UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR |
For the fiscal year ended November 30, 2021
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR |
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For the transition period from to
Commission file number 000-5131
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(Exact name of registrant as specified in its charter) | ||
Delaware | 42-0920725 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
P.O. Box 288
5556 Highway 9
Armstrong, Iowa 50514
(Address of principal executive offices, including zip code)
(712) 864-3131
(Registrant’s telephone number, including area code)
5556 Highway 9
Armstrong, Iowa 50514
(Address of principal executive offices)
(712) 864-3131
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |||||
Common stock $.01 par value | ARTW | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: |
None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ | |
Non-accelerated filer ☒ | Smaller reporting company ☒ | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicated by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter, based on the closing sale price on May 31, 20192021 as reported on the Nasdaq Stock Market LLC ($2.003.29 per share), was approximately $4,145,522.$6,747,691.
As of January 30, 2020,February 2, 2022, there were 4,349,6424,628,806 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statementdefinitive proxy statement for the Registrant’s 2020registrant’s 2021 Annual Meeting of Stockholders to be filed within 120 days of November 30, 20192021 are incorporated by reference into Part III of this Annual Report on Form 10-K.
Art’s-WayArt’s-Way Manufacturing Co., Inc.
Index to Annual Report on Form 10-K
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Part I | ||
Item 1. BUSINESS |
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Item 1A. RISK FACTORS | ||
Item 1B. UNRESOLVED STAFF COMMENTS |
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Item 2. PROPERTIES |
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Item 3. LEGAL PROCEEDINGS |
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Item 4. MINE SAFETY DISCLOSURES |
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Part II | ||
Item 5. MARKET FOR |
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Item 6. SELECTED FINANCIAL DATA |
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Item 7. |
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
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Item 9A. CONTROLS AND PROCEDURES |
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Item 9B. OTHER INFORMATION |
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Part III | ||
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
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Item 11. EXECUTIVE COMPENSATION |
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Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
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Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES |
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Part IV | ||
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
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FORWARD LOOKING STATEMENTS
This reportAnnual Report on Form 10-K (this “report”) may contain forward-looking statements that reflect future events, future business, industry and other conditions, our future performance, and our plans and expectations for future operations and actions. In some cases forward-looking statements may be identified by the use of words such as “may,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. Forward-looking statements in this report generally relate to: our expectations regarding the impact of COVID-19 on our business condition and results of operations; our expectations regarding our warranty costs and order backlog; our beliefs regarding the sufficiency of working capital and cash flows; our expectations regarding our continued ability to renew or obtain financing on reasonable terms when necessary;necessary as well as our continued positive relationship with our creditors and lenders; the impact of recently issued accounting pronouncements; our intentions and beliefs relating to our costs, product developments and business strategies; our expectations concerning our continued expansion into international markets; our expectations with respect to government spending and programs that may directly or indirectly be used to purchase our products; our beliefs concerning our ability to attract and maintain an adequate workforce in a competitive labor market; our expected operating and financial results; our beliefs concerning the effects of, and costs of compliance with government regulations; our expectations concerning our primary capital and cash flow needs; our beliefs regarding competitive factors and our competitive strengths; our expectations regarding our capabilities and demand for our products; our predictions regarding the impact of seasonality; our beliefs regarding the impact of the farming industry on our business; our beliefs regarding our internal controls over financial reporting; and our intentions for paying dividends. Many of these forward-looking statements are located in this report under “Item 1. BUSINESS” and “Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” but they may appear in other sections as well.
You should read this report thoroughly with the understanding that our actual results may differ materially from those set forth in the forward-looking statements for many reasons, including events beyond our control and assumptions that prove to be inaccurate or unfounded. We cannot provide any assurance with respect to our future performance or results. Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including, but not limited to, the ongoing COVID-19 pandemic; the impact of tighteningchanges in credit markets on our ability to continue to obtain financing on reasonable terms; our ability to repay current debt, continue to meet debt obligations and comply with financial covenants; obstacles related to integration of acquired product lines and businesses; obstacles related to liquidation of product lines and segments;lines; 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; fluctuations in seasonal demand and our production cycle; the ability of our suppliers to meet our demands for raw materials and component parts; our original equipment manufacturer customers’ decisions regarding supply chain structure, inventory levels, and overall business conditions; fluctuations in the price of raw materials, especially steel; our ability to predict and meet the demands of each market in which our segments operate; a decrease in demand for our products in international markets; the existence and outcome of product liability claims and other ordinary course litigation; changes in environmental, health and safety regulations and employment laws; our ability to fill open positions within the Company and retain our key employees; the cost of complying with laws, regulations, and standards relating to corporate governance and public disclosure, and the demand such compliance places on management’s time; and other factors described in this report and from time to time in our other reports filed with the Securities and Exchange Commission. We do not intend to update the forward-looking statements contained in this report other than as required by law. We caution investors not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. This report and the documents that we reference in this report and have filed as exhibits should be read completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.
PART I
Item 1. BUSINESS.
General
Art’s-Way Manufacturing Co., Inc., a Delaware corporation (“we,” “us,” “our,” and the “Company”), began operations as a farm equipment manufacturer in 1956. Since that time, we have become a worldwide manufacturer of agricultural equipment, specialized modular science buildings and steel cutting tools. Our principal manufacturing plant is located in Armstrong, Iowa.
We have organized our business into three operating segments. Management separately evaluates the financial results of each segment because each is a strategic business unit offering different products and requiring different technology and marketing strategies. Our Agricultural Products segment manufactures and distributes farm equipment under our own and private labels and previously included the operations of our wholly-owned subsidiary, Art’s-Way Manufacturing International LTD, a Canadian company (“International”). During the second quarter of the 2018 fiscal year, we liquidated our investment in our Canadian subsidiary by selling off remaining inventory and dissolving International.name. Our Modular Buildings segment manufactures modular buildings for various uses, commonly animal containment and research laboratories, through our wholly-owned subsidiary, Art’s-Way Scientific, Inc., an Iowa corporation. Our Tools segment manufactures standard single point brazed carbide tipped tools as well as PCD (polycrystalline diamond) and CBN (cubic boron nitride) inserts and OEM tools through our wholly-owned subsidiary, Ohio Metal Working Products/Art’s Way,Art’s-Way, Inc., an Ohio corporation (“Ohio Metal”).corporation. For detailed financial information relating to segment reporting, see Note 1816 “Segment Information” to our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.
InformationCorporate information about Art’s-Way can be found on our website, http://www.artsway-mfg.com/. We are not including the while information on our corporate website as a part of or incorporating it by reference into this report.agriculture products can be found on http://www.artsway.com/. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Exchange Act requires us to file periodic reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s website at http://www.sec.gov.
Business of Our Segments
Agricultural Products
Our Agricultural Products segment, which accounted for 59.0%67.4% of our net revenue in the 20192021 fiscal year and 72.7%58.4% of our net revenue in the 20182020 fiscal year, is located primarily in our Armstrong, Iowa facility.Iowa. This segment manufactures a variety of specialized farm machinery under our own label, including portable and stationary animal feed processing equipment and related attachments used to mill and mix feed grains into custom animal feed rations; a line of hay and forage equipment consisting of forage boxes, blowers,bale processors, running gear, and dump boxes; a line of portable grain augers; a line of manure spreaders; sugar beet harvesting equipment; and a line of land maintenance equipment; moldboard plows; and reels for combines and swathers. We also previously manufactured industrial grade snow blowers under the Agro Trend label, but we sold the Agro Trend product line to Metco, Inc. on December 15, 2017. The Agro Trend line under our Canadian subsidiary accounted for 2% of our sales from continuing operations on our statements of operations for the 2018 fiscal year.dirt work equipment. We sell our labeled products through independent farm equipment dealers throughout the United States, Australia, Canada, Japan and Canada. In addition, we manufacture and supply silage blowers and reels under original equipment manufacturer (“OEM”) agreements. Sales to our OEM customers accounted for 1% of our consolidated sales for the 2019 fiscal year and 5% of our consolidated sales for the 2018 fiscal year.United Kingdom. We also provide after-market service parts that are available to keep our branded and OEM-produced equipment operating to the satisfaction of the end user of our products.
Modular Buildings
Our Modular Buildings segment, which accounted for 31.7%22.7% of our net revenue in the 20192021 fiscal year and 15.8%31.2% of our net revenue in the 20182020 fiscal year, is located in Monona, Iowa. This segment produces, sells and sellsleases modular buildings, which are custom-designed to meet the specific research needs of our customers. The buildings we commonly produce range from basic swine buildings to complex containment research laboratories. We plan to continue our focus on providing research facilities for academic research institutions, government research and diagnostic centers, public health institutions and private research and pharmaceutical companies, as those are our primary market sectors. We provide services from start to finish by designing, manufacturing, delivering and installing these facilities to meet customers’ critical requirements. In addition to selling these facilities, we also offer a lease option to customers in need of temporary facilities.
Tools
Our Tools segment, which is located in Canton, Ohio, accounted for 9.3%9.9% of our net revenue in the 20192021 fiscal year and 11.5%10.4% of our net revenue in the 20182020 fiscal year. This segment produces and sells standard single point brazed carbide tipped tools as well as PCD (polycrystalline diamond), and CBN (cubic boron nitride) inserts and tools and OEM specialty tools. The tools are used by manufacturers in various industries to cut and shape various parts, pipes, and fittings. The marketing of the tools is primarily through independent distributors supplying manufacturers with industrial tools and supplies. We plan to continue our focus on providing cutting tools to industries such as automotive, aerospace, oil and gas piping, and appliances.
Our Principal Agricultural Products
From our beginningsArthur Luscombe built the first PTO powered grinder mixer on his farm near Dolliver, Iowa. The product’s ability to tackle even the most demanding workload made it an overwhelming success – and secured Luscombe’s reputation as a producer of portable grinder mixers,farmer, entrepreneur and independent thinker who did things his way. Over the years our Agricultural Products segment has grown through developing several new products and with our acquisitions. In 2012, we acquired the assets of Universal Harvester Co., Inc. (“UHC”)We take pride in Ames, Iowa and began selling reels for combines and swathers as UHC by Art’s-Way. In 2013, we acquired the Agro Trend product line based in Clifford, Ontario and we sold Agro Trend industrial snow blowers and agricultural trailers through our Canadian subsidiary. On December 15, 2017, we sold the Agro Trend product line to Metco, Inc. Today, our Agricultural Products segment manufactures a wide array of products relating to feed processing, crop production, augers, manure spreaders, hay and forage tillage and land management, andequipment, bale processors, dirt work equipment, sugar beet harvesting equipment. We primarily manufacture products under the Art’s-Way, Miller Pro, Roda, M&W, Badger,equipment and UHC by Art’s-Way brand names. Our Agricultural Products segment also maintains a small volume offeed mills. OEM work foris also supplied to the industry’s leading manufacturers.
Grinder mixer line. Feed mills.The grinder mixer line represents our original product line. Our founder, Arthur Luscombe, designed the original power take-off unit (“PTO”) powered grinder-mixer prior There’s no one better than Art’s Way when it comes to our inception. Grinder mixers are used to grind grainprocessing feed. Stationary mills for livestock feeding or breweries, portable units for small operations and mix in proteins for animal feed. They have several agricultural applications and are commonly used in livestock operations. Ourlarge grinder mixers for the modern feeding operation have wide swing radiusesour customers’ backs day in and day out. Hammer mills provide faster processing and easily changing micron size or roller mills offer more consistency. We offer the most complete lineup of equipment in feed processing.
Manure spreaders. The X Series spreaders have a unique vertical beater placement combined with guillotine slop gate controls to allow users to repositioncreate the discharge tube from one side of the tank to the other in one step. Our 6105 grinder mixer offers a 105-bushel tank with a 20-inch hammermill. Our 6140 grinder mixer is a medium sized product with a 140-bushel tank, a 20-inch hammermill, and an 8-inch discharge auger. Our 7165 grinder mixer has a large 165- bushel tank with a 26-inch hammermill featuring self-contained hydraulics and 10-inch discharge augers yielding the fastest unload timesbest spread pattern in the industry. DuringFlared sides and densilite flooring provide easy loading and material movement. Backed by our limited lifetime warranty on the 2019 fiscal year, we completed development ofapron chain, customers can depend on this rugged machine. The upgraded rate control option powered by Raven is the 8215 grinder mixer featuring a 215-bushel tank, which is now the largestonly unit in the industry. Our Cattle Maxx rollermill mixer products offer consistent feed grain rations for beefindustry to have completely automatic spreading capabilities with apron speed and dairy operations and are available in 105-bushel, 140-bushel, and 165-bushel capacities. We also offer the JR50 and JR75 grinder mixer models for smaller operations featuring 50- and 75-bushel mixing tanks, respectively.slop gate control.
Stationary feed grain processing line. Forage.We The 2100 series are user-friendly forage boxes in different lengths and unload configurations. It is the only box in its class to offer stationary hammermills100% in-cab controls. Tube side stakes and rollermills. Harvesting leaves various amountscorrugated sides give users confidence when side-by-side with competitor models. The 9016-HD High Dump cart boasts the largest capacity in the industry at 40,000 pounds.
Bale processors. Spread large round or square bales in the same machine attached to a skid steer, telehandler, or tractor with the patented TOP-SPREAD loader mounted spreader. The compact size fits into barns and alleyways and is easy to maneuver. On a construction site, load on a flatbed pick and cover roadsides or fresh seeding quickly from the seat of extraneous materials that must be removed through processinga skid steer.
Dirt work equipment. Level out and shape fields with the seeds. Hammermills are aggressive pre-cleaners that are designed to remove appendages, awns, and other chaff from seeds by vigorously scraping the seed over and through the screen. The screen has holes that are big enough to let the seed pass through undamaged but are small enough to catch and remove the appendages. Our rollermills roll the feed grain to minimize dust, and they fracture the outside hull to release the digestive juices more rapidly. Rolling feed provides more palatable and digestible feed for use in animal feeding operations.
Land management line. Landsingle blade or folding land planes are used to ensure even distribution of rainfall or irrigationfeaturing our patented floating hitch design. Reduce erosion by eliminating water pockets, furrows, and implement scars in fields. Our land planes have a patented Art’s-Way floating hitch design. We offer pull-typethe field. Shape yards or work sites with standard or rear steer graders to help our customers perform many tasks such as maintaining terraces and waterways, leveling ground, cleaning ditches, and removing snow. The pull-type gradersthat follow close toclosely behind the back of a tractor for leveling uneven areas or for turning in smaller spaces.
Moldboard plow line. The Art’s-Way moldboard plows offer conservation tillage choices to match each customer’s preference. Our moldboard plows are designed to slice and invert the soil to leave a rough surface exposed, and they are primarily used on clean-tilled cropland with high amounts of crop residue.
