Art’s-Way(ARTW) - 2019 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements present the company's financial position, operations, and cash flows for the period ended May 31, 2019 Condensed Consolidated Balance Sheets | Balance Sheet Items | May 31, 2019 (USD) | November 30, 2018 (USD) | | :--- | :--- | :--- | | Total Current Assets | 13,221,861 | 12,145,158 | | Total Assets | 21,359,005 | 21,325,474 | | Total Current Liabilities | 6,781,778 | 5,765,381 | | Total Liabilities | 9,175,280 | 8,288,399 | | Total Stockholders' Equity | 12,183,725 | 13,037,075 | Condensed Consolidated Statements of Operations | Metric | Three Months Ended May 31, 2019 (USD) | Three Months Ended May 31, 2018 (USD) | Six Months Ended May 31, 2019 (USD) | Six Months Ended May 31, 2018 (USD) | | :--- | :--- | :--- | :--- | :--- | | Sales | 5,747,256 | 5,294,464 | 9,871,482 | 10,660,000 | | Gross Profit | 958,995 | 1,107,014 | 1,563,838 | 2,260,390 | | Income (Loss) from Operations | (369,513) | (458,114) | (1,092,136) | (766,835) | | Net Income (Loss) | (356,042) | (665,778) | (961,974) | (1,232,230) | | Net Income (Loss) per Share - Basic | (0.08) | (0.16) | (0.23) | (0.29) | Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Six Months Ended May 31, 2019 (USD) | Six Months Ended May 31, 2018 (USD) | | :--- | :--- | :--- | | Net cash (used in) operating activities | (516,064) | (423,792) | | Net cash provided by investing activities | 707,498 | 1,283,203 | | Net cash (used in) financing activities | (190,545) | (1,068,189) | | Net increase (decrease) in cash | 889 | (208,778) | Notes to Condensed Consolidated Financial Statements - The company operates in three segments: agricultural products (farm equipment), modular buildings (for animal containment and labs), and tools (steel cutting tools)[17] - Effective December 1, 2018, the Company adopted ASC 606 (Revenue from Contracts with Customers) using the modified retrospective method, with no material impact on previously disclosed amounts[24] - The Vessels segment was discontinued in Q3 2016, and its remaining real estate assets were sold on March 29, 2018, for $1.5 million[35] - The company maintains a $5.0 million revolving line of credit and a $2.6 million term loan with Bank Midwest. As of May 31, 2019, the balance on the line of credit was $3.6 million[53][55] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the adoption of ASC 606, analyzing segment sales trends and the significant increase in consolidated order backlog Results of Operations | Metric | Three Months Ended May 31, 2019 (USD) | Three Months Ended May 31, 2018 (USD) | | :--- | :--- | :--- | | Consolidated Sales | $5,747,000 (+8.6%) | $5,294,000 | | Consolidated Gross Margin | 16.7% | 20.9% | | Metric | Six Months Ended May 31, 2019 (USD) | Six Months Ended May 31, 2018 (USD) | | :--- | :--- | :--- | | Consolidated Sales | $9,871,000 (-7.4%) | $10,660,000 | | Consolidated Gross Margin | 15.8% | 21.2% | - Agricultural products segment sales decreased 20.6% year-to-date due to a difficult sales climate from spring flooding, the liquidation of a Canadian subsidiary, and loss of an OEM blower customer[100] - Modular buildings segment sales increased 64.0% year-to-date, largely due to an $8.4 million project that began in the second quarter of fiscal 2019[102] - Tools segment sales decreased 14.5% year-to-date, mainly due to the loss of a large volume customer at the end of Q1 2018[103] Order Backlog | Segment | Backlog as of July 6, 2019 (USD) | Backlog as of July 6, 2018 (USD) | | :--- | :--- | :--- | | Consolidated | 8,446,000 | 3,175,000 | | Agricultural Products | 1,369,000 | 2,495,000 | | Modular Buildings | 6,914,000 | 465,000 | | Tools | 163,000 | 216,000 | - The significant increase in the consolidated backlog is primarily due to an $8.4 million modular research facility contract in the modular buildings segment[110] Liquidity and Capital Resources - Primary sources of funds for the first six months of 2019 were proceeds from the sale of the West Union, Iowa facility and favorable cash flow from a large modular building project[113] - The company has a $5 million revolving line of credit with a $3.6 million outstanding balance as of May 31, 2019, maturing March 30, 2020[114] - Management believes cash flows from operations and current financing will be sufficient to finance operations and pay debt for the next twelve months[114] Quantitative and Qualitative Disclosures About Market Risk 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 pursuant to this item as it qualifies as a smaller reporting company[116] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective, with no material changes to internal controls - Based on an evaluation, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[117] - There were no changes in internal controls over financial reporting during the period that have materially affected, or are reasonably likely to materially affect, these controls[118] PART II – OTHER INFORMATION Legal Proceedings The company is not currently a party to any material pending legal proceedings - The company reports no material pending legal proceedings[118] Risk Factors 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 pursuant to this item as it qualifies as a smaller reporting company[119] Other Information The company renewed its $5.0 million revolving line of credit with Bank Midwest, effective March 30, 2019, maturing March 30, 2020 - The company renewed its $5.0 million revolving line of credit with Bank Midwest, effective March 30, 2019, with a maturity date of March 30, 2020, if not demanded earlier[120] Exhibits This section lists the exhibits filed with the report, including the renewed Promissory Note, officer certifications, and XBRL financial data - Exhibits filed include the Promissory Note for the renewed line of credit, officer certifications (Rule 13a-14(a) and Section 1350), and XBRL financial data[121]