Held for Sale International Subsidiaries		748,000		756,000
	$	21,949,000	$	31,321,000

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Note 9 - Inventories, Net of Continuing Operations

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Inventory Disclosure [Text Block]

Note

9

-

Inventories, Net of Continuing Operations

	September 30, 2020			December 31, 2019
Raw materials	$	1,385,000		$	1,545,000
Work in process		2,808,000			3,110,000
Finished goods		6,837,000			9,766,000
In Transit		115,000			100,000
Allowance for excess quantities		(501,000	)		(562,000	)
Total inventories	$	10,644,000		$	13,959,000

XML

Note 10 - Concentration of Credit Risk

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

Note

10

- 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

nine

months ended

September 30, 2020

and

2019,

there was

one

customer whose purchases represented more than

10%

of the Company's consolidated net sales. Sales to this customer for the

nine

months ended

September 30, 2020

and

2019

are as follows:

	Three Months Ended					Three Months Ended
	September 30, 2020					September 30, 2019
Customer	Net Sales		% of Net Sales			Net Sales		% of Net Sales
Customer A	$	3,737,000		63	%	$	1,559,000		25	%

	Nine Months Ended					Nine Months Ended
	September 30, 2020					September 30, 2019
Customer	Net Sales		% of Net Sales			Net Sales		% of Net Sales
Customer A	$	9,412,000		50	%	$	8,890,000		37	%

As of

September 30, 2020,

the total amounts owed to the Company by this customer were approximately

$1,724,000

or

33%

of the Company's consolidated net accounts receivable. The amounts owed at

September 30, 2019

by this customer was approximately

$831,000

or

16%

of the Company's consolidated net accounts receivable.

XML

Note 11 - Related Party Transactions

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

Note

11

- Related Party Transactions

John H. Schwan, who resigned as Chairman of the Board on

June 1, 2020,

is the brother of Gary Schwan,

one

of the owners of Schwan Incorporated, which provides building maintenance services to the Company. The Company made payments to Schwan Incorporated of approximately

$2,700

and

$12,000

during the

nine

months ended

September 30, 2020

and

2019,

respectively. Jana M. Schwan, Chief Operating Officer of the Company, is the daughter of John H. Schwan.  As of

September 30, 2020

the payable balance amounted to

$8,800

and is included in trade payables. 

During the period from

January 2003

to the present, John H. Schwan has made loans to the Company which had outstanding balances, for the Company of

$1.6

million as of

December 31, 2018.

During

January 2019

he converted

$0.6

million to equity at the then market price of our stock. Including accrued interest, his balance was

$1.1

million as of

September 30, 2020.

During the

first

nine

months of

2020

and

2019,

interest expense on these outstanding loans was

$49,000

and

$46,000,

respectively.

Items identified as Notes Payable Affiliates in the Company's Consolidated Balance Sheet as of

September 30, 2020

and

2019

include loans by shareholders to Flexo Universal totaling

$20,000

and

$12,000,

respectively.

On

July 1, 2019,

the Company deconsolidated Clever which resulted in a note receivable at that time of

$1.387

million.  During the

nine

months ended

September 30, 2020

the Company recorded a reserve of

$350,000.

 One of owners of Clever is Mr. Schwan, above.  The balance as of

September 30, 2020

amounted to

$1,026,813.

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Note 12 - Derivative Instruments; Fair Value

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Derivatives and Fair Value [Text Block]

Note

12

-

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

September 30, 2020,

we had

no

such instrument.

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Note 13 - Leases

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

Note

13

-

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

$1.1

million increase in current liabilities, and a

$1.7

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.

In

July 2020,

the Company entered into a lease agreement for a building through

June 2021 (

with

no

extension options).   The monthly lease payments are

$38,000.

  The Company made a policy election to

not

recognize right of use assets and lease liabilities that arise from leases with an initial term of

twelve

months or less on the Consolidated Balance Sheets.   However, the Company recognized these lease payments in the Consolidated Statement of Operations on a straight-line basis over the lease term and variable lease payments in the period in which the expense was incurred.

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 depreciable 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 table below describes our lease position as of

September 30, 2020:

Assets	As of September 30, 2020
Operating lease right-of-use assets	$	1,457,000
Accumulated amortization		(1,097,000	)
Net lease assets	$	360,000
Liabilities
Current
Operating		312,000
Noncurrent
Operating		48,000
Total lease liabilities	$	360,000
Weighted average remaining term (years) – operating leases (in years)		2
Weighted average discount rate – operating leases		11.25	%

During the

nine

months ended

September 30, 2020,

we recorded expenses related to:

Operating right-of-use lease asset amortization	$	471,000
Total expense during nine months ended September 30, 2020	$	471,000

Operating lease expenses were approximately 

$471,000

for the

nine

months ended 

September 30, 2020.

