Arts Way Manufacturing Co Inc 10-K for FY2023
Arts Way Manufacturing Co Inc (ARTW)
About this 10-K
Arts Way Manufacturing Co Inc filed this 10-K on February 28, 2024, covering the fiscal year ended November 30, 2023 (FY2023).
Headline figures
Fiscal year ended November 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $30.28M
- up 18.1% from $25.65M a year earlier
- Net income
- $266.97K
- up 173.0% from net income of $97.8K a year earlier
- Diluted EPS
- $0.05
- up 150.0% from $0.02 a year earlier
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ____________
Commission file number
ART’S-WAY MANUFACTURING CO., INC.
(Exact name of registrant as specified in its charter)
| | | |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) |
5556 Highway 9
(Address of principal executive offices, including zip code)
(
(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 |
| | | |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒
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. ☒
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). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ | 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. ☐
Indicated by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter, based on the closing sale price on May 31, 2023 as reported on the Nasdaq Stock Market LLC ($2.48 per share), was approximately $
As of February 7, 2024 there were
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the registrant’s 2024 Annual Meeting of Stockholders to be filed within 120 days of November 30, 2023 are incorporated by reference into Part III of this Annual Report on Form 10-K.
Art’s-Way Manufacturing Co., Inc.
Index to Annual Report on Form 10-K
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K (this “report”) may contain forward-looking statements that reflect future events, future business, industry and other conditions, our future performance, and our plans and expectations for future operations and actions. In some cases forward-looking statements may be identified 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. Forward-looking statements in this report generally relate to: our business condition and results of operations; our expectations regarding our warranty costs and order backlog; our beliefs regarding the sufficiency of working capital and cash flows; our expectations regarding our continued ability to renew or obtain financing on reasonable terms when necessary as well as our continued positive relationship with our creditors and lenders; the impact of recently issued accounting pronouncements; our intentions and beliefs relating to our costs, product developments and business strategies; our expectations concerning our continued expansion into international markets; our expectations with respect to government spending and programs that may directly or indirectly be used to purchase our products; our beliefs concerning our ability to attract and maintain an adequate workforce in a competitive labor market; our expected operating and financial results; our beliefs about selling our Canton, Ohio property and the net proceeds from such sale; our beliefs concerning the effects of, and costs of compliance with government regulations; our expectations concerning our primary capital and cash flow needs; our beliefs regarding competitive factors and our competitive strengths; our expectations regarding our capabilities and demand for our products; our predictions regarding the impact of seasonality; our beliefs regarding the impact of the farming industry on our business; our beliefs regarding our internal controls over financial reporting; and our intentions for paying dividends. Many of these forward-looking statements are located in this report under “Item 1. BUSINESS” and “Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” but they may appear in other sections as well.
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, the impact of changes in credit markets on our ability to continue to obtain financing on reasonable terms; our ability to repay current debt, continue to meet debt obligations and comply with financial covenants; obstacles related to liquidation of product lines; the effect of inflation, interest rate fluctuations and general economic conditions, including consumer and governmental spending, on the demand for our products and the cost of our supplies and materials; fluctuations in seasonal demand and our production cycle; the ability of our suppliers to meet our demands for raw materials and component parts; our original equipment manufacturer customers’ decisions regarding supply chain structure, inventory levels, and overall business conditions; fluctuations in the price of raw materials, especially steel; our ability to predict and meet the demands of each market in which our segments operate; a decrease in demand for our products in international markets; the existence and outcome of product liability claims and other ordinary course litigation; changes in environmental, health and safety regulations and employment laws; our ability to fill open positions within the Company and retain our key employees; the cost of complying with laws, regulations, and standards relating to corporate governance and public disclosure, and the demand such compliance places on management’s time; and other factors described in this report and from time to time in our other reports filed with the Securities and Exchange Commission. We do not intend to update the forward-looking statements contained in this report other than as required by law. We caution investors not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. This report and the documents that we reference in this report and have filed as exhibits should be read 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.
General
Art’s-Way Manufacturing Co., Inc., a Delaware corporation (“we,” “us,” “our,” and the “Company”), began operations as a farm equipment manufacturer in 1956. Since that time, we have become a worldwide manufacturer of agricultural equipment and specialized modular science and agricultural buildings. Our principal manufacturing plant and corporate headquarters is located in Armstrong, Iowa.
We have organized our 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. Our Agricultural Products segment manufactures and distributes farm equipment under the Art’s-Way name. Our Modular Buildings segment manufactures modular buildings for various uses, commonly animal containment and research laboratories, through our wholly-owned subsidiary, Art’s-Way Scientific, Inc., an Iowa corporation. During the third quarter of fiscal 2023, the Company ceased operations of its Tools business, which in previous periods, was reported in consolidated numbers as the Company's third operating segment. The remaining components of the Tools segment are reported in discontinued operation for the twelve months ended November 30, 2023 and has been modified retrospectively to be reported in discontinued operations for the twelve months ended November 30, 2022. For detailed financial information relating to segment reporting, see Note 18 “Segment Information” to our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.
Corporate information about Art’s-Way can be found on our website, http://www.artsway-mfg.com/ while information on our agriculture products can be found on http://www.artsway.com/. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Exchange Act requires us to file periodic reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s website at http://www.sec.gov.
Business of Our Segments
Agricultural Products
Our Agricultural Products segment, which accounted for 74.2% of our net revenue in the 2023 fiscal year and 81.5% of our net revenue in the 2022 fiscal year, is located primarily in Armstrong, Iowa. This segment manufactures a variety of specialized farm machinery under our own label, including portable and stationary animal feed processing equipment and related attachments used to mill and mix feed grains into custom animal feed rations; a line of forage equipment consisting of forage boxes, bale processors, running gear, and dump boxes; a line of manure spreaders; sugar beet harvesting equipment; and a line of dirt work equipment. We sell our labeled products through independent farm equipment dealers throughout the United States, Australia, Canada, Japan and the United Kingdom. We also provide after-market service parts that are available to keep our branded equipment operating to the satisfaction of the end user of our products.
Modular Buildings
Our Modular Buildings segment, which accounted for 25.8% of our net revenue in the 2023 fiscal year and 18.5% of our net revenue in the 2022 fiscal year, is located in Monona, Iowa. This segment produces, sells and leases modular buildings, which are custom-designed to meet the specific research needs of our customers. The buildings we commonly produce range from basic swine buildings to complex containment research laboratories. Our focus is providing research facilities for academic research institutions, government research and diagnostic centers, public health institutions and private research and pharmaceutical companies, as those are our primary market sectors. We provide services from start to finish by designing, manufacturing, delivering and installing these facilities to meet customers’ critical requirements. In addition to selling these facilities, we also offer a lease option to customers in need of temporary facilities.
Our Principal Agricultural Products
Arthur Luscombe built the first PTO powered grinder mixer on his farm near Dolliver, Iowa. The product’s ability to tackle even the most demanding workload made it an overwhelming success – and secured Luscombe’s reputation as a farmer, entrepreneur and independent thinker who did things his way. Over the years our Agricultural Products segment has grown through developing several new products and with acquisitions. We take pride in our manure spreaders, forage equipment, bale processors, dirt work equipment, sugar beet harvesting equipment and feed mills. We provide limited OEM parts to some of the industry’s leading manufacturers.
Feed mills. There’s no one better than Art’s Way when it comes to processing feed. Stationary mills for livestock feeding or breweries, portable units for small operations and large grinder mixers for the modern feeding operation have our customers’ backs day in and day out. Hammer mills provide faster processing and easily changing micron size or roller mills offer more consistency. We offer the most complete lineup of equipment in feed processing.
Manure spreaders. The X Series spreaders have a unique vertical beater placement combined with guillotine slop gate controls to create the best spread pattern in the industry. Flared sides and densilite flooring provide easy loading and material movement. Backed by our limited lifetime warranty on the apron chain, customers can depend on this rugged machine. The upgraded rate control option powered by Raven is the only unit in the industry to have completely automatic spreading capabilities with apron speed and slop gate control.
Forage. The 2100 series are user-friendly forage boxes in different lengths and unload configurations. It is the only box in its class to offer 100% in-cab controls. Tube side stakes and corrugated sides give users confidence when side-by-side with competitor models. The 9016-HD High Dump cart boasts the largest capacity in the industry at 40,000 pounds.
Bale processors. Spread large round or square bales in the same machine attached to a skid steer, telehandler, or tractor with the patented TOP-SPREAD loader mounted spreader. The compact size fits into barns and alleyways and is easy to maneuver. On a construction site, cover roadsides or fresh seeding quickly from the seat of a skid steer.
Dirt work equipment. Level out and shape fields with the single blade or folding land planes featuring our patented floating hitch design. Reduce erosion by eliminating water pockets, furrows, and implement scars in the field. Shape yards or work sites with standard or rear steer graders that follow closely behind the tractor for leveling in smaller spaces.
Sugar beet harvesting equipment. We are proud to offer the best sugar beet cleaning in the industry during muddy harvest conditions with our patented grab roll bed. Our 12-row harvester has been improved with an automatic leveling system add-on for consistent digging across the field. The defoliator cleanly removes the leaves off the beets prior to digging them up for harvest. The leaves are incorporated back into the soil to provide nutrients for next year’s crop.
Product Distribution and Markets
We distribute goods for our Agricultural Products segment primarily through a network of approximately 600 U.S. and Canadian independent dealers, as well as overseas dealers in Australia, Japan and the United Kingdom, whose customers require specialized agricultural machinery. We have sales representation in 48 states and seven Canadian provinces. Our dealers sell our products to various agricultural and commercial customers. We also maintain a local sales force in our Armstrong, Iowa facility to provide oversight services for our distribution network, communicate with end users, and recruit and train dealers on the uses of our products. Our local service parts staff is available to help customers and dealers with their service parts needs. Our Modular Buildings segment typically sells products customized to the end-user’s requirements directly to the end-user.
We currently export products to nine foreign countries. We have been shipping grinder mixers abroad since 2006 and have exported portable rollermills as well. We continue to strengthen these relationships and intend to develop new international markets. Our international sales accounted for 3.1% of consolidated sales during the 2023 fiscal year compared to 4.5% in the 2022 fiscal year.