Sugar beet harvesting line.equipment. OurWe are proud to offer the best sugar beet defoliators and harvesters are innovative productscleaning in the industry due toduring muddy harvest conditions with our focus on continuous improvement, both in reaction to customer requests and in anticipation of our customers’ needs.patented grab roll bed. Our machines can harvest six, eight, or twelve rows at one time. We were12-row harvester has been improved with an automatic leveling system add-on for consistent digging across the first manufacturer to introduce a larger, 12-row harvester. We also manufacture a 692Z model, which is a smaller, more contained model, commonly used by smaller producers. Our sugar beet defoliators cut and removefield. The defoliator cleanly removes the leaves ofoff the sugar beets without damagingprior to digging them and the leaf particlesup for harvest. The leaves are then incorporated back into the soil. In 2019, we introduced a sonar leveling axle to improve the harvesting capability of our beet equipment.
Hay and forage line. We offer highly productive hay and forage tools for the full range of producers. This product line includes high capacity forage boxes for transporting hay from the field with optional running gearsoil to provide superior stability and tracking. With recent product line additions, we offer the highest capacity forage boxes on the market. High velocity, high volume forage blowers are able to fill the tallest silos with lower power requirements. Cam action rotary rakes will gently lift the crop, carry it to the windrow and release it, saving more leaves and forming a faster drying, fluffier windrow.
Manure spreadersline. Roda manure spreaders are a well-known name with a rich tradition in the West North Central region of the United States with the origin of the spreaders dating back to the 1950s. We offer vertical and horizontal beaters and rear discharge manure spreaders in both truck-mount and pull-type configurations. We also offer manure spreaders with flared sidesnutrients for increased capacity and a guillotine slop gate for accurate metering. Our products are ideal for spreading livestock manure, compost, and lime. We offer a scale system and a scale system with GPS for proper nutrient placement. These spreaders boast a heavy-duty and rugged design with one of the best spread patterns in the industry, allowing for efficient and consistent nutrient and land management.
Reelsline. In 2012 we purchased the assets of UHC and began selling reels for combines and swathers as UHC by Art’s-Way. These reels have a unique flip over action for self-cleaning in adverse conditions. They are manufactured with extruded aluminum creating a light-weight yet strong reel.next year’s crop.
Product Distribution and Markets
We distribute goods for our Agricultural Products segment primarily through a network of approximately 1,1001,000 U.S. and Canadian independent dealers, as well as overseas dealers in Australia, Japan and the United Kingdom, and Australia, whose customers require specialized agricultural machinery. We have sales representation in 48 states and seven Canadian provinces; however, many dealers sell only service parts for our products.provinces. Our dealers sell our products to various agricultural and commercial customers. We also maintain a local sales force in our Armstrong, Iowa facility to provide oversight services for our distribution network, communicate with end users, and recruit and train dealers on the uses of our products. Our local service parts staff is available to help customers and dealers with their service parts needs. Our Modular Buildings segment typically sells products customized to the end-user’s requirements directly to the end-user. Our Tools segment distributes products through manufacturers’ representatives, direct sales, and OEM sales channels.
We currently export products to elevennine foreign countries. We have been shipping grinder mixers abroad since 2006 and have exported portable rollermills and sugar beet harvesters as well. We continue to strengthen these relationships and intend to develop new international markets. Our international sales accounted for 5.0%2.6% of consolidated sales during the 20192021 fiscal year compared to 3.4% in the 2020 fiscal year.
Backlog. Our backlogs of orders vary on a daily basis. As of January 30, 2020,February 2, 2022, our Tools segment had approximately $285,000$503,000 of backlog ourcompared to $302,000 from the same date in 2021. This is the largest backlog on record for the Tools segment and while that is great news, there are capacity challenges ahead in order to fulfil these orders. In order to combat ongoing labor shortages, the Company issued a purchase order on January 31, 2022 for approximately $161,000 to purchase a Haas milling machine and robot package. Our Modular Buildings segment had approximately $5,106,000of $1,243,000 of backlog and ouras of February 2, 2022, compared to $1,226,000 on that date in 2021. While the total backlog year on year is similar, the quality of margin on the 2022 backlog is much improved as approximately $496,000 of the 2021 backlog was estimated to carry a 3% margin compared to typical margin of 25%. Our Agricultural Products segment had a net backlog of approximately $3,592,000. Our backlog is up across all three segments and up approximately 266% in total$10,459,000 as of February 2, 2022 compared to $6,363,000 on February 2, 2021. The continued strong demand in the Agricultural Products puts us in a position to have another successful year. We will be working to refine our process and improve our manufacturing volume outputs in fiscal 2022 to meet this same time last year.added demand. On February 7, 2022 we signed a finance lease agreement to purchase three robotic weld cells for $297,600. We expect these weld robots to improve the efficiency of our weld shop and to alleviate capacity concerns related to a shortage in skilled welders. We expect that our order backlogs will continue to fluctuate as orders are received, filled, or cancelled,canceled, and, due to dealer discount arrangements we may enter into from time to time, these figures are not necessarily indicative of future revenue.
Recent Product Developments
DuringThroughout the 20192021 fiscal year, development inwe focused on capturing feedback from our Agricultural Products segment consistedcustomers to make improvements to our current long-standing reliable products and building out our line-up of several products. We finalized design on the 8215 grinder mixer which incorporates the quality and traditional features of previous units with our largest capacity in a grinder mixer of 215 bushels. We introduced two new manure spreaders at the end of 2018, the X700 and X900. These units feature a guillotine slop gate for accurate metering and additional capacity due to flared sides. In 2019, we readied and put these units into mass production. We also developed a sonar leveling axlelivestock equipment for our sugar beet harvesters in 2019 that tracks harvesting depth to maximize crop extraction. We continued development onproducers. Projects include expanding our 40-foot commercialmanure spreader model offerings, completing different configurations for our forage box, which features a rear unload, has an all-welded design for greater strengthboxes and features polished stainless-steel sides. The 40-foot forage box is also welded to a semi-trailer for straight from the field to over-the-road use. We also began the developmentmodernizing some of a hemp drying box in 2019.our manufacturing methods across all products.
Our Tools and Modular Buildings segments complete projects based on customer specifications and did not engage in specific product development during the 20192021 fiscal year.
Competition
In addition to the competitive strengths of each of our segments described below, we believe our diversified revenue base, sales presence and customer base drawn from these three segments helps to provide protection against competitive factors in any one industry.
Agricultural Products
Our Agricultural Products segment competes in a highly competitive agricultural equipment industry. We compete with larger manufacturers and suppliers that have broader product offerings and significant resources at their disposal; however, we believe that our competitive strengths allow us to compete effectively in our market.
Management believes that grain and livestock producers, as well as those who provide services to grain and livestock operations, are the primary purchasers of agricultural equipment. Many factors influence a buyer’s choice for agricultural equipment. Any one or all factors may be determinative, but they include brand loyalty, the relationship with dealers, product quality and performance, product innovation, product availability, parts and warranty programs, price, and customer service.
While our larger competitors may have resources greater than ours, we believe we compete effectively in the farm equipment industry by serving smaller markets in specific product areas rather than directly competing with larger competitors across an extensive range of products. Our Agricultural Products segment caters to niche markets in the agricultural industry. We do not have a direct competitor that has the same product offerings that we do. Instead, each of our product lines competes with similar products of many other manufacturers. Some of our product lines face greater competition than others, but we believe that our products are competitively priced with greater diversity than most competitor product lines. Other companies produce feed processing equipment, sugar beet harvesting and defoliating equipment, grinders, and other products similar to ours; therefore, we focus on providing the best product available at a reasonable price. Overall, we believe our products are competitively priced with above average quality and performance, in a market where price, product performance, and quality are principal elements.
In addition, in order to capitalize on brand recognition for our Agricultural Products segment, we have numerous product lines produced under our labels and private labels, and we have made strategic acquisitions to strengthen our dealer base.own label. We also provide aftermarket service parts which are available to keep our branded and OEM-produced equipment operating to the satisfaction of the customer. We sell products to customers in the United States and elevennine foreign countries through a network of approximately 1,1001,000 independent dealers in the United States and Canada, as well as overseas dealers in Australia, Japan and the United Kingdom and Australia.Kingdom.
We believe that our competitive pricing, product quality and performance, network of worldwide and domestic distributors, and strong market share for many of our products allow us to compete effectively in the agricultural products market.
Modular Buildings
We expect continued competition from our Modular Buildings segment’s existing competitors, which include conventional design/build firms, as well as competition from new entrants into the modular building market. To some extent, we believe barriers to entry in the modular building industry limit the competition we face in the industry. Barriers to entry in the market consist primarily of access to capital, access to a qualified labor pool, and the bidding process that accompanies many jobs in the health and education markets. Despite these barriers, manufacturers who have a skilled work force and adequate production facilities could adapt their manufacturing facilities to produce modular structures.
We believe the competitive strength of our Modular Buildings segment is our ability to design and produce high-tech modular buildings more quickly than conventional design/build firms. Conventional design/build construction may take two to five years, while our modular laboratories can be delivered in as little as six months. As one of the few companies in the industry to supply turnkey modular buildings and laboratories, we believe we provide high-quality buildings at reasonable prices that meet our customers’ time, flexibility, and security expectations.
Tools
We expect competition in our Tools segment from off shoreoffshore products that have gained market share over the last twenty20 years. Our greatest threat continues to be emerging technologies that replace the need for brazed tools. These competitive threats are countered by our ability to offer the widest range of standard carbide tipped brazed tool inventories to be found in North America. These inventories are strategically located in four warehouses across the United States, enabling our customers to receive product quickly with minimal shipping costs. Our ability to produce special, engineered, value-added products in volume with short lead times sets us apart from our competitors. This is most evident in certain segments of the pipe processing industry, where we have been able to establish and maintain market share despite efforts from companies significantly larger than ourselves. In 2019 we expanded our tool offering by entering into an OEM agreement with a specialty tool manufacturer.
Raw Materials, Principal Suppliers,, and Customers
Raw materials for our various segments are acquired from domestic and foreign sources and normally are readily available. Currently, we purchaseWe saw lead times increase on raw materials in 2021 as labor shortages from the lifter wheels used to manufactureCOVID-19 pandemic left many of our sugar beet harvesters from a supplier located in China.suppliers understaffed. We also purchase manure spreader beaters from a supplier in Italy.do rely on foreign suppliers and foreign markets for materials and components for some of our products. However, these suppliers are not principal suppliers and there are alternative sources for these materials.
We have an OEM supplier agreement with Case New Holland (“CNH”) for our Agricultural Products segment. Under the OEM agreement, we have agreed to supply CNH’s requirements for certain feed processing and service parts, primarily blowers, under CNH’s label. The agreement has no minimum requirements and can be cancelled upon certain conditions. The initial term of the agreement with CNH expired in September 2006, but the agreement continues in force until terminated or cancelled by either party. Neither party has terminated or cancelledOn October 27, 2021, the Company informed CNH that it was terminating the OEM agreement as written. The agreement remains in place for one year from date of November 30, 2019. We also sell reels to Honey Bee and Agco under an OEM agreement. Fortermination. It is the 2019 fiscal year, sales to OEM customers were approximately 1% of consolidated sales compared to 5% inexpectation that the 2018 fiscal year. Company will enter into a new agreement with CNH at the expiration date.
We do not typically rely on sales to one customer or a small group of customers. During the 20192021 fiscal year, one customer accounted for more than 21% of consolidated revenues as the result of a large contract in our Modular Buildings segment. Our highest recurring customer accounted for just under 10% of our8% consolidated net revenues.
Intellectual Property
We maintain manufacturing rights on several products, which cover unique aspects of design. We also have trademarks covering product identification. We believe our trademarks and licenses help us to retain existing business and secure new relationships with customers. The duration of these rights ranges from 5 to 10 years, with options for renewal. We currently have no pending applications for intellectual property rights.
We pay royalties for our use of certain manufacturing rights. Under our OEM and supplier agreement with CNH, CNH sold us the license to manufacture, sell, and distribute certain plow products designed by CNH and their replacement and component parts. We pay semi-annual royalty payments based on the invoiced price of each licensed product and service part we sell. We have a licensing royalty agreement with Martin Harvesting, LLC to produce a commercial forage box in exchange for royalty payments in effect until August 2026. Our rights to manufacture and sell this product do not expire, but we will pay a royalty amount based on the sales price of each licensed product we sell. We also have a licensing and royalty agreement with Spreader, LLC to produce a loader mounted spreader in exchange for royalty payments until December 2027.
Government Relationships and Regulations; Environmental Compliance
Our Modular Buildings segment must design, manufacture, and install its modular buildings in accordance with state building codes, and we have been able to achieve the code standards in all instances. In addition, we are subject to various federal, state, and local laws and regulations pertaining to environmental protection and the discharge of materials into the environment. We do not expect that the cost of complying with these regulations will have a material impact on our consolidated results of operations, financial position, or cash flows.
Employees
As of November 30, 2019,2021, we employed approximately 7992 employees in our Agricultural Products segment, twoseven of whom were employed on a part-time basis. As of the same date, we had 2425 employees in our Tools segment, one of whom was employed on a part-time basis. The majority of the employees in our Tools segment are represented by a union and covered by a collective bargaining agreement. In addition, our Modular Buildings segment employed approximately 22 full-time employees as of the same date, one of whom worked on a part-time basis.date. These numbers do not necessarily represent peak employment during the 20192021 fiscal year.
Item 1A. RISK FACTORS.FACTORS.
As a smaller reporting company, we are not required to provide disclosure pursuant to this Item.
Item 1B. UNRESOLVED STAFF COMMENTS.COMMENTS.
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As a smaller reporting company, we are not required to provide disclosure pursuant to this Item.
Item 2. PROPERTIES.
Our executive offices, as well as the primary production and warehousing facilities for our Agricultural Products segment, are located in Armstrong, Iowa. These facilities were constructed after 1965 and remain in fair condition. The facilities in Armstrong contain approximately 249,000 square feet of usable space. We have engaged in several building improvement projects during the last several years including most recently updating our office spaces and plan to complete a reroofing project over the next several years.employee break room in 2021. In addition, we own approximately 127 acres of land west of Armstrong, on which the factory and inventory storage space is situated for our Agricultural Products segment.
We purchased an office, production, and warehousing facility for our Agricultural Products segment located in West Union, Iowa on approximately 29 acres in the 2010 fiscal year. The property contained approximately 190,000 square feet of usable space. A substantial portion of the facility was leased to third parties during the 2018 fiscal year. This property was sold on December 14, 2018 for $900,000. We recognized an impairment of approximately $216,000 on this property in the 2018 fiscal year.
