-----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, IguelwL/S8+h30H12L1eJIZuhMENcwnr2tgg31A47da/y34R9PU5IZ/7W/DGJoma KM1TBGvX2cyP0T03GCPGOQ== 0000007623-04-000005.txt : 20040413 0000007623-04-000005.hdr.sgml : 20040413 20040413120722 ACCESSION NUMBER: 0000007623-04-000005 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040229 FILED AS OF DATE: 20040413 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-05131 FILM NUMBER: 04729987 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 10QSB 1 feb0410q.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended February 29, 2004 Commission File No. 0-5131 ART'S-WAY MANUFACTURING CO., INC. (Exact name of small business issuer 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 Issuer's telephone number, including area code: (712) 864-3131 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Number of common shares outstanding as of March 22, 2004: 1,938,176 ART'S-WAY MANUFACTURING CO., INC. Consolidated Statement of Operations Condensed (Unaudited) Three Months Ended February 29, February 28, 2004 2003 Net Sales $ 2,892,293 $ 2,579,161 Cost of goods sold 2,196,469 1,975,097 Gross Profit 695,824 604,064 Expenses: Engineering 54,790 18,923 Selling 121,709 93,829 General and administrative 400,297 352,428 Total expenses 576,796 465,180 Income from operations 119,028 138,884 Other expenses (income): Interest expense 36,025 17,979 Other, net (3,200) 6,065 Total other expenses 32,825 24,044 Income before income taxes 86,203 114,840 Income tax expense - 2,031 Net income $ 86,203 $ 112,809 Net income per share: Basic $ 0.04 $ 0.06 Diluted $ 0.04 $ 0.06 Common shares and equivalent outstanding: Basic 1,938,176 1,938,176 Diluted 1,958,196 1,947,272 See accompaning notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. Consolidated Balance Sheets Condensed (Unaudited) February 29, November 30, 2004 2003 ASSETS Current Assets Cash $ 2,090,709 $ 800,052 Accounts receivable-customers, net of allowance for doubtful accounts of $44,350 and $39,250 in February and November, respectively 1,333,414 885,890 Inventories 3,898,679 3,446,711 Deferred taxes 283,000 283,000 Other current assets 152,996 150,185 Total current assets 7,758,798 5,565,838 Property, plant and equipment, at cost 11,319,249 11,049,132 Less accumulated depreciation 10,094,332 10,030,222 Net property, plant and equipment 1,224,917 1,018,910 Inventories, noncurrent 272,400 483,432 Real estate loan receivable 165,725 165,725 Deferred taxes 535,000 535,000 Other assets 178,067 192,932 Total Assets $ 10,134,907 $ 7,961,837 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion of long-term debt 183,820 178,508 Accounts payable 393,814 83,874 Customer deposits 1,935,449 53,556 Accrued expenses 622,033 702,117 Total current liabilities 3,135,116 1,018,055 Long-term liabilities 204,766 174,766 Long-term debt, excluding current portion 1,911,654 1,971,848 Total liabilities 5,251,536 3,164,669 Stockholders' Equity Common stock - $.01 par value. Authorized 5,000,000 shares; issued 1,938,176 shares in February and in November 19,382 19,382 Additional paid-in capital 1,634,954 1,634,954 Retained earnings 3,229,035 3,142,832 Total stockholders' equity 4,883,371 4,797,168 Total liabilities and stockholders' equity $ 10,134,907 $ 7,961,837 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. Consolidated Statements of Cash Flow Condensed (Unaudited) Three Months Ended February 29, February 28, 2004 2003 CASH FLOW FROM OPERATIONS: Net income $ 86,203 $ 112,809 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 64,110 69,870 Changes in working capital components: (Increase) decrease in: Accounts receivable (447,524) (1,058,471) Inventories (240,936) 9,126 Other current assets 12,054 (20,228) Increase (decrease) in: Accounts payable 309,940 137,706 Customer deposits 1,881,893 836,652 Accrued expenses (50,085) 149,238 Net cash provided by operating activities 1,615,655 236,702 CASH FLOW FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (270,117) - CASH FLOW FROM FINANCING ACTIVITIES: Principal payments on notes payable to lender - (146,404) Principal payments on term debt (54,881) (89,260) Net cash used in financing activities (54,881) (235,664) Net increase in cash 1,290,657 1,038 Cash at beginning of period 800,052 75,358 Cash at end of period $ 2,090,709 $ 76,396 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 32,835 $ 17,979 Income taxes 13,441 3,301 See accompanying notes to financial statements. ART'S-WAY MANUFACTURING CO., INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) 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, 2003. The results of operations for the first quarter ended February 29, 2004 are not necessarily indicative of the results for the fiscal year ending November 30, 2004. Reclassifications Certain 2003 financial statement amounts related to shipping costs have been reclassified to conform with the current year presentation. 