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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended November 30, 2000 Commission File No. 0-5131
ART'S-WAY MANUFACTURING CO., INC.
DELAWARE 42-0920725
____________________________ __________________________
State of Incorporation I.R.S. Employee Identification No.
Armstrong, Iowa 50514
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (712) 864-3131
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act
Common stock $.01 par value
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 for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or informational statements incorporated by reference in Part III of
this Form 10-K or any amendment to this form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of
the Registrant on February 8, 2001: $2,710,540
Number of common shares outstanding on February 8, 2001: 1,256,351.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement
for the Registrant's 2001 Annual Meeting of Stockholders to be filed
within 120 days of November 30, 2000 are incorporated by reference
into Part III.
Art's-Way Manufacturing Co., Inc.
Index to Annual Report
on Form 10-K
Part I Page
Item 1 - Description of Business 3 thru 5
Item 2 - Properties 5
Item 3 - Legal Proceedings 5
Item 4 - Submission of Matters to a Vote of Security Holders 5
Part II
Item 5 - Market for the Registrant's Common Stock and
Related Security Holder Matters 6
Item 6 - Selected Financial Statement Data 7
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 thru 12
Item 7A -Quantitative and Qualitative Disclosures
About Market Risk 12
Item 8 - Financial Statements and
Supplemental Data 12
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 12
Part III
Item 10- Directors and Executive Officers of the Registant 13
Item 11- Executive Compensation 13
Item 12- Security Ownership of Certain Beneficial Owners
and Management 13
Item 13- Certain Relationships and Related Transactions 13
Part IV
Item 14- Exhibits, Financial Statement Schedules and
Reports on Form 8-K 14
PART I
Item 1. Description of Business
(a) General Development of Business
Art's-Way Manufacturing Co., Inc. (the "Company" or "Art's-Way")
began operations as a farm equipment manufacturer in 1956. Its
manufacturing plant is located in Armstrong, Iowa.
During the past five years, the business of the Company has
remained substantially the same.
(b) Financial Information About Industry Segments
In accordance with accounting principles, generally accepted
in the United States of America, Art's-Way has only one industry
segment, metal fabrication.
(c) Narrative Description of Business
The Company manufactures specialized farm machinery under its own
and private labels.
Equipment manufactured by the Company under its own label includes:
portable and stationary animal feed processing equipment and related
attachments used to mill and mix feed grains into custom animal
feed rations; a high bulk mixing wagon to mix animal feeds
containing silage, hay and grain; a line of mowers, stalk shredders;
minimum till seed bed preparation equipment; sugar beet and potato
harvesting equipment; a line of land maintenance equipment,
a line of grain wagons, edible bean equipment, grain drill equipment
and hi-dump wagons.
Private label manufacturing of farm equipment accounted for 31%, 30%,
and 43% of total sales for the years ended November 30, 2000, 1999
and 1998 respectively. The Company estimates private label
manufacturing for the next twelve months to be approximately 28% of
sales.
Art's-Way labeled products are sold through farm equipment dealers
throughout the United States. There is no contractual relationship
with these dealers to distribute our products and dealers may sell
a competitor's product line but are discouraged from doing so.
Raw materials are acquired from domestic sources and normally are
readily available.
The Company maintains patents and manufacturing rights on several
of its products covering unique aspects of design and has trademarks
covering product identification. Royalties are paid by the Company
for use of certain manufacturing rights. The validity of its patents
has not been judicially determined and no assurance can be given as
to the extent of the protection that the patents afford. In the
opinion of the Company, its patents, trademarks and licenses are of
value in securing and retaining business. The Company currently has
three patents that expire in various years beginning in 2001 through
2012. The Company believes that patents expiring in 2001 will have
no effect on the Company's business.
The Company's agricultural products are seasonal; however, with
recent additional product purchases and the development of mowers,
shredders, beet and potato harvesting machinery, coupled
with private labeled products, the impact of seasonality has been
decreased because the peak periods occur at different times. In
common with other manufacturers in the farm equipment industry,
the Company's business is affected by factors peculiar to the farm
equipment field, including items such as fluctuations in farm
income resulting from commodity prices, crop damage caused by
weather and insects, government farm programs, and other
unpredictable variables such as interest rates.
The farm equipment industry has a history of carrying significant
inventory at dealers locations. The Company's beet, shredder and
potato product lines are sold with extended payment terms, however,
the remainder of the product lines are normally sold with 30 day
terms.
The Company has an OEM supplier agreement with Case Corporation.
Under the OEM agreement the Company has agreed to supply Case's
requirements for certain feed processing, tillage equipment and
service parts under Case's label. The agreement has no minimum
requirements and can be cancelled upon certain conditions.
For the years ended November 30, 2000, 1999 and 1998,
sales to Case aggregated approximately 22%, 30%, and 40%
of total sales, respectively.
The backlog of orders on February 9, 2001 was approximately
$1,900,000 compared to approximately $5,000,000 a year ago. The
decrease is a combination of Art's-Way branded products and
OEM products. The order backlog is expected to be shipped
during the current fiscal year.
The Company currently does no business with any local, state or
federal government agencies.
The feed processing products, including private labeled units,
compete with similar products of many other manufacturers. There
are estimated to be more than 20 competitors producing similar
products although total market statistics are not available. The
Company's products are competitively priced with greater diversity
than most competitor product lines. Beet harvesting equipment is
manufactured by four companies that have a significant impact on the
market. The Company's share of this market is estimated to be
about 55%. Other products such as mowers, shredders, grain drills
and grain wagons are manufactured by approximately 25 other companies;
however, the Company believes its products are competitively priced
and their quality and performance are above average in a market
where price, product performance and quality are principal elements.
The Company is engaged in experimental work on a continual basis
to improve the present products and create new products. Research
costs for the current fiscal year were primarily expended on the
development of a new potato harvester and the continuing development
of beet harvesting equipment. All research costs are expensed as
incurred. Such costs approximated $302,000, $310,000 and $385,000
for the years ended November 30, 2000, 1999 and 1998, respectively.
