UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM 10-QSB
(Mark One)
[x] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended August 31, 2006
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ______ to ______
Commission File No. 0-5131
ART'S-WAY MANUFACTURING CO., INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 42-0920725
(State or Other Jurisdiction of I.R.S. Employer Identification No.
Incorporation or Organization)
Hwy 9 West, Armstrong, Iowa
50514
(Address of Principal Executive Offices)
(712) 864-3131
Issuer's Telephone Number, Including Area Code
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No __
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes __ No X
Number of common shares outstanding as of October 16, 2006: 1,973,176
Transitional Small Business Disclosure Format (check one): Yes _ No X
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Year to Date
August 31, August 31, August 31, August 31,
2006 2005 2006 2005
Net sales $ 6,056,267 $ 4,190,253 $ 14,470,084 $ 11,581,969
Cost of goods sold 4,655,972 3,121,725 10,405,029 8,235,522
Gross profit 1,400,295 1,068,528 4,065,055 3,346,447
Operating expenses:
Engineering 101,263 95,932 301,161 375,219
Selling 217,684 181,718 602,921 516,822
General and administrative 665,461 336,722 1,944,265 1,146,792
Total expenses 984,408 614,372 2,848,347 2,038,833
Income from operations 415,887 454,156 1,216,708 1,307,614
Other expenses:
Interest expense 112,446 71,553 294,757 198,922
Other (30,412) (9,603) (71,870) (51,560)
Total other expenses 82,034 61,950 222,887 147,362
Income before income taxes 333,853 392,206 993,821 1,160,252
Income tax expense 153,488 133,365 388,317 408,761
Net income $ 180,365 $ 258,841 $ 605,504 $ 751,491
Net income per share:
Basic $ 0.09 $ 0.13 $ 0.31 $ 0.39
Diluted $ 0.09 $ 0.13 $ 0.31 $ 0.38
Common shares and equivalent outstanding:
Basic 1,973,176 1,958,611 1,970,037 1,947,009
Diluted 1,979,701 1,974,656 1,978,092 1,968,595
See accompanying notes to condensed consolidated financial statements.
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
August 31, November 30,
2006 2005
ASSETS
Current Assets
Cash $ 1,750,951 $ 1,198,238
Accounts receivable-customers,
net of allowance for doubtful accounts
of $47,848 and $46,385 in May and November,
respectively 2,000,811 956,391
Inventories, net 6,499,928 6,525,051
Deferred taxes 684,000 673,000
Other current assets 142,864 128,877
Total current assets 11,078,554 9,481,557
Property, plant and equipment, at cost 13,107,998 12,263,478
Less accumulated depreciation 10,109,363 10,372,818
Net property, plant and equipment 2,998,635 1,890,660
Inventories, noncurrent 109,616 144,871
Deferred taxes 48,000 191,000
Other assets 100,560 74,353
Total Assets $ 14,335,365 $ 11,782,441
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 228,416 $ 223,946
Accounts payable 699,672 530,722
Customer deposits 476,799 569,354
Accrued expenses 1,238,544 736,464
Total current liabilities 2,643,431 2,060,486
Long-term debt, excluding current portion 3,895,528 2,558,273
Total liabilities 6,538,959 4,618,759
Stockholders' Equity
Common stock - $.01 par value. Authorized
5,000,000 shares; issued 1,973,176 and
1,963,176 shares in May and in November 19,732 19,632
Additional paid-in capital 1,746,907 1,719,787
Retained earnings 6,029,767 5,424,263
Total stockholders' equity 7,796,406 7,163,682
Total liabilities and stockholders' equity $ 14,335,365 $ 11,782,441
See accompanying notes to condensed consolidated financial statements.
ART'S-WAY MANUFACTURING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Year to Date
August 31, August 31,
2006 2005
CASH FLOW FROM OPERATIONS:
Net income $ 605,504 $ 751,491
Adjustment to reconcile net income to net
cash provided by operating activities:
Stock compensation expense 4,020 0
(Gain) on sale of equipment (41,048) 0
Depreciation and amortization 222,901 184,025
Deferred income tax 132,000 386,849
Changes in working capital components:
(Increase) decrease in:
Accounts receivable (718,595) (327,745)
Inventories 508,017 341,477
Other current assets (13,987) 43,415
Other 862 107,302
Increase (decrease) in:
Accounts payable 168,950 (210,819)
Customer deposits (406,808) (31,924)
Accrued expenses 502,080 (151,894)
Net cash provided by operating activities 963,897 1,092,177
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (743,522) (187,200)
Purchases of assets of Tech Space, Inc. (1,137,606) 0
Proceeds from sale of property,
plant and equipment 132,089 0
Net cash (used in) investing activities (1,749,039) (187,200)
CASH FLOW FROM FINANCING ACTIVITIES:
Principal payments on line of credit 0 (870,071)
Proceeds from notes payable 1,500,000 1,000,000
Principal payments on long term debt (158,275) (279,139)
Loan origination fees paid (27,070) (18,550)
Proceeds from the exercises of stock options 23,200 68,650
Net cash provided by (used in)
financing activities 1,337,855 (99,110)
Net increase in cash 552,713 805,867
Cash at beginning of period 1,198,238 116,001
Cash at end of period $ 1,750,951 $ 921,868
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 294,758 $ 181,869
Income taxes $ 25,217 $ 23,187
Supplemental schedule of investing activities:
Tech Space, Inc. acquisition:
Accounts Receivable $ 325,825 $ 0
Inventories 447,639 0
Property, plant and equipment 678,395 0
Customer deposits (314,253) 0
Cash paid $ 1,137,606 $ 0
See accompanying notes to condensed consolidated financial statements.
