SEC Form 10-Q filed by Art's-Way Manufacturing Co. Inc.
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 October 1, 2024 :
Art’s-Way Manufacturing Co., Inc.
Index
Page No.
| Item 1. |
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| Condensed Consolidated Balance Sheets as of August 31, 2024 and November 30, 2023 |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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PART I – FINANCIAL INFORMATION
ART’S-WAY MANUFACTURING CO., INC.
Condensed Consolidated Balance Sheets
| (Unaudited) | ||||||||
| August 31, 2024 | November 30, 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| 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 portion of operating lease liabilities | ||||||||
| Long-term portion of finance lease liabilities | ||||||||
| Long-term debt, excluding current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Notes 9, 11, 12 and 15) | ||||||||
| Stockholders’ equity: | ||||||||
| Undesignated preferred stock - $ par value. Authorized shares on August 31, 2024 and November 30, 2023; issued and outstanding shares on August 31, 2024 and November 30, 2023. | ||||||||
| Common stock – $ par value. Authorized shares on August 31, 2024 and November 30, 2023; issued on August 31, 2024 and on November 30, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Treasury stock, at cost ( shares on August 31, 2024 and shares on November 30, 2023) | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
| See accompanying notes to condensed consolidated financial statements. |
ART’S-WAY MANUFACTURING CO., INC.
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended |
Nine Months Ended |
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| August 31, 2024 |
August 31, 2023 |
August 31, 2024 |
August 31, 2023 |
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| Sales |
$ | $ | $ | $ | ||||||||||||
| Cost of goods sold |
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| Gross profit |
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| Expenses |
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| Engineering |
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| Selling |
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| General and administrative |
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| Total expenses |
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| Income (loss) from operations |
( |
) | ||||||||||||||
| Other income (expense): |
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| Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other |
( |
) | ( |
) | ( |
) | ||||||||||
| Total other expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income (loss) from continuing operations before income taxes |
( |
) | ( |
) | ||||||||||||
| Income tax expense (benefit) |
( |
) | ( |
) | ||||||||||||
| Income (loss) from continuing operations |
( |
) | ||||||||||||||
| Discontinued Operations (Note 3) |
||||||||||||||||
| (Loss) from discontinued operations before income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income tax (benefit) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Loss on discontinued operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net Income (loss) |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||
| See accompanying notes to condensed consolidated financial statements. |
| Condensed Consolidated Statements of Stockholders' Equity |
| Nine Months Ended August 31, 2024 and August 31, 2023 |
| (Unaudited) |
| Common Stock |
Additional |
Treasury Stock |
||||||||||||||||||||||||||
| Number of |
paid-in |
Retained |
Number of |
|||||||||||||||||||||||||
| shares |
Par value |
capital |
earnings |
shares |
Amount |
Total |
||||||||||||||||||||||
| Balance, November 30, 2022 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Stock based compensation |
- | ( |
) | |||||||||||||||||||||||||
| Net Income |
- | - | ||||||||||||||||||||||||||
| Balance, August 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Common Stock |
Additional |
Treasury Stock |
||||||||||||||||||||||||||
| Number of |
paid-in |
Retained |
Number of |
|||||||||||||||||||||||||
| shares |
Par value |
capital |
earnings |
shares |
Amount |
Total |
||||||||||||||||||||||
| Balance, November 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Stock based compensation |
- | ( |
) | |||||||||||||||||||||||||
| Net loss |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||
| Balance, August 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| See accompanying notes to condensed consolidated financial statements. |
| Condensed Consolidated Statements of Cash Flows |
| (Unaudited) |
| Nine Months Ended |
||||||||
| August 31, 2024 |
August 31, 2023 |
|||||||
| Cash flows from operations: |
||||||||
| Net income (loss) from continuing operations |
$ | ( |
) | $ | ||||
| Net loss from discontinued operations |
( |
) | ( |
) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: |
||||||||
| Stock based compensation |
||||||||
| Decrease in obsolete inventory reserves |
( |
) | ( |
) | ||||
| Gain on disposal of property, plant, and equipment |
( |
) | ( |
) | ||||
| Depreciation and amortization expense |
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| Amortization of cloud computing implementation costs |
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| Increase in allowance for expected credit losses - accounts receivable |
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| 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 investing activities - discontinued operations |
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| 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 |
( |
) | ( |
) | ||||
| Repayment of term debt |
( |
) | ( |
) | ||||
| Repurchases of common stock |
( |
) | ( |
) | ||||
| Net cash provided by (used in) financing activities - continuing operations |
( |
) | ||||||
| Net cash used in financing activities - discontinued operations |
( |
) | ( |
) | ||||
| Net cash provided by (used in) financing activities |
( |
) | ||||||
| Net increase (decrease) in cash |
( |
) | ||||||
| Cash at beginning of period |
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| Cash at end of period |
$ | $ | ||||||
| Supplemental disclosures of cash flow information: |
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| Cash paid during the period for: |
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| Interest |
$ | $ | ||||||
| Income taxes |
||||||||
| Supplemental disclosures of non-cash operating activities: |
||||||||
| Right-of-use (ROU) assets acquired (included in other assets) |
$ | $ | ||||||
| Amortization of operating lease ROU assets (included in other assets) |
$ | $ | ||||||
| See accompanying notes to condensed consolidated financial statements. |
Notes to Unaudited Condensed Consolidated Financial Statements
| 1) | Description of the Company |
Unless otherwise specified, as used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “Art’s-Way,” and the “Company” refer to Art’s-Way Manufacturing Co., Inc., a Delaware corporation headquartered in Armstrong, Iowa, and its wholly owned subsidiaries.
