YUNHONG GREEN CTI LTD

Years Ended December 31, 2024 and 2023

1. Nature of Business

Nature of Operations

Yunhong Green CTI Ltd. (formerly Yunhong CTI Ltd. and prior to that CTI Industries Corporation), 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 the Hubei Province of China. As further described in Note 13, on June 30, 2024, the Company, through the China subsidiary, acquired certain production assets pursuant to an Asset Purchase Agreement and in exchange for 5 million shares of the Company’s common stock, which was valued at $6.25 million, thefive million shares are outstanding as of December 31, 2024. Certificates representing these common shares were not issued as of December 31, 2024 however we deem this an administrative action which does not impact the Company’s presentation of the shares as outstanding.

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 valuation allowances for doubtful accounts, inventory valuation, deferred tax assets, and valuation of shared-based awards and warrants.

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 $5,403,000 and $3,975,000 for December 31, 2024 and December 31,2023 respectively.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard costs which approximates costing 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 $196,000 and $112,000 for the years ended December 31, 2024 and 2023, 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 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. The Company measures the impairment based on the projected discounted cash flows of the asset over its remaining life.

Leases

We account for our leases in accordance with 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. Several of our lease contracts 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 income. 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 statements of cash flow, payments for operating leases are classified as 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. Investor advances in prior year financial statements have been reclassified to conform to the current year presentation.

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, 2024, and 2023, shares to be issued upon the exercise of warrants aggregated 556,000 and 128,000, respectively. No options were outstanding as of December 31, 2024 and 2023. The number of shares included in the determination of earnings on a diluted basis for the year ended December 31, 2024, and 2023 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 and notes 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 Mexico (through October 2021) and 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 2024 and 2023. Tax years ended December 31, 2021 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 Accounting Standards Codification (“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 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. In most cases, the Company has a single product delivery performance obligation. Accrued product returns are estimated based on historical data and evaluation of current information.

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.

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. During the years ended December 31, 2024 and 2023, research and development activities totaled approximately $200,000 in each period.

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 liquidation of liabilities in the normal course of business. The Company has a cumulative net loss from inception to December 31, 2024 of approximately $26 million and had approximately $0.2 million of cash as of December 31, 2024. The accompanying financial statements for the year ended December 31, 2024 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. During September 2021, we entered into a new credit agreement with Line Financial. The new agreement with Line Financial includes a revolving credit facility for up to $6 million and a term loan of $0.7 million, all supported by the majority of our assets. This Agreement was extended during September 2023, until September 30, 2025, 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 November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-07 to improve segment disclosure requirements under Accounting Standards Codification (“ASC”) 280, Segment Reporting, primarily through enhancing disclosures about significant segment expenses. The guidance requires entities to provide significant segment expenses that are regularly provided to the CODM and other segment expenses included in each reported measure of segment profitability. This ASU also enhances interim segment reporting requirements by aligning interim disclosures with information that must be disclosed annually in accordance with ASC 280. We adopted this ASU in the fourth quarter of 2024. Note 14 has been adjusted for the impacts of our adoption of this ASU.

Recent Accounting Guidance Not Yet Adopted

In December 2023, FASB issued ASU 2023-09, which requires enhanced income tax disclosures, including disaggregation of information in the rate reconciliation table and disaggregated information related to income taxes paid. The amendments in ASU 2023-09 are effective for the fiscal year ending after December 15, 2025. The Company is currently evaluating the impact that this update will have on its disclosures in the consolidated financial statements.

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.

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, 2024 or 2023.

**6.Major Customers

For the year ended December 31, 2024, the Company had two customers that accounted for approximately 47% and 36% of consolidated net sales from operations. For the year ended December 31, 2023, those same two customers accounted for approximately 46% and 36% of consolidated net sales. As of December 31, 2024, the outstanding accounts receivable balance from these customers was $5.2 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 $6 million (the “Maximum Revolver Amount”) 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 believes it has been in compliance with the terms of these Senior Facilities since their inception in September 2021.

Interest on the Senior Facilities is set at the prime rate published from time to time published in the Wall Street Journal (7.5% as of December 31, 2024), plus 1.45% per annum, accruing daily and payable monthly. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. The Term Loan Facility shall be repaid by the Company to Lender in 48 equal monthly installments of principal and interest, each in the amount of $15,000, commencing on November 1, 2021, and continuing on the first day of each month thereafter until the Term Loan Maturity Date (as defined in the Agreement). Also, the Company paid the Lender collateral monitoring fees of 4.62% of the eligible accounts receivable, inventory, and equipment supporting the Revolving Credit Facility and the Term Loan.

