Appendix A to Item 601(c) of Regulation S-K
Commercial and Industrial Companies
Article 5 of Regulation S-X
Quarter Ended May 31, 2000
Item Number Item Description Amount
5-02(1) Cash and cash items 92,600
5-02(2) Marketable securities
5-02(3)(a)(1) Notes and accounts receivable-trade 3,129,032
5-02(4) Allowances for doubtful accounts 211,756
5-02(6) Inventory 8,422,635
5-02(9) Total current assets 11,522,127
5-02(13) Property, plant and equipment 10,627,792
5-02(14) Accumulated depreciation 8,299,028
5-02(18) Total assets 14,464,348
5-02(21) Total current liabilities 8,058,055
5-02(22) Bonds, mortgages and similar debt 5,400,533
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 6,011,077
5-02(32) Total liabilities and stockholders'
equity 14,464,348
5-03(b)1(a) Net sales of tangible products 4,231,447
5-03(b)1 Total revenues 4,231,447
5-03(b)2(a) Cost of tangible goods sold 3,246,703
5-03(b)2 Total costs and expenses applicable
to sales and revenues 659,631
5-03(b)3 Other costs and expenses 29,460
5-03(b)5 Provision for doubtful accounts
and notes (6,370)
5-03(b)8 Interest and amortization of debt
discount 151,268
5-03(b)10 Income before taxes and other items 150,755
5-03(b)11 Income tax benefit -
5-03(b)14 Loss from continuing operations 150,755
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 income 150,755
5-03(b)20 Income per share-primary 0.12
5-03(b)20 Income per share-fully diluted 0.12
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, 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 July 5, 2000:
1,256,351
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
2000 1999 2000 1999
NET SALES $4,231,447 $3,443,326 $6,665,458 $8,111,517
COST OF GOODS SOLD 3,246,703 2,590,300 5,150,831 6,332,260
GROSS PROFIT 984,744 853,026 1,514,627 1,779,257
EXPENSES:
Engineering 87,931 97,647 181,861 217,824
Selling 131,522 300,745 307,776 604,673
General and
Administrative 433,808 570,863 867,294 1,192,939
Total 653,261 969,255 1,356,931 2,015,436
INCOME (LOSS) FROM
OPERATIONS 331,483 (116,229) 157,696 (236,179)
OTHER DEDUCTIONS:
Interest expense (151,268) (111,468) (288,386) (229,307)
Other (29,460) (85,696) (65,224) (158,146)
Other deductions (180,728) (197,164) (353,610) (387,453)
INCOME (LOSS) BEFORE
INCOME TAXES 150,755 (313,393) (195,914) (623,632)
INCOME TAX BENEFIT - (109,597) - (218,181)
NET INCOME (LOSS) $ 150,755 $(203,796) (195,914) (405,451)
INCOME (LOSS) PER
SHARE (NOTE 2):
Basic $ 0.12 $ (0.16) $ (0.16) $ (0.32)
Diluted $ 0.12 $ (0.16) $ (0.16) $ (0.32)
COMMON SHARES AND
EQUIVALENT OUTSTANDING:
Basic 1,256,351 1,246,150 1,256,351 1,246,026
Diluted 1,256,351 1,246,150 1,256,351 1,246,026
See accompanying notes to financial statements.
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED BALANCE SHEETS
May 31, November 30
2000 1999
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 92,600 $ 273,303
Accounts receivable-customers,
net of allowance for doubtful accounts
of $211,756 and $223,696 in May and November,
respectively 2,917,276 2,461,502
Inventories 8,422,635 9,074,812
Other current assets 89,616 100,680
Total current assets 11,522,127 11,910,297
PROPERTY, PLANT AND EQUIPMENT,
at cost 10,627,792 10,627,792
Less accumulated depreciation 8,299,028 8,073,069
Net property, plant and equipment 2,328,764 2,554,723
DEFERRED INCOME TAXES 613,457 613,457
TOTAL $ 14,464,348 $ 15,078,477
See accompanying notes to financial statements.
May 31, November 30,
2000 1999
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ 3,520,824 $ 3,648,888
Current portion of long-term debt 1,497,901 1,640,101
Accounts payable 1,782,704 2,113,168
Customer deposits 679,685 119,861
Accrued expenses 576,941 916,428
Total current liabilities 8,058,055 8,438,446
LONG-TERM DEBT, excluding current portion 381,808 419,632
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 5,261,854 5,457,768
6,834,299 7,030,213
Less cost of common shares in treasury of
84,427 in May and November, 809,814 809,814
Total stockholders' equity 6,024,485 6,220,399
TOTAL $ 14,464,348 $ 15,078,477
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,
2000 1999
CASH FLOW FROM OPERATIONS:
Net Loss $ (195,914) $ (405,451)
Adjustment to reconcile net loss to net
cash provided by operations:
Depreciation and amortization 225,959 194,551
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (455,774) 1,088,631
Inventories 652,177 (1,600,500)
Sundry 11,064 126,696
Increase (Decrease) in:
Accounts payable (330,464) 873,764
Customer deposits 559,824 908,517
Accrued expenses (339,487) (161,371)
Income taxes, net - (165,949)
Total adjustments 323,299 1,264,339
Net cash provided by operations 127,385 858,888
CASH USED IN INVESTING ACTIVITIES -
Purchases of property, plant and equipment - (200,485)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
from treasury - 2,945
Decrease in short-term loan (270,264) (486,175)
Decrease in long-term loan (37,824) (179,909)
Net cash used in financing activities (308,088) (663,139)
Net decrease in cash (180,703) (4,736)
Cash at beginning of the period 273,303 13,743
Cash at end of the period $ 92,600 $ 9,007
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 288,386 $ 229,307
Income taxes 4,116 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 second quarter ended May 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: May 31, November 30,
2000 1999
Raw material $1,637,968 $ 1,146,456
Work-in-process 2,542,003 3,362,003
Finished goods 4,242,664 4,566,353
Total $ 8,422,635 $9,074,812
4. ACCRUED EXPENSES
Major components of accrued expenses are:
May 31, November 30,
2000 1999
Salaries, wages and commissions $ 307,643 $ 337,611
Other 269,928 578,817
Total $ 576,941 $ 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 May 31, 2000
the Company has borrowed $3,520,824 and has $100,000 in out-
standing leters of credit. At November 30, 1999 and May 31,
2000, $182,000 and $384,000 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 (12.00% at May 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 August 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. The Company has
continued to represent to the lender that they are in the
process of obtaining alternate financing. As a result, the
lender has not accelerated the payment of all obligations
at this time, even though the lender has the right to do so.