The Company began operations as a farm equipment manufacturer in 1956. Since that time, it has become a major worldwide manufacturer of agricultural equipment. Its principal manufacturing plant is located in Armstrong, Iowa.
The Company has organized its business into
During the third quarter of fiscal 2023, the Company ceased operations of its Tools business, which manufactured steel cutting tools and inserts. In previous periods, operations of the Tools business was reported in consolidated numbers as the Company's third operating segment. The Tools segment was reported in discontinued operations beginning with the three and nine month periods ending August 31, 2023. For more information on discontinued operations, see Note 3 "Discontinued Operations."
| 2) | Summary of Significant Accounting Policies |
Statement Presentation
The foregoing condensed consolidated financial statements of the Company are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s financial position and operating results for the interim periods. The condensed consolidated financial statements should be read in conjunction with the condensed financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2023. The results of operations for the three and nine months ended August 31, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending November 30, 2024.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the three and nine months ended August 31, 2024. Actual results could differ from those estimates.
Allowance for Credit Losses
The Company uses aging categories to estimate expected credit losses on trade receivables. The Company considers in its analysis: historical loss experience, forward-looking macroeconomic factors, company credit risk including previous delinquencies, disputed amounts, and the intent and ability to pay. The Company's typical credit terms are Net 30, however, it does offer terms up to 360 days on floor plan units. The Company would consider trade receivables greater than 30 days past due, but is not required to disclose past due receivables with an original term less than one year. The Company performs additional analysis monthly on amounts over 90 days past due to determine collectability. The Company has assigned expected credit loss percentages based on where the asset falls in the aging schedule. The Company's actual credit losses have been low compared to historical allowance estimates. The Company has considered the current interest rate environment and the recent decline in the agricultural commodity market and believes its method of estimating a higher than historical loss percentage to be an adequate estimate. The Company foresees increased credit risk over the next year or so until inventory on dealer lots starts to decline, interest rates drop and farm income strengthens.
The Company carries contract assets related to its Modular Buildings segment in the form of costs and profit in excess of billings. These contract assets are typically converted to trade receivables in 30 to 90 days, depending on contract terms, and due 30 days or less from the billing date. Because these contract assets are typically converted to receivables and collected in less than a year, consideration for these contract assets has been included in the expected credit loss model for trade receivables.
| 3) | Discontinued Operations |
On June 7, 2023, the Company announced that it would be discontinuing the operations of its Tools segment in order to focus its efforts and resources on the business segments that have historically been more successful and that are expected to present greater opportunities for meaningful long-term stockholder returns. A large portion of this segment's assets were disposed of in the 3rd quarter of fiscal 2023. The Company entered into a purchase agreement on July 31, 2024 to sell the Tools segment real estate in Canton, OH for $
The cessation of operations and liquidation of the Tools segment as a unique business unit of the Company, represented a strategic shift in the Company's operations. In accordance with Accounting Standard Code Topic 360, the Company has reclassified Tools as discontinued operations for all periods presented.
The components of discontinued operations in the accompanying Condensed Consolidated Balance Sheets are as follows:
| August 31, 2024 | November 30, 2023 | |||||||
| Inventory | $ | $ | ||||||
| Other current assets | ||||||||
| Current assets of discontinued operations | $ | $ | ||||||
| August 31, 2024 | November 30, 2023 | |||||||
| Property, plant, and equipment, net | $ | $ | ||||||
| Other assets of discontinued operations | $ | $ | ||||||
| August 31, 2024 | November 30, 2023 | |||||||
| Accounts payable | $ | $ | ||||||
| Current portion of long-term debt | ||||||||
| Other current liabilities | ||||||||
| Current liabilities of discontinued operations | $ | $ | ||||||
Segment information as of August 31, 2024 and August 31, 2023 for discontinued operations is as follows:
| Tools | ||||||||
| Three Months Ended | ||||||||
| August 31, 2024 | August 31, 2023 | |||||||
| Revenue from external customers | $ | $ | ||||||
| Gross (Loss) | ( | ) | ( | ) | ||||
| Operating Expense | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Loss before tax | ( | ) | ( | ) | ||||
| Total Assets | ||||||||
| Capital expenditures | ||||||||
| Depreciation & Amortization | $ | $ | ||||||
| Tools | ||||||||
| Nine Months Ended | ||||||||
| August 31, 2024 | August 31, 2023 | |||||||
| Revenue from external customers | $ | $ | ||||||
| Gross Profit (loss) | ( | ) | ||||||
| Operating Expense | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Loss before tax | ( | ) | ( | ) | ||||
| Total Assets | ||||||||
| Capital expenditures | ||||||||
| Depreciation & Amortization | $ | $ | ||||||
Recently Issued Accounting Pronouncements
Recently Adopted Pronouncement
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 added 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 was required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. ASU 2016-13 was effective for smaller reporting entities for fiscal years beginning after December 15, 2022, including interim periods within the year of adoption. Early adoption was permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted ASU 2016-13 in the first quarter of fiscal 2024. The Company did not made a cumulative-effect adjustment to retained earnings.
