Appendix A to Item 601(c) of Regulation S-K
Commercial and Industrial Companies
Article 5 of Regulation S-X
Quarter Ended August 31, 2001
Item Number Item Description Amount
5-02(1) Cash and cash items 14,765
5-02(2) Marketable securities
5-02(3)(a)(1) Notes and accounts receivable-trade 1,361,326
5-02(4) Allowances for doubtful accounts 89,773
5-02(6) Inventory 6,901,877
5-02(9) Total current assets 8,403,088
5-02(13) Property, plant and equipment 10,661,595
5-02(14) Accumulated depreciation 8,952,692
5-02(18) Total assets 10,174,891
5-02(21) Total current liabilities 6,174,107
5-02(22) Bonds, mortgages and similar debt 3,918,215
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 3,699,723
5-02(32) Total liabilities and stockholders'
equity 10,174,891
5-03(b)1(a)Net sales of tangible products 2,615,463
5-03(b)1 Total revenues 2,615,463
5-03(b)2(a)Cost of tangible goods sold 2,102,054
5-03(b)2 Total costs and expenses applicable
to sales and revenues 497,735
5-03(b)3 Other costs and expenses 17,064
5-03(b)5 Provision for doubtful accounts
and notes 4,500
5-03(b)8 Interest and amortization of debt
discount 95,953
5-03(b)10 Loss before taxes and other items 101,843
5-03(b)11 Income tax benefit -
5-03(b)14 Loss from continuing operations 101,843
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 101,843
5-03(b)20 Loss per share-primary 0.08
5-03(b)20 Loss per share-fully diluted 0.08
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, 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 October 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
August 31, August 31, August 31, August 31,
2001 2000 2001 2000
NET SALES $2,615,463 $4,162,794 $8,015,442 $10,828,252
COST OF GOODS SOLD 2,102,054 081,460 6,391,012 8,232,291
GROSS PROFIT 513,409 1,081,334 1,624,430 2,595,961
EXPENSES:
Engineering 33,776 123,896 173,878 305,757
Selling 31,423 233,699 382,616 541,475
General and
administrative 337,036 421,127 1,085,259 1,288,421
Total 502,235 778,722 1,641,753 2,135,653
INCOME (LOSS) FROM
OPERATIONS 11,174 302,612 (17,323) 460,308
OTHER DEDUCTIONS:
Interest expense (95,953) (145,814) (325,661) (434,200)
Other (17,064) (36,444) (90,003) (101,668)
Other deductions(113,017) (182,258) (415,664) (535,868)
INCOME (LOSS) BEFORE
INCOME TAXES (101,843) 120,354 (432,987) (75,560)
INCOME TAX BENEFIT - - - -
NET INCOME (LOSS) $(101,843) $120,354 $(432,987) $(75,560)
INCOME (LOSS) PER
SHARE (NOTE 2):
Basic $ (0.08) $ 0.10 $ (0.34) $ (0.06)
Diluted $ (0.08) $ 0.10 $ (0.34) $ (0.06)
COMMON SHARES AND
EQUIVALENT OUTSTANDING:
Basic 1,298,176 1,256,351 1,273,447 1,256,351
Diluted 1,298,176 1,256,351 1,273,447 1,256,351
See accompanying notes to financial statements.
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED BALANCE SHEETS
August 31, November 30,
2001 2000
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 14,765 $ 4,375
Accounts receivable-customers,
net of allowance for doubtful accounts
of $89,773 and $76,303 in August and November,
respectively 1,271,553 1,331,308
Inventories 6,901,877 7,184,324
Other current assets 214,893 90,669
Total current assets 8,403,088 8,610,676
PROPERTY, PLANT AND EQUIPMENT,
at cost 10,661,595 10,603,061
Less accumulated depreciation 8,952,692 8,569,234
Net property, plant and equipment1,708,903 2,033,827
DEFERRED INCOME TAXES 62,900 62,900
TOTAL $ 10,174,891 $ 10,707,403
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ 2,488,839 $ 2,552,183
Current portion of long-term debt 1,141,723 1,355,023
Accounts payable 1,743,775 1,286,643
Customer deposits 120,720 127,196
Accrued expenses 679,050 987,336
Total current liabilities 6,174,107 6,308,381
LONG-TERM DEBT, excluding current portion287,653 344,609
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 2,858,795 3,291,782
4,121,814 4,864,227
Less cost of common shares in treasury of
42,602 in August and 84,427 in November 408,683 809,814
Total stockholders' equity 3,713,131 4,054,413
TOTAL $10,174,891 $ 10,707,403
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,
2001 2000
CASH FLOW FROM OPERATIONS:
Net Loss $ (432,987) $ ( 75,560)
Adjustment to reconcile net loss to net
cash provided by operations:
Depreciation and amortization 383,458 377,114
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 59,755 (351,644)
Inventories 282,447 642,284
Other Assets (124,224) 4,966
Increase (Decrease) in:
Accounts payable 457,132 214,074
Customer deposits (6,476) 10,785
Accrued expenses (308,286) (192,776)
Total adjustments 743,806 704,803
Net cash provided by operations 310,819 629,243
CASH USED IN INVESTING ACTIVITIES-
Purchases of property, plant and
equipment (58,534) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
from treasury 91,705 -
Net repayments of notes payable
to bank (63,344) (829,463)
Principal payments on long-term debt (270,256) ( 56,755)
Net cash used in financing activities (241,895) (886,218)
Net increase (decrease) in cash 10,390 (256,975)
Cash at beginning of the period 4,375 273,303
Cash at end of the period $ 14,765 $ 16,328
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 325,661 $ 434,200
Income taxes 4,276 4,790
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 third quarter and year to date
ended August 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: August 31, November 30,
2001 2000
Raw material $1,286,972 $ 1,054,509
Work-in-process 1,818,874 2,070,323
Finished goods 3,796,031 4,059,492
Total $ 6,901,877 $7,184,324
4. ACCRUED EXPENSES
Major components of accrued expenses are:
August 31, November 30,
2001 2000
Salaries, wages and commissions $ 301,089 $ 419,941
Accrued warranty expense 53,659 106,667
Other 324,302 460,728
Total $ 679,050 $ 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 August 31, 2001, the Company has