(See also Note 1 to the Financial Statements).
The Company is subject to various federal, state and local laws and
regulations pertaining to environmental protection and the discharge
of materials into the environment. The Company does not anticipate
that they will have future expenses or capital expenditures relating
to compliance with such regulations.
During the year ended November 30, 2000, the Company had peak
employment of 137 full-time employees,of which 107 were factory
and production employees, 10 were engineers and engineering draftsman,
17 were administrative employees and 3 were in sales and sales
management. Employee levels tend to fluctuate based upon the
seasonality of the product line.
The Company's employees are not unionized. There has been no work
stoppage in the Company's history and no stoppage is, or has been,
threatened. The Company believes its relationship with its employees
is good.
(d) Financial Information about Foreign and Domestic Operation
and Export Sales
The Company has no foreign operations; its export sales, primarily
to Canada, accounted for less than 1% of sales and less than 1%
of operating loss in the years ended November 30, 2000, 1999
and 1998.
Item 2. Properties
The existing executive offices, production and warehousing
facilities of Art's-Way are built of hollow clay block/concrete
and contain approximately 240,000 square feet of usable space.
Most of these facilities have been constructed since 1965 and
are in good condition. The Company owns approximately 132
acres of land west of Armstrong, Iowa, which includes the factory
and inventory storage space. The Company currently leases excess
land to third parties for farming.
Item 3. Legal Proceedings
Various legal actions and claims are pending against the Company
consisting of ordinary routine litigation incidental to the
business. In the opinion of management, adequate provisions
have been made in the accompanying financial statements for
all pending legal actions and other claims. (See also Note 10
to Financial Statements.)
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
(a) Price Range of Common Stock
Per Share Common Stock Bid Prices by Quarter
Year Ended Year Ended
November 30,2000 November 30, 1999
High Low High Low
First Quarter 4.219 3.500 5.875 5.000
Second Quarter 4.125 3.000 5.250 4.000
Third Quarter 4.000 3.250 5.375 3.750
Fourth Quarter 3.500 3.000 4.250 3.000
The Common Stock trades on The NASDAQ Small Cap Stock Market under the
symbol ARTW. The range of closing bid prices shown above is as reported
by Small Cap NASDAQ.The quotations shown reflect inter-dealer prices,
without retail mark-up, markdown or commission and may not necessarily
represent actual transactions.
(b) Approximate Number of Equity Security Holders
Approximate number of
Title of Class Round Lot Shareholders as of February 12,2001
Common Stock, $.01
Par Value 400
(c) Dividend Policy
Holders of Common Stock of the Company are entitled to a pro rata share of
any dividends as may be declared from time to time from funds available and
to share pro rata in any such distributions available for holders of
Common Stock upon liquidation of the Company. The Company has not paid a
dividend during the past five years.
Item 6. Selected Financial Statement Data
The following tables set forth certain information concerning the Income
Statements and Balance Sheets of the Company and should be read in
conjunction with the Financial Statements and the notes thereto
appearing elsewhere in this Report.
(a) Selected Income Statement Data (In Thousands of Dollars,
Except Per Share Amounts)
Year Year Year
Ended Ended Ended
Nov. 30 Nov. 30, Nov. 30,
2000 1999 1998
Net Sales $14,229 $17,227 $23,633
Net Income (Loss) $(2,166) $ (630) $ (324)
Income (Loss)
Per Share:
Basic $ (1.72) $ (.50) $ (.26)
Diluted $ (1.72) $ (.50) $ (.26)
Common Shares
and Equivalents
Outstanding:
Basic 1,256,351 1,248,456 1,245,931
Diluted 1,256,351 1,248,456 1,245,931
(a) Selected Balance Sheet Data (In Thousands of Dollars, Except Per
Share Amounts)
Nov.30, Nov.30 Nov.30
2000 1999 1998
Total Assets $10,707 $15,078 $16,854
Long-Term Debt $ 345 $ 420 $ 2,160
Dividends Per Share $ .00 $ .00 $ .00
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations may be deemed to include forward-looking
statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, that involve risk and uncertainty. Although the
Company believes that its expectations are based on reasonable assumptions,
it can give no assurance that its expectations will be achieved.
The important factors that could cause actual results to differ
materially from those in the forward-looking statements below
("Cautionary Statements") include the Company's degree of financial
leverage, the factors described in Item 1(c) of this report, risks
associated with acquisitions and in the integration thereof, risks
associated with supplier/OEM agreements, dependence upon the farm
economy and the impact of competitive services and pricing, as
well as other risks referenced from time to time in the Company's
filings with the SEC. All subsequent written and oral forward-
looking statements attributable to the Company or persons acting
on its behalf are expressly qualified in their entirety by the
Cautionary Statements. The Company does not undertake any
obligation to release publicly any revisions to such forward-looking
statements to reflect events or circumstances after the date
of this report or to reflect the occurrence of unanticipated events.
The following discussion and analysis of financial condition
and results of operations of the Company are based on the
Financial Statements and the notes thereto included herein.
(a) and (b) Liquidity and Capital Resources
Twelve months ended November 30, 2000
The Company's main source of funds was a reduction in accounts
receivable and inventories. The accounts receivable decrease
results primarily from the lower sales volume. The decrease in
inventories results from the lower sales volume combined with
concentrated efforts to reduce inventory levels. The positive
cash flow from operations allowed for the reduction
in bank borrowings. There were no capital expenditures during
the fiscal year ended November 30, 2000.
Twelve months ended November 30, 1999
The Company's main source of funds was a reduction in accounts
receivable and inventories. The accounts receivable decrease
results primarily from the lower sales volume. The decrease in
inventories results from the lower sales volume offset partially by
the acquisition of new product lines in fiscal year 1999. The
positive cash flow from operations allowed for the reduction in
bank borrowings. Capital expenditures were entirely for production
equipment.
