-----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, AxuKfdEFBiDaqx6buuaDgTLBemQk/x9bBsyhByleBfyBiPsbEt6WJaLA/M54q1qA +D6KpJeVx3Bno7ybg+Eeuw== 0000007623-01-500008.txt : 20010718 0000007623-01-500008.hdr.sgml : 20010718 ACCESSION NUMBER: 0000007623-01-500008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010531 FILED AS OF DATE: 20010717 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: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-05131 FILM NUMBER: 1683400 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 may0110q.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, 2001 Item Number Item Description Amount 5-02(1) Cash and cash items 17,968 5-02(2) Marketable securities 5-02(3)(a)(1) Notes and accounts receivable-trade 860,793 5-02(4) Allowances for doubtful accounts 85,273 5-02(6) Inventory 6,980,103 5-02(9) Total current assets 7,926,788 5-02(13) Property, plant and equipment 10,603,061 5-02(14) Accumulated depreciation 8,824,994 5-02(18) Total assets 9,767,755 5-02(21) Total current liabilities 5,646,133 5-02(22) Bonds, mortgages and similar debt 3,574,618 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 3,801,566 5-02(32) Total liabilities and stockholders' equity 9,767,755 5-03(b)1(a) Net sales of tangible products 2,409,492 5-03(b)1 Total revenues 2,409,492 5-03(b)2(a) Cost of tangible goods sold 1,772,782 5-03(b)2 Total costs and expenses applicable to sales and revenues 549,079 5-03(b)3 Other costs and expenses 20,597 5-03(b)5 Provision for doubtful accounts and notes 4,500 5-03(b)8 Interest and amortization of debt discount 106,884 5-03(b)10 Loss before taxes and other items 44,350 5-03(b)11 Income tax benefit - 5-03(b)14 Loss from continuing operations 44,350 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 loss 44,350 5-03(b)20 Loss per share-primary 0.04 5-03(b)20 Loss per share-fully diluted 0.04 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, 2001 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 6, 2001: 1,298,176 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, 2001 2000 2001 2000 NET SALES $2,409,492 $4,231,447 $5,399,979 $6,665,458 COST OF GOODS SOLD 1,772,782 3,246,703 4,288,958 5,150,831 GROSS PROFIT 636,710 984,744 1,111,021 1,514,627 EXPENSES: Engineering 55,643 87,931 140,102 181,861 Selling 157,889 131,522 251,193 307,776 General and Administrative 340,047 433,808 748,223 867,294 Total 553,579 653,261 1,139,518 1,356,931 INCOME (LOSS) FROM OPERATIONS 83,131 331,483 (28,497) 157,696 OTHER DEDUCTIONS: Interest expense (106,884) (151,268) (229,708) (288,386) Other (20,597) (29,460) (72,939) (65,224) Other deductions (127,481) (180,728) (302,647) (353,610) INCOME (LOSS) BEFORE INCOME TAXES (44,350) 150,755 (331,144) (195,914) INCOME TAX BENEFIT - - - - NET INCOME (LOSS) $(44,350) $150,755 $(331,144) $(195,914) INCOME (LOSS) PER SHARE (NOTE 2): Basic $ (0.04) $ 0.12 $ (0.26) $ (0.16) Diluted $ (0.04) $ 0.12 $ (0.26) $ (0.16) COMMON SHARES AND EQUIVALENT OUTSTANDING: Basic 1,265,443 1,256,351 1,260,947 1,256,351 Diluted 1,265,443 1,256,351 1,260,947 1,256,351 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED BALANCE SHEETS May 31, November 30, 2001 2000 (Unaudited) ASSETS CURRENT ASSETS Cash $ 17,968 $ 4,375 Accounts receivable-customers, net of allowance for doubtful accounts of $85,273 and $76,303 in May and November, respectively 775,520 1,331,308 Inventories 6,980,103 7,184,324 Other current assets 153,197 90,669 Total current assets 7,926,788 8,610,676 PROPERTY, PLANT AND EQUIPMENT, at cost 10,603,061 10,603,061 Less accumulated depreciation 8,824,994 8,569,234 Net property, plant and equipment 1,778,067 2,033,827 DEFERRED INCOME TAXES 62,900 62,900 TOTAL $ 9,767,755 $ 10,707,403 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to bank $ 2,055,148 $ 2,552,183 Current portion of long-term debt 1,212,822 1,355,023 Accounts payable 1,509,661 1,286,643 Customer deposits 185,163 127,196 Accrued expenses 683,339 987,336 Total current liabilities 5,646,133 6,308,381 LONG-TERM DEBT, excluding current portion 306,648 344,609 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 1,249,611 1,559,037 Retained earnings 2,960,638 3,291,782 Less cost of common shares in treasury of 42,602 in May and 84,427 in November 408,683 809,814 Total stockholders' equity 3,814,974 4,054,413 TOTAL $ 9,767,755 $ 10,707,403 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, 2001 2000 CASH FLOW FROM OPERATIONS: Net Loss $ (331,144) $ (195,914) Adjustment to reconcile net loss to net cash provided by operations: Depreciation and amortization 255,760 225,959 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 555,788 (455,774) Inventories 204,221 652,177 Sundry (62,528) 11,064 Increase (Decrease) in: Accounts payable 223,018 (330,464) Customer deposits 57,967 559,824 Accrued expenses (303,997) (339,487) Total adjustments 930,229 323,299 Net cash provided by operations 599,085 127,385 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock from treasury 91,705 - Net repayments of notes payable to bank (639,236) (270,264) Principal payments on long-term debt ( 37,961) ( 37,824) Net cash used in financing activities (585,492) (308,088) Net increase (decrease) in cash 13,593 (180,703) Cash at beginning of the period 4,375 273,303 Cash at end of the period $ 17,968 $ 92,600 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 229,708 $ 288,386 Income taxes 4,276 4,116 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, 2000. The results of operations for the second quarter and year to date ended May 31, 2001 are not necessarily indicative of the results for the fiscal year ending November 30, 2001. 