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 

$471,000

 for the

nine

months ended 

September 30, 2020.

The following table summarizes the maturities of our lease liabilities for all operating leases as of

September 30, 2020:

(in thousands)
2020	$	111
2021		373
2022 and thereafter		51
Total lease payments		535
less: Imputed interest		(175	)
Present value of lease liabilities	$	360

XML

Note 14 - Subsequent Events

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Subsequent Events [Text Block]

Note

14

 - Subsequent Events

In

September 2020,

the Company received

$1.5

million from an unrelated

third

party as an advance on a proposed sale of Series B Redeemable Convertible Preferred Stock.   As of

September 30, 2020,

the Company was in the process of negotiating and finalizing the terms of the arrangement.  On

November 17, 2020,

the Company finalized the associated stock purchase agreement for the sale of

170,000

new issued shares of Series B Redeemable Convertible Preferred Stock.   Each share is convertible into

ten

shares of the Company's common stock and Holders of the Series B Preferred will be entitled to receive quarterly dividends at the annual rate of

8%

of the stated value (

$10

per share). Such dividends

may

be paid in cash or in shares of common stock at the Company's discretion. The stock purchase agreement is subject to customary conditions for closing.  As the agreement was

not

finalized as of

September 30, 2020,

the

$1.5

million advance is classified as Advance from Investor within liabilities on the accompanying balance sheet.  In

October 2020,

the Company received a

$1.5

million advance on a proposed equity financing for which the terms have

not

yet been finalized.

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Principles of consolidation and nature of operations:

Yunhong CTI Ltd. (formerly CTI Industries Corporation), its former United Kingdom subsidiary (CTI Balloons Limited), its Mexican subsidiary (Flexo Universal, S. de R.L. de C.V.), its German subsidiary (CTI Europe GmbH) and CTI Supply, Inc. (collectively, the “Company”) (i) design, manufacture and distribute metalized and latex balloon products throughout the world and (ii) operate 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. As discussed in Note

2

Discontinued Operations, effective in the

third

quarter of

2019,

the Company determined that it was exiting CTI Balloons Limited (“CTI Balloons”) and CTI Europe GmbH (“CTI Europe”). CTI Balloons has been fully liquidated as of the

fourth

quarter

2019.Accordingly,

the operations of these entities are classified as discontinued operations in these financial statements.

The consolidated financial statements include the accounts of Yunhong CTI Ltd., its wholly owned subsidiaries CTI Balloons Limited and CTI Supply, Inc. and its majority owned subsidiaries, Flexo Universal and CTI Europe, as well as the accounts of Venture Leasing S. A. de R. L., Venture Leasing L.L.C. (“VL”), and Clever Organizing Solutions (formerly Clever Container Company, L.L.C. “Clever”). The last

three

entities have been consolidated as variable interest entities. All significant intercompany accounts and transactions have been eliminated upon consolidation. The treatment of VL and Clever changed during

2019

as described in the next section.

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.

The Company has variable interests in VL and Clever. Through

June 30, 2019,

the Company had determined that it was the primary beneficiary of these entities and included them in our consolidated results. In the

third

quarter

2019,

we determined that operationally material changes in our involvement with Clever and VL resulted in us having

no

power over the decisions which impact their financial performance. Therefore, we are

no

longer the primary beneficiary of these entities. Effective

July 1, 2019,

we deconsolidated these entities and their results are

not

included in our Consolidated Statements of Comprehensive Income subsequent to

June 30, 2019.

Upon deconsolidation of these entities, we recognized a gain of

$219,000.

In accordance with ASC

810

-

10

because the carrying value of the noncontrolling interest of Clever which was eliminated exceeded the net carrying value of the assets and liabilities of Clever. The Company determined that there was

no

fair value associated with its remaining noncontrolling interest in Clever based on an income approach.

Use of Estimates, Policy [Policy Text Block]

Use of estimates:

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the amounts reported of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period in the financial statements and accompanying notes. Actual results

may

differ from those estimates. The Company's significant estimates include valuation allowances for doubtful accounts, inventory valuation, deferred tax assets, goodwill and intangible asset valuation, and assumptions used as inputs in the Black-Scholes option-pricing model. In addition, issues pertaining to COVID-

19

have added assumptions related to

2020

sales activities well as the timing of recovery and condition of the broader market after COVID-

19

related shutdowns and limitations.

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

September 30, 2020

and

2019,

shares to be issued upon the exercise of options and warrants aggregated

479,802

 and

471,144,

respectively. The number of shares included in the determination of earnings on a diluted basis for the

three

months ended

September 30, 2020

and

2019

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, 2019.

There were

no

significant changes to these accounting policies during the

three

or

nine

months ended

September 30, 2020.

