-----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, JFb2qIE0yHycgqlwEJjdUeK0nPZLrVPhRxRY6Ke/rxyN+9gbt1aTkZhPx/7MjvI3 8vStLb807EtYSc12ZmPY5Q== 0000007623-00-000011.txt : 20000801 0000007623-00-000011.hdr.sgml : 20000801 ACCESSION NUMBER: 0000007623-00-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000531 FILED AS OF DATE: 20000717 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARTS WAY MANUFACTURING CO INC CENTRAL INDEX KEY: 0000007623 STANDARD INDUSTRIAL CLASSIFICATION: 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: 673913 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-K 1 0001.txt Appendix A to Item 601(c) of Regulation S-K Commercial and Industrial Companies Article 5 of Regulation S-X Quarter Ended May 31, 2000 Item Number Item Description Amount 5-02(1) Cash and cash items 92,600 5-02(2) Marketable securities 5-02(3)(a)(1) Notes and accounts receivable-trade 3,129,032 5-02(4) Allowances for doubtful accounts 211,756 5-02(6) Inventory 8,422,635 5-02(9) Total current assets 11,522,127 5-02(13) Property, plant and equipment 10,627,792 5-02(14) Accumulated depreciation 8,299,028 5-02(18) Total assets 14,464,348 5-02(21) Total current liabilities 8,058,055 5-02(22) Bonds, mortgages and similar debt 5,400,533 5-02(28) Preferred stock-mandatory redemption - 5-02(29) Preferred stock-no mandatory redemption - 5-02(30) Common stock 13,408 5-02(31) Other stockholders' equity 6,011,077 5-02(32) Total liabilities and stockholders' equity 14,464,348 5-03(b)1(a) Net sales of tangible products 4,231,447 5-03(b)1 Total revenues 4,231,447 5-03(b)2(a) Cost of tangible goods sold 3,246,703 5-03(b)2 Total costs and expenses applicable to sales and revenues 659,631 5-03(b)3 Other costs and expenses 29,460 5-03(b)5 Provision for doubtful accounts and notes (6,370) 5-03(b)8 Interest and amortization of debt discount 151,268 5-03(b)10 Income before taxes and other items 150,755 5-03(b)11 Income tax benefit - 5-03(b)14 Loss from continuing operations 150,755 5-03(b)(15) Discontinued operations - 5-03(b)(17) Extraordinary items - 5-03(b)(18) Cumulative effect-changes in accounting principles - 5-03(b)19 Net income 150,755 5-03(b)20 Income per share-primary 0.12 5-03(b)20 Income per share-fully diluted 0.12 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 May 31, 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 July 5, 2000: 1,256,351 Number of Shares ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Year To Date May 31, May 31, May 31 May 31 2000 1999 2000 1999 NET SALES $4,231,447 $3,443,326 $6,665,458 $8,111,517 COST OF GOODS SOLD 3,246,703 2,590,300 5,150,831 6,332,260 GROSS PROFIT 984,744 853,026 1,514,627 1,779,257 EXPENSES: Engineering 87,931 97,647 181,861 217,824 Selling 131,522 300,745 307,776 604,673 General and Administrative 433,808 570,863 867,294 1,192,939 Total 653,261 969,255 1,356,931 2,015,436 INCOME (LOSS) FROM OPERATIONS 331,483 (116,229) 157,696 (236,179) OTHER DEDUCTIONS: Interest expense (151,268) (111,468) (288,386) (229,307) Other (29,460) (85,696) (65,224) (158,146) Other deductions (180,728) (197,164) (353,610) (387,453) INCOME (LOSS) BEFORE INCOME TAXES 150,755 (313,393) (195,914) (623,632) INCOME TAX BENEFIT - (109,597) - (218,181) NET INCOME (LOSS) $ 150,755 $(203,796) (195,914) (405,451) INCOME (LOSS) PER SHARE (NOTE 2): Basic $ 0.12 $ (0.16) $ (0.16) $ (0.32) Diluted $ 0.12 $ (0.16) $ (0.16) $ (0.32) COMMON SHARES AND EQUIVALENT OUTSTANDING: Basic 1,256,351 1,246,150 1,256,351 1,246,026 Diluted 1,256,351 1,246,150 1,256,351 1,246,026 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED BALANCE SHEETS May 31, November 30 2000 1999 (Unaudited) ASSETS CURRENT ASSETS Cash $ 92,600 $ 273,303 Accounts receivable-customers, net of allowance for doubtful accounts of $211,756 and $223,696 in May and November, respectively 2,917,276 2,461,502 Inventories 8,422,635 9,074,812 Other current assets 89,616 100,680 Total current assets 11,522,127 11,910,297 PROPERTY, PLANT AND EQUIPMENT, at cost 10,627,792 10,627,792 Less accumulated depreciation 8,299,028 8,073,069 Net property, plant and equipment 2,328,764 2,554,723 DEFERRED INCOME TAXES 613,457 613,457 TOTAL $ 14,464,348 $ 15,078,477 See accompanying notes to financial statements. May 31, November 30, 2000 1999 (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to bank $ 3,520,824 $ 3,648,888 Current portion of long-term debt 1,497,901 1,640,101 Accounts payable 1,782,704 2,113,168 Customer deposits 679,685 119,861 Accrued expenses 576,941 916,428 Total current liabilities 8,058,055 8,438,446 LONG-TERM