Appendix A to Item 601(c) of Regulation S-K
Commercial and Industrial Companies
Article 5 of Regulation S-X
Quarter Ended February 28, 2001
Item Number Item Description Amount
5-02(1) Cash and cash items 12,306
5-02(2) Marketable securities -
5-02(3)(a)(1) Notes and accounts receivable-trade 2,074,518
5-02(4) Allowances for doubtful accounts 80,803
5-02(6) Inventory 6,722,485
5-02(9) Total current assets 8,811,160
5-02(13) Property, plant and equipment 10,603,061
5-02(14) Accumulated depreciation 8,697,296
5-02(18) Total assets 10,779,825
5-02(21) Total current liabilities 6,686,557
5-02(22) Bonds, mortgages and similar debt 4,307,017
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 3,754,213
5-02(32) Total liabilities and stockholders'
equity 10,779,825
5-03(b)1(a) Net sales of tangible products 2,990,487
5-03(b)1 Total revenues 2,990,487
5-03(b)2(a) Cost of tangible goods sold 2,516,176
5-03(b)2 Total costs and expenses applicable
to sales and revenues 581,439
5-03(b)3 Other costs and expenses 52,340
5-03(b)5 Provision for doubtful accounts
and notes 4,500
5-03(b)8 Interest and amortization of debt
discount 122,824
5-03(b)10 Loss before taxes and other items 286,792
5-03(b)11 Income tax benefit -
5-03(b)14 Loss continuing operations 286,792
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 286,792
5-03(b)20 Loss per share-primary 0.23
5-03(b)20 Loss per share-fully diluted 0.23
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, 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 April 5, 2001:
1,256,351
Number of Shares
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
February 28, February 29,
2001 2000
NET SALES $2,990,487 $2,434,011
COST OF GOODS SOLD 2,516,176 1,904,128
GROSS PROFIT 474,311 529,883
EXPENSES:
Engineering 84,458 93,930
Selling 93,305 176,254
General and
Administrative 408,176 433,486
Total 585,939 703,670
LOSS FROM
OPERATIONS (111,628) (173,787)
OTHER DEDUCTIONS:
Interest expense (122,824) (137,118)
Other (52,340) (35,764)
Other deductions (175,164) (172,882)
LOSS BEFORE
INCOME TAXES (286,792) (346,669)
INCOME TAX BENEFIT - -
NET LOSS $(286,792) $(346,669)
LOSS PER
SHARE (NOTE 2):
Basic $ (0.23) $ (0.28)
Diluted $ (0.23) $ (0.28)
COMMON SHARES AND
EQUIVALENT OUTSTANDING:
Basic 1,256,351 1,256,351
Diluted 1,256,351 1,256,351
See accompanying notes to financial statements.
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED BALANCE SHEETS
February 28, November 30,
2001 2000
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 12,306 $ 4,375
Accounts receivable-customers,
net of allowance for doubtful accounts
of $80,803 and $76,303 in February
and November, respectively 1,993,715 1,331,308
Inventories 6,722,485 7,184,324
Other current assets 82,654 90,669
Total current assets 8,811,160 8,610,676
PROPERTY, PLANT AND EQUIPMENT,
at cost 10,603,061 10,603,061
Less accumulated depreciation 8,697,296 8,569,234
Net property, plant and equipment 1,905,765 2,033,827
DEFERRED INCOME TAXES 62,900 62,900
TOTAL $ 10,779,825 $ 10,707,403
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ 2,697,448 $ 2,552,183
Current portion of long-term debt 1,283,922 1,355,023
Accounts payable 1,776,679 1,286,643
Customer deposits 163,693 127,196
Accrued expenses 764,815 987,336
Total current liabilities 6,686,557 6,308,381
LONG-TERM DEBT, excluding current portion 325,647 344,609
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 1,559,037 1,559,037
Retained earnings 3,004,990 3,291,782
4,577,435 4,864,227
Less cost of common shares in treasury of
84,427 in February and November, 809,814 809,814
Total stockholders' equity 3,767,621 4,054,413
TOTAL $ 10,779,825 $ 10,707,403
See accompanying notes to financial statements.
