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Note 3 - Liquidity and Going Concern | 3 Months Ended
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Mar. 31, 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”) (see Note 4 ). As indicated in Note 4, twice during 2018 the Company violated covenants in the Credit Agreement and during March 2019 the Company entered into a forbearance agreement with PNC. Under the terms of the forbearance agreement, financial covenants as of March 31, 2019 were not considered and all previously identified compliance failures were waived, but the Company remain 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, the Company 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, the Company 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 Lender under the Loan Agreement for a period ending no later than December 31, 2020. As defined in note 4, a new event of default was communicated by the bank June 2020. During 2019 the Company attempted to execute a major capital event with a partner that would infuse money, among other attributes. That effort was unsuccessful as envisioned. The Company was subsequently successful in obtaining new financing during 2020. On January 3, 2020 the Company 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, the Company was 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 June 1, 2020, including to an investor which converted an accounts receivable of $478,017 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 Pte Ltd from January 2020 through June 2020. The majority of the funds received reduced our bank debt. The Company 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 of Directors. They are Mr. Yubao Li, our Chairman of the Board of Directors, Ms. Wan Zhang and Ms. Yaping Zhang. 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, the Company believes that the result raises substantial doubt about our ability to continue as a going concern at March 31, 2020. Additionally, the Company has 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 the Company's 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 in the second quarter of 2020 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. During the three months ended March 31, 2020, the Company did not record any COVID- 19 related impairment charges. 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 the Company's new investor group to expand our business in profitable ways. ( 2 ) Working with the Company's bank to resolve our compliance failure on a long-term basis. ( 3 ) Relocating the Company's 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 the Company's facility in Lake Barrington, IL. ( 5 ) Simplifying the Company's group structure, focusing on the most profitable products and markets, and ( 6 ) Exploring alternative funding sources. Management Assessment Considering both quantitative and qualitative information, management believes that our plans to obtain additional financing may provide the Company with an ability to finance our operations through 2020 and, if successfully executed, may mitigate the substantial doubt about the Company's ability to continue as a going concern.

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