Backlog. The Company’s backlog of orders vary on a daily basis. The Company’s Agricultural Products segment had a net backlog of approximately $4,364,000 as of February 1, 2024 compared to $9,366,000 on February 1, 2023. The Company saw a decline in orders on its fall early order program for the first time in three years. The Company believes high interest rates are affecting how much risk the dealers are willing to take on stock inventory. While the Company believes farmers are still going to be creating strong demand in 2024, the Company believes it is going to have to be more speculative with its products and have more inventory on hand. The Company’s Modular Buildings segment had approximately $6,170,00 of backlog as of February 1, 2024, compared to $4,985,000 on that date in 2023. The Modular Buildings segment contracted a $5,300,000 research project in December 2023, which is expected to be mostly completed in fiscal 2024. The Company also has two other large research projects with a combined contract price over $6,000,000 that it is expected to land in fiscal 2024. The Company expects that its order backlogs will continue to fluctuate as orders are received, filled, or canceled, and, due to dealer discount arrangements it may enter into from time to time. Accordingly, these figures are not necessarily indicative of future revenue.
Recent Product Developments
In 2023, we continued to make product improvements that improve manufacturability and to meet our customer’s evolving needs. We worked on the development of a chicken litter variation for our manure spreaders, a sonar leveling system for our defoliators, performed redesign work on our commercial forage box and also took steps to improve the design of our grinder mixers for manufacturability and cost savings.
Our Modular Buildings segments complete projects based on customer specifications and did not engage in specific product development during the 2023 fiscal year.
Competition
Each of our segments have competitive strengths described below. In addition to individual competitive strengths, the barrier to entry for competitors in our industries is high.
Agricultural Products
Our Agricultural Products segment competes in a highly competitive agricultural equipment industry. We compete with larger manufacturers and suppliers that have broader product offerings and significant resources at their disposal; however, we believe that our competitive strengths allow us to compete effectively in our market.
Management believes that grain and livestock producers, as well as those who provide services to grain and livestock operations, are the primary purchasers of agricultural equipment. Many factors influence a buyer’s choice for agricultural equipment. Any one or all factors may be determinative, but they include brand loyalty, the relationship with dealers, product quality and performance, product innovation, product availability, parts and warranty programs, price, and customer service.
While our larger competitors may have resources greater than ours, we believe we compete effectively in the farm equipment industry by serving smaller markets in specific product areas rather than directly competing with larger competitors across an extensive range of products. Our Agricultural Products segment caters to niche markets in the agricultural industry. We do not have a direct competitor that has the same product offerings that we do. Instead, each of our product lines competes with similar products of many other manufacturers. Some of our product lines face greater competition than others, but we believe that our products are competitively priced with greater diversity than most competitor product lines. Other companies produce feed processing equipment, sugar beet harvesting and defoliating equipment, grinders, and other products similar to ours; therefore, we focus on providing the best product available at a reasonable price. Overall, we believe our products are competitively priced with above average quality and performance, in a market where price, product performance, and quality are principal elements.
In addition, in order to capitalize on brand recognition for our Agricultural Products segment, we have numerous product lines produced under our own label. We also provide aftermarket service parts which are available to keep our branded and OEM-produced equipment operating to the satisfaction of the customer. We sell products to customers in the United States and nine foreign countries through a network of approximately 600 independent dealers in the United States and Canada, as well as overseas dealers in Australia, Japan and the United Kingdom.
We believe that our competitive pricing, product quality and performance, network of worldwide and domestic distributors, and strong market share for many of our products allow us to compete effectively in the agricultural products market.
Modular Buildings
We expect continued competition from our Modular Buildings segment’s existing competitors, which include conventional design/build firms, as well as competition from new entrants into the modular building market. To some extent, we believe barriers to entry in the modular building industry limit the competition we face in the industry. Barriers to entry in the market consist primarily of access to capital, access to a qualified labor pool, and the bidding process that accompanies many jobs in the health and education markets. Despite these barriers, manufacturers who have a skilled work force and adequate production facilities could adapt their manufacturing facilities to produce modular structures.
We believe the competitive strength of our Modular Buildings segment is our ability to design and produce high-tech modular buildings more quickly than conventional design/build firms. Conventional design/build construction may take two to five years, while our modular laboratories can be delivered in as little as six months. As one of the few companies in the industry to supply turnkey modular buildings and laboratories, we believe we provide high-quality buildings at reasonable prices that meet our customers’ time, flexibility, and security expectations.
Raw Materials, Principal Suppliers, and Customers
Raw materials for our various segments are acquired from domestic and foreign sources and normally are readily available. We saw lead times increase on raw materials in 2022 as labor shortages from the COVID-19 pandemic left many of our suppliers understaffed. Lead times remained heightened during most of fiscal 2023 and began to soften near the end of fiscal 2023. We rely on foreign suppliers and foreign markets for materials and components for some of our products. However, these suppliers are not principal suppliers and there are alternative sources for these materials.
We do not typically rely on sales to one customer or a small group of customers. During the 2023 fiscal year, one customer accounted for just more than 12% consolidated net revenues from continuing operations.
Intellectual Property
We maintain manufacturing rights on several products, which cover unique aspects of design. We also have trademarks covering product identification. We believe our trademarks and licenses help us to retain existing business and secure new relationships with customers. The duration of these rights ranges from 5 to 10 years, with options for renewal. We currently have no pending applications for intellectual property rights.
We have a licensing and royalty agreement with Spreader, LLC to produce a loader mounted spreader in exchange for royalty payments until December 2027.
Government Relationships and Regulations; Environmental Compliance
Our Modular Buildings segment must design, manufacture, and install its modular buildings in accordance with state building codes, and we have been able to achieve the code standards in all instances. In addition, we are subject to various federal, state, and local laws and regulations pertaining to environmental protection and the discharge of materials into the environment. We do not expect that the cost of complying with these regulations will have a material impact on our consolidated results of operations, financial position, or cash flows.
Employees
As of November 30, 2023, we employed 93 employees in our Agricultural Products segment including two on a part-time basis, and 31 employees in our Modular Buildings segment, two on a part-time basis. These numbers do not necessarily represent peak employment during the 2023 fiscal year.
As a smaller reporting company, we are not required to provide disclosure pursuant to this Item.
Item 1B. UNRESOLVED STAFF COMMENTS.
As a smaller reporting company, we are not required to provide disclosure pursuant to this Item.
Our executive offices, as well as the primary production and warehousing facilities for our Agricultural Products segment, are located in Armstrong, Iowa. These facilities were constructed after 1965 and remain in fair condition. The facilities in Armstrong contain approximately 249,000 square feet of usable space. We have engaged in several building improvement projects during the last several years including most recently updating our office spaces and employee break room in 2021, new shop and office boilers and roofing improvements in 2022 and remodeling our production facility bathrooms in fiscal 2023. In addition, we own approximately 30 acres of land west of Armstrong, on which the factory and inventory storage space is situated for our Agricultural Products segment.
Our facility in Monona, Iowa was constructed by us in 2007, which houses the manufacturing for our Modular Buildings segment. The facility was custom-designed to meet our production needs. It has approximately 50,000 square feet of useable space and accommodates a sprinkler system and crane. We own a second building to the east with approximately 12,000 square feet of space which is used as our weld shop for building frames.
Our facility in Canton, OH was purchased in connection with the acquisition of certain assets of Ohio Metal Working Products Company in September 2013. The building contains approximately 39,000 square feet of usable space and is in good condition. The purchased land is approximately 4.50 acres and was used by our Tools segment. This property is currently listed for sale at market value.
All of our owned real property is subject to mortgages granted to Bank Midwest as security for our long-term debt and our line of credit. See “Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Liquidity and Capital Resources” for more information.
From time to time in the ordinary course of business, we may be named as a defendant in legal proceedings incidental to the business, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings, directly or indirectly, and we are not aware of any claims pending or threatened against us or any of the directors that could result in the commencement of material legal proceedings.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.’
Market Information
Our common stock trades on the Nasdaq Stock Market LLC under the symbol “ARTW.”
Stockholders
We have two classes of stock, undesignated preferred stock and $0.01 par value common stock. No shares of preferred stock have been issued or are outstanding. As of February 14, 2023 we had 73 common stock stockholders of record, which number does not include stockholders who hold our common stock in street name.
Dividends
We did not pay a dividend during the 2023 or 2022 fiscal years. We expect that the payment of and the amount of any future dividends will depend on our financial condition at that time.
Unregistered Sales of Equity Securities
None.
Purchases of Equity Securities by the Company
There were no purchases of common stock by the Company made in the fourth quarter of fiscal 2023.
Equity Compensation Plans
For information on our equity compensation plans, refer to Item 12, “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.”
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion, which focuses on our results of operations, contains forward-looking information and statements. Actual events or results may differ materially from those indicated or anticipated, as discussed in the section entitled “Forward Looking Statements.” The following discussion of our financial condition and results of operations should also be read in conjunction with our financial statements and notes to financial statements contained in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.
Financial Condition
Our Agricultural Products segment continued its profitability for the third straight year in fiscal 2023. Our Modular Buildings segment added a strong financial performance for fiscal 2023. Our consolidated revenues from continued operations increased 18.1% year on year and we had $1,531,000 of income from continuing operations for the fiscal year ended November, 30 2023.
We finished the year ended November 30, 2023 with approximately $763,000 of consolidated net income from continued operations and saw our working capital increase by approximately $824,000.
We expect to have access to capital as needed throughout fiscal 2024 from the collection of receivables, sale of inventory, the expected receipt of approximately $1.2 million of gross proceeds from a filed Employee Retention Credit and the potential sale of our Ohio real estate. Due to the timing of filing an ERC claim after the IRS announced a moratorium on processing applications, and uncertainty surrounding the nature and timing of the claim approval and subsequent payment process, recognition of the claim is deferred until payment is received. Accordingly the claim has not been recorded in receivables, assets, or income. On November 30, 2023 we had $1,086,480 available on our line of credit and $2,337,903 of excess collateral towards our borrowing base. Our working capital remained strong at approximately $5,690,000 in fiscal 2023 with a current ratio of 1.61. Our banking relationship remains positive and we expect it to only strengthen as our balance sheet continues to improve through the retirement of debt. We believe that our current cash and financing arrangements will provide sufficient cash to finance operations for the next 12 months. We expect to continue to rely on cash from financing activities to supplement our cash flows from operations in order to meet our liquidity and capital expenditure needs in the near future.
Critical Accounting Policies
Our significant accounting policies are described in Note 1 “Summary of Significant Accounting Policies” to our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report. Critical accounting policies are those that we believe are both important to the portrayal of our financial condition and results of operations and require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
We believe that the following represents the most critical accounting policies and estimates used in the preparation of our consolidated financial statements.
Inventories
Inventories are stated at the lower of cost or net realizable value, and cost is determined using the standard costing method, which approximates costs determined on the first-in, first-out basis. Management monitors the carrying value of inventories using inventory control and review processes that include, but are not limited to, sales forecast review, inventory status reports, and inventory reduction programs. We record inventory write downs to net realizable value based on expected usage information for raw materials and historical selling trends for finished goods. If the assumptions made by management do not occur, we may need to record additional write downs.
