UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended February 28, 2023 or ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______ Commission File No. 000-05131 ART'S-WAY MANUFACTURING CO., INC. (Exact name of registrant as specified in its charter) Delaware 42-0920725 ...

Part I [Item 1. Business](index=5&type=section&id=Item%201.%20BUSINESS) Art's-Way Manufacturing Co., Inc. manufactures agricultural equipment, modular science buildings, and steel cutting tools, with agricultural products being the largest segment [Business Segments Overview](index=5&type=section&id=Business%20Segments%20Overview) The company operates through Agricultural Products, Modular Buildings, and Tools segments, with Agricultural Products significantly increasing its revenue contribution in fiscal year 2022 Segment Revenue Contribution (FY 2022 vs. FY 2021) | Segment | FY 2022 Revenue % | FY 2021 Revenue % | | :--- | :--- | :--- | | Agricultural Products | 73.6% | 67.4% | | Modular Buildings | 16.7% | 22.7% | | Tools | 9.7% | 9.9% | - The Agricultural Products segment manufactures and distributes specialized farm machinery, including feed processing equipment, forage equipment, manure spreaders, and sugar beet harvesting equipment[12](index=12&type=chunk) - The Modular Buildings segment, through Art's-Way Scientific, Inc., designs, manufactures, sells, and leases custom modular buildings for research, diagnostic, and pharmaceutical applications[13](index=13&type=chunk) - The Tools segment, through Ohio Metal Working Products/Art's-Way, Inc., produces carbide-tipped tools and inserts for industries such as automotive, aerospace, and oil and gas[14](index=14&type=chunk) [Products, Distribution, and Markets](index=6&type=section&id=Products%2C%20Distribution%2C%20and%20Markets) The company distributes agricultural products through a dealer network and reported a total backlog of approximately $15.1 million as of February 6, 2023 Order Backlog as of February 6, 2023 vs. 2022 | Segment | Backlog (Feb 6, 2023) | Backlog (Feb 6, 2022) | | :--- | :--- | :--- | | Agricultural Products | $9,549,000 | $10,513,000 | | Modular Buildings | $4,985,000 | $1,243,000 | | Tools | $556,000 | $578,000 | - International sales increased to **4.5% of consolidated sales** in FY2022, up from 2.6% in FY2021[20](index=20&type=chunk) - Recent product developments in 2022 focused on the Agricultural Products segment, including designs for smaller manure spreaders, truck mount features, and enhancements to forage boxes and defoliators[23](index=23&type=chunk) [Competition and Operations](index=7&type=section&id=Competition%20and%20Operations) The company competes in niche markets by emphasizing product quality and rapid delivery, with one customer accounting for over 11% of consolidated net revenues in FY2022 - The Agricultural Products segment competes by catering to niche markets where it doesn't have a direct competitor with the same comprehensive product offerings[26](index=26&type=chunk) - The Modular Buildings segment's strength lies in its ability to deliver high-tech modular labs in as little as **six months**, compared to two to five years for conventional construction[30](index=30&type=chunk) - The Tools segment counters offshore competition by offering a wide range of standard tool inventories and producing special, engineered products with short lead times[31](index=31&type=chunk) - In FY2022, one customer accounted for over **11% of consolidated net revenues**; the OEM supplier agreement with Case New Holland (CNH) expired in October 2022 but transactions continue[33](index=33&type=chunk) - As of November 30, 2022, the company employed **149 people**, with the majority in the Tools segment covered by a collective bargaining agreement expiring in June 2024[37](index=37&type=chunk) [Item 1A. Risk Factors](index=9&type=section&id=Item%201A.%20RISK%20FACTORS) As a smaller reporting company, Art's-Way is not required to provide disclosure for this item - The company is not required to provide disclosure under this item because it qualifies as a smaller reporting company[38](index=38&type=chunk) [Item 2. Properties](index=9&type=section&id=Item%202.%20PROPERTIES) The company owns its primary manufacturing facilities in Armstrong, Monona, and Canton, all of which are mortgaged as security for debt - The company owns three main facilities: Armstrong, IA (Agricultural Products), Monona, IA (Modular Buildings), and Canton, OH (Tools)[40](index=40&type=chunk)[41](index=41&type=chunk) - All owned real property is subject to mortgages granted to Bank Midwest as security for long-term debt and the line of credit[41](index=41&type=chunk) [Item 3. Legal Proceedings](index=9&type=section&id=Item%203.