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.

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.

XML

Note 2 - Discontinued Operations (Tables)

9 Months Ended

Sep. 30, 2020

Notes Tables

Disposal Groups, Including Discontinued Operations [Table Text Block]

	September 30, 2020			September 30, 2019
Income Statement
Net Sales	$	655,896		$	3,130,382
Cost of Sales		412,663			2,588,927
Gross profit (Loss)		243,233			541,454
SG&A		194,300			627,452
Operating income (loss)		48,933			(85,998	)
Other Expense		(10,848	)		(31,962	)
Total pretax income (loss) from discontinued operations		38,085			(54,035	)
Loss from classification to held for sale		(151,140	)		(604,483	)
Income Tax Expense		-			-
Net loss prior to non-controlling interest		(113,055	)		(658,518	)
Non-controlling Interest share of profit/loss		(72,211	)		(760,813	)
Net loss	$	(40,844	)	$	102,295

	September 30, 2020			September 30, 2019
Income Statement	$			$
Net Sales		2,328,341			10,191,188
Cost of Sales		2,527,937			9,607,692
Gross Margin		(199,597	)		583,496
Impairment of Long-Lived Assets		-
SG&A		1,049,295			2,025,778
Operating Loss		(1,248,892	)		(1,442,283	)
Other Expense		(33,301	)		(58,990	)
Total pretax loss from discontinued operations		(1,282,193	)		(1,501,273	)
Gain  (loss) from classification to held for sale		82,545			(604,483	)
Net Income prior to non-controlling interest		(1,199,648	)		(2,105,756	)
Non-controlling Interest share of profit/loss		150,458			(837,136	)
Net Loss	$	(1,350,106	)	$	(1,268,620	)

	September 30, 2020			December 31, 2019
Balance Sheet
Assets
Current Assets
Cash on hand and Banks	$	222,707		$	4,307
Accounts Receivable		481,732			539,910
Inventory		-			74,383
Prepaid & Other		90,308			135,912
TOTAL Current Assets		794,747			754,512
NET Property, Plant, and Equipment		7,633			53,919
Other Assets
Operating lease right-of-use		151,817			220,541
Other		32,543			47,958
TOTAL Other Assets		184,360			268,499
TOTAL Non-Current Assets		191,993			322,418
Valuation Allowance on Assets Held for Sale		(238,354	)		(320,899	)
TOTAL Assets	$	748,386		$	756,031
Liabilities
Current Liabilities
Trade Accounts Payable		68,013			384,333
Operating Lease Liabilities - Current		89,119			203,291
Other/Accrued Liabilities		19,276			19,562
TOTAL Current Liabilities		176,408			607,187
Non-Current Liabilities
Operating Lease Liabilities - Non Current		62,698			17,250
Other Non-Current		34,676			32,317
TOTAL Non-Current Liabilities		97,374			49,567
TOTAL Liabilities	$	273,782		$	656,753

	Nine Months Ended
	September 30,
	2020		2019
Depreciation	$	320,731	$	266,784

XML

Note 4 - Debt (Tables)

9 Months Ended

Sep. 30, 2020

Notes Tables

Schedule of Leverage Ratios [Table Text Block]

March 31, 2020	0.75	to	1.00
June 30, 2020	0.85	to	1.00
September 30, 2020	0.95	to	1.00
December 31, 2020	1.05	to	1.00
March 31, 2021 and thereafter	1.15	to	1.00

XML

Note 5 - Stock-based Compensation; Changes in Equity (Tables)

9 Months Ended

Sep. 30, 2020

Notes Tables

Share-based Payment Arrangement, Activity [Table Text Block]

	Shares under Option			Weighted Average Exercise Price
Balance at December 31, 2019		471,144		$	3.95
Granted		792,660			1.00
Cancelled/Expired		(436,519	)		3.95
Exercised/Issued		(347,483	)		1.19
Outstanding at September 30, 2020		479,802			1.10
Exercisable at September 30, 2020		19,625		$	5.49

XML

Note 8 - Geographic Segment Data (Tables)

9 Months Ended

Sep. 30, 2020

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Net Sales to Outside Customers
	For the Nine Months Ended
	September 30,
	2020		2019
United States	$	14,718,000	$	17,911,000
Mexico		4,076,000		6,348,000
	$	18,794,000	$	24,259,000

	Net Sales to Outside Customers
	For the Three Months Ended
	September 30,
	2020		2019
United States	$	4,749,000	$	4,120,000
Mexico		1,232,000		2,245,000
	$	5,981,000	$	6,365,000

	Total Assets at
	September 30,		December 31,
	2020		2019
United States	$	13,215,000	$	19,668,000
Mexico		7,986,000		10,897,000
Assets Held for Sale International Subsidiaries		748,000		756,000
	$	21,949,000	$	31,321,000