Revenue Recognition
In accordance with ASC 606, revenue is measured based on consideration specified in a contract with a customer and recognized when we satisfy the performance obligation specified in each contract.
Our revenues primarily result from contracts with customers. The major sources of revenue for the Agricultural Products segment are farm equipment and service parts related to farm equipment. The Agricultural Products segment generally executes short-term contracts that contain a single performance obligation – the delivery of product to the common carrier. We recognize revenue for the production and sale of farm equipment and service parts upon shipment of the goods. Shipment of the goods is the point in time when risk of ownership and title pass to the customer. All sales are made to authorized dealers whose application for dealer status has been approved and who have been informed of general sales policies. Any changes in our terms are documented in the most recently published price lists. Pricing is fixed and determinable according to our published equipment and parts price lists. Title to all equipment and parts sold pass to the customer upon delivery to the carrier and is not subject to a customer acceptance provision. Proof of the passing of title is documented by the signing of the delivery receipt by a representative of the carrier. Post shipment obligations are limited to any claim with respect to the condition of the equipment or parts. The Agricultural Products segments typically require payment in full 30 days after the ship date. To take advantage of program discounts, some customers pay deposits up front. Any deposits received are considered unearned revenue and increase contract liabilities.
In certain circumstances, upon the customer’s written request, we may recognize revenue when production is complete, and the goods are ready for shipment. At the customer’s request, we will bill the customer upon completing all performance obligations, but before shipment. The customer dictates that we ship the goods per its direction from our manufacturing facility, as is customary with this type of agreement, in order to minimize shipping costs. The written agreement with the customer specifies that the goods will be delivered on a schedule to be determined by the customer, with a final specified delivery date, and that we will segregate the goods from our inventory, such that they are not available to fill other orders. This agreement also specifies that the customer is required to purchase all goods manufactured under this agreement. Title of the goods will pass to the customer when the goods are complete and ready for shipment, per the customer agreement. At the transfer of title, all risks of ownership have passed to the customer, and the customer agrees to maintain insurance on the manufactured items that have not yet been shipped. We have operated using bill and hold agreements with certain customers for many years, with consistent satisfactory results for both the customers and us. The credit terms on this agreement are consistent with the credit terms on other sales. All risks of loss are shouldered by the customer, and there are no exceptions to the customer’s commitment to accept and pay for these manufactured goods. Revenues recognized when goods were ready for shipment in fiscal 2023 were approximately $3,110,000 compared to $1,010,000 in fiscal 2022.
The Modular Buildings segment is in the construction industry with its major source of revenue arising from modular building sales. Sales of modular buildings are generally recognized using input methods to measure progress towards the satisfaction of a performance obligation using the percentage of completion method. Revenue and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion. Contract costs consist of direct costs on contracts, including labor, materials, and amounts payable to subcontractors and those indirect costs related to contract performance, such as equipment costs, insurance and employee benefits. Contract cost is recorded as incurred, and revisions in contract revenues and cost estimates are reflected in the accounting period when known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Contract losses are recognized when current estimates of total contract revenue and contract cost indicate a loss. Estimated contract costs include any and all costs appropriately allocable to the contract. The provision for these contract losses will be the excess of estimated contract costs over estimated contract revenues. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract change orders, penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. We use significant judgements in determining estimated contract costs and completion percentages throughout the life of the project. Stock modular building sales also occur and are recognized at a point in time when the performance obligation is fulfilled through substantial completion. Substantial completion is achieved through customer acceptance of the completed building. The Modular Buildings segment executes contracts with customers that can be short- or long-term in nature. These contracts can have multiple performance obligations and revenue from these can be recognized over time or at a point in time depending on the nature of the contracts. Payment terms for the Modular Buildings segment vary by contract, but typically utilize money down and progress payments throughout the life of the contract. The payment terms of the Modular Buildings segment have the most impact on our contract receivables, contract assets and contract liabilities. Project invoicing from the Modular Buildings segment increases contract receivables and has an effect on contract liabilities through billings in excess of costs, estimated gross profit and customer deposits. The balance of contract assets is typically made up of the balance of costs and estimated gross profit in excess of billings. Costs and profit in excess of amounts billed are classified as current assets and billings in excess of cost and profit are classified as current liabilities.
The Agricultural Products segment offers variable consideration in the form of discounts depending on participation in yearly early order programs. This variable consideration is allocated to the transaction price of all products in a sales arrangement and is not contingent on future outcomes. The Agricultural Products segment does not offer rebates or credits. The Modular Buildings segment does not offer discounts, rebates or credits.
Our returns policy allows for new and saleable parts to be returned, subject to inspection and a restocking charge, which is included in net sales. Whole goods are not returnable. Shipping costs charged to customers are included in net sales. Freight costs incurred are included in cost of goods sold. Customer deposits consist of advance payments from customers, in the form of cash, for revenue to be recognized in the following year.
For information on product warranty as it applies to ASC 606, refer to Note 9 “Product Warranty” contained in our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.
Results of Operations
Fiscal Year Ended November 30, 2023 Compared to Fiscal Year Ended November 30, 2022
Our consolidated net sales from continuing operations totaled $30,281,000 for the 2023 fiscal year, which represents a 18.1% increase from our consolidated net sales of $25,646,000 for the 2022 fiscal year. We increased revenue in both our Agricultural Products and Modular Building segments in fiscal 2023. Our consolidated gross profit as a percentage of net sales increased to 28.3% in the 2023 fiscal year compared to 27.1% of net sales in the 2022 fiscal year. Our consolidated operating expenses from continuing operations increased by 11.4%, from $6,334,000 in the 2022 fiscal year to $7,053,000 in the 2023 fiscal year. The majority of our corporate general and administrative expenses are borne by our Agricultural Products segment, including costs to be public. The Agricultural Products segment represented $5,920,000 of our total consolidated operating expenses, while our Modular Buildings segment represented $1,133,000.
Our consolidated operating income from continuing operations for the 2023 fiscal year was $1,531,000 compared to operating income of $605,000 for the 2022 fiscal year. Our Agricultural Products segment had operating income of $664,000, and our Modular Buildings segment had operating income of $867,000.
Consolidated net income for the 2023 fiscal year was $267,000 compared to net income of $98,000 in the 2022 fiscal year.
Our effective tax rate for the 2023 and 2022 fiscal years was 29.8% and 16.4%, respectively. The primary driver for the increase in effective tax rate was due to add backs related to differences in restricted stock values at grant and vest date and non-deductible meals expense.
Agricultural Products. Our Agricultural Products segment’s net sales for the 2023 fiscal year were $22,467,000 compared to $20,912,000 during the 2022 fiscal year, an increase of $ 1,555,000, or 7.4%. Commodity prices in the agricultural market remained strong for the majority of fiscal 2023, and our production execution on our pent up backlog led to the increase in sales in fiscal 2023. Incoming orders began to slow near the end of fiscal 2023 as supply chains in our industry began to catch up to demand.
Gross profit percentage for the 2023 fiscal year was 29.3% compared to 30.8% for the 2022 fiscal year. We saw component prices and manufacturing overhead continue to increase from inflationary forces in fiscal 2023. This, coupled with product mix was the primary driver for the decrease in gross profit percentage. We doubled the number of unit sales on our manure spreaders in fiscal 2023, as we added smaller unit options to our manure spreader line. A large portion of our sales increase was related to the manure spreader line which has a lower profit margin to stay competitive with other industry leaders. We continued to make steps to drive production efficiency in fiscal 2023, most notably with the creation of new fixturing to weld a higher volume of parts in our robotic weld cells. We have identified additional ways to improve our profit margin through automation and continue to make that a focus in fiscal 2024.
Our Agricultural Products segment’s operating expenses for the 2023 fiscal year were $5,920,000 compared to $5,239,000 for the 2022 fiscal year, an increase of $681,000, or 13.0%. Our selling expense accounted for approximately $200,000 of this increase, which included additional commissions in fiscal 2023, from increased sales and more sales in territories represented by our independent reps and increased advertising spend in fiscal 2023 to generate more product interest about our products and to reach new geographic areas. Our general and administrative expenses increased approximately $461,000 from fiscal 2022. This was due in part to ERP conversion expenses included training, data conversion and post implementation support. The new ERP is expected to improve our financial reporting, material resource planning and overall administrative efficiency. We also added a Human Resources manager to our team this fiscal year, which added to the increased general and administrative expense. Our costs of being public, most notably, audit fees also increased in fiscal 2023. Our engineering expenses increased approximately $19,000 from fiscal 2022 due to some consulting work to increase robotic weld cell activity. Total income from operations for our Agricultural Products segment during the 2023 fiscal year was $664,000 compared to $1,205,000 for the 2022 fiscal year. Inflationary forces on components, manufacturing overhead, product mix with lesser profit margin compared to fiscal 2022 and increased operating expenses as discussed above were primary drivers of less operating income for fiscal 2023. We continue to strive for improvements that will improve our product margins and improve manufacturability. We took additional steps in fiscal 2023 to increase our operational effectiveness including product quality and efficiency initiatives with upgraded equipment and new internal programs.
Modular Buildings. Our Modular Buildings segment’s net sales for the 2023 fiscal year were $7,814,000 compared to $4,734,000 for the 2022 fiscal year, an increase of $3,080,000, or 65.1%. We saw an increase in agricultural sales in fiscal 2023 from the continued strength of the agricultural market and also landed a large research product that drove up sales. Our Modular Building segment's gross profit for the 2023 fiscal year was 25.6% compared to 10.5% during the 2022 fiscal year. Sales volume played a key factor in increasing our gross profit for fiscal 2023. We also increased our billing rates to combat rising labor and overhead costs from fiscal 2022 that led to better margins in fiscal 2023. Operating expenses for the 2023 fiscal year were $1,133,000 compared to $1,095,000 for the 2022 fiscal year, an increase of $38,000, or 3.5%. This increase was primarily due to increased selling expenses from additional commissions paid on an increase in agricultural building sales. Total income from operations from our Modular Buildings segment during the 2023 fiscal year was $867,000 compared to operating loss of $600,000 in the 2022 fiscal year. We took steps in fiscal 2023 to improve our project management team to increase profitability on projects and to provide better service to our customers. We believe our brand and sales lead funnel is providing us with increased sales potential in fiscal 2024.
