YUNHONG GREEN CTI LTD.

Years Ended December 31, 2025 and 2024

1. Nature of Business

Nature of Operations

Yunhong Green CTI Ltd. its (inactive) subsidiary CTI Supply, Inc., and its wholly-owned subsidiary, Yunhong Technology (Hubei) Co. Ltd., in the Hubei Province of China (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 including balloon-inspired gift products. The Company is exploring ways to commercialize compostable and biodegradable materials, as well as sourcing additional products and materials through its subsidiary.

The Company formed a wholly owned subsidiary, Yunhong Technology (Hubei) Co., Ltd., in Hubei Province, China (the “China subsidiary”) to support its international production operations. On June 30, 2024, through this subsidiary, the Company acquired certain production equipment and related manufacturing assets pursuant to an Asset Purchase Agreement. The consideration consisted of 500,000 shares of the Company’s common stock, valued at approximately $6.25 million at the time of issuance. On December 2, 2025, the Company entered into a settlement agreement with the counterparty in the Asset Purchase Agreement pursuant to which 175,000 shares of common stock were reacquired and canceled in exchange for the Company surrendering its rights to approximately $2.1 million of prepaid assets representing a working capital credit for the buildout of operations The timing and extent of future operations in the China subsidiary will depend on market conditions and the Company’s strategic evaluation of the subsidiary’s viability. During the year ended December 31, 2025, the Company evaluated the carrying value of the acquired equipment in the China subsidiary and recorded an impairment charge of approximately $351,000. See Note 2.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements and accompanying notes have been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and are presented in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”).

The financial information presented in these financial statements has been rounded to the nearest thousand dollars ($000), which is in accordance with our policy to simplify the presentation. The financial information is not presented in thousand-dollar increments.

Principles of Consolidation

Yunhong Green CTI Ltd., its wholly owned subsidiary Yunhong Technology Industry (Hubei) Co,. Ltd., and its inactive subsidiary CTI Supply, Inc. (collectively, the “Company”) (i) design, manufacture and distribute metalized balloon products throughout the world, (ii) distribute purchased latex balloons products, and (iii) 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.

The consolidated financial statements include the accounts of Yunhong Green CTI Ltd., CTI Supply, Inc., and Yunhong Technology (Hubei) Co., Ltd.

Foreign Currency Translation

Substantially all activities occur in US Dollars. Operations have not yet begun at Yunhong Technology (Hubei) Co, Ltd.

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 recoverability and impairment of long-lived assets, valuation allowances for doubtful accounts, inventory valuation, and valuation of deferred tax assets.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, demand deposits and short-term investments with original maturities of three months or less.

Accounts Receivable and Allowance for Doubtful Accounts

Trade receivables are carried at the original invoice amount less an estimate for doubtful receivables based on a review of all outstanding amounts on a monthly basis. A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for a period in excess of the customer’s normal terms.

Our allowance for doubtful accounts represents our estimate of expected credit losses related to our trade receivables. We pool our trade receivables based on similar risk characteristics, such as the age of receivables. To estimate our allowance for doubtful accounts, we leverage information on historical losses, asset-specific risk characteristics, current conditions, and reasonable and supportable forecasts of future conditions. Account balances are written off against the allowance when we deem the amount is uncollectible. Accounts receivable are stated at their estimated net realizable value $5,955,000, $5,403,000 and $3,975,000 for December 31, 2025, December 31, 2024 and January 1, 2024, respectively. No allowance for credit losses was recorded as of December 31, 2025, December 31, 2024 and January 1, 2024.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard costs and is determined on a first-in first-out basis, to reflect the actual cost of production of inventories.

Production costs of work in process and finished goods include material, labor and overhead. Inventory is not recorded in excess of net realizable value.

Property, Plant and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to operations as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized on a straight-line method over the lesser of the estimated useful life or the lease term. The estimated useful lives range as follows:

Light machinery consists of forklifts, scissor lifts, and other warehouse machinery. Heavy machinery consists of production equipment including laminating, printing and converting equipment. Projects in process represent those costs capitalized in connection with construction of new assets and/or improvements to existing assets including a factor for interest on funds committed to projects in process of $140,000 and $196,000 for the years ended December 31, 2025 and 2024, respectively. Upon completion, these costs are reclassified to the appropriate asset class.

Valuation of Long-Lived Assets

The Company evaluates whether events or circumstances have occurred which indicates that the carrying amounts of long-lived assets (principally noncurrent prepaid expenses and property, plant and equipment) may be impaired or not recoverable. The significant factors that are considered that could trigger an impairment review include: changes in business strategy, market conditions, or the manner of use of an asset; underperformance relative to historical or expected future operating results; and negative industry or economic trends. In evaluating an asset for possible impairment, management estimates that asset’s future undiscounted cash flows and appraised values to measure whether the asset is recoverable.

