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Note 3 - Liquidity and Going Concern
 3 Months Ended
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.