Discontinued Operations. On June 7, 2023 we announced we would be discontinuing our Tools segment with the last day of normal operations on July 14, 2023. There were no employees as of November 30, 2023. One employee remained employed by the Tools segment through October 2, 2023 to oversee the liquidation process, mainly the sale of remaining inventory and auctioning off machinery and equipment. Our discontinued operations generated approximately $661,000 from operating activities for the twelve months ended November 30, 2023, which includes the liquidation of inventory and receivables and approximately $76,000 from investing activities from the sale of equipment. The Company real estate is listed for sale at market value in the Canton, Ohio area. We estimate approximately $2,000,000 in net proceeds on the sale of this real estate based on market value of comps in the area. Our Tools segment had sales of $2,031,000 for the twelve months ended November 30, 2023 and $2,753,000 for the twelve months ended November 30, 2022. Management believes the liquidation of the Tools segment will allow for investment in technological advances that improve efficiency and margins in the Agricultural Products segments, our largest revenue source.
Trends and Uncertainties
We are subject to a number of trends and uncertainties that may affect our short-term or long-term liquidity, sales revenues, and operations. Similar to other farm equipment manufacturers, we are affected by items unique to the farm industry, including fluctuations in farm income resulting from the change in commodity prices, crop damage caused by weather and insects, government farm programs, interest rate fluctuations, and other unpredictable variables. Other uncertainties include our OEM customers and the decisions they make regarding their current supply chain structure, inventory levels, and overall business conditions. Management believes that our business is dependent on the farming industry for the bulk of our sales revenues. As such, our business tends to reap the benefits of increases in farm net income, as farmers tend to purchase equipment in lucrative times and forgo purchases in less profitable years. Direct government payment over the past few years and costs of agricultural production are increasing; further increases in the value of production will benefit our business, while any future decreases in the value of production will decrease farm net income and may negatively affect our financial results.
As with other farm equipment manufacturers, we depend on our network of dealers to influence customers’ decisions, and dealer influence is often more persuasive than a manufacturer’s reputation or the price of the product.
Seasonality
Sales of our agricultural products are seasonal; however, we have tried to decrease the impact of this seasonality through the development of beet harvesting machinery, as the peak periods for these products occur at different times.
Our modular building sales are somewhat seasonal, and we believe that this is due to the budgeting and funding cycles of the universities that commonly purchase our modular buildings. We believe that this cycle can be offset by building backlogs of inventory, by increasing sales to other public and private sectors and by creating repeatable business opportunities.
Liquidity and Capital Resources
Our main source of funds during the 2023 fiscal year was cash generated by financing activities. Income from continuing operations, sale of inventory and property, plant and equipment of our discontinued operations and the use of our line of credit were used to fund our operating and investing activities. A large increase in receivables consumed cash in 2023 as we used extended terms to increase our sales in fiscal 2023. We also consumed significant cash increasing our inventory to stay ahead of supply chain delays. We expect to be driving these inventory levels down in fiscal 2024 as many of our vendor lead times are returning to pre pandemic levels. We used approximately $841,000 in fiscal 2023 for purchases of property, plant and equipment, primarily facility upgrades and manufacturing equipment to improve operational efficiency. We expect our primary capital needs for fiscal 2024 to be operating expenses. We also expect to use cash in fiscal 2024 to acquire additional equipment that improves automation and efficiency in our manufacturing process. These additions will help us drive out costs to improve product margins and be more competitive in our industry. We expect to receive approximately $1,200,000 of net proceeds from the Employee Retention Credit in fiscal 2024 and estimate expected net proceeds of approximately $2,000,000 upon sale of our Ohio real estate, which we expect will be used to retire a significant portion of our debt and fund capex needs as discussed above. Due to the timing of filing an ERC claim after the IRS announced a moratorium on processing applications, and uncertainty surrounding the nature and timing of the claim approval and subsequent payment process, recognition of the claim is deferred until payment is received. Accordingly the claim has not been recorded in receivables, assets, or income.
We have a Bank Midwest credit facility consisting of a $5,000,000 revolving line of credit and a $500,000 reserve line of credit, pursuant to which we had borrowed a combined $4,413,520, with $1,086,480 remaining, as of November 30, 2023, and two term loans, which had outstanding principal balances of $2,080,718 and $336,858 as of November 30, 2023. The revolving line of credit is being used for working capital purposes. We also have three Economic Injury Disaster Loans provided by the U.S. Small Business Administration with an aggregate principal balance of $482,078 as of November 30, 2023. $160,599 of the EIDL balance is tied to our discontinued operation and is expected to be paid upon liquidation of the real estate.
Our loans require us to comply with various covenants, including maintaining certain financial ratios and obtaining prior written consent from Bank Midwest for any investment in, acquisition of, or guaranty relating to another business or entity. We were out of compliance with our debt to worth ratio covenant in place under the Bank Midwest loans as of November 30, 2023. Bank Midwest has issued a waiver for the noncompliance as of November 30, 2023.
For additional information about our financing activities, please refer to Note 9 “Loan and Credit Agreements” to our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.
The following table represents our working capital and current ratio as of the end of the past two fiscal years:
| November 30, 2023 |
November 30, 2022 |
|||||||
| Current Assets |
$ | 15,085,494 | $ | 14,133,429 | ||||
| Current Liabilities |
9,395,023 | 9,267,289 | ||||||
| Working Capital |
$ | 5,690,471 | $ | 4,866,140 | ||||
| Current Ratio |
1.61 | 1.53 | ||||||
We believe that our current cash and financing arrangements will provide sufficient cash to finance operations for the next 12 months. We expect to continue to rely on cash from financing activities to supplement our cash flows from operations in order to meet our liquidity and capital expenditure needs in the near future. We expect to continue to be able to procure financing upon reasonable terms.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, we are not required to provide disclosure pursuant to this Item.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Art's-Way Manufacturing Co., Inc.
Armstrong, Iowa
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Art’s-Way Manufacturing Co., Inc. and Subsidiaries (the “Company”) as of November 30, 2023 and 2022, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of November 30, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and
(2) involved especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter, or on the accounts or disclosures to which it relates.
Valuation of Inventories
As discussed in Note 4 to the Company’s consolidated financial statements, the gross inventories balance was $12,614,410, and the balance net of reserves was $11,031,362 as of November 30, 2023. The Company values its inventories at the lower of cost or net realizable value, with cost being determined using the standard costing method, which approximates First-In, First-Out. The Company adjusts the value of inventory for slow-moving and obsolete inventory based on expected usage information for raw materials and historical selling trends for finished goods. As disclosed by management, if these factors are less favorable than those projected, additional inventory adjustments may be required.
The principal considerations for our determination that performing procedures relating to valuation of inventories is a critical audit matter are the significant assumptions and complex judgments by management when determining the future salability of the inventory and its net realizable value. These assumptions and judgments include the assessment of the net realizable value by inventory category considering retention periods, future usage, and market demand for products, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s methods, calculations, and assumptions.
The primary procedures we performed to address this critical audit matter included:
| ● | Gaining an understanding of management’s processes, controls, and methodology to develop the estimates. |
| ● | Evaluating the reasonableness of assumptions used by management in forming the forecasted inventory usage and future salability, including examining historical accuracy of the Company’s prior estimates by considering subsequent sales and write-off activity. |
| ● | Testing the completeness, accuracy, and relevance of the underlying data used in management’s estimate. |
| ● | Testing the mathematical accuracy and computation related to the application of the methodology to specific inventory items and categories. |
/s/
We have served as the Company’s auditor since 2006.
February 28, 2024
ART’S-WAY MANUFACTURING CO., INC.
Consolidated Balance Sheets
| November 30, 2023 | November 30, 2022 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable-customers, net of allowance for doubtful accounts of $ and $in 2023 and 2022, respectively | ||||||||
| Inventories, net | ||||||||
| Cost and profit in excess of billings | ||||||||
| Other current assets | ||||||||
| Current assets of discontinued operations | ||||||||
| Total current assets | ||||||||
| Property, plant, and equipment, net | ||||||||
| Assets held for lease, net | ||||||||
| Deferred income taxes, net | ||||||||
| Other assets | ||||||||
| Other assets of discontinued operations | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Customer deposits | ||||||||
| Billings in excess of cost and profit | ||||||||
| Income taxes payable | ||||||||
| Accrued expenses | ||||||||
| Line of credit | ||||||||
| Current portion of finance lease liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Long-term portion of operating lease liabilities | ||||||||
| Long-term portion of finance lease liabilities | ||||||||
| Long-term debt, excluding current portion | ||||||||
| Long-term liabilities of discontinued operations | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Notes 8, 9 and 10) | ||||||||
| Stockholders’ equity: | ||||||||
| Undesignated preferred stock - $par value. Authorized shares in 2023 and 2022; issued and outstanding shares in 2023 and 2022. | ||||||||
| Common stock – $par value. Authorized shares in 2023 and 2022; issued in 2023 and in 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Treasury stock, at cost (shares in 2023 and shares in 2022) | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying Report of Independent Registered Public Accounting Firm and notes to consolidated financial statements.
ART’S-WAY MANUFACTURING CO., INC.
Consolidated Statements of Operations
| Years Ended | ||||||||
| November 30, 2023 | November 30, 2022 | |||||||
| Sales | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Expenses: | ||||||||
| Engineering | ||||||||
| Selling | ||||||||
| General and administrative | ||||||||
| Total expenses | ||||||||
| Income from operations | ||||||||
| Other income (expense): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| Income from continuing operations before income taxes | ||||||||
| Income tax expense | ||||||||
| Income from continuing operations | ||||||||
| Discontinued Operations | ||||||||
| Loss from discontinued operations before income taxes | ( | ) | ( | ) | ||||
| Income tax benefit | ( | ) | ( | ) | ||||
| (Loss) on discontinued operations | ( | ) | ( | ) | ||||
| Net Income | $ | $ | ||||||
| Net income per share - Basic: | ||||||||
| Continuing Operations | $ | $ | ||||||
| Discontinued Operations | ( | ) | ( | ) | ||||
| Net income per share | $ | $ | ||||||
| Net income per share - Diluted: | ||||||||
| Continuing Operations | $ | $ | ||||||
| Discontinued Operations | ( | ) | ( | ) | ||||
| Net income per share | $ | $ | ||||||
| Weighted average outstanding shares used to compute basic net income per share | ||||||||
| Weighted average outstanding shares used to compute diluted net income per share | ||||||||
See accompanying Report of Independent Registered Public Accounting Firm and notes to consolidated financial statements.
ART’S-WAY MANUFACTURING CO., INC.
