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Other Shareholders’ Equity
 12 Months Ended
Dec. 31, 2024
Equity [Abstract]  
Other Shareholders’ Equity

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:

 

  - Historical stock price volatility: The Company used the weekly closing price to calculate historical annual volatility which was a range from 240% - 243%.
     
  - 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 15.16%.
     
  - 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 3 years which is consistent with the contractual term.
     
  - Dividend yield: The estimate for dividend yield is 0%, as the Company did not issue dividends during 2020 through 2024 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 common stock warrant activity is as follows:

  

   Shares under
Option (warrant)		   Weighted Average
Exercise Price		 
Balance at December 31, 2023   -   $- 
Granted   556,000    1.52 
Cancelled/Expired   -    - 
Exercised/Issued   -    - 
Outstanding at December 31, 2024   556,000    1.52 
           
Exercisable at December 31, 2024   556,000   $1.52 

 

As of December 31, 2024 the Company reserved the following shares of its common stock for the exercise of warrants, and preferred stock:

  

2024 Common Stock Warrants   556,000 
Shares reserved as of December 31, 2024   556,000 

 

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:

 

   RSUs, PSUs & RSAs   Weighted Average Grant-Date Fair Value 
Outstanding at December 31, 2022   313,750    1.04 
Granted   -    - 
Vested   (116,250)   1.12 
Forfeited   -    - 
Outstanding at December 31, 2023   197,500    2.14 
Granted   250,000    0.67 
Vested   (148,500)   1.33 
Forfeited   (56,250)   1.28 
Outstanding at December 31, 2024   242,750    0.64 

  

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.

 

See report of independent registered public accounting firm and notes to consolidated financial statements.