Twelve months ended November 30, 1998
The Company's main source of funds was additional bank borrowings. The
main uses of funds by operating activities were increases in accounts
receivable and inventory. The accounts receivable increase results from
a slower payment pattern for our own branded equipment which increased
the days outstanding from 54 days to 58 days. Inventory increased due
primarily to Case tillage equipment production scheduled for December
1998. Expenditures for capital equipment were $518,000 including
$300,000 to upgrade computer hardware and software. The balance of the
expenditures was spent on production equipment.
Capital Resources
The Company has a loan agreement with a bank that provides for a
revolving line of credit and a long-term loan.
The revolving line of credit 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, 2000 the Company has borrowed $2,552,183 and has
$100,000 in outstanding letters of credit. At November 30, 1999 the
Company had borrowed $3,648,888 and had $100,000 in outstanding letters
of credit. At November 30, 2000 and 1999, $212,000 and $182,000 were
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 3.00% of the referenced
rate and a minimum of plus zero (12.50% at November 30, 2000).
The long-term loan was for an original principal amount of $1,991,000.
The principal amount is repayable in monthly installments of $23,700 with
the remaining balance due April 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.
At November 30, 2000 and 1999, 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.
As a result, all long-term borrowings associated with this lender
had been classified as current. The lender did not call for the
acceleration of the payment of all obligations, but retained the right
to do so at any time.
The initial term of the loan agreement ended on August 31, 2000.
In a letter dated May 26, 2000 the Company was notified that the
lender did 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
$4,383,825 at August 31, 2000 were due and payable on August 31, 2000.
On August 31, 2000 the loan agreement was amended and the lender
agreed not to exercise its rights and remedies under the loan
agreement until October 15, 2000 and to extend the maturity date
of the loan agreement to October 15, 2000.
Effective October 15, 2000 the loan agreement was amended. As part
of this amendment, the lender agreed not to exercise its rights and
remedies under the loan agreement unless there was a future event
of default or January 15, 2001 passed, whichever occured earlier.
The amendment also extended the maturity date of the loan agreement
to January 15, 2001.
Effective January 15, 2001 the loan agreement was amended. As part
of this amendment, the lender agreed not to exercise its rights
and remedies under the loan agreement unless there was a future
event of default or February 15, 2001 passed, whichever occurred
earlier. The amendment also extended the maturity date of the
loan agreement to February 15, 2001.
Effective February 15, 2001 the loan agreement was amended. As part
of this amendment, the lender agreed not to exercise its rights
and remedies under the loan agreement unless there is a future
event of default or April 15, 2001 passes, whichever occurs
earlier. The amendment also extended the maturity date of the
loan agreement to April 15, 2001.
The Company continues to pursue financing with other lending
institutions and explore different alternate financing arrangements.
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.
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 April 15, 2001, it will be unable to repay its out-
standing balance due April 15, 2001.
The Company's current ratio and its working capital are as shown in the
following table:
November 30, November 30, November 30,
2000 1999 1998
Current Assets $8,610,676 $11,910,297 $14,131,370
Current Liabilities $6,308,381 $ 8,438,446 $ 7,884,736
Working Capital $2,302,295 $ 3,471,851 $ 6,246,634
Current Ratio 1.4 1.4 1.8
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.
(c) Results of Operations
Twelve months ended November 30, 2000 compared to the twelve months
ended November 30, 1999
Revenue decreased 17% to $14,229,000 from $17,227,000 while the
Company recorded a net loss of $2,166,000 ($1.72 per share) compared
to a net loss of $630,000 ($.50 per share) in the prior year.
Revenues from Art's-Way branded products were down 18% while
OEM sales decreased 16%. The reduction in sales reflects the
continuing weakness in the farm economy. The agricultural niche
markets the Company serves were all hit very hard by declining
prices in both livestock and commodities. The sugar beet industry
has suffered from over production and increasing competition
from the sugar cane industry and competition from foreign sources.
These market situations and a general lack of confidence by
U.S. farmers in the direction the U.S. agricultural industry
will move has adversely affected the Company. The one main area
of good activity was the cattle industry where increased demand
for beef caused an increase in beef cattle prices, which
resulted in good demand for our feed processing equipment.
Gross profit as a percent of sales decreased from 23% for the
year ended November 30, 1999 to 17% for the year ended
November 30, 2000. This decrease was primarily due to selling
old inventory at distressed prices and a $780,000 inventory
valuation writedown to realign the inventory values to current
market conditions in the agricultural industry. Manufacturing
costs were approximately $1,000,000 lower in fiscal year 2000
than in 1999 due to the cost reduction measures implemented
December 1, 1999.
Operating expenses were down $675,000 from the previous year
even after recognizing approximately $189,000 in bad debt
expense associated with customers struggling or going out of
business in the distressed agriculture economy. This reduction
in operating expenses was due to the cost reduction measures
implemented December 1, 1999.
Other deductions decreased slightly from the previous year.
Interest on lower bank borrowings was offset by higher interest
rates. Lower costs on the Company's program to offer floor
plan financing to our larger dealers reflects the reduced
sales levels.
The Company has implemented cost reduction programs that have
reduced its work force from 123 to 97, which, when combined
with other cost reductions, will reduce manufacturing and
operating overhead by approximately $1,200,000. Other cost
reductions include reduced manufacturing costs accomplished
through manufacturing efficiency improvement programs,
reduced warranty costs accomplished through quality programs
and other variable cost controlling initiatives. The
Company is now structured to be more market responsive and
profitable. Additionally, there are opportunities to supply
major OEM's with their branded products and to build
component parts for other manufacturing companies. These
actions will serve to return the Company to profitability
in fiscal year 2001.
The Company believes the current farm economy has reduced
the number of our competitors, our core business has
bottomed out and, with our diversification efforts, feel
we are now positioned to move back to a growth mode.
Twelve months ended November 30, 1999 compared to the twelve
months ended November 30, 1998
Revenue decreased 27% to $17,200,000 from $23,600,000 while
the Company recorded a net loss of $630,000 ($.50 per share)
compared to a net loss of $324,000 ($.26 per share) in the
prior year. Revenues from Art's-Way branded products were
down 12% while OEM sales decreased 93%. The Art's-Way
reduction in revenue resulted from lower demand for Art's-Way
branded products. The OEM reduction in revenue was primarily
the result of the Company's large OEM customer instituting
inventory reduction programs due to the distressed agriculture
economy.
