PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Notes to Unaudited Condensed Consolidated Financial Statements

Unless otherwise specified, as used in this Quarterly Report on Form 10-Q,10-Q, the terms “we,” “us,” “our,” “Art’s-Way,” and the “Company” refer to Art’s-Way Manufacturing Co., Inc., a Delaware corporation headquartered in Armstrong, Iowa, and its wholly-owned subsidiaries.

The Company began operations as a farm equipment manufacturer in 1956. Since that time, it has become a major worldwide manufacturer of agricultural equipment. Its principal manufacturing plant is located in Armstrong, Iowa.

The Company has organized its business into three operating segments. Management separately evaluates the financial results of each segment because each is a strategic business unit offering different products and requiring different technology and marketing strategies. The Agricultural Products segment manufactures and sells farm equipment and related replacement parts under the Art’s-Way Manufacturing label and private labels. The Modular Buildings segment manufactures and installs modular buildings for animal containment and various laboratory uses, and the Tools segment manufactures steel cutting tools and inserts.

Statement Presentation

The foregoing condensed consolidated financial statements of the Company are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position and operating results for the interim periods. The financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K10-K for the fiscal year ended November 30, 2020. 2021. The results of operations for the three and nine months ended August 31, 2021 2022 are not necessarily indicative of the results to be expected for the fiscal year ending November 30, 2021.2022.

Impact of COVID-19

The COVID-19 pandemic created some new challenges for the Company through the firstnine months of fiscal 2021. The Company has experienced results consistent with that of a strengthening economy including increased demand in all three segments compared to fiscal 2020. With increased demand, material prices have been skyrocketing, while labor availability has been scarce. These factors will be a challenge for the Company as it works to fulfill its strong backlog over the remainder of fiscal 2021. The COVID-19 pandemic may continue to impact the Company’s business operations and financial operating results and there is uncertainty in the nature and degree of its continued effects over time. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations (Part I, Item 2 of this Form 10-Q) for further discussion.

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Condensed Consolidated Statements of Cash Flows for the nine months ended August 31, 2020, to identify the non-cash expense related to changes in the Company’s obsolete inventory reserve in the amount of $180,758. This change in classification does not affect previously reported cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the three months and nine months ended August 31, 2021. 2022. Actual results could differ from those estimates. A full description of critical accounting policies and related judgments and estimates that affect the preparation of our Condensed Consolidated Financial Statements is set forth in our Annual Report on Form 10-K for the year ended November 30, 2020.

Recently Issued Accounting Pronouncements

Recently Adopted Accounting Guidance

Leases

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, “Leases (Topic 842),” which requires a lessee to recognize a right-of-use asset and a lease liability on its balance sheet for all leases with terms of twelve months or greater. The Company adopted this guidance for fiscal 2020 using the modified retrospective approach, including interim periods within that reporting period. Under the modified retrospective approach, the Company did not adjust prior comparative periods. The Company has a moderate amount of leasing activity mainly as the lessee of office equipment and as the lessor of modular rental buildings. As a result of adoption, the Company recognized $34,316 as a right-of-use asset and $34,316 of lease liabilities on the balance sheet in the first quarter of fiscal 2020 for office equipment it leases. The Company’s activity as a lessor will remain mostly unaffected by this guidance.

Accounting Pronouncements Not Yet Adopted

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13,2016-13, “Measurement of Credit Losses on Financial Instruments.” ASU 2016-132016-13 adds a current expected credit loss (“CECL”) impairment model to U.S. GAAP that is based on expected losses rather than incurred losses. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. ASU 2016-132016-13 is effective for fiscal years beginning after December 15, 2022,for smaller reporting entities, including interim periods within the year of adoption. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company will adopt ASU 2016-132016-13 in fiscal 2024. The Company does not expect the application of the CECL impairment model to have a significant impact on its allowance for uncollectible amounts for accounts receivable.                  

