10-Q 1 artw20240531_10q.htm FORM 10-Q artw20240531_10q.htm
0000007623 ARTS WAY MANUFACTURING CO INC false --11-30 Q2 2024 0.01 0.01 500,000 500,000 0 0 0 0 0.01 0.01 9,500,000 9,500,000 5,184,172 5,106,922 112,714 94,256 2,466,000 1,153,000 1 http://fasb.org/us-gaap/2024#PrimeRateMember 150,000 150,000 731 19,648 19,648 7.00 7.00 October 1, 2037 October 1, 2037 2,972 2,972 7.00 7.00 May 15, 2027 May 15, 2027 731 731 3.75 3.75 December 18, 2022 December 18, 2022 June 18, 2050 June 18, 2050 731 731 3.75 3.75 December 18, 2022 December 18, 2022 June 18, 2050 June 18, 2050 731 731 3.75 3.75 December 24, 2022 December 24, 2022 June 24, 2050 June 24, 2050 0 0 0 0 0 false false false false FY 2022 capital expenditures include $166,000 of finance leased assets. The consolidated total in the tables is a sum of segment figures and may not tie to actual figures in the condensed consolidated financial statements due to rounding. 00000076232023-12-012024-05-31 xbrli:shares 00000076232024-07-03 thunderdome:item iso4217:USD 00000076232024-05-31 00000076232023-11-30 iso4217:USDxbrli:shares 00000076232024-03-012024-05-31 00000076232023-03-012023-05-31 00000076232022-12-012023-05-31 0000007623us-gaap:CommonStockMember2022-11-30 0000007623us-gaap:AdditionalPaidInCapitalMember2022-11-30 0000007623us-gaap:RetainedEarningsMember2022-11-30 0000007623us-gaap:TreasuryStockCommonMember2022-11-30 00000076232022-11-30 0000007623us-gaap:CommonStockMember2022-12-012023-05-31 0000007623us-gaap:AdditionalPaidInCapitalMember2022-12-012023-05-31 0000007623us-gaap:TreasuryStockCommonMember2022-12-012023-05-31 0000007623us-gaap:RetainedEarningsMember2022-12-012023-05-31 0000007623us-gaap:CommonStockMember2023-05-31 0000007623us-gaap:AdditionalPaidInCapitalMember2023-05-31 0000007623us-gaap:RetainedEarningsMember2023-05-31 0000007623us-gaap:TreasuryStockCommonMember2023-05-31 00000076232023-05-31 0000007623us-gaap:CommonStockMember2023-11-30 0000007623us-gaap:AdditionalPaidInCapitalMember2023-11-30 0000007623us-gaap:RetainedEarningsMember2023-11-30 0000007623us-gaap:TreasuryStockCommonMember2023-11-30 0000007623us-gaap:CommonStockMember2023-12-012024-05-31 0000007623us-gaap:AdditionalPaidInCapitalMember2023-12-012024-05-31 0000007623us-gaap:TreasuryStockCommonMember2023-12-012024-05-31 0000007623us-gaap:RetainedEarningsMember2023-12-012024-05-31 0000007623us-gaap:CommonStockMember2024-05-31 0000007623us-gaap:AdditionalPaidInCapitalMember2024-05-31 0000007623us-gaap:RetainedEarningsMember2024-05-31 0000007623us-gaap:TreasuryStockCommonMember2024-05-31 0000007623us-gaap:ComputerSoftwareIntangibleAssetMember2023-12-012024-05-31 0000007623us-gaap:ComputerSoftwareIntangibleAssetMember2022-12-012023-05-31 xbrli:pure 0000007623us-gaap:SegmentDiscontinuedOperationsMember2024-05-31 0000007623us-gaap:SegmentDiscontinuedOperationsMember2023-11-30 0000007623us-gaap:SegmentDiscontinuedOperationsMemberartw:ToolsMember2024-03-012024-05-31 0000007623us-gaap:SegmentDiscontinuedOperationsMemberartw:ToolsMember2023-03-012023-05-31 0000007623us-gaap:SegmentDiscontinuedOperationsMemberartw:ToolsMember2024-05-31 0000007623us-gaap:SegmentDiscontinuedOperationsMemberartw:ToolsMember2023-05-31 0000007623us-gaap:SegmentDiscontinuedOperationsMemberartw:ToolsMember2023-12-012024-05-31 0000007623us-gaap:SegmentDiscontinuedOperationsMemberartw:ToolsMember2022-12-012023-05-31 0000007623artw:FarmEquipmentMemberartw:AgriculturalProductsMember2024-03-012024-05-31 0000007623artw:FarmEquipmentMemberartw:ModularBuildingsMember2024-03-012024-05-31 0000007623artw:FarmEquipmentMember2024-03-012024-05-31 0000007623artw:FarmEquipmentServicePartsMemberartw:AgriculturalProductsMember2024-03-012024-05-31 0000007623artw:FarmEquipmentServicePartsMemberartw:ModularBuildingsMember2024-03-012024-05-31 0000007623artw:FarmEquipmentServicePartsMember2024-03-012024-05-31 0000007623artw:ModularBuildingsMemberartw:AgriculturalProductsMember2024-03-012024-05-31 0000007623artw:ModularBuildingsMemberartw:ModularBuildingsMember2024-03-012024-05-31 0000007623artw:ModularBuildingsMember2024-03-012024-05-31 0000007623artw:ModularBuildingsLeaseIncomeMemberartw:AgriculturalProductsMember2024-03-012024-05-31 0000007623artw:ModularBuildingsLeaseIncomeMemberartw:ModularBuildingsMember2024-03-012024-05-31 0000007623artw:ModularBuildingsLeaseIncomeMember2024-03-012024-05-31 0000007623us-gaap:ProductAndServiceOtherMemberartw:AgriculturalProductsMember2024-03-012024-05-31 0000007623us-gaap:ProductAndServiceOtherMemberartw:ModularBuildingsMember2024-03-012024-05-31 0000007623us-gaap:ProductAndServiceOtherMember2024-03-012024-05-31 0000007623artw:AgriculturalProductsMember2024-03-012024-05-31 0000007623artw:ModularBuildingsMember2024-03-012024-05-31 0000007623artw:FarmEquipmentMemberartw:AgriculturalProductsMember2023-03-012023-05-31 0000007623artw:FarmEquipmentMemberartw:ModularBuildingsMember2023-03-012023-05-31 0000007623artw:FarmEquipmentMember2023-03-012023-05-31 0000007623artw:FarmEquipmentServicePartsMemberartw:AgriculturalProductsMember2023-03-012023-05-31 0000007623artw:FarmEquipmentServicePartsMemberartw:ModularBuildingsMember2023-03-012023-05-31 0000007623artw:FarmEquipmentServicePartsMember2023-03-012023-05-31 0000007623artw:ModularBuildingsMemberartw:AgriculturalProductsMember2023-03-012023-05-31 0000007623artw:ModularBuildingsMemberartw:ModularBuildingsMember2023-03-012023-05-31 0000007623artw:ModularBuildingsMember2023-03-012023-05-31 0000007623artw:ModularBuildingsLeaseIncomeMemberartw:AgriculturalProductsMember2023-03-012023-05-31 0000007623artw:ModularBuildingsLeaseIncomeMemberartw:ModularBuildingsMember2023-03-012023-05-31 0000007623artw:ModularBuildingsLeaseIncomeMember2023-03-012023-05-31 0000007623us-gaap:ProductAndServiceOtherMemberartw:AgriculturalProductsMember2023-03-012023-05-31 0000007623us-gaap:ProductAndServiceOtherMemberartw:ModularBuildingsMember2023-03-012023-05-31 0000007623us-gaap:ProductAndServiceOtherMember2023-03-012023-05-31 0000007623artw:AgriculturalProductsMember2023-03-012023-05-31 0000007623artw:ModularBuildingsMember2023-03-012023-05-31 0000007623artw:FarmEquipmentMemberartw:AgriculturalProductsMember2023-12-012024-05-31 0000007623artw:FarmEquipmentMemberartw:ModularBuildingsMember2023-12-012024-05-31 0000007623artw:FarmEquipmentMember2023-12-012024-05-31 0000007623artw:FarmEquipmentServicePartsMemberartw:AgriculturalProductsMember2023-12-012024-05-31 0000007623artw:FarmEquipmentServicePartsMemberartw:ModularBuildingsMember2023-12-012024-05-31 0000007623artw:FarmEquipmentServicePartsMember2023-12-012024-05-31 0000007623artw:ModularBuildingsMemberartw:AgriculturalProductsMember2023-12-012024-05-31 0000007623artw:ModularBuildingsMemberartw:ModularBuildingsMember2023-12-012024-05-31 0000007623artw:ModularBuildingsMember2023-12-012024-05-31 0000007623artw:ModularBuildingsLeaseIncomeMemberartw:AgriculturalProductsMember2023-12-012024-05-31 0000007623artw:ModularBuildingsLeaseIncomeMemberartw:ModularBuildingsMember2023-12-012024-05-31 0000007623artw:ModularBuildingsLeaseIncomeMember2023-12-012024-05-31 0000007623us-gaap:ProductAndServiceOtherMemberartw:AgriculturalProductsMember2023-12-012024-05-31 0000007623us-gaap:ProductAndServiceOtherMemberartw:ModularBuildingsMember2023-12-012024-05-31 0000007623us-gaap:ProductAndServiceOtherMember2023-12-012024-05-31 