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Note 10 - Loan and Credit Agreements | 12 Months Ended
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Nov. 30, 2018
Notes to Financial Statements |
Debt Disclosure [Text Block] |
( 10 ) | Loan and Credit Agreements
The Company maintains a revolving line of credit and a term loan with Bank Midwest as well as a term loan with The First National Bank of West Union, and previously maintained a second term loan with Bank Midwest. Bank Midwest Revolving Line of Credit and Term Loans On September 28, 2017, the Company entered into a credit facility with Bank Midwest, which superseded and replaced in its entirety the Company’s previous credit facility with U.S. Bank. The Bank Midwest credit facility initially consisted of a $5,000,000 revolving line of credit, a $2,600,000 term loan due October 1, 2037, and a $600,000 term loan due October 1, 2019. The proceeds of the line of credit and the term loans were used to refinance all debt previously held by U.S. Bank in the amount of approximately $6,562,030, which consisted of $6,528,223 in unpaid principal and approximately $33,807 in accrued and unpaid interest and fees. The line of credit is being used for working capital purposes. On March 29, 2018, the Company paid in full the $600,000 term loan due October 1, 2019 using proceeds from the sale of the Company’s Dubuque, Iowa property. The payment consisted of $596,563 in principal and $2,328 in interest. On November 30, 2018, the balance of the line of credit was $3,505,530 with $1,494,470 remaining available, limited by the borrowing base calculation. The line of credit borrowing base is an amount equal to 75% of accounts receivable balances (discounted for aged receivables), plus 50% of inventory, less any outstanding loan balance on the line of credit. At November 30, 2018, the line of credit was not limited by the borrowing base calculation. Any unpaid principal amount borrowed on the line of credit accrues interest at a floating rate per annum equal to 1.00% above the Wall Street Journal rate published from time to time in the money rates section of the Wall Street Journal. The interest rate floor is set at 4.25% per annum and the current interest rate is 6.50% per annum. The line of credit was renewed on March 30, 2018. The line of credit is payable upon demand by Bank Midwest, and monthly interest-only payments are required. If no earlier demand is made, the unpaid principal and accrued interest is due on March 30, 2019. The $2,600,000 term loan accrues interest at a rate of 5.00% for the first sixty months. Thereafter, this loan will accrue interest at a floating rate per annum equal to 0.75% above the Wall Street Journal rate published from time to time in the money rates section of the Wall Street Journal. The interest rate floor is set at 4.15% per annum and the interest rate may only be adjusted by Bank Midwest once every five years. Monthly payments of $17,271 for principal and interest are required. This loan is also guaranteed by the United States Department of Agriculture (“USDA”), which required an upfront guarantee fee of $62,400 and an annual fee of 0.5% of the unpaid balance. As part of the USDA guarantee requirements, shareholders owning more than 20% are required to personally guarantee a portion of the loan as well, in an amount equal to their stock ownership percentage. J. Ward McConnell Jr., the Vice Chairman of the Board of Directors and a shareholder owning more than 20% of the Company’s outstanding stock, is guaranteeing approximately 38% of this loan, for an annual fee of 2% of the personally guaranteed amount. The initial guarantee fee will be amortized over the life of the loan, and the annual fees and personally guaranteed amounts are expensed monthly. Prior to repayment, the $600,000 term loan accrued interest at a rate of 5.00%, and monthly payments of $3,249 for principal and interest were required. Each of the line of credit and the $2,600,000 term loan are governed by the terms of a separate Promissory Note, dated September 28, 2017, entered into between the Company and Bank Midwest. The $600,000 term loan was also governed by the terms of a separate Promissory Note, dated September 28, 2017, entered into between the Company and Bank Midwest. In connection with the line of credit, the Company, Art’s-Way Scientific Inc. and Ohio Metal Working Products/Art’s-Way Inc. each entered into a Commercial Security Agreement with Bank Midwest, dated September 28, 2017, pursuant to which each granted to Bank Midwest a first priority security interest in certain inventory, equipment, accounts, chattel paper, instruments, letters of credit and other assets to secure the obligations of the Company under the line of credit. Each of Art’s-Way Scientific Inc. and Ohio Metal Working Products/Art’s-Way Inc. also agreed to guarantee the obligations of the Company pursuant to the line of credit, as set forth in Commercial Guaranties, each dated September 28, 2017. To further secure the line of credit, the Company granted Bank Midwest a second mortgage on its West Union, Iowa property and Ohio Metal Working Products/Art’s-Way Inc. granted Bank Midwest a mortgage on its property located in Canton, Ohio. The mortgage on the West Union property was released in conjunction with the sale of that property in December 2018. The $2,600,000 term loan is secured by a mortgage on the Company’s Armstrong, Iowa and Monona, Iowa properties, and the $600,000 term loan was secured by a mortgage on the Company’s Dubuque, Iowa property. The mortgage on the Dubuque property was released in conjunction with the sale of that property in March 2018. Each mortgage