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)