Arts Way Manufacturing Co Inc 10-Q for FY2022 Q1
Arts Way Manufacturing Co Inc (ARTW)
About this 10-Q
Arts Way Manufacturing Co Inc filed this 10-Q on April 14, 2022, covering the quarter ended February 28, 2022 (FY2022 Q1).
Headline figures
Quarter ended February 28, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $5.61M
- up 3.9% from $5.4M a year earlier
- Net loss
- $406.49K
- compared with a net loss of $315.24K a year earlier
- Diluted EPS
- -$0.09
- compared with -$0.07 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the quarterly period ended |
or
| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the transition period from ______ to ______ |
Commission File No.
ART’S-WAY MANUFACTURING CO., INC.
(Exact name of registrant as specified in its charter)
| | | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
| (Address of principal executive offices) (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 |
| | | The |
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Number of common shares outstanding as of April 4, 2022:
Art’s-Way Manufacturing Co., Inc.
Index
Page No.
| PART I – FINANCIAL INFORMATION | 1 | |
| Item 1. | Financial Statements | 1 |
| Condensed Consolidated Balance Sheets February 28, 2022 and November 30, 2021 | 1 | |
| Condensed Consolidated Statements of Operations Three-month periods ended February 28, 2022 and February 28, 2021 | 2 | |
| Condensed Consolidated Statements of Stockholders’ Equity Three-month periods ended February 28, 2022 and February 28, 2021 | 3 | |
| Condensed Consolidated Statements of Cash Flows Three-month periods ended February 28, 2022 and February 28, 2021 | 4 | |
| Notes to Condensed Consolidated Financial Statements | 5 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 19 |
| Item 4. | Controls and Procedures | 19 |
| PART II – OTHER INFORMATION | 20 | |
| Item 1. | Legal Proceedings | 20 |
| Item 1A. | Risk Factors | 20 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 20 |
| Item 3. | Defaults Upon Senior Securities | 20 |
| Item 4. | Mine Safety Disclosures | 20 |
| Item 5. | Other Information | 20 |
| Item 6. | Exhibits | 21 |
| SIGNATURES | 22 | |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
| ART’S-WAY MANUFACTURING CO., INC. |
||||||||||
| Consolidated Balance Sheets |
||||||||||
| (Unaudited) |
|
| February 28, 2022 | November 30, 2021 | ||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable-customers, net of allowance for doubtful accounts of $ and $ at February 28, 2022 and November 30, 2021, respectively | ||||||||
| Inventories, net | ||||||||
| Cost and profit in excess of billings | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant, and equipment, net | ||||||||
| Assets held for lease, net | ||||||||
| Deferred income taxes | ||||||||
| Other assets | ||||||||
| 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 long-term debt | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Long-term portion of finance lease liabilities | ||||||||
| Long-term portion of operating lease liabilities | ||||||||
| Long-term debt, excluding current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Notes 8, 9, 10 and 13) | ||||||||
| Stockholders’ equity: | ||||||||
| Undesignated preferred stock - $ par value. Authorized shares at February 28, 2022 and November 30, 2021; issued and outstanding shares at February 28, 2022 and November 30,2021. | ||||||||
| Common stock – $ par value. Authorized shares at February 28, 2022 and November 30, 2021; issued at February 28, 2022 and at November 30, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Treasury stock, at cost ( shares at February 28, 2022 and shares at November 30, 2021) | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
| ART’S-WAY MANUFACTURING CO., INC. |
|||||||||
| Consolidated Statements of Operations |
|||||||||
| (Unaudited) |
| Three Months Ended | ||||||||
| February 28, 2022 | February 28, 2021 | |||||||
| Sales | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Expenses: | ||||||||
| Engineering | ||||||||
| Selling | ||||||||
| General and administrative | ||||||||
| Total expenses | ||||||||
| Income (Loss) from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other | ( | ) | ||||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| Income (Loss) before income taxes | ( | ) | ( | ) | ||||
| Income tax expense (benefit) | ( | ) | ( | ) | ||||
| Net Income (Loss) | ( | ) | ( | ) | ||||
| See accompanying notes to consolidated financial statements.