%20LEGAL%20PROCEEDINGS) The company is not currently involved in any material legal proceedings and is unaware of any pending or threatened claims - The company reports no current material legal proceedings[42](index=42&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=10&type=section&id=Item%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock trades on Nasdaq under 'ARTW,' with no dividends paid or common stock repurchased in fiscal years 2021 or 2022 - The company's common stock is listed on the Nasdaq under the ticker symbol **ARTW**[43](index=43&type=chunk) - No dividends were paid during the 2022 or 2021 fiscal years[44](index=44&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=10&type=section&id=Item%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Consolidated revenues increased 13.8% to $28.4 million in FY2022, driven by agricultural products, though net income decreased due to higher operating expenses and losses in other segments [Financial Condition and Liquidity](index=10&type=section&id=Financial%20Condition%20and%20Liquidity) The company achieved its second consecutive year of profitability in FY2022, with improved working capital and sufficient liquidity expected for the next twelve months Working Capital Summary (as of Nov 30) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Current Assets | $14,133,429 | $12,174,245 | | Current Liabilities | $9,267,289 | $7,686,817 | | Working Capital | $4,866,140 | $4,487,428 | | Current Ratio | 1.53 | 1.58 | - The company does not foresee liquidity issues within the next twelve months, citing a strong working capital position and a positive banking relationship[46](index=46&type=chunk) [Results of Operations](index=12&type=section&id=Results%20of%20Operations) Consolidated net sales increased by 13.8% to $28.4 million in FY2022, primarily driven by the Agricultural Products segment, despite a decline in overall net income Consolidated Financial Performance (FY 2022 vs. FY 2021) | Metric | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net Sales | $28,400,000 | $24,965,000 | | Gross Profit % | 25.7% | 26.4% | | Operating Income | $333,000 | $523,000 | | Net Income | $98,000 | $213,000 | - The Agricultural Products segment's net sales grew by **$4.1 million (24.3%)** to **$20.9 million**, and its operating income more than doubled to **$1.2 million**[59](index=59&type=chunk)[61](index=61&type=chunk) - The Modular Buildings segment's sales decreased by **16.6%** to **$4.7 million**, resulting in an operating loss of **$600,000**, a significant downturn from an operating income of $74,000 in 2021[62](index=62&type=chunk) - The Tools segment's sales increased by **11.9%** to **$2.8 million**, but its operating loss widened to **$272,000** from $150,000 in 2021 due to rising costs and manufacturing inefficiencies[63](index=63&type=chunk) [Trends, Seasonality, and Capital Resources](index=14&type=section&id=Trends%2C%20Seasonality%2C%20and%20Capital%20Resources) The company's performance is influenced by the farm industry and seasonality, with significant investments in property and equipment in FY2022, and a debt covenant waiver received - The business is dependent on the farming industry, benefiting from increases in farm net income and being negatively affected by decreases[64](index=64&type=chunk) - The company invested approximately **$2,445,000** in property, plant, and equipment in FY2022, focusing on facility upgrades and manufacturing efficiency[67](index=67&type=chunk) - The company received **$369,000** from the Iowa Economic Development's Manufacturing 4.0 program for capital expenditures that increase automation[68](index=68&type=chunk) - As of November 30, 2022, the company was out of compliance with its debt to worth ratio covenant but received a waiver from its lender, avoiding an event of default[70](index=70&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=16&type=section&id=Item%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section includes the independent auditor's unqualified opinion and the consolidated financial statements for fiscal years 2021 and 2022, along with detailed notes [Report of Independent Registered Public Accounting Firm](index=16&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Eide Bailly LLP issued an unqualified opinion on the consolidated financial statements, identifying inventory valuation as a critical audit matter - The auditor, Eide Bailly LLP, provided an **unqualified (clean) opinion** on the company's financial statements[77](index=77&type=chunk) - The valuation of inventories was identified as a critical audit matter, highlighting the complexity and subjectivity of management's estimates regarding future salability and net realizable value[82](index=82&type=chunk)[83](index=83&type=chunk) [Consolidated Financial Statements](index=18&type=section&id=Consolidated%20Financial%20Statements) Total assets grew to $23.9 million in FY2022, while net income decreased to $97,797, but net cash provided by operating activities significantly improved Key Financial Highlights (FY 2022 vs. FY 2021) | Metric | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Total Assets | $23,948,314 | $20,854,048 | | Total Liabilities | $12,797,677 | $10,499,601 | | Total Stockholders' Equity | $11,150,637 | $10,354,447 | | Net Sales | $28,399,637 | $24,965,086 | | Net Income | $97,797 | $212,631 | | Diluted EPS | $0.02 | $0.05 | | Net Cash from Operations | $951,721 | ($985,854) | [Notes to Consolidated Financial Statements](index=23&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail revenue recognition policies, debt structure including a $5 million revolving line of credit, segment performance, and a