In February 2008, we completed construction on a facility in Dubuque, Iowa, which was used for our discontinued Pressurized Vessels segment. The facility was 34,450 square feet, steel-framed, with a crane that ran the length of the building. A paint booth and a blast booth were installed in the first quarter of the 2009 fiscal year. On March 29, 2018, we sold this facility for $1,500,000.
We completed construction in November 2007 of our facility in Monona, Iowa, which houses the manufacturing for our Modular Buildings segment. The facility was custom-designed to meet our production needs. It has approximately 50,000 square feet of useable space and accommodates a sprinkler system and crane.
In connection with the acquisition of certain assets of Ohio Metal Working Products Company in September 2013, we also purchased the land and building used for manufacturing of the products sold by Ohio Metal Working Products Company, located in Canton, Ohio. The building contains approximately 39,000 square feet of usable space and is in good condition. The purchased land is approximately 4.50 acres and is used in connection withby our Tools segment.
All of our owned real property is subject to mortgages granted to Bank Midwest as security for our long-term debt and our line of credit. See “Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Liquidity and Capital Resources” for more information.
Item 3. LEGAL PROCEEDINGS.
From time to time in the ordinary course of business, we may be named as a defendant in legal proceedings incidental to the business, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings, directly or indirectly, and we are not aware of any claims pending or threatened against us or any of the directors that could result in the commencement of material legal proceedings.
Item 4. MINE SAFETY DISCLOSURES.DISCLOSURES.
Not applicable.
PART II
Item 5. Market for REGISTRANT’S Common Equity, Related Stockholder MattersMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.’
Market Information
Our common stock trades on the Nasdaq Stock Market LLC under the symbol “ARTW.”
Stockholders
We have two classes of stock, undesignated preferred stock and $0.01 par value common stock. No shares of preferred stock have been issued or are outstanding. As of January 30, 2020,February 4, 2022, we had 8379 common stock stockholders of record, which number does not include stockholders who hold our common stock in street name.
Dividends
We did not pay a dividend during the 20192021 or 20182020 fiscal years. We expect that the payment of and the amount of any future dividends will depend on our financial condition at that time.
Unregistered Sales of Equity Securities
None.
Purchases of Equity Securities by the Company
The following table presents the information with respect toThere were no purchases made by us for ourof common stock duringby the Company made in the fourth fiscal quarter of 2019:
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 | |||||||||||||
September 1 to September 30, 2019 | - | $ | - | N/A | N/A | |||||||||||
October 1 to October 31, 2019 | - | $ | - | N/A | N/A | |||||||||||
November 1 to November 30, 2019 | 967 | $ | 1.99 | N/A | N/A | |||||||||||
967 | $ | 1.99 |
(1) Reflects shares withheld pursuant to the terms of restricted stock awards under our 2011 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.fiscal 2021.
Equity Compensation Plans
For information on our equity compensation plans, refer to Item 12, “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.”
Item 6. SELECTED FINANCIAL DATA.DATA.
As a smaller reporting company, we are not required to provide disclosure pursuant to this Item.Not applicable.
Item 7. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOPERATIONS. .’
This report contains forward-looking statements that involve significant risks and uncertainties. The following discussion, which focuses on our results of operations, contains forward-looking information and statements. Actual events or results may differ materially from those indicated or anticipated, as discussed in the section entitled “Forward“Forward Looking Statements.” The following discussion of our financial condition and results of operations should also be read in conjunction with our financial statements and notes to financial statements contained in “Item8. 8. FINANCIAL STATEMENTS AND SUSUPPLEMENTARY DATAPPLEMENTARY DATA” -” of this report.
Financial Condition
FiscalThe 2021 fiscal year 2019 proved to be another adverse year in the agricultural sector. We have now seen five consecutive years of decreased net salesa turning point for our company. Our Agricultural Products segment. Atsegment saw a 28.6% increase in sales from the end of the third2020 fiscal quarter, we found ourselves down approximately 18% in net sales year on year in this segment. By end of the fourth fiscal quarter, we had closed this gap to only be a 6% decrease year on year. Our 2019 fourth fiscal quarter had increased agricultural product sales of 59% year on year and the highest fourth quarter totalsegment recorded its first profitable year since fiscal 2015. We are seeing even higher demand for our 2014products at the start of fiscal year. This strong fourth quarter provides us renewed optimism about the state2022 and believe another year of the agricultural market. In the 2019 fiscal year, we continued our continuous improvement projects including warehouse reorganization, improved product routings for efficiency and general cost cutting. These projects will improve our operational effectiveness and will allow us to thrive in periodsis ahead of agricultural economic boom. Despite the struggles in our Agricultural Products segment, our diversification through different industries has helped us tremendously.us. Our Modular BuildingBuildings segment was profitablestruggled in the 2019first six months of fiscal year mainly due2021 as we closed out a large contract that is approximately 55% complete. Thisdemanded a large portion of our resources. Pent up demand for agriculture buildings and research labs from the pandemic started to give way in the second half of fiscal 2021. The Modular Buildings segment carries afinished the year strong backlog into 2020 that will provide a great start to our 2020and showed profit for fiscal year.2021. Our Tools segment did not haveexperienced steady demand increases in fiscal 2021, but labor shortages hampered its ability to take advantage of a strong year financially but did sign an OEM agreement that has the potential to increase their salesstrengthening economy. We made some wage and benefit improvements in the 2020second half of fiscal year.2021 that we anticipate will help with hiring and retainage in fiscal 2022.
Our consolidated balance sheet indicates a stable financial position as of November 30, 2019. Despite showing a2021. We finished the year with approximately $213,000 of consolidated net loss from continuing operations of $(1,420,000)income and saw our working capital increase by approximately $350,000. Our inventory saw the most significant increase year on year as we prepare to fill our significant demand for the 2019 fiscal year we were able to decrease our total liabilities by $735,000 compared to the 2018 fiscal year. Our total borrowings were reduced by $1,241,000 in fiscal year 2019 compared to fiscal year 2018.2022.
We expect to have access to capital as needed throughout 2020fiscal 2022 through the sale of inventory and from the use of our line of credit. AtOn November 30, 20192021 we had $2,421,470$925,470 available on our line of credit. Despite the continued losses,credit and $2,257,904 of excess collateral towards our banking relationship has remained positive through transparency and continued communication.borrowing base. Our working capital remained strong around $6,204,000at approximately $4,487,000 in the 2019 fiscal year2021 with a current ratio of 2.19, up eight points from 2018. We1.58. Our banking relationship remains positive and we expect it to only strengthen as our financial results continue to put emphasis on reducing our inventory to more manageable levels to decrease carrying costs, implement lean manufacturing practices and improve our inventory turnover.improve. We do not foresee liquidity issues within the next twelve months.
While we have largely returned to normal operations, the COVID-19 pandemic continues to cause challenges. During fiscal 2021, we experienced supply chain disruptions and an overall increase in the price of raw materials and other components used in our products. We also incurred higher labor costs and challenges to fill open positions due to a highly competitive job market. Additionally, we experienced periodic operational disruptions as our employees contracted or were potentially exposed to COVID-19 and were forced to self-isolate in accordance with state and federal guidelines. The extent of the pandemic’s effect on our financial condition and results of operations will depend in large part on future developments which cannot be reasonably estimated at this time. Future developments include the duration, scope and severity of the pandemic, the emergence of new virus variants that are more contagious or harmful than prior variants, the actions taken to contain or mitigate the pandemic’s impact both within and outside the jurisdictions in which we operate, and the potential adverse effects on the global supply chain, labor market, and general economic activity. Due to the inherent uncertainty associated with the COVID-19 pandemic, we are unable to predict the impact the pandemic may have on our future results of operations or financial condition.
Critical Accounting Policies
Our significant accounting policies are described in Note 1 “Summary of Significant Accounting Policies” to our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report. Critical accounting policies are those that we believe are both important to the portrayal of our financial condition and results of operations and require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
We believe that the following represents the most critical accounting policies and estimates used in the preparation of our consolidated financial statements.
Inventories
Inventories are stated at the lower of cost or net realizable value, and cost is determined using the standard costing method. Management monitors the carrying value of inventories using inventory control and review processes that include, but are not limited to, sales forecast review, inventory status reports, and inventory reduction programs. We record inventory write downs to net realizable value based on expected usage information for raw materials and historical selling trends for finished goods. If the assumptions made by management do not occur, we may need to record additional write downs.
Revenue Recognition
Effective December 1, 2018 we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective adoption method. The adoption of ASC 606 had no impact on prior year or previously disclosed amounts. In accordance with ASC 606, revenue is measured based on consideration specified in a contract with a customer and recognized when we satisfy the performance obligation specified in each contract.
Our revenues primarily result from contracts with customers. The major sources of revenue for the Agricultural Products and Tools segments are farm equipment, service parts related to farm equipment and steel cutting tools and inserts. The Agricultural Products and Tools segments generally execute short-term contracts that contain a single performance obligation – the delivery of product to the common carrier. We recognize revenue for the production and sale of farm equipment, service parts and cutting tools upon shipment of the goods. Shipment of the goods is the point in time when risk of ownership and title pass to the buyer.customer. The Tools segment has an OEM agreement with one customer for which sales are recognized FOB destination – when the goods hit the customer’s dock. All sales are made to authorized dealers whose application for dealer status has been approved and who have been informed of general sales policies. Any changes in our terms are documented in the most recently published price lists. Pricing is fixed and determinable according to our published equipment and parts price lists. Title to all equipment and parts sold pass to the buyercustomer upon delivery to the carrier and is not subject to a customer acceptance provision. Proof of the passing of title is documented by the signing of the delivery receipt by a representative of the carrier. Post shipment obligations are limited to any claim with respect to the condition of the equipment or parts. The agricultural productsAgricultural Products and toolsTools segments each typically require payment in full 30 days after the ship date. To take advantage of program discounts, some customers pay deposits up front. Any deposits received are considered unearned revenue and increase contract liabilities.
In certain circumstances, upon the customer’s written request, we may recognize revenue when production is complete, and the goods are ready for shipment. At the buyer’scustomer’s request, we will bill the buyercustomer upon completing all performance obligations, but before shipment. The buyercustomer dictates that we ship the goods per theirits direction from our manufacturing facility, as is customary with this type of agreement, in order to minimize shipping costs. The written agreement with the customer specifies that the goods will be delivered on a schedule to be determined by the customer, with a final specified delivery date, and that we will segregate the goods from our inventory, such that they are not available to fill other orders. This agreement also specifies that the buyercustomer is required to purchase all goods manufactured under this agreement. Title of the goods will pass to the buyercustomer when the goods are complete and ready for shipment, per the customer agreement. At the transfer of title, all risks of ownership have passed to the buyer,customer, and the buyercustomer agrees to maintain insurance on the manufactured items that have not yet been shipped. We have operated using bill and hold agreements with certain customers for many years, with consistent satisfactory results for both buyerthe customers and seller.us. The credit terms on this agreement are consistent with the credit terms on all other sales. All risks of loss are shouldered by the buyer,customer, and there are no exceptions to the buyer’scustomer’s commitment to accept and pay for these manufactured goods. Revenues recognized at the completion of productionwhen goods were ready for shipment in the 2019 and 2018 fiscal years2021 were approximately $16,000$711,000, while we had no bill and $202,000, respectively.hold revenue in fiscal 2020.
OurThe Modular Buildings segment is in the construction industry with its major source of revenue arising from modular building sales. Sales of modular buildings are generally recognized using input methods to measure progress towards the satisfaction of a performance obligation using the percentage of completion method. Revenue and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion. Contract costs consist of direct costs on contracts, including labor, materials, and amounts payable to subcontractors and those indirect costs related to contract performance, such as equipment costs, insurance and employee benefits. Contract cost is recorded as incurred, and revisions in contract revenues and cost estimates are reflected in the accounting period when known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Contract losses are recognized when current estimates of total contract revenue and contract cost indicate a loss. Estimated contract costs include any and all costs appropriately allocable to the contract. The provision for these contract losses will be the excess of estimated contract costs over estimated contract revenues. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract change orders, penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. We use significant judgements in determining estimated contract costs and completion percentages throughout the life of the project. Stock modular building sales also occur and are recognized at a point in time when the performance obligation is fulfilled through substantial completion. Substantial completion is achieved through customer acceptance of the completed building. The Modular Buildings segment executes contracts with customers that can be short- or long-term in nature. These contracts can have multiple performance obligations and revenue from these can be recognized over time or at a point in time depending on the nature of the contracts. Payment terms for the Modular Buildings segment vary by contract, but typically utilize money down and progress payments throughout the life of the contract. The payment terms of the Modular Buildings segment have the most impact on our contract receivables, contract assets and contract liabilities. Project invoicing from the Modular Buildings segment increases contract receivables and has an effect on contract liabilities through billings in excess of costs and estimated gross profit and advanced payments. The balance of contract assets is typically made up of the balance of costs in and estimated gross profit in excess of billings. Costs and profit in excess of amounts billed are classified as current assets and billings in excess of cost and profit are classified as current liabilities.
We lease modular buildings to certain customers and account for these transactions as operating or sales-type leases. These leases have terms of up to 36 months and are collateralized by a security interest in the related modular building. On sales-type leases, the lessee has a bargain purchase option available at the end of the lease term. A minimum lease receivable is recorded net of unearned interest income and profit on sale at the time the building is substantially complete. Profit related to the sale of the building is recorded upon fulfillment of our obligation to the lessee. On operating leases, we recognize rent when the lessee has all the rights and benefits of ownership of the asset.
The Agricultural Products segment offers variable consideration in the form of discounts depending on participation in yearly early order programs. This variable consideration is allocated to the transaction price of all products in a sales arrangement and is not contingent on future outcomes. The Agricultural Products segment does not offer rebates or credits. The Tools segment offers quantity discounts that are allocated to the transaction price of each product once the quantity break is achieved. The Tools segment does not offer rebates or credits. The Modular Buildings segment does not offer discounts, rebates or credits.
Our returns policy allows for new and saleable parts to be returned, subject to inspection and a restocking charge, which is included in net sales. Whole goods are not returnable. Shipping costs charged to customers are included in net sales. Freight costs incurred are included in cost of goods sold. Customer deposits consist of advance payments from customers, in the form of cash, for revenue to be recognized in the following year.
For information on product warranty as it applies to ASC 606, refer to Note 98 “Product Warranty,”Warranty” contained in our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.