|
| ART’S-WAY MANUFACTURING CO., INC. |
|||||||
| Consolidated Statements of Stockholders' Equity |
|||||||
| Three Months Ended February 28, 2022 and February 28, 2021 |
|||||||
| (Unaudited) |
| Common Stock | Additional | Treasury Stock | ||||||||||||||||||||||||||
| Number of | paid-in | Retained | Number of | |||||||||||||||||||||||||
| shares | Par value | capital | earnings | shares | Amount | Total | ||||||||||||||||||||||
| Balance, November 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock based compensation | ( | ) | ||||||||||||||||||||||||||
| Net (loss) | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Balance, February 28, 2021 | ( | ) | ||||||||||||||||||||||||||
| 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 | ( | ) | ||||||||||||||||||||||||||
| Net (loss) | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Balance, February 28, 2022 | ( | ) | ||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| ART’S-WAY MANUFACTURING CO., INC. |
||||||||||
| Consolidated Statements of Cash Flows |
||||||||||
| (Unaudited) |
| Three Months Ended | ||||||||
| February 28, 2022 | February 28, 2021 | |||||||
| Cash flows from operations: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Stock based compensation | ||||||||
| Increase (Decrease) in obsolete inventory reserves | ( | ) | ( | ) | ||||
| Gain on disposal of property, plant, and equipment | ( | ) | ||||||
| Depreciation and amortization expense | ||||||||
| Accrued interest on deferred debt payments | ||||||||
| Increase (decrease) in allowance for doubtful accounts | ( | ) | ||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ||||||
| Net investment in sales-type leases | ||||||||
| Other assets | ( | ) | ( | ) | ||||
| Increase (decrease) in: | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Contracts in progress, net | ( | ) | ||||||
| Customer deposits | ||||||||
| Income taxes payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Net cash provided by 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 | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net change in line of credit | ( | ) | ( | ) | ||||
| Principal payments on finance lease obligations | ( | ) | ||||||
| Repayment of term debt | ( | ) | ( | ) | ||||
| Repurchases of common stock | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net 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 | ||||||||
| See accompanying notes to consolidated financial statements. |
Notes to Unaudited Condensed Consolidated Financial Statements
| 1) | Description of the Company |
Unless otherwise specified, as used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “Art’s-Way,” and the “Company” refer to Art’s-Way Manufacturing Co., Inc., a Delaware corporation headquartered in Armstrong, Iowa, and its wholly-owned subsidiaries.
The Company began operations as a farm equipment manufacturer in 1956. Since that time, it has become a major worldwide manufacturer of agricultural equipment. Its principal manufacturing plant is located in Armstrong, Iowa.
The Company has organized its business into
| 2) | Summary of Significant Accounting Policies |
Statement Presentation
The foregoing condensed consolidated financial statements of the Company are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position and operating results for the interim periods. The financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2021. The results of operations for the three months ended February 28, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending November 30, 2022.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the three months ended February 28, 2022. Actual results could differ from those estimates.
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 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 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.
| 3) | Disaggregation of Revenue |
The following table displays revenue by reportable segment from external customers, disaggregated by major source. The Company believes disaggregating by these categories depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
| Three Months Ended February 28, 2022 | ||||||||||||||||
| Agricultural | Modular Buildings | Tools | Total | |||||||||||||
| Farm equipment | $ | $ | $ | $ | ||||||||||||
| Farm equipment service parts | ||||||||||||||||
| Steel cutting tools and inserts | ||||||||||||||||
| Modular buildings | ||||||||||||||||
| Modular building lease income | ||||||||||||||||
| Other | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Three Months Ended February 28, 2021 | ||||||||||||||||
| Agricultural | Modular Buildings | Tools | Total | |||||||||||||
| Farm equipment | $ | $ | $ | $ | ||||||||||||
| Farm equipment service parts | ||||||||||||||||
| Steel cutting tools and inserts | ||||||||||||||||
| Modular buildings | ||||||||||||||||
| Modular building lease income | ||||||||||||||||
| Other | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 4) | Contract Receivables, Contract Assets and Contract Liabilities |
The following table provides information about contract receivables, contract assets, and contract liabilities from contracts with customers included on the Condensed Consolidated Balance Sheets.
| February 28, 2022 | November 30, 2021 | |||||||
| Receivables | $ | $ | ||||||
| Assets | ||||||||
| Liabilities | ||||||||
The amount of revenue recognized in the first three months of fiscal 2022 that was included in a contract liability at November 30, 2021 was approximately $
The Company utilizes the practical expedient exception for these contracts and will report only on performance obligations greater than one year. As of February 28, 2022, the Company has
| 5) | Net Income (Loss) Per Share of Common Stock |
Basic net income (loss) per share of common stock has been computed on the basis of the weighted average number of common shares outstanding. Diluted net income (loss) per share has been computed on the basis of the weighted average number of common shares outstanding plus equivalent shares assuming exercise of stock options. Potential shares of common stock that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted net income (loss) per share.