Gross profit percent improved from 21% in 1998 to 24% in 1999
mainly due to the higher proportion of Art's-Way branded
products, which generally carry a higher standard margin,
combined with improved manufacturing efficiencies.
Operating expenses were down $590,000 from the previous year.
Lower engineering expenses reflect less new product
development costs, lower selling expenses reflect lower
level of sales, while lower general and administrative
expenses in 1999 reflect a significant increase in bad
debt reserve in 1998 to cover the adverse potato market
conditions. Overall, operating expenses as a percentage
of sales increased from 20% in 1998 to 24% in 1999.
A lower level of borrowings resulted in lower interest
costs. Other expenses decreased $74,000. Higher costs on
the Company's program to offer floor plan financing to
our larger dealers through a third party was offset by
a debt forgiveness on some of the Company's State of
Iowa Community Development Block Grant loans. The EDSA
loan agreement provided that if the Company met certain
contract obligations in regard to job creation/retention,
demonstrating 51% benefit to low and moderate-income
individuals and investment, $100,000 of the debt would be
forgiven. Upon compliance with this provision during
1999, the Company's long-term borrowings of $100,000
were forgiven and included in other income.
Utilization of Deferred Tax Assets
The Company has established a deferred tax asset valuation
allowance of approximately $1,258,000 and $166,000 at
November 30, 2000 and 1999 respectively, due to the
uncertainty of realizing various NOL and tax credit
carryforwards. There was no valuation allowance for deferred
tax assets at November 30, 1998. In assessing the
realizability of deferred tax assets for these
years, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income
during the periods in which those temporary differences
become deductible. Based upon the reversal of deferred tax
liabilities, the expiration dates of tax credits and carry-
forwards and projected future taxable income, management
believes it is more likely than not the Company will realize
the benefits of the November 30, 2000 net deferred tax assets.
See also Note 9 to the Financial Statements.
(d) 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, and is not effective for the Company until
January 1, 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk, primarily from changes
in interest rates, associated with the variable rates on its
debt and its accounts receivable financing.
Item 8. Financial Statements and Supplemental Data
Financial Statements and Supplemental Data for the years ended
November 30, 2000, 1999 and 1998, are presented
in a separate section of this Report following Part IV.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
Not Applicable.
PART III
Item 10. Directors and Executive Officers
The information required by Item 10 is incorporated by reference from
the definitive Proxy Statement to be filed, pursuant to Regulation 14A,
within 120 days after November 30, 2000 and is included as Exhibit 99.1
hereto and incorporated herein by this reference.
Item 11. Executive Compensation
The information required by Item 10 is incorporated by reference from
the definitive Proxy Statement to be filed pursuant to Regulation 14A,
within 120 days after November 30, 2000 and is included as Exhibit
99.1 hereto and incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 10 is incorporated by reference from
the definitive Proxy Statement to be filed pursuant to Regulation 14A,
within 120 days after November 30, 2000 and is included as Exhibit
99.1 hereto and incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions
The information required by Item 10 is incorporated by reference from
the definitive Proxy Statement to be filed pursuant to Regulation 14A,
within 120 days after November 30, 2000 and is included as Exhibit
99.1 hereto and incorporated herein by this reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K:
(a) Index to Financial Statements and Schedules
See index to financial statements and supporting schedules on page F-2.
(b) Reports on Form 8-K
No current Reports on Form 8-K have been filed during the last fiscal
quarter of the period covered by this Report.
(c) Index to Exhibits
Any exhibits filed with Securities and Exchange Commission will be
supplied upon written request of William T. Green, Executive
Vice President, Finance, Art's-Way Manufacturing Co., Inc.,
Highway 9 West, Armstrong, Iowa 50514. A charge will be made to
cover copying costs. See Exhibit Index below.
Exhibits Required to be Filed
Number Exhibit Description
2 Agreement and Plan of Merger for Reincorporation of
Company in Delaware. Incorporated by reference to
Exhibit 2 of Annual Report on Form 10-K for the year
ended May 27, 1989.
3 Certificate of Incorporation and By-laws for Art's-Way
Manufacturing Co., Inc. Incorporated by reference to
Exhibit 3 of Annual Report on Form 10-K for the year
ended May 27, 1989.
10 Incorporated by reference are the Material Contracts
filed as Exhibit 10 of the Annual Report on Form 10-K
for the fiscal year ended May 30, 1981.
10.1 Art's-Way Manufacturing Co., Inc. 401 (k) Savings Plan.
Incorporated by reference to Exhibit 28 (a) to the
Art's-Way Manufacturing Co., Inc. Registration Statement
on Form S-8 filed on October 23, 1992.
10.2 Art's-Way Manufacturing Co., Inc. Employee Stock Option
Plan (1991). Incorporated by reference to Exhibit "A"
to Proxy Statement for Annual Meeting of Stockholders
held on October 15, 1991.
10.3 Art's-Way Manufacturing Co., Inc. Director Stock Option
Plan (1991). Incorporated by reference to Exhibit "B"
to Proxy Statement for Annual Meeting of Stockholders
held on October 15, 1991.
10.4 Asset Purchase Agreement between the Company and J. Ward
McConnell, Jr., and Logan Harvesters, Inc. Incorporated
by reference to Current Report on Form 8-K dated September
6, 1996.