Results of Operations – Continuing Operations
Fiscal Year Ended November 30, 20192021 Compared to Fiscal Year Ended November 30,2018 2020
Our consolidated net sales for continuing operations totaled $22,889,000$24,965,000 for the 20192021 fiscal year, which represents a 16.0%11.4% increase from our consolidated net sales of $19,727,000$22,409,000 for the 20182020 fiscal year. The increase in revenue is due to a 133.5% increaseincreased demand in sales in our Modular Buildings segment due to the progress on a large contract. We experienced approximately a 6% and 7% decrease in sales in our Agricultural Products and Tools segments, respectively, for the 2019 fiscal year.segments. Our consolidated gross profit as a percentage of net sales remained fairly steady at 17.2%increased to 26.4% in the 20192021 fiscal year when compared to 17.8%10.7% of net sales in the 20182020 fiscal year. We saw an increased gross profit percentage in our Modular Buildings segment while we had slight decreasestwo of three segments in gross profit percentage in our Agricultural Products and Tools segments.fiscal 2021. Our consolidated operating expenses from continuing operations decreased by 17.9%3.8%, from $6,607,000$6,309,000 in the 20182020 fiscal year to $5,424,000$6,073,000 in the 20192021 fiscal year. Because the majority of our corporate general and administrative expenses are borne by our Agricultural Products segment, that segment represented $3,796,000$4,571,000 of our total consolidated operating expenses, while our Modular Buildings segment represented $962,000$928,000 and our Tools segment represented $666,000.$574,000.
Our consolidated operating loss from continuing operationsincome for the 20192021 fiscal year was $(1,497,000)$523,000 compared to $(3,095,000)operating loss of $(3,910,000) for the 20182020 fiscal year. Our Agricultural Products segment had an operating lossincome of $(1,599,000),$599,000, our Modular Buildings segment had operating income of $208,000,$74,000 and our Tools segment had an operating loss of $(106,000)$(150,000).
Consolidated net lossincome for the 20192021 fiscal year was $(1,420,000) for continuing operations$213,000 compared to net loss of $(3,336,000)$(2,103,000) in the 20182020 fiscal year, for continuing operations, a decrease in lossan improvement of $1,916,000. The decreased loss is due to several factors. In the first quarter of the 2018 fiscal year we recognized a loss of approximately $298,000 from the revaluation of our deferred tax asset at the new income tax rates. We also recognized a loss of approximately $253,000 from the liquidation of our Canadian subsidiary related to the cumulative translation adjustment in the second quarter of the 2018 fiscal year. We recognized an impairment of approximately $216,000 on our West Union facility during the third and fourth quarters of the 2018 fiscal year which was equal to the expected loss on the sale of the property. This facility required mold remediation of $235,000 and scrapping of $67,000 of inventory, which was captured in the third quarter of the 2018 fiscal year. We also impaired our goodwill on our Miller Pro product line in the amount of $375,000 in the fourth quarter of the 2018 fiscal year. Moreover, in the fourth quarter of the 2018 fiscal year, management decided to place increased reserves on inventory resulting in expense of approximately $543,000. The revaluation of our deferred tax asset, release of our current translation adjustment, impairment of assets and inventory reserve revaluation were all one-time non-cash expenses that greatly impacted our bottom line in the 2018 fiscal year. We also did not recognize a net loss from our discontinued Pressurized Vessels segment in 2019 compared to $(51,000) in the 2018 fiscal year.$2,316,000.
Our effective tax rate for continuing operations for the 20192021 and 20182020 fiscal years was 19.7%20.3% and 13.3%28.9%, respectively. The increasedecrease in the effective tax rate is due to a onetime adjustment to our deferredthe tax asset in 2018 from the Tax Cuts and Job Acttreatment of 2017Paycheck Protection Program loan forgiveness as discussed in Note 1 from fiscal year 2020, “Summary of Significant Accounting Policies” to our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.
Agricultural Products.Products. Our Agricultural Products segment’s net sales revenue for the 20192021 fiscal year was $13,508,000were $16,826,000 compared to $14,344,000$13,085,000 during the 20182020 fiscal year, a decreasean increase of $836,000,$3,741,000, or 5.8%28.6%. The sales increase is attributable to favorable agriculture market conditions as commodity prices hit five year highs. We saw decreasedincreased demand for our portable feedgrinder mixers, manure spreaders and beet harvesting equipment in 2019, which resulted in decreased sales year on year of $1,329,000. Continued struggles in the dairy market, coupled with market shifts to large cattle operations from the traditional small cattle farmer also contributed to this decrease. Additionally,fiscal 2021. We are carrying even higher backlog numbers than we also saw a decrease in sales of approximately $451,000 in our UHC reels year on year due to a loss of our primary reel customer after a strategic decision to not offer such customer discounted prices at unfavorable margins to us. Moreover, OEM blower revenue of approximately $262,000 in the 2018 fiscal year was not repeated in the 2019 fiscal year as our OEM blower customer elected not to purchase any blowers from us in fiscal 2019 due2021 as we transition to slow-moving inventory on their dealer lots relating to poor agricultural market conditions. While we saw decreased demand in the above product lines, we saw increased demand in dump boxes, land maintenance equipment, bale processors and beet equipment for a combined $1,500,000 increase in sales. At the end of our third fiscal quarter of 2019 our year to date sales were down 18.4% in this segment. Our strongest fourth quarter since the 2014 fiscal year brought us to within approximately 6% of the 2018 fiscal year’s total. 2022.
Gross profit percentage for the 20192021 fiscal year was 16.3%30.7% compared to 17.4%16.5% for the 20182020 fiscal year. Our decreasedDespite continued margin pressure from increasing material and component costs in fiscal 2021, Art’s-Way was able to combat margin erosion through multiple price increases to customers. Much of the gross profit percentage ismargin improvement year on year was due largely to a decrease$996,000 of inventory obsolescence expense we had in workforce efficiency. Withfiscal 2020 that was related to increasing reserves on product lines we eliminated strategically from our offering including UHC reels, Miller Pro forage boxes, rakes and augers which was not repeated in fiscal 2021. We also saw an 18% increase in our labor output on roughly the absencesame amount of steady demand for portable feed equipment, our most efficient equipmentwages in 2021 due to build, we have struggled to gain operational efficiencies that are generally gained by continued production of a single product. Our efficiency has also been affected by the diversion of direct labor for operational changes that will have long-term benefits. We have partially completed warehouse reorganization, which we expect will improve inventory accuracy and decrease travel time for material handlers and machine operators. We have also implemented a material review board to decrease scrap and eliminate production errors. We believe our continued operational improvement projects will put us in a position to meet increased demand in an improved agriculture economy.and better shop floor planning.
Our Agricultural Products segment’s operating expenses for the 20192021 fiscal year were $3,796,000$4,571,000 compared to $4,959,000$4,483,000 for the 20182020 fiscal year, a decreasean increase of $1,163,000,$88,000, or 23.5%2.0%. In the 2018 fiscal year,The increase in operating expenses included one-time non-cashwas primarily due to increased selling expenses from a rebranding initiative that took place in fiscal 2021 and the addition of $216,000 fora product development manager to help drive our product lines towards the impairmentneeds of our West Union facilitythe customer. The rebranding initiative refreshed the Art’s-Way logo, website, and $375,000 forliterature to better fit the impairment of goodwill related to our Miller Pro product line. Thesecustomers we serve. Our general and administrative expenses were not repeateddown in fiscal 2021 as we incurred some one-time pandemic and dual salaries expense in 2020 as we transitioned two members of senior management. We saw a slight increase in engineering expenses in the 2019Agricultural Products segment in fiscal year. We also saw decreased selling expense in the 2019 fiscal year due to decreased commissions2021 as a result of lower sales along with refocused marketing techniques. Our new marketing efforts include a shift to social media from more expensive print advertisements along with less participation in trade shows in the 2019 fiscal year. This segment’s operating expenseswe made market competitive salary adjustments for the 2019 fiscal year were 28.1% of sales compared to 34.6% of sales for the 2018 fiscal year.our engineering department. Total lossincome from operations for our Agricultural Products segment during the 20192021 fiscal year was $(1,599,000)$599,000 compared to an operating loss of $(2,462,000)$(2,318,000) for the 20182020 fiscal year, a decrease in lossan improvement of $863,000.$2,917,000.
Modular Buildings. Our Modular Buildings segment’s net sales for the 20192021 fiscal year were $7,260,000$5,678,000 compared to $3,109,000$6,993,000 for the 20182020 fiscal year, an increasea decrease of $4,151,000,$1,315,000, or 133.5%18.8%. The increasedecrease in sales was attributable to increased operating lease activitya large construction project spanning the last three fiscal years that reached completion in 2019 and progress on a $8.5 million project.fiscal 2021. Gross profit for the 20192021 fiscal year was 16.1%17.7% compared to 12.0%(3.7)% during the 20182020 fiscal year. The increase in gross profit was largely due to increased revenue providing more variablethe completion of a large construction contract that negatively affected our margin to cover fixed costs.and the execution of new contracts with higher quality margins. Operating expenses for the 20192021 fiscal year were 13.3% of sales$928,000 compared to 30.2%$1,034,000 for the 20182020 fiscal year.year, a decrease of $106,000, or 10.3%. While overall our operating expenses declined, we did see approximately $83,000 of increased selling expenses from commissions on the sale of modular agriculture buildings and increased trade show participation. Our general and administrative expenses were down approximately $189,000 due to decreased bonus expense, one-time pandemic expense in 2020 and reduced corporate allocation expense in fiscal 2021. Total income from operations from our Modular Buildings segment during the 20192021 fiscal year was $208,000$74,000 compared to an operating loss of $(566,000)$(1,295,000) in the 20182020 fiscal year, a decreasereduction in loss of $774,000.$1,369,000.
Tools. Our Tools segment’s net sales for the 20192021 fiscal year were $2,121,000$2,461,000 compared to $2,274,000$2,331,000 for the 20182020 fiscal year, an increase of $130,000, or 5.6%. This segment has not fully recovered from the drop in oil prices at the start of the pandemic in fiscal 2020 that flattened our sales. Our backlog has remained steady and strong since the pandemic. Like the majority of businesses in current economic conditions, we are having trouble maintaining a skilled workforce, but have taken steps to increase automation to lessen this burden. Gross profit for the 2021 fiscal year was 17.2% compared to 21.3% for the 2020 fiscal year. Our gross margin decreased in fiscal 2021 as we raised wages in order to attract and retain shop employees. We saw a 2% increase in wages while not achieving the same efficiency output we did in 2020 due to the loss of some longer tenured employees and high turnover. Operating expenses were $574,000 for the 2021 fiscal year compared to $792,000 for the 2020 fiscal year, a decrease of $153,000,$219,000, or 6.7%27.6%. The decrease is primarilyThis decreased operating expenses were due to the loss of a large volume customer near the end of the firstdecreases in general administrative costs, primarily deceased bonus expense, corporate expense allocation and OEM implementation costs in fiscal quarter of 2018. This segment began integration of an OEM product line at the end of the fourth fiscal quarter of 2019 that is expected to more than make up for the loss of this customer. Gross profit for the 2019 fiscal year was 26.4%2021 compared to 28.2% for the 2018 fiscal year. Our decreased gross margin for the twelve months is largely due to lower revenues with less variable margin to absorb fixed costs. Operating expenses were $666,000 for the 2019 fiscal year compared to $709,000 for the 2018 fiscal year, a decrease of $43,000, or 6.1%. This decrease is largely related to reduction of commission expense as the result of lower sales levels.2020.
Results of Operations – Discontinued Operations
During the third quarter of the 2016 fiscal year, we made the decision to exit the pressure vessels industry. On March 29, 2018 we disposed of the remaining assets for $1,500,000. We did not have net sales from our Pressurized Vessels segment in the 2019 or 2018 fiscal year. We continued to incur expenses during the 2018 fiscal year due to holding the facility in Dubuque, Iowa. Our pretax loss in the 2018 fiscal year was $(67,000).
Trends and Uncertainties
We are subject to a number of trends and uncertainties that may affect our short-term or long-term liquidity, sales revenues, and operations. Similar to other farm equipment manufacturers, we are affected by items unique to the farm industry, including fluctuations in farm income resulting from the change in commodity prices, crop damage caused by weather and insects, government farm programs, interest rate fluctuations, and other unpredictable variables. Other uncertainties include our OEM customers and the decisions they make regarding their current supply chain structure, inventory levels, and overall business conditions. Management believes that our business is dependent on the farming industry for the bulk of our sales revenues. As such, our business tends to reap the benefits of increases in farm net income, as farmers tend to purchase equipment in lucrative times and forgo purchases in less profitable years. Direct government payments are declininghave been increasing in the past two years and costs of agricultural production are increasing; therefore, we anticipate that further increases in the value of production will benefit our business, while any future decreases in the value of production will decrease farm net income and may harmnegatively affect our financial results.
As with other farm equipment manufacturers, we depend on our network of dealers to influence customers’ decisions, and dealer influence is often more persuasive than a manufacturer’s reputation or the price of the product.
Seasonality
Sales of our agricultural products are seasonal; however, we have tried to decrease the impact of this seasonality through the development of beet harvesting machinery, coupled with private labeled products, as the peak periods for these different products occur at different times.
We believe that our tool sales are not seasonal. Our modular building sales are somewhat seasonal, and we believe that this is due to the budgeting and funding cycles of the universities that commonly purchase our modular buildings. We believe that this cycle can be offset by building backlogs of inventory, and by increasing sales to other public and private sectors.sectors and by creating repeatable business opportunities.
Liquidity and Capital Resources
Our main source of funds during the 20192021 fiscal year was cash generated by financing activities. We used proceeds of $1,715,000 from our line of credit to fund our operating activities,and investing activities. Our operations consumed approximately $986,000 of cash, the majority of which was primarily from the saleused to increase our inventory levels to combat supply chain delays and reduction of inventory. We did have substantial positive cash flow from investing activities related to the sale offulfill our West Union facility as well.massive backlog. We used approximately $447,000$620,000 of cash to update facilities and equipment which includes softwareincluded development of a new customer portal and hardware relatedwebsite and facility upgrades. We expect to information technology advances, transportationuse cash in fiscal 2022 to acquire equipment that improves our shop output and manufacturing equipment.efficiency including robotic weld cells and improved plasma cutting and roller technology. We believe these additions will be key to fulfilling customer demand and allow us to be more competitive in our industry.
We have a Bank Midwest credit facility consisting of a $5,000,000 revolving line of credit, pursuant to which we had borrowed $2,578,530,$4,074,530, with $2,421,470$925,470 remaining, as of November 30, 2019,2021, and one term loan, which had an outstanding principal balance of $2,435,993$2,260,412 as of November 30, 2019.2021. The revolving line of credit is being used for working capital purposes.
