-----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, JGHTPNTMk7zQ72iWY+rvCamXhrLJT/yGfa2JR8cLO+Eciki4ToE4hph0UcXwMY13 gdUxhNPQEBjGwVo4hymm8A== 0000007623-02-000004.txt : 20020416 0000007623-02-000004.hdr.sgml : 20020416 ACCESSION NUMBER: 0000007623-02-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020228 FILED AS OF DATE: 20020416 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: 1934 Act SEC FILE NUMBER: 000-05131 FILM NUMBER: 02611620 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 qfeb02.txt Appendix A to Item 601(c) of Regulation S-K Commercial and Industrial Companies Article 5 of Regulation S-X Quarter Ended February 28, 2002 Item Number Item Description Amount 5-02(1) Cash and cash items 141,224 5-02(2) Marketable securities - 5-02(3)(a)(1) Notes and accounts receivable-trade 1,424,583 5-02(4) Allowances for doubtful accounts 59,801 5-02(6) Inventory 4,231,338 5-02(9) Total current assets 5,784,731 5-02(13) Property, plant and equipment 10,583,740 5-02(14) Accumulated depreciation 9,560,300 5-02(18) Total assets 6,808,171 5-02(21) Total current liabilities 4,038,213 5-02(22) Bonds, mortgages and similar debt 2,139,341 5-02(28) Preferred stock-mandatory redemption 0 5-02(29) Preferred stock-no mandatory redemption 0 5-02(30) Common stock 19,382 5-02(31) Other stockholders' equity 2,496,334 5-02(32) Total liabilities and stockholders' equity 6,808,171 5-03(b)1(a) Net sales of tangible products 2,641,892 5-03(b)1 Total revenues 2,641,892 5-03(b)2(a) Cost of tangible goods sold 2,071,292 5-03(b)2 Total costs and expenses applicable to sales and revenues 539,901 5-03(b)3 Other costs and expenses 14,111 5-03(b)5 Provision for doubtful accounts and notes 4,500 5-03(b)8 Interest and amortization of debt discount 60,589 5-03(b)10 Loss before taxes and other items 48,501 5-03(b)11 Income tax benefit - 5-03(b)14 Loss continuing operations 48,501 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 48,501 5-03(b)20 Loss per share-primary 0.03 5-03(b)20 Loss per share-fully diluted 0.03 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 28, 2002 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, 2002: 1,938,176 Number of Shares ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended February 28, February 28, 2002 2001 NET SALES $2,641,892 $2,990,487 COST OF GOODS SOLD 2,071,292 2,516,176 GROSS PROFIT 570,600 474,311 EXPENSES: Engineering 14,879 84,458 Selling 128,296 93,305 General and Administrative 401,226 408,176 Total 544,401 585,939 INCOME LOSS) FROM OPERATIONS 26,199 (111,628) OTHER DEDUCTIONS: Interest expense (60,589) (122,824) Other (14,111) (52,340) Other deductions (74,700) (175,164) LOSS BEFORE INCOME TAXES (48,501) (286,792) INCOME TAX BENEFIT - - NET LOSS $(48,501) $(286,792) LOSS PER SHARE (NOTE 2): Basic $ (0.03) $ (0.23) Diluted $ (0.03) $ (0.23) COMMON SHARES AND EQUIVALENT OUTSTANDING: Basic 1,411,954 1,256,351 Diluted 1,411,954 1,256,351 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED BALANCE SHEETS February 28, November 30, 2002 2001 (Unaudited) ASSETS CURRENT ASSETS Cash $ 141,224 $ 4,375 Accounts receivable-customers, net of allowance for doubtful accounts of $59,801 and $55,301 in February and November, respectively 1,364,782 922,168 Inventories 4,231,338 4,690,008 Other current assets 47,387 54,157 Total current assets 5,784,731 5,670,708 PROPERTY, PLANT AND EQUIPMENT, at cost 10,583,740 10,583,740 Less accumulated depreciation 9,560,300 9,499,347 Net property, plant and equipment 1,023,440 1,084,393 TOTAL $6,808,171 $6,755,101 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to bank $ 994,159 $ 2,073,704 Current portion of long-term debt 890,940 962,040 Accounts payable 837,411 984,052 Customer deposits 625,197 64,449 Accrued expenses 690,506 634,306 Total current liabilities 4,038,213 4,718,551 LONG-TERM DEBT, excluding current portion 254,242 272,333 STOCKHOLDERS' EQUITY: Common stock - $.01 par value. Authorized 5,000,000 shares; issued 1,938,176 shares in February and 1,340,778 shares in November 19,382 13,408 Additional paid-in capital 1,634,954 1,249,611 Retained earnings 861,380 909,881 2,515,716 2,172,900 Less cost of common shares in treasury of 0 shares in February and 42,602 in November 0 408,683 Total stockholders' equity 2,515,716 1,764,217 TOTAL $ 6,808,171 $ 6,755,101 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) THREE MONTHS ENDED February 28, February 28, 2002 2001 CASH FLOW FROM OPERATIONS: Net Loss $ (48,501) $ (286,792) Adjustment to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization 60,953 128,062 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable (442,614) (662,407) Inventories 458,670 461,839 Other Assets 6,770 8,015 Increase (Decrease) in: Accounts payable (146,641) 490,036 Customer deposits 560,748 36,497 Accrued expenses 56,200 (222,521) Total adjustments 554,086 239,521 Net cash provided by (used in) operating activities 505,585 (47,271) CASH FLOWS FROM INVESTING ACTIVITIES - Purchases of property, plant and equipment - - CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (payments of) notes payable to bank (1,079,545) 145,265 Principal payments on term debt (89,191) ( 90,063) Proceeds from issuance of common stock from treasury 53,253 - Proceeds from issuance of common stock 746,747 - Net cash provided by (used in) financing activities (368,736) 55,202 Net increase in cash 136,849 7,931 Cash at beginning of period 4,375 4,375 Cash at end of period $ 141,224 $ 12,306 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 64,033 $ 137,118 Income taxes 4,032 330 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, 2001. The results of operations for the first quarter ended February 28, 2002, are not necessarily indicative of the results for the fiscal year ending November 30, 2002. 