-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LOw3+gTixtpff63irUVdKqW/qckmGW2+yrlxY6w9PX6IzvpJXn+a8Y6o4pgtFzSa zX9Q/zCqlBXFG4TuL+7nMA== 0000007623-00-000008.txt : 20000426 0000007623-00-000008.hdr.sgml : 20000426 ACCESSION NUMBER: 0000007623-00-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000229 FILED AS OF DATE: 20000425 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARTS WAY MANUFACTURING CO INC CENTRAL INDEX KEY: 0000007623 STANDARD INDUSTRIAL CLASSIFICATION: FARM MACHINERY & EQUIPMENT [3523] IRS NUMBER: 420920725 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-05131 FILM NUMBER: 608158 BUSINESS ADDRESS: STREET 1: P O BOX 288 CITY: ARMSTRONG STATE: IA ZIP: 50514 BUSINESS PHONE: 7128643131 MAIL ADDRESS: STREET 1: P O BOX 288 CITY: ARMSTRONG STATE: IA ZIP: 50514 10-Q 1 Appendix A to Item 601(c) of Regulation S-K Commercial and Industrial Companies Article 5 of Regulation S-X Quarter Ended February 29, 2000 Item Number Item Description Amount 5-02(1) Cash and cash items 27,537 5-02(2) Marketable securities 5-02(3)(a)(1) Notes and accounts receivable-trade 2,511,539 5-02(4) Allowances for doubtful accounts 216,096 5-02(6) Inventory 9,696,649 5-02(9) Total current assets 12,083,602 5-02(13) Property, plant and equipment 10,627,792 5-02(14) Accumulated depreciation 8,190,914 5-02(18) Total assets 15,133,937 5-02(21) Total current liabilities 8,859,474 5-02(22) Bonds, mortgages and similar debt 5,392,184 5-02(28) Preferred stock-mandatory redemption 0 5-02(29) Preferred stock-no mandatory redemption 0 5-02(30) Common stock 13,408 5-02(31) Other stockholders' equity 5,860,322 5-02(32) Total liabilities and stockholders' equity 15,133,937 5-03(b)1(a) Net sales of tangible products 2,434,011 5-03(b)1 Total revenues 2,434,011 5-03(b)2(a) Cost of tangible goods sold 1,904,128 5-03(b)2 Total costs and expenses applicable to sales and revenues 711,270 5-03(b)3 Other costs and expenses 35,764 5-03(b)5 Provision for doubtful accounts and notes (7,600) 5-03(b)8 Interest and amortization of debt discount 137,118 5-03(b)10 Loss before taxes and other items 346,669 5-03(b)11 Income tax benefit - 5-03(b)14 Loss continuing operations 346,669 5-03(b)(15) Discontinued operations 0 5-03(b)(17) Extraordinary items 0 5-03(b)(18) Cumulative effect-changes in accounting principles 0 5-03(b)19 Net loss 346,669 5-03(b)20 Loss per share-primary 0.28 5-03(b)20 Loss per share-fully diluted 0.28 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended February 29, 2000 Commission File No. 0-5131 ART'S-WAY MANUFACTURING CO., INC. (Exact name of registrant as specified in its charter) DELAWARE 42-0920725 State of Incorporation I.R.S. Employer Identification No. Hwy 9 West, Armstrong, Iowa 50514 Address of principal executive offices Zip Code Registrant's telephone number, including area code: (712) 864-3131 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate the number of shares outstanding of each of the issuer's classes of common stock as of April 5, 2000: 1,256,351 Number of Shares ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended February 29, February 28, 2000 1999 NET SALES $2,434,011 $4,668,191 COST OF GOODS SOLD 1,904,128 3,741,961 GROSS PROFIT 529,883 926,230 EXPENSES: Engineering 93,930 120,177 Selling 176,254 303,928 General and administrative 433,486 622,076 Total 703,670 1,046,181 LOSS FROM OPERATIONS (173,787) (119,951) OTHER DEDUCTIONS: Interest expense (137,118) (117,839) Other (35,764) (72,450) Other deductions (172,882) (190,289) LOSS BEFORE INCOME TAXES (346,669) (310,240) INCOME TAX BENEFIT - (108,584) NET LOSS $ (346,669) $(201,656) LOSS PER SHARE (NOTE 2): Basic $ (0.28) $ (0.16) Diluted $ (0.28) $ (0.16) COMMON SHARES AND EQUIVALENT OUTSTANDING: Basic 1,256,351 1,245,931 Diluted 1,256,351 1,245,931 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED BALANCE SHEETS February 29, November 30 2000 1999 (Unaudited) ASSETS CURRENT ASSETS Cash $ 27,537 $ 273,303 Accounts receivable-customers, net of allowance for doubtful accounts of $216,096 and $223,696 in February and November,respectively 2,295,443 2,461,502 Inventories 9,696,649 9,074,812 Other current assets 63,973 100,680 Total current assets 12,083,602 11,910,297 PROPERTY, PLANT AND EQUIPMENT, at cost 10,627,792 10,627,792 Less accumulated depreciation 8,190,914 8,073,069 Net property, plant and equipment 2,436,878 2,554,723 DEFERRED INCOME TAXES 613,457 613,457 TOTAL $ 15,133,937 $ 15,078,477 See accompanying notes to financial statements. February 29, November 30, 2000 1999 (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to bank $ 3,422,450 $ 3,648,888 Current portion of long-term debt 1,569,001 1,640,101 Accounts payable 2,509,074 2,113,168 Customer deposits 643,360 119,861 Accrued expenses 715,589 916,428 Total current liabilities 8,859,474 8,438,446 LONG-TERM DEBT, excluding current portion 400,733 419,632 STOCKHOLDERS' EQUITY: Common stock - $.01 par value. Authorized 5,000,000 shares; issued 1,340,778 shares 13,408 13,408 Additional paid-in capital 1,559,037 1,559,037 Retained earnings 5,111,099 5,457,768 6,683,544 7,030,213 Less cost of common shares in treasury of 84,427 in February and November, 809,814 809,814 Total stockholders' equity 5,873,730 6,220,399 TOTAL $ 15,133,937 $ 15,078,477 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) THREE MONTHS ENDED February 29, February 28, 2000 1999 CASH FLOW FROM OPERATIONS: Net Loss $ (346,669) $ (201,656) Adjustment to reconcile net loss to net cash provided (used) by operations: Depreciation and amortization 117,845 100,583 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 166,059 