common stock purchase agreement - One customer accounted for over **11% of consolidated revenues** in FY2022, up from 8% in FY2021[100](index=100&type=chunk) - The Modular Buildings segment recognizes revenue over time using the percentage of completion method, while other segments generally recognize revenue upon shipment[118](index=118&type=chunk)[121](index=121&type=chunk) - As of Nov 30, 2022, the company had a **$5 million revolving line of credit** with a balance of **$3.9 million**, and total term debt of **$3.0 million**[157](index=157&type=chunk)[168](index=168&type=chunk) - In March 2022, the company entered into a Common Stock Purchase Agreement to sell up to **$3 million** of common stock, receiving **$545,528** as of the filing date[180](index=180&type=chunk)[186](index=186&type=chunk) Segment Performance Summary (FY 2022) | Segment | Revenue from External Customers | Income (Loss) from Operations | | :--- | :--- | :--- | | Agricultural Products | $20,912,000 | $1,205,000 | | Modular Buildings | $4,734,000 | ($600,000) | | Tools | $2,754,000 | ($272,000) | | **Consolidated** | **$28,400,000** | **$333,000** | [Item 9A. Controls and Procedures](index=43&type=section&id=Item%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of November 30, 2022 - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of November 30, 2022[199](index=199&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of November 30, 2022[200](index=200&type=chunk) Part III [Items 10-14](index=44&type=section&id=Part%20III%20Items) Information for Items 10 through 14, covering governance, compensation, and ownership, is incorporated by reference from the company's 2023 proxy statement - Information for Item 10 (Directors, Executive Officers and Corporate Governance) is incorporated by reference from the 2023 proxy statement[205](index=205&type=chunk) - Information for Item 11 (Executive Compensation) is incorporated by reference from the 2023 proxy statement[206](index=206&type=chunk) - Information for Items 12, 13, and 14 is also incorporated by reference from the 2023 proxy statement[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk) Part IV [Item 15. Exhibits, Financial Statement Schedules](index=45&type=section&id=Item%2015.%20EXHIBITS%2C%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists all financial statements, schedules, and exhibits filed as part of the Annual Report, including corporate governance documents and material contracts - This section lists all financial statements, schedules, and exhibits filed as part of the Annual Report[211](index=211&type=chunk)

[PART I – FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) The first part presents the company's financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements for the period ended August 31, 2022, show total assets increasing to $24.7 million, sales growing 18.8% to $21.0 million, and a shift to positive operating cash flow [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of August 31, 2022, total assets increased to $24.7 million from $20.9 million at November 30, 2021, primarily driven by increases in inventories and accounts receivable Consolidated Balance Sheet Highlights (Unaudited) | Account | August 31, 2022 ($) | November 30, 2021 ($) | | :--- | :--- | :--- | | **Total current assets** | 14,948,616 | 12,174,245 | | Inventories, net | 10,499,593 | 9,210,103 | | **Total assets** | **24,721,073** | **20,854,048** | | **Total current liabilities** | 10,258,106 | 7,686,817 | | Line of credit | 4,559,000 | 4,074,530 | | **Total liabilities** | **13,839,381** | **10,499,601** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the nine-month period ended August 31, 2022, sales grew 18.8% to $21.0 million, leading to a net income of $6,403, a significant turnaround from a net loss of $194,692 in the same period of 2021 Statement of Operations Summary (Unaudited) | Period | Metric | August 31, 2022 ($) | August 31, 2021 ($) | | :--- | :--- | :--- | :--- | | **Three Months** | Sales | 8,140,253 | 6,591,829 | | | Gross Profit | 2,040,481 | 1,738,421 | | | Net Income (Loss) | 237,775 | 56,456 | | | EPS (Diluted) | 0.05 | 0.01 | | **Nine Months** | Sales | 21,028,673 | 17,702,628 | | | Gross Profit | 5,425,546 | 4,503,157 | | | Net Income (Loss) | 6,403 | (194,692) | | | EPS (Diluted) | 0.00 | (0.04) | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity increased from $10.35 million at November 30, 2021, to $10.88 million at August 31, 2022, driven by stock-based compensation and proceeds from a common stock purchase agreement - Total stockholders' equity grew to **$10,881,692** as of August 31, 2022, up from **$10,354,447** at the end of fiscal 2021[13](index=13&type=chunk) - Key changes in equity for the nine months ended August 31, 2022, include stock-based compensation (**$131,859**), a common stock purchase agreement (**$388,983**), and net income (**$6,402**)[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended August 31, 2022, net cash provided by operating activities was $197,663, a significant improvement from the $1.25 million used in the prior-year period, with net cash used in investing activities increasing to $1.18 million Cash Flow Summary (Nine