As further discussed in Note 13, during 2025 the Company reevaluated its plans to open a production facility in Hubei, China and management indefinitely deferred plans for the facility to open. The Company also executed a Stock Surrender Agreement (also see Note 13) that released the counterparty from the working capital credit recorded as prepaid expenses, noncurrent, on the consolidated balance sheet in exchange for the surrender of 175,000 shares of common stock reacquired by the Company. The balance of the working capital credit (prepaid expense) in excess of the fair value of common shares reacquired was recognized as impairment in the amount of $1,318,000 during 2025.

Furthermore, management determined that the current circumstances involving the Hubei subsidiary represented an indicator of impairment for the related machinery and equipment. The Company measured the impairment of the Hubei machinery and equipment using an appraised value, which applied a replacement cost methodology. Upon completing its impairment evaluation, the Company recognized an impairment charge of $354,000 on the machinery and equipment during 2025.

The Company recognized these impairment charges within general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Leases

We account for our leases in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842, “Leases” (“ASC 842”). ASC 842 requires a lessee to recognize assets and liabilities on the balance sheet for all leases, with the result being the recognition of a right of use (“ROU”) asset and a lease liability. The lease liability is equal to the present value of the minimum lease payments for the term of the lease, including any optional renewal periods determined to be reasonably certain to be exercised, using a discount rate determined at lease commencement. This discount rate is the rate implicit in the lease, if known; otherwise, the incremental borrowing rate for the expected lease term is used. Our incremental borrowing rate approximates the rate we would have to pay to borrow on a collateralized basis over a similar term at lease inception. The value of the ROU asset is equal to the initial measurement of the lease liability plus any lease payments made to the lessor at or before the commencement date and any unamortized initial direct costs incurred by the lessee, less any unamortized lease incentives received. Our lease contracts may include options to extend the lease term and we include the renewal options for these leases in the determination of the ROU asset and lease liability when the likelihood of renewal is determined to be reasonably certain.

We enter into leases 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.

There are two types of leases, operating leases and finance leases. Lease classification is determined at lease commencement. We have made an accounting policy election to apply the short-term exception, which does not require the capitalization of leases with terms of 12 months or less. All of our leases are classified as operating leases. Operating lease expense is recognized on a straight-line basis over the lease term and included in general and administrative expense on the consolidated statement of operations. ROU assets are classified as such on the consolidated balance sheets, short-term lease liabilities and long-term lease liabilities are classified as such in the consolidated balance sheets. In the consolidated statements of cash flow, payments for operating leases and related amortization of the ROU assets are presented net within operating activities.

Stock-Based Compensation

The Company has stock-based incentive plans which may grant stock option, restricted stock and unrestricted stock awards. The Company recognizes stock-based compensation expense based on the grant date fair value of the award and the related vesting terms.

The recognition of compensation expense associated with performance-based restricted stock units requires judgment in assessing the probability of meeting the performance goals, as well as defined criteria for assessing achievement of the performance-related goals. For purposes of measuring compensation expense, the number of shares ultimately expected to vest is estimated at each reporting date based on management’s expectations regarding the relevant performance criteria. The performance shares begin vesting only upon the achievement of the performance criteria. The achievement of the performance goals can impact the valuation and associated expense of the restricted stock units. The assumptions used in accounting for the share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if circumstances change and we use different assumptions, our stock-based compensation expense could be materially different in the future. See Note 13 for additional information.

Investor Advances

The Company has received advances from investors during recent years prior to the execution of a related financing arrangement. Such advances are treated as current liabilities until such time as a final investment vehicle is executed by the parties.

Earnings per share

Basic income (loss) per share is computed by dividing net income (loss) attributable to Yunhong Green CTI Ltd. Common shareholders by the weighted average number of shares of common stock outstanding during each period.

Diluted earnings (loss) per share is computed by dividing the net loss attributable to Yunhong Green CTI Ltd. Common shareholders by the weighted average number of shares of common stock and equivalents (stock options and warrants), unless anti-dilutive, during each period. In periods for which there is a net loss, diluted loss per common share is equal to basic loss per common share, since the effect of including any common stock equivalents would be antidilutive.

As of December 31, 2025, and 2024, shares to be issued upon the exercise of warrants aggregated 55,600 and 55,600, respectively. No options were outstanding as of December 31, 2025 and 2024. The number of shares included in the determination of earnings on a diluted basis for the year ended December 31, 2025, and 2024 were none, as doing so would have been anti-dilutive.