15,303 Inventories (621,837) 8,401 Sundry 36,707 15,153 Increase (Decrease) in: Accounts payable 395,906 513,873 Customer deposits 523,499 703,250 Accrued expenses (200,839) 34,701 Income taxes, net - (112,472) Total adjustments 417,340 1,278,792 Net cash provided by operations 70,671 1,077,136 CASH USED IN INVESTING ACTIVITIES - Purchases of property, plant and equipment - (15,485) CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in short-term loan (297,538) (961,961) Decrease in long-term loan (18,899) (89,938) Net cash used in financing activities (316,437) (1,051,899) Net (decrease) increase in cash (245,766) 9,752 Cash at beginning of period 273,303 13,743 Cash at end of the period $ 27,537 $ 23,495 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 137,117 $ 117,839 Income taxes 330 3,888 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. NOTES TO CONDENSED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Statement Presentation The financial statements are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management,necessary for a fair presentation of the financial position and operating results for the interim periods. The financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended November 30, 1999. The results of operations for the first quarter ended February 29, 2000 are not necessarily indicative of the results for the fiscal year ending November 30, 2000. 2. EARNINGS (LOSS) PER SHARE The Company has adopted SFAS 128 Earnings Per Share (SFAS 128) which has changed the method for calculating income per share. SFAS 128 requires the presentation of "basic" and "diluted" income per share on the face of the income statement. Income per common share is computed by dividing net income by the weighted average number of common shares and common equivalent shares outstanding during each period. The diffference in shares utilized in calculating basic and diluted earnings per share represents the number of shares issued under the Company's stock option plans less shares assumed to be purchased with proceeds from the exercise of the stock options. Due to the net loss in 2000 and 1999, the anti-dilutive effect of the Company's stock option plans is not included in the calculation of diluted earnings per share for those periods. 3. INVENTORIES Major classes of inventory are: February 29, November 30, 2000 1999 Raw material $1,646,687 $ 1,146,456 Work-in-process 3,686,754 3,362,003 Finished goods 4,363,208 4,566,353 Total $ 9,696,649 $9,074,812 4. ACCRUED EXPENSES Major components of accrued expenses are: February 29, November 30, 2000 1999 Salaries, wages and commissions $ 291,995 $ 337,611 Other 423,594 578,817 Total $ 715,589 $ 916,428 5. LOAN AND CREDIT AGREEMENTS Line of Credit In April 1998, the Company amended its revolving line of credit agreement which also includes provisions related to the installment promissory note presented in long-term debt below. The lender has modified the credit agreement to allow for borrowings up to $5,000,000, to reduce the borrowing base percentages on the Company's accounts receivable and inventory, and to allow for letters of credit for $100,000. At November 30, 1999 the Company had borrowed $3,648,888 and has $100,000 in outstanding letters of credit. At February 29, 2000 the Company has borrowed $3,422,450 and has $100,000 in out- standing leters of credit. At November 30, 1999 and February 29, 2000, $182,000 and $248,000 was available for borrowings, respectively. The interest rate is based on the bank's referenced rate and is variable based upon certain performance objectives with a maximum of plus 2.50% of the referenced rate and a minimum of plus zero (11.00% at February 29, 2000). The amendment also provided for a restructured long-term loan with an original principal amount of $1,991,000. The principal amount is repayable in monthly installments of $23,700 with the final payment due August 2000. All loans, advances and other obligations, liabilities and indebtedness of the Company are secured by all present and future assets. The Company pays an unused line fee equal to three- eights of one percent of the unused portion of the revolving line of credit. During 1999, the Company was notified by its lender that the Company does not fit the lender's customer profile and was requested to relocate its financing needs. The Company has continued to represent to the lender that they are in the process of obtaining alternate financing. As a result, the lender has not accelerated the payment of all obligations at this time, even though the lender has the right to do so. At November 30, 1999 the Company was in default of a loan covenant, the fixed maturity coverage, of their credit facility and installment promissory note. The lender has notified the Company, that the current loan agreement provides that the lender may, as a result of any event of default, accelerate the payment of all obligations. At February 29, 2000 the Company is in default with two covenants, the fixed maturity coverage ratio and the debt to tangible net worth, of their credit facility and installment promissory note. As a result, all long-term borrowings associated with this lender have been classified as current. The lender has not called for the acceleration of the payment of all obligations, but has the right to do so at any time. The lender has assessed an additional 2.0% interest factor to its credit facility. The Company is currently negotiating with another financial institution in order to establish a new credit facility. While the Company believes a new credit facility will be obtained, there is no definite