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Note 16 - Restatement of Financial Statements | 9 Months Ended
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Sep. 30, 2019
Notes to Financial Statements |
Accounting Changes and Error Corrections [Text Block] | Note 16 – Restatement of Financial Statements As of January 3, 2020, the Audit Committee of the Board approved the engagement of RBSM, LLP (“RBSM”) as the Company’s independent registered public accounting firm for the Company’s fiscal year ended December 31, 2019. This Form 10 -Q/A is being prepared with the benefit of auditor review and will constitute our amended filing. This Form 10 -Q/A has also been updated to reflect disclosure of subsequent events that have occurred after the balance sheet date, but before the issuance of the associated financial statements. The subsequent events include the Company’s decision to exit its underperforming international subsidiaries, exit a significant product line, change its capital structure and focus its efforts on its US-based foil balloon and related product offerings. The company had previously included a non-cash charge of $3,000,000 during the second quarter of 2019 in anticipation of the divestiture or liquidation of European Sales entities and Clever Container. This Form 10 -Q/A has had this reserve replaced by detailed calculations. Based on this detailed calculation herein we believe the magnitude of the initial charge was appropriate.
Yunhong CTI, LTD (f/k/a CTI Industries Corporation)
Condensed Consolidated Balance Sheets
|  | September 30, 2019 |
|  | As Previously Reported |  |  | Adjustments |  |  | As Restated |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 126,647 |  |  | $ | (67,442 | ) |  | $ | 59,205 |
Accounts receivable |  |  | 8,134,291 |  |  |  | (1,219,707 | ) |  |  | 6,914,584 |
Inventories, net |  |  | 18,345,406 |  |  |  | (2,058,954 | ) |  |  | 16,286,452 |
Prepaid expenses |  |  | 556,594 |  |  |  | (104,469 | ) |  |  | 452,125 |
Other current assets |  |  | 1,293,899 |  |  |  | (148,354 | ) |  |  | 1,145,545 |
Receivable from related party |  |  |  |  |  |  | 1,392,666 |  |  |  | 1,392,666 |
Current assets of discontinued operations |  |  |  |  |  |  | 1,304,305 |  |  |  | 1,304,305 |
Total current assets |  |  | 28,456,837 |  |  |  | (901,955 | ) |  |  | 27,554,882 |
Property, plant and equipment: |  |  |  |  |  |  |  |  |  |  |  |
Machinery and equipment |  |  | 23,883,267 |  |  |  | (135,425 | ) |  |  | 23,747,842 |
Building |  |  | 3,374,334 |  |  |  |  |  |  |  | 3,374,334 |
Office furniture and equipment |  |  | 2,692,423 |  |  |  | (407,078 | ) |  |  | 2,285,345 |
Intellectual property |  |  | 783,179 |  |  |  |  |  |  |  | 783,179 |
Land |  |  | 250,000 |  |  |  |  |  |  |  | 250,000 |
Leasehold improvements |  |  | 409,347 |  |  |  |  |  |  |  | 409,347 |
Fixtures and equipment at customer locations |  |  | 518,450 |  |  |  |  |  |  |  | 518,450 |
Projects under construction |  |  | 189,795 |  |  |  | (93,099 | ) |  |  | 96,696 |
|  |  | 32,100,795 |  |  |  | (635,602 | ) |  |  | 31,465,193 |
Less : accumulated depreciation and amortization |  |  | (28,865,571 | ) |  |  | 265,336 |  |  |  | (28,600,235 | )
Total property, plant and equipment, net |  |  | 3,235,224 |  |  |  | (370,266) |  |  |  | 2,864,958 |
Other assets: |  |  |  |  |  |  |  |  |  |  |  |
Goodwill |  |  | 1,473,176 |  |  |  | (1,473,176 | ) |  |  |  |
Net deferred income tax asset |  |  | 1,051,128 |  |  |  | (916,034 | ) |  |  | 135,094 |
Operating lease right-of-use |  |  | 1,711,812 |  |  |  | (416,067 | ) |  |  | 1,295,745 |