Fair Value Measurements

Current professional accounting guidance applies to all assets and liabilities that are being measured and reported on a fair value basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. The requirements prescribe a fair value hierarchy that has three levels of inputs, both observable and unobservable, with use of the lowest possible level of input to determine fair value. A Level 1 input includes a quoted market price in an active market or the price of an identical asset or liability. Level 2 inputs are market data other than Level 1 inputs that are observable either directly or indirectly including quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data.

The carrying value amounts of the Company’s cash and cash equivalents, accounts receivable, accounts payable and other current liabilities are reasonable estimates of their fair values due to the short-term nature of these instruments.

Deferred Financing Costs

Deferred financing costs are amortized over the term of the loan. Upon refinancing, existing unamortized deferred financing costs are expensed.

Income Taxes

The Company accounts for income taxes using the asset and liability method. As such, deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.

Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the anticipated reversal of these differences is scheduled to occur. Deferred tax assets are reduced by a valuation allowance when management cannot determine, in its opinion, that it is more likely than not that the Company will recover that recorded value of the deferred tax asset. The Company is subject to U.S. Federal, state and local taxes as well as certain foreign taxes in China. U.S. income tax expense and foreign withholding taxes are provided on remittances of foreign earnings and on unremitted foreign earnings that are not indefinitely reinvested. No interest and penalties related to uncertain tax positions were incurred during 2025 and 2024. Tax years ended December 31, 2022 or later remain subject to examination by the IRS and state taxing authorities.

We utilize a two step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. See Note 9 for further discussion.

Revenue Recognition

We recognize revenue in accordance with ASC 606 “Revenue from Contracts with Customers (“ASC 606”).” The core principle of ASC 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASC 606 defines a five-step process to recognize revenue and requires judgment and estimates within the revenue recognition process, including identifying contracts with customers, identifying performance obligations in the contract, determining and estimating the amount of any variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation and recognizing revenue when the entity satisfies each performance obligation.

Net sales consist primarily of revenues from the sale of products, including shipping and handling charges billed to customers, net of estimates for product returns. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to customers. Revenue is recognized at a point in time when control of the product transfers to the customer, which generally occurs upon shipment. The Company has elected the practical expedient under ASC 606-10-25-18B to account for shipping and handling activities that occur after the customer obtains control of the product as fulfillment activities rather than as a separate performance obligation. Accordingly, shipping and handling charges billed to customers are included in net sales, and the related outbound freight costs are included in cost of sales. In most cases, the Company’s contracts with customers contain a single performance obligation related to the sale and delivery of its products. Accrued product returns are estimated based on historical experience and current information. The Company provides for product returns based on historical return rates. While the Company incurs costs for sales commissions paid to its sales employees and outside agents, these commission costs are recognized concurrent with the related revenue, as the amortization period is less than one year. The Company has elected the practical expedient under ASC 606-10-25-4 to expense incremental costs of obtaining a contract when the amortization period would have been one year or less. The Company does not incur any other incremental costs to obtain contracts with its customers. The Company’s product warranties are assurance-type warranties, which promise the customer that the products are as specified in the contract. Accordingly, these warranties are not accounted for as a separate performance obligation. Sales taxes assessed by governmental authorities are accounted for on a net basis and excluded from net sales. A disaggregation of product net sales is presented in Note 14.

Research and Development

The Company conducts product development and research activities which include (i) creative product development and (ii) engineering. The Company conducts product development and research activities that include (i) creative product development and (ii) engineering. For the years ended December 31, 2025 and 2024, total research and development expenses were approximately $200,000 in each year. These costs are included within operating expenses, with approximately $53,000 classified within General and Administrative expenses and approximately $147,000 classified within Advertising and Marketing expenses.

Advertising Costs

The Company expenses advertising costs as incurred.

Note 3–Liquidity and Going Concern

The Company’s financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has a cumulative net loss from inception to December 31, 2025 of approximately $28.4 million and had approximately $0.1 million of cash as of December 31, 2025. The accompanying financial statements for the year ended December 31, 2025 have been prepared assuming the Company will continue as a going concern. The Company’s cash resources may be insufficient to meet its anticipated needs during the next twelve months. The Company may require additional funding on acceptable terms to support its planned future operations.