assurance the Company will obtain a new credit facility. A summary of the Company's long-term debt is as follows: February 29, November 30, 2000 1999 Installment promissory note payable in monthly installments of $23,700 plus interest at one-half percent over the bank's national money market rate (8.50%), secured by the cash, accounts receivable, inventories and property, plant and equipment $1,493,300 $1,564,400 State of Iowa Community Development Block Grant promissory notes at zero percent interest, maturity 2006 with quarterly principal payments of $11,111 $ 288,889 $ 300,000 State of Iowa Community Development Block Grant local participation promissory notes at 4% interest, maturity 2006, with quarterly payments of $7,814 $ 187,545 $ 195,333 Total long-term debt $ 1,969,734 $2,059,733 Less current portion of long-term debt 1,569,001 1,640,101 Long-term debt, excluding current portion $ 400,733 $ 419,632 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) Liquidity and Capital Resources The Company's main source of funds for the quarter ended February 29, 2000 was an increase in accounts payable and funds received from customers representing advance payments ("customer deposits") on equipment to be delivered in the third quarter of fiscal year 2000. These two main sources of funds were offset partially by an increase in inventory. The positive cash flow allowed for the reduction in bank borrowings. The conditions existing in the agriculture economy, in addition to adversely impacting sales, has also resulted in a deterioration of the Company's accounts receivable. The Company believes it has provided an adequate reserve for uncollectible accounts based on currently available information. As of February 29, 2000, the Company had no material commitments for capital expenditures. During 1999, the Company was notified by its lender that the Company does not fit the lender's customer profile and was requested to relocate its financing needs. The Company has continued to represent to the lender that they are in the process of obtaining alternate financing. As a result, the lender has not accelerated the payment of all obligations at this time, even though the lender has the right to do so. As a result, all long-term borrowings associated with this lender have been classified as current. At November 30, 1999, the Company was in default of a loan covenant, the fixed maturity coverage, of their credit facility and installment promissory note. The lender has notified the Company via letter dated October 20, 1999 that the current loan agreement provides that the lender may, as a result of any event of default, accelerate the payment of all obligations. The lender has not called for this acceleration, but has the right to do so at any time. At February 29, 2000 the Company is in default with two covenants, the fixed maturity coverage ratio and the debt to tangible net worth, of their credit facility and installment promissory note. The lender assessed an additional 2.0% interest factor to its credit facility. The lender has modified the credit agreement to allow for borrowings up to $5,000,000, to reduce the borrowing base percentages of the Company's accounts receivable and inventory and to allow for letters of credit for $100,000. At November 30, 1999 the Company had borrowed $3,648,888 and had $100,000 in outstanding letters of credit. At February 29, 2000 the Company has borrowed $3,422,450 and has $100,000 in outstanding letters of credit. At February 29, 2000, $248,000 was available for borrowings. The Company is currently negotiating with another financial institution in order to establish a new credit facility. While the Company believes a new credit facility will be obtained, there is no definite assurance the Company will obtain a new credit facility. The Company believes the funding expected to be generated from operations and provided by the new credit facility when established, and its existing borrowing capacity will be sufficient to meet working capital and capital investment needs. (b) Results of Operations Overall sales for the first quarter were down 52% from last year's first quarter. Sales of Art's-Way products were almost equal to one year ago; the shortfall was orders for OEM equipment. The reduction in OEM sales was principally due to inventory reduction strategies by our OEM customers. Gross profit as a percent of sales improved by two per- centage points due to favorable product mix and cost reductions implemented December 1, 1999. These cost reductions have reduced operating expenses for the first quarter by 33% from the previous year's levels. Due to the continued distressed agricultural economy, the Company will not record any tax benefits until the Company returns to profitability. Although the farm economy remains distressed, the order backlog as of February 29, 2000 is $5,200,000 compared to $3,100,000 one year ago. These orders will be delivered by the end of the third quarter of the current fiscal year. Part II - Other Information ITEM 1. LITIGATION AND CONTINGENCIES Various legal actions and claims are pending against the Company consisting of ordinary routine litigation incidental to the business. In the opinion of management and outside counsel, appropriate provisions have been made in the accompanying financial statements for all pending legal actions and other claims. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ART'S-WAY MANUFACTURING CO., INC. Date April 13, 2000 /s/William T. Green (William T. Green, Interim President Executive Vice President, Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----