Consolidated Statements of Stockholders' Equity
Years Ended November 30, 2023 and 2022
| Common Stock | Additional | Treasury Stock | ||||||||||||||||||||||||||
| Number of | paid-in | Retained | Number of | |||||||||||||||||||||||||
| shares | Par value | capital | earnings | shares | Amount | Total | ||||||||||||||||||||||
| Balance, November 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock based compensation | ( | ) | ||||||||||||||||||||||||||
| Common stock purchase agreement | ||||||||||||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||||||
| Balance, November 30, 2022 | ( | ) | ||||||||||||||||||||||||||
| Stock based compensation | ( | ) | ||||||||||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||||||
| Balance, November 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
See accompanying Report of Independent Registered Public Accounting Firm and notes to consolidated financial statements.
ART’S-WAY MANUFACTURING CO., INC.
Consolidated Statements of Cash Flows
| Twelve Months Ended | ||||||||
| November 30, 2023 | November 30, 2022 | |||||||
| Cash flows from operations: | ||||||||
| Net income from continuing operations | $ | $ | ||||||
| Net loss from discontinued operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Stock based compensation | ||||||||
| Decrease in obsolete inventory reserves | ( | ) | ( | ) | ||||
| Gain on disposal of property, plant, and equipment | ( | ) | ( | ) | ||||
| Depreciation and amortization expense | ||||||||
| Accrued interest on deferred debt payments | ||||||||
| Decrease in allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Deferred income taxes | ||||||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Other assets | ||||||||
| Increase (decrease) in: | ||||||||
| Accounts payable | ( | ) | ||||||
| Contracts in progress, net | ( | ) | ||||||
| Customer deposits | ( | ) | ||||||
| Income taxes payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Net cash provided by (used in) operating activities - continuing operations | ( | ) | ||||||
| Net cash provided by (used in) operating activities - discontinued operations | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, plant, and equipment | ( | ) | ( | ) | ||||
| Net proceeds from sale of assets | ||||||||
| Net cash used in investing activities - continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities - discontinued operations | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net change in line of credit | ( | ) | ||||||
| Proceeds from finance lease obligations | ||||||||
| Principal payments on finance lease obligations | ( | ) | ( | ) | ||||
| Proceeds from term debt | ||||||||
| Repayment of term debt | ( | ) | ( | ) | ||||
| Proceeds from common stock purchase agreement | ||||||||
| Cost of equity issuance | ( | ) | ||||||
| Repurchases of common stock | ( | ) | ( | ) | ||||
| Net cash provided by financing activities - continuing operations | ||||||||
| Net cash used in financing activities - discontinued operations | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | ||||||||
| Supplemental disclosures of non-cash investing and financing activities: | ||||||||
| Right-of-use (ROU) assets acquired (included in other assets) | $ | $ | ||||||
| Less: Cash proceeds received under Manufacturing 4.0 grant applied to ROU Assets | ( | ) | ||||||
| Total (ROU) assets acquired (included in other assets) | $ | $ | ||||||
| Amortization of operating lease ROU assets (included in other assets) | $ | $ | ||||||
| Supplemental disclosures of non-cash financing activities: | ||||||||
| Market value of commitment shares issued under purchase agreement | $ | $ | ||||||
See accompanying Report of Independent Registered Public Accounting Firm and notes to consolidated financial statements.
Art’s-Way Manufacturing Co., Inc.
Notes to Consolidated Financial Statements
| (1) | Summary of Significant Accounting Policies |
| (a) | Nature of Business |
Art’s-Way Manufacturing Co., Inc. (the “Company”) is primarily engaged in the fabrication and sale of specialized farm machinery in the agricultural sector of the United States. Primary product offerings include portable and stationary animal feed processing equipment; hay and forage equipment; sugar beet harvesting equipment; dirt work equipment and manure spreaders. The Company sells its labeled products through independent farm equipment dealers throughout the United States. The Company also provides after-market service parts that are available to keep its branded and OEM-produced equipment operating to the satisfaction of the end user of the Company’s products.
The Company’s Modular Buildings segment is primarily engaged in the construction of modular laboratories and animal housing facilities through the Company’s wholly-owned subsidiary, Art’s-Way Scientific, Inc. Buildings commonly produced range from basic swine buildings to complex containment research laboratories. This segment also provides services relating to the design, manufacturing, delivering, installation, and renting of the building units that it produces.
During the third quarter of fiscal 2023, the Company ceased operations of its Tools business, Ohio Metal Working Products/Art's Way, which in previous periods, was reported in the consolidated numbers as the Company's operating segment.
| (b) | Principles of Consolidation |
The consolidated financial statements include the accounts of Art’s-Way Manufacturing Co., Inc. and its wholly-owned subsidiaries for the 2023 fiscal year, which includes Art’s-Way Scientific, Inc. and Ohio Metal Working Products/Art’s-Way, Inc, which is presented separately as a discontinued operation for all periods presented. All inter-company accounts and transactions are eliminated in consolidation.
| (c) | Cash Concentration |
The Company maintains several different accounts at bank, and balances in these accounts could periodically exceed the federally insured limits. However, management believes the risk of loss to be low.
| (d) | Customer Concentration |
During the 2023 and 2022 fiscal years, customer accounted for more than approximately
| (e) | Accounts Receivable |
Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Accounts receivable are written-off when deemed uncollectible. Recoveries of accounts receivable previously written-off are recorded when received. Accounts receivable are generally considered past due 60 days past invoice date, with the exception of international sales which primarily are sold with
The Company began offering floorplan terms in its Agricultural Products segment during its Fall 2021 early order program to incentivize customers to stock farm equipment on their lots during the 2022 fiscal year and continued to offer this program for fiscal 2023. Floorplan terms allow customers to pay the Company at the earliest of retail date or 180 days. The Company had approximately $1,920,000 in accounts receivable at November 30, 2023 that was part of its floorplan program on extended terms compared to $1,033,000 for the year ended November 30, 2022.
Trade receivables due from customers are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Trade receivables are stated at the amount billed to the customer. The Company charges interest on overdue customer account balances at a rate of
| (f) | Inventories |
Inventories are stated at the lower of cost or net realizable value, and cost is determined using the standard costing method which approximates costs determined on the first-in, first-out basis. Management monitors the carrying value of inventories using inventory control and review processes that include, but are not limited to, sales forecast review, inventory status reports, and inventory reduction programs. The Company records inventory write downs to net realizable value based on expected usage information for raw materials and historical selling trends for finished goods. Additional write downs may be necessary if the assumptions made by management do not occur.
| (g) | Property, Plant, and Equipment |
Property, plant, and equipment are recorded at cost. Depreciation of plant and equipment is provided using the straight-line method, based on the estimated useful lives of the assets which range from to years.
Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable.
For property, plant and equipment used in operations, including lease assets and assets held for lease, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference between the carrying amount and estimated fair value.
| (h) | Leases |
Lessee. The Company determines if an arrangement is a lease at inception of a contract. The nature of the Company’s leases at this time is shop machinery and office equipment, mainly copiers, with terms of 12 to 60 months. Operating and finance leases are included in other assets as lease right-of-use (“ROU”) assets on the Consolidated Balance Sheets while current operating lease liabilities are included in accrued expenses. The short-term portion of finance leases along with long-term portions of operating and finance lease liabilities are presented on the face of the Consolidated Balance Sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the present value payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense for lease payments is recognized on a straight-line basis over the lease term while finance lease ROU assets are amortized on a straight-line basis and interest expense is recorded over the lease term.
The Company has copier lease agreements with lease and non-lease components and has elected the practical expedient not to separate lease and non-lease components for this asset class. The Company has also elected not to recognize lease liabilities and ROU assets for leases with an initial term of twelve months or less. The Company recognizes variable costs that depend on usage in profit or loss as they are incurred.
The components of operating leases on the Consolidated Balance Sheets at November 30, 2023 and November 30, 2022 were as follows:
| November 30, 2023 | November 30, 2022 | |||||||
| Operating lease right-of-use assets (other assets) | $ | $ | ||||||
| Current portion of operating lease liabilities (accrued expenses) | $ | $ | ||||||
| Long-term portion of operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The Company's continuing operations recorded $
Future maturities of operating lease liabilities as of November 30, 2023 are as follows:
| Year Ending November 30, | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total lease payments | ||||
| Less imputed interest | ( | ) | ||
| Total operating lease liabilities |
The components of finance leases on the Consolidated Balance Sheets on November 30, 2023 and November 30, 2022 were as follows:
| November 30, 2023 | November 30, 2022 | |||||||
| Finance lease right-of-use assets (net of amortization in other assets) | $ | $ | ||||||
| $ | $ | |||||||
| Current portion of finance lease liabilities | $ | $ | ||||||
| Long-term portion of finance lease liabilities | ||||||||
| Total finance lease liabilities | $ | $ | ||||||
The Company received grant funds from the Iowa Economic Development’s Manufacturing 4.0 program in prior years for the purchase of assets. These funds have reduced the right-of-use asset account for the proceeds and will reduce amortization over the life of the asset.
Future maturities of finance lease liabilities as of November 30, 2023 are as follows:
| Year Ending November 30, | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total lease payments | ||||
| Less imputed interest | ( | ) | ||
| Total finance lease liabilities | $ |
The weighted average lease term of the Company’s finance leases are
Lessor. The Company's lessor arrangements primarily include contracts for temporary building rentals or permanent building financing for our Modular Buildings segment. The Company classifies its leases at inception as operating, direct financing or sales-type leases. A lease is classified as a sales-type lease if at least one of the following criteria is met: (1) the lease transfers ownership of the underlying asset to the lessee, (2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (3) the lease term is for a major part of the remaining economic life of the underlying asset, (4) the present value of the sum of the lease payments equals or exceeds substantially all of the fair value of the underlying assets, or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. Furthermore, when none of the above criteria is met, a lease is classified as a direct financing lease if both of the following criteria are met: (1) the present value of the of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds the fair value of the underlying asset and (2) it is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. A lease is classified as an operating lease if it does not qualify as a sales-type or direct financing lease. Currently, the Company classifies all of its lessor arrangements as operating leases.