Management’s plans include executing on its business plan and raising external funds to the extent needed. These factors are indicators that there is substantial doubt about the ability to continue as a going concern for one year from the issuance of the accompanying consolidated financial statements. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

The Company’s primary sources of liquidity have traditionally been comprised of cash and cash equivalents as well as availability under a Credit Agreement. The Credit Agreement with Line Financial, as most recently amended in September 2025, includes a revolving credit facility for up to $7 million and a term loan of $0.7 million, all supported by the majority of our assets. This Agreement was extended during September 2025, to mature April 30, 2027, under substantially similar terms. We also made structural changes to our business, removing the cash required to support subsidiaries that are no longer part of our group and other operating improvements.

4.New Accounting Pronouncements

Recent Accounting Pronouncements

Recent Accounting Guidance Adopted in the Current Year

In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-09, Improvements to Income Tax Disclosures, which requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. ASU 2023-09 is effective for Public Business Entities (PBEs) as defined in the Master Glossary of the Codification for annual periods beginning after December 15, 2024. We adopted prospectively ASU 2023-09 in the fourth quarter of 2025 and have provided the required disclosures. See Note 9, Income Taxes

Recent Accounting Guidance Not Yet Adopted

In November 2024, FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40). The ASU requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions. This ASU also requires disclosure of the total amount of selling expenses along with the definition of selling expenses. The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Adoption of this ASU can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated financial statements. Early adoption is also permitted. This ASU will likely result in the required additional disclosures being included in our consolidated financial statements, once adopted. We are currently evaluating the provisions of this ASU.

In July 2025, the FASB issued ASU 2025-05, which amends ASC 326-20 to provide a practical expedient (for all entities) relating to the estimation of expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606. ASU 2025-05 is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact that this ASU will have on our consolidated financial statements.

No other new accounting pronouncements recently adopted or issued had or are expected to have a material impact on the consolidated financial statements.

5. Fair Value Disclosures

U.S. GAAP clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. U.S. GAAP also requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based upon the best information available.

U.S. GAAP establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of the input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. There wereno assets or liabilities measured in the fair value hierarchy as of December 31, 2025 or 2024.

**6.Major Customers

For the year ended December 31, 2025, the Company had two customers that accounted for approximately 41% and 40% of consolidated net sales. For the year ended December 31, 2024, those same two customers accounted for approximately 47% and 36% of consolidated net sales. As of December 31, 2025, the outstanding accounts receivable balance from these customers was $5.85 million.

7. Inventories

The components of inventories are as follows:

8. Debt

Senior Facilities

On September 30, 2021 (the “Closing Date”), the Company entered into a loan and security agreement (the “Agreement”) with Line Financial (the “Lender”), which provides for a senior secured financing consisting of a revolving credit facility (the “Revolving Credit Facility) in an aggregate principal amount of up to $7 million, as amended (the “Maximum Revolver Amount”), subject to borrowing base provisions, and term loan facility (the “Term Loan Facility”) in an aggregate principal amount of $731,250 (“Term Loan Amount” and, together with the Revolving Credit Facility, the “Senior Facilities”). The Senior Facilities are secured by substantially all assets of the Company. The Company has remained in compliance with all material covenants since inception.

Borrowings under the Revolving Credit Facility bear interest at the prime rate +7.82% (14.57% as of December 31, 2025), payable monthly in arrears. The Term Loan Facility bears interest at the prime rate +1.45% (8.2% as of December 31, 2025) and is repaid in 48 monthly installments of approximately $15,000, beginning November 1, 2021. The Company also pays collateral monitoring fees of 4.62% of the eligible accounts receivable, inventory, and equipment supporting both facilities.

Originally maturing September 30, 2023, the Senior Facilities were extended to April 30, 2027 pursuant to a Fifth Amendment executed on September 30, 2025, which also increased the revolving commitment from $6.0 million to $7.0 million and added a 0.75% renewal fee, payable in two equal installments in October 2025 and September 2026. A $12,500 commitment fee was also incurred. All other material terms, including borrowing base, collateral, and covenants, remained unchanged.

The facility automatically renews for successive one-year periods unless either party provides written notice of termination not less than 90 days prior to the end of the then-current term. The Company may prepay the Term Loan Facility (together with accrued interest and any applicable prepayment fee) in whole, but not in part, upon at least 60 days’ prior written notice

At December 31, 2025 and 2024, the term loan balance was approximately $0.5 and $0.6 million, respectively, and the revolving balance was $6.8 million and $6.6 million, respectively. We had $0.2 million remaining available for borrowing under the Revolving Credit Facility as of December 31, 2025.

The Agreement requires the Company to maintain minimum tangible net worth of $4.0 million, subject to adjustment by the Lender. The Company was in compliance with this covenant as of December 31, 2025 and 2024. The Agreement also limits additional indebtedness, liens, dividends, mergers, and annual capital expenditures exceeding $1.0 million.

