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Note 9 - Notes Payable and Capital Leases | 12 Months Ended
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Dec. 31, 2020
Notes to Financial Statements |
Debt and Capital Leases Disclosures [Text Block] | 9. Notes Payable and Capital Leases Long term debt consists of:
|  | December 31, |
|  | 2020 |  |  | 2019 |
Subordinated notes (officer) due on demand, interest at 4% |  | $ | 1,123,769 |  |  | $ | 1,058,486 |
Notes payable (Mexico) |  |  | 1,756,771 |  |  |  | - |
Term Loan |  |  | 2,156,895 |  |  |  | - |
Total long-term debt |  |  | 5,037,435 |  |  |  | 1,058,486 |
Less current portion |  |  | (5,0137,435 | ) |  |  | - |
Total Long-term debt, net of current portion |  | $ | - |  |  | $ | 1,058,486 |
During December 2017, we entered into new financing agreements with PNC. As of December 31, 2020, the PNC Agreements include a $2.3 million Term Loans and a $5.3 million Revolver, with a termination date of December 2022. The Term Loans are payable in monthly installments of $100,000, interest at 8.25%, and the balance is due December 2022. The Term Loan is collateralized by balloons and related equipment. The Revolver provides for interest at varying rates in excess of the prime rate, depending on the level of senior debt to EBITDA over time. Available credit under the Revolving Credit facility is determined by eligible receivables and inventory at Yunhong CTI, LTD (U.S.) and Flexo Universal (Mexico). Due to a failure to meet our covenants during 2018 and as of March 2019, we entered into a forbearance agreement with PNC. Under the terms of this agreement, previously identified covenant violations were waived and financial covenants as of March 31, 2019 were not considered, with the next calculation due July 31, 2019 for the period ended June 30, 2019. We received a temporary over-advance of $1.2 million, which declined to zero over a six -week period under the terms of this agreement and paid a fee of $250,000. As discussed in Note 3 – Liquidity and Going Concern, we violated certain covenants during 2019 and 2020. We remain noncompliant with the terms of our facility, including various amendments, and have thus reclassified the Term Loan in current liabilities on our consolidated balance sheet. Certain terms of the PNC Agreements include:
| ● | Restrictive Covenants : The Credit Agreement includes several restrictive covenants under which we are prohibited from, or restricted in our ability to:
| o | Borrow money;
| o | Pay dividends and make distributions;
| o | Make certain investments;
| o | Use assets as security in other transactions;
| o | Create liens;
| o | Enter into affiliate transactions;
| o | Merge or consolidate; or
| o | Transfer and sell assets.
| ● | Financial Covenants : The Credit Agreement includes a series of financial covenants we are required to meet including:
| o | We are required to maintain a "Leverage Ratio", which is defined as the ratio of (a) Funded Debt (other than the Shareholder Subordinated Loan) as of such date of determination to (b) EBITDA (as defined in the PNC Agreements) for the applicable period then ended. The highest values for this ratio allowed by the PNC Agreements are:
Fiscal Quarter Ratio |  |  |  |  |
March 31, 2019 |  | not applicable |
June 30, 2019 |  | 3.00 | to | 1.00 |
September 30, 2019 |  | 2.75 | to | 1.00 |
January, 2020 and thereafter |  | not applicable |
| o | We are required to maintain a "Fixed Charge Coverage Ratio", which is defined as the ratio of (a) EBITDA for such fiscal period, minus Unfinanced Capital Expenditures made during such period, minus distributions (including tax distributions) and dividends made during such period, minus cash taxes paid during such period to (b) all Debt Payments made during such period. This ratio must not exceed the following for any quarterly calculation.
Fiscal Quarter Ratio |  |  |  |  |
March 31, 2020 |  | 0.75 | to | 1.00 |
June 30, 2020 |  | 0.85 | to | 1.00 |
September 30, 2020 |  | 0.95 | to | 1.00 |
December 31, 2020 |  | 1.05 | to | 1.00 |
April 15, 2021 and thereafter |  | 1.15 | to | 1.00 |
Failure to comply with these covenants has caused us to pay a higher rate of interest on the Term Loan and the Revolver (by 4% per the Agreements), and other potential penalties may impact the availability of the credit facility itself, and thus might negatively impact our ability to remain a going concern. The Company's Flexo subsidiary has entered into financing agreements with local financial institutions. As of December 31, 2020, Flexo had borrowed approximately 35 million Mexican pesos ( $1.7 million). These borrowings are due over the next three years, including $846,000 in 2021, with varying interest rates based primarily on the Interbank Equilibrium Interest Rate plus 4.5%. As of December 31, 2020, the maturity of the Company's debt by year, excluding $143,105 of deferred financing fees, is 2021 - $4,284,391, 2022 – 344,734, and 2023 - $551,414. On April 30, 2020, the Company executed a promissory note (the “Note”) with PNC (the “Lender”) evidencing an unsecured loan in the aggregate principal amount of $1,047,700 (the “PPP Loan”), which was made pursuant to the Paycheck Protection Program (the “PPP”). The PPP was established under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which was enacted on March 27, 2020, and is administered by the U.S. Small Business Administration (“SBA”). The Note provides for a fixed interest rate of one percent per year with a maturity date of April 30, 2022 (the “Maturity Date”). Monthly principal and interest payments due on the PPP Loan are deferred for a six -month period beginning from the date of disbursement of the PPP Loan. The PPP Loan may be prepaid by the Company at any time prior to the Maturity Date with no prepayment penalties or premiums. The Note contains customary event of default provisions. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loans granted under the PPP. Such forgiveness will be subject to approval by the SBA and the Lender and determined, subject to limitations, based on factors set forth in the CARES Act, including verification of the use of loan proceeds for payment of payroll costs and payments of mortgage interest, rent and utilities. In the event the PPP Loan, or any portion thereof, is forgiven, the amount forgiven is applied to outstanding principal. The terms of any forgiveness may also be subject to further regulations and guidelines that the SBA may adopt. The Company carefully monitored all qualifying expenses and other requirements necessary to attain loan forgiveness and the loan has been forgiven. The Company has used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments. Accordingly, the Company recorded grant income of $1,048,000 in 2020 which resulted in no deferred other income liability balance as of December 31, 2020.

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- Definition The entire disclosure for debt and capital lease obligations can be reported. Information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. Also includes descriptions and amounts of capital leasing arrangements that consist of direct financing, sales type and leveraged leases. Disclosure may include the effect on the balance sheet and the income statement resulting from a change in lease classification for leases that at inception would have been classified differently had guidance been in effect at the inception of the original lease. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 840 -URI http://asc.fasb.org/topic&trid=2208923 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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