DEBT, excluding current portion 381,808 419,632 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 5,261,854 5,457,768 6,834,299 7,030,213 Less cost of common shares in treasury of 84,427 in May and November, 809,814 809,814 Total stockholders' equity 6,024,485 6,220,399 TOTAL $ 14,464,348 $ 15,078,477 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) SIX MONTHS ENDED MAY 31, MAY 31, 2000 1999 CASH FLOW FROM OPERATIONS: Net Loss $ (195,914) $ (405,451) Adjustment to reconcile net loss to net cash provided by operations: Depreciation and amortization 225,959 194,551 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable (455,774) 1,088,631 Inventories 652,177 (1,600,500) Sundry 11,064 126,696 Increase (Decrease) in: Accounts payable (330,464) 873,764 Customer deposits 559,824 908,517 Accrued expenses (339,487) (161,371) Income taxes, net - (165,949) Total adjustments 323,299 1,264,339 Net cash provided by operations 127,385 858,888 CASH USED IN INVESTING ACTIVITIES - Purchases of property, plant and equipment - (200,485) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock from treasury - 2,945 Decrease in short-term loan (270,264) (486,175) Decrease in long-term loan (37,824) (179,909) Net cash used in financing activities (308,088) (663,139) Net decrease in cash (180,703) (4,736) Cash at beginning of the period 273,303 13,743 Cash at end of the period $ 92,600 $ 9,007 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 288,386 $ 229,307 Income taxes 4,116 3,952 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 second quarter ended May 31, 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 anti-dilutive effect of the Company's stock option plans the stock options have not been included in the calculation of diluted earnings per share for all those periods presented. 3. INVENTORIES Major classes of inventory are: May 31, November 30, 2000 1999 Raw material $1,637,968 $ 1,146,456 Work-in-process 2,542,003 3,362,003 Finished goods 4,242,664 4,566,353 Total $ 8,422,635 $9,074,812 4. ACCRUED EXPENSES Major components of accrued expenses are: May 31, November 30, 2000 1999 Salaries, wages and commissions $ 307,643 $ 337,611 Other 269,928 578,817 Total $ 576,941 $ 916,428 5. LOAN AND CREDIT AGREEMENTS Line of Credit The Company has a credit agreement with a bank which allows for borrowings up to $4,500,000, subject to borrowing base percentages on the Company's accounts receivable and inventory, and allowing 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 May 31, 2000 the Company has borrowed $3,520,824 and has $100,000 in out- standing leters of credit. At November 30, 1999 and May 31, 2000, $182,000 and $384,000 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 (12.00% at May 31, 2000). The Company also has a long-term loan with the bank with an original principal amount of $1,991,000. The principal amount is repayable in monthly installments of $23,700 with the remaining balance 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 May 31, 2000 the Company is in default with one covenant, the fixed maturity coverage ratio, 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 initial term of the loan is scheduled to end on August 31, 2000. In a letter dated May 26, 2000, the Company was notified that the lender does not intend to extend the term of the loan agreement beyond the termination date. Therefore, all of the obligations outstanding under the credit agreement and long term loan amounting to $4,943,025 at May 31, 2000 are due and payable on August 31, 2000. The Company has received a non binding proposal letter from a third party financial institution which would provide for a revolving line of credit and term loan that would be used to repay outstanding borrowings from the Company's current lender, and provide for ongoing working capital needs. This proposal does not represent a commitment level and is subject to various conditions of approval by the new lender. While the Company believes a new credit facility will be obtained, there is no assurance of such. If the Company is unable to obtain a new credit facility prior to the expiration of its existing facility on August 31, 2000, it will be unable to repay its outstanding balance due August 31, 2000. However, the Company has had discussions with its existing lender in which the lender indicated that they do not expect to take immediate action, but they retain the right to do so. A summary of the Company's long-term debt is as follows: May 31, 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 (9.50%), secured