XML

Note 9 - Inventories, Net of Continuing Operations (Tables)

9 Months Ended

Sep. 30, 2020

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	September 30, 2020			December 31, 2019
Raw materials	$	1,385,000		$	1,545,000
Work in process		2,808,000			3,110,000
Finished goods		6,837,000			9,766,000
In Transit		115,000			100,000
Allowance for excess quantities		(501,000	)		(562,000	)
Total inventories	$	10,644,000		$	13,959,000

XML

Note 10 - Concentration of Credit Risk (Tables)

9 Months Ended

Sep. 30, 2020

Notes Tables

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	Three Months Ended					Three Months Ended
	September 30, 2020					September 30, 2019
Customer	Net Sales		% of Net Sales			Net Sales		% of Net Sales
Customer A	$	3,737,000		63	%	$	1,559,000		25	%

	Nine Months Ended					Nine Months Ended
	September 30, 2020					September 30, 2019
Customer	Net Sales		% of Net Sales			Net Sales		% of Net Sales
Customer A	$	9,412,000		50	%	$	8,890,000		37	%

XML

Note 13 - Leases (Tables)

9 Months Ended

Sep. 30, 2020

Notes Tables

Lessee, Operating Lease, Assets and Liabilities [Table Text Block]

Assets	As of September 30, 2020
Operating lease right-of-use assets	$	1,457,000
Accumulated amortization		(1,097,000	)
Net lease assets	$	360,000
Liabilities
Current
Operating		312,000
Noncurrent
Operating		48,000
Total lease liabilities	$	360,000
Weighted average remaining term (years) – operating leases (in years)		2
Weighted average discount rate – operating leases		11.25	%

Lease, Cost [Table Text Block]

Operating right-of-use lease asset amortization	$	471,000
Total expense during nine months ended September 30, 2020	$	471,000

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

(in thousands)
2020	$	111
2021		373
2022 and thereafter		51
Total lease payments		535
less: Imputed interest		(175	)
Present value of lease liabilities	$	360

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Note 1 - Basis of Presentation (Details Textual) - USD ($)		2 Months Ended	3 Months Ended		9 Months Ended
	Jul. 01, 2019	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Deconsolidation, Gain (Loss), Amount	$ 219,000			$ 218,527		$ 218,534
Number of Shares Issuable Upon the Exercise of Options and Warrants (in shares)		471,144	479,802	471,144	479,802	471,144
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares)		0	0

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Note 2 - Discontinued Operations (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income (Loss) from Discontinued Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest, Total	$ (113,055)	$ (658,518)	$ (1,199,648)	$ (2,105,755)
CTI Balloons Limited [Member]
Income (Loss) from Discontinued Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest, Total		(433,000)		(996,000)
CTI Europe [Member]
Income (Loss) from Discontinued Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest, Total	(76,000)	(566,000)	313,000	(1,735,000)
Ziploc Product Line [Member] | Discontinued Operations [Member]
Income (Loss) from Discontinued Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest, Total	$ (37,000)	$ (340,000)	$ (1,513,000)	$ 625,000

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Note 2 - Discontinued Operations - Summarized Discontinued Operations Financial Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Net loss prior to non-controlling interest	$ (113,055)	$ (658,518)	$ (1,199,648)	$ (2,105,755)
TOTAL Current Assets	748,386		748,386		$ 756,031
TOTAL Assets	748,000		748,000		756,000
TOTAL Current Liabilities	273,782		273,782		656,753
CTI Balloons and CTI Europe [Member]
Net Sales	655,896	3,130,382	2,328,341	10,191,188
Cost of Sales	412,663	2,588,927	2,527,937	9,607,692
Gross profit (Loss)	243,233	541,454	(199,597)	583,496
SG&A	194,300	627,452	1,049,295	2,025,778
Operating income (loss)	48,933	(85,998)	(1,248,892)	(1,442,283)
Other Expense	(10,848)	(31,962)	33,301	58,990
Total pretax income (loss) from discontinued operations	38,085	(54,035)	(1,282,193)	(1,501,273)
Gain (loss) from classification to held for sale	(151,140)	(604,483)
Income Tax Expense
Net loss prior to non-controlling interest	(113,055)	(658,518)	(1,199,648)	(2,105,756)
Non-controlling Interest share of profit/loss	(72,211)	(760,813)	150,458	(837,136)
Net loss	(40,844)	$ 102,295	(1,350,106)	(1,268,620)
Impairment of Long-Lived Assets
Gain (loss) from classification to held for sale			82,545	(604,483)
Cash on hand and Banks	222,707		222,707		4,307
Accounts Receivable	481,732		481,732		539,910
Inventory					74,383
Prepaid & Other	90,308		90,308		135,912
TOTAL Current Assets	794,747		794,747		754,512
NET Property, Plant, and Equipment	7,633		7,633		53,919
Operating lease right-of-use	151,817		151,817		220,541
Other	32,543		32,543		47,958
TOTAL Other Assets	184,360		184,360		268,499
TOTAL Non-Current Assets	191,993		191,993		322,418
Valuation Allowance on Assets Held for Sale	(238,354)		(238,354)		(320,899)
TOTAL Assets	748,386		748,386		756,031
Trade Accounts Payable	68,013		68,013		384,333
Operating Lease Liabilities - Current	89,119		89,119		203,291
Other/Accrued Liabilities	19,276		19,276		19,562
TOTAL Current Liabilities	176,408		176,408		607,187
Operating Lease Liabilities - Non Current	62,698		62,698		17,250
Other Non-Current	34,676		34,676		32,317
TOTAL Non-Current Liabilities	97,374		97,374		49,567
TOTAL Liabilities	$ 273,782		273,782		$ 656,753
Depreciation			$ 320,731	$ 266,784