Other non-current assets |  |  | (3,000,000 | ) |  |  | 3,000,000 |  |  |  |  |
Other assets |  |  | (31,086 | ) |  |  | 154,246 |  |  |  | 123,160 |
Total other assets |  |  | 1,205,030 |  |  |  | 348,970 |  |  |  | 1,554,000 |
Other non-current assets of discontinued operations |  |  |  |  |  |  |  |  |  |  | - |
TOTAL ASSETS |  | $ | 32,897,091 |  |  | $ | (923,251 | ) |  |  | 31,973,840 |
LIABILITIES AND EQUITY |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Checks written in excess of bank balance |  | $ | 244,829 |  |  | $ | (628 | ) |  | $ | 244,201 |
Trade payables |  |  | 8,522,419 |  |  |  | (489,806 | ) |  |  | 8,032,613 |
Line of credit |  |  | 12,774,347 |  |  |  | (214,141 | ) |  |  | 12,560,206 |
Notes payable - current portion |  |  | 3,787,533 |  |  |  |  |  |  |  | 3,787,533 |
Notes payable affiliates - current portion |  |  | 11,789 |  |  |  |  |  |  |  | 11,789 |
Operating Lease Liabilities |  |  | 1,268,257 |  |  |  | (428,421 | ) |  |  | 839,836 |
Accrued liabilities |  |  | 1,550,238 |  |  |  | (487,637 | ) |  |  | 1,062,601 |
Current liabilities of discontinued operations |  |  |  |  |  |  | 1,071,617 |  |  |  | 1,071,617 |
Total current liabilities |  |  | 28,159,412 |  |  |  | (549,016 | ) |  |  | 27,610,396 |
Long-term liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Notes payable - affiliates |  |  | 221,362 |  |  |  | (202,015 | ) |  |  | 19,347 |
Notes payable, net of current portion |  |  |  |  |  |  | 839,207 |  |  |  | 839,207 |
Operating Lease Liabilities |  |  | 868,707 |  |  |  | (412,798 | ) |  |  | 455,909 |
Notes payable - officers, subordinated |  |  | 443,555 |  |  |  | 599,211 |  |  |  | 1,042,766 |
Other long-term liabilities |  |  | 1,042,766 |  |  |  | (828,692 | ) |  |  | 214,074 |
Deferred income tax liability |  |  | 214,074 |  |  |  | (214,074 | ) |  |  | - |
Other long-term liabilities of discontinued operations |  |  | - |  |  |  |  |  |  |  | - |
Total long-term debt, net of current portion |  |  | 2,790,464 |  |  |  | (219,161 | ) |  |  | 2,571,303 |
Total long-term liabilities |  |  | 2,790,464 |  |  |  | (219,161 | ) |  |  | 2,571,303 |
TOTAL LIABILITIES |  |  | 30,949,876 |  |  |  | (768,177 | ) |  |  | 30,181,699 |
Equity: |  |  |  |  |  |  |  |  |  |  |  |
Yunhong CTI, LTD stockholders' equity: |  |  |  |  |  |  |  |  |  |  |  |
Preferred Stock -- no par value, 3,000,000 shares authorized, 0 shares issued and outstanding |  |  | - |  |  |  |  |  |  |  |  |
Common stock - no par value, 15,000,000 shares authorized, 3,879,608 shares issued and 3,835,950 shares outstanding |  |  | 13,898,494 |  |  |  |  |  |  |  | 13,898,494 |
Paid-in-capital |  |  | 3,481,838 |  |  |  |  |  |  |  | 3,481,838 |
Accumulated earnings |  |  | (8,007,958 | ) |  |  | (537,679 | ) |  |  | (8,545,637 | )
Accumulated other comprehensive loss |  |  | (6,034,745 | ) |  |  |  |  |  |  | (6,034,745 | )
Less: Treasury stock, 43,658 shares |  |  | (160,784 | ) |  |  |  |  |  |  | (160,784 | )
Total Yunhong CTI, LTD stockholders' equity |  |  | 3,176,845 |  |  |  | (537,679) |  |  |  | 2,639,166 |
Noncontrolling interest |  |  | (1,229,630 | ) |  |  | 382,605 |  |  |  | (847,025 | )
Total Equity |  |  | 1,947,215 |  |  |  | (155,074 | ) |  |  | 1,792,141 |
TOTAL LIABILITIES AND EQUITY |  | $ | 32,897,091 |  |  | $ | (923,251 | ) |  | $ | 31,973,840 |
Yunhong CTI, LTD (f/k/a CTI Industries Corporation)
Condensed Consolidated Statements of Comprehensive Income
|  | For the Three Months Ended September 30, |
|  | 2019 |  |  |  |  |  |  | 2019 |
|  | As Previously Reported |  |  | Adjustments |  |  | As Restated |