2. EARNINGS (LOSS) PER SHARE Basic income per common share is computed on the basis of weighted average number of common shares. Diluted income per share is computed on the basis of weighted average number of common shares plus equivalent shares assuming exercise of stock options. The difference 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 Company's net losses for the periods or 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. 3. INVENTORIES Major classes of inventory are: May 31, November 30, 2001 2000 Raw material $1,264,161 $ 1,054,509 Work-in-process 1,716,415 2,070,323 Finished goods 3,999,527 4,059,492 Total $ 6,980,103 $7,184,324 4. ACCRUED EXPENSES Major components of accrued expenses are: May 31, November 30, 2001 2000 Salaries, wages and commissions $ 307,260 $ 419,941 Accrued warranty expense 61,096 106,667 Other 314,983 460,728 Total $ 683,339 $ 987,336 5. LOAN AND CREDIT AGREEMENTS Line of Credit The Company has a credit agreement with a bank that allows for borrowings up to $4,500,000, subject to borrowing base limitations on the Company's accounts receivable and inventory, and to allow for letters of credit for $100,000. At November 30, 2000, the Company had borrowed $2,552,183 and had $100,000 in outstanding letters of credit. At May 31, 2001, the Company has borrowings outstanding of $2,055,148 and has $100,000 in out- standing letters of credit. At November 30, 2000 and May 31, 2001, $212,000 and $177,000 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 4.00% of the referenced rate and a minimum of plus zero (11.00% at May 31, 2001). The Company also has a long-term loan with the same bank 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 September 15, 2001. 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 original term of the loan expired on August 31, 2000. The loan agreement has been amended on August 31, 2000, October 15, 2000, January 15, 2001, February 15, 2001, April 15, 2001 and June 15, 2001. In each of these amendments, the lender has agreed not to exercise its rights and remedies under the loan agreement unless there is a future event of default. The latest amendment extended the maturity date of the loan agreement to Septmeber 15, 2001. The Company is currently negotiating with other financial institutions in order to establish a new credit facility. 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 September 15, 2001, it will be unable to repay its outstanding balance due September 15, 2001, unless its current lender grants an extension. A summary of the Company's long-term debt is as follows: May 31, November 30, 2001 2000 Installment promissory note payable in monthly installments of $23,700, plus interest at four percent over the bank's national money market rate (11.00%), secured by the cash, accounts receivable, inventories and property, plant and equipment $1,137,800 $1,280,000 State of Iowa Community Development Block Grant promissory notes at zero percent interest, maturity 2006 with quarterly principal payments of $11,111 $ 233,334 $ 255,556 State of Iowa Community Development Block Grant local participation promissory notes at 4% interest, maturity 2006, with quarterly payments of $7,814 $ 148,336 $ 164,076 Total long-term debt $1,519,470 $1,699,632 Less current portion of long-term debt $1,212,822 $1,355,023 Long-term debt, excluding current portion $ 306,648 $ 344,609 Lending institutions are reluctant to expand their loan portfolios in the agriculture sector of the economy until the depressed state of the farm economy improves. In addition, the size of the loan is difficult to place as the loan required is too large and specialized for many local lenders and too small for the regional and national lenders. The Board of Directors and Management have been and con- tinue to explore various financing alternatives including, but not limited to, asset based lending arragements, convertible debentures and venture capitalist arrangements. Although no assurances can be given, the Company expects that a financing alternative will be negotiated and completed during the fiscal year 2001. The continua- tion as a going concern is dependent upon the ability to success- fully establish the necessary financing arrangement and to comply with the terms thereof. 