Basic and diluted net income (loss) per share have been computed based on the following as of February 28, 2022 and February 28, 2021:
| For the Three Months Ended | ||||||||
| February 28, 2022 | February 28, 2021 | |||||||
| Numerator for basic and diluted net income (loss) per share: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| For basic net income (loss) per share - weighted average common shares outstanding | ||||||||
| Effect of dilutive stock options | ||||||||
| For diluted net income (loss) per share - weighted average common shares outstanding | ||||||||
| Net Income (Loss) per share - Basic: | ||||||||
| Net Income (Loss) per share | $ | ( | ) | $ | ( | ) | ||
| Net Income (Loss) per share - Diluted: | ||||||||
| Net Income (Loss) per share | $ | ( | ) | $ | ( | ) | ||
| 6) | Inventory |
Major classes of inventory are:
| February 28, 2022 | November 30, 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total Gross Inventory | $ | $ | ||||||
| Less: Reserves | ( | ) | ( | ) | ||||
| Net Inventory | $ | $ | ||||||
| 7) | Accrued Expenses |
Major components of accrued expenses are:
| February 28, 2022 | November 30, 2021 | |||||||
| Salaries, wages, and commissions | $ | $ | ||||||
| Accrued warranty expense | ||||||||
| Other | ||||||||
| $ | $ | |||||||
| 8) | Assets Held for Lease |
Major components of assets held for lease are:
| February 28, 2022 | November 30, 2021 | |||||||
| Modular Buildings | $ | $ | ||||||
| Total assets held for lease | $ | $ | ||||||
There were
There were
On March 14, 2022 a lease agreement was signed for the rental of one of the Company’s existing assets held for lease in the amount of $
| 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. The accrued warranty balance is included in accrued expenses as shown in Note 7 “Accrued Expenses.” Changes in the Company’s product warranty liability for the three months ended February 28, 2022 and February 28, 2021 are as follows:
| For the Three Months Ended | ||||||||
| February 28, 2022 | February 28, 2021 | |||||||
| Balance, beginning | $ | $ | ||||||
| Settlements / adjustments | ||||||||
| Warranties issued | ( | ) | ( | ) | ||||
| Balance, ending | $ | $ | ||||||
| 10) | Loan and Credit Agreements |
The Company maintains one revolving line of credit and one term loan with Bank Midwest. The Company also has three term loans with the U.S. Small Business Administration under the Economic Injury Disaster Loan program.
Bank Midwest Revolving Line of Credit and Term Loan
The Company maintains a credit facility with Bank Midwest consisting of a $
The Term Loan accrues interest at a rate of
The Term Loan is governed by the terms of a Promissory Note, dated September 28, 2017, entered into between the Company and Bank Midwest. The Line of Credit is governed by the terms of a Promissory Note, dated February 11, 2021, entered into between the Company and Bank Midwest.
In connection with the Line of Credit, the Company, Art’s-Way Scientific Inc. and Ohio Metal Working Products/Art’s-Way Inc. each entered into a Commercial Security Agreement with Bank Midwest, dated September 28, 2017, pursuant to which each granted to Bank Midwest a first priority security interest in certain inventory, equipment, accounts, chattel paper, instruments, letters of credit and other assets to secure the obligations of the Company under the Line of Credit. Each of Art’s-Way Scientific Inc. and Ohio Metal Working Products/Art’s-Way Inc. also agreed to guarantee the obligations of the Company pursuant to the Line of Credit, as set forth in Commercial Guaranties, each dated September 28, 2017.
To further secure the Line of Credit, the Company granted Bank Midwest a mortgage on its Canton, Ohio property held by Ohio Metal Working Products/Art’s-Way Inc. The Term Loan is secured by a mortgage on the Company’s Armstrong, Iowa and Monona, Iowa properties. Each mortgage is governed by the terms of a separate Mortgage, dated September 28, 2017, and each property is also subject to a separate Assignment of Rents, dated September 28, 2017.
If the Company or its subsidiaries (as guarantors pursuant to the Commercial Guaranties) commits an event of default with respect to the promissory notes and fails or is unable to cure that default, Bank Midwest may immediately terminate its obligation, if any, to make additional loans to the Company and may accelerate the Company’s obligations under the promissory notes. Bank Midwest shall also have all other rights and remedies for default provided by the Uniform Commercial Code, as well as any other applicable law and the various loan agreements. In addition, in an event of default, Bank Midwest may foreclose on the mortgaged property.
Compliance with the following Bank Midwest covenants is measured annually at November 30. A maximum debt to worth ratio of
The Company also has a minimum working capital requirement of $
SBA Economic Injury Disaster Loans
On June 18, 2020, and again on June 24, 2020 the Company executed the standard loan documents required for securing loans offered by the U.S. Small Business Administration under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-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:
| February 28, 2022 | November 30, 2021 | |||||||
| 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 June 18, 2022, due | ||||||||
| U.S. Small Business Administration loan payable in monthly installments of $ including interest at % beginning June 24, 2022, due | ||||||||
| U.S. Small Business Administration loan payable in monthly installments of $ including interest at % beginning June 18, 2022, due | ||||||||
| Total term debt | $ | $ | ||||||
| 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 | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 and thereafter | ||||
| $ | ||||
On March 22, 2022, the SBA announced a -month extension on the first payment due date for the EIDL program. The above information reflects EIDL maturities as they existed on the February 28, 2022 balance sheet date.
