Appendix A to Item 601(c) of Regulation S-K
Commercial and Industrial Companies
Article 5 of Regulation S-X
Quarter Ended February 29, 2000
Item Number Item Description Amount
5-02(1) Cash and cash items 27,537
5-02(2) Marketable securities
5-02(3)(a)(1) Notes and accounts receivable-trade 2,511,539
5-02(4) Allowances for doubtful accounts 216,096
5-02(6) Inventory 9,696,649
5-02(9) Total current assets 12,083,602
5-02(13) Property, plant and equipment 10,627,792
5-02(14) Accumulated depreciation 8,190,914
5-02(18) Total assets 15,133,937
5-02(21) Total current liabilities 8,859,474
5-02(22) Bonds, mortgages and similar debt 5,392,184
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 5,860,322
5-02(32) Total liabilities and stockholders'
equity 15,133,937
5-03(b)1(a) Net sales of tangible products 2,434,011
5-03(b)1 Total revenues 2,434,011
5-03(b)2(a) Cost of tangible goods sold 1,904,128
5-03(b)2 Total costs and expenses applicable
to sales and revenues 711,270
5-03(b)3 Other costs and expenses 35,764
5-03(b)5 Provision for doubtful accounts
and notes (7,600)
5-03(b)8 Interest and amortization of debt
discount 137,118
5-03(b)10 Loss before taxes and other items 346,669
5-03(b)11 Income tax benefit -
5-03(b)14 Loss continuing operations 346,669
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 346,669
5-03(b)20 Loss per share-primary 0.28
5-03(b)20 Loss per share-fully diluted 0.28
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 29, 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 April 5, 2000:
1,256,351
Number of Shares
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
February 29, February 28,
2000 1999
NET SALES $2,434,011 $4,668,191
COST OF GOODS SOLD 1,904,128 3,741,961
GROSS PROFIT 529,883 926,230
EXPENSES:
Engineering 93,930 120,177
Selling 176,254 303,928
General and
administrative 433,486 622,076
Total 703,670 1,046,181
LOSS FROM OPERATIONS (173,787) (119,951)
OTHER DEDUCTIONS:
Interest expense (137,118) (117,839)
Other (35,764) (72,450)
Other deductions (172,882) (190,289)
LOSS BEFORE INCOME TAXES (346,669) (310,240)
INCOME TAX BENEFIT - (108,584)
NET LOSS $ (346,669) $(201,656)
LOSS PER SHARE (NOTE 2):
Basic $ (0.28) $ (0.16)
Diluted $ (0.28) $ (0.16)
COMMON SHARES AND
EQUIVALENT OUTSTANDING:
Basic 1,256,351 1,245,931
Diluted 1,256,351 1,245,931
See accompanying notes to financial statements.
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED BALANCE SHEETS
February 29, November 30
2000 1999
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 27,537 $ 273,303
Accounts receivable-customers,
net of allowance for doubtful accounts
of $216,096 and $223,696 in
February and November,respectively 2,295,443 2,461,502
Inventories 9,696,649 9,074,812
Other current assets 63,973 100,680
Total current assets 12,083,602 11,910,297
PROPERTY, PLANT AND EQUIPMENT,
at cost 10,627,792 10,627,792
Less accumulated depreciation 8,190,914 8,073,069
Net property, plant and equipment 2,436,878 2,554,723
DEFERRED INCOME TAXES 613,457 613,457
TOTAL $ 15,133,937 $ 15,078,477
See accompanying notes to financial statements.
February 29, November 30,
2000 1999
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ 3,422,450 $ 3,648,888
Current portion of long-term debt 1,569,001 1,640,101
Accounts payable 2,509,074 2,113,168
Customer deposits 643,360 119,861
Accrued expenses 715,589 916,428
Total current liabilities 8,859,474 8,438,446
LONG-TERM DEBT, excluding current portion 400,733 419,632
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 5,111,099 5,457,768
6,683,544 7,030,213
Less cost of common shares in treasury of
84,427 in February and November, 809,814 809,814
Total stockholders' equity 5,873,730 6,220,399
TOTAL $ 15,133,937 $ 15,078,477
See accompanying notes to financial statements.