Accounting Pronouncements Not Yet Adopted
Segment Reporting - Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting - Improvements to Reportable Segment Disclosures.” ASU 2023-07 adds enhanced disclosures about significant segment expenses, clarifies circumstances in which an entity can disclose multiple segment measures of profit and loss and provides new segment disclosure requirements for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. An entity will be required to recast any changes to segment information for prior periods presented. The Company will adopt ASU 2023-07 in fiscal 2025. The Company does not expect the application ASU 2023-07 to have a significant impact on segment disclosures.
| 4) | Disaggregation of Revenue |
The following table displays revenue by reportable segment from external customers, disaggregated by major source. The Company believes disaggregating by these categories depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
| Three Months Ended August 31, 2024 | ||||||||||||
| Agricultural | Modular Buildings | Total | ||||||||||
| Farm equipment | $ | $ | $ | |||||||||
| Farm equipment service parts | ||||||||||||
| Modular buildings | ||||||||||||
| Modular building lease income | ||||||||||||
| Other | ||||||||||||
| $ | $ | $ | ||||||||||
| Three Months Ended August 31, 2023 | ||||||||||||
| Agricultural | Modular Buildings | Total | ||||||||||
| Farm equipment | $ | $ | $ | |||||||||
| Farm equipment service parts | ||||||||||||
| Modular buildings | ||||||||||||
| Modular building lease income | ||||||||||||
| Other | ||||||||||||
| $ | $ | $ | ||||||||||
| Nine Months Ended August 31, 2024 | ||||||||||||
| Agricultural | Modular Buildings | Total | ||||||||||
| Farm equipment | $ | $ | $ | |||||||||
| Farm equipment service parts | ||||||||||||
| Modular buildings | ||||||||||||
| Modular building lease income | ||||||||||||
| Other | ||||||||||||
| $ | $ | $ | ||||||||||
| Nine Months Ended August 31, 2023 | ||||||||||||
| Agricultural | Modular Buildings | Total | ||||||||||
| Farm equipment | $ | $ | $ | |||||||||
| Farm equipment service parts | ||||||||||||
| Modular buildings | ||||||||||||
| Modular building lease income | ||||||||||||
| Other | ||||||||||||
| $ | $ | $ | ||||||||||
The Company offered floorplan terms in its Agricultural Products segment during its Fall of 2022 and 2023 early order program to incentivize customers to stock farm equipment on their lots for fiscal 2023 and fiscal 2024. Floorplan terms allow customers to pay the Company at the earliest of retail date or 180 days. This program has an effect on the timing of the Company’s cash flows compared with historical cash flows.
On August 31, 2024, the Company had approximately $
| 5) |
Accounts receivable |
Accounts receivable are shown net of allowances for expected credit losses. Expected losses are recorded in administrative expense at the time of receivable recognition.
The activity related to expected credit losses for the nine months ended August 31, 2024 is as follows:
| Nine Months Ended (Continuing operations) |
||||
| August 31, 2024 |
||||
| Balance, beginning |
$ | |||
| Provision charged to expense |
||||
| Less amounts charged-off |
( |
) | ||
| Balance, ending |
$ | |||
The activity of allowance for doubtful accounts for activity for the nine months ended August 31, 2023 under legacy US GAAP is as follows:
| Nine Months Ended (Continuing operations) |
||||
| August 31, 2023 |
||||
| Balance, beginning |
$ | |||
| Provision charged to expense |
||||
| Less amounts charged-off |
||||
| Balance, ending |
$ | |||
| 6) | Contract Receivables, Contract Assets and Contract Liabilities |
The following table provides information about contract receivables, contract assets, and contract liabilities from contracts with customers included on the Condensed Consolidated Balance Sheets.
| August 31, 2024 | November 30, 2023 | |||||||
| Receivables | $ | $ | ||||||
| Assets | ||||||||
| Liabilities | ||||||||
The amount of revenue recognized in the first nine months of fiscal 2024 that was included in a contract liability on November 30, 2023 was approximately $
| 7) |
Net Income (Loss) Per Share of Common Stock |
Basic net income (loss) per share of common stock has been computed on the basis of the weighted average number of common shares outstanding. Diluted net income (loss) per share has been computed on the basis of the weighted average number of common shares outstanding plus equivalent shares assuming exercise of stock options. Potential shares of common stock that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted net income (loss) per share.
