Appendix A to Item 601(c) of Regulation S-K
Commercial and Industrial Companies
Article 5 of Regulation S-X
Quarter Ended August 31, 2000
Item Number Item Description Amount
5-02(1) Cash and cash items 16,328
5-02(2) Marketable securities
5-02(3)(a)(1) Notes and accounts receivable-trade 3,027,902
5-02(4) Allowances for doubtful accounts 214,756
5-02(6) Inventory 8,432,528
5-02(9) Total current assets 11,357,716
5-02(13) Property, plant and equipment 10,627,792
5-02(14) Accumulated depreciation 8,450,183
5-02(18) Total assets 14,148,782
5-02(21) Total current liabilities 7,641,066
5-02(22) Bonds, mortgages and similar debt 4,822,403
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 6,131,431
5-02(32) Total liabilities and stockholders'
equity 14,148,782
5-03(b)1(a) Net sales of tangible products 4,162,794
5-03(b)1 Total revenues 4,162,794
5-03(b)2(a) Cost of tangible goods sold 3,081,460
5-03(b)2 Total costs and expenses applicable
to sales and revenues 775,722
5-03(b)3 Other costs and expenses 36,444
5-03(b)5 Provision for doubtful accounts
and notes 3,000
5-03(b)8 Interest and amortization of debt
discount 145,814
5-03(b)10 Income before taxes and other items 120,354
5-03(b)11 Income tax expense 0
5-03(b)14 Income from continuing operations 120,354
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 income 120,354
5-03(b)20 Income per share-primary 0.10
5-03(b)20 Income per share-fully diluted 0.10
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 August 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 September 13, 2000:
1,256,351
Number of Shares
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Year To Date
August 31, August 31, August 31 August 31
2000 1999 2000 1999
NET SALES 4,162,794 $5,098,777 $10,828,252 $13,210,294
COST OF GOODS SOLD 3,081,460 3,650,661 8,232,291 9,982,921
GROSS PROFIT 1,081,334 1,448,116 2,595,961 3,227,373
EXPENSES:
Engineering 123,896 99,049 305,757 316,873
Selling 233,699 348,253 541,475 952,926
General and
Administrative 421,127 548,808 1,288,421 1,741,747
Total 778,722 996,110 2,135,653 3,011,546
INCOME FROM
OPERATIONS 302,612 452,006 460,308 215,827
OTHER DEDUCTIONS:
Interest expense (145,814) (130,180) (434,200) (359,487)
Other (36,444) (7,060) (101,668) (165,206)
Other deductions (182,258) (137,240) (535,868) (524,693)
INCOME (LOSS) BEFORE
INCOME TAXES 120,354 314,766 (75,560) (308,866)
INCOME TAX EXPENSE
(BENEFIT) - 110,168 - (108,013)
NET INCOME (LOSS) $ 120,354 $ 204,598 (75,560) (200,853)
INCOME (LOSS) PER
SHARE (NOTE 2):
Basic $ 0.10 $ 0.16 $ (0.06) $ (0.16)
Diluted $ 0.10 $ 0.16 $ (0.06) $ (0.16)
COMMON SHARES AND
EQUIVALENT OUTSTANDING:
Basic 1,256,351 1,246,601 1,256,351 1,246,229
Diluted 1,256,351 1,246,601 1,256,351 1,246,229
See accompanying notes to financial statements.
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED BALANCE SHEETS
August 31, November 30
2000 1999
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 16,328 $ 273,303
Accounts receivable-customers,
net of allowance for doubtful accounts
of $214,756 and $223,696 in August
and November, respectively 2,813,146 2,461,502
Inventories 8,432,528 9,074,812
Other current assets 95,714 100,680
Total current assets 11,357,716 11,910,297
PROPERTY, PLANT AND EQUIPMENT,
at cost 10,627,792 10,627,792
Less accumulated depreciation 8,450,183 8,073,069
Net property, plant and equipment 2,177,609 2,554,723
DEFERRED INCOME TAXES 613,457 613,457
TOTAL $ 14,148,782 $ 15,078,477
See accompanying notes to financial statements.
August 31, November 30,
2000 1999
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ 3,032,725 $ 3,648,888
Current portion of long-term debt 1,426,801 1,640,101
Accounts payable 2,327,242 2,113,168
Customer deposits 130,646 119,861
Accrued expenses 723,652 916,428
Total current liabilities 7,641,066 8,438,446
LONG-TERM DEBT, excluding current portion 362,877 419,632
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 5,382,208 5,457,768
6,954,653 7,030,213
Less cost of common shares in treasury of
84,427 in August and November, 809,814 809,814
Total stockholders' equity 6,144,839 6,220,399
TOTAL $ 14,148,782 $ 15,078,477
See accompanying notes to financial statements.