99.1 Proxy Statement for 2000 Annual Meeting to be filed on or
before 120 days after November 30, 2000.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Art's-Way Manufacturing Co., Inc.:
We have audited the accompanying financial statements of
Art's-Way Manufacturing Co., Inc. (the Company) as listed in the
accompanying index on page F-2. In connection with our audits of
the financial statements, we have also audited the financial statement
schedules as listed in the accompanying index. These financial
statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
the Company at November 30, 2000 and 1999, and the results of its
operations and its cash flows for the years ended November 30, 2000,
1999 and 1998, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion,
the related financial statement schedule, when considered in
relation to the financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 14 to the financial statements, the Company has suffered
recurring losses from operations and has an approaching debt
maturity date that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to
these matters are described in Note 14. The financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
KPMG LLP
Omaha, Nebraska
January 12, 2001, except
as to note 14, which is
as of February 23, 2001
ART'S-WAY MANUFACTURING CO., INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS
Statements of Operations -
Years ended November 30, 2000, 1999 and 1998, ................. F-3
Balance Sheets -
November 30, 2000 and 1999 .................................... F-4 - F-5
Statements of Stockholders' Equity -
Years ended November 30, 2000, 1999and 1998 ................... F-6
Statement of Cash Flows -
Years ended November 30, 2000,1999 and 1998 ................... F-7
Notes to Financial Statements -
Years ended November 30, 2000, 1999 and 1998................... F-8 - F-17
SCHEDULE SUPPORTING FINANCIAL STATEMENTS
Schedule VII - Valuation and Qualifying Accounts............. S-1
All other schedules have been omitted as the required information is not
applicable or the information is included in the financial statements
or related notes.
ART'S-WAY MANUFACTURING CO., INC.
STATEMENTS OF OPERATIONS
YEARS ENDED
November 30, November 30, November 30,
2000 1999 1998
NET SALES $14,229,178 $ 17,226,760 $23,632,927
COST OF GOODS SOLD 11,867,404 13,299,177 18,636,315
GROSS PROFIT 2,361,774 3,927,583 4,996,612
EXPENSES:
Engineering 439,511 439,666 632,541
Selling 701,289 1,234,599 1,463,497
General and
administrative 2,128,164 2,269,710 2,632,512
Total expenses 3,268,964 3,943,975 4,728,550
LOSS FROM OPERATIONS (907,190) (16,392) 268,062
OTHER DEDUCTIONS:
Interest expense (559,785) (525,237) (558,988)
Other (148,454) (196,544) (270,397)
Net deductions (708,239) (721,781) (829,385)
LOSS BEFORE
INCOME TAXES (1,615,429) (738,173) (561,323)
INCOME TAX EXPENSE
(BENEFIT) 550,557 (108,247) (237,435)
NET LOSS $(2,165,986) $(629,926) $(323,888)
LOSS PER SHARE
Basic $ (1.72) $ (0.50) $ (0.26)
Diluted (1.72) (0.50) (0.26)
COMMON SHARES AND
EQUIVALENT OUTSTANDING:
Basic 1,256,351 1,248,456 1,245,931
Diluted 1,256,351 1,248,456 1,245,931
See accompanying notes to financial statements.
ART'S-WAY MANUFACTURING CO., INC.
BALANCE SHEETS
November 30, November 30,
2000 1999
ASSETS
CURRENT ASSETS:
Cash $ 4,375 $ 273,303
Accounts receivable-customers,
net of allowance for doubtful accounts
of $76,303 and $223,696
in 2000 and 1999
respectively 1,331,308 2,461,502
Inventories 7,184,324 9,074,812
Other current assets 90,669 100,680
Total current assets 8,610,676 11,910,297
PROPERTY, PLANT AND EQUIPMENT,
at cost 10,603,061 10,627,792
Less accumulated depreciation 8,569,234 8,073,069
Net property, plant and equipment 2,033,827 2,554,723
DEFERRED INCOME TAXES 62,900 613,457
TOTAL $ 10,707,403 $ 15,078,477
See accompanying notes to financial statements.
November 30, November 30,
2000 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ 2,552,183 $ 3,648,888
Current portion of long-term debt 1,355,023 1,640,101
Accounts payable 1,286,643 2,113,168
Customer deposits 127,196 119,861
Accrued expenses 987,336 916,428
Total current liabilities 6,308,381 8,438,446
LONG-TERM DEBT, excluding current
portion 344,609 419,632
Total liabilities 6,652,990 8,858,078
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 3,291,782 5,457,768
4,864,227 7,030,213
Less cost of common shares in treasury of
84,427 809,814 809,814
Total stockholders' equity 4,054,413 6,220,399
TOTAL $10,707,403 $15,078,477
See accompanying notes to financial statements.
ART'S-WAY MANUFACTURING CO., INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED NOVEMBER 30, 2000, 1999 AND 1998
Additional
Number of Stated/ Paid-In Retained Treasury
Shares Par Value Capital Earnings Stock Total
BALANCE, NOVEMBER 30, 1997
1,245,931 $13,408 $1,618,453 $6,411,582 $(909,749)$7,133,694
Net Loss - - (323,888) - (323,888)
BALANCE, NOVEMBER 30, 1998
1,245,931 13,408 1,618,453 6,087,694 (909,749) 6,809,806
Net Loss - - (629,926) - (629,926)
Shares reissued from treasury
10,420 - (59,416) - 99,935 40,519
BALANCE, NOVEMBER 30, 1999
1,256,351 $13,408 $1,559,037 $5,457,768 $(809,814)$6,220,399
Net loss - - (2,165,986) - (2,165,986)
BALANCE NOVEMBER 30, 2000
1,256,351 $13,408 $1,559,037 $3,291,782 $(809,814)$4,054,413
See accompanying notes to financial statements.