Basic and diluted net income (loss) per share have been computed based on the following as of August 31, 2024 and August 31, 2023:
| For the Three Months Ended |
||||||||
| August 31, 2024 |
August 31, 2023 |
|||||||
| Numerator for basic and diluted net income (loss) per share: |
||||||||
| Net income from continuing operations |
$ | $ | ||||||
| Net loss from discontinued operations |
( |
) | ( |
) | ||||
| Net 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: |
||||||||
| Continuing Operations |
$ | $ | ||||||
| Discontinued Operations |
( |
) | ( |
) | ||||
| Net loss per share |
$ | ( |
) | $ | ( |
) | ||
| Net Income (loss) per share - Diluted: |
||||||||
| Continuing Operations |
$ | $ | ||||||
| Discontinued Operations |
( |
) | ( |
) | ||||
| Net loss per share |
$ | ( |
) | $ | ( |
) | ||
| For the Nine Months Ended |
||||||||
| August 31, 2024 |
August 31, 2023 |
|||||||
| Numerator for basic and diluted net income (loss) per share: |
||||||||
| Net income (loss) from continuing operations |
$ | ( |
) | $ | ||||
| Net loss from discontinued operations |
( |
) | ( |
) | ||||
| 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: |
||||||||
| Continuing Operations |
$ | ( |
) | $ | ||||
| Discontinued Operations |
( |
) | ( |
) | ||||
| Net income (loss) per share |
$ | ( |
) | $ | ||||
| Net Income (Loss) per share - Diluted: |
||||||||
| Continuing Operations |
$ | ( |
) | $ | ||||
| Discontinued Operations |
( |
) | ( |
) | ||||
| Net income (loss) per share |
$ | ( |
) | $ | ||||
| 8) |
Inventory |
Major classes of inventory are:
| August 31, 2024 |
November 30, 2023 |
|||||||
| Raw materials |
$ | $ | ||||||
| Work in process |
||||||||
| Finished goods |
||||||||
| Total Gross Inventory |
$ | $ | ||||||
| Less: Reserves |
( |
) | ( |
) | ||||
| Net Inventory |
$ | $ | ||||||
| 9) |
Accrued Expenses |
Major components of accrued expenses are:
| August 31, 2024 |
November 30, 2023 |
|||||||
| Salaries, wages, and commissions |
$ | $ | ||||||
| Accrued warranty expense |
||||||||
| Other |
||||||||
| Total accrued expenses |
$ | $ | ||||||
| 10) | Assets Held for Lease |
Major components of assets held for lease are:
| August 31, 2024 | November 30, 2023 | |||||||
| Modular Buildings | $ | $ | ||||||
| Total assets held for lease | $ | $ | ||||||
There were approximately $
The future minimum lease receipts for the years ended November 30 are as follows:
| Year | Amount | |||
| 2024 | $ | |||
| 2025 | ||||
| $ | ||||
| 11) | Product Warranty |
The Company offers warranties of various lengths to its customers depending on the specific product and terms of the customer purchase agreement. The average length of the warranty period is year from the date of purchase. The Company’s warranties require it to repair or replace defective products during the warranty period at no cost to the customer. Product warranty is included in the price of the product and provides assurance that the product will function in accordance with agreed-upon specifications. It does not represent a separate performance obligation under ASC 606. The Company records a liability for estimated costs that may be incurred under its warranties. The costs are estimated based on historical experience and any specific warranty issues that have been identified. Although historical warranty costs have been within expectations, there can be no assurance that future warranty costs will not exceed historical amounts. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the balance as necessary. The accrued warranty balance is included in accrued expenses as shown in Note 9 “Accrued Expenses.” Changes in the Company’s product warranty liability for the three and nine months ended August 31, 2024 and August 31, 2023 are as follows:
| Three Months Ended (Continuing Operations) | ||||||||
| August 31, 2024 | August 31, 2023 | |||||||
| Balance, beginning | $ | $ | ||||||
| Provision charged to expense | ||||||||
| Less amounts charged-off | ( | ) | ( | ) | ||||
| Balance, ending | $ | $ | ||||||
| Nine Months Ended (Continuing Operations) | ||||||||
| August 31, 2024 | August 31, 2023 | |||||||
| Balance, beginning | $ | $ | ||||||
| Provision charged to expense | ||||||||
| Less amounts charged-off | ( | ) | ( | ) | ||||
| Balance, ending | $ | $ | ||||||
| 12) | Loan and Credit Agreements |
Bank Midwest Revolving Lines of Credit and Term Loans
The Company maintains a $
The Company carries a $
The Company entered into 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. 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 $
The Company will be required to pay the balance of the EIDL loan associated with the Tools segment upon liquidation of real estate and dissolution of the business. The principal balance of this loan was $
A summary of the Company’s term debt is as follows:
| August 31, 2024 | November 30, 2023 | |||||||
| 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 twelve month periods ending May 31, are as follows:
| Year | Amount | |||
| 2025 | $ | |||
| 2026 | $ | |||
| 2027 | $ | |||
| 2028 | $ | |||
| 2029 | $ | |||
| 2030 and thereafter | $ | |||
| $ | ||||
| 13) |
Income Taxes |
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses.