0000007623artw:AgriculturalProductsMember2023-12-012024-05-31 0000007623artw:ModularBuildingsMember2023-12-012024-05-31 0000007623artw:FarmEquipmentMemberartw:AgriculturalProductsMember2022-12-012023-05-31 0000007623artw:FarmEquipmentMemberartw:ModularBuildingsMember2022-12-012023-05-31 0000007623artw:FarmEquipmentMember2022-12-012023-05-31 0000007623artw:FarmEquipmentServicePartsMemberartw:AgriculturalProductsMember2022-12-012023-05-31 0000007623artw:FarmEquipmentServicePartsMemberartw:ModularBuildingsMember2022-12-012023-05-31 0000007623artw:FarmEquipmentServicePartsMember2022-12-012023-05-31 0000007623artw:ModularBuildingsMemberartw:AgriculturalProductsMember2022-12-012023-05-31 0000007623artw:ModularBuildingsMemberartw:ModularBuildingsMember2022-12-012023-05-31 0000007623artw:ModularBuildingsMember2022-12-012023-05-31 0000007623artw:ModularBuildingsLeaseIncomeMemberartw:AgriculturalProductsMember2022-12-012023-05-31 0000007623artw:ModularBuildingsLeaseIncomeMemberartw:ModularBuildingsMember2022-12-012023-05-31 0000007623artw:ModularBuildingsLeaseIncomeMember2022-12-012023-05-31 0000007623us-gaap:ProductAndServiceOtherMemberartw:AgriculturalProductsMember2022-12-012023-05-31 0000007623us-gaap:ProductAndServiceOtherMemberartw:ModularBuildingsMember2022-12-012023-05-31 0000007623us-gaap:ProductAndServiceOtherMember2022-12-012023-05-31 0000007623artw:AgriculturalProductsMember2022-12-012023-05-31 0000007623artw:ModularBuildingsMember2022-12-012023-05-31 0000007623artw:AgriculturalProductsFloorplanProgramMember2024-05-31 0000007623artw:AgriculturalProductsFloorplanProgramMember2023-05-31 0000007623artw:ApproximationMember2023-12-012024-05-31 00000076232022-12-01 0000007623artw:ModularBuildingsMember2024-05-31 0000007623artw:ModularBuildingsMember2023-11-30 utr:Y 00000076232024-02-29 00000076232023-02-28 0000007623us-gaap:RevolvingCreditFacilityMemberartw:BankMidwestMember2024-05-31 0000007623us-gaap:RevolvingCreditFacilityMemberartw:BankMidwestMember2023-12-012024-05-31 0000007623us-gaap:RevolvingCreditFacilityMemberartw:BankMidwestMember2024-03-04 0000007623artw:TermLoanDueOctober2037Memberartw:BankMidwestMember2024-05-31 0000007623artw:RoofTermLoanMemberartw:BankMidwestMember2024-05-31 0000007623artw:TermLoanDueOctober2037Memberartw:BankMidwestMember2023-12-012024-05-31 0000007623artw:TermLoanDueOctober2037Memberartw:BankMidwestMembersrt:MinimumMember2024-05-31 0000007623artw:UnitedStatesDepartmentOfAgricultureMemberartw:TermLoanDueOctober2037Memberartw:BankMidwestMember2023-12-012024-05-31 0000007623artw:JWardMcconnellJrMemberartw:TermLoanDueOctober2037Memberartw:BankMidwestMember2023-12-012024-05-31 0000007623artw:RoofTermLoanMemberartw:BankMidwestMember2022-05-17 0000007623artw:RoofTermLoanMemberartw:BankMidwestMember2022-05-172022-05-17 0000007623artw:BankMidwestMember2022-12-012023-11-30 0000007623artw:BankMidwestMembersrt:MinimumMember2022-12-012023-11-30 0000007623artw:EIDLAssistanceProgramLoanOneMember2020-06-182020-06-18 0000007623artw:EIDLAssistanceProgramLoanThreeMember2020-06-242020-06-24 0000007623artw:EIDLAssistanceProgramLoanTwoMember2020-06-182020-06-18 0000007623artw:EconomicInjuryDistasterLoanAssistanceProgramMember2020-06-24 0000007623artw:EconomicInjuryDistasterLoanAssistanceProgramMember2022-12-182022-12-18 0000007623artw:EconomicInjuryDistasterLoanAssistanceProgramMember2022-12-242022-12-24 0000007623artw:EconomicInjuryDistasterLoanAssistanceProgramMember2023-12-012024-05-31 0000007623artw:EconomicInjuryDistasterLoanAssistanceProgramMember2024-05-31 0000007623artw:TermLoanDueOctober2037Member2023-12-012024-05-31 0000007623artw:TermLoanDueOctober2037Member2022-12-012023-11-30 0000007623artw:TermLoanDueOctober2037Member2024-05-31 0000007623artw:TermLoanDueOctober2037Member2023-11-30 0000007623artw:RoofTermLoanMember2023-12-012024-05-31 0000007623artw:RoofTermLoanMember2022-12-012023-11-30 0000007623artw:RoofTermLoanMember2024-05-31 0000007623artw:RoofTermLoanMember2023-11-30 0000007623artw:SBALoanOneMember2023-12-012024-05-31 0000007623artw:SBALoanOneMember2022-12-012023-11-30 0000007623artw:SBALoanOneMember2024-05-31 0000007623artw:SBALoanOneMember2023-11-30 0000007623artw:SBALoanTwoMember2023-12-012024-05-31 0000007623artw:SBALoanTwoMember2022-12-012023-11-30 0000007623artw:SBALoanTwoMember2024-05-31 0000007623artw:SBALoanTwoMember2023-11-30 0000007623artw:SBALoanThreeMember2023-12-012024-05-31 0000007623artw:SBALoanThreeMember2022-12-012023-11-30 0000007623artw:SBALoanThreeMember2024-05-31 0000007623artw:SBALoanThreeMember2023-11-30 0000007623us-gaap:RelatedPartyMember2024-03-012024-05-31 0000007623us-gaap:RelatedPartyMember2023-03-012023-05-31 0000007623us-gaap:RelatedPartyMember2023-12-012024-05-31 0000007623us-gaap:RelatedPartyMember2022-12-012023-05-31 0000007623us-gaap:RelatedPartyMember2024-05-31 0000007623us-gaap:RelatedPartyMember2023-05-31 0000007623artw:The2020PlanMember2020-02-252020-02-25 0000007623artw:The2011PlanMember2020-02-25 0000007623artw:NonQualifiedStockUnitsToNonEmployeeDirectorsAnnuallyOrUponElectionMember2020-02-25 0000007623artw:NonqualifiedStockUnitsToNonemployeeDirectorsQuarterlyMember2020-02-252020-02-25 0000007623srt:DirectorMemberartw:VestingImmediatelyMember2024-03-012024-05-31 0000007623srt:DirectorMemberartw:VestingImmediatelyMember2023-03-012023-05-31 0000007623artw:EmployeesDirectorsAndConsultantsMemberartw:AwardsWithThreeyearVestingMember2024-03-012024-05-31 0000007623artw:EmployeesDirectorsAndConsultantsMemberartw:AwardsWithThreeyearVestingMember2023-03-012023-05-31 0000007623srt:DirectorMemberartw:VestingImmediatelyMember2023-12-012024-05-31 0000007623srt:DirectorMemberartw:VestingImmediatelyMember2022-12-012023-05-31 0000007623artw:EmployeesDirectorsAndConsultantsMemberartw:AwardsWithThreeyearVestingMember2023-12-012024-05-31 0000007623artw:EmployeesDirectorsAndConsultantsMemberartw:AwardsWithThreeyearVestingMember2022-12-012023-05-31 0000007623us-gaap:OperatingSegmentsMemberartw:AgriculturalProductsMember2024-03-012024-05-31 0000007623us-gaap:OperatingSegmentsMemberartw:ModularBuildingsMember2024-03-012024-05-31 0000007623us-gaap:OperatingSegmentsMember2024-03-012024-05-31 0000007623us-gaap:OperatingSegmentsMemberartw:AgriculturalProductsMember2024-05-31 0000007623us-gaap:OperatingSegmentsMemberartw:ModularBuildingsMember2024-05-31 0000007623us-gaap:OperatingSegmentsMember2024-05-31 0000007623us-gaap:OperatingSegmentsMemberartw:AgriculturalProductsMember2023-03-012023-05-31 0000007623us-gaap:OperatingSegmentsMemberartw:ModularBuildingsMember2023-03-012023-05-31 0000007623us-gaap:OperatingSegmentsMember2023-03-012023-05-31 0000007623us-gaap:OperatingSegmentsMemberartw:AgriculturalProductsMember2023-05-31 0000007623us-gaap:OperatingSegmentsMemberartw:ModularBuildingsMember2023-05-31 0000007623us-gaap:OperatingSegmentsMember2023-05-31 0000007623us-gaap:OperatingSegmentsMemberartw:AgriculturalProductsMember2023-12-012024-05-31 0000007623us-gaap:OperatingSegmentsMemberartw:ModularBuildingsMember2023-12-012024-05-31 0000007623us-gaap:OperatingSegmentsMember2023-12-012024-05-31 0000007623us-gaap:OperatingSegmentsMemberartw:AgriculturalProductsMember2022-12-012023-05-31 0000007623us-gaap:OperatingSegmentsMemberartw:ModularBuildingsMember2022-12-012023-05-31 0000007623us-gaap:OperatingSegmentsMember2022-12-012023-05-31
 