ART'S-WAY MANUFACTURING CO., INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED
Nov.30, Nov.30, Nov.30,
2000 1999 1998
CASH FLOWS FROM OPERATIONS:
Net loss $ (2,165,986) $(629,926) $(323,888)
Adjustments to reconcile net
income (loss) to net cash provided
(used) by operating activities:
(Gain)loss on sale of property, plant
and equipment (6,616) (6,650) 6,798
Depreciation and amortization 517,462 579,931 481,176
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 1,130,194 1,294,329 (749,994)
Inventories 1,890,488 313,449 (633,792)
Income taxes recoverable - 49,000 50,000
Other current assets 10,011 174,464 (120,969)
Increase (decrease) in:
Accounts payable (826,525) 232,770 (189,186)
Customer deposits 7,335 7,959 5,109
Accrued expenses 70,908 (247,843) 374,887
Deferred income taxes 550,557 (105,015) (159,145)
Net cash provided (used)
by operating activities 1,177,828 1,662,468 (1,259,004)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment - (270,801) (518,445)
Proceeds from sale of property,
plant and equipment 10,050 6,650 1,850
Net cash provided by (used in)
investing activities 10,050 (264,151) (516,595)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments of)
notes payable to bank (1,096,705) (719,415) 1,196,007
Proceeds from long-term debt - - 1,008,800
Principal payments on
long-term debt (360,101) (459,861) (424,157)
Proceeds from issuance of common
stock from treasury - 40,519 -
Net cash provided by (used in)
financing activities (1,456,806) (1,138,757) 1,780,650
Net increase (decrease) in cash (268,928) 259,560 5,051
Cash at beginning of period 273,303 13,743 8,692
Cash at end of period $ 4,375 273,303 $ 13,743
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $ 559,785 $ 525,237 $ 558,988
Income taxes 4,790 3,952 2,094
See accompanying notes to financial statements.
ART'S-WAY MANUFACTURING CO., INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is primarily engaged in metal fabrication and the
sale of its products in the agricultural sector of the economy.
Major products include animal feed processing products, sugar
beet and potato products, and land maintenance products.
INVENTORIES
Inventories are stated at the lower of cost or market, and cost is
determined using the first-in, first-out (FIFO) method or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation of
plant and equipment is provided using the straight-line method,
based on estimated useful lives of the assets which range from three
to thirty-three years.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating losses.
Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences
are expected to be recovered or settled. A valuation allowance is
established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred. Such
costs approximated $302,000, $310,000 and $385,000 for the years
ended November 30, 2000, 1999 and 1998 respectively.
INCOME (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 2000, 1999 and 1998,
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.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES
The Company has entered into an agreement whereby it can sell
accounts receivable to a financial institution. The agreement
provides for the Company to pay monthly interest on the face
amount of each invoice at a rate of 2.75% over the prime rate
from the date of the invoice for 180 days, or the date of customer
payment, whichever occurs first. The buyer is responsible for
servicing the receivables, and has recourse to the Company for
receivables outstanding greater than 180 days. Under SFAS No. 125,
the sale of the receivables are reflected as a reduction of
trade accounts receivable. At November 30, 2000 and 1999, there
were $863,000 and $1,419,000, respectively, of receivables
outstanding which the Company has sold relating to this agreement.
STOCK BASED COMPENSATION
The Company accounts for stock options in accordance with the
provisions of APB Opinion No. 25, Accounting for Stock issued
to Employees, and related interpretations. As such, compensation
expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise
price. Accordingly, the Company has not recognized compensation
expense for its options granted in the years ended November 30, 2000,
1999 and 1998. SFAS Statement No. 123, Accounting for Stock-
Based Compensation, permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards
on the date of grant. FASB Statement No. 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and income per share disclosure for
employee stock option grants made in 1996 and future years as if
the fair-value-based method defined in FASB Statement No. 123
had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of FASB Statement No. 123. See note 7 for
additional discussion and pro-forma disclosures.
USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions related to the reported amount of assets and liabilities,
reported amount of revenues and expenses, and the disclosure of
contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in prior year's financial statements and related
notes have been reclassified to conform to the 2000 presentation.
2. INVENTORIES
Major classes of inventory are:
November 30, November 30,
2000 1999
Raw materials $ 1,054,509 $1,146,456
Work in process 2,070,323 3,362,003
Finished goods 4,059,492 4,566,353
Total $7,184,324 $9,074,812
3. PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant
and equipment, at cost, are: November 30, November 30,
2000 1999
Land $ 180,909 $ 180,909
Buildings and improvements 2,615,573 2,615,573
Manufacturing machinery and
equipment 7,555,774 7,555,774
Trucks and automobiles 130,923 155,654
Furniture and fixtures 119,882 119,882
Total $ 10,603,061 $ 10,627,792
4. ACCRUED EXPENSES
Major components of accrued expenses are:
November 30, November 30,
2000 1999
Salaries, wages and commissions $ 419,941 $ 337,611
Accrued warranty expense 106,667 100,000
Other 460,728 478,817
Total $ 987,336 $ 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
limitations related to the Company's accounts receivable
and inventory, and allowing for letters of credit for
$100,000. At November 30, 2000 the Company has borrowed
$2,552,183 and has $100,000 in outstanding letters of credit.
At November 30, 1999 the Company had borrowed $3,648,888
and had $100,000 in outstanding letters of credit. At
November 30, 2000 and 1999, $212,000 and $182,000 were
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
3.00% of the referenced rate and a minimum of plus zero
(12.50% at November 30, 2000).
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 remaining balance due February 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.
At November 30, 2000 and 1999, 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. As a result, all long-term borrowings associated with
this lender had been classified as current. The lender did not call
for the acceleration of the payment of all obligations, but had
the right to do so at any time.
The initial term of the loan expired on August 31, 2000. In a letter
dated May 26, 2000 the Company was notified that the lender did
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
$4,383,825 at August 31, 2000 were due and payable on August 31, 2000.
On August 31, 2000 the loan agreement was amended and the lender
agreed not to exercise its rights and remedies under the loan
agreement until October 15, 2000 and to extend the maturity date
of the loan agreement to October 15, 2000.
Effective October 15, 2000 the loan agreement was amended. As part
of this amendment, the lender agreed not to exercise its rights and
remedies under the loan agreement unless there was a future event
of default or January 15, 2001 passed, whichever occured earlier.
The amendment also extended the maturity date of the loan agreement
to January 15, 2001.
Effective January 15, 2001 the loan agreement was amended. As part
of this amendment, the lender agreed not to exercise its rights
and remedies under the loan agreement unless there was a future
event of default or February 15, 2001 passed, whichever occurred
earlier. The amendment also extended the maturity date of the
loan agreement to February 15, 2001.