The Company has net operating losses and tax credits that are expected to offset any 2024 fiscal year tax liability and does not expect to have significant cash tax cost in the near future.
| 14) | Related Party Transactions |
During the three and nine months ended August 31, 2024, and August 31, 2023, the Company did recognize any revenues from transactions with a related party, and
| 15) |
Leases |
The components of operating leases on the Condensed Consolidated Balance Sheets on August 31, 2024 and November 30, 2023 were as follows:
| August 31, 2024 |
November 30, 2023 |
|||||||
| 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 components of finance leases on the Condensed Consolidated Balance Sheets on August 31, 2024 and November 30, 2023 were as follows:
| August 31, 2024 |
November 30, 2023 |
|||||||
| 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 |
$ | $ | ||||||
| 16) | Equity Incentive Plan and Stock Based Compensation |
On February 25, 2020, the Board of Directors of the Company (the “Board”) authorized and approved the Art’s-Way Manufacturing Co., Inc. 2020 Equity Incentive Plan (the “2020 Plan”). The 2020 Plan was approved by the stockholders on April 30, 2020. The 2020 Plan replaced the Art’s-Way Manufacturing Co., Inc. 2011 Equity Incentive Plan (the “2011 Plan”) and prior plans. The 2020 Plan added an additional
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 three and nine months ended August 31, 2024 and 2023 are as follows:
| For the Three Months Ended | ||||||||
| August 31, 2024 | August 31, 2023 | |||||||
| Shares issued to directors (immediate vesting) | ||||||||
| Shares issued to directors, employees, and consultants (three year vesting) | ||||||||
| Total shares issued | ||||||||
| For the Nine Months Ended | ||||||||
| August 31, 2024 | August 31, 2023 | |||||||
| Shares issued to directors (immediate vesting) | ||||||||
| Shares issued to directors, employees, and consultants (three year vesting) | ||||||||
| Unvested shares forfeited upon termination | ( | ) | ( | ) | ||||
| Total shares issued | ||||||||
| 17) |
Disclosures About the Fair Value of Financial Instruments |
The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. On August 31, 2024 and November 30, 2023, the carrying amount approximated fair value for cash, accounts receivable, accounts payable, notes payable to bank, finance lease liabilities and other current and long-term liabilities. The carrying amounts of current assets and liabilities approximate fair value because of the short maturity of these instruments. The fair value of the finance lease liabilities also approximate recorded value as that is based on discounting future cash flows at rates implicit in the lease. The rates implicit in the lease do not materially differ from current market rates. The fair value of the Company’s term loans payable also approximates recorded value because the interest rates charged under the loan terms are not substantially different from current interest rates.
| 18) | Segment Information |
As of August 31, 2024, 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 August 31, 2024 | ||||||||||||
| Agricultural Products | Modular Buildings | Consolidated (Continuing Operations) | ||||||||||
| Revenue from external customers | $ | $ | $ | |||||||||
| Gross profit | ||||||||||||
| Operating Expense | ||||||||||||
| Income (loss) from operations | ( | ) | ||||||||||
| Income (loss) before tax | ( | ) | ||||||||||
| Total Assets | ||||||||||||
| Capital expenditures | ||||||||||||
| Depreciation & Amortization | $ | $ | $ | |||||||||
| Three Months Ended August 31, 2023 | ||||||||||||
| Agricultural Products | Modular Buildings | Consolidated (Continuing Operations) | ||||||||||
| Revenue from external customers | $ | $ | $ | |||||||||
| Gross profit | ||||||||||||
| Operating Expense | ||||||||||||
| Income (loss) from operations | ( | ) | ||||||||||
| Income (loss) before tax | ( | ) | ||||||||||
| Total Assets | ||||||||||||
| Capital expenditures | ||||||||||||
| Depreciation & Amortization | $ | $ | $ | |||||||||
| Nine Months Ended August 31, 2024 | ||||||||||||
| Agricultural Products | Modular Buildings | Consolidated (Continuing Operations) | ||||||||||
| Revenue from external customers | $ | $ | $ | |||||||||
| Gross profit | ||||||||||||
| Operating Expense | ||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ||||||||
| Income (loss) before tax | ( | ) | ( | ) | ||||||||
| Total Assets | ||||||||||||
| Capital expenditures | ||||||||||||
| Depreciation & Amortization | $ | $ | $ | |||||||||
| Nine Months Ended August 31, 2023 | ||||||||||||
| Agricultural Products | Modular Buildings | Consolidated (Continuing Operations) | ||||||||||
| Revenue from external customers | $ | $ | $ | |||||||||
| Gross profit | ||||||||||||
| Operating Expense | ||||||||||||
| Income from operations | ||||||||||||
| Income 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.
| 19) |
Subsequent Events |
Management evaluated all other activity of the Company and concluded that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements.