The following table displays revenue by reportable segment from external customers, disaggregated by major source. The Company believes disaggregating by these categories depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

The Company offered floorplan terms in its Agricultural Products segment during its Fall 2021 early order program to incentivize customers to stock farm equipment on their lots. Floorplan terms allow customers to pay the Company at the earliest of retail date or 180 days. This program has an effect on the timing of the Company’s fiscal 2022 cash flows compared with historical cash flows.

The following table provides information about contract receivables, contract assets, and contract liabilities from contracts with customers included on the Condensed Consolidated Balance Sheets.

The amount of revenue recognized in the firstnine months of fiscal 20212022 that was included in a contract liability ason November 30, 2021 was approximately $559,000. $276,000 of revenue was recognized in the first nine months of fiscal 2021 while the contract liability balance on November 30, 2020 was approximately $276,000 compared to $89,000 in the same period of fiscal 2020. Contract receivables increased in the nine months ending August 31, 2021 due to progress billings on contracts in progress in the Modular Buildings segment while the Agricultural Products and Tools segments sales and receivables held steady. Contract assets decreased during the nine months ended August 31, 2021 as progress billings were made on contracts in progress in the Modular Buildings segment. Contract liabilities increased during the nine months ended August 31, 2021 as the Company billed down payments on new construction contracts in the Modular Buildings segment and received deposits for early order programs on equipment in the Agricultural Products segment.$276,000.

The Company utilizes the practical expedient exception for these contracts and will report only on performance obligations greater than one year. As of August 31, 2021, 2022, the Company has no performance obligations with an original expected duration greater than one year.

Basic net income (loss) per share of common stock has been computed on the basis of the weighted average number of common shares outstanding. Diluted net income (loss) per share has been computed on the basis of the weighted average number of common shares outstanding plus equivalent shares assuming exercise of stock options. Potential shares of common stock that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted net income (loss) per share.

Basic and diluted net income (loss) per share have been computed based on the following as of August 31, 2021, 2022 and August 31, 2020:2021:

Major classes of inventory are:

Major components of accrued expenses are:

Major components of assets held for lease are:

There were 0no rents recognized from assets held for lease included in sales on the Condensed Consolidated Statements of Operations during the three and nine months ended August 31, 2021, compared to $02022 and $318,227 for the three and nine months ended August 31, 2020, respectively. Rents recognized in sales were related to the leasing of modular buildings as a part of the normal course of business operations of the Modular Buildings segment.2021.

There were noThe Company has two of the seven rental buildings under lease agreements as of the date of this report. The Company has approximately $30,000 in rents held in customer deposits for rental buildings not in service as of August 31, 2022.

The future minimum lease receipts from assets held for lease as of for periods after August 31, 2021.2022 are as follows:

On June 14, 2022, the Company received a purchase order in the amount of $383,904 for the purchase of two rental buildings in the Company’s fleet. The Company expects the sale of these units to occur in Q4 of fiscal 2022.

The Company offers warranties of various lengths to its customers depending on the specific product and terms of the customer purchase agreement. The average length of the warranty period is one year from the date of purchase. The Company’s warranties require it to repair or replace defective products during the warranty period at no cost to the customer. Product warranty is included in the price of the product and provides assurance that the product will function in accordance with agreed-upon specifications. It does not represent a separate performance obligation under ASC 606. The Company records a liability for estimated costs that may August be incurred under its warranties. The costs are estimated based on historical experience and any specific warranty issues that have been identified. Although historical warranty costs have been within expectations, there can be no assurance that future warranty costs will not exceed historical amounts. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the balance as necessary. The accrued warranty balance is included in accrued expenses as shown in Note 7 “Accrued Expenses.” Changes in the Company’s product warranty liability for the three and nine months ended August 31, 2022 and August 31, 2021 and August 31, 2020 are as follows:

The Company carried a larger warranty accrual than historically reported in fiscal 2021 due to a large construction project in the Modular Buildings segment. The warranty period for this project closed on April 9, 2022.