Net Sales |  | $ | 8,537,475 |  |  | $ | (208,432 | ) |  | $ | 8,329,043 |
|  |  |  |  |  |  | - |  |  |  | - |
Cost of Sales |  |  | 7,729,851 |  |  |  | (23,103 | ) |  |  | 7,706,748 |
|  |  |  |  |  |  | - |  |  |  | - |
Gross profit |  |  | 807,624 |  |  |  | (185,329 | ) |  |  | 622,295 |
|  |  |  |  |  |  | - |  |  |  | - |
Operating expenses: |  |  |  |  |  |  | - |  |  |  | - |
General and administrative |  |  | 1,466,830 |  |  |  | (318,348 | ) |  |  | 1,148,482 |
Selling |  |  | 377,577 |  |  |  | (144,071 | ) |  |  | 233,506 |
Advertising and marketing |  |  | 222,061 |  |  |  | (88,021) |  |  |  | 134,040 |
Impairment on long-lived assets |  |  |  |  |  |  | - |  |  |  |  |
Gain on loss of control of VIEs |  |  |  |  |  |  | (218,527 | ) |  |  | (218,527 | )
Gain on sale of assets |  |  | (23,054 | ) |  |  | - |  |  |  | (23,054 | )
Total operating expenses |  |  | 2,043,414 |  |  |  | (768,967 | ) |  |  | 1,274,447 |
|  |  |  |  |  |  | - |  |  |  | - |
Income/(Loss) from operations |  |  | (1,235,790 | ) |  |  | 583,638 |  |  |  | (652,152 | )
Other (expense) income: |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  |  | (486,636 | ) |  |  | 22,090 |  |  |  | (464,546 | )
Interest income |  |  | 99 |  |  |  | (99) |  |  |  |  |
Other Expense |  |  | - |  |  |  | (82,873) |  |  |  | (82,873) |
Foreign currency loss |  |  | (28,420 | ) |  |  | 2,673 |  |  |  | (25,747 | )
Total other expense, net |  |  | (514,957 | ) |  |  | (58,209) |  |  |  | (573,166 | )
|  |  |  |  |  |  |  |  |  |  | - |
Income from continuing operations before taxes |  |  | (1,750,747 | ) |  |  | 525,429 |  |  |  | (1,225,318 | )
|  |  |  |  |  |  |  |  |  |  | - |
Income tax expense |  |  | (511,823 | ) |  |  | 511,823 |  |  |  |  |
Income from continuing operations |  |  | (1,238,924) |  |  |  | 13,606 |  |  |  | (1,225,318 | )
Income (Loss) from discontinued operations (including loss on HFS of $0.6M), net of tax |  |  |  |  |  |  | (999,251 | ) |  |  | (999,251 | )
Net income (loss) |  | $ | (1,238,924 | ) |  | $ | (985,645 | ) |  | $ | (2,224,569 | )
Less: Net (loss) income attributable to noncontrolling interest |  |  | (71,559 | ) |  |  | (211,426 | ) |  |  | (282,985) |
Net income attributable to Yunhong CTI, LTD |  | $ | (1,167,365 | ) |  | $ | (774,219 | ) |  | $ | (1,941,584 | )
Other Comprehensive Income (Loss) |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency adjustment |  |  | (281,817 | ) |  |  |  |  |  |  | (281,817 | )
Comprehensive Income (Loss) |  | $ | (1,449,182 | ) |  | $ | (774,219 | ) |  | $ | (2,223,401 | )
Basic income per common share |  |  |  |  |  |  |  |  |  |  |  |
Continuing operations |  | $ | (0.30 | ) |  | $ | 0.05 |  |  |  | (0.25 | )
Discontinued operations |  |  |  |  |  |  | (0.26) |  |  |  | (0.26) |
Basic income per common share |  | $ | (0.30 | ) |  | $ | (0.21) |  |  | $ | (0.51) |
Diluted income per common share |  |  |  |  |  |  |  |  |  |  |  |
Continuing operations |  | $ | (0.30 | ) |  | $ | 0.5 |  |  | $ | (0.25 | )
Discontinued operations |  |  |  |  |  |  | (0.26) |  |  |  | (0.26) |
Diluted income per common share |  | $ | (0.30 | ) |  | $ | (0.21) |  |  | $ | (0.51) |
Weighted average number of shares and equivalent shares of common stock outstanding: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 3,835,950 |  |  |  |  |  |  |  | 3,835,950 |
Diluted |  |  | 3,835,950 |  |  |  |  |  |  |  | 3,835,950 |
|  | For the Nine Months Ended September 30, |
|  | 2019 |  |  |  |  |  |  | 2019 |
|  | As Previously Reported |  |  | Adjustments |  |  | As Restated |