 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended May 31, 2024

 

or

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______ to ______

 

Commission File No. 000-05131

 

ARTS-WAY MANUFACTURING CO., INC.

(Exact name of registrant as specified in its charter)

 

Delaware

42-0920725

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

5556 Highway 9

Armstrong, Iowa 50514

(Address of principal executive offices) (Zip Code)

 

(712) 208-8467

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock $0.01 par value

ARTW

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ 

Non-accelerated filer ☒

Accelerated filer ☐ 

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

Number of common shares outstanding as of July 3, 2024 : 5,071,458

 

 

 

Arts-Way Manufacturing Co., Inc.

Index

Page No.

 

PART I  FINANCIAL INFORMATION

1

Item 1.

Financial Statements

1

 

Condensed Consolidated Balance Sheets May 31, 2024 and November 30, 2023

1

 

Condensed Consolidated Statements of Operations Three-month and Six-month periods ended May 31, 2024 and May 31, 2023

2

 

Condensed Consolidated Statements of Stockholders’ Equity Six-month periods ended May 31, 2024 and May 31, 2023

3

 

Condensed Consolidated Statements of Cash Flows Six-month periods ended May 31, 2024 and May 31, 2023

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18

Item 4.

Controls and Procedures

18

PART II  OTHER INFORMATION

19

Item 1.

Legal Proceedings

19

Item 1A.

Risk Factors

19

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

19

Item 3.

Defaults Upon Senior Securities

19

Item 4.

Mine Safety Disclosures

19

Item 5.

Other Information

19

Item 6.

Exhibits

20

 

SIGNATURES

21

 

 

 

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ART’S-WAY MANUFACTURING CO., INC.

Condensed Consolidated Balance Sheets

 

  

(Unaudited)

     
  

May 31, 2024

  

November 30, 2023

 

Assets

        

Current assets:

        

Cash

 $4,487  $4,014 

Accounts receivable, net

  2,646,960   3,432,216 

Inventories, net

  10,496,821   11,031,362 

Cost and profit in excess of billings

  34,797   289,282 

Other current assets

  416,108   296,662 

Current assets of discontinued operations

  22,837   31,958 

Total current assets

  13,622,010   15,085,494 
         

Property, plant, and equipment, net

  5,234,771   5,060,595 

Assets held for lease, net

  142,096   145,494 

Deferred income taxes, net

  2,638,123   2,503,213 

Other assets

  525,162   583,752 

Other assets of discontinued operations

  1,008,949   1,023,566 

Total assets

 $23,171,111  $24,402,114 

Liabilities and Stockholders’ Equity

        

Current liabilities:

        

Accounts payable

 $1,019,151  $2,256,502 

Customer deposits

  169,419   416,044 

Billings in excess of cost and profit

  1,992,459   351,289 

Income taxes payable

  5,000   5,000 

Accrued expenses

  1,024,040   1,399,232 

Line of credit

  3,950,437   4,413,520 

Current portion of finance lease liabilities

  255,677   257,454 

Current portion of long-term debt

  113,545   109,193 

Current liabilities of discontinued operations

  181,846   186,789 

Total current liabilities

  8,711,574   9,395,023 
         

Long-term portion of operating lease liabilities

  9,291   13,774 

Long-term portion of finance lease liabilities

  646,179   722,200 

Long-term debt, excluding current portion

  2,571,250   2,629,862 

Total liabilities

  11,938,294   12,760,859 

Commitments and Contingencies (Notes 9, 11, 12 and 15)

          

Stockholders’ equity:

        

Undesignated preferred stock - $0.01 par value. Authorized 500,000 shares on May 31, 2024 and November 30, 2023; issued and outstanding 0 shares on May 31, 2024 and November 30, 2023.

  -   - 

Common stock – $0.01 par value. Authorized 9,500,000 shares on May 31, 2024 and November 30, 2023; 5,184,172 issued on May 31, 2024 and 5,106,922 on November 30, 2023

  51,842   51,069 

Additional paid-in capital

  4,965,248   4,838,425 

Retained earnings

  6,522,873   7,021,253 

Treasury stock, at cost (112,714 shares on May 31, 2024 and 94,256 shares on November 30, 2023)

  (307,146)  (269,492)

Total stockholders’ equity

  11,232,817   11,641,255 

Total liabilities and stockholders’ equity

 $23,171,111  $24,402,114 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

ART’S-WAY MANUFACTURING CO., INC.

Condensed Consolidated Statements of Operations

(Unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

May 31, 2024

   

May 31, 2023

   

May 31, 2024

   

May 31, 2023

 

Sales

  $ 6,730,268     $ 8,224,395     $ 12,453,663     $ 15,311,259  

Cost of goods sold

    4,823,516       6,040,799       9,073,386       10,940,788  

Gross profit

    1,906,752       2,183,596       3,380,277       4,370,471  

Expenses

                               

Engineering

    107,072       140,497       267,425       268,793  

Selling

    397,631       510,965       860,390       1,042,426  

General and administrative

    1,233,281       1,099,132       2,463,775       2,082,804  

Total expenses

    1,737,984       1,750,594       3,591,590       3,394,023  

Income (loss) from operations

    168,768       433,002       (211,313 )     976,448  
                                 

Other income (expense):

                               

Interest expense

    (159,768 )     (147,196 )     (321,772 )     (259,010 )

Other

    (14,270 )     131,613       (9,221 )     143,607  

Total other expense

    (174,038 )     (15,583 )     (330,993 )     (115,403 )

Income (loss) from continuing operations before income taxes

    (5,270 )     417,419       (542,306 )     861,045  

Income tax expense (benefit)

    (613 )     87,658       (113,391 )     180,989  

Income (loss) from continuing operations

    (4,657 )     329,761       (428,915 )     680,056  
                                 

Discontinued Operations (Note 3)

                               

Loss from discontinued operations before income taxes

    (38,028 )     (29,237 )     (87,930 )     (39,471 )

Income tax benefit

    (9,345 )     (6,140 )     (18,465 )     (8,289 )

Loss on discontinued operations

    (28,683 )     (23,097 )     (69,465 )     (31,182 )

Net Income (loss)

  $ (33,340 )   $ 306,664     $ (498,380 )   $ 648,874  

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

ARTS-WAY MANUFACTURING CO., INC.