Effective February 15, 2001 the loan agreement was amended. As part
of this amendment, the lender agreed not to exercise its rights
and remedies under the loan agreement unless there is a future
event of default or April 15, 2001 passes, whichever occurs
earlier. The amendment also extended the maturity date of the
loan agreement to April 15, 2001.
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 April 15, 2001, it will be unable to repay its
outstanding balance due April 15, 2001.
Long-term Debt
A summary of the Company's long-term debt is as follows:
November 30, November 30,
2000 1999
Installment promissory note
payable in monthly installments
of $23,700 plus interest at
two and one-half percent
over the bank's national money market
rate, (11.00%), secured (a) $ 1,280,000 $ 1,564,400
State of Iowa Community Development
Block Grant promissory notes at
zero percent interest, maturity
2006 with quarterly principal
payments of $11,111 255,556 300,000
State of Iowa Community Development
Block Grant local participation
promissory notes at 4% interest,
maturity 2006, with quarterly
payments of $7,814. 164,076 195,333
Total long-term debt 1,699,632 2,059,733
Less current portion of
long-term debt 1,355,023 1,640,101
Long-term debt, excluding
current portion $ 344,609 $ 419,632
(a) All borrowings under the installment note payable are secured by
the cash, accounts receivable, inventories and property, plant and
equipment of the Company. The agreement requires the Company to
maintain specified ratios, as defined, of debt-to-tangible net worth
and net cash income to current maturities. Retained earnings of
$3,291,782 are restricted and are not available for the payment of
dividends.
A summary of the minimum maturities of long-term debt follows:
Year Amount
2001 $1,335,023
2002 $72,475
2003 $72,750
2004 $73,034
2005 $73,334
Thereafter $53,016
6. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution 401(k) savings plan
which covers substantially all full-time employees who must meet
eligibility requirements. Participating employees may contribute
as salary reductions a minimum of 4% of their compensation up to
the limit prescribed by the Internal Revenue Code. The Company may
make matching contributions at a discretionary percent upon the
approval from the Board of Directors. No contributions were made
by the Company in the year ended November 30, 2000. Company
contributions were approximatly $32,000 and $170,000 for the years
ended November 30, 1999 and 1998 respectively.
7. STOCK OPTION PLANS
Under the 1991 Employee Option Plan, stock options may be granted
to key employees to purchase shares of common stock of the Company
at a price not less than its fair market value at the date the
options are granted. Options granted may be either nonqualified
or incentive stock options. The option price, vesting period and
term are set by the Compensation Committee of the Board of Directors
of the Company. Options for an aggregate of 100,000 shares of common
stock may be granted. Each option will be for a period of ten years
and may be exercised at a rate of 25% at the date of grant and 25%
on the first, second and third anniversary date of the grant on a
cumulative basis. At November 30, 2000, the Company had
approximately 72,000 shares available for issuance pursuant to
subsequent grants.
Under the 1991 Director Option Plan, options may be granted to
nonemployee directors at a price not less than fair market value
at the date the options are granted. Nonemployee directors who have
served for at least one year are automatically granted options to
purchase 5,000 common shares. Options granted are nonqualified stock
options. The option price, vesting period and term are set by the
Compensation Committee of the Board of Directors of the Company.
Options for an aggregate of 45,000 common shares may be granted
under the Plan. Each option will be for a period of ten years and
may be exercised at a rate of 25% at the date of grant and 25% on
the first, second and third anniversary date of the grant on a
cumulative basis. At November 30, 2000, the Company had
approximately 20,000 shares available for issuance pursuant to
subsequent grants.
A summary of changes in the stock option plans is as follows:
Nov. 30, Nov. 30, Nov. 30,
2000 1999 1998
Options outstanding at
beginning of period 51,500 103,078 92,552
Granted - - 10,526
Canceled or other disposition (5,000) (51,578) -
Options outstanding at
end of period 46,500 51,500 103,078
Options price range
for the period $6.000 $6.000 $4.750
to to to
$10.375 $10.375 $10.375
Options exercisable at end
of period 46,500 50,250 77,420
At November 30, 2000 and 1999,the weighted-average remaining contractual life of
options outstanding was 2.4 years and 3.2 years respectively and the weighted
average exercise price was $8.27 and $8.47 respectively. The weighted average
exercise price for options exercisable at November 30, 2000 was $8.27.
The per share weighted-average fair value of stock options granted during the
years ended November 30, 2000, 1999 and 1998, was $4.73, $4.64, and $4.07
respectively, on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: November 30, 2000 -
expected dividend yield 0.0%, risk-free interest rate of 5.65%, expected
volatility factor of 29.36%, and an expected life of 10 years; November 30,
1999 - expected dividend yield 0.0%, risk-free interest rate of 6.10%,
expected volatility factor of 37.02% and an expected life of 10 years;
November 30, 1998 - expected dividend yield 0.0%, risk-free interest rate
of 4.83%, expected volatility factor of 36.55% and an expected life of 10
years.
Since the Company applies APB Opinion No. 25 in accounting for its
plans, no compensation cost has been recognized for its stock options
in the financial statements. Had the Company recorded compensation
cost based on the fair value at the grant date for its
stock options under SFAS Statement No. 123, the Company's net loss
and loss per share would have been reduced to the pro forma amounts
indicated below:
November 30, November 30, November 30,
2000 1999 1998
Net loss
As reported $(2,165,986) $(629,926) $(323,888)
Pro forma $(2,169,855) $(633,630) $(355,947)
Diluted loss
per share
As reported $(1.72) $(.50) $(.26)
Pro forma $(1.73) $(.51) $(.29)
8. LEASES
The Company has several noncancelable operating leases, primarily for
warehouse facilities, that expire over the next five years. These
leases generally contain renewal options for one-year periods. Rental
expense for operating leases during 2000, 1999 and 1998 was $34,192,
$25,959 and $24,138, respectively.
Future minimum lease payments under noncancelable operating leases
as of November 30, 2000 are:
Year ending November 30,
2001 $ 45,242
2002 5,943
2003 6,207
2004 2,586
In the ordinary course of business, the Company expects to renew or
replace these leases as they expire.
