18.

Stockholders

Equity

Series A Preferred Stock

As discussed in Note

in the Series A Offering, the Company sold

500,000

shares of Series A Preferred and

400,000

shares of common stock for aggregate gross proceeds of

$5,000,000.

In connection with the Series A Offering, we changed our name from CTI Industries Corporation to Yunhong CTI Ltd. and LF International named

three

directors to serve on our Board. They are Mr. Yubao Li, our Chairman of the Board, Ms. Wan Zhang and Ms. Yaping Zhang.

Additionally, in

2020

the Company sold

42,660

shares of Series A Preferred for an aggregate purchase price of

$426,600.

April 1, 2020,

an investor exchanged accounts receivable of

$478,000

into

48,200

shares of Series A Preferred.

Each share of Series A Preferred is convertible into

ten

shares of the Company's common stock. Holders of the Series A Preferred are entitled to receive quarterly dividends at the annual rate of

of the stated value (

$10

per share). Such dividends

may

be paid in cash or in shares of common stock at the Company's discretion. In

2020

the Company accrued

$379,655

of these dividends.

The issuances of the Company's Series A Preferred generated a beneficial conversion feature. The fair value of the common stock into which the Series A Preferred was convertible exceeded the allocated purchase price fair value of the Series A Preferred Stock at the closing dates by approximately

$2.5

million as of the closing dates. We recognized this BCF by allocating the intrinsic value of the conversion option (

$2.5

million) to Additional Paid-in Capital, resulting in a discount on the Series A Preferred Stock. As the Series A Preferred Stock is immediately convertible, the Company accreted the discount on the dates of issuance. The accretion was recognized as dividend equivalents.

2020,

90,860

shares of Series A Preferred were converted into

941,388

shares of the Company's common stock, including shares issued for accrued dividends.

Common Stock

November 20, 2020,

the Company filed Articles of Amendment to its Articles of Incorporation with the Secretary of State of Illinois pursuant to which the Company increased its authorized shares of common stock from

15,000,000

50,000,000.

During

January 2019,

and as further described in Note

21,

the settlement of an arbitration proceeding resulted in the issuance of

20,000

shares of the Company's common stock. The expense for the fair value of these shares was recorded as of

December 31, 2018.

During

2019,

Mr. Schwan converted

$600,000

of notes payable into

180,723

shares of our common stock, using the market price at the time of conversion. Additionally,

100,000

shares of our common stock were issued to a vendor in exchange for

$300,000

in amounts due to the vendor, also at market value at the time of the conversion.

During

2020,

400,000

shares of our common stock were issued to LF related to the acceleration of closings in our Series A Offering, and an additional

200,000

shares were issued to Garden State Securities in its representation of the Company in the Series A Offering.

Restricted Stock

2020,

15,000

shares of restricted stock vested to Mr. Hyland, former Chief Executive Officer, pursuant to the terms of the grant related to his employment with the Company.

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

-year term with a

-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.

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.)

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

registration on Form S-

was filed for these additional shares within

months of approval by our shareholders, those additional shares 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.

The Company recognized share based compensation expense of approximately

and

$178,000

2020

and

2019,

respectively. As of

December 31, 2020,

there was

unrecognized compensation expense related to non-vested stock option grants.

Warrants

In connection with the Series A Offering, the Company issued

792,660

warrants to purchase

792,660

shares of the Company's common stock for

per share.

During

2020,

597,500

warrants were exercised in cash-less exchange for

391,308

shares of the Company's common stock.

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 value of warrants granted in

2020

were as follows:

Historical stock price volatility: The Company used the weekly closing price to calculate historical annual volatility.

Risk-free interest rate: The Company bases the risk-free interest rate on the rate payable on US treasury securities with a similar maturity in effect at the time of the grant, which was a range from

.42%

1.65%.

Expected life: The expected life of the warrants represents the period of time warrants were expected to be outstanding. The Company used an expected life of

years.

Dividend yield: The estimate for dividend yield is

0%,

as the Company did

not

issue dividends during

2020

2019

and does

not

expect to do so in the foreseeable future.

Estimated forfeitures: When estimating forfeitures, the Company considers historical terminations as well as anticipated retirements.

A summary of the Company's stock options, warrants and related information, is as follows:

	Options			Weighted Average Exercise Price		Warrants			Weighted Average Exercise Price
Balance at January 1, 2019		471,144		$	3.95		-			-
Granted		-			-		-			-
Cancelled/Expired		-			-		-			-
Exercised/Issued		-			-		-			-
Balance at December 31, 2019		471,144		$	3.95		-			-
Granted		-			-		792,660			1.00
Cancelled/Expired		(471,144	)		3.95		-
Exercised/Issued							(597,500	)		1.00
Balance at December 31, 2020		-			-		195,160		$	1.00

Exercisable at December 31, 2020							195,160		$	1.00

The stock options above have

aggregate intrinsic value (the difference between the closing price of the Company's common stock as of

December 31, 2020

and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all the holders exercised their options on

December 31, 2020.

The warrants have an intrinsic value of

$140,615

as of

December 31, 2020.

As of

December 31, 2020,

the Company reserved the following shares of its common stock for the exercise of warrants, and preferred stock:

Warrants			195,160
Series A Preferred Stock			5,482,000
Series B Preferred Stock			1,700,000
			7,377,160