Condensed Consolidated Statements of Stockholders' Equity

Six Months Ended May 31, 2024 and May 31, 2023

(Unaudited)

 

   

Common Stock

   

Additional

           

Treasury Stock

         
   

Number of

           

paid-in

   

Retained

   

Number of

                 
   

shares

   

Par value

   

capital

   

earnings

   

shares

   

Amount

   

Total

 
                                                         

Balance, November 30, 2022

    5,013,671     $ 50,137     $ 4,547,172     $ 6,754,284       64,574     $ (200,956 )   $ 11,150,637  

Stock based compensation

    97,250       972       136,666       -       27,774       (63,995 )     73,643  

Net Income

    -       -       -       648,874       -       -       648,874  

Balance, May 31, 2023

    5,110,921     $ 51,109     $ 4,683,838     $ 7,403,158       92,348     $ (264,951 )   $ 11,873,154  

 

   

Common Stock

   

Additional

           

Treasury Stock

         
   

Number of

           

paid-in

   

Retained

   

Number of

                 
   

shares

   

Par value

   

capital

   

earnings

   

shares

   

Amount

   

Total

 
                                                         

Balance, November 30, 2023

    5,106,922     $ 51,069     $ 4,838,425     $ 7,021,253       94,256     $ (269,492 )   $ 11,641,255  

Stock based compensation

    77,250       773       126,823       -       18,458       (37,654 )     89,942  

Net loss

    -       -       -       (498,380 )     -       -       (498,380 )

Balance, May 31, 2024

    5,184,172     $ 51,842     $ 4,965,248     $ 6,522,873       112,714     $ (307,146 )   $ 11,232,817  

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

ARTS-WAY MANUFACTURING CO., INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   

Six Months Ended

 
   

May 31, 2024

   

May 31, 2023

 

Cash flows from operations:

               

Net income (loss) from continuing operations

  $ (428,915 )   $ 680,056  

Net loss from discontinued operations

    (69,465 )     (31,182 )

Adjustments to reconcile net income (loss) to net cash used in operating activities:

               

Stock based compensation

    127,596       137,638  

Increase (Decrease) in obsolete inventory reserves

    231,220       (44,321 )

Gain on disposal of property, plant, and equipment

    -       (97,616 )

Depreciation and amortization expense

    434,300       408,066  

Amortization of cloud computing implementation costs

    60,909       -  

Increase in allowance for expected credit losses - accounts receivable

    17,540       2,095  

Deferred income taxes

    (134,910 )     167,213  

Changes in assets and liabilities:

               

(Increase) decrease in:

               

Accounts receivable

    767,716       (1,186,102 )

Inventories

    303,321       (1,057,145 )

Other assets

    (218,547 )     122,264  

Increase (decrease) in:

               

Accounts payable

    (1,237,351 )     (311,062 )

Contracts in progress, net

    1,895,655       583,259  

Customer deposits

    (246,625 )     (268,417 )

Income taxes payable

    -       1,500  

Accrued expenses

    (375,425 )     (34,323 )

Net cash provided by (used in) operating activities - continuing operations

    1,196,484       (896,895 )

Net cash provided by (used in) operating activities - discontinued operations

    (48,862 )     273,423  

Net cash provided by (used in) operating activities

    1,147,622       (623,472 )

Cash flows from investing activities:

               

Purchases of property, plant, and equipment

    (512,547 )     (623,778 )

Net proceeds from sale of assets

    -       286,815  

Net cash used in investing activities - continuing operations

    (512,547 )     (336,963 )

Net cash used in investing activities - discontinued operations

    -       (16,055 )

Net cash used in investing activities

    (512,547 )     (353,018 )

Cash flows from financing activities:

               

Net change in line of credit

    (463,083 )     779,559  

Proceeds from finance lease obligations

    -       397,536  

Principal payments on finance lease obligations

    (77,798 )     (75,448 )

Repayment of term debt

    (54,260 )     (48,188 )

Repurchases of common stock

    (37,654 )     (63,995 )

Net cash provided by (used in) financing activities - continuing operations

    (632,795 )     989,464  

Net cash used in financing activities - discontinued operations

    (1,807 )     (15,731 )

Net cash provided by (used in) financing activities

    (634,602 )     973,733  

Net increase (decrease) in cash

    473       (2,757 )

Cash at beginning of period

    4,014       5,055  

Cash at end of period

  $ 4,487     $ 2,298  
                 

Supplemental disclosures of cash flow information:

               

Cash paid during the period for:

               

Interest

  $ 323,633     $ 268,997  

Income taxes

    90       2,841  
                 

Supplemental disclosures of non-cash operating activities:

               

Right-of-use (ROU) assets acquired (included in other assets)

  $ 38,192     $ 117,302  
                 

Amortization of operating lease ROU assets (included in other assets)

  $ 4,275     $ 5,820  

 

See accompanying notes to condensed consolidated financial statements.

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

 

1)

Description of the Company

 

Unless otherwise specified, as used in this Quarterly Report on Form 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 two 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.

 

During the third quarter of fiscal 2023, the Company ceased operations of its Tools business, which manufactured steel cutting tools and inserts. In previous periods, operations of the Tools business was reported in consolidated numbers as the Company's third operating segment. The Tools segment has been modified retrospectively to be reported in discontinued operations for the six months ended May 31, 2023. For more information on discontinued operations, see Note 3 "Discontinued Operations."

   

 
 

2)

Summary of Significant Accounting Policies

 

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-K for the fiscal year ended November 30, 2023. The results of operations for the three and six months ended May 31, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending November 30, 2024.

 

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 and six months ended May 31, 2024. Actual results could differ from those estimates.

 

Allowance for Credit Losses

 

The Company uses aging categories to estimate expected credit losses on trade receivables. The Company considers in its analysis: historical loss experience, forward-looking macroeconomic factors, company credit risk including previous delinquencies, disputed amounts, and the intent and ability to pay. The Company's typical credit terms are Net 30, however, it does offer terms up to 180 days on floor plan units. The Company would consider trade receivables greater than 30 days past due, but is not required to disclose past due receivables with an original term less than one year. The Company performs additional analysis monthly on amounts over 90 days past due to determine collectability. The Company has assigned expected credit loss percentages based on where the asset falls in the aging schedule. The Company's actual credit losses have been low compared to historical allowance estimates. The Company has considered the current interest rate environment and the recent decline in the agricultural commodity market and believes its method of estimating a higher than historical loss percentage to be an adequate estimate. The Company foresees increased credit risk over the next year or so until inventory on dealer lots starts to decline, interest rates drop and farm income strengthens.

 

The Company carries contract assets related to its Modular Buildings segment in the form of costs and profit in excess of billings. These contract assets are typically converted to trade receivables in 30 to 90 days, depending on contract terms, and due 30 days or less from the billing date. Because these contract assets are typically converted to receivables and collected in less than a year, consideration for these contract assets has been included in the expected credit loss model for trade receivables.

 

5

 
 
 

3)

Discontinued Operations

 

On June 7, 2023, the Company announced that it would be discontinuing the operations of its Tools segment in order to focus its efforts and resources on the business segments that have historically been more successful and that are expected to present greater opportunities for meaningful long-term stockholder returns. A large portion of this segment's assets were disposed of in the 3rd quarter of fiscal 2023. The primary asset of this business, the real estate, is listed for sale as of May 31, 2024.

 

The cessation of operations and liquidation of the Tools segment represented a strategic shift as a unique business unit of the Company. In accordance with Accounting Standard Code Topic 360, the Company has reclassified Tools as discontinued operations for all periods presented.

 

The components of discontinued operations in the accompanying Condensed Consolidated Balance Sheets are as follows:

 

  

May 31, 2024

  

November 30, 2023

 

Inventory

 $18,013  $18,013 

Other current assets

  4,824   13,945 

Current assets of discontinued operations

 $22,837  $31,958 

 

  

May 31, 2024

  

November 30, 2023

 

Property, plant, and equipment, net

 $1,008,949  $1,023,566 

Other assets of discontinued operations

 $1,008,949  $1,023,566 

 

  

May 31, 2024

  

November 30, 2023

 

Accounts payable

 $1,507  $3,539 

Current portion of long-term debt

  158,792   160,599 

Other current liabilities

  21,547   22,651 

Current liabilities of discontinued operations

 $181,846  $186,789 

 

Segment information as of May 31, 2024 and May 31, 2023 for discontinued operations is as follows:

  

  

Tools

 
  

Three Months Ended

 
  

May 31, 2024

  

May 31, 2023

 

Revenue from external customers

 $-  $783,000 

Gross Profit (loss)

  (25,000)  147,000 

Operating Expense (Income)

  (1,000)  161,000 

Loss from operations

  (24,000)  (14,000)

Loss before tax

  (38,000)  (29,000)

Total Assets

  1,032,000   2,295,000 

Capital expenditures

  -   - 

Depreciation & Amortization

 $7,000  $44,000 

 

  

Tools

 
  

Six Months Ended

 
  

May 31, 2024

  

May 31, 2023

 

Revenue from external customers

 $-  $1,591,000 

Gross Profit (loss)

  (52,000)  309,000 

Operating Expense

  9,000   318,000 

Loss from operations

  (61,000)  (9,000)

Loss before tax

  (88,000)  (39,000)

Total Assets

  1,032,000   2,295,000 

Capital expenditures

  -   16,000 

Depreciation & Amortization

 $14,000  $81,000 

  

6

 

Recently Issued Accounting Pronouncements

 

Recently Adopted Pronouncement

 

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 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 2016-13 is effective for smaller reporting entities for fiscal years beginning after December 15, 2022, 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 adopted ASU 2016-13 in the period presented. The Company has not made a cumulative-effect adjustment to retained earnings.