Notes payable, Related Party

The Company is party to a note payable to John H. Schwan, Director and former Chairman of the Board, for an initial amount of $1.3 million as of December 31, 2023 and an interest rate of 6%. The Company repaid $1 million to Mr. Schwan during January 2024. The parties agreed to the payment of the remaining $0.3 million at a future date to be determined. This related party note payable is subordinate to the Senior Facilities.

9. Income Taxes

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. We adopted ASU 2023-09 in the fourth quarter of 2025.

We account for income taxes under the liability method; under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.

We utilize a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

Due to an ownership change in the first quarter of 2020, the future utilization of certain post-change income tax attributes of Yunhong CTI Ltd , including net operating loss carryovers, are anticipated to be limited for U.S. income tax purposes.

For financial reporting purposes, Income (Loss) before provision for income taxes, includes the following components:

Income tax provision (benefit) differs from the amounts computed by applying the statutory income tax rate of 21% to pretax loss as follows:

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:

Realization of our deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Because of our lack of U.S. earnings history, the net U.S. deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $0.01 million and $0.23 million during the years ended December 31, 2025 and 2024, respectively.

As required under ASU 2023-09, the Company has included only the portion of the valuation allowance related to federal deferred tax assets in the “change in valuation allowance” line of the rate reconciliation. The following table presents a reconciliation of the total change in the valuation allowance:

Net Operating Loss and Tax Credit Carryforwards

As of December 31, 2025, we had a net operating loss carryforward for federal income tax purposes of approximately $17 million, of which $0.2 million is subject to expiration beginning 2037. We had a total state net operating loss carryforward of approximately $19.6 million, with various expiration dates. Utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization.

We haveno federal and state tax credits as of December 31, 2025 and 2024.

Tax Legislation

On July 4, 2025, the One Big Beautiful Bill Act was signed into law in the United States. The legislation includes certain provisions related to the full expensing of qualified United States research and experimental costs and other depreciable property. The legislation also includes changes to the determination of the amount of United States interest expense that is deductible for United States tax purposes. The legislation did not have a material impact on the Company’s income tax expense for the year ended December 31, 2025, and did not materially change its effective income tax rate for 2025.

10. Related Party Transactions

Ms. Jana M. Schwan is the Company’s Chief Executive Officer. Her father, John H. Schwan, held several positions with the Company over many years, most recently as Chairman of the Board until June 2020 as discussed in Note 8, Mr. John H. Schwan was owed approximately $0.3 million as of both December 31, 2025, and 2024, respectively in a note from the Company.

Icy Mellon LLC, the landlord of the Company’s Barrington Facility, is a shareholder of the Company. On January 13, 2025, the Company issued 27,604 shares of common stock with an aggregate fair value of approximately $182,000 to settle rent payable that had been included in accrued expenses as of December 31, 2024. As of December 31, 2025 and 2024, amounts due to Icy Mellon LLC totaled approximately $234,000 and $182,000, respectively, and are included in accrued expenses in the consolidated balance sheets. Rent expense for Barrington Facility totaled approximately $557,000 and $541,000 for the years ended December 31, 2025, and 2024, respectively. As of December 31, 2025, remaining lease obligations under the Barrington Facility lease total approximately $3.3 million through the lease term ending April 2031. The Company’s Vice President – Strategy and Business Development also serves as a Manager of Icy Mellon LLC. During 2025, the Company received $150,000 from Icy Mellon LLC as an advance for undefined purposes until an agreement is executed. This advance has been recorded as an advance investor deposit.

Jeffery Leader, a shareholder and newly appointed Director in 2025, provided consulting services during the year ended December 31, 2025. He was paid $30,000 in total for his services.

During the year ended December 31, 2025, the Company issued 150,000 common shares to Mitzners Consulting, LLC, an existing shareholder of the company, for proceeds of $1,050,000. Such proceeds were received prior to December 31, 2024 and were recorded within advance investor deposit on the consolidated balance sheet as of December 31, 2024. As of December 31, 2025 and 2024, accrued investor deposits from Mitzners Consulting, LLC totaled $0 and $1,050,000 respectively. The Company’s Vice President – Strategy and Business Development also serves as a Manager for Mitzners Consulting, LLC.