| 11) | Income Taxes |
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses.
| 12) | Related Party Transactions |
During the three months ended February 28, 2022 and February 28, 2021, the Company did recognize any revenues from transactions with a related party, and
| 13) | Leases |
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
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 Condensed Consolidated Balance Sheets at February 28, 2022 and November 30, 2021 were as follows:
| February 28, 2022 | November 30, 2021 | |||||||
| Operating lease right-of-use assets (in other assets) | $ | |||||||
| Current portion of operating lease liabilities (in accrued expenses) | $ | |||||||
| Long-term portion of operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | |||||||
The Company recorded $
Future maturities of operating lease liabilities are as follows:
| Years Ending November 30, | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total lease payments | ||||
| Less imputed interest | ( | ) | ||
| Total operating lease liabilities |
The components of finance leases on the Consolidated Balance Sheets on February 28, 2022 and November 30, 2021 were as follows:
| February 28, 2022 | November 30, 2021 | |||||||
| Finance lease right-of-use assets (net of amortization in other assets) | $ | $ | ||||||
| Current portion of finance lease liabilities (accrued expenses) | $ | $ | ||||||
| Long-term portion of finance lease liabilities | ||||||||
| Total finance lease liabilities | $ | $ | ||||||
Future maturities of finance lease liabilities as of November 30, 2022 are as follows:
| Year Ending November 30, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total lease payments | ||||
| Less imputed interest | ( | ) | ||
| Total finance lease liabilities | $ |
The weighted average lease term of the Company’s finance leases are
On March 3, 2022, the Company entered into a finance lease agreement for the lease of
The Company expects delivery of a Lift King lift truck in April of fiscal 2022, with monthly payments beginning upon receipt of approximately $
| 14) | Equity Incentive Plan and Stock Based Compensation |
On February 25, 2020, the Board of Directors of the Company (the “Board”) authorized and approved the Art’s-Way Manufacturing Co., Inc. 2020 Equity Incentive Plan (the “2020 Plan”). The 2020 Plan was approved by the stockholders on April 30, 2020. The 2020 Plan replaced the Art’s-Way Manufacturing Co., Inc. 2011 Equity Incentive Plan (the “2011 Plan”) and prior plans. The 2020 Plan added an additional
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
| For the Three Months Ended | ||||||||
| February 28, 2022 | February 28, 2021 | |||||||
| Shares issued to directors (immediate vesting) | ||||||||
| Shares issued to directors, employees, and consultants (three-year vesting) | ||||||||
| Unvested shares forfeit upon termination | ( | ) | ||||||
| Total shares issued | ||||||||
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.
| For the Three Months Ended | ||||||||
| February 28, 2022 | February 28, 2021 | |||||||
| Stock-based compensation expense | ||||||||
| Treasury share repurchase expense | ( | ) | ( | ) | ||||
| Stock-based compensation expense net of treasury repurchases | ||||||||
| 15) | 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 will be limited to
In exchange for Alumni Capital entering into the Purchase Agreement, the Company issued
The Purchase Agreement provides that the Company will 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 having been declared effective by the Securities and Exchange Commission.
| 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. At February 28, 2022 and November 30, 2021, the carrying amount approximated fair value for cash, accounts receivable, accounts payable, notes payable to bank, finance lease liabilities and other current and long-term liabilities. The carrying amounts of current assets and liabilities approximate fair value because of the short maturity of these instruments. The fair value of the finance lease liabilities also approximate recorded value as that is based on discounting future cash flows at rates implicit in the lease. The rates implicit in the lease do not materially differ from current market rates. The fair value of the Company’s term loans payable also approximates recorded value because the interest rates charged under the loan terms are not substantially different from current interest rates.
| 17) | Segment Information |
The Company has
The accounting policies applied to determine the segment information are the same as those described in the summary of significant accounting policies. Management evaluates the performance of each segment based on profit or loss from operations before income taxes, exclusive of nonrecurring gains and losses.