 

Accounting Pronouncements Not Yet Adopted

 

Segment Reporting - Improvements to Reportable Segment Disclosures

 

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting - Improvements to Reportable Segment Disclosures.” ASU 2023-07 adds enhanced disclosures about significant segment expenses, clarifies circumstances in which an entity can disclose multiple segment measures of profit and loss and provides new segment disclosure requirements for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. An entity will be required to recast any changes to segment information for prior periods presented. The Company will adopt ASU 2023-07 in fiscal 2025. The Company does not expect the application ASU 2023-07 to have a significant impact on segment disclosures.

 

 

 

4)

Disaggregation of Revenue

 

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.

 

  

Three Months Ended May 31, 2024

 
  

Agricultural

  

Modular Buildings

  

Total

 

Farm equipment

 $3,975,000  $-  $3,975,000 

Farm equipment service parts

  500,000   -   500,000 

Modular buildings

  -   2,100,000   2,100,000 

Modular building lease income

  -   56,000   56,000 

Other

  80,000   19,000   99,000 
  $4,555,000  $2,175,000  $6,730,000 

 

  

Three Months Ended May 31, 2023

 
  

Agricultural

  

Modular Buildings

  

Total

 

Farm equipment

 $5,491,000  $-  $5,491,000 

Farm equipment service parts

  779,000   -   779,000 

Modular buildings

  -   1,802,000   1,802,000 

Modular building lease income

  -   32,000   32,000 

Other

  98,000   22,000   120,000 
  $6,368,000  $1,856,000  $8,224,000 

  

  

Six Months Ended May 31, 2024

 
  

Agricultural

  

Modular Buildings

  

Total

 

Farm equipment

 $7,503,000  $-  $7,503,000 

Farm equipment service parts

  1,143,000   -   1,143,000 

Modular buildings

  -   3,491,000   3,491,000 

Modular building lease income

  -   92,000   92,000 

Other

  146,000   79,000   225,000 
  $8,792,000  $3,662,000  $12,454,000 

 

  

Six Months Ended May 31, 2023

 
  

Agricultural

  

Modular Buildings

  

Total

 

Farm equipment

 $10,223,000  $-  $10,223,000 

Farm equipment service parts

  1,409,000   -   1,409,000 

Modular buildings

  -   3,402,000   3,402,000 

Modular building lease income

  -   64,000   64,000 

Other

  181,000   32,000   213,000 
  $11,813,000  $3,498,000  $15,311,000 

 

The Company offered floorplan terms in its Agricultural Products segment during its Fall of 2022 and 2023 early order program to incentivize customers to stock farm equipment on their lots for fiscal 2023 and fiscal 2024. 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 cash flows compared with historical cash flows.

 

On May 31, 2024, the Company had approximately $995,000 in receivables on the floorplan program with a due date greater than 30 days compared to $773,000 on May 31, 2023.

  

7

   
 

 

 

5)

Accounts receivable 

 

Accounts receivable are shown net of allowances for expected credit losses. Expected losses are recorded in administrative expense at the time of receivable recognition.

 

The activity related to expected credit losses for the six months ended May 31, 2024 ended is as follows:

 

   

Six Months Ended (Continuing operations)

 
   

May 31, 2024

 

Balance, beginning

  $ 32,137  

Provision charged to expense

    30,159  

Less amounts charged-off

    (12,619 )

Balance, ending

  $ 49,677  

 

The activity of allowance for doubtful accounts for activity for the six months ended May 31, 2023 under legacy US GAAP is as follows:

 

   

Six Months Ended (Continuing operations)

 
   

May 31, 2023

 

Balance, beginning

  $ 33,288  

Provision charged to expense

    2,095  

Less amounts charged-off

    -  

Balance, ending

  $ 35,383  

 

 

 
 

6)

Contract Receivables, Contract Assets and Contract Liabilities

 

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

 

  

May 31, 2024

  

November 30, 2023

 

Receivables

 $2,647,000  $3,432,000 

Assets

  35,000   289,000 

Liabilities

  2,162,000   767,000 

 

The amount of revenue recognized in the first six months of fiscal 2024 that was included in a contract liability on  November 30, 2023 was approximately $655,000 compared to $1,153,000 in the same period of fiscal 2023. The beginning contract receivables, assets and liabilities on December 1, 2022 were approximately $2,466,000; $451,000 and $1,153,000, respectively.

 

8

 
 
 

7)

Net Income (Loss) Per Share of Common Stock

 

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  May 31, 2024 and May 31, 2023:

 

   

For the Three Months Ended

 
   

May 31, 2024

   

May 31, 2023

 

Numerator for basic and diluted net income (loss) per share:

               
                 

Net income (loss) from continuing operations

  $ (4,657 )   $ 329,761  

Net loss from discontinued operations

    (28,683 )     (23,097 )

Net income (loss)

    (33,340 )     306,664  
                 

Denominator:

               

For basic net income (loss) per share - weighted average common shares outstanding

    5,067,742       5,014,050  

Effect of dilutive stock options

    -       -  

For diluted net income (loss) per share - weighted average common shares outstanding

    5,067,742       5,014,050  
                 
                 

Net Income (loss) per share - Basic:

               

Continuing Operations

  $ (0.00 )   $ 0.07  

Discontinued Operations

    (0.01 )     (0.01 )

Net income (loss) per share

  $ (0.01 )   $ 0.06  
                 

Net Income (loss) per share - Diluted:

               

Continuing Operations

  $ (0.00 )   $ 0.07  

Discontinued Operations

    (0.01 )     (0.01 )

Net income (loss) per share

  $ (0.01 )   $ 0.06  

 

   

For the Six Months Ended

 
   

May 31, 2024

   

May 31, 2023

 

Numerator for basic and diluted net income (loss) per share:

               
                 

Net income (loss) from continuing operations

  $ (428,915 )   $ 680,056  

Net (loss) from discontinued operations

    (69,465 )     (31,182 )

Net income (loss)

    (498,380 )     648,874  
                 

Denominator:

               

For basic net income (loss) per share - weighted average common shares outstanding

    5,045,334       4,995,708  

Effect of dilutive stock options

    -       -  

For diluted net income (loss) per share - weighted average common shares outstanding

    5,045,334       4,995,708  
                 
                 

Net Income (Loss) per share - Basic:

               

Continuing Operations

  $ (0.09 )   $ 0.14  

Discontinued Operations

    (0.01 )     (0.01 )

Net income per share

  $ (0.10 )   $ 0.13  
                 

Net Income (Loss) per share - Diluted:

               

Continuing Operations

  $ (0.09 )   $ 0.14  

Discontinued Operations

    (0.01 )     (0.01 )

Net income per share

  $ (0.10 )   $ 0.13  

  

9

 
 
 

8)

Inventory

 

Major classes of inventory are:

   

May 31, 2024

   

November 30, 2023

 

Raw materials

  $ 8,621,631     $ 8,860,296  

Work in process

    368,456       281,760  

Finished goods

    3,661,728       3,472,354  

Total Gross Inventory

  $ 12,651,815     $ 12,614,410  

Less: Reserves

    (2,154,994 )     (1,583,048 )

Net Inventory

  $ 10,496,821     $ 11,031,362  
  
 
 

9)

Accrued Expenses

 

Major components of accrued expenses are:

   

May 31, 2024

   

November 30, 2023

 

Salaries, wages, and commissions

  $ 539,930     $ 805,908  

Accrued warranty expense

    196,668       295,113  

Other

    287,442       298,211  

Total accrued expenses

  $ 1,024,040     $ 1,399,232  

 

 
 

10)

Assets Held for Lease

 

Major components of assets held for lease are:

  

May 31, 2024

  

November 30, 2023

 

Modular Buildings

 $142,096  $145,494 

Total assets held for lease

 $142,096  $145,494 

 

There were approximately $56,000 and $92,000 of rents recognized from assets held for lease included in sales on the Condensed Consolidated Statements of Operations during the three and six months ended May 31, 2024, respectively, compared to $32,000 and $64,000 for the same periods ending May 31, 2023.