We also had a loan relating to our production facility in West Union, Iowa, fromhave three Economic Injury Disaster Loans provided by the Iowa Finance Authority, which was paid in full in connectionU.S. Small Business Administration with the salean aggregate principal balance of the West Union facility on December 14, 2018.$450,000 as of November 30, 2021.
Our loans require us to comply with various covenants, including maintaining certain financial ratios and obtaining prior written consent from Bank Midwest for any investment in, acquisition of, or guaranty relating to another business or entity. We were inout of compliance with all covenantsour debt to worth ratio covenant in place under the Bank Midwest loans as of November 30, 2019 except for the debt service coverage ratio as measured on November 30, 2019.2021. Bank Midwest has issued a waiver forgiving the noncompliance as of November 30, 2019,2021, and noin turn waived the event of default has occurred.default.
For additional information about our financing activities, please refer to Note 109 “Loan and Credit Agreements” to our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.
The following table represents our working capital and current ratio foras of the end of the past two fiscal years:
Fiscal Year Ended | ||||||||||||||||
November 30, 2019 | November 30, 2018 | November 30, 2021 | November 30, 2020 | |||||||||||||
Current Assets | $ | 11,407,230 | $ | 12,145,158 | $ | 12,174,245 | $ | 10,301,350 | ||||||||
Current Liabilities | 5,202,764 | 5,765,381 | 7,686,817 | 6,164,776 | ||||||||||||
Working Capital | $ | 6,204,466 | $ | 6,379,777 | $ | 4,487,428 | $ | 4,136,574 | ||||||||
Current Ratio | 2.19 | 2.11 | 1.58 | 1.67 |
We believe that our current cash and financing arrangements will provide sufficient cash to finance operations for the next 12 months. We expect to continue to rely on cash from financing activities to supplement our cash flows from operations in order to meet our liquidity and capital expenditure needs in the near future. We expect to continue to be able to procure financing upon reasonable terms.
Off-Balance Sheet Arrangements
None.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, we are not required to provide disclosure pursuant to this Item.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.DATA.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Art's-Way Manufacturing Co., Inc.
Armstrong, Iowa
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Art's-WayArt’s-Way Manufacturing Co., Inc. and Subsidiaries (the Company) as of November 30, 20192021 and 2018,2020, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows, for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of November 30, 20192021 and 2018,2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sthese financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’sCompany’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Inventories
As discussed in Note 3 to the Company’s consolidated financial statements, the gross inventories balance was $11,735,846 and the balance net of reserves was $9,210,103 as of November 30, 2021. The Company values its inventories at the lower of cost or net realizable value, and cost being determined using the standard costing method. The Company writes down inventory for slow-moving and obsolete inventory based on expected usage information for raw materials and historical selling trends for finished goods. As disclosed by management, if these factors are less favorable than those projected, additional inventory write-downs may be required.
The principal considerations for our determination that performing procedures relating to valuation of inventories is a critical audit matter are the significant assumptions and complex judgments by management when determining the future salability of the inventory and its net realizable value. These assumptions and judgments include the assessment of the net realizable value by inventory category considering retention periods, future usage and market demand for products which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s methods, calculations, and assumptions.
The primary procedures we performed to address this critical audit matter included:
• Gaining an understanding of management’s process and methodology to develop the estimates.
• Evaluating the reasonableness of assumptions used by management in forming the forecasted inventory usage and future salability, including examining historical accuracy of the Company’s prior estimates by considering subsequent sales and write-off activity.
• Testing the completeness, accuracy, and relevance of the underlying data used in management’s estimate.
• Testing the mathematical accuracy and computation related to the application of the methodology to specific inventory items and categories.
/s/ Eide Bailly LLP
We have served as the Company’s auditor since 2006.
Minneapolis, MinnesotaFargo, North Dakota
February 6,17, 2022
ART’S-WAY MANUFACTURING CO., INC.
Consolidated Balance Sheets
November 30, 2021 | November 30, 2020 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 2,658 | $ | 2,684 | ||||
Accounts receivable-customers, net of allowance for doubtful accounts of $38,188 and $51,175 in 2021 and 2020, respectively | 2,663,030 | 2,390,604 | ||||||
Inventories, net | 9,210,103 | 7,762,400 | ||||||
Cost and profit in excess of billings | 177,284 | 56,026 | ||||||
Net investment in sales-type leases, current | 0 | 28,352 | ||||||
Other current assets | 121,170 | 61,284 | ||||||
Total current assets | 12,174,245 | 10,301,350 | ||||||
Property, plant, and equipment, net | 5,237,328 | 5,218,662 | ||||||
Assets held for lease, net | 521,555 | 521,555 | ||||||
Deferred income taxes | 2,621,886 | 2,667,686 | ||||||
Other assets | 299,034 | 93,760 | ||||||
Total assets | $ | 20,854,048 | $ | 18,803,013 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,737,091 | $ | 1,955,404 | ||||
Customer deposits | 278,509 | 198,225 | ||||||
Billings in excess of cost and profit | 280,761 | 276,226 | ||||||
Income taxes payable | 5,500 | 1,100 | ||||||
Accrued expenses | 1,210,964 | 1,279,312 | ||||||
Line of credit | 4,074,530 | 2,359,530 | ||||||
Current portion of long-term debt | 99,462 | 94,979 | ||||||
Total current liabilities | 7,686,817 | 6,164,776 | ||||||
Long-term portion of finance lease liabilities | 142,386 | 0 | ||||||
Long-term portion of operating lease liabilities | 34,931 | 18,342 | ||||||
Long-term debt, excluding current portion | 2,635,467 | 2,713,150 | ||||||
Total liabilities | 10,499,601 | 8,896,268 | ||||||
Commitments and Contingencies (Notes 8, 9 and 15) | ||||||||
Stockholders’ equity: | ||||||||
Undesignated preferred stock - $0.01 par value. Authorized 500,000 shares in 2021 and 2020; issued and outstanding 0 shares in 2021 and 2020. | 0 | 0 | ||||||
Common stock – $0.01 par value. Authorized 9,500,000 shares in 2021 and 2020; issued 4,583,504 in 2021 and 4,470,004 in 2020 | 45,835 | 44,700 | ||||||
Additional paid-in capital | 3,760,649 | 3,496,243 | ||||||
Retained earnings | 6,656,487 | 6,443,856 | ||||||
Treasury stock, at cost (44,532 in 2021 and 35,097 in 2020 shares) | (108,524 | ) | (78,054 | ) | ||||
Total stockholders’ equity | 10,354,447 | 9,906,745 | ||||||
Total liabilities and stockholders’ equity | $ | 20,854,048 | $ | 18,803,013 |
See accompanying Report of Independent Registered Public Accounting Firm and notes to consolidated financial statements.
ART’S-WAY MANUFACTURING CO., INC.
Consolidated Statements of Operations
Years Ended | ||||||||
November 30, 2021 | November 30, 2020 | |||||||
Sales | $ | 24,965,086 | $ | 22,409,123 | ||||
Cost of goods sold | 18,368,596 | 20,009,523 | ||||||
Gross profit | 6,596,490 | 2,399,600 | ||||||
Expenses: | ||||||||
Engineering | 505,085 | 476,721 | ||||||
Selling | 2,014,149 | 1,623,960 | ||||||
General and administrative | 3,553,848 | 4,208,553 | ||||||
Total expenses | 6,073,082 | 6,309,234 | ||||||
Income (Loss) from operations | 523,408 | (3,909,634 | ) | |||||
Other income (expense): | ||||||||
Interest expense | (313,485 | ) | (304,611 | ) | ||||
Other | 56,967 | 1,254,289 | ||||||
Total other income (expense) | (256,518 | ) | 949,678 | |||||
Income (Loss) before income taxes | 266,890 | (2,959,956 | ) | |||||
Income tax expense (benefit) | 54,259 | (856,470 | ) | |||||
Net Income (Loss) | 212,631 | (2,103,486 | ) | |||||
Net Income (Loss) per share | ||||||||
Basic Net Income (Loss) per share | $ | 0.05 | $ | (0.48 | ) | |||
Diluted Net Income (Loss) per share | $ | 0.05 | $ | (0.48 | ) | |||
Weighted average outstanding shares used to compute basic net loss per share | 4,515,229 | 4,393,887 | ||||||
Weighted average outstanding shares used to compute diluted net loss per share | 4,515,229 | 4,393,887 |
See accompanying Report of Independent Registered Public Accounting Firm and notes to consolidated financial statements.
ART’S-WAY MANUFACTURING CO., INC.
Consolidated Statements of Stockholders' Equity
Years Ended November 30, 2021 and 2020
Common Stock | Additional | Treasury Stock | ||||||||||||||||||||||||||
Number of | paid-in | Retained | Number of | |||||||||||||||||||||||||
shares | Par value | capital | earnings | shares | Amount | Total | ||||||||||||||||||||||
Balance, November 30, 2019 | 4,321,087 | 43,211 | 3,250,087 | 8,547,342 | 18,842 | (47,058 | ) | 11,793,582 | ||||||||||||||||||||
Stock based compensation | 148,917 | 1,489 | 246,156 | 0 | 16,255 | (30,996 | ) | 216,649 | ||||||||||||||||||||
Net (loss) | 0 | 0 | (2,103,486 | ) | 0 | (2,103,486 | ) | |||||||||||||||||||||
Balance, November 30, 2020 | 4,470,004 | 44,700 | 3,496,243 | 6,443,856 | 35,097 | (78,054 | ) | 9,906,745 | ||||||||||||||||||||
Stock based compensation | 113,500 | 1,135 | 264,406 | 0 | 9,435 | (30,470 | ) | 235,071 | ||||||||||||||||||||
Net Income | 0 | 0 | 212,631 | 0 | 212,631 | |||||||||||||||||||||||
Balance, November 30, 2021 | 4,583,504 | 45,835 | 3,760,649 | 6,656,487 | 44,532 | (108,524 | ) | 10,354,447 |
| ||||||||||
|
November 30, 2019 | November 30, 2018 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 3,145 | $ | 3,512 | ||||
Accounts receivable-customers, net of allowance for doubtful accounts of $22,925 and $25,100 in 2019 and 2018, respectively | 1,679,975 | 1,537,113 | ||||||
Inventories, net | 8,778,507 | 10,257,102 | ||||||
Cost and profit in excess of billings | 726,667 | 99,287 | ||||||
Net investment in sales-type leases, current | 148,005 | 123,055 | ||||||
Other current assets | 70,931 | 125,089 | ||||||
Total current assets | 11,407,230 | 12,145,158 | ||||||
Property, plant, and equipment, net | 5,362,907 | 5,647,485 | ||||||
Assets held for lease, net | 713,782 | 1,870,125 | ||||||
Deferred income taxes | 1,786,048 | 1,432,422 | ||||||
Net investment in sales-type leases, long-term | 5,782 | 153,787 | ||||||
Other assets | 71,189 | 76,497 | ||||||
Total assets | $ | 19,346,938 | $ | 21,325,474 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,205,313 | $ | 802,062 | ||||
Customer deposits | 105,363 | 145,632 | ||||||
Billings in excess of cost and profit | 88,931 | 185,014 | ||||||
Income taxes payable | 6,400 | 6,400 | ||||||
Accrued expenses | 1,132,826 | 893,284 | ||||||
Line of credit | 2,578,530 | 3,505,530 | ||||||
Current portion of long-term debt | 85,401 | 227,459 | ||||||
Total current liabilities | 5,202,764 | 5,765,381 | ||||||
Long-term liabilities | ||||||||
Long-term debt, excluding current portion | 2,350,592 | 2,523,018 | ||||||
Total liabilities | 7,553,356 | 8,288,399 | ||||||
Commitments and Contingencies (Notes 9, 10 and 17) | ||||||||
Stockholders’ equity: | ||||||||
Undesignated preferred stock - $0.01 par value. Authorized 500,000 shares in 2019 and 2018; issued and outstanding 0 shares in 2019 and 2018. | - | - | ||||||
Common stock – $0.01 par value. Authorized 9,500,000 shares in 2019 and 2018; issued 4,321,087 in 2019 and 4,225,050 in 2018 | 43,211 | 42,250 | ||||||
Additional paid-in capital | 3,250,087 | 3,055,632 | ||||||
Retained earnings | 8,547,342 | 9,966,928 | ||||||
Treasury stock, at cost (18,842 in 2019 and 9,286 in 2018 shares) | (47,058 | ) | (27,735 | ) | ||||
Total stockholders’ equity | 11,793,582 | 13,037,075 | ||||||
Total liabilities and stockholders’ equity | $ | 19,346,938 | $ | 21,325,474 |
See accompanying Report of Independent Registered Public Accounting Firm and notes to consolidated financial statements. |
ART’S-WAY MANUFACTURING CO., INC.