See note 7 Assets Held for Lease for more information.
| (i) | 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 basis and operating losses. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is entirely dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
The Company classifies interest and penalties to be paid on an underpayment of taxes as income tax expense. The Company files income tax returns in the U.S. federal jurisdiction and various states and previously in Canada. The Company is no longer subject to Canadian, U.S. federal or state income tax examinations by tax authorities for years ended before November 30, 2020.
| (j) | Revenue Recognition |
The Company’s revenues primarily result from contracts with customers. The major sources of revenue for the Agricultural Products are farm equipment and service parts related to farm equipment. The Agricultural Products segment generally executes short-term contracts that contain a single performance obligation – the delivery of product to the common carrier. The Company recognizes revenue for the production and sale of farm equipment and service parts upon shipment of the goods. Risk of ownership and title pass to the customer upon shipment of the goods. All sales are made to authorized dealers whose application for dealer status has been approved and who have been informed of general sales policies. Any changes in the Company’s terms are documented in the most recently published price lists. Pricing is fixed and determinable according to the Company’s published equipment and parts price lists. Title to all equipment and parts sold passes to the customer upon delivery to the carrier and is not subject to a customer acceptance provision. Proof of the passing of title is documented and retained by the Company. Post shipment obligations are limited to any claim with respect to the condition of the equipment or parts. The Agricultural Products segment typically requires payment in full 30 days after the ship date. To take advantage of program discounts, some customers pay deposits up front. Any deposits received increase contract liabilities.
In certain circumstances, upon the customer’s written request, the Company may recognize revenue when production is complete, and the goods are ready for shipment. At the customer’s request, the Company will bill the customer upon completing all performance obligations, but before shipment. The customer dictates that the Company ship the goods per the customer’s direction from the Company’s manufacturing facility, as is customary with this type of agreement, in order to minimize shipping costs. The written agreement with the customer specifies that the goods will be delivered on a schedule to be determined by the customer, with a final specified delivery date, and that the Company will segregate the goods from its inventory, such that they are not available to fill other orders. This agreement also specifies that the customer is required to purchase all goods manufactured under this agreement. Title of the goods will pass to the customer when the goods are complete and ready for shipment, per the customer agreement. At the transfer of title, all risks of ownership have passed to the customer, and the customer agrees to maintain insurance on the manufactured items that have not yet been shipped. The Company has operated using bill and hold agreements with certain customers for many years, with consistent satisfactory results for both the customer and the Company. The credit terms on these agreements are consistent with the credit terms on all other sales. All risks of loss are shouldered by the customer, and there are no exceptions to the customer’s commitment to accept and pay for these manufactured goods. Revenues recognized at the completion of production in the 2023 and 2022 fiscal years were approximately $
The Modular Buildings segment is in the construction industry with its major source of revenue arising from modular building sales. Sales of modular buildings are generally recognized using input methods to measure progress towards the satisfaction of a performance obligation using the percentage of completion method. Revenue and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion. Contract costs consist of direct costs on contracts, including labor, materials, amounts payable to subcontractors and those indirect costs related to contract performance, such as equipment costs, insurance and employee benefits. Contract cost is recorded as incurred, and revisions in contract revenues and cost estimates are reflected in the accounting period when known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Contract losses are recognized when current estimates of total contract revenue and contract cost indicate a loss. Estimated contract costs include any and all costs appropriately allocable to the contract. The provision for these contract losses will be the excess of estimated contract costs over estimated contract revenues. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract change orders, penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. The Company uses significant judgements in determining estimated contract costs and completion percentages throughout the life of the project. Stock modular building sales also occur and are recognized at a point in time when the performance obligation is fulfilled through substantial completion. Substantial completion is achieved through customer acceptance of the completed building. The Modular Buildings segment executes contracts with customers that can be short- or long-term in nature. These contracts can have multiple performance obligations and revenue from these can be recognized over time or at a point in time depending on the nature of the contracts. Payment terms for the Modular Buildings segment vary by contract, but typically utilize money down and progress payments throughout the life of the contract. The payment terms of the Modular Buildings segment have the most impact on the Company’s contract receivables, contract assets and contract liabilities. Project invoicing from the Modular Buildings segment increases contract receivables and has an effect on contract liabilities through billings in excess of costs, estimated gross profit and customer deposits. The balance of contract assets is typically made up of the balance of costs and estimated gross profit in excess of billings. Costs and profit in excess of amounts billed are classified as current assets and billings in excess of cost and profit are classified as current liabilities.
The Agricultural Products segment offers variable consideration in the form of discounts depending on participation in yearly early order programs. This variable consideration is allocated to the transaction price of all products in a sales arrangement and is not contingent on future outcomes. The Agricultural Products segment does not offer rebates or credits. The Modular Buildings segment does not offer discounts, rebates or credits.
The Company’s returns policy allows for new and saleable parts to be returned, subject to inspection and a restocking charge, which is included in net sales. Whole goods are not returnable. Shipping costs charged to customers are included in net sales. Freight costs incurred are included in cost of goods sold. Customer deposits consist of advance payments from customers, in the form of cash, for revenue to be recognized in the following year.
For information on product warranty as it applies to ASC 606, refer to Note 9 “Product Warranty.”
| (k) | 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.
| Twelve Months Ended November 30, 2023 | ||||||||||||
| Agricultural | Modular Buildings | Total | ||||||||||
| Farm equipment | $ | $ | $ | |||||||||
| Farm equipment service parts | ||||||||||||
| Modular buildings | ||||||||||||
| Modular building lease income | ||||||||||||
| Other | ||||||||||||
| $ | $ | $ | ||||||||||
| Twelve Months Ended November 30, 2022 | ||||||||||||
| Agricultural | Modular Buildings | Total | ||||||||||
| Farm equipment | $ | $ | $ | |||||||||
| Farm equipment service parts | ||||||||||||
| Modular buildings | ||||||||||||
| Modular building lease income | ||||||||||||
| Other | ||||||||||||
| $ | $ | $ | ||||||||||
The Company began offering floorplan terms in its Agricultural Products segment during its Fall 2021 early order program to incentivize customers to stock farm equipment on their lots during the 2022 fiscal year and continued to offer this program for fiscal 2023. 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 2023 cash flows compared with historical cash flows.
| (l) | 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 Consolidated Balance Sheets.
| November 30, 2023 | November 30, 2022 | |||||||
| Receivables | $ | $ | ||||||
| Assets | ||||||||
| Liabilities | ||||||||
The amount of revenue recognized in fiscal year 2023 that was included in a contract liability at November 30, 2022 was approximately $
The Company will utilize the practical expedient exception for these contracts and will report only on performance obligations greater than one year. As of November 30, 2023, and November 30, 2022, the Company has no performance obligations with an original expected duration greater than one year.
| (m) | Software Development Costs |
The Company capitalizes costs related to software developed or obtained for internal use in accordance with the ASC 350-40, Internal-Use Software (“ASC 350-40”). The following illustrates the various stages and related processes of computer software development in accordance with ASC 350-40:
Preliminary project stage: (a) conceptual formulation of alternatives; (b) evaluation of alternatives; (c) determination of existence of needed technology; and (d) final selection of alternatives. Internal and external costs incurred during the preliminary project stage are expensed as incurred.
Application development stage: (a) design of chosen path, including software configuration and software interfaces; (b) coding; installation to hardware; and (c) testing, including parallel processing phase. Internal and external costs incurred to develop internal-use computer software during the application development stage are capitalized. Data Conversion costs are expensed as incurred.
Post-implementation-operation stage: (a) training; and (b) application maintenance. Internal and external costs incurred during the post-implementation-operation stage are expensed as incurred.
Certain costs incurred are considered enhancements, modifications to existing internal-use software that result in additional functionality. Enhancements normally require new software specifications and may also require a change to all or part of the existing software specifications. When this additional functionality is determinable, the related costs are capitalized. Otherwise, costs are expensed as incurred. Capitalization of internal-use software costs ceases when a computer software project is substantially complete and ready for its intended use.
The Company moved to an updated cloud based version of its QAD ERP system in the third fiscal quarter of 2023. Since the software is a cloud computing arrangement, the Company accounts for the software as a service contract while the costs related to implementation still fall under ASC 350-40 for internal use software and are capitalized. Because the agreement is considered a service contract, the implementation costs are amortized over the original service contract period and any automatic renewal period and are included in operating costs with the service contract. The Company had approximately $
| (m) | Research and Development |
Research and development costs are expensed when incurred. Such costs approximated $
| (n) | Advertising |
Advertising costs are expensed when incurred. Such costs approximated $
| (o) | Net Income Per Share of Common Stock |
Basic net income per share has been computed on the basis of the weighted average number of shares of common stock outstanding. Diluted net income per share of common stock has been computed on the basis of the weighted average number of shares outstanding plus equivalent shares of common stock 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 per share of common stock.
Basic and diluted income per common share have been computed based on the following as of November 30, 2023 and 2022:
| For the Twelve Months Ended | ||||||||
| November 30, 2023 | November 30, 2022 | |||||||
| Numerator for basic and diluted net income per share: | ||||||||
| Net income from continuing operations | $ | $ | ||||||
| Net loss from discontinued operations | ( | ) | ( | ) | ||||
| Net Income | $ | $ | ||||||
| Denominator: | ||||||||
| For basic net income per share - weighted average common shares outstanding | ||||||||
| Effect of dilutive stock options | ||||||||
| For diluted net income per share - weighted average common shares outstanding | ||||||||
| Net income per share - Basic: | ||||||||
| Continuing Operations | $ | $ | ||||||
| Discontinued Operations | ( | ) | ( | ) | ||||
| Net income per share | $ | $ | ||||||
| Net income per share - Diluted: | ||||||||
| Continuing Operations | $ | $ | ||||||
| Discontinued Operations | ( | ) | ( | ) | ||||
| Net income per share | $ | $ | ||||||
| (p) | Stock Based Compensation |
Stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date and recognized over the relevant vesting period. The Company estimates the fair value of each stock-based award on the measurement date using the Black-Scholes option valuation model which incorporates assumptions as to stock price volatility, the expected life of the options, risk-free interest rate and dividend yield. Restricted stock is valued at market value at the day of grant.
| (q) | Use of Estimates |
Management has made a number of estimates and assumptions related to the reported amount of assets and liabilities, reported amount of revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
| (r) | Recently Issued Accounting Pronouncements |
Accounting Pronouncements Not Yet Adopted
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 will adopt ASU 2016-13 in fiscal year 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.