 

The future minimum lease receipts for the years ended November 30 are as follows:

 

Year

 

Amount

 

2024

 $91,677 

2025

  70,036 
  $161,713 

 

 
 

11)

Product Warranty

 

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 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 9 “Accrued Expenses.” Changes in the Company’s product warranty liability for the three and six months ended May 31, 2024 and  May 31, 2023 are as follows:

 

  

Three Months Ended (Continuing Operations)

 
  

May 31, 2024

  

May 31, 2023

 

Balance, beginning

 $211,121  $193,464 

Provision charged to expense

  94,940   115,739 

Less amounts charged-off

  (109,393)  (56,759)

Balance, ending

 $196,668  $252,444 

   

  

Six Months Ended (Continuing Operations)

 
  

May 31, 2024

  

May 31, 2023

 

Balance, beginning

 $295,113  $192,301 

Provision charged to expense

  178,676   231,335 

Less amounts charged-off

  (277,121)  (171,192)

Balance, ending

 $196,668  $252,444 

  

10

 
 
 

12)

Loan and Credit Agreements

 

Bank Midwest Revolving Lines of Credit and Term Loans

 

The Company maintains a $5,500,000 revolving line of credit (the “Line of Credit”) with Bank Midwest. On May 31, 2024, the balance of the Line of Credit was $3,950,437 with $1,549,563 remaining available, as may be 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 net inventory, less any outstanding loan balance on the Line of Credit. On May 31, 2024, 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 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 6.00% per annum and the current interest rate is 9.25% per annum. The Line of Credit was most recently renewed on March 4, 2024 with a maturity date of  March 30, 2025 and requires monthly interest-only payments. The most recent renewal of the Line of Credit combined the previous Line of Credit and a Reserve Line of Credit and decreased the floating rate by 0.50%.

 

The Company carries a $2,600,000 term loan with Bank Midwest due October 1, 2037 (the “Term Loan”), and a $350,000 term loan (the “Roof Term Loan”) due on May 15, 2027. The Term Loan interest rate accrues at a fixed rate of 7% based on prime plus 0.75%. 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 $19,648 in 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, stockholders 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 stockholder 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 entered into the Roof Term Loan of $350,000 with Bank Midwest on May 17, 2022. The Roof Term Loan’s proceeds were used to fix sections of the Armstrong facility’s roof. The Roof Term Loan requires 59 regular payments of $2,972 and an estimated balloon payment of $269,517 on the maturity date of May 15, 2027. Any unpaid principal amount borrowed on the Roof Term Loan accrues interest at a rate of 7.0% per annum. The Roof Term Loan is governed by the terms of a Promissory Note, dated May 17, 2022, entered into between the Company and Bank Midwest and by a Change of Terms Agreement dated March 30, 2023 which fixed the interest rate terms of the original Promissory Note.

 

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.

 

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 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. 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 also must receive bank approval for purchases or sales of equipment over $100,000 annually and maintain reasonable salaries and owner compensation. The Company was out of compliance with its debt to worth ratio by fifteen percentage points on the Bank Midwest loans as of November 30, 2023. Bank Midwest issued a waiver forgiving the noncompliance, and in turn waived the event of default. In the March 2024 renewal Bank Midwest dropped the debt to worth ratio requirement going forward. The next measurement date is November 30, 2024 for all covenants except the monthly working capital requirement.

 

11

 

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. Two loans were executed on June 18, 2020 with principal amounts of $150,000 each, with a third 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 (thirty months from the date of the EIDLs) and December 24, 2022 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. 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.

 

The Company will be required to pay the balance of the EIDL loan associated with the Tools segment upon liquidation of real estate and dissolution of the business. The principal balance of this loan was $158,971 at May 31, 2024. The Company will also be required to pay off the balance of the Bank Midwest Roof Loan in the event the real estate is sold for the Tools segment. The principal balance of this loan at May 31, 2024 is $330,863.

 

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

 

  

May 31, 2024

  

November 30, 2023

 

Bank Midwest loan payable in monthly installments of $19,648 including interest at 7.00%, due October 1, 2037

  2,035,810   2,080,718 

Bank Midwest loan payable in monthly installments of $2,972 including interest at 7.00%, due May 15, 2027

  330,863   336,858 

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

  158,614   160,583 

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

  158,971   160,599 

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

  159,508   160,896 

Total term debt

 $2,843,766  $2,899,654 

Less term debt of discontinued operations

 $(158,971)  (160,599)

Term debt, continuing operations

  2,684,795   2,739,055 

Less current portion of term debt

  (113,545)  (109,193)

Term debt, excluding current portion

 $2,571,250  $2,629,862 

 

A summary of the minimum maturities of term debt follows for twelve month periods ending May 31, are as follows:

 

Year

 

Amount

 

2025

 $113,545 

2026

 $121,427 

2027

 $130,074 

2028

 $413,638 

2029

 $132,431 

2030 and thereafter

 $1,773,680 
  $2,684,795 

    

12

  
 
 

13)

Income Taxes

 

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.

 

The Company has net operating losses and tax credits that are expected to offset any 2024 fiscal year tax liability and does not expect to have significant cash tax cost in the near future.

 

 

 

14)

Related Party Transactions

 

During the three and six months ended May 31, 2024, and May 31, 2023, 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 in which Marc McConnell, the Chairman of the Company’s Board of Directors, has an ownership interest and also serves as President. J. Ward McConnell Jr.’s estate, the J. Ward McConnell, Jr. Living Trust, is paid a monthly fee to guarantee a portion of the Company’s term debt in accordance with the USDA guarantee obtained on the Company’s term debt. In the three and six months ended May 31, 2024, the Company recognized $3,749 and $7,680 of expense for transactions with related parties, respectively, compared to $3,893 and $8,063 for the three and six months ended May 31, 2023. As of May 31, 2024, accrued expenses contained a balance of $1,272 owed to a related party compared to $1,326 on May 31, 2023.

 

 
 

15)

Leases

 

The components of operating leases on the Condensed Consolidated Balance Sheets on May 31, 2024 and November 30, 2023 were as follows:

 

  

May 31, 2024

  

November 30, 2023

 

Operating lease right-of-use assets (in other assets)

 $18,151  $22,427 
         

Current portion of operating lease liabilities (in accrued expenses)

 $8,860  $8,653 

Long-term portion of operating lease liabilities

  9,291   13,774 

Total operating lease liabilities

 $18,151  $22,427 

 

The components of finance leases on the Condensed Consolidated Balance Sheets on May 31, 2024 and November 30, 2023 were as follows:

 

  

May 31, 2024

  

November 30, 2023

 

Finance lease right-of-use assets (net of amortization in other assets)

 $459,708  $511,367 
         

Current portion of finance lease liabilities

 $255,677  $257,454 

Long-term portion of finance lease liabilities

  646,179   722,200 

Total finance lease liabilities

 $901,856  $979,654 

 

13

 
 
 

16)

Equity Incentive Plan and Stock Based Compensation

 

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 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 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.

 

Shares issued under the 2020 Plan for the three and six month periods ended May 31, 2024 and 2023 are as follows:

 

  

For the Three Months Ended

 
  

May 31, 2024

  

May 31, 2023

 

Shares issued to directors (immediate vesting)

  10,000   10,000 

Shares issued to directors, employees, and consultants (three year vesting)

  -   - 

Total shares issued

  10,000   10,000 

   

  

For the Six Months Ended

 
  

May 31, 2024

  

May 31, 2023

 

Shares issued to directors (immediate vesting)

  15,000   15,000 

Shares issued to directors, employees, and consultants (three year vesting)

  69,000   82,250 

Unvested shares forfeited upon termination

  (6,750)  - 

Total shares issued

  77,250   97,250 

 

 
 

17)

Disclosures About the Fair Value of Financial Instruments

 

The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. On  May 31, 2024 and November 30, 2023, the carrying amount approximated fair value for cash, accounts receivable, accounts payable, notes payable to bank, finance lease liabilities and other current and long-term liabilities. The carrying amounts of current assets and liabilities approximate fair value because of the short maturity of these instruments. The fair value of the finance lease liabilities also approximate recorded value as that is based on discounting future cash flows at rates implicit in the lease. The rates implicit in the lease do not materially differ from current market rates. The fair value of the Company’s term loans payable also approximates recorded value because the interest rates charged under the loan terms are not substantially different from current interest rates.