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
February 29, February 28,
2000 1999
CASH FLOW FROM OPERATIONS:
Net Loss $ (346,669) $ (201,656)
Adjustment to reconcile net loss to net
cash provided (used) by operations:
Depreciation and amortization 117,845 100,583
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 166,059 15,303
Inventories (621,837) 8,401
Sundry 36,707 15,153
Increase (Decrease) in:
Accounts payable 395,906 513,873
Customer deposits 523,499 703,250
Accrued expenses (200,839) 34,701
Income taxes, net - (112,472)
Total adjustments 417,340 1,278,792
Net cash provided by operations 70,671 1,077,136
CASH USED IN INVESTING ACTIVITIES -
Purchases of property, plant and equipment - (15,485)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term loan (297,538) (961,961)
Decrease in long-term loan (18,899) (89,938)
Net cash used in financing activities (316,437) (1,051,899)
Net (decrease) increase in cash (245,766) 9,752
Cash at beginning of period 273,303 13,743
Cash at end of the period $ 27,537 $ 23,495
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 137,117 $ 117,839
Income taxes 330 3,888
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 first quarter ended February 29, 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
net loss in 2000 and 1999, 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 29, November 30,
2000 1999
Raw material $1,646,687 $ 1,146,456
Work-in-process 3,686,754 3,362,003
Finished goods 4,363,208 4,566,353
Total $ 9,696,649 $9,074,812
4. ACCRUED EXPENSES
Major components of accrued expenses are:
February 29, November 30,
2000 1999
Salaries, wages and commissions $ 291,995 $ 337,611
Other 423,594 578,817
Total $ 715,589 $ 916,428
5. LOAN AND CREDIT AGREEMENTS
Line of Credit
In April 1998, the Company amended its revolving line of credit
agreement which also includes provisions related to the
installment promissory note presented in long-term debt below.
The lender has modified the credit agreement to allow for
borrowings up to $5,000,000, to reduce the borrowing base
percentages on the Company's accounts receivable and
inventory, and to allow 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 February 29, 2000
the Company has borrowed $3,422,450 and has $100,000 in out-
standing leters of credit. At November 30, 1999 and February 29,
2000, $182,000 and $248,000 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 (11.00% at February 29, 2000).
The amendment also provided for a restructured long-term loan
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 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 February 29, 2000 the
Company is in default with two covenants, the fixed maturity
coverage ratio and the debt to tangible net worth, 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 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 definite assurance the Company will
obtain a new credit facility.
A summary of the Company's long-term debt is as
follows:
February 29, 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 (8.50%), secured
by the cash, accounts receivable,
inventories and property, plant
and equipment $1,493,300 $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 $ 288,889 $ 300,000
State of Iowa Community Development
Block Grant local participation
promissory notes at 4% interest,
maturity 2006, with quarterly
payments of $7,814 $ 187,545 $ 195,333
Total long-term debt $ 1,969,734 $2,059,733
Less current portion of long-term debt 1,569,001 1,640,101
Long-term debt, excluding
current portion $ 400,733 $ 419,632
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 29, 2000 was an increase in accounts payable 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 inventory.
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 February 29, 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, 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 via letter dated October 20, 1999
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.
At February 29, 2000 the Company is in default with two
covenants, the fixed maturity coverage ratio and the debt
to tangible net worth, of their credit facility and
installment promissory note. The lender assessed an
additional 2.0% interest factor to its credit facility.
The lender has modified the credit agreement to allow for
borrowings up to $5,000,000, to reduce the borrowing base
percentages of the Company's accounts receivable and
inventory and to allow 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
February 29, 2000 the Company has borrowed $3,422,450 and
has $100,000 in outstanding letters of credit. At
February 29, 2000, $248,000 was available for borrowings.
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 definite assurance the Company will obtain a
new credit facility.
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) Results of Operations
Overall sales for the first quarter were down 52% from
last year's first quarter. Sales of Art's-Way products
were almost equal to one year ago; the shortfall was orders
for OEM equipment. The reduction in OEM sales was principally
due to inventory reduction strategies by our OEM customers.
Gross profit as a percent of sales improved by two per-
centage points due to favorable product mix and cost
reductions implemented December 1, 1999. These cost reductions
have reduced operating expenses for the first quarter by 33%
from the previous year's levels. Due to the continued 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 February 29, 2000 is $5,200,000 compared to $3,100,000
one year ago. These orders will 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 April 13, 2000 /s/William T. Green
(William T. Green, Interim President
Executive Vice President,
Chief Financial Officer)