Consolidated Statements of Cash Flows | |||||
|
Years Ended | ||||||||
November 30, 2019 | November 30, 2018 | |||||||
Sales | $ | 22,889,173 | $ | 19,726,793 | ||||
Cost of goods sold | 18,961,260 | 16,215,237 | ||||||
Gross profit | 3,927,913 | 3,511,556 | ||||||
Expenses: | ||||||||
Engineering | 479,345 | 640,430 | ||||||
Selling | 1,602,006 | 1,936,147 | ||||||
General and administrative | 3,343,443 | 3,438,981 | ||||||
Impairment of assets | - | 591,268 | ||||||
Total expenses | 5,424,794 | 6,606,826 | ||||||
(Loss) from operations | (1,496,881 | ) | (3,095,270 | ) | ||||
Other income (expense): | ||||||||
Interest expense | (358,174 | ) | (304,566 | ) | ||||
Other | 86,235 | (446,629 | ) | |||||
Total other income (expense) | (271,939 | ) | (751,195 | ) | ||||
Income (Loss) | (1,768,820 | ) | (3,846,465 | ) | ||||
Income tax (benefit) | (349,234 | ) | (510,416 | ) | ||||
(Loss) from continuing operations | (1,419,586 | ) | (3,336,049 | ) | ||||
Discontinued Operations | ||||||||
Loss from operations of discontinued segment | - | (67,177 | ) | |||||
Income tax benefit | - | (16,324 | ) | |||||
Loss on discontinued operations | - | (50,853 | ) | |||||
Net (Loss) | (1,419,586 | ) | (3,386,902 | ) | ||||
(Loss) per share - Basic: | ||||||||
Continuing Operations | $ | (0.33 | ) | $ | (0.80 | ) | ||
Discontinued Operations | $ | - | $ | (0.01 | ) | |||
Net Income (Loss) per share | $ | (0.33 | ) | $ | (0.81 | ) | ||
(Loss) per share - Diluted: | ||||||||
Continuing Operations | $ | (0.33 | ) | $ | (0.80 | ) | ||
Discontinued Operations | $ | - | $ | (0.01 | ) | |||
Net Income (Loss) per share | $ | (0.33 | ) | $ | (0.81 | ) | ||
Weighted average outstanding shares used to compute basic net loss per share | 4,277,375 | 4,202,836 | ||||||
Weighted average outstanding shares used to compute diluted net loss per share | 4,277,375 | 4,202,836 |
Twelve Months Ended | ||||||||
November 30, 2021 | November 30, 2020 | |||||||
Cash flows from operations: | ||||||||
Net income (loss) | $ | 212,631 | $ | (2,103,486 | ) | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Stock based compensation | 265,541 | 247,645 | ||||||
Increase (Decrease) in obsolete inventory reserves | (638,633 | ) | 556,303 | |||||
(Gain) Loss on disposal of property, plant, and equipment | (17,935 | ) | 25,195 | |||||
Depreciation and amortization expense | 613,409 | 818,234 | ||||||
Accrued interest on deferred debt payments | 16,982 | 7,536 | ||||||
Change in allowance for doubtful accounts | (12,987 | ) | 28,250 | |||||
Debt forgiveness from Paycheck Protection Program loan | 0 | (1,242,900 | ) | |||||
Deferred income taxes | 45,800 | (881,638 | ) | |||||
Changes in assets and liabilities: | ||||||||
(Increase) decrease in: | ||||||||
Accounts receivable | (259,439 | ) | (738,879 | ) | ||||
Inventories | (809,070 | ) | 459,804 | |||||
Net investment in sales-type leases | 28,352 | 125,435 | ||||||
Other assets | (59,887 | ) | 9,649 | |||||
Increase (decrease) in: | ||||||||
Accounts payable | (218,313 | ) | 750,091 | |||||
Contracts in progress, net | (116,723 | ) | 857,936 | |||||
Customer deposits | 80,284 | 92,862 | ||||||
Income taxes payable | 4,400 | (5,300 | ) | |||||
Accrued expenses | (120,266 | ) | 136,949 | |||||
Net cash used in operating activities | (985,854 | ) | (856,314 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property, plant, and equipment | (620,284 | ) | (693,414 | ) | ||||
Net proceeds from sale of assets | 20,807 | 191,764 | ||||||
Net cash used in investing activities | (599,477 | ) | (501,650 | ) | ||||
Cash flows from financing activities: | ||||||||
Net change in line of credit | 1,715,000 | (219,000 | ) | |||||
Principal payments on finance lease obligations | (9,046 | ) | 0 | |||||
Proceeds from term debt | 0 | 1,692,900 | ||||||
Repayment of term debt | (90,179 | ) | (85,401 | ) | ||||
Repurchases of common stock | (30,470 | ) | (30,996 | ) | ||||
Net cash provided by financing activities | 1,585,305 | 1,357,503 | ||||||
Net decrease in cash | (26 | ) | (461 | ) | ||||
Cash at beginning of period | 2,684 | 3,145 | ||||||
Cash at end of period | $ | 2,658 | $ | 2,684 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 270,616 | $ | 263,598 | ||||
Income taxes | 1,675 | 28,514 | ||||||
Supplemental disclosures of non-cash investing and financing activities: | ||||||||
Right-of-use (ROU) assets acquired | $ | 219,937 | $ | 27,879 |
See accompanying Report of Independent Registered Public Accounting Firm and notes to consolidated financial statements. |
|
|
Years Ended | ||||||||
November 30, 2019 | November 30, 2018 | |||||||
Net (Loss) | $ | (1,419,586 | ) | $ | (3,386,902 | ) | ||
Other Comprehensive Income (Loss) | ||||||||
Foreign currency translation adjustsments | - | 3,830 | ||||||
Release of cumulative translation adjustment due to substantial liquidation of a foreign entity | - | 253,180 | ||||||
Total Other Comprehensive Income (Loss) | - | 257,010 | ||||||
Comprehensive (Loss) | $ | (1,419,586 | ) | $ | (3,129,892 | ) |
|
| ||||||||
| ||||||||
|
Common Stock | Additional | Other | Treasury Stock | |||||||||||||||||||||||||||||
Number of | paid-in | Retained | Comprensive | Number of | ||||||||||||||||||||||||||||
shares | Par value | capital | earnings | Income (Loss) | shares | Amount | Total | |||||||||||||||||||||||||
Balance, November 30, 2017 | 4,158,752 | $ | 41,587 | $ | 2,859,052 | $ | 13,353,830 | $ | (257,010 | ) | $ | 1,954 | $ | (6,425 | ) | $ | 15,991,034 | |||||||||||||||
Stock based compensation | 66,298 | 663 | 196,580 | - | - | 7,332 | (21,310 | ) | 175,933 | |||||||||||||||||||||||
Foreign Currency Translation Adjustment | - | - | - | - | 3,830 | - | - | 3,830 | ||||||||||||||||||||||||
Release of cumulative translation adjustment due to substantial liquidation of a foreign entity | - | - | - | - | 253,180 | - | - | 253,180 | ||||||||||||||||||||||||
Net (loss) | - | - | - | (3,386,902 | ) | - | - | - | (3,386,902 | ) | ||||||||||||||||||||||
Balance, November 30, 2018 | 4,225,050 | $ | 42,250 | $ | 3,055,632 | $ | 9,966,928 | $ | - | 9,286 | $ | (27,735 | ) | $ | 13,037,075 | |||||||||||||||||
Stock based compensation | 96,037 | 961 | 194,455 | - | - | 9,556 | (19,323 | ) | 176,093 | |||||||||||||||||||||||
Net (loss) | - | - | - | (1,419,586 | ) | - | - | - | (1,419,586 | ) | ||||||||||||||||||||||
Balance, November 30, 2019 | 4,321,087 | 43,211 | 3,250,087 | 8,547,342 | - | 18,842 | (47,058 | ) | 11,793,582 |
|
| ||||||||
|
Twelve Months Ended | ||||||||
November 30, 2019 | November 30, 2018 | |||||||
Cash flows from operations: | ||||||||
Net (loss) from continuing operations | $ | (1,419,586 | ) | $ | (3,336,049 | ) | ||
Net (loss) from discontinued operations | - | (50,853 | ) | |||||
Adjustments to reconcile net (loss) to net cash provided by operating activities: | ||||||||
Stock based compensation | 195,416 | 197,243 | ||||||
Loss on release of cumulative translation adjustment | - | 253,180 | ||||||
Realized foreign currency loss | - | 3,830 | ||||||
Impairment of Assets | - | 591,268 | ||||||
Gain on disposal of property, plant, and equipment | (9,999 | ) | (4,837 | ) | ||||
Depreciation and amortization expense | 1,003,541 | 960,606 | ||||||
Change in allowance for doubtful accounts | (2,175 | ) | (7,198 | ) | ||||
Deferred income taxes | (353,626 | ) | (531,026 | ) | ||||
Changes in assets and liabilities: | ||||||||
(Increase) decrease in: | ||||||||
Accounts receivable | (140,687 | ) | 380,379 | |||||
Inventories | 1,478,595 | 900,854 | ||||||
Net investment in sales-type leases | 123,055 | (276,842 | ) | |||||
Other assets | 54,158 | 150,666 | ||||||
Increase (decrease) in: | ||||||||
Accounts payable | 403,251 | 128,409 | ||||||
Contracts in progress, net | (723,463 | ) | 102,662 | |||||
Customer deposits | (40,269 | ) | (454,693 | ) | ||||
Income taxes payable | - | 3,300 | ||||||
Accrued expenses | 239,542 | (88,274 | ) | |||||
Net cash provided by (used in) operating activities - continuing operations | 807,753 | (1,026,522 | ) | |||||
Net cash (used in) operating activities - discontinued operations | - | (92,090 | ) | |||||
Net cash provided by (used in) operating activities | 807,753 | (1,118,612 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchases of property, plant, and equipment | (447,025 | ) | (434,505 | ) | ||||
Additions to assets held for lease | - | (329,815 | ) | |||||
Net proceeds from sale of assets | 899,713 | 52,606 | ||||||
Net cash provided by (used in) investing activities - continuing operations | 452,688 | (711,714 | ) | |||||
Net cash provided by investing activities - discontinued operations | - | 1,418,761 | ||||||
Net cash provided by investing activities | 452,688 | 707,047 | ||||||
Cash flows from financing activities: | ||||||||
Net change in line of credit | (927,000 | ) | 1,043,000 | |||||
Repayment of term debt | (314,485 | ) | (219,429 | ) | ||||
Repurchases of common stock | (19,323 | ) | (21,310 | ) | ||||
Net cash provided by (used in) financing activities - continuing operations | (1,260,808 | ) | 802,261 | |||||
Net cash (used in) financing activities - discontinued operations | - | (599,584 | ) | |||||
Net cash provided by (used in) financing activities | (1,260,808 | ) | 202,677 | |||||
Net (decrease) in cash | (367 | ) | (208,888 | ) | ||||
Cash at beginning of period | 3,512 | 212,400 | ||||||
Cash at end of period | $ | 3,145 | $ | 3,512 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 329,356 | $ | 286,070 | ||||
Income taxes | 3,855 | 5,237 | ||||||
Supplemental disclosures of non-cash operating and investing activities: | ||||||||
Transfer of inventory to assets held for lease | $ | - | $ | 808,766 |
|
Art’s-Way Manufacturing Co., Inc.
Notes to Consolidated Financial Statements
| Summary of Significant Accounting Policies |
|
(a) | Nature of Business |
Art’s-Way Manufacturing Co., Inc. (the “Company”) is primarily engaged in the fabrication and sale of specialized farm machinery in the agricultural sector of the United States. Primary product offerings include portable and stationary animal feed processing equipment; hay and forage equipment; sugar beet harvesting equipment; land maintenance equipment;dirt work equipment and manure spreaders; moldboard plows; potato harvesters; and reels.spreaders. The Company sells its labeled products through independent farm equipment dealers throughout the United States. In addition, the Company manufactures and supplies hay blowers pursuant to OEM agreements. The Company also provides after-market service parts that are available to keep its branded and OEM-produced equipment operating to the satisfaction of the end user of the Company’s products.
The Company’s Modular Buildings segment is primarily engaged in the construction of modular laboratories and animal housing facilities through the Company’s wholly-owned subsidiary, Art’s-Way Scientific, Inc. Buildings commonly produced range from basic swine buildings to complex containment research laboratories. This segment also provides services relating to the design, manufacturing, delivering, installation, and renting of the building units that it produces.
The Company’s Tools segment is a domestic manufacturer and distributor of standard single point brazed carbide tipped tools as well as PCD (polycrystalline diamond) and, CBN (cubic boron nitride) inserts and OEM specialty tools through the Company’s wholly-owned subsidiary, Ohio Metal Working Company/Art’s Way,Art’s-Way, Inc.
The Company’s discontinued Pressurized Vessels segment was primarily engaged in the fabrication and sale of pressurized vessels and tanks through the Company’s wholly-owned subsidiary, Art’s-Way Vessels, Inc. On August 11, 2016, the Company announced its plan to discontinue the operations of its Pressurized Vessels 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 shareholder returns. The operations of Art’s-Way Vessels, Inc. were discontinued in the third quarter of the 2016 fiscal year, and Art’s-Way Vessels, Inc. was merged into the Company effective October 31, 2016. On March 29, 2018, the remaining assets of the Pressurized Vessels segment, consisting of primarily real estate, were disposed of at a selling price of $1,500,000.
(b) | Principles of Consolidation |
The consolidated financial statements include the accounts of Art’s-Way Manufacturing Co., Inc. and its wholly-owned subsidiaries for the 20192021 fiscal year, which includes Art’s-Way Scientific, Inc., and Ohio Metal Working Products/Art’s-Way, Inc. All material inter-company accounts and transactions are eliminated in consolidation.
During the second quarter of the 2018 fiscal year, the Company liquidated its investment in its Canadian subsidiary, Art’s-Way Manufacturing International LTD, (“International”), by selling off remaining inventory and filing dissolution paperwork for International. Prior to that liquidation and dissolution, the financial books of the Company’s Canadian operations were kept in the functional currency of Canadian dollars and the financial statements were converted to U.S. Dollars for consolidation. When consolidating the financial results of the Company into U.S. Dollars for reporting purposes, the Company used the All-Current translation method. The All-Current method requires the balance sheet assets and liabilities to be translated to U.S. Dollars at the exchange rate as of quarter end. Stockholders’ equity was translated at historical exchange rates and retained earnings were translated at an average exchange rate for the period. Additionally, revenue and expenses were translated at average exchange rates for the periods presented. The resulting cumulative translation adjustment was carried on the balance sheet and was recorded in stockholders’ equity. Following the liquidation and dissolution of International, the cumulative translation adjustment carried on the balance sheet was released into net income under other income (expense) and the financial statements will no longer need translation each period. Since no income tax benefit will be received from the foreign equity sale, the cumulative translation adjustment has not been tax adjusted.
(c) | Change in Accounting Estimate |
During the fiscal year 2020, the Company made a change in accounting estimate related to the estimated costs to complete a material construction contract. The change in estimate was related to the expected collectability of change orders driven from project modifications in the design process and scope gaps that occurred because of the design changes. Further unforeseen costs including increased costs from project delays due to COVID-19, issues with site conditions, subcontractor rework and expected liquidated damages deteriorated the gross profit margin on the project further through the fourth fiscal quarter of 2020. Overall, approximately $1.3 million of additional revenue was generated since the inception of the contract compared to $2.8 million of additional estimated costs to complete. The Company determined this was a change in accounting estimate in accordance with Accounting Standards Codification (“ASC”) 250-10 “Accounting Changes and Error Corrections” based on the timing of when information was reasonably considered available for the expected additional costs. The Company recognized approximately $1.2 million in revenue at a reduced margin for the Modular Buildings segment in the first and second quarters of fiscal 2021 as a result of this change in estimate.
In the fourth quarter of fiscal 2020, the Company made a change in accounting estimate related to the inventory obsolescence reserve for UHC reels, Miller Pro forage and rake, auger, and other non-current product lines. The Company concluded these items were not going to be a part of the Company’s strategic product offering going forward and increased the reserve on these items approximately $681,000 in November 2020. The Company scrapped approximately $543,000 of obsolete inventory in 2021 and expects these efforts to continue into 2022. The effect of the increased reserve reduced net inventory, added additional cost of goods sold expense reducing income from operations and also had an effect on working capital debt covenants by approximately $681,000. The Company determined this was a change in accounting estimated in accordance with Accounting Standards Codification (“ASC”) 250-10 “Accounting Changes and Error Corrections.”