Net Sales |  | $ | 33,480,704 |  |  | $ | (3,182,869 | ) |  | $ | 30,297,835 |
Cost of Sales |  |  | 28,139,175 |  |  |  | (2,487,497 | ) |  |  | 25,651,678 |
Gross profit |  |  | 5,341,529 |  |  |  | (695,372 | ) |  |  | 4,646,157 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |
General and administrative |  |  | 5,054,028 |  |  |  | (1,114,739 | ) |  |  | 3,939,289 |
Selling |  |  | 1,230,181 |  |  |  | (387,635 | ) |  |  | 842,546 |
Advertising and marketing |  |  | 766,297 |  |  |  | (281,201 | ) |  |  | 485,096 |
Impairment on long-lived assets |  |  |  |  |  |  | 1,472,382 |  |  |  | 1,472,382 |
Gain on loss of control of VIEs |  |  |  |  |  |  | (218,527 | ) |  |  | (218,527 | )
Gain on sale of assets |  |  | (70,263 | ) |  |  |  |  |  |  | (70,263 | )
Total operating expenses |  |  | 6,980,243 |  |  |  | (529,719 | ) |  |  | 6,450,524 |
Income/(Loss) from operations |  |  | (1,638,714 | ) |  |  | (165,653 | ) |  |  | (1,804,367 | )
Other (expense) income: |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  |  | (1,549,703 | ) |  |  | 56,439 |  |  |  | (1,493,264 | )
Interest income |  |  | 435 |  |  |  | (435 | ) |  |  |  |
Other Expense |  |  | (3,000,000 | ) |  |  | 2,514,258 |  |  |  | (485,742 | )
Foreign currency loss |  |  | (27,568 | ) |  |  | 110 |  |  |  | (27,458 | )
Total other expense, net |  |  | (4,576,836 | ) |  |  | 2,570,372 |  |  |  | (2,006,464 | )
Income from continuing operations before taxes |  |  | (6,215,550 | ) |  |  | 2,404,719 |  |  |  | (3,810,831 | )
Income tax expense |  |  | (916,033 | ) |  |  | 916,033 |  |  |  | - |
Income from continuing operations |  |  | (5,299,517) |  |  |  | 1,488,686 |  |  |  | (3,810,831 | )
Income (Loss) from discontinued operations (including loss on HFS of $0.6M), net of tax |  |  |  |  |  |  | (2,730,796 | ) |  |  | (2,730,796 | )
Net income (loss) |  | $ | (5,299,517 | ) |  | $ | (1,242,110 | ) |  | $ | (6,541,627 | )
Less: Net (loss) income attributable to noncontrolling interest |  |  | (157,045 | ) |  |  | (704,430 | ) |  |  | (861,475 | )
Net income attributable to Yunhong CTI, LTD |  | $ | (5,142,472 | ) |  | $ | (537,680 | ) |  | $ | (5,680,152 | )
Other Comprehensive Income (Loss) |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency adjustment |  |  | 15,603 |  |  |  |  |  |  |  | 15,603 |
Comprehensive Income (Loss) |  | $ | (5,126,869 | ) |  | $ | (537,680 | ) |  | $ | (5,664,549 | )
Basic income per common share |  |  |  |  |  |  |  |  |  |  |  |
Continuing operations |  | $ | (1.34 | ) |  | $ | 0.57 |  |  |  | (0.77 | )
Discontinued operations |  |  |  |  |  |  | (0.71 | ) |  |  | (0.71 | )
Basic income per common share |  | $ | (1.34 | ) |  | $ | (0.14 | ) |  | $ | (1.48 | )
Diluted income per common share |  |  |  |  |  |  |  |  |  |  |  |
Continuing operations |  | $ | (1.34 | ) |  | $ | 0.57 |  |  | $ | (0.77 | )
Discontinued operations |  |  |  |  |  |  | (0.71 | ) |  |  | (0.71 | )
Diluted income per common share |  | $ | (1.34 | ) |  | $ | (0.14 | ) |  | $ | (1.48 | )
Weighted average number of shares and equivalent shares of common stock outstanding: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 3,835,950 |  |  |  |  |  |  |  | 3,835,950 |
Diluted |  |  | 3,835,950 |  |  |  |  |  |  |  | 3,835,950 |
Yunhong CTI, LTD (f/k/a CTI Industries Corporation)
Condensed Consolidated Statements of Cash Flows (Unaudited)
|  | For the Nine Months Ended September 30, |
|  | 2019 |  |  |  |  |  |  | 2019 |
|  | As Previously Reported |  |  | Adjustments |  |  | As Restated |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Net income |  |  | (5,299,517 | ) |  |  | (1,242,110 | ) |  |  | (6,541,627) |