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”) and a $550,000 revolving line of credit (the “Reserve Line of Credit”), both used for working capital purposes, and a $2,600,000 term loan due October 1, 2037 (purposes. The Reserve Line of Credit funds will remain undisbursed until all funds on the “Term Loan”).Line of Credit are used. On August 31, 2021, 2022, the combined balance of the 2017Line of Credit and Reserve Line of Credit was $4,290,030 with $709,970 remaining$4,559,000with $991,000remaining available, as may be limited by the borrowing base calculation. The2017 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 2017Line of Credit. On August 31, 2021, 2022, the2017 Line of Credit was not limited by the borrowing base calculation. Any unpaid principal amount borrowed on the 2017Line of Credit accrues interest at a floating rate per annum equal to 1.00%1.50% above the Wall Street Journal rate published in the money rates section of the Wall Street Journal. The interest rate floor is set at 4.75%4.25% per annum and the current (as of filing date) interest rate is 7.750% per annum following several increases in fiscal 2022. The Line of Credit was most recently renewed on March 28, 2022. The Line of Credit matures on March 30, 2023 and requires monthly interest-only payments. Any unpaid principal amount borrowed on the Reserve Line of Credit accrues interest at a floating rate per annum equal to 2.0% above the Wall Street Journal rate published in the money rates section of the Wall Street Journal. The interest rate floor is set at 4.00% per annum and the current interest rate is 4.75%8.250% per annum. The 2017 Line of Credit was most recently renewed on February 11, 2021. The 2017Reserve Line of Credit matures on MarchNovember 30, 2022 and requires monthly interest-only payments.any unpaid balance must be repaid at that time. The Line of Credit is governed by the terms of a Promissory Note, dated February 11, 2021, entered into between the Company and Bank Midwest. The Reserve Line of Credit is governed by the terms of a Promissory Note, dated August 17, 2022, 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 mortgage on its Canton, Ohio property held by Ohio Metal Working Products/Art’s-Way Inc. 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.

The Reserve Line of Credit is secured by any and all security documents between the Company and Bank Midwest.

Bank Midwest Term Loans

The Company carries a $2,600,000 term loan due October 1, 2037 (the “Term Loan”), and a $350,000 term loan (the “Roof Term Loan”) due on August 15, 2027. The Term Loan accrues interest at a rate of 5.00% for the firstsixty months. ninety months, which will end on September 28, 2022. 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$17,271in 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$62,400and 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, guaranteedis guaranteeing approximately 38% of the Term Loan, for an annual fee of 2% of the personally guaranteed amount. J. Ward McConnell, Jr. passed away on May 31, 2021, and his shares are currently held in trust. The USDA will require any shareholders owning 20% once the trust assets are distributed to guarantee a portion of the Term Loan. 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.

On February 13, 2019, The Company also entered into the Company opened a $4,000,000 revolving lineRoof Term Loan of credit (the “2019 Line$350,000on August 17, 2022. The Roof Term Loan’s proceeds were used to fix sections of Credit”) with Bank Midwest in connection with bonding obligations for the Company’s performanceArmstrong facility’s roof. The Roof Term Loan requires 59regular payments of a large modular laboratory construction project. Funds under$2,972and an estimated balloon payment of $268,176on the 2019 Linematurity date of Credit will be undisbursed toAugust 15, 2027. Any unpaid principal amount borrowed on 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 CreditRoof Term Loan accrues interest at a floating rate per annum equal to 1.00%2.00% 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%5.00% per annum and the current interest rate is 4.75%8.25% 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 no earlier demand is made, the unpaid principal and accrued interest will be payable in one payment, due on February 13, 2022. As of August 31, 2021, the funds on the 2019 Line of Credit remain undisbursed and are held by Bank Midwest. The Company has completed its obligation on the construction project and is expecting the irrevocable letter of credit to be released in Q4 of 2021.