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Note 3 - Liquidity and Going Concern (Details Textual)			1 Months Ended		3 Months Ended						6 Months Ended	9 Months Ended		12 Months Ended
	Nov. 17, 2020 shares	Apr. 13, 2020 USD ($) $ / shares shares	Oct. 31, 2020 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2020 USD ($)	Jun. 30, 2020 USD ($)	Mar. 31, 2020 USD ($)	Sep. 30, 2019 USD ($)	Jun. 30, 2019 USD ($)	Mar. 31, 2019 USD ($)	Sep. 30, 2020 USD ($) shares	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Jul. 22, 2020 USD ($)
Stock Issued During Period, Value, New Issues						$ 1,800,001	$ 3,626,600		$ 303,000
Proceeds from Issuance of Convertible Preferred Stock												$ 1,500,000
Proceeds from Issuance or Sale of Equity, Total				$ 1,500,000
Net Income (Loss) Attributable to Parent, Total					$ (953,940)			$ (1,941,586)				(3,120,145)	$ (5,680,151)	$ (7,100,000)	$ (3,600,000)	$ (1,600,000)
Claims For Non Payment Of Contractual Obligations [Member]
Loss Contingency, Damages Sought, Value												$ 500,000
Subsequent Event [Member]
Proceeds from Issuance or Sale of Equity, Total			$ 1,500,000
PNC Agreements [Member] | PNC [Member]
Minimum Commitmnet for Equity Funding																	$ 3,000,000
PNC Agreements [Member] | Minimum [Member]
Debt Instrument Covenants Fixed Charge Coverage Ratio							0.75
PNC Agreements [Member] | Maximum [Member]
Debt Instrument Covenants Fixed Charge Coverage Ratio							1
Series B Preferred Stock [Member]
Proceeds from Issuance of Convertible Preferred Stock				$ 1,500,000
Series B Preferred Stock [Member] | Subsequent Event [Member]
Stock Issued During Period, Shares, New Issues (in shares) | shares	170,000
Purchase Agreement [Member]
Debt Conversion, Original Debt, Amount											$ 478,000
Stock Issued During Period, Shares, New Issues (in shares) | shares											400,000
Purchase Agreement [Member] | Series A Preferred Stock [Member]
Sale of Stock, Shares Agreed to Purchase (in shares) | shares		500,000
Shares Issued, Price Per Share (in dollars per share) | $ / shares		$ 10
Proceeds from Issuance of Preferred Stock and Preference Stock		$ 5,000,000
Debt Conversion, Converted Instrument, Shares Issued (in shares) | shares											48,200
Purchase Agreement [Member] | Series A Preferred Stock [Member] | Other Investors [Member]
Sale Of Stock, Contingent, Additional Offered Shares, Amount		$ 2,000,000
Stock Issued During Period, Value, New Issues											$ 1,000,000

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Note 4 - Debt (Details Textual) - USD ($)					1 Months Ended	3 Months Ended			6 Months Ended		9 Months Ended			12 Months Ended
	Apr. 30, 2020	Jan. 11, 2019	Oct. 08, 2018	Jun. 08, 2018	Sep. 30, 2020	Sep. 30, 2020	Jun. 30, 2020	Sep. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2019	Dec. 31, 2017
Proceeds from Issuance or Sale of Equity, Total					$ 1,500,000
Other Income, Paycheck Protection Program Grant						$ 247,554	$ 800,000				$ 1,047,700
Deferred Other Income Liability					0	0					0
Flexo Universal [Member]
Long-term Debt, Total					1,750,000	1,750,000					1,750,000
Line of Credit [Member] | Flexo Universal [Member]
Extinguishment of Debt, Amount											260,000
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)		181,000
Repayments of Related Party Debt									$ 0					$ 0
Interest Expense, Debt, Total											49,000	$ 46,000
Three Lines of Credit [Member] | Flexo Universal [Member]
Long-term Line of Credit, Total					$ 260,000	$ 260,000					$ 260,000
Paycheck Protection Program CARES Act [Member]
Proceeds from Issuance of Debt	$ 1,047,700
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] | 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