Approximate financial information with respect to the reportable segments is as follows.
| Three Months Ended February 28, 2022 | ||||||||||||||||
| Agricultural Products | Modular Buildings | Tools | Consolidated | |||||||||||||
| Revenue from external customers | $ | $ | $ | $ | ||||||||||||
| Income (loss) from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income (loss) before tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Total Assets | $ | $ | $ | $ | ||||||||||||
| Capital expenditures | $ | $ | $ | $ | ||||||||||||
| Depreciation & Amortization | $ | $ | $ | $ | ||||||||||||
| Three Months Ended February 28, 2021 | ||||||||||||||||
| Agricultural Products | Modular Buildings | Tools | Consolidated | |||||||||||||
| Revenue from external customers | $ | $ | $ | $ | ||||||||||||
| Income (loss) from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income (loss) before tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Total Assets | $ | $ | $ | $ | ||||||||||||
| Capital expenditures | $ | $ | $ | $ | ||||||||||||
| Depreciation & Amortization | $ | $ | $ | $ | ||||||||||||
*The consolidated total in the tables is a sum of segment figures and may not tie to actual figures in the condensed consolidated financial statements due to rounding.
| 18) | Subsequent Events |
Management evaluated all other activity of the Company and concluded that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements, other than the asset held for lease rental agreement that occurred on March 14th in note 8, the extension of the EIDL first payment due date, the line of credit renewal and covenant update as mentioned in Note 10, the robotic weld cell and lift truck leasing activity in note 13 and the Stock Purchase Agreement mentioned in Note 15 and the Liquidity and Capital Resources section of Item 2 Management’s Discussion and Analysis.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “report”) and the audited consolidated financial statements and related notes thereto included in Part II, Item 8, “Financial Statements and Supplementary Data,” as well as Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the fiscal year ended November 30, 2021. Some of the statements in this report may be forward-looking statements that reflect our current view on future events, future business, industry and other conditions, our future performance, and our plans and expectations for future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “may,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. Many of these forward-looking statements are located in this report under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but they may appear in other sections as well. Forward-looking statements in this report generally relate to: (i) our warranty costs and order backlog; (ii) our beliefs regarding the sufficiency of working capital and cash flows; (iii) our expectation that we will continue to be able to renew or obtain financing on reasonable terms when necessary as well as our continued positive relationship with our creditors and lenders; (iv) the impact of recently issued accounting pronouncements; (v) our intentions and beliefs relating to our costs, business strategies, and future performance; (vi) our beliefs concerning our ability to attract and maintain an adequate workforce in a competitive labor market (vii) our expected financial results; (viii) our expectations concerning our primary capital and cash flow needs; and (viix) our expectations regarding the impact of COVID-19 on our business condition and results of operations.
You should read this report thoroughly with the understanding that our actual results may differ materially from those set forth in the forward-looking statements for many reasons, including events beyond our control and assumptions that prove to be inaccurate or unfounded. We cannot provide any assurance with respect to our future performance or results. Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including but not limited to: (i) the impact of changing credit markets on our ability to continue to obtain financing on reasonable terms; (ii) our ability to repay current debt, continue to meet debt obligations and comply with financial covenants; (iii) the effect of general economic conditions, including consumer and governmental spending, on the demand for our products and the cost of our supplies and materials; (iv) the ongoing COVID-19 pandemic; (v) fluctuations in seasonal demand and our production cycle; (vi) the ability of our suppliers to meet our demands for raw materials and component parts; (vii) fluctuations in the price of raw materials, especially steel; (viii) our ability to predict and meet the demands of each market in which our segments operate; and (ix) other factors described from time to time in our Securities and Exchange Commission filings. We do not intend to update the forward-looking statements contained in this report other than as required by law. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.
Critical Accounting Policies
Our critical accounting policies involving the more significant judgments and assumptions used in the preparation of our financial statements as of February 28, 2022 remain unchanged from November 30, 2021. Disclosure of these critical accounting policies is incorporated by reference from Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended November 30, 2021.
Results of Operations
Net Sales and Cost of Sales
Our consolidated corporate sales for the three-month period ended February 28, 2022 were $5,613,000 compared to $5,401,000 during the same period in fiscal 2021, an increase of $212,000, or 3.9%. The increase in consolidated revenue is due to increased sales in our Agricultural Products segment. Consolidated gross margin for the three-month period ended February 28, 2022 was 21.2% compared to 19.3% for the same period in fiscal 2021.
Our first quarter sales in our Agricultural Products segment were $4,161,000 compared to $3,500,000 for the same period in fiscal 2021, an increase of $661,000, or 18.9%. The increase in revenue is due to increased demand for our grinder mixers, beet equipment and manure spreaders. For the second year in a row, we have experienced historic early order program success and are carrying record backlog numbers. Strong commodity prices have created demand that is struggling to be met within the agriculture industry because of labor and supply chain shortages, which has in turn increased the number of early orders we are seeing. Gross margin for the three-month period ended February 28, 2022 was 25.9% compared to 25.2% for the same period in fiscal 2021. Price increases in fiscal 2021 helped us maintain margin moving into fiscal 2022. While we have seen the price of steel start to drop in Q1 of fiscal 2022, component prices and freight costs have continued to rise. We anticipate we will need to take action to mitigate margin erosion from these rising input costs in fiscal 2022.
