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:

 Schedule of Property Plant and Equipment

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.