2. LOSS PER SHARE Basic loss per common share is computed on the basis of weighted average number of common shares. Diluted loss 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 loss 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 2002 and 2001, the anti-dilutive effect of the Company's stock option plans is not included in the calculation of diluted loss per share for those periods. 3. INVENTORIES Major classes of inventory are: February 28, November 30, 2002 2001 Raw material $ 709,300 $ 749,544 Work-in-process 1,029,893 1,181,870 Finished goods 2,492,145 2,758,594 Total $ 4,231,338 $ 4,690,008 4. ACCRUED EXPENSES Major components of accrued expenses are: February 28, November 30, 2002 2001 Salaries, wages and commissions $ 326,042 $ 294,961 Accrued warranty expense 74,451 67,426 Other 290,013 271,919 Total $ 690,506 $ 634,306 5. LOAN AND CREDIT AGREEMENTS Line of Credit The Company has a credit agreement with a lending institution (lender) that provides for a revolving line of credit (credit facility) and a term loan. The credit facility allows for borrowings up to $4,500,000, subject to borrowing base limitations on the Company's accounts receivable and inventory, and allowing for letters of credit for $100,000. At February 28, 2002, the Company has borrowed $994,159 and has $100,000 in outstanding letters of credit. At November 30, 2001, the Company had borrowed $2,073,704 and had $100,000 in outstanding letters of credit. At February 28, 2002 and November 30, 2001, $802,000 and $68,000 were available for borrowings, respectively. The interest rate is based on the lender's referenced rate and is variable based upon certain performance objectives. Under the terms of the agreement, the Company will not pay more than 4% over the reference rate, nor less than the reference rate during the term of the agreement. The outstanding borrowings bear interest at 8.75% at February 28, 2002. The term loan was for an original principal amount of $1,991,000. The principal amount is repayable in monthly installments of $23,700 with the remaining balance due on demand. 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-eighths 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. At November 30, 2000 and 1999, the Company was in default of a loan covenant, the fixed maturity coverage ratio, of their credit facility and term loan. The lender notified the Company that the current loan agreement provided that the lender may, as a result of any event of default, accelerate the payment of all obligations. As a result, all term borrowings associated with this lender had been classified as current. The lender did not call for the acceleration of the payment of all obligations, but retained the right to do so at any time. The initial term of the loan agreement ended on August 31, 2000. In a letter dated May 26, 2000, the Company was notified that the lender did 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 term loan amounting to $4,383,825 at August 31, 2000 were due and payable on August 31, 2000. During the period between August 31, 2000 and August 31, 2001, the loan agreement was amended several times to provide for extensions of various lengths from 30 days to 90 days. On September 1, 2001, the lender sold the loan to another lending institution (new lender). Under this arrangement, the Company continued to operate under the same terms as existed prior to the sale. The new lender granted an extension from September 1, 2001 through November 15, 2001, but has not granted an extension beyond this date. Although there is no documented extension, the new lender has submitted a financing proposal to the Company in regards to long-term financing. The final terms of the proposal are currently being negotiated. The Company believes a new credit facility will be obtained from the new lender and that it will be able to meet its obligations under the new credit agreement when completed, although there are no assurances of such. If the Company is unable to obtain a new credit agreement, it will be unable to pay its outstanding balance due upon foreclosure. A summary of the Company's term debt is as follows: February 28, November 30, 2002 2001 Installment term debt payable in monthly installments of $23,700, plus interest at four percent over the bank's national money market rate (8.75%), secured by the cash, accounts receivable, inventories and property, plant and equipment $ 818,671 $ 889,771 State of Iowa Community Development Block Grant promissory notes at zero percent interest, maturity 2006 with quarterly principal payments of $11,111 200,000 211,111 State of Iowa Community Development Block Grant local participation promissory notes at 4% interest, maturity 2006, with quarterly payments of $7,814 126,511 133,491 Total term debt 1,145,182 1,234,373 Less current portion of term debt 890,940 962,040 Term debt, excluding current portion $ 