borrowings outstanding of $2,488,839 and has $100,000 in out-
standing letters of credit. At November 30, 2000 and August 31, 2001,
$212,000 and $83,700 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
(10.50% at August 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 October 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, April 15, 2001, and
June 15, 2001. On September 1, 2001, the original lender assigned
the loan agreement to a new lender who extended the agreement to
October 15, 2001. At August 31, 2001, 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
may, as a result of any event of default, accelerate the payment
of all obligations. On October 15, 2001, the new lender amended
the loan agreement to waive the covenant violation and extend the
loan to November 15, 2001. In each of these amendments, the lenders
have agreed not to exercise their rights and remedies under the loan
agreement unless there is an additional future event of default.
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
November 15, 2001, it will be unable to repay its outstanding
balance due November 15, 2001, unless its current lender grants an
extension.
A summary of the Company's long-term debt is as
follows:
August 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 (10.50%), secured by the cash,
accounts receivable, inventories
and property, plant and equipment $1,066,700 $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 $ 222,223 $ 255,556
State of Iowa Community Development
Block Grant local participation
promissory notes at 4% interest,
maturity 2006, with quarterly
payments of $7,814 $ 140,453 $ 164,076
Total long-term debt $1,429,376 $1,699,632
Less current portion of long-term debt $1,141,723 $1,355,023
Long-term debt, excluding
current portion $ 287,653 $ 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 nine months ended
August 31, 2001 was a reduction in accounts receivable and inven-
tory 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 and the purpose of capital expenditures.
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 pro-
vided an adequate reserve for uncollectible accounts based on
currently available information.
As of August 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. On September 1, 2001, the original lender assigned
the loan agreement to a new lender who extended the agreement to
October 15, 2001. At August 31, 2001, 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
may, as a result of any event of default, accelerate the payment
of all obligations. On October 15, 2001, the new lender amended
the loan agreement to waive the covenant violation and extend the
loan to November 15, 2001. In each of these amendments, the lenders
have agreed not to exercise their rights and remedies under the
loan agreement unless there is an additional future event of default.
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 November 15, 2001, it will be unable to repay its outstanding
balance due November 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 Company's ability to
successfully establish the necessary financing arrangement and to
comply with the terms thereof, and to operate at a profitable level.
(b) Results of Operations
Overall sales for the third quarter were approximately $1,547,000
lower than last year's third quarter. Sales of Art's-Way products
were $1,509,000 lower than one year ago, which reflects a weak
demand for our sugar beet equipment caused by a collapse of the
sugar beet industry. OEM sales were nearly equal to those of one
year ago.
For the nine months ended August 31, 2001, total sales were
approximatley $2,813,000 lower than the previous year. Sales of
Art's-Way branded products were $1,651,000 lower than last year.
This decease in sales occurred almost entirely in the third
quarter, again reflecting a weak demand for our sugar beet equip-
ment caused by a collapse of the sugar beet industry. OEM sales were
$1,162,000 lower than last year, reflecting 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 August 31,
2001, was 20% as compared to 26% for the same period in 2000. On a
year to date basis, gross profit for 2001 was 20% as compared to 24%
for 2000. The reduced manufacturing activity continues to put signi-
ficant 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 August 31,
2001 were approximately 36% and 23% below the previous year, respec-
tively, which directly reflects the cost reduction actions taken on
January 15, 2001. Interest expense is 34% and 25% below last year
for the quarter and year to date ending August 31, 2001, respectively,
reflecting a lower lever of borrowing. Due to the continued distressed
agricultural economy, the Company will not record any tax benefits until
the Company returns to profitability, and the Company will continue to
monitor the recoverability of the current deferred tax asset.
The order backlog as of August 31, 2001 is approximately $1,100,000
compared to $2,300,000 one year ago. These orders primarily will be
delivered by the end of the current fiscal year. The decrease in backlog
is due to decreased sugar beet equipment orders, and the fact that this
year all sugar beet equipment was delivered prior to August 31, whereas
last year a portion of the sugar beet equipment was not delivered until
after August 31.
(c) Effect of New Accounting Standards
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 140 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 31, 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 October 15, 2001 /s/William T. Green
(William T. Green, Chief Financial Officer)
Date October 15, 2001 /s/John C. Breitung
(John C. Breitung, President)