by the cash, accounts receivable, inventories and property, plant and equipment $1,422,200 $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 $ 277,778 $ 300,000 State of Iowa Community Development Block Grant local participation promissory notes at 4% interest, maturity 2006, with quarterly payments of $7,814 $ 179,731 $ 195,333 Total long-term debt $ 1,879,709 $2,059,733 Less current portion of long-term debt 1,497,901 1,640,101 Long-term debt, excluding current portion $ 381,808 $ 419,632 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) Material Changes in Financial Condition The Company's main source of funds for the six months ended May 31, 2000 was a decrease in inventories 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 receivables, a decrease in accounts payable and a decrease in accrued liabilities. 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 May 31, 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 and May 31, 2000, 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. The lender has not called for this acceleration, but has the right to do so at any time. The lender assessed an additional 2.0% interest factor to its credit facility. The Company has a credit agreement with a bank which allows for borrowings up to $4,500,000, subject to borrowing base percentages of the Company's accounts receivable and inventory and allowing 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 May 31, 2000 the Company has borrowed $3,520,824 and has $100,000 in outstanding letters of credit. At May 31, 2000, $383,000 was available for borrowings. The initial term of the loan is scheduled to end on August 31, 2000. In a letter dated May 26, 2000, the Company was notified that the lender does not intend to extend the term of the loan agreement beyond the termination date. Therefore, all of the obligations outstanding under the credit agreement and long term loan amounting to $4,943,025 at May 31, 2000 are due and payable on August 31, 2000. The Company has received a non binding proposal letter from a third party financial institution which would provide for a revolving line of credit and term loan that would be used to repay outstanding borrowings from the Company's current lender, and provide for ongoing working capital needs. This proposal does not represent a commitment level and is subject to various conditions of approval by the new lender. While the Company believes a new credit facility will be obtained, there is no assurance of such. If the Company is unable to obtain a new credit facility prior to the expiration of its existing facility on August 31, 2000, it will be unable to repay its outstanding balance due August 31, 2000. However, the Company has had discussions with its existing lender in which the lender indicated that they do not expect to take immediate action, but they retain the right to do so. 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) Material Changes in Results of Operations For the quarter ended May 31, 2000, total sales were 23% higher than the quarter ended May 31, 1999. OEM sales were 143% higher and sales of Art's-Way branded equipment were 32% lower. OEM sales benefited from the sale of forage blowers. The decline in sales of Art's-Way branded products results from a reduced demand for feed processing products and beet equipment production which has been shifted to the third quarter of fiscal year 2000. For the year to date ended May 31, 2000, total sales were 18% below the previous year. Both Art's-Way branded product and OEM product sales continue to be effected by the general weakness in the farm economy, particularly weakness in the livestock and grain markets. Major cost reduction programs were implemented effective December 1, 1999. These cost reductions have served to improve the gross profit as a percent of sales and also to reduce operating expenses by 33% for the quarter and year to date ended May 31, 2000 when compared to the same periods the previous year. The increase in interest expense results from higher interest rates. These higher rates are a combination of the increase in prime rate and the implementation of an additional 2% interest factor by our prime lender. Due to the 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 May 31, 2000 is $4,000,000 and is comparable to one year ago. These orders will principally 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 July 13, 2000 /s/William T. Green (William T. Green, President Executive Vice President, Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----