The Company formed a wholly owned subsidiary, Yunhong Technology Industry (Hubei) Co. Ltd., and acquired certain assets of Yunhong Environmental Protection Technology Co., Ltd. and Yunhong China Group (together the “Selling Parties”) pursuant to an Asset Purchase Agreement. The Selling Parties are affiliated with certain stockholders of the Company. The assets were acquired in exchange for 500,000 shares of the Company’s common stock, which was valued at $6.25 million. On December 2, 2025, the Company entered into a settlement agreement with the seller pursuant to which 175,000 shares of common stock were canceled and approximately $2.1 million of related prepaid assets were eliminated, thereby adjusting the terms of the original transaction. The settlement adjusted the original transaction terms. See Notes 1, 2 and 13 for additional information.

11. Leases

We enter into lease contracts for certain of our facilities at two locations. Our leases have remaining lease terms oftwo andfive years. On December 18 th, 2024, our lease agreement for the Elgin facility was extended through December 31 st, 2028.

The table below describes our lease position as of December 31, 2025 and 2024:

During the years ended December 31, 2025 and 2024, we recorded operating lease expenses to general and administrative expense of $1,085,000 and $1,030,000, respectively.

At December 31, 2025, maturities of operating lease liabilities are as follows:

As of December 31, 2025, the weighted average remaining lease term and weighted average discount rate for our operating leases are 4.5 years and 14.07%, respectively. We calculated the weighted-average discount rate using incremental borrowing rates, which equal the rates of interest that we would pay to borrow funds on a fully collateralized basis over a similar term.

12. Convertible Preferred Stock

Series E Convertible Preferred Stock

In March 2024, the Company amended its Articles of Incorporation to authorize the issuance of 130,000 shares of Series E Convertible Preferred Stock (“Series E Preferred”) resulting in gross proceeds of $1.3 million from an unrelated third party. These Series E Convertible Preferred Stock can be converted to common stock based on meeting certain conditions set forth in the document at ten (10) shares of the company’s common stock, no par value. In aggregate, between Series E Preferred and Series F Convertible Preferred Stock (“Series F Preferred”) financings, $1.5 million of the total Series E and F proceeds were received as an advance prior to December 31, 2023. These funds advanced were initially classified as a current liability until the agreement was finalized and shares were issued, at which time it was reclassified as equity, similar to the prior Convertible Preferred issuances. The issuance of the Series E Preferred Stock resulted in an allocation of $0.8 million to the convertible preferred stock and $0.5 million to the warrants described below and classified as Additional Paid-In Capital. Holders of the Series E Preferred will be entitled to receive quarterly dividends at the annual rate of 8.5% of the stated value ($10 per share) and have a liquidation preference over common stock. Such dividends may be paid in cash or otherwise based on the terms of the agreement. In addition, warrants to purchase 36,140 shares of the Company’s common stock were issued with respect to this transaction. These warrants are exercisable until March 2027, at the lower of $15.2 per share or 90% of the variable price based on the ten-day volume weighted average price (“VWAP”) of the Company’s common stock prior to exercise. Accrued dividends of $205,000 and $93,000 were recorded as of December 31, 2025 and 2024, respectively.

Series F Convertible Preferred Stock

In March 2024, the Company amended its Articles of Incorporation to authorize the issuance of 70,000 shares of Series F Preferred resulting in gross proceeds of $0.7 million from an unrelated third party. As disclosed above certain of these proceeds were received as an advance prior to December 31, 2023. This investment was initially classified as a current liability until the agreement was finalized and shares were issued, at which time it was classified as equity, similar to the prior Convertible Preferred issuances. These Series F Convertible Preferred Stock can be converted to common stock were issued with respect to this transaction. The issuance of the Series F Preferred Stock resulted in an allocation of $0.4 million to the convertible preferred stock and $0.3 million to the warrants described below and classified as Additional Paid-In Capital. Holders of the Series F Preferred will be entitled to receive quarterly dividends at the annual rate of 8.5% of the stated value ($10 per share) and have a liquidation preference over common stock. Such dividends may be paid in cash or stock, at the Company’s discretion, based on the terms of the agreement. In addition, warrants to purchase 19,460 shares of the Company’s common stock were issued with respect to this transaction. These warrants are exercisable until March 2027, at the lower of $15.2 per share or 90% of the variable price based on the ten-day volume weighted average price (“VWAP”) of the Company’s common stock prior to exercise. Accrued dividends of $110,000 and $50,000 were recorded as of December 31, 2025 and 2024, respectively.