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
February 28, February 29,
2001 2000
CASH FLOW FROM OPERATIONS:
Net Loss $ (286,792) $ (346,669)
Adjustment to reconcile net loss to net
cash provided (used) by operations:
Depreciation and amortization 128,062 117,845
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (662,407) 166,059
Inventories 461,839 (621,837)
Sundry 8,015 36,707
Increase (Decrease) in:
Accounts payable 490,036 395,906
Customer deposits 36,497 523,499
Accrued expenses (222,521) (200,839)
Income taxes, net - -
Total adjustments 239,521 417,340
Net cash provided by (used in)
operating activities (47,271) 70,671
CASH USED IN INVESTING ACTIVITIES -
Purchases of property, plant and equipment - -
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments of) notes
payable to bank 145,265 (226,438)
Principal payments on long-term debt (90,063) ( 89,999)
Net cash provided by (used in)
financing activities 55,202 (316,437)
Net increase (decrease) in cash 7,931 (245,766)
Cash at beginning of the period 4,375 273,303
Cash at end of the period $ 12,306 $ 27,537
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 122,824 $ 137,118
Income taxes 300 330
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, 2000.
The results of operations for the first quarter ended February 28,
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
net loss in 2001 and 2000, the anti-dilutive effect of the
Company's stock option plans is not included in the calculation
of diluted earnings per share for those periods.
3. INVENTORIES
Major classes of inventory are: February 28, November 30,
2001 2000
Raw material $ 1,251,136 $ 1,054,509
Work-in-process 1,660,980 2,070,323
Finished goods 3,810,369 4,059,492
Total $ 6,722,485 $ 7,184,324
4. ACCRUED EXPENSES
Major components of accrued expenses are:
February 28, November 30,
2001 2000
Salaries, wages and commissions $ 366,585 $ 419,941
Accrued warranty expense 81,351 106,667
Other 316,879 460,728
Total $ 764,815 $ 987,336
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
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 February 28, 2001
the Company has borrowed $2,697,448 and has $100,000 in out-
standing leters of credit. At November 30, 2000 and February 28,
2001, $212,000 and $200,000 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 (11.50% at February 28, 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 April 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-
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.
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 and
April 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 June 15, 2001.
The Company is currently negotiating with another financial
institution 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 June 15, 2001, it
will be unable to repay its outstanding balance due June 15,
2001.
A summary of the Company's long-term debt is as
follows: February 28, November 30,
2001 2000
Installment promissory note payable
in monthly installments of $23,700
plus interest at three percent
over the bank's national money
market rate (11.50%), secured
by the cash, accounts receivable,
inventories and property, plant
and equipment $1,208,900 $1,280,000
State of Iowa Community Development
Block Grant promissory notes at zero
percent interest, maturity 2006 with
quarterly principal payments of
$11,111 244,445 255,556
State of Iowa Community Development
Block Grant local participation
promissory notes at 4% interest,
maturity 2006, with quarterly
payments of $7,814 156,224 164,076
Total long-term debt 1,609,569 1,699,632
Less current portion of
long-term debt 1,283,922 1,355,023
Long-term debt, excluding
current portion $ 325,647 $ 344,609
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, 2001 was a reduction in inventory and an increase
in accounts payable. These two main sources of funds were
offset partially by an increase in accounts receivable and a
reduction in accrued expenses. The negative cash flow from
operations required an increased in bank borrowings.
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, 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 and
April 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 June 15, 2001.
The Company is currently negotiating with another financial
institution 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 June 15, 2001, it
will be unable to repay its outstanding balance due June 15,
2001, unless an extension is granted by its current lender.
(b) Results of Operations
Overall sales for the first quarter were up 23% over last
year's first quarter. Sales of Art's-Way products were
41% lower than one year ago. However, the shortfall in
Art's-Way products was more than offset by increased
OEM sales, which included product for three original
equipment manufacturers.
Gross profit as a percent of sales was lower by six
percentage points due to the sales product mix. Sales to
OEM's traditionally carry a lower margin than our
proprietary products, and for the first quarter of fiscal
year 2001, these sales represented 63% of total sales
compared to 23% for the same period one year ago.
Manufacturing efficiencies improved by two percentage
points due to favorable product mix and cost reductions
implemented December 1, 1999 and January 15, 2001. Although
the full impact of the cost reductions on January 15, 2001
was not effective for the entire first quarter, management
expects this action to reduce manufacturing and operating
expenses on an annual basis by approximately $1,200,000.
Due to the continued distressed agricultural economy, the
Company will not record any tax benefits until the Company
returns to profitability.
The order backlog as of February 28, 2001 is $1,409,000
compared to $5,200,000 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 $50,000 this
year. The uncertainty in the sugar beet industry has caused
growers to delay ordering equipment. Last year's order back-
log also included $1,685,000 of product for OEM's which was
produced in March last year. This year the equipment was
produced and sold in February 2001.
(c) Effect of New Accounting Standards
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (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 is in the process
of evaluating the potential impact of this standard, but
believes that it will be immaterial to its financial position
and results of operations.
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 16, 2001 /s/William T. Green
(William T. Green, Chief Financial Officer)
Date April 16, 2001 /s/John C. Breitung
(John C. Breitung, President)