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Note 4 - Debt - Leverage Ratios (Details)	Mar. 31, 2021	Dec. 31, 2020	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020
Maximum [Member]
Fixed Charge Coverage Ratio			0.95	0.85	0.75
Maximum [Member] | Forecast [Member]
Fixed Charge Coverage Ratio	1.15	1.05
Minimum [Member]
Fixed Charge Coverage Ratio			1	1	1
Minimum [Member] | Forecast [Member]
Fixed Charge Coverage Ratio	1	1

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Note 5 - Stock-based Compensation; Changes in Equity (Details Textual) - USD ($)								1 Months Ended	3 Months Ended		6 Months Ended	9 Months Ended		12 Months Ended
	Nov. 17, 2020	Jun. 05, 2020	Apr. 13, 2020	Apr. 01, 2020	Feb. 21, 2020	Jan. 30, 2020	Jan. 13, 2020	Sep. 30, 2020	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019	Feb. 24, 2020	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, Nonvested Award, Cost Not yet Recognized, Amount, Total								$ 0	$ 0		$ 0	$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance (in shares)								479,802	479,802		479,802	479,802		471,144
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value								$ 0	$ 0		$ 0	$ 0
Stock Issued During Period, Shares, Warrants Exercised (in shares)									332,000
Class of Warrant or Right, Exercised During Period (in shares)									500,000
Common Stock Dividends, Shares (in shares)									18,007
Proceeds from Issuance of Convertible Preferred Stock												1,500,000
Advance from Investor, Current								1,500,000	$ 1,500,000		$ 1,500,000	$ 1,500,000
Former President [Member]
Shares Issued, Shares, Share-based Payment Arrangement, after Forfeiture, Total (in shares)												15,000
LF International [Member] | Yunhong CTI [Member]
Ownership Percentage		57.00%
Conversion of Convertible Preferred Shares into Common Stock [Member]
Conversion of Stock, Shares Converted (in shares)									42,660
Conversion of Stock, Shares Issued (in shares)									426,600
Series A Preferred Stock [Member]
Preferred Stock Redemption Premium		$ 2,500,000
Preferred Stock, Dividend Rate, Percentage		8.00%
Preferred Stock, Dividend Rate, Per-Dollar-Amount (in dollars per share)		$ 10
Dividends, Total												$ 255,341
Series A Preferred Stock [Member] | Conversion to an Accounts Receivable [Member]
Debt Conversion, Original Debt, Amount				$ 482,000
Debt Conversion, Converted Instrument, Shares Issued (in shares)				48,200
Series B Preferred Stock [Member]
Proceeds from Issuance of Convertible Preferred Stock								$ 1,500,000
Series B Preferred Stock [Member] | Subsequent Event [Member]
Stock Issued During Period, Shares, New Issues (in shares)	170,000
Preferred Stock, Dividend Rate, Percentage	8.00%
Preferred Stock, Dividend Rate, Per-Dollar-Amount (in dollars per share)	$ 10
Convertible Preferred Stock, Shares Issued upon Conversion (in shares)	10
Purchase Agreement [Member]
Stock Issued During Period, Shares, New Issues (in shares)											400,000
Debt Conversion, Original Debt, Amount											$ 478,000
Purchase Agreement [Member] | Series A Preferred Stock [Member]
Sale of Stock, Shares Agreed to Purchase (in shares)			500,000
Shares Issued, Price Per Share (in dollars per share)			$ 10
Proceeds from Issuance of Preferred Stock and Preference Stock			$ 5,000,000
Debt Conversion, Converted Instrument, Shares Issued (in shares)											48,200
Second Purchase Agreement Amendment [Member] | Series A Preferred Stock [Member]
Sale of Stock, Shares Agreed to Purchase (in shares)			130,000
Shares Issued, Price Per Share (in dollars per share)		$ 10	$ 10
Proceeds from Issuance of Preferred Stock and Preference Stock		$ 500,000	$ 5,000,000
Sale of Stock, Contingent Additional Offered Shares (in shares)			260,000
Stock Issued During Period, Shares, New Issues (in shares)		50,000
Sale of Stock, Offering Amount			$ 1,300,000
Second Purchase Agreement Amendment [Member] | Series A Preferred Stock [Member] | Conversion from Each Share Series A Preferred Stock to Common Stock [Member]
Conversion of Stock, Shares Converted (in shares)			10
Additional Offering [Member] | Series A Preferred Stock [Member]
Sale of Stock, Contingent Additional Offered Shares (in shares)			200,000
Additional Shares Offering [Member] | Series A Preferred Stock [Member]
Sale of Stock, Price Per Share (in dollars per share)			$ 10
First Closing of the Offering [Member] | Series A Preferred Stock [Member]
Proceeds from Issuance of Preferred Stock and Preference Stock							$ 2,500,000
Stock Issued During Period, Shares, New Issues (in shares)							250,000
Purchase Agreement Amendment [Member] | Series A Preferred Stock [Member]
Sale of Stock, Shares Agreed to Purchase (in shares)															70,000
Shares Issued, Price Per Share (in dollars per share)															$ 10
Proceeds from Issuance of Preferred Stock and Preference Stock					$ 220,600	$ 206,000
Sale of Stock, Contingent Additional Offered Shares (in shares)															140,000
Stock Issued During Period, Shares, New Issues (in shares)					22,060	20,600
Sale of Stock, Offering Amount															$ 700,000
Second Closing of the Offering [Member] | Series A Preferred Stock [Member]
Stock Issued During Period, Shares, New Issues (in shares)					250,000
Stock Incentive Plan 2009 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)																	510,000
Stock Incentive Plan 2018 [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)																300,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance (in shares)								20,000	20,000		20,000	20,000
Share-based Payment Arrangement, Option [Member]
Share-based Payment Arrangement, Expense									$ 0	$ 20,000		$ 0	$ 72,000
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate												0.42%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate												153.73%
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate												1.65%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate												161.48%