9. INCOME TAXES
Total income tax expense (benefit) for the years ended November 30, 2000,
1999 and 1998, consists of the following:
November 30, November 30, November 30,
2000 1999 1998
Current:
Federal $ - (3,232) $ (78,290)
State - - -
- (3,232) (78,290)
Deferred:
Federal $ 550,557 (105,015) (159,145)
State - - -
550,557 (105,015) (159,145)
$ 550,557 (108,247) $(237,435)
The reconciliation of the statutory Federal income tax rate and the
effective tax rate are as follows:
Nov. 30, Nov. 30, Nov. 30,
2000 1999 1998
Statutory Federal
income tax rate (34.0%) (34.0%) (34.0%)
Increase(decrease)due to:
State income taxes,
net of Federal income
tax benefit - - -
Research development
and state tax
credits - (1.0) (12.1)
Change in
valuation allowance 67.6 22.5 -
Other-net .5 (2.2) 3.8
34.1% (14.7%) (42.3%)
Tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liability at
November 30, 2000, 1999 and 1998 are presented below:
Nov. 30, Nov. 30, Nov. 30,
2000 1999 1998
Deferred tax assets:
Net operating loss
carryforward $526,301 217,039 $41,608
Tax credits 150,969 154,417 117,278
Accrued expenses 121,522 128,495 129,336
Inventory
capitalization 275,779 333,570 274,536
Asset reserves 365,565 89,384 86,633
Total deferred
tax assets 1,440,136 922,905 649,391
Less valuation
allowance 1,257,819 166,356 -
Net deferred tax
assets 182,317 756,549 649,391
Deferred tax
liability
Depreciation 119,417 143,092 140,949
Net deferred
tax assets $ 62,900 613,457 $508,442
For tax purposes, the Company has available at November 30, 2000
net operating loss ("NOL") carryforwards of approximately $1,665,797
which will begin to expire in the year 2013. The Company also
has approximately $110,000 of research and development credits
and $40,000 of state tax credits which begin to expire in the
year 2007 and 2008, respectively.
The Company has established a deferred tax asset valuation
allowance of approximately $1,258,000 at November 30, 2000, due
to the uncertainty of realizing the majority of the deferred
tax assets. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible.
Based upon the reversal of deferred tax liabilities, the expiration
dates of tax credits and carryforwards and projected future taxable
income, management believes it is more likely than not the
Company will realize the benefits of the November 30, 2000 net
deferred tax assets.
10. LITIGATION AND CONTINGENCIES
Various legal actions and claims are pending against the Company.
In the opinion of management and outside counsel, adequate
provisions have been made in the accompanying financial statements
for all pending legal actions and other claims.
11. ASSET ACQUISITIONS
During 1999, the Company entered into an agreement to purchase
certain fixed assets and inventory from United Farm Tools, Inc.
relating to the manufacture and distribution of shredders,
edible bean cutters and hi dump wagons. The total purchase was
approximately $384,000.
12. CREDIT CONCENTRATION
The Company is primarily engaged in metal fabrication and the sale
of its products in the agricultural sector of the economy. Major
products include animal feed processing products, sugar beet and
potato products, and land maintenance products.
The Company's sales to one major original equipment manufacturer
were $3,192,642, $4,169,508 and $8,116,655 for the years ended
November 30, 2000, 1999 and 1998, respectively. Accounts receivable
from this customer are unsecured. Accounts receivable from this
customer were $217,180, $637,798 and $1,449,944 at November 30, 2000,
1999 and 1998, respectively.
13. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, defines fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current
transaction between willing parties. At November 30, 2000 and
1999, the carrying amount approximates fair value for cash
and cash equivalents, accounts receivable, accounts payable, notes
payable to bank, long-term debt and other current liabilities.
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, notes payable to bank and accrued expenses
approximates fair value because of the short maturity of these
instruments. The fair values of each of the Company's long-term debt
instruments also approximates fair value because the interest rate
is variable as it is tied to the bank's national money market rate.
14. SUBSEQUENT EVENT
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As
discussed in note 5, the Company has significant borrowings that
require compliance with a financial covenant, the fixed maturity
coverage ratio ("covenant"), at year-end November 30, 2000, and
these same borrowings have a maturity date subsequent to year-end
of February 15, 2001.
As a result of annual recurring net losses, the Company is not in
compliance with the covenant at years ended November 30, 2000 and
1999, and the Company has not been able to secure any new financing
alternatives with other lenders. However, at February 15, 2001 the
Company has requested and received from the bank a waiver of the
covenant and an extension of the loan maturity date to April 15,
2001. If the Company is unable to secure new financing before
this extended date of April 15, 2001, the Company will be unable
to pay its outstanding balance due unless the current lender
grants another 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 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 continue to explore various financing alternatives
including, but not limited to, asset based lending arrangments,
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 continuation as a going concern is
dependent upon the ability to successfully establish the necessary
financing arrangement and to comply with the terms thereof.
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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 on
February 23, 2001
ART'S-WAY MANUFACTURING CO., INC.
By: James L. Koley By: William T. Green
Chairman of the Board Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
______________________________ February 23,2001
James L. Koley Chairman of the Board Date
and Director
______________________________ February 23,2001
David R. Castle Director Date
______________________________ February 23,2001
George A. Cavanaugh, Jr. Director Date
______________________________ February 23,2001
Donald A. Cimpl Director Date
______________________________ February 23,2001
Douglas McClellan Director Date
_____________________________ February 23,2001
J. Ward McConnell, Jr. Director Date
ART'S-WAY MANUFACTURING CO., INC. Schedule VII
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
Balance, November 30, 1997 $ 31,000
Additions:
Charged to Operating Expenses $174,000
Deduct:
Accounts Charged Off -
Balance, November 30, 1998 $ 205,000
Additions:
Charged to Operating Expenses 64,000
Deduct:
Accounts Charged Off 45,304
Balance, November 30, 1999 $ 223,696
Additions:
Charged to Operating Expenses 188,689
Deduct:
Accounts Charged Off 336,082
Balance, November 30, 2000 $ 76,303