Our first quarter sales in our Modular Buildings segment were $868,000 compared to $1,291,000 for the same period in fiscal 2021, a decrease of $423,000, or 32.8%. Our decrease in revenue is due largely to the progress on a large construction contract that neared completion at the end of the first quarter of fiscal 2021. We continue to see strong demand for business in this segment despite the slow start to fiscal 2022. Gross margin for the three-month period ended February 28, 2022 was 4.8% compared to 2.9% for the same period in fiscal 2021. We saw margin improvement in fiscal 2022 because of the completion of a large construction project in 2021 that carried a low gross margin. While we did see margin improvement year to date, our sales level wasn’t high enough to absorb our operating expenses and provide a margin we typically expect.
Our Tools segment had sales of $584,000 during the first quarter compared to $610,000 for the same period in fiscal 2021, a decrease of $26,000, or 4.3%. The Tools segment struggled with labor shortages in the first month of fiscal 2022, which led to a disappointing level of December sales. While employee turnover continued through the first quarter of fiscal 2022, production remained steady in the 2nd and 3rd months of fiscal 2022 to mitigate further losses. Since the labor market continues to be highly competitive in Canton, OH, we are working on automated solutions to solve workforce issues in Q2 of fiscal 2022. Demand has grown in this segment in fiscal 2022 and we are currently carrying the largest backlog on record. Gross margin was 12.5% for the three-month period ended February 28, 2022 compared to 20.2% for the same period in fiscal 2021. The decrease in margin is due to the decrease in sales year on year along with wage and benefit improvements we made in Q3 of fiscal 2021 to try to stabilize our workforce. We are expecting margin improvement as we get further into fiscal 2022 from price increases enacted in February of 2022.
Expenses
Our first quarter consolidated selling expenses were $487,000 compared to $473,000 for the same period in fiscal 2021. The increase in selling expenses is due to increased commission expense as a result of the 18.9% increase in sales in our Agricultural Products segment. Selling expenses as a percentage of sales were 8.7% for the three-month period ended February 28, 2022 compared to 8.8% for the same period in fiscal 2021.
Consolidated engineering expenses were $134,000 for the three-month period ended February 28, 2022 compared to $121,000 from the same period in fiscal 2021. The increase is due to wage and benefit improvements made for fiscal 2022. Engineering expenses as a percentage of sales were 2.4% for the three-month period ended February 28, 2022 compared to 2.2% for the same period in fiscal 2021.
Consolidated administrative expenses for the three-month period ended February 28, 2022 were $1,008,000 compared to $817,000 for the same period in fiscal 2021. The increase in administrative expenses for Q1 of fiscal 2022 is due to the rising wages and benefit improvements. Administrative expenses as a percentage of sales were 18.0% for the three-month period ended February 28, 2022 compared to 15.1% for the same period in fiscal 2021.
Net Loss
Consolidated net loss was $(406,000) for the three-month period ended February 28, 2022 compared to net loss of $(315,000) for the same period in fiscal 2021. Our Agricultural Products segment showed improvement in the first fiscal quarter of 2022, but our Modular Buildings and Tools showed increased losses year over year. The first quarter of our fiscal year is typically our worst performing quarter of the year because of the timing of orders and production in our Agricultural Products segment. Our production increases in the spring and summer months in this segment and slows down again in the winter months. Our Tools segment is carrying the backlog to be successful for the remainder of the fiscal year as we work through labor shortages with automation. The Modular Buildings segment will be working on closing additional contracts to stabilize revenues for the remainder of the year.
Order Backlog
The consolidated order backlog net of discounts as of April 8, 2022 was $11,173,000 compared to $6,483,000 as of April 8, 2021, a 42% increase. The Agricultural Products segment order backlog was $9,038,000 as of April 8, 2022 compared to $5,408,000 in fiscal 2021. The backlog for the Modular Buildings segment was $1,463,000 as of April 8, 2022, compared to $717,000 in fiscal 2021. The backlog for the Tools segment was $671,000 as of April 8, 2022 compared to $358,000 in fiscal 2021. Our backlog numbers are up significantly in all three segments while we are carrying historic backlog numbers in our Agricultural Products and Tools segments. We will be battling supply chain challenges and workforce shortages in fiscal 2022 as we work through our open orders. Our order backlog is not necessarily indicative of future revenue to be generated from such orders due to the possibility of order cancellations and dealer discount arrangements we may enter into from time to time.
Liquidity and Capital Resources
Our primary source of funds for the three months ended February 28, 2022 was cash generated by operating activities. The collection of accounts receivables and customer deposits related to our fall early order program provided approximately $2.7 million in cash in the first three months of fiscal 2022. Our primary uses of cash were related to the retirement of debt and rising inventory costs. We expect our primary capital needs for the remainder of fiscal 2022 to relate to operating costs, primarily production costs, fulfillment of customer deposits, and the retirement of debt. We also expect to use cash on capital expenditures that improve work force efficiency and maximize shop output over the next two years as part of Iowa Economic Development Authority’s Manufacturing 4.0 program. The Company will be receiving a $500,000 grant to use on capital equipment, which requires a 25% match by the Company.