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Note 5 - Stock-based Compensation; Changes in Equity - Option Activity (Details)	9 Months Ended
	Sep. 30, 2020 $ / 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	792,660
Granted (in dollars per share) | $ / shares	$ 1
Cancelled/Expired (in shares) | shares	(436,519)
Cancelled/Expired (in dollars per share) | $ / shares	$ 3.95
Exercised/Issued (in shares) | shares	(347,483)
Exercised/Issued (in dollars per share) | $ / shares	$ 1.19
Outstanding at the end of period (in shares) | shares	479,802
Outstanding at the end of period (in dollars per share) | $ / shares	$ 1.10
Exercisable at the end of period (in shares) | shares	19,625
Exercisable at the end of period (in dollars per share) | $ / shares	$ 5.49

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Note 6 - Legal Proceedings (Details Textual) - USD ($)		9 Months Ended
	Oct. 15, 2020	Sep. 30, 2020
Former Vendors Alleging Non-payment of Obligations [Member]
Loss Contingency, Damages Sought, Value		$ 760,000
Claims Filed by FedEx Trade Networks Transport [Member] | Pending Litigation [Member]
Loss Contingency, Damages Sought, Value		$ 163,965
Claims Filed by FedEx Trade Networks Transport [Member] | Pending Litigation [Member] | Subsequent Event [Member]
Litigation Settlement, Amount Awarded to Other Party	$ 100,400
Litigation Settlement, Amount Awarded to Other Party, Monthly Installment	$ 10,000
Litigation Settlement, Amount Awarded to Other Party, Term (Month)	300 days
Litigation Settlement, Amount Awarded to Other Party, Last Payment Amount	$ 10,400

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Note 7 - Other Comprehensive Income (Details Textual)	9 Months Ended
	Sep. 30, 2020 USD ($)
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Tax, Total	$ 1,292,000

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Note 8 - Geographic Segment Data (Details Textual)	9 Months Ended
	Sep. 30, 2020
Number of Operating Segments	1

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Note 8 - Geographic Segment Data - Financial Information by Geographic Area (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Sales to outside customers	$ 5,980,766	$ 6,365,352	$ 18,793,620	$ 24,259,037
Assets	21,948,575		21,948,575		$ 31,321,083
Assets Held for Sale International Subsidiaries	748,000		748,000		756,000
UNITED STATES
Sales to outside customers	4,749,000	4,120,000	14,718,000	17,911,000
Assets	13,215,000		13,215,000		19,668,000
MEXICO
Sales to outside customers	1,232,000	$ 2,245,000	4,076,000	$ 6,348,000
Assets	$ 7,986,000		$ 7,986,000		$ 10,897,000

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Note 9 - Inventories, Net of Continuing Operations - Inventories (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Raw materials	$ 1,385,000	$ 1,545,000
Work in process	2,808,000	3,110,000
Finished goods	6,837,000	9,766,000
In Transit	115,000	100,000
Allowance for excess quantities	(501,000)	(562,000)
Total inventories	$ 10,643,911	$ 13,959,499