13. Other Shareholders’ Equity

Common Stock

As of June 30, 2024, our wholly owned subsidiary, Yunhong Technology Industry (Hubei) Co,. Ltd., acquired certain assets of Yunhong Environmental Protection Technology Co., Ltd. and Yunhong China Group (together the “Selling Parties”) pursuant to an Asset Purchase Agreement. The Selling Parties are affiliated entities of certain stockholders of the Company. In accordance with the terms and conditions of the Asset Purchase Agreement, Yunhong Green CTI Ltd. agreed to issue 500,000 shares of the Company’s common share at a fair value of $6.25 million as consideration. The Company assigned a fair value of $4.05 million to machinery and equipment and $2.2 million represented prepayment to the Selling Parties for the Company’s anticipated operational expenses, which the Selling Parties will pay on the Company’s behalf. No other assets or liabilities were transferred as part of this transaction. The Asset Purchase Agreement was evaluated under the guidance in ASC 805*, Business Combinations*and management determined this does not constitute the acquisition of a business. As a result, this transaction was treated as an asset purchase.

Although the subsidiary was established to expand our international manufacturing operations, commercial production has not commenced as of the date of this report due to tariff conditions and broader macroeconomic factors. The timing and extent of future operations will depend on market conditions and the Company’s strategic evaluation of the subsidiary’s viability. See Note 2 regarding Company’s impairment assessment over the related machinery and equipment acquired from the Asset Purchase Agreement.

On December 2, 2025, the Company entered into a Stock Surrender Agreement with the Selling Parties pursuant to which 175,000 shares of common stock were reacquired and immediately canceled. The fair value of the reacquired shares in the amount of $874,000 was recorded as a reduction to common stock and the Company recognized an impairment charge of $1,318,000 to remove the remaining prepaid asset balance.

On October 1, 2025, the Company executed a reverse stock split of its shares of common stock at a ratio of 1-for-10. All of the Company’s historical share and per share information related to issued and outstanding common stock and outstanding options and warrants exercisable for common stock in these financial statements have been adjusted, on a retroactive basis, to reflect this 1-for-10 reverse stock split**.**

Warrants

As described above, in connection with the Series E and F convertible preferred equity issuances, a total of 55,600 warrants were issued, exercisable for the Company’s common stock at the lower of $15.2 per share or 90% of the 10 day VWAP.

The Company has applied the Black-Scholes model to value stock-based awards. That model incorporates various assumptions in the valuation of stock-based awards relating to the risk-free rate of interest to be applied, the estimated dividend yield and expected volatility of the Company’s Common Stock. The risk-free rate of interest is the U.S. Treasury yield curve for periods within the expected term of the option at the time of grant. The expected volatility is based on historical volatility of the Company’s Common Stock.

The valuation assumptions we have applied to determine the fair value of warrants issued in 2024 were as follows:

A summary of the Company’s common stock warrant activity is as follows:

As of December 31, 2025, the Company reserved the following shares of its common stock for the exercise of warrants:

Restricted Stock

Effective January 2022, pursuant to the Employment Agreement of former Chief Executive Officer Frank Cesario, the Company granted 25,000 shares of restricted common stock. Of these shares,2,500 vested immediately, and the remaining 22,500 shares were subject to performance-based vesting conditions and continued employment. During Mr. Cesario’s employment, certain performance conditions were achieved, resulting in the vesting of 16,875 additional shares. Accordingly,19,375 shares in total vested under the award. Mr. Cesario departed the Company in 2024, and the remaining 5,625 unvested shares were forfeited in accordance with the terms of the award agreement.

During 2022, the Compensation Committee awarded the Company’s then Chief Operating Officer (and current Chief Executive Officer) a grant of 10,000 shares of restricted common stock. Of these shares,2,000 shares vested during the initial twelve-month period, while the remaining 8,000 shares were subject to performance-based vesting conditions. Based on the achievement of specified performance conditions,2,000 additional shares vested in 2023 and 4,000 shares vested in 2024, and the remaining 2,000 shares did not vest and were forfeited in 2024.

Upon taking the role of Chief Executive Officer during November 2024, Ms. Schwan was granted restricted stock in the amount of 25,000 shares.2,500 shares vested immediately, while the remaining 22,500 are subject to performance conditions as further detailed in the share grant. Specifically, the restrictions on the remaining 22,500 shares will lapse based on satisfaction of the following performance goals and objectives and continued employment through the date of meeting such targets:

● The restrictions on 5,625 shares of the award will lapse and the award will vest when the Company’s trailing-twelve-month EBITDA equals or exceeds $0.7 million at any time on or after January 1, 2026.

● The restrictions on 5,625 shares of the award will lapse and the award will vest in the event the Company’s common shares trade at or above $30/share for ten or more consecutive trading days.

● The restrictions on 5,625 shares of the award will lapse and the award will vest if Ms. Schwan remains an employee of the Company as of January 1, 2027.

