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Note 12 - Loan and Credit Agreements | 3 Months Ended
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Feb. 28, 2025
Notes to Financial Statements |
Debt Disclosure [Text Block] |
| 12) | Loan and Credit Agreements
Bank Midwest Revolving Lines of Credit and Term Loans The Company previously maintained a $5,500,000 revolving line of credit (the “Line of Credit”) with Bank Midwest. On February 28, 2025, the balance of the Line of Credit was $ 2,199,437 with $ 3,300,563 remaining available. The Line of Credit was subject to a borrowing base, which was an amount equal to 75% of accounts receivable balances (discounted for aged receivables), plus 50% of net inventory, less any outstanding loan balance on the Line of Credit. On February 28, 2025, the Line of Credit was not limited by the borrowing base calculation. Any unpaid principal amount borrowed on the Line of Credit accrued interest at a floating rate per annum equal to 0.75% above the Wall Street Journal rate published in the money rates section of the Wall Street Journal. The interest rate floor was set at 6.00% per annum and the interest rate at February 28, 2025 was 8.25% per annum. The Line of Credit was most recently renewed on March 4, 2024 with a maturity date of March 30, 2025 and required monthly interest-only payments. The Line of Credit is governed by the terms of a Promissory Note, dated March 4, 2024, entered into between the Company and Bank Midwest. The Company paid off the remaining balance of the Line of Credit and entered into a new revolving line of credit (the "2025 Line of Credit") on March 27, 2025 with Bank Midwest. The 2025 Line of Credit is a $4,000,000 revolving line of credit limited by a borrowing base calculation. The 2025 Line of Credit borrowing base is an amount equal to 75% of accounts receivable balances (discounted for aged receivables), plus 50% of net inventory, less any outstanding loan balance on the 2025 Line of Credit. Any unpaid principal amount borrowed on the 2025 Line of Credit accrues interest at a floating rate per annum equal to the Wall Street Journal rate published in the money rates section of the Wall Street Journal. The interest rate floor is set at 6.00% per annum and the current interest rate is 7.5% per annum. The 2025 Line of Credit is governed by the terms of a promissory note, dated March 27, 2025, entered into between the Company and Bank Midwest. The Company carries a $2,600,000 term loan with Bank Midwest due October 1, 2037 (the “Term Loan”). The Term Loan accrues interest at a rate of 7.00%. The interest rate may only be adjusted by Bank Midwest once every five years. Monthly payments of $19,648 in principal and interest are required on the Term Loan. The Term Loan is also guaranteed by the United States Department of Agriculture (“USDA”), which required an upfront guarantee fee of $62,400 and requires 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 Term Loan, in an amount equal to their stock ownership percentage. The J. Ward McConnell Jr. Living Trust, the estate of the former 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 the Term Loan, for an annual fee of 2% of the personally guaranteed amount. The initial guarantee fee will be amortized over the life of the Term Loan, and the annual fees and personally guaranteed amounts are expensed monthly. The Term Loan is governed by the terms of a Promissory Note, dated September 28, 2017, entered into between the Company and Bank Midwest. The Company made a $209,836 principal payment on the term loan on October 23, 2024 after receiving proceeds from the sale of the Ohio real estate from the Company's discontinued Tools segment. 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. The Ohio Metal Working Products/Art's-Way Inc.'s mortgage, commercial security agreements and commercial guaranties were released upon sale of the Ohio real estate associated with the Company's discontinued Tools segment in October of 2024. The Term Loan is secured by a mortgage on the Company’s Armstrong, Iowa and Monona, Iowa properties. 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 subsidiary (as guarantors pursuant to the Commercial Guaranties) commits an event of default with respect to the promissory note 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 note. 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. Compliance with Bank Midwest covenants is measured annually on November 30. The terms of the Bank Midwest loan agreements require the Company to maintain a minimum of $4,000,000 of monthly working capital. The Company is also required to maintain a minimum debt service coverage ratio of 1.25, with a 0.10 tolerance. The Company also must receive bank approval for individual purchases or sales of equipment over $100,000 and maintain reasonable salaries and owner compensation. The Company was in compliance with all covenants of Bank Midwest loans as of November 30, 2024. The next measurement date is November 30, 2025 for all covenants except the monthly working capital requirement. SBA Economic Injury Disaster Loans In June of 2020, the Company executed the standard loan documents required for securing loans offered by the U.S. Small Business Administration under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. One outstanding loan was executed on June 18, 2020 with a principal amount of $150,000, with a second loan being executed on June 24, 2020 with a principal amount of $150,000. Proceeds from these EIDLs were used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue from the date of inception. Installment payments, including principal and interest, were due monthly beginning December 18, 2022 and December 24, 2022 (thirty months from the date of the EIDLs) in the amount of $731 per EIDL. The balance of principal and interest is payable 30 years from the date of the EIDL. The EIDLs are secured by a security interest on all of the Company’s assets subordinate to Bank Midwest’s security interest. Both EIDLs are governed by the terms of a separate Promissory Note, dated June 18, 2020 and June 24, 2020, as applicable, entered into by the Company or the applicable subsidiary. A summary of the Company’s term debt is as follows:
|  | February 28, 2025 |  |  | November 30, 2024 |
Bank Midwest loan payable in monthly installments of $19,648 including interest at 7.00%, due October 1, 2037 |  | $ | 1,752,607 |  |  | $ | 1,779,877 |
U.S. Small Business Administration loan payable in monthly installments of $731 including interest at 3.75% beginning December 18, 2022, due June 18, 2050 |  |  | 156,596 |  |  |  | 157,304 |
U.S. Small Business Administration loan payable in monthly installments of $731 including interest at 3.75% beginning December 24, 2022, due June 24, 2050 |  |  | 157,081 |  |  |  | 157,785 |
Total term debt |  | $ | 2,066,284 |  |  | $ | 2,094,966 |
Less current portion of term debt |  |  | (121,663 | ) |  |  | (119,734 | )
Term debt, excluding current portion |  | $ | 1,944,621 |  |  | $ | 1,975,232 |
A summary of the minimum maturities of term debt follows for twelve month periods ending February 28 or February 29, are as follows:
Year |  | Amount |
2026 |  | $ | 121,663 |
2027 |  |  | 129,593 |
2028 |  |  | 138,885 |
2029 |  |  | 148,547 |
2030 |  |  | 159,499 |
2031 and thereafter |  |  | 1,368,097 |
|  | $ | 2,066,284 |

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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://www.xbrl.org/2003/role/disclosureRef -Topic 470 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147481544/470-10-50-6 Reference 2: 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