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Note 10 - Concentration of Credit Risk (Details Textual) - Customer Concentration Risk [Member]	3 Months Ended		9 Months Ended
	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)
Revenue Benchmark [Member]
Number of Major Customers			1	1
Revenue Benchmark [Member] | Customer One [Member]
Concentration Risk, Percentage	63.00%	25.00%	50.00%	37.00%
Accounts Receivable [Member] | Customer One [Member]
Accounts Receivable, before Allowance for Credit Loss	$ 1,724,000	$ 831,000	$ 1,724,000	$ 831,000
Concentration Risk, Percentage			33.00%	16.00%

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Note 10 - Concentration of Credit Risk - Concentration of Credit Risk, Net Sales (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Net Sales	$ 5,980,766	$ 6,365,352	$ 18,793,620	$ 24,259,037
Customer One [Member]
Net Sales	$ 3,737,000	$ 1,559,000	$ 9,412,000	$ 8,890,000
Customer One [Member] | Customer Concentration Risk [Member] | Revenue Benchmark [Member]
Percent of net sales	63.00%	25.00%	50.00%	37.00%

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Note 11 - Related Party Transactions (Details Textual) - USD ($)	1 Months Ended	9 Months Ended
	Jan. 31, 2019	Sep. 30, 2020	Sep. 30, 2019	Jul. 01, 2019	Dec. 31, 2018
Due to Related Parties, Noncurrent, Total		$ 1,100,000			$ 1,600,000
Interest Expense, Related Party		49,000	$ 46,000
Conversion of Related Party Debt to Equity [Member]
Debt Conversion, Original Debt, Amount	$ 600,000
Schwan Incorporated [Member]
Related Party Transaction, Amounts of Transaction		2,700	12,000
Accounts Payable, Related Parties		8,800
CTI Europe [Member]
Long-term Debt, Gross		20,000	$ 12,000
Board of Directors Chairman [Member]
Due from Related Parties, Total				$ 1,387,000
Note Receivable, Reserve		350,000
Notes Receivable, Related Parties		$ 1,026,813

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Note 13 - Leases (Details Textual) - USD ($)	1 Months Ended	9 Months Ended
	Jul. 31, 2020	Sep. 30, 2020	Dec. 31, 2019	Jan. 01, 2019
Assets, Noncurrent, Excluding Property, Plant, and Equipment		$ 438,061	$ 1,165,295
Liabilities, Current, Total		17,604,044	27,524,405
Liabilities, Noncurrent, Total		2,611,518	$ 2,670,171
Operating Lease, Expense		471,000
Operating Lease, Payments		$ 471,000
Lease Agreement for a Building [Member]
Operating Lease, Payment Per Month	$ 38,000
Accounting Standards Update 2016-02 [Member]
Assets, Noncurrent, Excluding Property, Plant, and Equipment				$ 2,800,000
Liabilities, Current, Total				1,100,000
Liabilities, Noncurrent, Total				$ 1,700,000

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Note 13 - Leases - Lease Position (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Operating lease right-of-use assets	$ 1,457,000
Accumulated amortization	(1,097,000)
Net lease assets	359,802	$ 1,046,438
Operating	311,678	658,374
Operating	48,123	$ 388,064
Total lease liabilities	$ 360,000
Weighted average remaining term (years) – operating leases (in years) (Year)	2 years
Weighted average discount rate – operating leases	11.25%

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Note 13 - Leases - Lease Cost (Details)	9 Months Ended
	Sep. 30, 2020 USD ($)
Operating right-of-use lease asset amortization	$ 471,000
Total expense during nine months ended September 30, 2020	$ 471,000

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Note 13 - Leases - Maturities for Operating Lease Liabilities (Details)	Sep. 30, 2020 USD ($)
2020	$ 111,000
2021	373,000
2022 and thereafter	51,000
Total lease payments	535,000
less: Imputed interest	(175,000)
Total lease liabilities	$ 360,000

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Note 14 - Subsequent Events (Details Textual) - USD ($)		1 Months Ended
	Nov. 17, 2020	Oct. 31, 2020	Sep. 30, 2020	Dec. 31, 2019
Proceeds from Issuance or Sale of Equity, Total			$ 1,500,000
Advance from Investor, Current			$ 1,500,000
Subsequent Event [Member]
Proceeds from Issuance or Sale of Equity, Total		$ 1,500,000
Proceeds from Advances on Proposed Equity Financing		$ 1,500,000
Subsequent Event [Member] | Series B Preferred Stock [Member]
Stock Issued During Period, Shares, New Issues (in shares)	170,000
Convertible Preferred Stock, Shares Issued upon Conversion (in shares)	10
Preferred Stock, Dividend Rate, Percentage	8.00%
Preferred Stock, Dividend Rate, Per-Dollar-Amount (in dollars per share)	$ 10