Item 2. 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, 2023. Some of the statements in this report may be forward-looking statements that reflect our current view on future events, future business, industry and other conditions, our future performance, and our plans and expectations for future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “may,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. Many of these forward-looking statements are located in this report under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but they may appear in other sections as well. Forward-looking statements in this report generally relate to: (i) our expectations with respect to order backlog, future demand for products, expected product mix and resulting sales; (ii) our beliefs regarding the sufficiency of working capital and cash flows; (iii) our expectation that we will continue to be able to renew or obtain financing on reasonable terms when necessary as well as our continued positive relationship with our creditors and lenders; (iv) our beliefs regarding production capabilities; (v) our intentions and beliefs relating to our costs, business strategies, and future performance, including without limitation, the impact of cost cutting measures, process improvement measures and new product development; (vi) our beliefs regarding the impact and potential actions with respect to discontinuing our Tools segment, including without limitation, potential cash that may be generated by the sale of related real estate and other assets and our belief that Modular and Agricultural Products present greater opportunity for long-term stockholder returns in comparison to our discontinued Tools segment; (vii) our beliefs regarding our early order program providing a picture of future demand; (viii) our expected financial results, including without limitation, our expected results for the Modular and Agricultural Products segments; and (ix) our expectations regarding receiving Employer Retention Credit Refunds; and (x) our expectations concerning our primary capital and cash flow needs.
You should read this report thoroughly with the understanding that our actual results may differ materially from those set forth in the forward-looking statements for many reasons, including events beyond our control and assumptions that prove to be inaccurate or unfounded. We cannot provide any assurance with respect to our future performance or results. Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including but not limited to: (i) the impact of changing credit markets on our ability to continue to obtain financing on reasonable terms; (ii) our ability to repay current debt, continue to meet debt obligations and comply with financial covenants; (iii) the effect of inflation as well as general economic conditions, including consumer and governmental spending, on the demand for our products and the cost of our supplies and materials; (iv) impacts caused by fluctuating commodity prices and fluctuating farm income; (v) fluctuations in seasonal demand and our production cycle; (vi) the ability of our suppliers to meet our demands for raw materials and component parts; (vii) fluctuations in the price of raw materials, especially steel; (viii) our ability to predict and meet the demands of each market in which our segments operate; (ix) fluctuating demand for commercial real estate and the assets we are liquidating as part of closing our Tools segment; (x) other factors described from time to time in our Securities and Exchange Commission filings. We do not intend to update the forward-looking statements contained in this report other than as required by law. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.
Critical Accounting Policies
Our critical accounting policies involving the more significant judgments and assumptions used in the preparation of our financial statements as of August 31, 2024 remain unchanged from November 30, 2023. Disclosure of these critical accounting policies is incorporated by reference from Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended November 30, 2023.
Results of Operations
Net Sales and Cost of Sales
Our consolidated corporate sales from continuing operations for the three- and nine-month periods ended August 31, 2024 were $ 5,876,000 and $18,329,000 compared to $8,117,000 and $23,429,000 during the same respective periods in fiscal 2023, a $2,241,000, or 27.6%, decrease for the comparative three months and a decrease of $5,100,000, or 21.8%, for the comparative nine months. Consolidated gross margin for the three and nine months ended August 31, 2024 was 28.9% and 27.7% compared to 28.3% and 28.5% for the same periods in fiscal 2023.
Our third quarter sales in our Agricultural Products segment were $2,988,000 compared to $5,530,000 during the same period of fiscal 2023, a decrease of $2,542,000, or 46.0%. For the nine months ended August 31, 2024, our Agricultural Products segment sales were $11,779,000 compared to $17,343,000, during the same period of 2023, a decrease of $5,564,000, or 32.1%. In February of 2024, the US Department of Agriculture reported a 25% expected decline in farm income levels for 2024 due to weaker row crop prices and expected increases in production expenses. Our sales year to date have fallen in line with the USDA's early sentiments on projected farm income. In September 2024, the USDA revised their projection to an expected 9.6% decrease in net farm income. This number is propped up by large feedlot operations where livestock prices remain above the five-year average and in general animal/animal product cash receipts are expected to be up 7.1% from 2023. Incoming whole good orders remained scarce in the third quarter of fiscal 2024 as row crop prices, including corn, soybeans and wheat, were down 18-24% from the five-year average. Sugar prices remain around 8% above the five-year average as of this report, but the overall agriculture economy sentiment is negative. High interest rates continue to put pressure on farmer's bottom lines, are prohibitive to equipment financing arrangements and floorplan programs. We enacted initial cost cutting measures in the first quarter of fiscal 2024 to partially mitigate the effect on cash flow from decreased sales, including layoffs of non-production employees and offering early retirement incentives to employees at retirement age. We also entered the Iowa Work Force Development's voluntary workshare program in April 2024, which eliminates the need for additional production layoffs by allowing us to cut employee's hours while employees receive unemployment benefits for lost hours. We remain focused on trimming operating expenses and reducing overall inventory while remaining efficient in our production process. From a sales standpoint, we continue to work with dealers to help move field inventory to generate more sales opportunities for our products. We are targeting new dealer acquisitions to penetrate geographic markets in which we lack a substantial presence. Gross margin for our Agricultural Products segment for the three-month and nine-month periods ended August 31, 2024 was 27.2% and 27.8%, respectively, compared to 26.0% and 29.4% for the same periods in fiscal 2023. We primarily attribute our year to date gross margin decrease to the decrease in sales, which have diminished our economies of scale, but also our margins are burdened by inflationary price increases in supplies used in manufacturing and health and general insurance costs. We expect a continued focus on driving overheads costs down for the remainder of fiscal 2024 and fiscal 2025.