 

14

 
 
 

18)

Segment Information

 

As of May 31, 2024, the Company has two reportable segments: Agricultural Products and Modular Buildings. The Agricultural Products segment manufactures and sells farm equipment and related replacement parts under the Art’s-Way Manufacturing label. The Modular Buildings segment manufactures and installs modular buildings for various uses, commonly animal containment and research laboratories. 

 

The accounting policies applied to determine the segment information are the same as those described in the summary of significant accounting policies. Management evaluates the performance of each segment based on profit or loss from operations before income taxes, exclusive of nonrecurring gains and losses.

 

Approximate financial information with respect to the reportable segments is as follows.

 

  

Three Months Ended May 31, 2024

 
  

Agricultural Products

  

Modular Buildings

  

Consolidated (Continuing Operations)

 

Revenue from external customers

 $4,555,000  $2,175,000  $6,730,000 

Gross profit

  1,323,000   584,000   1,907,000 

Operating Expense

  1,481,000   257,000   1,738,000 

Income (loss) from operations

  (158,000)  327,000   169,000 

Income (loss) before tax

  (323,000)  318,000   (5,000)

Total Assets

  19,528,000   2,611,000   22,139,000 

Capital expenditures

  205,000   27,000   232,000 

Depreciation & Amortization

 $161,000  $71,000  $232,000 

 

  

Three Months Ended May 31, 2023

 
  

Agricultural Products

  

Modular Buildings

  

Consolidated (Continuing Operations)

 

Revenue from external customers

 $6,368,000  $1,856,000  $8,224,000 

Gross profit

  1,799,000   385,000   2,184,000 

Operating Expense

  1,483,000   268,000   1,751,000 

Income from operations

  316,000   117,000   433,000 

Income before tax

  197,000   220,000   417,000 

Total Assets

  19,776,000   3,399,000   23,175,000 

Capital expenditures

  249,000   78,000   327,000 

Depreciation & Amortization

 $125,000  $81,000  $206,000 

 

  

Six Months Ended May 31, 2024

 
  

Agricultural Products

  

Modular Buildings

  

Consolidated (Continuing Operations)

 

Revenue from external customers

 $8,792,000  $3,662,000  $12,454,000 

Gross profit

  2,464,000   916,000   3,380,000 

Operating Expense

  3,049,000   543,000   3,592,000 

Income (loss) from operations

  (584,000)  373,000   (211,000)

Income (loss) before tax

  (897,000)  355,000   (542,000)

Total Assets

  19,528,000   2,611,000   22,139,000 

Capital expenditures

  389,000   124,000   513,000 

Depreciation & Amortization

 $308,000  $126,000  $434,000 

  

  

Six Months Ended May 31, 2023

 
  

Agricultural Products

  

Modular Buildings

  

Consolidated (Continuing Operations)

 

Revenue from external customers

 $11,813,000  $3,498,000  $15,311,000 

Gross profit

  3,662,000   708,000   4,370,000 

Operating Expense

  2,845,000   549,000   3,394,000 

Income from operations

  818,000   159,000   977,000 

Income before tax

  604,000   257,000   861,000 

Total Assets

  19,776,000   3,399,000   23,175,000 

Capital expenditures

  501,000   123,000   624,000 

Depreciation & Amortization

 $250,000  $158,000  $408,000 

 

*The consolidated total in the tables is a sum of segment figures and may not tie to actual figures in the condensed consolidated financial statements due to rounding.

 

15

 
 

 

 

19)

Subsequent Events

 

Management evaluated all other activity of the Company and concluded that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements.

 

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “report”) and the audited consolidated financial statements and related notes thereto included in Part II, Item 8, “Financial Statements and Supplementary Data,” as well as Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the fiscal year ended November 30, 2023. Some of the statements in this report may be forward-looking statements that reflect our current view on future events, future business, industry and other conditions, our future performance, and our plans and expectations for future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “may,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. Many of these forward-looking statements are located in this report under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but they may appear in other sections as well. Forward-looking statements in this report generally relate to: (i) our expectations with respect to order backlog, future demand for products, expected product mix and resulting sales; (ii) our beliefs regarding the sufficiency of working capital and cash flows; (iii) our expectation that we will continue to be able to renew or obtain financing on reasonable terms when necessary as well as our continued positive relationship with our creditors and lenders; (iv) our beliefs regarding production capabilities; (v) our intentions and beliefs relating to our costs, business strategies, and future performance, including without limitation, the impact of cost cutting measures, process improvement measures and new product development; (vi) our beliefs regarding the impact and potential actions with respect to discontinuing our Tools segment, including without limitation, potential cash that may be generated by the sale of related real estate and other assets and our belief that Modular and Agricultural Products present greater opportunity for long-term stockholder returns in comparison to our discontinued Tools segment; (vii) our beliefs regarding our early order program providing a picture of future demand; (viii) our expected financial results, including without limitation, our expected results for the Modular and Agricultural Products segments; and  (ix) our expectations regarding receiving Employer Retention Credit Refunds; and (x) our expectations concerning our primary capital and cash flow needs.

 

You should read this report thoroughly with the understanding that our actual results may differ materially from those set forth in the forward-looking statements for many reasons, including events beyond our control and assumptions that prove to be inaccurate or unfounded. We cannot provide any assurance with respect to our future performance or results. Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including but not limited to: (i) the impact of changing credit markets on our ability to continue to obtain financing on reasonable terms; (ii) our ability to repay current debt, continue to meet debt obligations and comply with financial covenants; (iii) the effect of inflation as well as general economic conditions, including consumer and governmental spending, on the demand for our products and the cost of our supplies and materials; (iv) impacts caused by fluctuating commodity prices and fluctuating farm income; (v) fluctuations in seasonal demand and our production cycle; (vi) the ability of our suppliers to meet our demands for raw materials and component parts; (vii) fluctuations in the price of raw materials, especially steel; (viii) our ability to predict and meet the demands of each market in which our segments operate; (ix) fluctuating demand for commercial real estate and the assets we are liquidating as part of closing our Tools segment; (x) other factors described from time to time in our Securities and Exchange Commission filings. We do not intend to update the forward-looking statements contained in this report other than as required by law. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

 

Critical Accounting Policies

 

Our critical accounting policies involving the more significant judgments and assumptions used in the preparation of our financial statements as of May 31, 2024 remain unchanged from November 30, 2023. Disclosure of these critical accounting policies is incorporated by reference from Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended November 30, 2023.

   

 

Results of Operations

 

Net Sales and Cost of Sales

 

Our consolidated corporate sales from continuing operations for the three- and six-month periods ended May 31, 2024 were $ 6,730,000 and $12,454,000 compared to $8,224,000  and $15,311,000 during the same respective periods in fiscal 2023, a $1,494,000, or 18.2%, decrease for the three months and a decrease of $2,857,000, or 18.7% decrease for the six months. Consolidated gross margin for the three-month and six-month periods ended May 31, 2024 was 28.3% and 27.1% compared to 26.6% and 28.5% for the same periods in fiscal 2023. 

 

Our second quarter sales in our Agricultural Products segment were $4,555,000 compared to $6,368,000 during the same period of fiscal 2023, a decrease of $1,813,000, or 28.5%. For the six months ended May 31, 2024, our sales were $8,792,000 compared to $11,813,000, a decrease of $3,021,000, or 25.6% for the same period of 2023. In February of 2024, the US Department of Agriculture reported a 25% expected decline in farm income levels for 2024 due to weaker row crop prices and expected increases in production expenses. Our sales year to date have mirrored the USDA's sentiments on projected farm income. Incoming orders on the fall 2023 and spring 2024 early order programs declined for the first time in three years. As we approach mid-year of calendar 2024, live cattle, lean hogs, sugar beet and milk commodity prices are all exceeding their five year averages while corn, soybeans and wheat commodity prices are all down significantly from where they were a year ago. High interest rates are putting additional pressure on farmer's bottom lines and also reducing the amount of inventory dealers are able to carry on their lots. We expect sales are going to be more speculative in the near future and product availability will be a key factor in sales success moving forward. We began cost cutting measures in the first quarter of fiscal 2024 to partially mitigate the effect on cash flow from decreased sales, including layoffs of non-production employees and offering early retirement incentives to employees at retirement age. We also entered the Iowa Work Force Development's voluntary workshare program in April 2024, which eliminates the need for additional production layoffs by allowing us to cut employee's hours while employees receive unemployment benefits for lost hours. We will be putting additional focus on investments that move our operational improvement strategy towards increased automation and production efficiency as we move forward in fiscal 2024. From a sales standpoint, we continue to work with dealers to help move field inventory to generate more sales opportunities for our products. We are targeting new dealer acquisitions to penetrate geographic markets in which we lack a substantial presence. Gross margin for our Agricultural Products segment for the three-month and six-month periods ended May 31, 2024 was 29.0% and 28.0%, respectively compared to 28.3% and 31.0% for the same periods in fiscal 2023. We primarily attribute our gross margin decrease to the decrease in sales, but our margins were also burdened by inflationary price increases in supplies used in manufacturing and health and general insurance costs. We expect a continued focus on driving overheads costs down as 2024 continues.

