Note

–

Liquidity and Going Concern

The Company's financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has a cumulative net loss from inception to

March 31, 2021

of over

$14

million. The accompanying financial statements for the

three

months ended

March 31, 2021

have been prepared assuming the Company will continue as a going concern. The Company's cash resources from operations

may

be insufficient to meet its anticipated needs during the next

twelve

months. The Company will require additional financing to fund its future planned operations.

The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses. Management's plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing, continuing to focus our Company on the most profitable elements, and exploring alternative funding sources on an as needed basis. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The COVID-

pandemic has impacted the Company's business operations to some extent and is expected to continue to do so and, in light of the effect of such pandemic on financial markets, these impacts

may

include reduced access to capital. The ability of the Company to continue as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. There is substantial doubt about the ability of the Company to continue as a going concern for

one

year from the issuance of the accompanying consolidated financial statements. The accompanying consolidated financial statements do

not

include any adjustments that might be necessary if the Company is unable to continue as a going concern.

The Company's primary sources of liquidity have traditionally been comprised of cash and cash equivalents as well as availability under the Credit Agreement with PNC (see Note

). As of

March 2019,

October 2019

and

January 2020,

we entered into forbearance agreements with PNC. We encountered subsequent compliance failures with covenants during

2020

and we were out of compliance with the terms of our credit facility, as amended, as of

March 31, 2021.

April 23, 2021,

the Company entered into a Purchase and Sale Agreement (“PSA”) with an unaffiliated purchaser (the “Purchaser”) pursuant to which the Company sold its facility in Lake Barrington, Illinois (the “Lake Barrington Facility”), in which our headquarters office, production and warehouse space are located, to the Purchaser. The sale price for the Lake Barrington Facility was

$3,500,000,

consisting of

$2,000,000

in cash and a promissory note with a principal amount of

$1,500,000,

due and payable on

May 3, 2021 (

the “Purchaser Promissory Note”). Concurrently with the closing under the PSA, the Company and the Purchaser entered into a lease agreement pursuant to which the Company agreed to lease the Lake Barrington Facility from the Purchaser for a period of

ten

years. The annual base rent commences at

$500,000

for the

first

year of the term and escalates annually to

$652,386

during the last year of the term of the lease. As the decision to sell the Lake Barrington Facility was made in

April 2021,

the facility is

not

classified as held for sale as of

March 31, 2021.

Concurrently with the entry into the PSA and the Lease, the Company entered into a Consent, Forbearance and Amendment

No.

to Revolving Credit, Term Loan and Security Agreement (the “Amendment Agreement”) with PNC for itself and for the other participant lenders thereunder (collectively, the “Lender”). Prior to entering into the Amendment Agreement, PNC had notified the Company that various events of default had occurred under the Loan Agreement (the “Existing Defaults”) and were continuing. Pursuant to the Amendment Agreement, the Lender consented to the transactions contemplated by the PSA and the Lease, as required under the Loan Agreement. As a condition to the Amendment Agreement, the Company agreed that the full

$2,000,000

in cash proceeds from the sale of the Lake Barrington Facility would be applied to repay the

$2,000,000

term loan owed to the Lender pursuant to the Loan Agreement. The Company further agreed that

$1,500,000

in proceeds from the Purchaser Promissory Note will be applied to amounts due and owing to the Lender under revolving credit advances made pursuant to the Loan Agreement (the “Revolving Loans”). Pursuant to the Amendment Agreement, the Lender agreed to forbear from exercising its rights and remedies with respect to the Existing Event of Defaults under the Loan Agreement for a period ending on the earlier of

September 30, 2021,

the occurrence of a new event of default under the Loan Agreement, or the occurrence of a Termination Event (as defined therein). Additionally, certain additions and amendments to the Loan Agreement were set forth in the Amendment Agreement, including:

●

The Maximum Revolving Advance Amount is reduced from

$18,000,000

$9,000,000;

●

The Termination Date of the Loan Agreement is revised from

December 14, 2022

December 31, 2021;

●

On or before

June 30, 2021,

or such later date as the Lender agrees in its sole discretion, the Company shall receive an equity investment of at least

$1,500,000

and apply

100%

of the proceeds to a reduction of the Revolving Credit Advance under the Loan Agreement (the “Equity Investment”);

●

On or before

August 15, 2021,

or such later date as the Lender agrees in its sole discretion, the Company shall deliver to Lender (i) a binding term sheet, in form and substance acceptable to Lender, from a financing source that provides for the refinance and payment in full, in cash, of the obligations owing under the Loan Agreement on or before

September 30, 2021,

or (ii) evidence, in form and substance satisfactory to the Lender, that certain equity holders of the Company have available and identifiable funds that are on deposit with a depository institution that are sufficient to pay in full, in cash, all of the Company obligations under the Loan Agreement on or before

September 30, 2021;

●

On or before

September 30, 2021,

the Company will cause all of the amounts owing under the Loan Agreement to be paid in full in cash;

●

The Forbearance Reserve (as defined in Amendment

No.

to the Loan Agreement) shall be increased from

$1,025,000

$2,525,000;

●

Effective

August 1, 2021,

accounts receivable from Wal-Mart Stores and its affiliates shall

longer be considered eligible receivables;

●

Modifications will be made to the budget, testing and variance provisions of the Loan Agreement.

In consideration for entering into the Loan Amendment, the Company agrees to pay the Lender a Forbearance Fee of

$1,000,000.

Provided, however, that, so long as

event of default under the Loan Agreement has occurred (including as a result of a failure of the Company to pay down the Revolving Loans by

$1,500,000

with the proceeds of the Purchaser Promissory Note, (i) if the Company consummates the Equity Investment by

June 30, 2021,

the Forbearance Fee shall be reduced by

$250,000,

$750,000,

and (ii) if the Company causes all of the obligations under the Loan Agreement to be paid in full, in cash, on or before

September 30, 2021,

the Forbearance Fee shall be reduced by an additional

$500,000,

$250,000.