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 CreditThe Roof Term Loan is governed by the terms of a Promissory Note, dated February 11, 2021 and February 2, 2021, respectively,August 17, 2022, entered into between the Company and Bank Midwest.

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.Compliance

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 the following Bank Midwest covenants is measured annually on November 30. A maximum debt to net 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 out of compliance with the debt to net worth covenant as of August 31, 2021. The Company expects to need a waiver for this covenant on or prior to November 30, 2021. The Company is also required to maintain a minimum debt service coverage ratio of 1.25, with a 0.10 tolerance.0.10tolerance. The Company also must receive bank approval for purchases or sales of individual equipment over $100,000 annually$50,000individually and maintain reasonable salaries and owner compensation. The Company received the necessary approvals for purchases of equipment over $100,000 for the nine months ended August 31, 2021. The Company was out of compliance with its debt service coverageto worth ratio and the prior minimum working capital requirements covenantscovenant in place under the Bank Midwest loansloan agreements as of November 30, 2020. 2021. Bank Midwest issued a waiver forgiving the noncompliance, and in turn waived the event of default. The Companynext measurement date is currently projecting to be in compliance with the debt service coverage ratio as of November 30, 2021.2022.

On January 12, 2021, Bank Midwest amended the Company’s working capital requirement of maintainingThe Company also has 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 eliminates the requirement to maintain a minimum working capital ratio of 1.75.that is measured monthly. The $4,000,000$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, August 31, 2022, the Company was out ofin compliance with theits working capital covenant by $240,885. On March 22, 2021, Bank Midwest issued a letter to the Company allowing correction of the noncompliance by May 31, 2021. As of May 31, 2021, the Company was out of compliance with the working capital requirement by $126,496, which triggered communication with Bank Midwest to evaluate the Company’s strategy to get back into compliance with the covenant. The Company and Bank Midwest determined that the Company’s strategy to utilize additional funds available under the Economic Injury Disaster Loans (“EIDL”) was acceptable. On August 31, 2021, the Company had $1,050,000 of Economic Injury Disaster Loans (“EIDL”) pending with the U.S. Small Business Administration (“SBA”), which, once received, are expected to put the Company back in compliance.requirement.

SBA Economic Injury Disaster Loans

On June 18, 2020, and again on June 24, 2020, The Company secured three loans in the Company executed the standard loan documents required for securing loans offered by the SBA under its EIDL assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. Two loans were executed on June 18, 2020, with principal amountsamount of $150,000 each in June of 2021 with a third loan executed on June 24, 2020, with a principal amount of $150,000.the U.S. Small Business Administration under its Economic Injury Disaster Loan (“EIDL”) program. Proceeds from thesethe EIDLs are beingwere 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, twelvethirty months from the date of the EIDLs,disbursement, in the amount of $731 per EIDL.loan. The balance of principal and interest is payable 30 years from the date of the EIDL.disbursement. 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 or June 24, 2020, as applicable, entered into by the Company or the applicable subsidiary.

On 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 to 24 months from the date of the note. This act also increased the maximum loan amount from $150,000 to $500,000 per entity. The Company requested EIDL increases of $350,000 per entity under this program for a total of $1,050,000 in additional funding.

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

A summary of the minimum maturities of term debt follows for the yearstwelve months ending November 30, 2021:August 31:

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses.