The Senior Facilities matured on September 30, 2023 and were amended to extend the maturity date to September 30, 2025. The facility automatically extends for successive periods of one year each, unless the Company or the Lender gives the other party written notice of termination not less than 90 days prior to the end of such term or renewal term, as applicable. If the Senior Facilities are renewed, the Company shall pay the Lender a renewal fee of 1.25% of the Maximum Revolver Amount and the Term Loan Amount upon each renewal on the anniversary of the Closing Date. The Company has the option to prepay the Term Loan Facility (together with all accrued but unpaid interest and a Term Loan Prepayment Fee (as defined the Agreement) in whole, but not in part, upon not less than 60 days prior written notice to the Lender. With the September 30, 2023 amendment, the parties agreed changes in terms including:

The Senior Facilities require that the Company maintain Tangible Net Worth of at least $4,000,000 or greater (“Minimum Tangible Net Worth”). Minimum Tangible Net Worth may be adjusted downward by the Lender, from time to time, in its sole and absolute discretion, based on the effect of non-cash charges and other factors on the calculation of Tangible Net Worth. Other debt subordinated to Lender is not considered as a reduction of this calculation. The Company believes it was in compliance with this covenant for all relevant months, including as of December 31, 2024 and December 31, 2023, respectively.

The Senior Facilities contain certain affirmative and negative covenants that limit the ability of the Company, among other things and subject to certain significant exceptions, to incur debt or liens, make investments, enter into certain mergers, consolidations, and acquisitions, pay dividends and make other restricted payments, or make capital expenditures exceeding $1,000,000 in the aggregate in any fiscal year.

As of December 31, 2024 and December 31, 2023, the term loan balance amounted to $0.6 and $0.7 million, respectively, which consisted of the principal and interest payable balance of $0.6 and $0.7 million, respectively and deferred financing costs of approximately $17,000 and $41,000, respectively. The balance of the Revolving Line of Credit as of December 31, 2024 and December 31, 2023 amounted to $6,578,000 and $4,991,000, respectively. The Revolving Line of Credit exceeded $6 million due to upcoming holidays and the bank approved extra funding to continue operations, the excess balance was reduced below the $6 million cap on January 3, 2025.

Notes payable, Related Party

The Company is party to a note payable to John H. Schwan, Director and former Chairman of the Board, with a loan balance due 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

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.

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

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 $0.2 million and $0.3 million during the years ended December 31, 2024 and 2023, respectively.

Net Operating Loss and Tax Credit Carryforwards

As of December 31, 2024, we had a net operating loss carryforward for federal income tax purposes of approximately $16.9 million, of which $0.2 million is subject to expiration beginning 2037. We had a total state net operating loss carryforward of approximately $19.5 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 have federal credits of approximately $0.2 million, federal tax credits in the amount of $0.08 million expired during 2024.

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 and $1.3 million as of December 31, 2024, and 2023, respectively in a note from the Company. See Note 8.

Icy Mellon LLC, the landlord of the Company’s Barrington Facility, is also a shareholder of the Company.

The Company formed a wholly owned subsidiary, Yunhong Technology (Hubei) Co. Ltd., in the Hubei Province of China. On June 30, 2024, the Company, through the China subsidiary, acquired certain production assets pursuant to an Asset Purchase Agreement and in exchange for 5 million shares of the Company’s common stock, which was valued at $6.25 million. See Notes 1 and 13.

11. Leases

We enter into lease contracts for certain of our facilities at two locations. Our leases have remaining lease terms of three and six 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, 2024, and 2023:

During the years ended December 31, 2024 and 2023, we recorded operating lease expenses to general and administrative expense of $1,030,000 and $1,074,000, respectively.

At December 31, 2024, maturities of operating lease liabilities are as follows:

As of December 31,2024, the weighted average remaining lease term and weighted average discount rate for our operating leases are 5.5 years and 14.15%, 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 B Convertible Preferred Stock

In November 2020, we issued 170,000 shares of Series B Preferred stock for an aggregate purchase price of $1,500,000 with an initial stated value of $10.00 per share and liquidation preference over common stock. These shares initially had accrued dividends at a rate of 8 percent per annum. As of December 31, 2022 the balance consisted of $1,500,000 original investment, $304,000 of accrued dividends and $47,000 of accretion. On February 1, 2023, the investor converted Series B Preferred stock into approximately 1.9 million shares of common 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. In addition,361,400 warrants to purchase the Company’s common stock were issued with respect to this transaction. These warrants are exercisable until March 2027, at the lower of $1.52 per share or 90% of the variable price based on the ten-day volume weighted average price (“VWAP”) of the Company’s common stock. 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. Accrued dividends of $93,000 were recorded for the year ended December 31, 2024.

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. These Series F 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 addition, warrants to purchase 194,600 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 $1.52 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. 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. Accrued dividends of $50,000 were recorded for the year ended December 31, 2024.

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 5 million shares of the Company’s common share at a fair value of $6.25 million as consideration. As of December 31, 2024, the shares of common stock are in process of being formally issued to the Selling Parties. The Company has initially assigned a fair value of $4.05 million to machinery and equipment and $2.2 million represents prepayment to the Selling Parties for the Company’s anticipated operational expenses, which the Selling Parties will pay on the Company’s behalf. This prepayment balance is classified as prepaid expenses, non-current on the Consolidated Balance Sheets as of December 31, 2024. 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. Operations have not yet commenced, with the exception of the Company $0.1 million of depreciation expense.