Our third quarter sales in our Modular Buildings segment were $2,888,000 compared to $2,587,000 for the same period in fiscal 2023, an increase of $301,000, or 11.6%. For the nine months ended August 31, 2024, our Modular Buildings sales were $6,550,000, compared to $6,086,000 for the same period of fiscal 2023, an increase of $464,000, or 7.6%. Two large research projects are driving the sales increase for the three- and nine- month periods. We expect a strong finish to fiscal 2024 as we expect to close out one of the two large research products in the fourth quarter. Gross margin in the Modular Buildings segment for the three- and nine-month periods ended August 31, 2024 was 30.7% and 27.5%, respectively, compared to 33.4% and 25.8% for the same respective periods in fiscal 2023. The Modular Buildings segment typically sees higher margins on research projects, which made up the majority of our revenue for the first nine months of fiscal 2024, compared to a higher percentage of agricultural buildings in fiscal 2023. This, coupled with increased billing rates, has led to improved margins in this segment over the last 24 months.
Expenses
Consolidated selling expenses from continuing operations for the three months ended August 31, 2024 were $381,000, compared to $566,000 for the same period in fiscal 2023. Our consolidated selling expenses from continuing operations for the nine months ended August 31, 2024 were $1,241,000, compared to $1,609,000 for the same period in fiscal 2023, a decrease of $368,000, or 22.9%. The decrease in selling expenses is related mainly to decreases in commission expense. Decreased sales in the Agricultural Products segment and the addition of an inside salesperson contributed to the decrease in commission expense. Our Modular Buildings segment also utilizes commissions on agricultural building sales and we saw a significant decrease in these sales comparatively. Selling expenses as a percentage of sales was 6.8% for the nine months ended August 31, 2024 compared to 6.9% for nine months ended August 31, 2023.
Consolidated engineering expenses from continuing operations were $79,000 and $346,000 for the three- and nine-month periods ended August 31, 2024, respectively, compared to $171,000 and $439,000 for the same periods in fiscal 2023. The decrease in engineering expenses is related to budget cuts made at the beginning of fiscal 2024. Engineering expenses as a percentage of sales were 1.9% for the nine months ended August 31, 2024, compared to 1.9% for the same respective periods in fiscal 2023.
Consolidated administrative expenses from continuing operations for the three- and nine-month periods ended August 31, 2024 were $1,087,000 and $3,550,000, respectively, compared to $1,095,000 and $3,178,000 for the same respective period in fiscal 2023. Administrative expenses as a percentage of sales were 19.4% for the nine months ended August 31, 2024, compared to 13.6% for the same respective period in fiscal 2023. Administrative expenses increased year on year primarily due to the addition of skilled staff in accounting and human resources. We also paid out approximately $188,000 of early retirement incentives for employees of retirement age that retired mid-March of 2024. The retirement incentive was offered to help right-size our workforce. We also saw increased information technology costs year on year from rising prices and the amortization of our cloud computing arrangement implementation which will be fully amortized after the second quarter of fiscal 2025.
Net income (loss) from continuing operations
Consolidated net income from continuing operations was $2,000 for the three-month period ended August 31, 2024, compared to net income of $241,000 for the same period in fiscal 2023. For the nine months ended August 31, 2024, our consolidated net loss was $427,000 compared to net income of $921,000 for the same period of fiscal 2023. While we had positive operating income from continuing operations for the second straight fiscal quarter, high interest rates have put strain on our bottom line in fiscal 2024. We expect it may be another twelve months before we see some sales stabilization in the Agricultural Products segment due to ongoing market conditions. Inventory reduction, debt retirement and cost cutting to maximize cash flow will be key over the next 18 months to weather the current conditions. The Modular Buildings segment recorded revenue increases and profitability for both the three and nine months ended August 31, 2024. We anticipate continued positive performance from this segment for the remainder of fiscal 2024 as we close out current backlog.