(d) | Cash Concentration |
The Company maintains several different accounts at one bank, and balances in these accounts could periodically exceed the federally insured limits. However, management believes the risk of loss to be low.
|
|
During the 2018 fiscal year, no one customer accounted for more than 6% of consolidated revenues for continuing operations. During the 2019 fiscal year, one customer accounted for more than 21% of consolidated revenues as the result of a large contract in the Modular Buildings segment. The Company’s highest recurring customer accounted for just under 10% of consolidated net revenues.
(e) | Customer Concentration |
During the 2021 and 2020 fiscal years, 1 customer accounted for more than 8% and 18%, respectively, of consolidated revenues. The large concentration percentage in fiscal 2020 was due to a large construction contract in our Modular Buildings segment while our largest customer in 2021 was in the Agricultural Products segment.
(f) | Accounts Receivable |
Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Accounts receivable are written-off when deemed uncollectible. Recoveries of accounts receivable previously written-off are recorded when received. Accounts receivable are generally considered past due 60 days past invoice date, with the exception of international sales which primarily are sold with a letter of credit for 180 day terms.terms backed by export insurance.
Trade receivables due from customers are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Trade receivables are stated at the amount billed to the customer. The Company charges interest on overdue customer account balances at a rate of 1.5% per month. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices.
| Inventories |
Inventories are stated at the lower of cost or net realizable value, and cost is determined using the standard costing method. Management monitors the carrying value of inventories using inventory control and review processes that include, but are not limited to, sales forecast review, inventory status reports, and inventory reduction programs. The Company records inventory write downs to net realizable value based on expected usage information for raw materials and historical selling trends for finished goods. Additional write downs may be necessary if the assumptions made by management do not occur.
| Property, Plant, and Equipment |
Property, plant, and equipment are recorded at cost. Depreciation of plant and equipment is provided using the straight-line method, based on the estimated useful lives of the assets which range from three to forty40 years.
|
|
Modular buildings held for short term lease by the Modular Buildings segment are recorded at cost. Amortization of the property is calculated over the useful life of the building. Estimated useful life is three to five years. Lease revenue is accounted for on a straight-line basis over the term of the related lease agreement. Lease income for modular buildings is included in sales on the consolidated statements of operations.
The Company leases modular buildings to certain customers and accounts for these transactions as sales-type leases. These leases have terms of up to 36 months and are collateralized by a security interest in the related modular building. The lessee has a bargain purchase option available at the end of the lease term. A minimum lease receivable is recorded net of unearned interest income and profit on sale at the time the Company’s obligation to the lessee is complete. Profit related to the sale of the building is recorded upon fulfillment of the Company’s obligation to the lessee.
There were no future minimum lease receipts from sales-type leases as of November 30, 2021.
|
|
The components related to sales-type leases on November 30, 2020 are as follows:
November 30, 2020 | ||||
Minimum lease receivable, current | $ | 29,002 | ||
Unearned interest income, current | (650 | ) | ||
Net investment in sales-type leases, current | $ | 28,352 |
Goodwill represents costs in excessThere was 0 sales activity related to sales-type leases for the years ended November 30, 2021 and November 30, 2020.
The Company determines if an arrangement is a lease at inception of a contract. The nature of the fairCompany’s leases at this time is shop machinery and office equipment, mainly copiers, with terms of 12 to 60 months. Operating and finance leases are included in other assets as lease right-of-use (“ROU”) assets on the Consolidated Balance Sheets while current lease liabilities are included as accrued expenses. The long-term portions of lease liabilities are shown as long-term liabilities on the Consolidated Balance Sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the present value payments over the lease term. As most of net tangiblethe 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 identifiable net intangible assets acquired in business combinations. interest expense is recorded over the lease term.
The Company performs an annual testhas copier lease agreements with lease and non-lease components and has elected the practical expedient not to separate lease and non-lease components for impairment of goodwill during the fourth quarter, unless factors determine an earlier test is necessary.this asset class. The Company did has also elected not record to recognize lease liabilities and ROU assets for leases with an impairmentinitial term of twelve months or less. The Company recognizes variable costs that depend on usage in profit or loss as they are incurred.
The components of operating leases on the Consolidated Balance Sheets at November 30, 2021 and November 30, 2020 were as follows:
November 30, 2021 | November 30, 2020 | |||||||
Operating lease right-of-use assets (in other assets) | $ | 47,794 | 27,879 | |||||
Current portion of operating lease liabilities (in accrued expenses) | $ | 12,863 | 9,537 | |||||
Long-term portion of operating lease liabilities | 34,931 | 18,342 | ||||||
Total operating lease liabilities | $ | 47,794 | 27,879 |
The Company recorded $22,445 of operating lease expense in the 2019year ended November 30, 2021 compared $23,121 in the same period of fiscal year compared2020, including variable costs tied to usage. The Company’s operating leases carry a $375,000 write down forweighted average lease term of 48 months and have a weighted average discount rate of 5.50%
Future maturities of operating lease liabilities as of November 30, 2021 are as follows:
2022 | 14,914 | |||
2023 | 12,344 | |||
2024 | 11,162 | |||
2025 | 9,532 | |||
2026 | 4,765 | |||
Total lease payments | 52,717 | |||
Less imputed interest | (4,924 | ) | ||
Total operating lease liabilities | 47,794 |
The components of finance leases on the 2018 fiscal year. This amount representsConsolidated Balance Sheets on November 30, 2021 were as follows while there were no finance leases on November 30, 2020:
November 30, 2021 | ||||
Finance lease right-of-use assets (net of amortization in other assets) | $ | 190,667 | ||
$ | 190,667 | |||
Current portion of finance lease liabilities (in accrued expenses) | $ | 48,591 | ||
Long-term portion of finance lease liabilities | 142,386 | |||
Total finance lease liabilities | $ | 190,977 |
Future maturities of finance lease liabilities as of November 30, 2021 are as follows:
2022 | $ | 56,646 | ||
2023 | 56,646 | |||
2024 | 68,029 | |||
2025 | 14,203 | |||
2026 | 12,618 | |||
Total lease payments | 208,142 | |||
Less imputed interest | (17,165 | ) | ||
Total finance lease liabilities | $ | 190,977 |
The weighted average lease term of the entire balanceCompany’s finance leases are 42 months while the weighted average rate of goodwill carried by thefinance leases is 4.77%. The Company incurred $9,356 of amortization expense from ROU assets related to the Miller Pro product line. There is no goodwill reported on the consolidated balance sheets as of November 30, 2019 and 2018.finance leases.
(j) | 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. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is entirely dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
On December 28, 2020 the Consolidated Appropriations Act, 2021 was signed into law. This law provides that no amount of loan forgiveness granted under the Paycheck Protection Program shall be included in gross income for tax purposes. The law also allows the deduction of expenses related to the Paycheck Protection Program creating a double tax benefit. The Company attributes 8.8% of tax rate benefit related to the permanent difference from this law for the fiscal year ended November 30, 2020.
The Company classifies interest and penalties to be paid on an underpayment of taxes as income tax expense. The Company files income tax returns in the U.S. federal jurisdiction and various states and previously in Canada. The Company is no longer subject to Canadian, U.S. federal or state income tax examinations by tax authorities for years ended before November 30, 2016.2018.
On December
(k) | Revenue Recognition |
The Company’s revenues primarily result from contracts with customers. The major sources of revenue for the Agricultural Products and Tools segments are farm equipment, service parts related to farm equipment and steel cutting tools and inserts. The Agricultural Products and Tools segments generally execute short-term contracts that contain a single performance obligation – the delivery of product to the common carrier. The Company recognizes revenue for the production and sale of farm equipment, service parts and cutting tools upon shipment of the goods. Risk of ownership and title pass to the buyercustomer upon shipment of the goods. The Tools segment has an OEM agreement with one customer for which sales are recognized FOB destination – when the goods hit the customer’s dock. All sales are made to authorized dealers whose application for dealer status has been approved and who have been informed of general sales policies. Any changes in the Company’s terms are documented in the most recently published price lists. Pricing is fixed and determinable according to the Company’s published equipment and parts price lists. Title to all equipment and parts sold passes to the buyercustomer upon delivery to the carrier and is not subject to a customer acceptance provision. Proof of the passing of title is documented and retained by the Company. Post shipment obligations are limited to any claim with respect to the condition of the equipment or parts. The Agricultural Products and Tools segments each typically require payment in full 30 days after the ship date. To take advantage of program discounts, some customers pay deposits up front. Any deposits received increase contract liabilities.
In certain circumstances, upon the customer’s written request, the Company may recognize revenue when production is complete, and the goods are ready for shipment. At the buyer’scustomer’s request, the Company will bill the buyercustomer upon completing all performance obligations, but before shipment. The buyercustomer dictates that the Company ship the goods per theirthe customer’s direction from the Company’s manufacturing facility, as is customary with this type of agreement, in order to minimize shipping costs. The written agreement with the customer specifies that the goods will be delivered on a schedule to be determined by the customer, with a final specified delivery date, and that the Company will segregate the goods from its inventory, such that they are not available to fill other orders. This agreement also specifies that the buyercustomer is required to purchase all goods manufactured under this agreement. Title of the goods will pass to the buyercustomer when the goods are complete and ready for shipment, per the customer agreement. At the transfer of title, all risks of ownership have passed to the buyer,customer, and the buyercustomer agrees to maintain insurance on the manufactured items that have not yet been shipped. The Company has operated using bill and hold agreements with certain customers for many years, with consistent satisfactory results for both buyerthe customer and seller.the Company. The credit terms on these agreements are consistent with the credit terms on all other sales. All risks of loss are shouldered by the buyer,customer, and there are no exceptions to the buyer’scustomer’s commitment to accept and pay for these manufactured goods. Revenues recognized at the completion of production in the 20192021 and 20182020 fiscal years were approximately $16,000$1,621,832 and $202,000,$0, respectively.
The Modular Buildings segment is in the construction industry with its major source of revenue arising from modular building sales. Sales of modular buildings are generally recognized using input methods to measure progress towards the satisfaction of a performance obligation using the percentage of completion method. Revenue and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion. Contract costs consist of direct costs on contracts, including labor, materials, amounts payable to subcontractors and those indirect costs related to contract performance, such as equipment costs, insurance and employee benefits. Contract cost is recorded as incurred, and revisions in contract revenues and cost estimates are reflected in the accounting period when known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Contract losses are recognized when current estimates of total contract revenue and contract cost indicate a loss. Estimated contract costs include any and all costs appropriately allocable to the contract. The provision for these contract losses will be the excess of estimated contract costs over estimated contract revenues. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract change orders, penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. The Company uses significant judgmentsjudgements in determining estimated contract costs and estimated completion percentages throughout the life of the project. Stock modular building sales also occur and are recognized at a point in time when the performance obligation is fulfilled through substantial completion. Substantial completion is achieved through customer acceptance of the completed building. The Modular Buildings segment executes contracts with customers that can be short- or long-term in nature. These contracts can have multiple performance obligations and revenue from these can be recognized over time or at a point in time depending on the nature of the contracts. Payment terms for the Modular Buildings segment vary by contract, but typically utilize money down and progress payments throughout the life of the contract. The payment terms of the Modular Buildings segment have the most impact on the Company’s contract receivables, contract assets and contract liabilities. Project invoicing from the Modular Buildings segment increases contract receivables and has an effect on contract liabilities through billings in excess of costs and estimated gross profit and advanced payments. The balance of contract assets is typically made up of the balance of costs in and estimated gross profit in excess of billings. Costs and profit in excess of amounts billed are classified as current assets and billings in excess of cost and profit are classified as current liabilities.
The Company leases modular buildings to certain customers and accounts for these transactions as operating or sales-type leases. These leases have terms of up to 36 months and are collateralized by a security interest in the related modular building. On sales-type leases, the lessee has a bargain purchase option available at the end of the lease term. A minimum lease receivable is recorded net of unearned interest income and profit on sale at the time the building is substantially complete. Profit related to the sale of the building is recorded upon fulfillment of the Company’s obligation to the lessee. On operating leases, the Company recognizes rent when the lessee has all the rights and benefits of ownership of the asset.
The Agricultural Products segment offers variable consideration in the form of discounts depending on participation in yearly early order programs. This variable consideration is allocated to the transaction price of all products in a sales arrangement and is not contingent on future outcomes. The Agricultural Products segment does not offer rebates or credits. The Tools segment offers quantity discounts that are allocated to the transaction price of each product once the quantity break is achieved. The Tools segment does not offer rebates or credits. The Modular Buildings segment does not offer discounts, rebates or credits.
The Company’s returns policy allows for new and saleable parts to be returned, subject to inspection and a restocking charge, which is included in net sales. Whole goods are not returnable. Shipping costs charged to customers are included in net sales. Freight costs incurred are included in cost of goods sold. Customer deposits consist of advance payments from customers, in the form of cash, for revenue to be recognized in the following year.
For information on product warranty as it applies to ASC 606, refer to Note 98 “Product Warranty.”
(l) |
|
|
The following table displays revenue by reportable segment from external customers, disaggregated by major source. The Company believes disaggregating by these categories depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
Twelve Months Ended November 30, 2019 | Twelve Months Ended November 30, 2021 | |||||||||||||||||||||||||||||||
Agricultural | Modular Buildings | Tools | Total | Agricultural | Modular Buildings | Tools | Total | |||||||||||||||||||||||||
Farm equipment | $ | 10,435,000 | $ | - | $ | - | $ | 10,435,000 | $ | 13,630,000 | $ | 0 | $ | 0 | $ | 13,630,000 | ||||||||||||||||
Farm equipment service parts | 2,638,000 | - | - | 2,638,000 | 2,799,000 | 0 | 0 | 2,799,000 | ||||||||||||||||||||||||
Steel cutting tools and inserts | - | - | 2,086,000 | 2,086,000 | 0 | 0 | 2,440,000 | 2,440,000 | ||||||||||||||||||||||||
Modular buildings | - | 6,460,000 | - | 6,460,000 | 0 | 5,382,000 | 0 | 5,382,000 | ||||||||||||||||||||||||
Modular building lease income | - | 674,000 | - | 674,000 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Other | 435,000 | 126,000 | 35,000 | 596,000 | 397,000 | 296,000 | 21,000 | 714,000 | ||||||||||||||||||||||||
$ | 13,508,000 | $ | 7,260,000 | $ | 2,121,000 | $ | 22,889,000 | $ | 16,826,000 | $ | 5,678,000 | $ | 2,461,000 | $ | 24,965,000 |
Twelve Months Ended November 30, 2018 | Twelve Months Ended November 30, 2020 | |||||||||||||||||||||||||||||||
Agricultural | Modular Buildings | Tools | Total | Agricultural | Modular Buildings | Tools | Total | |||||||||||||||||||||||||
Farm equipment | $ | 11,149,000 | $ | - | $ | - | $ | 11,149,000 | $ | 10,149,000 | $ | 0 | $ | 0 | $ | 10,149,000 | ||||||||||||||||
Farm equipment service parts | 2,735,000 | - | - | 2,735,000 | 2,519,000 | 0 | 0 | 2,519,000 | ||||||||||||||||||||||||
Steel cutting tools and inserts | - | - | 2,239,000 | 2,239,000 | 0 | 0 | 2,308,000 | 2,308,000 | ||||||||||||||||||||||||
Modular buildings | - | 2,271,000 | - | 2,271,000 | 0 | 6,517,000 | 0 | 6,517,000 | ||||||||||||||||||||||||
Modular building lease income | - | 373,000 | - | 373,000 | 0 | 318,000 | 0 | 318,000 | ||||||||||||||||||||||||
Revenue from sales-type leases | - | 427,000 | - | 427,000 | ||||||||||||||||||||||||||||
Other | 460,000 | 38,000 | 35,000 | 533,000 | 417,000 | 158,000 | 23,000 | 598,000 | ||||||||||||||||||||||||
$ | 14,344,000 | $ | 3,109,000 | $ | 2,274,000 | $ | 19,727,000 | $ | 13,085,000 | $ | 6,993,000 | $ | 2,331,000 | $ | 22,409,000 |
(m) | Contract Receivables, Contract Assets and Contract Liabilities |
The following table provides information about contract receivables, contract assets, and contract liabilities from contracts with customers included on the Consolidated Balance Sheets.