Depreciation and amortization |  |  | 835,302 |  |  |  |  |  |  |  | 835,302 |
Operating Cash Flows from Operating Leases |  |  | 606,356 |  |  |  | (606,356) |  |  |  |  |
Amortization of deferred gain on sale/leaseback |  |  | 116,277 |  |  |  | (198,699) |  |  |  | (82,422) |
Other |  |  |  |  |  |  | 248,974 |  |  |  | 248,974 |
Provision for losses on accounts receivable |  |  | 27,362 |  |  |  | 372,101 |  |  |  | 399,463 |
Provision for losses on inventories |  |  | (157,243 | ) |  |  | 1,406,762 |  |  |  | 1,249,519 |
Stock based compensation |  |  |  |  |  |  | 72,401 |  |  |  | 72,401 |
Impairment of long-lived assets |  |  |  |  |  |  | 1,252,283 |  |  |  | 1,252,283 |
Impairment of Prepaids, Current Assets, and Other Non-Current Assets |  |  |  |  |  |  | 168,931 |  |  |  | 168,931 |
Gain on deconsolidation of Clever |  |  |  |  |  |  | (218,534 | ) |  |  | (218,534 | )
Impairment of assets held for sale |  |  | 3,000,000 |  |  |  | (2,395,517 | ) |  |  | 604,483 |
Deferred income taxes |  |  | (916,033 | ) |  |  | 916,033 |  |  |  | - |
Loss on disposition of asset |  |  | 17,480 |  |  |  |  |  |  |  | 17,480 |
Change in assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Accounts receivable |  |  | 2,626,396 |  |  |  | 150,000 |  |  |  | 2,776,396 |
Inventories |  |  | 1,685,411 |  |  |  | (250,000) |  |  |  | 1,435,411 |
Prepaid expenses and other assets |  |  | 228,389 |  |  |  |  |  |  |  | 228,389 |
Trade payables |  |  | 1,846,575 |  |  |  | 46,096 |  |  |  | 1,892,671 |
Accrued liabilities |  |  | (23,878 | ) |  |  | (142,945 | ) |  |  | (166,823 | )
Net cash provided by (used in) operating activities |  |  | 4,592,877 |  |  |  | (421,580) |  |  |  | 4,172,297 |
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |  |  |
Purchases of property, plant and equipment |  |  | (144,222 | ) |  |  |  |  |  |  | (144,222 | )
Net cash (used in) investing activities |  |  | (144,222 | ) |  |  |  |  |  |  | (144,222 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |  |  |
Change in checks written in excess of bank balance |  |  | (391,313 | ) |  |  |  |  |  |  | (391,313 | )
Net change in revolving line of credit |  |  | (3,808,012 | ) |  |  |  |  |  |  | (3,808,012 | )
Repayment of long-term debt |  |  | (913,855 | ) |  |  |  |  |  |  | (913,855 | )
Proceeds from issuance of stock |  |  | 975,401 |  |  |  | (975,401)) |  |  |  | 0 |
Cash paid for deferred financing fees |  |  | (82,763 | ) |  |  |  |  |  |  | (82,763 | )
Proceeds from issuance of long-term debt |  |  | 125,000 |  |  |  | 525,000 |  |  |  | 650,000 |
Net cash (used in) financing activities |  |  | (4,095,542 | ) |  |  | (450,401) |  |  |  | (4,545,943) |
Effect of exchange rate changes on cash |  |  | (654,616 | ) |  |  | 861,308 |  |  |  | 205,692 |
Net increase/(decrease) in cash and cash equivalents |  |  | (301,503 | ) |  |  | (10,673 | ) |  |  | (312,176 | )
Cash and cash equivalents at beginning of period |  |  | 428,150 |  |  |  |  |  |  |  | 428,150 |
Cash and cash equivalents at end of period |  |  | 126,647 |  |  |  | (10,673 | ) |  |  | 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 in amount of $57,000.” |  |  |  |  |  |  |  |  |  |  |  |
Supplemental disclosure of cash flow information: |  |  |  |  |  |  |  |  |  |  |  |
Cash payments for interest |  |  | 1,558,817 |  |  |  |  |  |  | $ | 1,558,817 |
Common stock issued for accounts payable |  |  |  |  |  |  |  |  |  | $ | 303,000 |
Common stock issued for notes payable |  |  |  |  |  |  |  |  |  | $ | 600,000 |

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