 

Our second quarter sales in our Modular Buildings segment were $2,175,000 compared to $1,856,000 for the same period in fiscal 2023, an increase of $319,000, or 17.2%. For the six months ended May 31, 2024 our sales were $3,662,000 compared to $3,498,000  for the same period of fiscal 2023, an increase of $164,000, or 4.7%. Two large research projects are driving the sales increase for the three- and six- month periods. We anticipate seeing increased sales quarter on quarter for the remainder of fiscal 2024 due to the strength of our backlog. Gross margin for the three- and six-month period ended May 31, 2024 was 26.9% and 25.0%, respectively, compared to 20.7% and 20.2% for the same respective periods in fiscal 2023. The Modular Buildings segment typically sees higher margins on research projects, which made up the majority of our revenue for the first six months of fiscal 2024, compared to a higher percentage of agricultural buildings in the first quarter of fiscal 2023. This, coupled with increased billing rates, has led to improved margins in this segment over the last 18 months. 

 

Expenses

 

Consolidated selling expenses from continuing operations for the three months ended May 31, 2024 were $398,000 compared to $511,000 for the same period 2023. Our consolidated selling expenses from continuing operations for the six months ended May 31, 2024 were $860,000 compared to $1,042,000 for the same period in fiscal 2023, a decrease of $182,000, or 17.5%. The decrease in selling expenses is related mainly to decreases in commission expense. Decreased sales in the Agricultural Products segment and the addition of an inside salesperson contributed to the decrease in commission expense. Our Modular Buildings segment also utilizes commissions on agricultural building sales and we saw a significant decrease in these sales comparatively. Selling expenses as a percentage of sales was 6.9% for the six months ended May 31, 2024 compared to 6.8% for six months ended May 31, 2023.

 

Consolidated engineering expenses from continuing operations were $107,000 and $267,000 for the three- and six-month period ended May 31, 2024, respectively compared to $140,000 and $269,000 for the same periods in fiscal 2023. Engineering expenses as a percentage of sales were 2.1% for the six months ended May 31, 2024 compared to 1.8% for the same respective periods in fiscal 2023.

 

Consolidated administrative expenses from continuing operations for the three- and six-month period ended May 31, 2024 were $1,233,000 and $2,464,000, respectively, compared to $1,099,000 and $2,083,000 for the same respective period in fiscal 2023. Administrative expenses as a percentage of sales were 19.8% for the six months ended May 31, 2024 compared to 13.6% for the same respective period in fiscal 2023. Administrative expenses increased year on year primarily due to the addition of skilled staff in accounting and human resources. We also paid out approximately $188,000 of early retirement incentives for employees of retirement age that retired mid-March of 2024. The retirement incentive was offered to help right-size our workforce. We also saw increased information technology costs year on year from rising prices and the amortization of our cloud computing arrangement implementation which will be fully amortized after the second quarter of fiscal 2025.

 

 

Net income (loss) from continuing operations

 

Consolidated net loss from continuing operations was $5,000 for the three-month period ended May 31, 2024, compared to net income of $330,000 for the same period in fiscal 2023. For the six months ended May 31, 2024, our consolidated net loss was $429,000 compared to net income of $680,000 for the same period of fiscal 2023. While we had positive operating income from continuing operations for the three months ended May 31, 2024, high interest rates on our debt, have put strain on our bottom line in fiscal 2024. We expect that our sales in the Agricultural Products segment will continue to follow the 25% farm income decrease trend predicted by the USDA. We will rely on inventory reduction, debt retirement and cost cutting to minimize losses  in an attempt again to generate net income from this segment. The Modular Buildings segment recorded revenue increases and profitability for both the three and six months ended May 31, 2024. We anticipate continued positive performance from this segment due to strong backlog for the remainder of fiscal 2024.  

 

Order Backlog

 

The consolidated order backlog net of discounts for continuing operations as of July 8, 2024 was $7,867,000 compared to $10,236,000 as of July 8, 2023, a 23.1% decrease. The Agricultural Products segment order backlog was $1,348,000 as of  July 8, 2024 compared to $6,764,000 in fiscal 2023, an 80.1% decrease. Decreases in expected net farm income coupled with high interest rates in fiscal 2024 has suppressed demand for agricultural products across the North American market. We will rely on our brand reputation, strength of sales team and product availability to drive sales activity for the remainder of fiscal 2024. The backlog for the Modular Buildings segment was $6,519,000 as of July 8, 2024, compared to $3,472,000 in fiscal 2023, an 87.8% increase. We continue to see strong demand for research-type modulars in our Modular Buildings segment as we progress through the third quarter of fiscal 2024. While ag modular building demand is down, continued quoting activity  on the research side shows promise into fiscal 2025. Our order backlog is not necessarily indicative of future revenue to be generated from such orders due to the possibility of order cancellations and dealer discount arrangements we may enter into from time to time.

 

Liquidity and Capital Resources

 

Our primary source of funds for the six months ended May 31, 2024 was cash generated by contracts in progress in the Modular Buildings segment. We are utilizing favorable billing terms to provide positive cash flow on the large research projects we have under contract. Our inventory levels at November 30, 2023 were heightened compared to recent history and the reduction of those inventory levels over the six months ended May 31, 2024 generated positive cash for us. We also carried over close to $1.9 million in accounts receivable from floorplan sales in our Agricultural Products segment at the end of fiscal 2023 that provided a strong cash influx over the first six months of fiscal 2024. A large reduction in accounts payable was our biggest cash outflow for the first six months of fiscal 2024. The heightened inventory balance at November 30 coupled with reduced inventory spending drove this decrease. For the remainder of fiscal 2024, we expect our primary sources of cash to be collection of floorplan receivables, sales and inventory reduction activities. We expect our construction contracts to be fairly cash neutral for the remainder of the fiscal year while operating expenses and retirement of debt will be our biggest cash consumption activities. We expect the sale of real estate of our Tools segment and $1.2 million of net Employer Retention Credit refunds to provide material inflows of cash, although the timing of these transactions are unknown.

 

We have $5,500,000 on a revolving line of credit with Bank Midwest that, as of May 31, 2024, had an outstanding principal balance of $3,950,437. This line of credit was renewed on March 4, 2024 and is scheduled to mature on March 30, 2025. 

 

We believe our current financing arrangements will provide sufficient cash to finance operations and pay debt when due during the next twelve months. We expect to continue to be able to procure financing upon reasonable terms.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

The persons serving as our principal executive officer and principal financial officer have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period subject to this report. Based on this evaluation, the persons serving as our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of May 31, 2024. Our management has concluded that the consolidated financial statements included in this report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

 

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are currently not a party to any material pending legal proceedings.

 

Item 1A. Risk Factors.

 

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

The following table presents the information with respect to purchases made by us of our common stock during the second quarter of fiscal 2024:

 

                   

Total Number of

         
                   

Shares

   

Approximate Dollar

 
                   

Purchased as part

   

Value of Shares that

 
   

Total

   

Average

   

of

   

May

 
   

Number

   

Price

   

Publicly

   

Yet Be Purchased

 
   

of Shares

   

Paid per

   

Announced

   

under the

 
   

Purchased (1)

   

Share

   

Plans or Programs

   

Plans or Programs

 

March 1 to March 31, 2024

    -     $ -       N/A       N/A  

April 1 to April 30, 2024

    -     $ -       N/A       N/A  

May 1 to May 31, 2024

    -     $ -       N/A       N/A  

Total

    -     $ -                  

 

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

 

Item 5. Other Information.

 

None.

 

19

 
 

Item 6. Exhibits.

 

Exhibit

No.

Description

3.1

Conformed Certificate of Incorporation of Art’s-Way Manufacturing Co., Inc. – incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2020.

3.2

Conformed Bylaws of Art’s-Way Manufacturing Co., Inc.– incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2020.

31.1

Certificate of Chief Executive Officer pursuant to 17 CFR 13a-14(a) – filed herewith.

31.2

Certificate of Chief Financial Officer pursuant to 17 CFR 13a-14(a) – filed herewith.

32.1

Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 - filed herewith.

32.2

Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 - filed herewith.