● The restrictions on 5,625 shares of restricted stock lapse upon the Company’s successful refinancing of its credit facility. The refinancing was completed on September 30, 2025, at which time the award vested however, the shares have not yet been issued.

The Compensation Committee (as defined in the Plan) shall be responsible for determining when the conditions above have been satisfied. The Company records compensation expense with each vesting and records a likelihood of vesting weighted analysis to the extent it has visibility to do so with a related grant date market value when such visibility is present. Without such visibility, it considers such probability as de minimis until additional information is available.

The Company recognized share-based compensation expense relating to vesting of restricted stock of approximately $25,000 and $160,000 in 2025 and 2024, respectively. As of December 31, 2025 and 2024, respectively, there was $133,000 and $155,000 unrecognized compensation expense related to unvested restricted shares. There were approximately 19,800 performance-based grants for which the underlying performance threshold had not been met as of December 31, 2025.

Restricted Stock Units, Performance-Based Restricted Stock Units and Restricted Stock Awards:

Aggregated information regarding RSUs, PSUs and RSAs granted under the Plan is summarized below:

Stock Options

The Compensation Committee (“Committee”) administers the Company’s stock-based plans. The exercise price of the stock options shall be fixed by the Committee at whatever price the Committee may determine in good faith. Unless the Committee determines otherwise, options generally had a 4-year term with a 3-year vesting schedule. Unless the Committee provides otherwise, options terminate upon the termination of a participant’s employment, except that the participant may exercise an option to the extent it was exercisable on the date of termination and for a period of time after termination.

In 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 authorized the issuance of up to 300,000 shares of our common stock in the form of equity-based awards. On June 17, 2022, our shareholders approved of the issuance of 500,000 additional shares to this plan. No registration on Form S-8 was filed for the aforementioned shares, therefore they are not available for issuance in the normal course..

The Company, at the discretion of the board, may issue options in excess of the total available, if options related to that stock plan are cancelled. In some cases, not all shares that are available to a stock plan are issued, as the Company is unable to issue options to a previous plan when a new plan is in place.

14. Product, Geographic and Segment Information

We manage our business activities as a single segment as our business contains similar products and services managed by the Company, and are economically similar, and share similar types of customers, production and distribution. The company designs, manufactures and distributes ballon products throughout the world. The company also laminates, coats, prints and converts films used for food packaging and other commercial uses and for the conversion of films into flexible packaging containers and other products including balloon-inspired gift products.

The customers represent a single market or segment with similar stringent and well-defined requirements. The company makes operating decisions and assesses financial performance only for the Company as a whole and does not make operating decisions or assess financial performance by the end markets which ultimately use the products. Our chief operating decision maker (CODM) is Jana Schwan, CEO. The Company’s CODM regularly reviews financial information presented and does not evaluate the Company’s operating segment using asset or liability information. Instead, the CODM uses revenue, gross margin, and net income or loss to allocate operating and capital resources and assess performance by comparing actual results to historical results and previously forecasted financial information. There are no significant segment expenses reported to the CODM. Due to the single reportable segment, this financial information is presented on the Statements of Operations and Comprehensive Loss.

The following table provides a breakdown of product net sales in each of the years indicated (in thousands):

15. Contingencies

In the ordinary conduct of our business, we are from time to time subject to lawsuits, investigations and claims, including environmental claims and employee-related matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, including civil penalties or other enforcement actions, we do not believe that any currently pending legal proceeding or proceedings to which we are a party will have a material adverse effect on our business, financial condition or results of operations.

16. 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.

17. Retirement Benefits

The Company maintains a 401(k) employee savings plan in which all salaried employees are eligible to participate. The plan is a tax qualified retirement plan.

Under the 401(k) Plan, employees may contribute up to 15% of their eligible compensation to the Plan. Participating employees may direct the investment of individual and company contributions into one or more of the investment options offered by the Plan. The Company has the ability to make matching contributions under the Plan, but none were made during 2025 or 2024.

18. Subsequent Events

On January 19, 2026, the Board of Directors accepted the resignation of Director Philip Wong. Mr. Wong was the Chair of the Audit Committee, was a member of the Compensation Committee and the Nominating and Governance Committee.

On January 22, 2026, the Board of Directors elected Iris Chan as an Independent Director and Audit Committee Chair for the vacant term to conclude upon the election of directors during the 2026 Annual Meeting of Shareholders.

On February 17, 2026, the Board of Directors accepted the resignation of Mr. Yubao Li as Chairman of the Board of Directors of the Company, effective immediately. The Board has elected Gerald D. Roberts Jr. as Interim Chairman. Mr. Roberts has agreed to serve until a permanent Chairman is selected.