Art’s-Way(ARTW) - 2019 Q3 - Quarterly Report

Report Cover and Company Information This is a Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2019, filed by Art's-Way Manufacturing Co., Inc - This is a Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2019, filed by Art's-Way Manufacturing Co., Inc[1] - The company's common stock is traded on The Nasdaq Stock Market LLC under the symbol ARTW[2] - As of October 7, 2019, there were 4,298,212 common shares outstanding[3] PART I – FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and nine-month periods ended August 31, 2019, including balance sheets, statements of operations, comprehensive income, stockholders' equity, cash flows, and accompanying notes Condensed Consolidated Balance Sheets The balance sheet as of August 31, 2019, shows a decrease in total assets and an increase in total liabilities compared to November 30, 2018, resulting in lower total stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Aug 31, 2019 | Nov 30, 2018 | | :--- | :--- | :--- | | Total Current Assets | $12,738 | $12,145 | | Total Assets | $20,868 | $21,325 | | Total Current Liabilities | $6,567 | $5,765 | | Total Liabilities | $8,939 | $8,288 | | Total Stockholders' Equity | $11,929 | $13,037 | Condensed Consolidated Statements of Operations The company reported a net loss for both the three and nine-month periods ended August 31, 2019, with sales increasing in the third quarter but decreasing for the nine-month period year-over-year, and the net loss for the third quarter narrowing significantly Three Months Ended August 31 (in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Sales | $5,504 | $5,280 | | Gross Profit | $1,005 | $1,175 | | Loss from Operations | $(305) | $(559) | | Net Loss | $(289) | $(767) | Nine Months Ended August 31 (in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Sales | $15,375 | $15,940 | | Gross Profit | $2,569 | $3,436 | | Loss from Operations | $(1,397) | $(1,326) | | Net Loss | $(1,251) | $(1,999) | Condensed Consolidated Statements of Comprehensive Income For the three and nine-month periods ended August 31, 2019, there were no other comprehensive income or loss items, making the comprehensive loss equal to the net loss for these periods Comprehensive Loss (in thousands) | Period | 2019 | 2018 | | :--- | :--- | :--- | | Three Months Ended Aug 31 | $(289) | $(767) | | Nine Months Ended Aug 31 | $(1,251) | $(1,742) | Consolidated Statements of Stockholders' Equity Stockholders' equity decreased from $13,037 thousand at the end of fiscal 2018 to $11,929 thousand as of August 31, 2019, primarily driven by a net loss of $1,251 thousand for the nine-month period - Total stockholders' equity decreased from $13,037,075 at November 30, 2018, to $11,928,532 at August 31, 2019[9] - The primary driver for the decrease in equity was a net loss of $1,251,190 for the nine-month period[9] Condensed Consolidated Statements of Cash Flows For the nine months ended August 31, 2019, the company experienced a significant positive swing in cash from operating activities compared to the prior year, with positive cash from investing activities and cash used in financing activities, resulting in a slight net increase in cash Net Cash Flow for Nine Months Ended August 31 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Operating Activities | $377 | $(859) | | Investing Activities | $532 | $1,206 | | Financing Activities | $(907) | $(554) | | Net Increase (Decrease) in Cash | $2 | $(208) | Notes to Unaudited Condensed Consolidated Financial Statements The notes provide crucial context for the financial statements, including the company's three operating segments, adoption of ASC 606, information on discontinued operations, debt covenants, and segment-level financial data - The company operates through three segments: agricultural products (farm equipment), modular buildings (animal containment and labs), and tools (steel cutting tools)[13] - Effective December 1, 2018, the company adopted the new revenue recognition standard, ASC 606, with no material impact on previously reported amounts[20] - The pressurized vessels segment was discontinued in 2016, and its remaining assets were sold on March 29, 2018, with no discontinued operations in the first nine months of fiscal 2019[32][33] - The company was in compliance with all bank covenants as of November 30, 2018, except for the debt service coverage ratio, for which it received a waiver from Bank Midwest[60] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes the financial results, highlighting a 4.2% increase in consolidated sales for the third quarter but a 3.5% decrease for the nine-month period year-over-year, with significant modular buildings segment growth offsetting declines in agricultural and tools segments, compressed gross margins, reduced operating expenses, and a substantial increase in order backlog Consolidated Sales Performance | Period | 2019 Sales | 2018 Sales | % Change | | :--- | :--- | :--- | :--- | | Three Months | $5,504,000 | $5,280,000 | +4.2% | | Nine Months | $15,375,000 | $15,940,000 | -3.5% | - The nine-month sales decrease was driven by a 19.8% decline in the agricultural products segment and a 14.5% decline in the tools segment, partially offset by an 86.8% increase in the modular buildings segment[95][96][97] - Consolidated gross margin for the nine-month period fell to 16.7% from 21.6% in the prior year, attributed to lower revenues, unfavorable product mix, and labor inefficiencies in the agricultural segment[94][95] - The consolidated order backlog surged to $7,565,000 as of October 6, 2019, compared to $1,384,000 a year earlier, mainly due to an $8.5 million contract in the modular buildings segment[104] - Management believes cash flows from operations and current financing arrangements will be sufficient to fund operations for the next twelve months[108] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Art's-Way Manufacturing Co., Inc. is not required to provide the disclosures requested under this item - The company is exempt from this disclosure requirement due to its status as a smaller reporting company[110] Controls and Procedures The company's principal executive officer and principal financial officer evaluated the disclosure controls and procedures and concluded they were effective as of August 31, 2019, with no material changes in internal controls over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective[111] - No material changes to internal controls over financial reporting were identified during the reporting period[112] PART II – OTHER INFORMATION Legal Proceedings The company reports that it is not currently involved in any material pending legal proceedings - The company is not a party to any material pending legal proceedings[112] Risk Factors As a smaller reporting company, Art's-Way is not required to provide disclosure for this item - Disclosure is not required as the company is a smaller reporting company[113] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds for the period - None reported[113] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None reported[113] Mine Safety Disclosures This item is not applicable to the company - Not applicable[113] Other Information The company reported no other information for this item - None reported[113] Exhibits This section lists the exhibits filed with the Form 10-Q, which include certifications from the CEO and Interim CFO, as well as the financial statements formatted in XBRL - Exhibits filed include CEO/CFO certifications (31.1, 32.1) and XBRL data (101)[114] Signatures - The report was signed on October 10, 2019, by Carrie L. Gunnerson, serving as President, Chief Executive Officer, and Interim Chief Financial Officer[115]