During the three and nine months ended August 31, 2022, and August 31, 2021, and August 31, 2020, the Company did not recognize any revenues from transactions with a related party, and no amounts in accounts receivable balances were due from a related party. From time to time, the Company purchases various supplies from related parties, which are companies previously owned by the late J. Ward McConnell, Jr., the former Vice Chairman of the Company’s Board of Directors and currently owned by his son,in which Marc McConnell, the Chairman of the Company’s Board of Directors, whohas an ownership interest and also serves as President of these companies.President. J. Ward McConnell Jr., as’s estate, the J. Ward McConnell, Jr. Living Trust, is paid a shareholder owning more than 20% of the Company’s outstanding stock, was requiredmonthly fee to guarantee a portion of the Company’s Term Loanterm debt in accordance with the USDA guarantee obtained on the Company’s Term Loan. J. Ward McConnell, Jr. was paid a monthly fee for his guarantee.term debt. In the three and nine months ended August 31, 2021, 2022, the Company recognized $6,539 and $19,200 of$4,209and $19,762of expense for transactions with related parties, respectively, compared to $4,865$6,539and $19,200for the three and $14,767 for the three and nine months ended August 31, 2020. 2021. As of August 31, 2021, 2022, accrued expenses contained a balance of $1,469 owed$1,408owed to a related party compared to $1,540 on $1,469on August 31, 2020.2021.

The components related to sales-type leases on November 30, 2020, are as follows:

There was 0 sales activity related to sales-type leases for the three and nine months ended August 31, 2021, and August 31, 2020.

There were no future minimum lease receipts from sales-type leases as of August 31, 2021.

The components of operating leases on the Condensed Consolidated Balance Sheets on August 31, 2021 are as follows:

The Company recorded $5,547 and $17,536 of$4,333and $14,368of operating lease costs in the three and nine months ended August 31, 2021, 2022, respectively, compared to $4,208 and $17,840 for the same periods of 2020, which included variable costs tied to usage.usage, compared to $5,547and $17,536for the three and nine months ended August 31, 2021. The Company’s operating leases carry a weighted average lease term of 51 months42months and have a weighted average discount rate of 5.50%4.86%

Future maturities of operating lease liabilities are as follows:

The components of finance leases on the Condensed Consolidated Balance Sheets on August 31, 2022 and November 30, 2021 were as follows:

The Company received $224,513 of grant funds from the Iowa Economic Development’s Manufacturing 4.0 program in Q3 of fiscal 2022. These funds were for 75% reimbursement of three robotic welders that were later financed under a capital lease. These funds have reduced the right-of-use asset account and will reduce amortization over the life of the asset.

Future maturities of finance lease liabilities as of August 31, 2022 are as follows:

The weighted average lease term of the Company’s finance leases are 52 months while the weighted average rate of finance leases is 4.18%. The Company recorded $357incurred $40,140 and $87,284 of amortization expense from ROU assets related to finance leases in three- and $87 of interest expense in the three months ended nine-months ending August 31, 2021 and $477 of amortization and $116 of interest expense in the nine months ended August 31, 2021 2022, respectively compared to $0 for the same periods of fiscal in 2021. The Company’s finance lease carries a lease term of 59 months and uses a discount rate of 4.75%.

Future maturities of finance lease liabilities are as follows:

On February 25, 2020, the Board of Directors of the Company (the “Board”) authorized and approved the Art’s-Way Manufacturing Co., Inc. 2020 Equity Incentive Plan (the “2020“2020 Plan”). The 2020 Plan was approved by the stockholders on April 30, 2020. The 2020 Plan replaced the Art’s-Way Manufacturing Co., Inc. 2011 Equity Incentive Plan (the “2011“2011 Plan”) and prior plans. The 2020 Plan added an additional 500,000 shares to the number of shares reserved for issuance pursuant to equity awards. No further awards will be made under the 2011 Plan or other prior plans. Awards to directors and executive officers under the 2020 Plan are governed by the forms of agreement approved by the Board of Directors. Stock options or other awards granted prior to February 25, 2020 are governed by the applicable prior plan and the forms of agreement adopted thereunder.

The 2020 Plan permits the plan administrator to award nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance awards, and stock appreciation rights to employees (including officers), directors, and consultants. The Board has approved a director compensation policy pursuant to which non-employee directors are automatically granted restricted stock awards of 1,000 shares of fully vested common stock annually or initially upon their election to the Board and another 1,000 shares of fully vested common stock on the last business day of each fiscal quarter.