2.INCOME PER SHARE Basic net income per common share is computed on the basis of weighted average number of common shares outstanding. Diluted net income per share has been computed on the basis of weighted average number of common shares outstanding plus equivalent shares assuming exercise of stock options. The difference in shares utilized in calculating basic and diluted net income 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. The reconciling item between the shares used in the computation of basic and diluted earnings per share for the first quarter ended February 29, 2004 is 20,020 equivalent shares for the effect of dilutive stock options. 3.INVENTORIES Major classes of inventory are: February 29, November 30, 2004 2003 Raw material $ 1,027,568 $ 744,549 Work-in-process 1,272,213 805,142 Finished goods 1,871,298 2,380,452 Total $ 4,171,079 $ 3,930,143 Less inventories classified as noncurrent 272,400 483,432 Inventories, current $ 3,898,679 $ 3,446,711 4.ACCRUED EXPENSES Major components of accrued expenses are: February 29, November 30, 2004 2003 Salaries, wages and commissions $ 323,793 $ 366,842 Accrued warranty expense 53,943 59,207 Other 244,297 276,068 Total $ 622,033 $ 702,117 5.Product Warranty The Company offers warranties of various lengths to its customers depending on the specific product and terms of the customer purchase agreement. The average length of the warranty period is one year from date of purchase. The Company's warranties require it to repair or replace defective products during the warranty period at no cost to the customer. The Company records a liability for estimated costs that may be incurred under its warranties. The costs are estimated based on historical experience and any specific warranty issues that have been identified. Although historical warranty costs have been within expectations, there can be no assurance that future warranty costs will not exceed historical amounts. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the balance as necessary. Changes in the Company's product warranty liability for the three months ended February 29, 2004 and February 28, 2003 are as follows: 2004 2003 Balance, beginning $ 59,207 $ 60,232 Settlements made in cash or in-kind (31,791) (29,530) Warranites issued 26,527 28,505 Balance, ending $ 53,943 $ 59,207 6.LOAN AND CREDIT AGREEMENTS Line of Credit The Company has financing through West Bank consisting of two loan agreements totaling $5,500,000. Facility #1 is a revolving line of credit for $2,500,000 with advances funding the working capital, letter of credit and corporate credit card needs that matures on February 28, 2005. The interest rate is West Bank's prime interest rate plus 1%, adjusted daily. Monthly interest only payments are required and the unpaid principal is due on the maturity date. In addition, an annual fee of $12,500 is paid for the use of this credit facility. Collateral consists of a first position on assets owned by the Company including, but not limited to inventories, accounts receivable, machinery and equipment. As of February 29, 2004, the Company has not borrowed against Facility #1. Facility #2 is long-term financing for up to $3,000,000 that is supported by a guarantee issued by the United States Department of Agriculture (USDA) for 75% of the loan amount outstanding. The loan refinanced existing debt to UPS Capital (approximately $1,500,000), finance equipment (approximately $250,000), provide permanent working capital (approximately $500,000) and satisfy closing costs (approximately $50,000). Approximately $700,000 will be reserved for future acquisitions. The variable interest rate is West Bank's prime interest rate plus 1.5%, adjusted daily. Monthly principal and interest payments are amortized over 20 years, with final maturity at March 31, 2023. Collateral for Facility #2 is primarily real estate with a second position on assets of Facility #1. The USDA subordinates collateral rights in all assets other than real estate in an amount equal to West Bank's other credit commitments. J. Ward McConnell, Jr. was required to personally guarantee Facility #1 and Facility #2 on an unlimited and unconditional basis. The guarantee of Facility #2 shall be reduced after the first three years to a percentage representing his ownership of the Company. Mr. McConnell's guarantee shall be removed from Facility #2 in the event that his ownership interest in the Company is reduced to a level less than 20% after the first three years of the loan. The Company compensates Mr. McConnell for his personal guarantee at an annual percentage rate of 2% of the outstanding balance to be paid monthly. Other terms and conditions include providing monthly internally prepared financial reports including accounts receivable aging schedules and borrowing base certificates and year-end audited financial statements. The borrowing bases shall limit advances from Facility #1 to 60% of accounts receivable less than 90 days, 60% of finished goods inventory, 50% of raw material inventory and 50% of work-in-process inventory plus 40% of appraisal value of machinery and equipment. Covenants include, but are not limited to, restrictions on debt service coverage ratio, debt/tangible net worth ratio, current ratio, limit capital expenditures and tangible net worth. During the year ended November 30, 2003, the Company