Months Ended) | Cash Flow Activity | August 31, 2022 ($) | August 31, 2021 ($) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | 197,663 | (1,247,748) | | Net cash used in investing activities | (1,178,493) | (479,515) | | Net cash provided by financing activities | 982,316 | 1,832,585 | | **Net increase in cash** | **1,486** | **105,322** | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's operations across three segments: Agricultural Products, Modular Buildings, and Tools, with significant revenue growth in Agricultural Products, a new common stock purchase agreement, and a waiver for a debt covenant non-compliance - The company operates in three segments: Agricultural Products (farm equipment), Modular Buildings (animal containment and labs), and Tools (steel cutting tools)[19](index=19&type=chunk) - On March 29, 2022, the company entered into a Common Stock Purchase Agreement with Alumni Capital to sell up to **$3,000,000** of its common stock[77](index=77&type=chunk) - The company was out of compliance with its debt-to-worth ratio covenant as of November 30, 2021, but Bank Midwest issued a waiver, forgiving the noncompliance[55](index=55&type=chunk) Revenue by Segment (Nine Months Ended Aug 31, 2022) | Segment | Revenue ($) | % of Total | | :--- | :--- | :--- | | Agricultural Products | 15,823,000 | 75.2% | | Modular Buildings | 3,208,000 | 15.3% | | Tools | 1,998,000 | 9.5% | | **Total** | **21,029,000** | **100%** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 18.8% year-to-date sales increase to a strong agricultural economy, driving growth in Agricultural Products, while Modular Buildings declined due to delays, and the consolidated order backlog increased by 49% Consolidated Sales Performance | Period | Sales (2022) ($) | Sales (2021) ($) | % Change | | :--- | :--- | :--- | :--- | | Three Months | 8,140,000 | 6,592,000 | +23.5% | | Nine Months | 21,029,000 | 17,703,000 | +18.8% | - The Agricultural Products segment sales increased **36.2%** for the quarter and **31.7%** year-to-date, driven by a strong agricultural economy, high commodity prices, and a new floor plan program for dealers[99](index=99&type=chunk) - The Modular Buildings segment sales decreased **13.9%** for the quarter and **15.5%** year-to-date due to contract delays and a focus on readying rental buildings for sale[101](index=101&type=chunk) - The consolidated order backlog as of October 5, 2022, was **$9.1 million**, a **49%** increase from **$6.1 million** a year prior, with strong demand across all three segments[108](index=108&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is a smaller reporting company and is not required to provide disclosure for this item - As a smaller reporting company, Art's-Way is not required to provide disclosure pursuant to Item 3[115](index=115&type=chunk) [Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on an evaluation as of August 31, 2022, the company's principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of August 31, 2022[116](index=116&type=chunk) - No changes occurred during the period that have materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting[117](index=117&type=chunk) [PART II – OTHER INFORMATION](index=28&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) The second part covers legal proceedings, risk factors, unregistered sales of equity securities, other information, and exhibits [Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that it is not currently a party to any material pending legal proceedings - The company is not currently a party to any material pending legal proceedings[118](index=118&type=chunk) [Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, Art's-Way is not required to provide disclosure under this item - Disclosure for this item is not required as the company is a smaller reporting company[119](index=119&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the third quarter of fiscal 2022, the company did not purchase any of its common stock, other than shares withheld to offset tax withholding obligations related to the vesting of restricted stock awards - No shares were purchased during the third quarter of fiscal 2022, except for shares withheld to satisfy tax obligations on vested restricted stock awards[120](index=120&type=chunk) [Other Information](index=28&type=section&id=Item%205.%20Other%20Information) There is no other information to report for this period - The company reported no information for this item[121](index=121&type=chunk) [Exhibits](index=29&type=section&id=Item%206.%20Exhibits) The report lists the exhibits filed, which include CEO and CFO certifications and iXBRL formatted financial statements - Exhibits filed include CEO/CFO certifications and iXBRL data files[123](index=123&type=chunk) [Signatures](index=30&type=section&id=SIGNATURES) This section confirms the official signing and authorization of the Form 10-Q report [Signatories](index=30&type=section&id=Signatories) The Form 10-Q report was signed on October 14, 2022, by David A. King, President and Chief Executive Officer, and Michael W. Woods, Chief Financial Officer - The report was duly signed and authorized on October 14, 2022[125](index=125&type=chunk)