We have a $5,000,000 revolving line of credit with Bank Midwest that, as of February 28, 2022, had an outstanding principal balance of $3,150,530. This line of credit is scheduled to mature on March 30, 2023.
The Company continues to seek additional funding up to $2 million under the SBA’s Economic Injury Disaster Loan program.
On March 29, 2022, the Company entered into a Common Stock Purchase Agreement with Alumni Capital LP to provide aggregate gross proceeds to the Company of up to $3,000,000 in exchange for the Company’s common stock. The Company expects to fully utilize the $3,000,000 in funding under this Stock Purchase Agreement over the next twelve months for capital improvements that improve plant efficiency, production output and new product development.
We believe our current financing arrangements will provide sufficient cash to finance operations and pay debt when due during the next twelve months. We expect to continue to be able to procure financing upon reasonable terms.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The persons serving as our principal executive officer and principal financial officer have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period subject to this report. Based on this evaluation, the persons serving as our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of February 28, 2022. Our management has concluded that the consolidated financial statements included in this report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We are currently not a party to any material pending legal proceedings.
Item 1A. Risk Factors.
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table presents the information with respect to purchases made by us of our common stock during the first quarter of fiscal 2022:
| Total Number of Shares Purchased (1) |
Average Price Paid per Share |
Total Number of Shares Purchased as part of Publicly Announced Plans or Programs |
Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs |
|||||||||||||
| December 1 to December 31, 2021 |
- | $ | - | N/A | N/A | |||||||||||
| January 1 to January 31, 2022 |
- | $ | - | N/A | N/A | |||||||||||
| February 1 to February 28, 2022 |
10,406 | $ | 3.35 | N/A | N/A | |||||||||||
| Total |
10,406 | $ | 3.35 | |||||||||||||
(1) Reflects shares withheld pursuant to the terms of restricted stock awards under our 2020 Plan to offset tax withholding obligations that occur upon vesting and release of shares. The value of the shares withheld is the closing price of our common stock on the date the relevant transaction occurs.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Line of Credit Renewals
Effective March 28, 2022, we renewed our $5,000,000 revolving line of credit with Bank Midwest. The revolving line of credit matures on March 30, 2023 and requires monthly interest-only payments. The updated Promissory Note with Bank Midwest is included as Exhibit 10.1 hereto and is incorporated herein.
Item 6. Exhibits.
SIGNATURES
Pursuant to the requirements 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: April 14, 2022 |
|
By: /s/ David A. King |
| David A. King |
||
| President and Chief Executive Officer |
||
| Date: April 14, 2022 |
By: /s/ Michael W. Woods |
|
| Michael W. Woods |
||
| Chief Financial Officer |
Exhibit 10.1
*0339+0000720+040010106019*
PROMISSORY NOTE
|
Principal $5,000,000.00 |
Loan Date 03-28-2022 |
Maturity 03-30-2023 |
Loan No 040010106019 |
Call / Coll RC-C 4a / 43 |
Account 720 |
Officer NRS |
Initials |
|
References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. |
|||||||
Borrower: Art's-Way Manufacturing Co., Inc.
5556 Highway 9; PO Box 288
Armstrong, IA 50514-7566
Lender: Bank Midwest Armstrong Branch PO Box 136
500 6th Street
Armstrong, IA 50514
| Principal Amount: $5,000,000.00 | Date of Note: March 28, 2022 |
PROMISE TO PAY. Art's-Way Manufacturing Co., Inc. ("Borrower") promises to pay to Bank Midwest ("Lender"), or order, in lawful money of the United States of America, the principal amount of Five Million & 00/100 Dollars ($5,000,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on March 30, 2023. Unless otherwise agreed or required by applicable law, payments will be applied first to any escrow or reserve account payments as required under any mortgage, deed of trust, or other security instrument or security agreement securing this Note; then to any accrued unpaid interest; then to principal; and then to any late charges. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. All payments must be made in U.S. dollars and must be received by Lender consistent with any written payment instructions provided by Lender. If a payment is made consistent with Lender's payment instructions but received after 5:30 PM Central Time, Lender will credit Borrower's payment on the next business day.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Wall Street Journal Prime Rate as published in the Wall Street Journal Money Rates section (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. Lender will tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each one (1) day. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 3.250% per annum. Interest on the unpaid principal balance of this Note will be calculated as described in the "INTEREST CALCULATION METHOD" paragraph using a rate of 1.500 percentage points over the Index (the "Margin"), adjusted if necessary for any minimum and maximum rate limitations described below, resulting in an initial rate of 4.750% per annum based on a year of 360 days. If Lender determines, in its sole discretion, that the Index has become unavailable or unreliable, either temporarily, indefinitely, or permanently, during the term of this Note, Lender may amend this Note by designating a substantially similar substitute index. Lender may also amend and adjust the Margin to accompany the substitute index. The change to the Margin may be a positive or negative value, or zero. In making these amendments, Lender may take into consideration any then-prevailing market convention for selecting a substitute index and margin for the specific Index that is unavailable or unreliable. Such an amendment to the terms of this Note will become effective and bind Borrower 10 business days after Lender gives written notice to Borrower without any action or consent of the Borrower. NOTICE: Under no circumstances will the interest rate on this Note be less than 4.250% per annum or more than the maximum rate allowed by applicable law.
INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: Bank Midwest, Armstrong Branch, PO Box 136, 500 6th Street, Armstrong, IA 50514.
LATE CHARGE. If a payment is 30 days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment or $8.50, whichever is greater.
INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the total sum due under this Note will continue to accrue interest at the interest rate under this Note. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.
DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note:
Payment Default. Borrower fails to make any payment when due under this Note.
Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.
False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan.
| Loan No: 040010106019 |
PROMISSORY NOTE (Continued) |
Page 2 |
This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.
Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.
Insecurity. Lender in good faith believes itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.
ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including without limitation all attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.
GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Iowa without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Iowa.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts.
COLLATERAL. Borrower acknowledges this Note is secured by any and all security documents, including, but not limited to, all Security Agreements, Supplemental Security Agreements, all Guaranties, Real Estate Mortgages and Assignment of Rents.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. The following person or persons are authorized to request advances and authorize payments under the line of credit until Lender receives from Borrower, at Lender's address shown above, written notice of revocation of such authority: Michael Woods, CFO of Art's-Way Manufacturing Co., Inc.; and David King, CEO of Art's-Way Manufacturing Co., Inc. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (A) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (B) Borrower or any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (D) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (E) Lender in good faith believes itself insecure.
PURPOSE OF LOAN. The specific purpose of this loan is: 2022 Operating Line of Credit.
PRIOR NOTE. Renewal of Loan #40010079777.
SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.
SHARING CUSTOMER INFORMATION WITH AFFILIATES. Borrower acknowledges and agrees that Lender may share Borrower's financial information with any affiliate of Bank Midwest. Lender agrees that it will require those affiliates to maintain the privacy of such information.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.
| Loan No: 040010106019 |
PROMISSORY NOTE (Continued) |
Page 3 |
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE AND ALL OTHER DOCUMENTS RELATING TO THIS DEBT.
BORROWER:
ART'S-WAY MANUFACTURING CO., INC.
By: /s/ Michael W. Woods Michael Woods, CFO of Art's-Way Manufacturing Co., Inc.
| Loan No: 040010106019 |
PROMISSORY NOTE (Continued) |
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By: /s/ David A. King David King, CEO of Art's-Way Manufacturing Co., Inc.
LENDER:
BANK MIDWEST
X /s/ Nicole Simpson Nicole Simpson, Market Leader/VP Ag-Comm Lender
Exhibit 31.1
CERTIFICATION PURSUANT TO 17 CFR 240.13(a)-14(a)
(SECTION 302 CERTIFICATION)
I, David A. King, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Art’s-Way Manufacturing Co., Inc.; |
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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; |
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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; |
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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: |
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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; |
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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; |
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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 |
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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 |
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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): |
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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 |
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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. |
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ART’S-WAY MANUFACTURING CO., INC. |
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Date: |
April 14, 2022 |
/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 31.2
CERTIFICATION PURSUANT TO 17 CFR 240.13(a)-14(a)
(SECTION 302 CERTIFICATION)
I, Michael W. Woods, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Art’s-Way Manufacturing Co., Inc.; |
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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; |
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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; |
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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; |
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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; |
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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 |
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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 |
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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): |
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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 |
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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. |
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ART’S-WAY MANUFACTURING CO., INC. |
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Date: |
April 14, 2022 |
/s/ Michael W. Woods |
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Michael W. Woods |
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Chief Financial Officer |
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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 quarterly report on Form 10-Q of Art’s-Way Manufacturing Co., Inc. (the “Company”) for the fiscal quarter ended February 28, 2022, 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: |
April 14, 2022 |
/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 quarterly report on Form 10-Q of Art’s-Way Manufacturing Co., Inc. (the “Company”) for the fiscal quarter ended February 28, 2022, 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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3. |
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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4. |
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: |
April 14, 2022 |
/s/ Michael W. Woods |
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Michael W. Woods |
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Chief Financial Officer |
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