| (2) | 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 currently listed for sale. The company is working to finish liquidation over the next two fiscal quarters. The cessation of operations and liquidation of the Tools segment represents 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 Consolidated Balance Sheets are as follows:
| November 30, 2023 | November 30, 2022 | |||||||
| Accounts receivables | $ | $ | ||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Current assets of discontinued operations | $ | $ | ||||||
| November 30, 2023 | November 30, 2022 | |||||||
| Property, plant, and equipment, net | $ | $ | ||||||
| Other assets | ||||||||
| Other assets of discontinued operations | $ | $ | ||||||
| November 30, 2023 | November 30, 2022 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued salaries, wages, and commissions | ||||||||
| Current portion of long-term debt | ||||||||
| Other current liabilities | ||||||||
| Current liabilities of discontinued operations | $ | $ | ||||||
| November 30, 2023 | November 30, 2022 | |||||||
| Long-term portion of operating lease liabilities | $ | $ | ||||||
| Long-term portion of finance lease liabilities | ||||||||
| Long-term debt, excluding current portion | ||||||||
| Long-term liabilities of discontinued operations | $ | $ | ||||||
The components of discontinued operations in the accompanying Consolidated Statement of Operations are as follows:
| Tools | ||||||||
| Twelve Months Ended | ||||||||
| November 30, 2023 | November 30, 2022 | |||||||
| Sales | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit (loss) | ( | ) | ||||||
| Expenses: | ||||||||
| Engineering | ||||||||
| Selling | ||||||||
| General and administrative | ||||||||
| Total expenses | ||||||||
| Income from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other | ( | ) | ||||||
| Total other expense | ( | ) | ( | ) | ||||
| Income before income taxes | ( | ) | ( | ) | ||||
| Income tax benefit | ( | ) | ( | ) | ||||
| Net Income | $ | ( | ) | $ | ( | ) | ||
The reportable segment information of discontinued operations is as follows:
| Tools | ||||||||
| Twelve Months Ended | ||||||||
| November 30, 2023 | November 30, 2022 | |||||||
| Revenue from external customers | $ | $ | ||||||
| Gross Profit | $ | ( | ) | $ | ||||
| Income (loss) from operations | $ | ( | ) | $ | ( | ) | ||
| Income (loss) before tax | $ | ( | ) | $ | ( | ) | ||
| Total Assets | $ | $ | ||||||
| Capital expenditures (1) | $ | $ | ||||||
| Depreciation & Amortization | $ | $ | ||||||
(1) FY 2022 capital expenditures include $
| (3) | Allowance for Doubtful Accounts |
A summary of the Company’s activity in the allowance for doubtful accounts is as follows:
| Twelve Months Ended | |||||||
| November 30, 2023 | November 30, 2022 | ||||||
| Balance, beginning | |||||||
| Provision (recovery) charged to expense | ( | ) | ( | ) | |||
| (Less amounts charged-off)/Recovery | |||||||
| Balance, ending | $ | $ | |||||
| (4) | Inventories |
Major classes of inventory are:
| November 30, 2023 | November 30, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total Gross Inventory | $ | $ | ||||||
| Less: Reserves | ( | ) | ( | ) | ||||
| Net Inventory | $ | $ | ||||||
| (5) | Contracts in Progress |
Amounts included in the consolidated financial statements related to uncompleted contracts are as follows:
| Cost and Profit in | Billings in Excess of | |||||||
| Excess of Billings | Costs and Profit | |||||||
| November 30, 2023 | ||||||||
| Costs | $ | $ | ||||||
| Estimated earnings | ||||||||
| Less: amounts billed | ( | ) | ( | ) | ||||
| $ | $ | ( | ) | |||||
| November 30, 2022 | ||||||||
| Costs | $ | $ | ||||||
| Estimated earnings | ||||||||
| Less: amounts billed | ( | ) | ( | ) | ||||
| $ | $ | ( | ) | |||||
The amounts billed on long-term contracts are due 30 days from invoice date. All amounts billed are expected to be collected within the next 12 months. Retainage included in accounts receivable was $
| (6) | Property, Plant, and Equipment |
Major classes of property, plant, and equipment are:
| November 30, 2023 | November 30, 2022 | |||||||
| Land | $ | $ | ||||||
| Buildings and improvements | ||||||||
| Construction in Progress | ||||||||
| Manufacturing machinery and equipment | ||||||||
| Trucks and automobiles | ||||||||
| Furniture and fixtures | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment | $ | $ | ||||||
Depreciation and amortization expense for continuing operations totaled $
| (7) | Assets Held for Lease |
Major components of assets held for lease are:
| November 30, 2023 | November 30, 2022 | |||||||
| Modular Buildings | $ | $ | ||||||
| Total assets held for lease | $ | $ | ||||||
The Company’s Modular Buildings segment enters into leasing arrangements with customers from time-to-time. The Company had buildings in assets held for lease for the year ending November 30, 2023 and buildings for the year ended November 30, 2022.
One modular building held for lease was sold in fiscal 2023 for $
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. There were $
The future minimum lease receipts from assets held for lease on November 30, 2023 are as follows:
| Year Ending November 30, | Amount | |||
| 2024 | $ | |||
| 2025 | ||||
| Total | $ | |||
| (8) | Accrued Expenses |
Major components of accrued expenses are:
| November 30, 2023 | November 30, 2022 | |||||||
| Accrued salaries, wages, and commissions | $ | $ | ||||||
| Accrued warranty expense | ||||||||
| Other | ||||||||
| $ | $ | |||||||
| (9) | 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 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.
Changes in the Company’s product warranty liability included in accrued expenses for the 2023 and 2022 fiscal years are as follows:
| For the Twelve Months Ended | ||||||||
| November 30, 2023 | November 30, 2022 | |||||||
| Balance, beginning | $ | $ | ||||||
| Settlements / adjustments | ( | ) | ( | ) | ||||
| Warranties issued | ||||||||
| Balance, ending | $ | $ | ||||||
| (10) | Loan and Credit Agreements |
Bank Midwest Revolving Lines of Credit and Term Loans
The Company maintains a $
The Company carries a $
The Company also carries a Roof Term Loan (the “Roof Term Loan”) of $
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 with the exception of the Company's working capital requirement, which is measured monthly. The terms of the Bank Midwest loan agreements require the Company to maintain a minimum of $
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 $
A summary of the Company’s term debt is as follows:
| November 30, 2023 | November 30, 2022 | ||||||
| Bank Midwest loan payable in monthly installments of $including interest at %, due | |||||||
| Bank Midwest loan payable in monthly installments of $including interest at %, due | |||||||
| U.S. Small Business Administration loan payable in monthly installments of $including interest at % beginning , due | |||||||
| U.S. Small Business Administration loan payable in monthly installments of $including interest at % beginning , due | |||||||
| U.S. Small Business Administration loan payable in monthly installments of $including interest at % beginning , due | |||||||
| Total term debt | $ | $ | |||||
| Less term debt of discontinued operations | $ | ||||||
| Term debt, continuing operations | |||||||
| Less current portion of term debt | |||||||
| Term debt, excluding current portion | $ | $ | |||||
A summary of the minimum maturities of term debt follows for the years ending November 30:
| Year | Amount | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 and thereafter | ||||
| $ | ||||
| (11) | Related Party Transactions |
During the 2023 and 2022 fiscal years, the Company did recognize any revenues from transactions with a related party, and
| (12) | Employee Benefit Plans |
The Company sponsors a defined contribution 401(k) savings plan which covers substantially all full-time employees who meet eligibility requirements. Participating employees may contribute as salary reductions any amount of their compensation up to the limit prescribed by the Internal Revenue Code. The Company makes a
| (13) | Equity Incentive Plan |
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 added an additional
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
Shares issued under the 2020 Plan for the years ended November 30, 2023 and 2022 are as follows:
| For the Twelve Months Ended | ||||||||
| November 30, 2023 | November 30, 2022 | |||||||
| Shares issued to directors (immediate vesting) | ||||||||
| Shares issued to directors, employees, and consultants (three-year vesting) | ||||||||
| Unvested shares forfeit upon termination | ( | ) | ( | ) | ||||
| Total shares issued | ||||||||
Book and tax stock-based compensation expense for the years ended November 30, 2023 and 2022 are as follows:
| For the Twelve Months Ended | ||||||||
| November 30, 2023 | November 30, 2022 | |||||||
| Stock-based compensation expense | ||||||||
| Treasury share repurchase expense | ( | ) | ( | ) | ||||
| Stock-based compensation expense net of treasury repurchases | ||||||||
| For the Twelve Months Ended | ||||||||
| November 30, 2023 | November 30, 2022 | |||||||
| Tax deductions from stock-based compensation expense | ||||||||
Stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date and recognized over the relevant vesting period. The Company estimates the fair value of each stock-based option award on the measurement date using the Black-Scholes option valuation model which incorporates assumptions as to stock price volatility, the expected life of the options, risk-free interest rate, and dividend yield. Expected volatility is based on historical volatility of the Company’s stock and other factors. The Company uses historical option exercise and termination data to estimate the expected term the options are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield is calculated using historical dividend amounts and the stock price at the option issuance date.
The following is a summary of activity under the plans as of November 30, 2023 and 2022, and changes during the years then ended:
2023 Option Activity
| Weighted Average | ||||||||||||||||
| Weighted Average | Remaining | Aggregate | ||||||||||||||
| Options | Shares | Exercise Price | Contractual Term | Intrinsic Value | ||||||||||||
| Options O/S at beginning of period | $ | |||||||||||||||
| Granted | - | $ | ||||||||||||||
| Exercised | $ | - | ||||||||||||||
| Options Expired or Forfeited | ( | ) | $ | |||||||||||||
| Options O/S at end of Period | $ | - | ||||||||||||||
| Options Exer. At end of the Period | $ | - | ||||||||||||||
2022 Option Activity
| Weighted Average | ||||||||||||||||
| Weighted Average | Remaining | Aggregate | ||||||||||||||
| Options | Shares | Exercise Price | Contractual Term | Intrinsic Value | ||||||||||||
| Options O/S at beginning of period | $ | |||||||||||||||
| Granted | - | $ | ||||||||||||||
| Exercised | $ | - | ||||||||||||||
| Options Expired or Forfeited | ( | ) | $ | |||||||||||||
| Options O/S at end of Period | $ | - | ||||||||||||||
| Options Exer. At end of the Period | $ | - | ||||||||||||||
| (14) | Common Stock Purchase Agreement |
On March 29, 2022, Art’s-Way Manufacturing Co., Inc. (the “Company”) entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with Alumni Capital LP, a Delaware limited partnership (“Alumni Capital”), pursuant to which the Company agreed to sell, and Alumni Capital agreed to purchase, upon request of the Company in one or more transactions, a number of shares of the Company’s common stock, par value $
Among other limitations, unless otherwise agreed upon by Alumni Capital, each sale of shares was to be limited to
In exchange for Alumni Capital entering into the Purchase Agreement, the Company issued
The Purchase Agreement provided that the Company file a registration statement under the Securities Act covering the resale of the shares issued to Alumni Capital. Alumni Capital’s obligation to purchase shares of Common Stock under the Purchase Agreement is conditioned upon, among other things, the registration statement being declared effective by the Securities and Exchange Commission. The Company filed a registration statement on Form S-3 (the “Registration Statement”) April 27, 2022 which was declared effective on August 9, 2022 by the SEC.