Order Backlog
The consolidated order backlog net of discounts for continuing operations as of October 3, 2024 was $5,600,000 compared to $5,605,000 as of October 3, 2023, a 0.1% decrease. The Agricultural Products segment order backlog was $708,000 as of October 3, 2024 compared to $4,143,000 in fiscal 2023, an 82.9% decrease. Expected decreases in net farm income from struggling row crop prices coupled with high interest rates in fiscal 2024 has suppressed demand for agricultural products across the North American market. We expect future rate cuts to have a positive effect on the agriculture equipment market and expect a period of maybe 6 to 12 months where incoming orders remain slow while existing inventory is consumed from dealer lots. As of the date of this report we are in the first phase of our early order program. We will have a better gauge on how fiscal 2025 is going to shape up once our early order program expires. The backlog for the Modular Buildings segment was $4,892,000 as of October 3, 2024, compared to $1,462,000 in fiscal 2023, an 234.6% increase. We continue to see strong demand for research-type modulars in our Modular Buildings segment as we progress through the fourth quarter of fiscal 2024. We have also noticed an uptick in Agricultural modular building demand in the past 30 days or so. 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 nine months ended August 31, 2024 was cash generated by operating activities bolstered by contracts in progress in the Modular Buildings segment. Favorable billing terms have allowed us to stay cash positive while we complete large research projects we have under contract. Our inventory levels at November 30, 2023 were heightened compared to recent history and the reduction of those inventory levels over the nine months ended August 31, 2024 generated positive cash for us. We also carried over close to $1.9 million in accounts receivable from floorplan sales in our Agricultural Products segment at the end of fiscal 2023 that provided a strong cash influx over the first nine months of fiscal 2024. A large reduction in accounts payable was our biggest cash outflow for the first nine months of fiscal 2024. The heightened inventory balance at November 30 coupled with reduced inventory spending drove this decrease. For the remainder of fiscal 2024, we expect our primary sources of cash to be collection of receivables and inventory reduction activities. While we are over billed in our Modular Buildings contracts, close to $1 million of these billings are still in accounts receivable. We expect our construction contracts cash in and outflows to be close to even for the remainder of the fiscal year while operating expenses and retirement of debt will be our biggest cash consumption activities. The sale of real estate of our Tools segment in October 2024 for $1.8 million should net close to $1.7 million in cash after closing expenses. We expect to retire short and long-term debt with the proceeds. We also expect $1.2 million of net Employer Retention Credit refunds to provide a material inflow of cash, although the timing of this transaction is unknown.
We have $5,500,000 on a revolving line of credit with Bank Midwest that, as of August 31, 2024, had an outstanding principal balance of $3,867,437. This line of credit was renewed on March 4, 2024 and is scheduled to mature on March 30, 2025.
We believe our current financing arrangements will provide sufficient cash to finance operations and pay debt when due during the next twelve months. We expect to continue to be able to procure financing upon reasonable terms.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The persons serving as our principal executive officer and principal financial officer have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period subject to this report. Based on this evaluation, the persons serving as our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of August 31, 2024. Our management has concluded that the consolidated financial statements included in this report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
We are currently not a party to any material pending legal proceedings.
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 third quarter of fiscal 2024:
| Total Number of |
||||||||||||||||
| Shares |
Approximate Dollar |
|||||||||||||||
| Purchased as part |
Value of Shares that |
|||||||||||||||
| Total |
Average |
of |
May |
|||||||||||||
| Number |
Price |
Publicly |
Yet Be Purchased |
|||||||||||||
| of Shares |
Paid per |
Announced |
under the |
|||||||||||||
| Purchased (1) |
Share |
Plans or Programs |
Plans or Programs |
|||||||||||||
| June 1 to June 30, 2024 |
- | $ | - | N/A | N/A | |||||||||||
| July 1 to July 31, 2024 |
- | $ | - | N/A | N/A | |||||||||||
| August 1 to August 31, 2024 |
- | $ | - | N/A | N/A | |||||||||||
| Total |
- | $ | - | |||||||||||||
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
| Exhibit No. |
Description |
| 3.1 |
|
| 3.2 |
|
| 31.1 |
Certificate of Chief Executive Officer pursuant to 17 CFR 13a-14(a) – filed herewith. |
| 31.2 |
Certificate of Chief Financial Officer pursuant to 17 CFR 13a-14(a) – filed herewith. |
| 32.1 |
Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 - filed herewith. |
| 32.2 |
Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 - filed herewith. |
| 101 |
The following materials from this report, formatted in iXBRL (Inline Extensible Business Reporting Language) are filed herewith: (i) condensed consolidated balance sheets, (ii) condensed consolidated statement of operations, (iii) condensed consolidated statements of cash flows, and (iv) the notes to the condensed consolidated financial statements. |
| 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101). |
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: October 10, 2024 |
By: /s/ Marc H. McConnell |
| Marc H. McConnell |
|
| President, Chief Executive Officer and Chairman |
|
| Date: October 10, 2024 |
By: /s/ Michael W. Woods |
| Michael W. Woods |
|
| Chief Financial Officer |