ART'S-WAY MANUFACTURING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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-KSB for the year ended November 30, 2005. The results of
operations for the nine months ended August 31, 2006 are not necessarily
indicative of the results for the fiscal year ending November 30, 2006.
2. STOCK OPTIONS
At August 31, 2006, we had two stock-based employee compensation plans,
which are described more fully in Note 9 of our 2005 Annual Report to
Stockholders. We adopted Statement No. 123 (Revised 2004), Share-Based
Payment ("SFAS123R") which replaces SFAS No. 123, Accounting for
Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees, effective December 1, 2005. SFAS123R
requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements
based on their fair values. The pro forma disclosures previously
permitted under SFAS No. 123 are no longer an alternative to financial
statement recognition. Upon adoption, we used the prospective transition
method. The prospective method requires that compensation expense be
recorded for all non-vested stock options beginning with the first
quarter after adoption of SFAS123R. Stock-based compensation expense for
the nine months ended August 31, 2006 totaled $4,020.
Previously, we applied Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for these plans. Accordingly, prior to December 1, 2005 no
compensation cost had been recognized for stock options in the condensed
consolidated financial statements when the options were issued at a
price equivalent to the stock price at the time of issuance. Set forth
below is a reconciliation of net income and earnings per share
information for the nine months ended August 31, 2005, as if we had
applied the fair value recognition provisions of SFAS 123, Accounting
for Stock-based Compensation, to stock-based employee compensation for
that period.
Three months Nine months
ended August ended August
31, 2005 31, 2005
Net income, as reported $ 258,841 $ 751,491
Deduct:
Total stock-based compensation expense
determined under the fair value method
for all awards, net of tax effects ($ 1,755) ($ 5,265)
Pro forma net income $ 257,086 $ 746,226
Pro forma basic earnings per share .13 .38
Pro forma diluted earnings per share .13 .38
The fair value of each option grant has been estimated using the
Black-Scholes option-pricing model.
3. INVENTORIES
Major classes of inventory are: August 31, November 30,
2006 2005
Raw material $ 2,850,073 $ 2,820,591
Work-in-process 569,748 455,077
Finished goods 3,189,723 3,394,254
Total $ 6,609,544 $ 6,669,922
Less inventories classified as noncurrent 109,616 144,871
Inventories, current $ 6,499,928 $ 6,525,051
4. ACCRUED EXPENSES
Major components of accrued expenses are: August 31, November 30,
2006 2005
Salaries, wages and commissions $ 465,153 $ 371,680
Accrued warranty expense 234,687 131,832
Income taxes 230,474 5,702
Other 308,230 227,250
Total $ 1,238,544 $ 736,464
5. PRODUCT WARRANTY
The Company offers limited warranties of various lengths to its customers
depending on the specific product and terms of the customer purchase
agreement. The average length of the warranty period is one year from
date of purchase. The Company's warranties require it to repair or
replace defective products during the warranty period at no cost to the
customer. The Company records a liability for estimated costs that may
be incurred under its warranties. The costs are estimated based on
historical experience and any specific warranty issues that have been
identified. Although historical warranty costs have been within
expectations, there can be no assurance that future warranty costs will
not exceed historical amounts. The Company periodically assesses the
adequacy of its recorded warranty liability and adjusts the balance as
necessary.