During December 2024, the Company issued 100,000 shares of common stock, valued at $60,000, as payment for consulting services performed during 2024 by Jeffrey Leader. The issuance of common stock is included within equity compensation charge on the Consolidated Statements of Income (Loss).

Deposits and Note Conversion to Common Stock

In connection with the 2021 sale and leaseback transaction of the Company’s primary facility in Lake Barrington, IL, the landlord advanced rent payments in the form of a note. The balance of that note on December 31, 2022 was approximately $172,000. The note paid 3% interest and was due March 2024. In addition, the same entity made investment deposits during 2022 that were recorded as short term deposit liabilities. On February 1, 2023, our Board of Directors approved the conversion of these liabilities into common stock at a rate of approximately 84% of the volume weighted average price (VWAP) of the Company’s common stock during the period these deposits were received. In total, approximately $0.9 million of liabilities were converted into approximately 1.9 million shares of our common stock during 2023. Upon conversion, both the note and deposit liabilities were fully eliminated.

Warrants

In connection with the Series D Offering in 2021, the Company issued warrants to purchase 128,000 shares of the Company’s common stock for $1 per share. During November 2023, the Company issued 675,183 shares of its common stock to retire all outstanding warrants, as well as a $317,000 deferred liability related to facility rent credits received from the Lake Barrington landlord. The warrants were converted in a cashless transaction based on the terms of the warrants. The Board of Directors determined the conversion price of the deferred liability would be consistent with the approach listed above,84% of the volume weighted average price during the relevant time period. Both of these items are fully resolved upon this transaction.

As described above, in connection with the Series E and F convertible preferred equity issuances, a total of 556,000 warrants were issued, exercisable for the Company’s common stock at the lower of $1.52 per share or 90% of the 10 day VWAP.

The Company has applied the Black-Scholes model to estimate the fair value these warrants for the purchase of common stock. That model incorporates various assumptions including 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 instrument. 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, 2024 the Company reserved the following shares of its common stock for the exercise of warrants, and preferred stock:

During November 2023, the Company issued 675,183 shares of its common stock to retire all outstanding warrants, as well as a $317,000 deferred liability. The warrants were converted in a cashless transaction based on the terms of the warrants. The Board of Directors determined the conversion price of the deferred liability would be consistent with the approach listed above,84% of the volume weighted average price during the relevant time period. Both of these items are fully resolved upon this transaction.

Restricted Stock

Effective January 2022, and in accordance with the Employment Agreement of Chief Executive Officer Frank Cesario, a grant of restricted stock was made in the amount of 250,000 shares.25,000 shares vested immediately, while the remaining 225,000 are subject to performance conditions as further detailed in the share grant. Specifically, the restrictions on the remaining 225,000 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 56,250 shares of the award will lapse and the award will vest when the Company’s trailing-twelve-month EBITDA equals or exceeds $1 million at any time on or after January 1, 2022. During April 2024 the Compensation Committee determined this condition had been satisfied.

● The restrictions on 56,250 shares of the award will lapse and the award will vest in the event the Company’s common shares trade at or above $5/share for ten or more consecutive trading days. This award was terminated in November 2024.

● The restrictions on 56,250 shares of the award will lapse and the award will vest when the Company’s operating cash flow, calculated cumulatively from the date of employment, equals or exceeds $1.5 million. On January 30, 2023, the Compensation Committee determined this condition had been satisfied.

● The restrictions on 56,250 shares of the award will lapse and the award will vest in the event the Company is able to refinance its current lender with a traditional lender on terms and conditions customary for such financing. On August 23, 2022, the Compensation Committee determined this condition had been satisfied with an amended agreement with the Company’s lender.

During 2022 the Compensation Committee awarded the Chief Operating Officer a grant of 100,000 shares of restricted stock.20,000 of these shares vested over the initial 12 month period while the remaining shares vest 20,000 each based on the performance conditions above.

Upon taking the role of Chief Executive Officer during November 2024, Ms. Schwan was granted restricted stock in the amount of 250,000 shares.25,000 shares vested immediately, while the remaining 225,000 are subject to performance conditions as further detailed in the share grant. Specifically, the restrictions on the remaining 225,000 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 56,250 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 56,250 shares of the award will lapse and the award will vest in the event the Company’s common shares trade at or above $3/share for ten or more consecutive trading days.

● The restrictions on 56,250 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 56,250 shares of the award will lapse and the award will vest in the event the Company is able to refinance its credit facility which concludes per its terms during September 2025.

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 $160,000 and $20,000 in 2024 and 2023, respectively. As of December 31, 2024 and 2023, respectively, there was $155,000 and $358,450 unrecognized compensation expense related to unvested restricted shares. There were approximately 243,000 performance-based grants for which the underlying performance threshold had not been met as of December 31, 2024.

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 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. On June 17, 2022, our shareholders approved of the issuance of 500,000 additional shares to this plan.

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 and Geographic Segment Data

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 from operations 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 and the Company will contribute a matching amount to the Plan each year. 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 2024 or 2023.

18. Subsequent Events

On January 8, 2025, the Company issued 276,039 shares of common stock to its landlord in exchange for rent payable. The fair value of the shares issued were $180,000.