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
2000 1999
CASH FLOW FROM OPERATIONS:
Net Loss $ (75,560) $(200,853)
Adjustment to reconcile net loss to net
cash provided by operations:
Depreciation and amortization 377,114 288,573
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (351,644) 215,129
Inventories 642,284 (54,911)
Other 4,966 (92)
Increase (Decrease) in:
Accounts payable 214,074 481,486
Customer deposits 10,785 (37,598)
Accrued expenses (192,776) (56,659)
Income taxes, net - (55,781)
Total adjustments 704,803 780,147
Net cash provided by operations 629,243 579,294
CASH USED IN INVESTING ACTIVITIES -
Purchases of property, plant and equipment - (251,004)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
from treasury - 2,945
Increase (decrease)in short-term loan (829,463) 1,432,210
Decrease in long-term loan (56,755) (1,720,977)
Net cash used in financing activities (886,218) (285,822)
Net increase (decrease) in cash (256,975) 42,468
Cash at beginning of the period 273,303 13,743
Cash at end of the period $ 16,328 $ 56,211
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 434,200 $ 359,487
Income taxes 4,790 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 third quarter ended August 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: August 31, November 30,
2000 1999
Raw material $1,493,052 $ 1,146,456
Work-in-process 2,655,586 3,362,003
Finished goods 4,283,890 4,566,353
Total $ 8,432,528 $9,074,812
4. ACCRUED EXPENSES
Major components of accrued expenses are:
August 31, November 30,
2000 1999
Salaries, wages and commissions $ 393,854 $ 337,611
Other 329,798 578,817
Total $ 723,652 $ 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 August 31, 2000
the Company has borrowed $3,032,725 and has $100,000 in out-
standing leters of credit. At November 30, 1999 and August 31,
2000, $182,000 and $281,000 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 3.00% of the referenced rate and a
minimum of plus zero (12.50% at August 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 October 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.
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 notified the
Company, that the current loan agreement provided that the
lender might, as a result of any event of default, accelerate
the payment of all obligations. As a result, all long-term
borrowings associated with this lender have been classified
as current. The lender did not call for the acceleration
of the payment of all obligations, but had the right to do
so at any time.
The initial term of the loan 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
long term loan amounting to $4,383,825 at August 31, 2000
were due and payable on August 31, 2000.
On August 31, 2000 the loan agreement was amended, and the
lender agreed to forbear the lender from exercising its
rights and remedies under the loan agreement until
October 15, 2000 and to extend the maturity date of the
loan agreement to October 15, 2000.
Effective October 15, 2000 the loan agreement was amended.
As part of this amendment,the lender agreed to forbear
the lender from exercising its rights and remedies
under the loan agreement until any future event of default or
January 15, 2001, whichever is earlier. The amendment also
extended the maturity date of the loan agreement
to January 15, 2001.
The Company continues to pursue financing with other lending
institutions and explore different alternate financing
arrangements. 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.
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 January 15, 2001, it will be unable
to repay its outstanding balance due January 15, 2001.
A summary of the Company's long-term debt is as
follows:
August 31, November 30,
2000 1999
Installment promissory note payable
in monthly installments of $23,700
plus interest at three percent
over the bank's national money
market rate (12.50%), secured
by the cash, accounts receivable,
inventories and property, plant
and equipment $1,351,100 $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 $ 266,668 $ 300,000
State of Iowa Community Development
Block Grant local participation
promissory notes at 4% interest,
maturity 2006, with quarterly
payments of $7,814 $ 171,910 $ 195,333
Total long-term debt $ 1,789,678 $2,059,733
Less current portion of
long-term debt 1,426,801 1,640,101
Long-term debt, excluding
current portion $ 362,877 $ 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 nine months ended
August 31, 2000 was a decrease in inventories and an increase
in accounts payable. These two main sources of funds were
offset partially by an increase in receivables and a decrease
in accrued liabilites. 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 August 31, 2000, the Company had no material
commitments for capital expenditures.
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 had $100,000 in outstanding letters of credit. At
August 31, 2000, the Company has borrowed $3,032,725
and has $100,000 in outstanding letters of credit. At
August 31, 2000, $281,000 was available for borrowings.
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, 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. The lender did not call 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 initial term of the loan 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 long term loan amounting to $4,383,825
at August 31, 2000 were due and payable on August 31, 2000.
On August 31, 2000, the loan agreement was amended and
the lender agreed to forbear the lender from exercising
its rights and remedies under the loan agreement until
October 15, 2000 and to extend the maturity date of the
loan agreement to October 15, 2000. The amendment contains
essentially the same terms as the initial agreement
except for the interest rate, which has been increased
from one-half percent to three percent over the bank's
referenced rate (9.5%). At August 31, 2000 the loan
bears interest at 12.5% per annum.
Effective October 15, 2000 the loan agreement was amended.
As part of this amendment, the lender agreed to forbear
the lender from exercising its rights and remedies under
the loan agreement until any future event of default or
January 15, 2001, whichever is earlier. The amendment also
extended the maturity date of the loan agreement to
January 15, 2001.
The Company continues to pursue financing with other
lending institutions and explore different alternate
financing arrangements. 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.
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 January 15, 2001,
it will be unable to repay its outstanding balance due.
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 August 31, 2000, total sales were 18%
lower than the quarter ended August 31, 1999. OEM sales were
10% higher and sales of Art's-Way branded equipment were
20% lower. OEM sales reflect high service parts sales.
The decline in sales of Art's-Way branded products results
from a reduced demand for feed processing products and
beet equipment due to the continuing weakness in the farm
economy.
For the year to date ended August 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
maintain the gross profit as a percent of sales and also to
reduce operating expenses and resulted in income from
operations improving by 113% year to date ended August 31,2000
when compared to the same period 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 August 31, 2000 is $2,300,000 compared to $1,400,000
a year ago. These orders will principally be delivered by the
end of the fourth 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 October 16, 2000 /s/William T. Green
(William T. Green, President,
Chief Financial Officer)