)

Loan and Credit Agreements

The Company maintains

two

revolving lines of credit and

one

term loan with Bank Midwest. The Company also has

three

term loans with the U.S. Small Business Administration under the Economic Injury Disaster Loan program.

Bank Midwest Revolving Lines of Credit and Term Loan

The Company maintains a credit facility with Bank Midwest consisting of a

$5,000,000

revolving line of credit (the

“2017

Line of Credit”) used for working capital purposes, and a

$2,600,000

term loan due

October 1, 2037 (

the “Term Loan”). On

February 28, 2021,

the balance of the

2017

Line of Credit was

$1,875,530

with

$3,124,470

remaining available, as

may

be limited by the borrowing base calculation. The

2017

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

2017

Line of Credit. At

February 28, 2021,

the

2017

Line of Credit was limited by the borrowing base calculation to a total borrowing of

$4,969,155

(

$3,093,625

remaining available). Any unpaid principal amount borrowed on the

2017

Line of Credit accrues interest at a floating rate per annum equal to

1.00%

above the Wall Street Journal rate published 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

4.25%

per annum. The

2017

Line of Credit was most recently renewed on

February 11, 2021.

The

2017

Line of Credit matures on

March 30, 2022

and requires monthly interest-only payments.

The Term Loan accrues interest at a rate of

5.00%

for the

first

sixty

months. Thereafter, the Term Loan will accrue 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 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. 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. 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 the Term Loan, for an annual fee of

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.

February 13, 2019,

the Company opened a

$4,000,000

revolving line of credit (the

“2019

Line of Credit”) with Bank Midwest in connection with bonding obligations for the Company's performance of a large modular laboratory construction project. Funds under the

2019

Line of Credit will be undisbursed to the Company and will be held by Bank Midwest in connection with an Irrevocable Letter of Credit issued by Bank Midwest for the project. The

2019

Line of Credit accrues interest at a floating rate per annum equal to

1.00%

above the Wall Street Journal rate published 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

4.25%

per annum. The

2019

Line of Credit was most recently renewed on

February 2, 2021.

The

2019

Line of Credit is payable upon demand by Bank Midwest. If

earlier demand is made, the unpaid principal and accrued interest will be payable in

one

payment, due on

February 13, 2022.

As of

February 28, 2021,

the funds on the

2019

Line of Credit remain undisbursed and are held by Bank Midwest. The Company expects to close the

2019

Line of Credit in the

second

quarter of fiscal

2021

as the Company's bonding obligations are met.

The Term Loan is governed by the terms of a Promissory Note, dated

September 28, 2017,

entered into between the Company and Bank Midwest. Each of the

2017

and

2019

Lines of Credit is governed by the terms of a Promissory Note, dated

February 11, 2021

and

February 2, 2021,

respectively, entered into between the Company and Bank Midwest.

In connection with the

2017

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

2017

Line of Credit, as set forth in Commercial Guaranties, each dated

September 28, 2017.

The

2019

Line of Credit is also secured by these existing security documents.

To further secure the

2017

Line of Credit, the Company granted Bank Midwest a mortgage on its Canton, Ohio property held by Ohio Metal Working Products/Art's-Way Inc. The

2019

Line of Credit is also secured by the mortgage on the Canton, Ohio property. 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 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.

Compliance with Bank Midwest covenants is measured annually at

November 30.

A maximum debt to worth ratio of

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 also must receive bank approval for purchases or sales of equipment over

$100,000

annually and maintain reasonable salaries and owner compensation. The Company received the necessary approvals for purchases of equipment over

$100,000

for the

three

months ended

February 28, 2021.

The Company was out of compliance with its debt service coverage ratio and the prior minimum working capital requirements covenants in place under the Bank Midwest loans as of

November 30, 2020.

Bank Midwest issued a waiver forgiving the noncompliance, and in turn waived the event of default. The next measurement date is

November 30, 2021.

January 12, 2021

Bank Midwest amended the Company's working capital requirement of maintaining a minimum working capital ratio of

1.75,

while also maintaining

$5,100,000

of working capital. The new covenant requires the Company to maintain a working capital requirement of

$4,000,000

and drops the requirement to maintain a minimum working capital ratio of

1.75.

The

$4,000,000

working capital level serves as a trigger point for Bank Midwest and the Company to continue discussion of capital raising strategies to support additional capital injection. This new covenant is measured monthly. As of

February 28, 2021,

the Company was

not

in compliance with the working capital covenant. On

March 22, 2021,

Bank Midwest issued a letter to the Company allowing correction of the noncompliance by

May 31, 2021.

If the Company fails to get back in compliance, a meeting will be conducted to review the Company's strategy to get back into compliance with the covenant. The Company will be considered in default if the plan is

not

accepted by Bank Midwest or the Company is unable to remedy in the time granted by Bank Midwest.

SBA Economic Injury Disaster Loans

June 18, 2020,

and again on

June 24, 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-

pandemic on the Company's business. Two loans were executed on

June 18, 2020

with principal amounts of

$150,000

each, with a

third

loan executed on

June 24, 2020

with a principal amount of

$150,000

Proceeds from these EIDLs are being 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, are due monthly,

twelve

months from the date of the EIDLs, in the amount of

$731

per EIDL. The balance of principal and interest is payable

years from the date of the EIDL. The EIDLs are secured by a security interest on all of the Company's assets. Each EIDL is governed by the terms of a separate Promissory Note, dated either

June 18, 2020

June 24, 2020,

as applicable, entered into by the Company or the applicable subsidiary.

March 11, 2021,

the American Rescue Plan Act of

2021

was enacted, which extends the

first

due date for repayment of EIDLs made in

2020

months from the date of the note.

A summary of the Company's term debt is as follows:

	February 28, 2021		November 30, 2020
Bank Midwest loan payable in monthly installments of $17,271 including interest at 5.00%, due October 1, 2037	$	2,328,719	$	2,350,593
U.S. Small Business Administration loan payable in monthly installments of $731 including interest at 3.75% beginning June 18, 2022, due June 18, 2050		153,930		152,543
U.S. Small Business Administration loan payable in monthly installments of $731 including interest at 3.75% beginning June 24, 2022, due June 24, 2050		153,838		152,450
U.S. Small Business Administration loan payable in monthly installments of $731 including interest at 3.75% beginning June 18, 2022, due June 18, 2050		153,930		152,543
Total term debt	$	2,790,417	$	2,808,129
Less current portion of term debt		91,336		94,979
Term debt, excluding current portion	$	2,699,081	$	2,713,150

A summary of the minimum maturities of term debt follows for the years ending

February 28, 2021:

Year	Amount
2021	$	68,307
2022		98,275
2023		108,314
2024		113,474
2025		119,584
2026 and thereafter		2,282,463
	$	2,790,417