YUNHONG GREEN CTI LTD. Income Taxes Disclosure

9. Income Taxes

 

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

 

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

 

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

 

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

 

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

 

Schedule of Income (Loss) Before Provision for Income Taxes

		2025				2024
		Year Ended December 31,
		2025				2024
Domestic		$	(452,000	)		$	(1398,000	)
Foreign			(2,078,000	)			101,000
Total loss before income  taxes		$	(2,530,000	)		$	(1,499,000	)

 

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

 

 

Schedule of Income Tax Provision (Benefit) Related to Operations

		Year Ended December 31,
U.S. Federal provision (benefit)		2025								2024
At Statutory Rate		$	(531,000	)			21.00	%		$	(315,000	)			21.00	%
Change in Valuation Allowance			(135,000	)			5.32	%			110,000				(7.33	)%
Foreign Tax Effects			18,000				(0.72	)%			21000				(1.40	)%
Nontaxable or Nondeductible Items			6,000				(0.23	)%			47,000				(3.10	)%
Net Operating Loss Adjustment			-				-				56000				(3.77	)%
Fixed Asset Impairment			418,000				(16.52	)%			-				-
Expiring Tax Attributes			224,000				(8.85	)%			81,000				(5.40	)%
Total provision (benefit)		$					-			$					-

 

 

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:

Schedule of Deferred Tax Assets and Liabilities 

		2025				2024
		Year Ended December 31,
		2025				2024
Deferred Tax Assets:
Federal & State NOL Carryforward		$	5,421,000			$	5,391,000
Foreign Tax Credit & Other Credits			-				224,000
Capitalized R&D			146,000				128,000
Reserves and Accruals			188,000				140,000
Capital Loss Carryforward			2,360,000				2,360,000
Unicap 263A Adjustment			254,000				246,000
Lease liability			1,058,000				1,232,000
Foreign NOL Carryforward			129,000				28,000
Fixed Assets & Intangibles			286,000				279,000
Total Gross deferred tax assets			9,842,000				10,028,000
Less: Val. Allowance			(8,713,000	)			(8,702,000	)
Total Deferred Tax Assets			1,129,000				1,326,000
Deferred Tax Liabilities:
Right of use operating leases			1,129,000				1,326,000
Total Gross deferred tax liabilities			1,129,000				1,326,000
Net Deferred Tax Assets		$	-			$	-

 

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

 

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

Schedule of Reconciliation Total Change in Valuation Allowance  

		2025				2024
		Year Ended December 31,
		2025				2024
Beginning Balance		$	8,702,000			$	8,476,000
Change charged to income tax expense			11,000				226,000
Ending Balance		$	8,713,000			$	8,702,000

 

Net Operating Loss and Tax Credit Carryforwards

 

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

 

We have no federal and state tax credits as of December 31, 2025 and 2024.

 

Tax Legislation

 

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