The Company incurred approximately $
Below is a summary of shares purchased by Alumni Capital under this agreement which has since expired:
| Date | Shares | Share price net of discount | Proceeds | |||||||||
| 7/25/2022 | $ | $ | ||||||||||
| 8/3/2022 | $ | $ | ||||||||||
| 8/15/2022 | $ | $ | ||||||||||
| 8/23/2022 | $ | $ | ||||||||||
| 9/23/2022 | $ | $ | ||||||||||
| Total | $ | |||||||||||
| (15) | Income Taxes |
Total income tax expense for the 2023 and 2022 fiscal years consists of the following:
| November 30, 2023 | November 30, 2022 | |||||||
| Current expense | $ | $ | ||||||
| Deferred expense | ||||||||
| Total income tax expense | ||||||||
| Income tax benefit - discontinued operations | ( | ) | ( | ) | ||||
| Income tax expense - continuing operations | $ | $ | ||||||
The reconciliation of the statutory Federal income tax rate is as follows:
| November 30, 2023 | November 30, 2022 | |||||||
| Statutory federal income tax rate | % | % | ||||||
| State taxes (net of federal) | ||||||||
| Permanent Differences and Other | ( | ) | ||||||
| % | % | |||||||
The primary driver for the increase in effective tax rate was due to add backs related to differences in restricted stock values at grant and vest date and non-deductible meals expense.
Tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) on November 30, 2023 and 2022 are presented as approximate amounts below:
| November 30 | ||||||||
| 2023 | 2022 | |||||||
| Deferred tax assets | ||||||||
| Accrued expenses | $ | $ | ||||||
| Inventory capitalization | ||||||||
| NOL and tax credit carryforward | ||||||||
| Asset reserves | ||||||||
| Total deferred tax assets | $ | $ | ||||||
| Deferred tax liabilities | ||||||||
| Property, plant, and equipment | $ | ( | ) | $ | ( | ) | ||
| Total deferred tax liabilities | $ | ( | ) | $ | ( | ) | ||
| Net deferred tax assets (liabilities) | $ | $ | ||||||
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company has net operating losses amounting to approximately $
| (16) | 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 November 30, 2023 and November 30, 2022, the carrying amount approximated fair value for cash, accounts receivable, operating and finance leases, accounts payable, notes payable to bank, 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 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.
| (17) | Litigation and Contingencies |
Various legal actions and claims can arise in the normal course of business that may be pending against the Company. In the opinion of management, the Company has recorded adequate provisions, if any, in the accompanying financial statements for any pending legal actions and other claims.
| (18) | Segment Information |
There are
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.
Approximate financial information with respect to the reportable segments is as follows.
| Twelve Months Ended November 30, 2023 | ||||||||||||
| Agricultural Products | Modular Buildings | Consolidated | ||||||||||
| Revenue from external customers | $ | $ | $ | |||||||||
| Gross profit | $ | $ | $ | |||||||||
| Income (loss) from operations | $ | $ | $ | |||||||||
| Income (loss) before tax | $ | $ | $ | |||||||||
| Total Assets | $ | $ | $ | |||||||||
| Capital expenditures (1) | $ | $ | $ | |||||||||
| Depreciation & Amortization | $ | $ | $ | |||||||||
| Twelve Months Ended November 30, 2022 | ||||||||||||
| Agricultural Products | Modular Buildings | Consolidated | ||||||||||
| Revenue from external customers | $ | $ | $ | |||||||||
| Gross profit | $ | $ | $ | |||||||||
| Income (loss) from operations | $ | $ | ( | ) | $ | |||||||
| Income (loss) before tax | $ | $ | ( | ) | $ | |||||||
| Total Assets | $ | $ | $ | |||||||||
| Capital expenditures (2) | $ | $ | $ | |||||||||
| Depreciation & Amortization | $ | $ | $ | |||||||||
| (1) | FY 2023 capital expenditures include finance leased assets of $ | |
| (2) | FY 2022 capital expenditures include finance leased assets of $ |
| (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 consolidated financial statements or disclosure in the notes to the consolidated financial statements.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Item 9A. 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 November 30, 2023. 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.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Under the supervision and with the participation of management, including the persons serving as our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of November 30, 2023.
This report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this report.
Limitations on Controls
Our management, including the persons serving as our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. In addition, the design of any system of controls is based in part on certain assumptions about the likelihood of future events, and controls may become inadequate if conditions change. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes to Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended November 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by Item 10 is incorporated by reference to the sections entitled “Questions and Answers about the 2024 Annual Meeting and Voting,” “Election of Directors,” “Delinquent Section 16(a) Reports,” “Corporate Governance,” and “Executive Officers” in our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders.
Item 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference to the sections entitled “Executive Compensation” and “Director Compensation” in our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by Item 12 is incorporated by reference to the sections entitled “Security Ownership of Principal Stockholders,” “Security Ownership of Directors and Management” and “Equity Compensation Plan Information” in our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by Item 13 is incorporated by reference to the sections entitled “Corporate Governance” and “Certain Transactions and Business Relationships” in our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is incorporated by reference to the section entitled “Independent Registered Public Accountant Firm” in our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders.
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
| (A) |
Financial Statements. The following financial statements are included in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report: |
Report of Eide Bailly, LLP (PCAOB ID
Consolidated Balance Sheets as of November 30, 2023 and 2022
Consolidated Statements of Operations for each of the years ended November 30, 2023 and 2022
Consolidated Statements of Stockholders’ Equity for each of the years ended November 30, 2023 and 2022
Consolidated Statements of Cash Flows for each of the years ended November 30, 2023 and 2022
Notes to Consolidated Financial Statements
(B) Financial Statement Schedules.
Not applicable.
(C) Exhibits.
| Exhibit No. |
Description |
|
| 3.1 |
||
| 3.2 |
||
| 4.1 |
||
| 10.1* |
||
| 10.2* |
||
| 10.3* |
||
| 10.4* |
||
| 10.5* |
||
| 10.6* |
||
| 10.7* |
||
| 10.8* |
||
| 10.28 |
||
| 10.29 |
||
| 21.1 |
||
| 23.1 |
Consent of independent registered public accounting firm – filed herewith. |
|
| 24.1 |
Power of Attorney (included on the “Signatures” page of this Annual Report on Form 10-K). |
|
| 31.1 |
Certificate pursuant to 17 CFR 240 13(a)-14(a) – filed herewith. |
|
| 31.2 |
Certificate pursuant to 17 CFR 240 13(a)-14(a) – filed herewith. |
|
| 32.1 |
Certificate pursuant to 18 U.S.C. Section 1350 – filed herewith. |
|
| 32.2 |
Certificate pursuant to 18 U.S.C. Section 1350 – filed herewith. |
|
| 101 |
The following materials from this report, formatted in iXBRL (Inline Extensible Business Reporting Language) are filed herewith: (i) consolidated balance sheets, (ii) consolidated statement of operations, (iii) consolidated statements of cash flows, and (iv) the notes to the condensed consolidated financial statements. |
|
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
| (*) Indicates a management contract or compensatory plan or arrangement. | ||
Item 16. FORM 10-K SUMMARY.
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ART’S-WAY MANUFACTURING CO., INC. |
||
| Date: |
February 28, 2024 |
/s/ David A. King |
| David A. King, President and Chief Executive Officer |
||
Each person whose signature appears below appoints DAVID A. KING his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said attorney-in-fact and agent, or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Date: February 28, 2024 |
/s/ David A. King |
| David A. King, President and Chief Executive Officer |
|
| Date: February 28, 2024 |
/s/ Michael W. Woods |
| Michael W. Woods, Chief Financial Officer |
|
| Date: February 28, 2024 |
/s/ Marc H. McConnell |
| Marc H. McConnell, Chairman, Director |
|
| Date: February 28, 2024 |
/s/ Thomas E. Buffamante |
| Thomas E. Buffamante, Director |
|
| Date: February 28, 2024 |
/s/ Randall C. Ramsey |
| Randall C. Ramsey, Director |
|
| Date: February 28, 2024 |
/s/ Matthew N. Westendorf |
| Matthew N. Westendorf, Director |
|
| Date: February 28, 2024 |
/s/ David A. White |
| David A. White, Director |
Exhibit 21.1
Art’s-Way Manufacturing Co., Inc. and Subsidiaries
As of November 30, 2023
| Company | Jurisdiction of Formation |
| Art’s-Way Scientific, Inc. | Iowa |
| Ohio Metal Working Products/Art’s Way, Inc. | Ohio |
All Art’s-Way Manufacturing Co., Inc. subsidiaries are wholly-owned.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Art's-Way Manufacturing Co., Inc.
Armstrong, Iowa
We hereby consent to the incorporation by reference in the Registration Statements on Form S8 (No. 333-169972, No. 333-173914, and No. 333-238469) of Art's-Way Manufacturing Co., Inc. of our report dated February 28, 2024, relating to the consolidated financial statements for the years ended November 30, 2023 and 2022, which appears in Art's-Way Manufacturing Co., Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2023.
/s/ Eide Bailly LLP
Fargo, North Dakota
Exhibit 31.1
CERTIFICATION PURSUANT TO 17 CFR 240.13(a)-14(a)
(SECTION 302 CERTIFICATION)
I, David A. King, certify that:
|
1. |
I have reviewed this annual report on Form 10-K of Art’s-Way Manufacturing Co., Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
ART’S-WAY MANUFACTURING CO., INC. |
|||
|
Date: |
/s/ David A. King |
||
|
David A. King |
|||
|
President and Chief Executive Officer |
|||
Exhibit 31.2
CERTIFICATION PURSUANT TO 17 CFR 240.13(a)-14(a)
(SECTION 302 CERTIFICATION)
I, Michael W. Woods, certify that:
|
1. |
I have reviewed this annual report on Form 10-K of Art’s-Way Manufacturing Co., Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15((e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
ART’S-WAY MANUFACTURING CO., INC. |
|||
|
Date: |
February 28, 2024 |
/s/ Michael W. Woods |
|
|
Michael W. Woods |
|||
|
Chief Financial Officer |
|||
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report on Form 10-K of Art’s-Way Manufacturing Co., Inc. (the “Company”) for the fiscal year ended November 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. King, as the President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: |
February 28, 2024 |
/s/ David A. King |
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David A. King |
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President and Chief Executive Officer |
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Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report on Form 10-K of Art’s-Way Manufacturing Co., Inc. (the “Company”) for the fiscal year ended November 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael W. Woods, as the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: |
/s/ Michael W. Woods |
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Michael W. Woods |
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Chief Financial Officer |
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