violated certain debt covenants that were waived. On April 25, 2003 the Company borrowed $2,000,000 against Facility #2, $1,528,775 was used to pay off other borrowings with $110,000 being held in reserve for a letter of credit ($100,000) and any additional fees. The balance of $471,225 was used as working capital. A summary of the Company's term debt is as follows: February 29, November 30, 2004 2003 West Bank Facility #2 payable in monthly Installments of $17,776 including interest at Bank's prime rate plus 1.5% (5.50%) $ 1,914,324 $ 1,950,975 State of Iowa Community Development Block Grant promissory notes at zero percent interest, maturity 2006,with quarterly principal payments of $11,111 $ 111,112 $ 122,223 State of Iowa Community Development Block Grant local participation promissory notes at 4% interest, Maturity 2006, with quarterly payments of $7,007 $ 70,151 $ 77,158 Total term debt $ 2,095,474 $ 2,150,356 Less current portion of term debt $ 183,820 $ 178,508 Term debt, excluding current portion $ 1,911,654 $ 1,971,848 7.RELATED PARTY TRANSACTION In February 2002, the Company sold common stock to an existing shareholder, Mr. J. Ward McConnell, Jr., at estimated fair value. Proceeds from the sale of the stock were $800,000. 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. Immediately after the transaction, Mr. McConnell was elected Chairman of the Board of Directors of the Company. His son, Marc McConnell, is also a Board Member. Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (a)Liquidity and Capital Resources The Company's main source of funds for the quarter ended February 29, 2004 was payments received from customers for advance payments on sugar beet equipment to be delivered in the second and third quarters. The increase in account receivable results from the OEM sales in February 2004, which are sold on 30-day terms. The positive cash flow from operations of $1,616,000 was used to fund capital expenditures of $270,000 and the remainder retained by the company. During the first quarter ended February 29, 2004, the Company's capital expenditures were the purchase and installation of a new paint system. See footnote 5 of the notes to the condensed financial statements for a discussion of the Company's credit facility. The Company is mindful of the necessity to continue to control its costs. (b)Results of Operations Revenue of $2,892,000 for the first quarter of 2004 is 12.17% higher when compared to $2,579,000 for the same period in 2003. First quarter 2004 revenues included $260,000 from the truck body line acquired in July 2003. Art's-Way's branded products increased by $382,000 while OEM sales decreased by $249,000. The farm economy has remained weak during this portion of 2004. Gross profit, as a percent of sales was 24% for the quarter ended February 29, 2004, as compared to 23% for the same period in 2003. Operating expenses in first quarter of 2004 increased $112,000 from 2003. As a percent of sales, operating expenses were 20% and 18%, respectively, when comparing 2004 and 2003. The increased operating expense was due to the continuing developmental expenses for new products and expenses for our truck body line. The Company has introduced a new sugar beet harvester with the industry's first 12 row harvesting capability. We are also prototyping a new generation grinder-mixer with increased capacity and reduced operating cycle times. The increase of engineering expenses for 2004 of $36,000 compared to 2003 allows the Company to introduce new product offerings for 2004 that will continue to improve revenue and earnings. Selling expenses also increased $28,000 for 2004 from 2003. The Company is attending more farm and industry trade shows during the year to regain visibility of Art's-Way and Cherokee Truck Bodies branded products. General and administrative expenses increased by $48,000 due to additional expenses related to the truck body line acquired in July 2003. The Company experienced a 37% increase in interest and other expenses in 2004 compared to 2003. On February 29, 2004 the term debt was $2,095,000 compared to $788,000 in 2003. The larger term debt is a result of a long term financing agreement made with West Bank in April of 2003. The order backlog as of February 29, 2004 is $4,060,000, compared to $2,916,000 one year ago. These orders primarily will be delivered in the second and third quarter of the current fiscal year. The current year backlog includes $2,745,000 in orders for beet equipment compared to $1,187,000 last year at this time. We have no OEM backlog as a result of a license agreement with Case New Holland, Inc. (CNH), to manufacture moldboard plows under its own label in spring of 2004. This will allow the Company to sell direct to dealers. (c) Critical Accounting Policies The Company's critical accounting policies involving the more significant judgments and assumptions used in the preparation of the financial statements as of February 29, 2004 have remained unchanged from November 30, 2003. These policies involve revenue recognition, inventory valuation and income taxes. Disclosure of these critical accounting policies is incorporated