254,242 $ 272,333 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 28, 2002 included a reduction in inventory and an increase in payments received from customers for advance payments on sugar beet equipment to be delivered in the third quarter as well as the capital infusion by a private investor. These sources were offset by an increase in accounts receivable and payments on the Company's note payable and term debt. The increase in accounts receivable is comparable to one year ago and results from the high level of OEM sales in February 2002 which are sold on 30 day terms. The conditions existing in the agriculture economy, in addition to adversely impacting sales, have 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 28, 2002, the Company had no material commitments for capital expenditures. See footnote 5 of the notes to the condensed financial statements for a discussion of the Company's credit facility. On February 13, 2002, the Company sold to J. Ward McConnell, Jr., a private investor, 640,000 shares of common stock for $800,000. The proceeds were used for the repayment of current obligations and for the reduction of bank debt. Mr. McConnell has agreed that without prior approval of the Board of Directors, excluding himself and his son, he will not acquire as much as fifty percent (50%) of the Company's common stock and will not take the Company private. The Company has used approximately $200,000 of the proceeds in paying down its aged outstanding payables to its suppliers. The Company is mindful of the necessity to continue to control its costs, as it intends to finance its working capital and pay down its debt through cash from operations. The Company believes that the infusion of capital from Mr. McConnell will also enable it to successfully complete negotiations with its lender, although there are no assurances of such. (b) Results of Operations Overall sales for the first quarter were approximately $2,642,000, or 12% lower than last year's first quarter sales of approximately $2,990,000. Sales of Art's-Way products were 26% higher and OEM sales were 33% lower than one year ago. OEM sales included products for three original equipment manufacturers. The reduction in sales reflects the continuing weakness in the farm economy, although demand for our feed processing and land maintenance equipment is significantly higher than the same period one year ago. Gross profit, as a percent of sales, was 22% for the quarter ended February 28, 2002, as compared to 16% for the same period in 2001. A combination of a favorable product mix in the current year and sales of distressed inventory at low margins in the prior year account for the improvement. Operating expenses were slightly below last year. As a percent of sales, operating expenses were 21% and 20% for the three months ended February 28, 2002 and 2001, respectively. As a result of cost reduction programs, engineering expenses decreased by $70,000. We currently expect these lower engineering costs to continue through- out fiscal year 2002. Other deductions decreased by $100,000 from the previous year. Reduction in bank borrowings combined with lower prime interest rate and reduced volume in our financed accounts receivable resulted in this reduction. The order backlog as of February 28, 2002 is $2,292,000, compared to $1,409,000 one year ago. These orders primarily will be delivered by the end of the third quarter of the current fiscal year. The current year backlog includes $771,000 in orders for beet equipment compared to $50,000 last year at this time. OEM backlog is $421,000 to be shipped in the third quarter. (c) Quantitative and Qualitative Disclosures About Market Risks The Company does not have any additional market risk exposure other than what was outlined in the November 30, 2001, 10-K filing. (d) Critical Accounting Policies The Company has identified the following accounting policies as critical to its operations. Revenue Recognition - Revenue is recognized when risk of ownership passes to the buyer. This generally occurs when the Company's product is shipped from its facility to the customer. Products delivered to dealers on a consignment basis are not recognized in revenue until the cash is collected from the dealer. Allowance for Bad Debts - In determining an allowance for receivables with potential collectibility issues, the Company considers the age of the receivable, the customer credit history and the reasons for non-payment. Inventory Valuation - The Company values its inventory based on a standard costing system which requires the inventory to be valued on the first in, first out method of valuing inventory. Any inventory product that has not moved within the past 3 years is considered significantly aged, and an appropriate reserve percentage is assigned to that inventory classification. As the agriculture industry changes inventory items can become outdated and the Company evaluates this on a regular basis. If a product is determined to be outdated, the Company will mark it down to its net realizable value and try and sell it at this discounted price. 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 15, 2002 /s/William T. Green (William T. Green, Chief Financial Officer) Date April 15, 2002 /s/John C. Breitung (John C. Breitung, President) -----END PRIVACY-ENHANCED MESSAGE-----