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. At May 31, 2000 the
Company is in default with one covenant, the fixed maturity
coverage ratio, of their credit facility and installment
promissory note. As a result, all long-term borrowings
associated with this lender have been classified as current.
The lender has not called for the acceleration of the payment
of all obligations, but has the right to do so at any time.
The lender has assessed an additional 2.0% interest factor to
its credit facility.
The initial term of the loan is scheduled to end on August 31,
2000. In a letter dated May 26, 2000, the Company was notified
that the lender does 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 $4,943,025 at May 31, 2000 are
due and payable on August 31, 2000.
The Company has received a non binding proposal letter from a
third party financial institution which would provide for a
revolving line of credit and term loan that would be used to
repay outstanding borrowings from the Company's current lender,
and provide for ongoing working capital needs. This proposal
does not represent a commitment level and is subject to various
conditions of approval by the new lender.
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 August 31, 2000, it will be unable
to repay its outstanding balance due August 31, 2000. However,
the Company has had discussions with its existing lender in
which the lender indicated that they do not expect to take
immediate action, but they retain the right to do so.
A summary of the Company's long-term debt is as
follows:
May 31, November 30,
2000 1999
Installment promissory note payable
in monthly installments of $23,700
plus interest at one-half percent
over the bank's national money
market rate (9.50%), secured
by the cash, accounts receivable,
inventories and property, plant
and equipment $1,422,200 $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 $ 277,778 $ 300,000
State of Iowa Community Development
Block Grant local participation
promissory notes at 4% interest,
maturity 2006, with quarterly
payments of $7,814 $ 179,731 $ 195,333
Total long-term debt $ 1,879,709 $2,059,733
Less current portion of long-term debt 1,497,901 1,640,101
Long-term debt, excluding
current portion $ 381,808 $ 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 six months ended
May 31, 2000 was a decrease in inventories and funds received
from customers representing advance payments ("customer deposits")
on equipment to be delivered in the third quarter of fiscal
year 2000. These two main sources of funds were offset partially
by an increase in receivables, a decrease in accounts payable
and a decrease in accrued liabilities. 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 May 31, 2000, 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 Company has
continued to represent to the lender that they are in the
process of obtaining alternate financing. As a result, the
lender has not accelerated the payment of all obligations
at this time, even though the lender has the right to do so.
As a result, all long-term borrowings associated with this
lender have been classified as current.
At November 30, 1999 and May 31, 2000, 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 has not called 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 Company has a credit agreement with a bank which allows
for borrowings up to $4,500,000, subject to borrowing
base percentages of 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
May 31, 2000 the Company has borrowed $3,520,824 and
has $100,000 in outstanding letters of credit. At
May 31, 2000, $383,000 was available for borrowings.
The initial term of the loan is scheduled to end on
August 31, 2000. In a letter dated May 26, 2000, the
Company was notified that the lender does 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 $4,943,025 at May 31, 2000 are due and
payable on August 31, 2000.
The Company has received a non binding proposal letter from
a third party financial institution which would provide for
a revolving line of credit and term loan that would be
used to repay outstanding borrowings from the Company's
current lender, and provide for ongoing working capital
needs. This proposal does not represent a commitment
level and is subject to various conditions of approval
by the new lender.
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 August 31, 2000,
it will be unable to repay its outstanding balance due
August 31, 2000. However, the Company has had discussions
with its existing lender in which the lender indicated
that they do not expect to take immediate action, but
they retain the right to do so.
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 May 31, 2000, total sales were 23%
higher than the quarter ended May 31, 1999. OEM sales were
143% higher and sales of Art's-Way branded equipment were
32% lower. OEM sales benefited from the sale of forage blowers.
The decline in sales of Art's-Way branded products results
from a reduced demand for feed processing products and beet
equipment production which has been shifted to the third
quarter of fiscal year 2000.
For the year to date ended May 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
improve the gross profit as a percent of sales and also to
reduce operating expenses by 33% for the quarter and year to
date ended May 31, 2000 when compared to the same periods 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 May 31, 2000 is $4,000,000 and is comparable to one year
ago. These orders will principally be delivered by the end of
the third 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 July 13, 2000 /s/William T. Green
(William T. Green, President
Executive Vice President,
Chief Financial Officer)