by reference under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation" in the Company's Annual report on Form 10-K for the year ended November 30, 2003. Item 3 CONTROLS AND PROCEDURES Senior management, including the Chief Executive Officer/Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, the Chief Executive Officer/Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. Since that evaluation process was complete there have been no significant changes in disclosure controls or in other factors that could significantly affect these controls. Part II - Other Information ITEM 1. LEGAL PROCEEDINGS Various legal actions and claims resulting from the ordinary course of business are pending against the Company. In the opinion of management, adequate provisions have been made in the accompanying financial statements for all pending legal actions and other claims. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 31.1 Certification of Chief Executive Officer under the section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer under the section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer under the section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer under the section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K: Form 8-K filed on January 29, 2004, regarding fourth quarter and year end results. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ART'S-WAY MANUFACTURING CO., INC. Date: April 13, 2004 By: /s/ John C. Breitung John C. Breitung President and Chief Executive Officer Date: April 13, 2004 By:/s/ John C. Breitung John C. Breitung Chief Financial Officer EX-31 3 exhib311.txt Exhibit 31.1 CERTIFICATIONS Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Public Law Number107-204) and SEC Rule 13a-14(a), the Chief Executive Officer of the Company certifies that: 1) I have reviewed this report on Form 10-QSB of Art's-Way Manufacturing Co., Inc.; 2) Based upon my knowledge, this report does not contain any untrue statement of a material fact, or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the Company as of, and for, the period presented in this report; 4) The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a--5(e) and 15d-15(e)) for the Company and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company and its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5) The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company board of directors (or persons performing equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which could adversely affect the Company's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. /s/ John C. Breitung John C. Breitung Chief Executive Officer 4-13-04 Date EX-31 4 exhib312.txt Exhibit 31.2 CERTIFICATIONS Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Public Law Number107-204) and SEC Rule 13a-14(a), the Chief Executive Officer of the Company certifies that: 1) I have reviewed this report on Form 10-QSB of Art's-Way Manufacturing Co., Inc.; 2) Based upon my knowledge, this report does not contain any untrue statement of a material fact, or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the Company as of, and for, the period presented in this report; 4) The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-5(e) and 15d-15(e)) for the Company and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company and its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5) The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company board of directors (or persons performing equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which could adversely affect the Company's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. /s/ John C. Breitung John C. Breitung Chief Financial Officer 4-13-04 Date EX-32 5 exhib321.txt Exhibit 32.1 CERTIFICATION OF FINANCIAL STATEMENTS Pursuant to 18 U.S.C. 1350, the President/Chief Executive Officer of Art's-Way Manufacturing Co., Inc. (the "Company"), hereby certify that this Form 10-QSB for the quarter ended February 29, 2004, and the consolidated financial statements therein, fully comply with the requirements of Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-QSB and the financial statements therein fairly present, in all material respects, the financial condition and results of operations of the Company for the period covered by the report. By: /s/ John C. Breitung Name: John C. Breitung President and Chief Executive Officer Date 4-13-04 EX-32 6 exhib322.txt Exhibit 32.2 CERTIFICATION OF FINANCIAL STATEMENTS Pursuant to 18 U.S.C. 1350, the Chief Financial Officer of Art's-Way Manufacturing Co., Inc. (the "Company"), hereby certify that this Form 10-QSB for the quarter ended February 29, 2004, and the consolidated financial statements therein, fully comply with the requirements of Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-QSB and the financial statements therein fairly present, in all material respects, the financial condition and results of operations of the Company for the period covered by the report. By: /s/ John C. Breitung Name: John C. Breitung Chief Financial Officer Date 4-13-04 -----END PRIVACY-ENHANCED MESSAGE-----