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 May 31, 2001 was a reduction in accounts receivable and inventory and an increase in accounts payable. These sources were offset partially by a reduction in accrued expenses. The positive cash flow from operations funded the reduction of the Company's out-standing 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 pro- vided an adequate reserve for uncollectible accounts based on currently available information. As of May 31, 2001, 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 original term of the loan expired on August 31, 2000. The loan agreement has been amended on August 31, 2000, October 15, 2000, January 15, 2001, February 15, 2001, April 15, 2001 and June 15, 2001. In each of these amendments, the lender has agreed not to exercise its rights and remedies under the loan agreement unless there is an additional future event of default. The latest amendment extended the maturity date of the loan agreement to September 15, 2001. The Company is currently negotiating with other financial institutions in order to establish a new credit facility. 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 September 15, 2001, it will be unable to repay its outstanding balance due September 15, 2001, unless its current lender grants an extension. Lending institutions are reluctant to expand their loan portfolios in the agriculture sector of the economy until the depressed state of the farm economy improves. In additon, the size of the loan is difficult to place as the loan required is too large and specialized for many local lenders and too small for the regional and national lenders. The Board of Directors and Management have been and con- tinue to explore various financing alternatives including, but not limited to, asset based lending arragements, convertible debentures and venture capitalist arrangements. Although no assurances can be given, the Company expects that a financing alternative will be negotiated and completed during the fiscal year 2001. The continua- tion as a going concern is dependent upon the ability to success- fully establish the necessary financing arrangement and to comply with the terms thereof. (b) Results of Operations Overall sales for the second quarter were approximately $1,822,000 lower than last year's second quarter. Sales of Art's-Way products were $618,000 higher than one year ago, which reflects strong demand for our feed processing equipment. OEM sales were $2,440,000 lower than one year ago. In 2000, we produced semiannual OEM requirements in the second quarter whereas in 2001 these requirements were produced in the first quarter. For the six months ended May 31, 2001, total sales were approximatley $1,265,000 lower than the previous year. Sales of Art's-Way branded products were nearly equal to last year, but OEM sales were $1,123,000 below last year. This reduction reflects actions taken by our OEM customers to reduce inventories in anticipation of lower sales for 2001. Gross profit as a percent of sales for the quarter ended May 31, 2001, was 26% as compared to 23% for the same period in 2000. This was due to a favorable product mix. On a year to date basis, gross profit for 2001 was 21% as compared to 23% for 2000. The reduced manufacturing activity continues to put significant pressure on manufacturing efficiencies, although cost reduction programs implemented January 15, 2001 have favorably contributed to reducing manufacturing costs. Operating expenses for the quarter and year to date ending May 31, 2001 were approximately 15% below the previous year, which directly reflects the cost reduction actions taken on January 15, 2001. Interest expense is 29% and 20% below last year for the quarter and year to date ending May 31, 2001, respectively. This reflects a lower level of borrowing. Due to the continued distressed agri- cultural economy, the Company will not record any tax benefits until the Company returns to profitability. The order backlog as of May 31, 2001 is approximately $1,600,000 compared to $4,000,000 one year ago. These orders primarily will be delivered by the end of the third quarter of the current fiscal year. Last year's backlog included $2,900,000 of orders for sugar beet equipment compared to $310,000 this year. The uncertainty in the sugar beet industry has caused growers to delay ordering equipment. (c) Effect of New Accounting Standards The Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities, as amended," which establishes accounting and reporting standards for derivative instruments. SFAS 133 requires that all derivatives be recognized in the balance sheet and measured at fair value. The Company believes there is no impact of this standard on its financial position or results of operations. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". SFAS 125 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of the provisions of SFAS 125 without reconsideration. SFAS 140 is effective for transfers of financial assets occurring after March 30, 2001. The Company believes there is no impact of this standard on its financial position or results of operations. (d) Quantitative and Qualitative Disclosures About Market Risk The Company does not have any additional market risk exposure other than what was outlined in the November 30, 2000, 10-K filing. 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 17, 2001 /s/William T. Green (William T. Green, Chief Financial Officer) Date July 17, 2001 /s/John C. Breitung (John C. Breitung, President) -----END PRIVACY-ENHANCED MESSAGE-----