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

– 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:

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

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

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

million Mexican pesos (

$1.7

million). These borrowings are due over the next

three

years, including

$846,000

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.

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

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

2020

which resulted in

deferred other income liability balance as of

December 31, 2020.