November 30, 2019 | November 30, 2018 | November 30, 2021 | November 30, 2020 | |||||||||||||
Receivables | $ | 115,000 | $ | 159,000 | $ | 2,663,000 | $ | 2,391,000 | ||||||||
Assets | 727,000 | 99,000 | 177,000 | 56,000 | ||||||||||||
Liabilities | 89,000 | 185,000 | 559,000 | 474,000 |
The amount of revenue recognized in fiscal year 20192021 that was included in a contract liability at November 30, 2018 2020 was approximately $185,000.$474,000 compared to $89,000 for the prior year. The change in contract receivables reflected above results from collections and progresscontract billings from the Modular Buildings segment.for all 3 segments as performance obligations are met. The increase in contract assets from on November 30, 2018 2021 is due to estimated revenue earnedconstruction costs in excess of contract billings fromon contracts in the Modular Buildings segment. The decrease in contractContract liabilities ishave increased due to decreases in customer deposits and decreases in excess billing over estimated revenue earned.received on the Agricultural Products segment as part of its early order program.
The Company will utilize the practical expedient exception for these contracts and will report only on performance obligations greater than one year. As of November 30, 2019, 2021, and November 30, 2020, the Company has no performance obligations with an original expected duration greater than one year.
(n) | Research and Development |
Research and development costs are expensed when incurred. Such costs approximated $149,000$152,000 and $178,000$199,000 for the 20192021 and 20182020 fiscal years, respectively. Research and development costs are included in engineering expenses on the Consolidated Statements of Operations.
| Advertising |
Advertising costs are expensed when incurred. Such costs approximated $198,000$163,000 and $312,000$175,000 for the 20192021 and 20182020 fiscal years, respectively. The Company has made a concerted effort to reduce trade show participation that was not providingAdvertising costs are included in selling expenses on the levelConsolidated Statements of product exposure it expected.Operations.
(p) | Net Income (Loss) Per Share of Common Stock |
Basic net income (loss) per share has been computed on the basis of the weighted average number of shares of common stock outstanding. Diluted net income (loss) per share of common stock has been computed on the basis of the weighted average number of shares outstanding plus equivalent shares of common stock assuming exercise of stock options. Potential shares of common stock that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted net income (loss) per share of common stock.
Basic and diluted (loss) per common share have been computed based on the following as of November 30, 2019 2021 and 2018:2020:
Twelve Months Ended | For the Twelve Months Ended | |||||||||||||||
November 30, 2019 | November 30, 2018 | November 30, 2021 | November 30, 2020 | |||||||||||||
Numerator for basic and diluted net income (loss) per share: | ||||||||||||||||
Net income (loss) from continuing operations | $ | (1,419,586 | ) | $ | (3,336,049 | ) | ||||||||||
Net income (loss) from discontinued operations | - | (50,853 | ) | |||||||||||||
Net income (loss) | $ | (1,419,586 | ) | $ | (3,386,902 | ) | $ | 212,631 | $ | (2,103,486 | ) | |||||
Denominator: | ||||||||||||||||
For basic net income (loss) per share - weighted average common shares outstanding | 4,277,375 | 4,202,836 | 4,515,229 | 4,393,887 | ||||||||||||
Effect of dilutive stock options | - | - | 0 | 0 | ||||||||||||
For diluted net income (loss) per share - weighted average common shares outstanding | 4,277,375 | 4,202,836 | 4,515,229 | 4,393,887 | ||||||||||||
Net Income (Loss) per share - Basic: | ||||||||||||||||
Continuing Operations | $ | (0.33 | ) | $ | (0.80 | ) | ||||||||||
Discontinued Operations | $ | - | $ | (0.01 | ) | |||||||||||
Net Income (Loss) per share | $ | (0.33 | ) | $ | (0.81 | ) | $ | 0.05 | $ | (0.48 | ) | |||||
Net Income (Loss) per share - Diluted: | ||||||||||||||||
Continuing Operations | $ | (0.33 | ) | $ | (0.80 | ) | ||||||||||
Discontinued Operations | $ | - | $ | (0.01 | ) | |||||||||||
Net Income (Loss) per share | $ | (0.33 | ) | $ | (0.81 | ) | $ | 0.05 | $ | (0.48 | ) |
(q) | Stock Based Compensation |
Stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date and recognized over the relevant vesting period. The Company estimates the fair value of each stock-based award on the measurement date using the Black-Scholes option valuation model which incorporates assumptions as to stock price volatility, the expected life of the options, risk-free interest rate and dividend yield. Restricted stock is valued at market value at the day of grant.
(r) | Use of Estimates |
Management has made a number of estimates and assumptions related to the reported amount of assets and liabilities, reported amount of revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
(s) |
| Recently Issued Accounting Pronouncements |
Adopted Accounting Pronouncements
Effective December 1, 2018 the Company adopted Leases
In February 2016, the Financial Accounting Standards Board (“FASB”(the “FASB”) Accounting Standards Codification (“ASC”) Subtopic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and is to be applied retrospectively, with early application not permitted. The Company adopted ASC 606 for the 2019 fiscal year, including interim periods within that reporting period.
The Company has evaluated the new standard and applied the core principle to its contract revenue streams. To be consistent with this core principle, an entity is required to apply the following five-step approach:
1. Identify the contract(s) with a customer;
2. Identify each performance obligation in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to each performance obligation; and
5. Recognize revenue when or as each performance obligation is satisfied.
The Company’s revenues primarily result from contracts with customers. The Agricultural Products and Tools segments generally execute short-term contracts that contain a single performance obligation – the delivery of product to the common carrier. The Company recognizes revenue for the production and sale of farm equipment, service parts, and cutting tools upon shipment of the goods. The Modular Buildings segment executes contracts with customers that can be short or long-term in nature. These contracts can have multiple performance obligations and revenue from these can be recognized over time or at a point in time depending on the nature of the contracts. Payment terms generally are short-term and vary by customer and segment. The Company’s implementation process for ASC 606 included modifications to the contracts of the Modular Buildings segment.
The Company uses discounts as a form of variable consideration for the Agricultural Products and Tools segments. The variable consideration is allocated to the transaction price at contract inception and is generally not contingent on future outcomes. The Agricultural Products and Tools segments do not offer rebates or credits. The Modular Buildings segment does not offer discounts, credits or rebates.
The Company’s product warranty is included in the price of the product and provides assurance that the product will function in accordance with agreed-upon specifications. Product warranty is expensed at the time of sale for the Agricultural Products and Modular Buildings segments. A small reserve is kept on the balance sheet as consideration for the Tools segment warranty. This product warranty does not represent a separate performance obligation under ASC 606.
The Company adopted ASC 606 using the modified retrospective method. The Company has determined that amounts reported under ASC 606 are not materially different than amounts reported under the previous revenue guidance of ASC 605 and therefore, the Company was not required to make an adjustment to retained earnings.
The Company, upon adoption of ASC 606, has increased the amount of required disclosures in the notes to its financial statements, including but not limited to:
• Disaggregation of revenue that depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors;
• The opening and closing balances of receivables, contract assets, and contract liabilities from contracts with customers, if not otherwise separately presented or disclosed;
• Revenue recognized in the reporting period that was included in the contract liability balance at the beginning of the period;
• Information about performance obligations in contracts with customers; and
• Judgments that significantly affect the determination of the amount and timing of revenue from contracts with customers, including the timing satisfaction of performance obligation, and the transaction price and the amounts allocated to performance obligations.
Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02,2016-02, “Leases (Topic 842)842),” which requires a lessee to recognize a right-of-use asset and a lease liability on its balance sheet for all leases with terms of twelve12 months or greater. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. The Company will adoptadopted this guidance for the 2020 fiscal year2020 using the modified retrospective approach, including interim periods within that reporting period. Under the modified retrospective approach, the Company will did not adjust prior comparative periods. The Company has a moderate amount of leasing activity mainly as the lessee of office equipment and as the lessor of modular rental buildings. TheAs a result of adoption in the first fiscal quarter of 2020, the Company expects to recognizerecognized $34,316 as a right-of-use asset and $34,316 of lease liabilityliabilities on the balance sheet for office equipment it leases. The Company does not expect a material impact for the addition of lessee activity to its consolidated balance sheets. The Company’s activity as a lessor will remain mostly unaffected by this guidance. The Company expectsCompany’s additional disclosures includingmay include, but are not limited to:
• Nature of its leases
•
Measurement of
In
26
A summary of the Company’s activity in the allowance for doubtful accounts is as follows:
Major classes of inventory are:
Amounts included in the consolidated financial statements related to uncompleted contracts are as follows:
The amounts billed on
Major classes of property, plant, and equipment
Depreciation and amortization expense
27
Major components of assets held for lease are:
The Company’s Modular Buildings segment enters into leasing arrangements with customers from time-to-time. The Company had
Rents recognized in sales were related to the leasing of modular buildings as a part of the normal course of business operations of the Modular Buildings segment.
Major components of accrued expenses are:
The Company offers warranties of various lengths to its customers depending on the specific product and terms of the customer purchase agreement. The average length of the warranty period is one year from the date of purchase. The Company’s warranties require it to repair or replace defective products during the warranty period at no cost to the customer. Product warranty is included in the price of the product and provides assurance that the product will function in accordance with agreed-upon specifications. It does not represent a separate performance obligation under ASC 606. The Company records a liability for estimated costs that may be incurred under its warranties. The costs are estimated based on historical experience and any specific warranty issues that have been identified. Although historical warranty costs have been within expectations, there can be no assurance that future warranty costs will not exceed historical amounts. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the balance as necessary.
Changes in the Company’s product warranty liability included in
The Company maintains
28 Bank Midwest Revolving
The
On February 13, 2019, the Company opened a $4,000,000 revolving line of credit (the On April 20, 2020, the Company obtained a loan in the amount of $1,242,900 from Bank Midwest in connection with
Each of the 2017 Line of Credit and the
In connection with the 2017 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 2017 Line of Credit, as set forth in Commercial Guaranties, each dated September 28, 2017. The 2019 Line of Credit is also secured by these existing security documents.
29 To further secure the
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
On
A summary of the Company’s term debt is as follows:
30 A summary of the minimum maturities of term debt follows for the years ending November 30:
During the
The Company sponsors a defined contribution
On
The
31 Shares issued under the 2020 equity plan for the years ended November 30, 2021 and 2020 are as follows:
Book and tax stock-based compensation expense for the years ended November 30, 2021 and 2020 are as follows:
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. No stock options were granted during the years ended November 30, 2021 or 2020.
The fair value of each option award is estimated on the date of grant using the Black Scholes option-pricing model. 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.
32 The following is a summary of activity under the plans as of November 30,
The Company received
Total income tax expense (benefit) for the
The reconciliation of the statutory Federal income tax rate is as follows:
Tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities)
33 In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company’s has net operating
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.
Various legal actions and claims
There are three reportable segments: Agricultural Products, Modular Buildings, and Tools. The Agricultural Products segment fabricates and sells farming products as well as replacement parts for these products in the United States and worldwide. The Modular Buildings segment produces modular buildings for animal containment and various laboratory uses. The Tools segment manufactures steel cutting tools and inserts.
The accounting policies applied to determine the segment information are the same as those described in the summary of significant accounting policies. Management evaluates the performance of each segment based on profit or loss from operations before income taxes.
Approximate financial information with respect to the reportable segments is as follows.
Management evaluated all other activity of the Company and concluded that no subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial
34 Item 9.
None.
Item 9A.
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
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Under the supervision and with the participation of management, including the persons serving as our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management has concluded that our internal control over financial reporting was
This report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the
Limitations on Controls
Our management, including the persons serving as our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. In addition, the design of any system of controls is based in part on certain assumptions about the likelihood of future events, and controls may become inadequate if conditions change. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes to Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the
Item 9B. OTHER
None.
35
PART III
Item 10.
The information required by Item 10 is incorporated by reference to the sections entitled “Questions and Answers about the
Item 11.
The information required by Item 11 is incorporated by reference to the sections entitled “Executive Compensation” and “Director Compensation” in our definitive proxy statement relating to our
Item 12.
The information required by Item 12 is incorporated by reference to the sections entitled “Security Ownership of Principal Stockholders,” “Security Ownership of Directors and Management” and “Equity Compensation Plan Information” in our definitive proxy statement relating to our
Item 13.
The information required by Item 13 is incorporated by reference to the sections entitled “Corporate Governance” and “Certain Transactions and Business Relationships” in our definitive proxy statement relating to our
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is incorporated by reference to the section entitled “Independent Registered Public Accountant Firm” in our definitive proxy statement relating to our
36
PART IV
Item 15.
Report of Eide Bailly, LLP (PCAOB ID 286) on Consolidated Financial Statements as of November 30,
Consolidated Balance Sheets as of November 30,
Consolidated Statements of Operations for each of the years ended November 30,
Consolidated Statements of Stockholders’ Equity for each of the years ended November 30,
Consolidated Statements of Cash Flows for each of the years ended November 30,
Notes to Consolidated Financial Statements
Not applicable.
37
(*) Indicates a management contract or compensatory plan or arrangement.
Item 16. FORM 10-K SUMMARY.
Not applicable.
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Each person whose signature appears below appoints
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
39 |