is governed by the terms of a separate Mortgage, dated September 28, 2017, and each property is also subject to a separate Assignment of Rents, dated September 28, 2017. If the Company or its subsidiaries (as guarantors pursuant to the Commercial Guaranties) commits an event of default with respect to the promissory notes and fails or is unable to cure that default, Bank Midwest may immediately terminate its obligation, if any, to make additional loans to the Company and may accelerate the Company’s obligations under the promissory notes. Bank Midwest shall also have all other rights and remedies for default provided by the Uniform Commercial Code, as well as any other applicable law and the various loan agreements. In addition, in an event of default, Bank Midwest may foreclose on the mortgaged property. Bank Midwest Loan Covenants Compliance with Bank Midwest covenants is measured annually at November 30. The terms of the Bank Midwest loan agreements require the Company to maintain a minimum working capital ratio of 1.75, while maintaining a minimum of $5,100,000 of working capital. Additionally, a maximum debt to worth ratio of 1 to 1 must be maintained, with a minimum of 40% tangible balance sheet equity, with variations subject to mutual agreement. The Company is also required to maintain a minimum debt service coverage ratio of 1.25, with a 0.10 tolerance. The Company was in compliance with all covenants as of November 30, 2018 other than the debt service coverage ratio. Bank Midwest issued a waiver forgiving the noncompliance, and no event of default has occurred. The next measurement date is November 30, 2019. The Company is also required to provide audited financial statements within 120 days of its fiscal year end. Iowa Finance Authority Term Loan and Covenants On May 1, 2010, the Company obtained a loan to finance the purchase of an additional facility located in West Union, Iowa to be used as a distribution center, warehouse facility, and manufacturing plant for certain products under the Art’s-Way brand. The funds for this loan were made available by the Iowa Finance Authority by the issuance of tax exempt bonds. This loan had an original principal amount of $1,300,000, an interest rate of 3.5% per annum and a maturity date of June 1, 2020. On February 1, 2013, the interest rate was decreased to 2.75% per annum. The other terms of the loan remained unchanged. This loan from the Iowa Finance Authority, which was assigned to The First National Bank of West Union (n/k/a Bank 1st ), was governed by a Manufacturing Facility Revenue Note dated May 28, 2010 as amended February 1, 2013 and a Loan Agreement dated May 1, 2010 and a First Amendment to Loan Agreement dated February 1, 2013 ( collectively, “the IFA Loan Agreement”), which required the Company to provide quarterly internally prepared financial reports and year-end audited financial statements and to maintain a minimum debt service coverage ratio of 1.5 to 1.0, which is measured at November 30 of each year. Among other covenants, the IFA Loan Agreement also required the Company to maintain proper insurance on, and maintain in good repair, the West Union Facility, and continue to conduct business and remain duly qualified to do business in the State of Iowa. The loan was secured by a mortgage on the Company’s West Union Facility, pursuant to a Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement dated May 1, 2010 between the Company and The First National Bank of West Union. The Company was in compliance with all covenants except for the debt service coverage ratio covenant as measured on November 30, 2018. On December 14, 2018 this loan was paid off with the sale of the West Union facility rendering a waiver unnecessary. U.S. Bank Credit Facility The Company previously maintained a revolving line of credit and term loans with U.S. Bank. The material terms of the U.S. Bank credit facility were most recently disclosed in the Company’s Form 10 -Q for the quarter ended August 31, 2017, in Note 8 “Loan and Credit Agreements” to the financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” to such report. On September 28, 2017, the Company repaid its U.S. Bank debt in full in connection with its credit facility with Bank Midwest, as discussed above. A summary of the Company’s term debt is as follows:
|  | November 30, 2018 |  |  | November 30, 2017 |
Bank Midwest loan payable in monthly installments of $17,271 including interest at 5.00%, due October 1, 2037 |  | $ | 2,517,510 |  |  | $ | 2,595,007 |
Bank Midwest loan payable in monthly installments of $3,249 including interest at 5.00%, due October 1, 2019 |  |  | - |  |  |  | 599,584 |
Iowa Finance Authority loan payable in monthly installments of $12,500 including interest at 2.75%, due June 1, 2020 |  |  | 232,967 |  |  |  | 374,900 |
Total term debt |  | $ | 2,750,477 |  |  | $ | 3,569,491 |
Less current portion of term debt |  |  | 227,459 |  |  |  | 221,230 |
Term debt of discontinued operations |  |  | - |  |  |  | 599,584 |
Term debt, excluding current portion |  | $ | 2,523,018 |  |  | $ | 2,748,677 |
A summary of the minimum maturities of term debt follows for the years ending November 30:
Year: |  | Amount |
2019 |  | $ | 227,459 |
2020 |  |  | 172,426 |
2021 |  |  | 90,179 |
2022 |  |  | 94,858 |
2023 |  |  | 99,781 |
2024 and thereafter |  |  | 2,065,774 |
Total term debt |  | $ | 2,750,477 |

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- Definition The entire disclosure for 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. + References Reference 1: 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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