Changes in the Company's product warranty liability for the three and
nine months ended August 31, 2006 and 2005 are as follows:
hree Months Ended Nine Months Ended
August 31, August 31, August 31, August 31
2006 2005 2006 2005
Balance, beginning $167,487 $115,993 $131,832 $119,912
Settlements made in cash
or in-kind (76,898) (127,684) (224,216) (375,937)
Warranties issued 144,098 94,620 327,071 338,954
Balance, ending $234,687 $ 82,929 $234,687 $82,929
6. LOAN AND CREDIT AGREEMENTS
The Company has a revolving line of credit for $3,500,000 with advances
funding the working capital, letter of credit and corporate credit card
needs that will mature on April 30, 2007. The interest rate is West
Bank's prime interest rate, adjusted daily. Monthly interest only
payments are required and the unpaid principal is due on the maturity
date. Collateral consists of a first position on assets owned by the
Company including, but not limited to inventories, accounts receivable,
machinery and equipment. As of August 31, 2006 and November 30, 2005,
the Company had no borrowings against the line of credit. Other terms
and conditions of the debt with West Bank include providing monthly
internally prepared financial reports including accounts receivable
aging schedules and borrowing base certificates and year-end audited
financial statements. The borrowing base shall limit advances from the
line of credit to 60% of accounts receivable less than 90 days old, 60%
of finished goods inventory, 50% of raw material inventory and 50% of
work-in-process inventory plus 40% of appraisal value of machinery and
equipment.
J. Ward McConnell, Jr. was required to personally guarantee
the debt with West Bank on an unlimited and unconditional basis. The
guarantee of the term debt is to be reduced after the first three years
to a percentage representing his ownership of the Company. Mr.
McConnell's guarantee shall be removed from the term debt in the event
that his ownership interest in the Company is reduced to a level less
than 20% after the first three years of the loan. The Company
compensates Mr. McConnell for his personal guarantee. On the loans due
to mature March 2015 and Aprl 2016 Mr. McConnell is compensated at an
annual percentage rate of 2% of the outstanding balance to be paid
monthly. On the first Westbank loan his guarantee portion has dropped to
his pecent ownership. Guarantee fee payments to Mr. McConnell were
approximately $45,000 and $38,000, for the nine months ended August 31,
2006 and 2005, respectively.
A summary of the Company's term debt is as follows:
August 31, November 30,
2006 2005
West Bank loan payable in monthly installments
of $17,776 including interest at Bank's prime
rate plus 1.5%, due March 31, 2023 (A) (B) $ 1,713,151 $ 1,754,866
West Bank loan payable in monthly installments
of $10,000 including interest at Bank's prime
rate plus 1.5%, due March 31, 2015 (A) (B) $ 949,994 $ 974,356
West Bank loan payable in monthly installments
of $22,000 including interest at Bank's prime
rate plus 1.0%, due April 30, 2016 (A) (B) $1,460,799 $0
State of Iowa Community Development Block
Grant promissory notes at zero percent
interest, maturity September 2006, with
quarterly principal payments of $11,111 $ 0 $ 33,334
State of Iowa Community Development Block
Grant local participation promissory notes
at 4% interest, maturity September 2006, with
quarterly payments of $7,007 $ 0 $ 19,663
Total term debt $ 4,123,944 $ 2,782,219
Less current portion of term debt $ 228,416 $ 223,946
Term debt, excluding current portion $ 3,895,528 $ 2,558,273
(A) Notes are supported by a guarantee issued by the United States
Department of Agriculture (USDA) for 75% of the loan amount outstanding.
Collateral for these loans are primarily real estate with a second
position on assets securing the line of credit. The USDA subordinates
collateral rights in all assets other than real estate in an amount
equal to West Bank's other credit commitments.
(B) Covenants include, but are not limited to, restrictions on payment
of dividends, debt service coverage ratio, debt/tangible net worth
ratio, current ratio, limitation on capital expenditures, and tangible
net worth. During the third quarter ended August 31, 2006, the Company
did not comply with covenant limitations on capital expenditures and the
disposal of assets. The bank waived the limitations.
7. RELATED PARTY TRANSACTIONS
J. Ward McConnell, Jr. owns and operates Adamson Global Technology Corp.
During the nine months ended August 31, 2006 Adamson sold Art's-Way
Vessels, Inc., certain raw material and equipment for an aggregate price
of approximately $172,000. Adamson also purchased pressurized vessels
from Art's-Way Vessels, Inc. in the first nine months, for an aggregate
price of approximately $104,000. The Company believes that the
transactions were done in accordance with prevailing market terms and
conditions.
8. SEGMENT INFORMATION
On October 4, 2005, we purchased certain assets of Vessels Systems, Inc.
which created a separate operating segment.
On August 3, 2006, Art's-Way Manufacturing Co., Inc., acquired
substantially all of the assets of TechSpace, Inc. of Monona, Iowa. We
purchased the inventory, fixed assets and accounts receivable for the
purchase price of $1,138,000, paid in cash. The assets will be utilized
through a wholly owned subsidiary, Art's-Way Scientific, Inc. Art's-Way
Scientific Inc. is a manufacturer of modular buildings for disaster
recovery, testing and diagnostic labortories, animal research
laboratories, biocontainment laboratories, triage/sorting facilities and
swing space to limit disruption. This purchase created a third operating
segment.
Prior to October 4, 2005 the Company operated in one reportable segment.
Our reportable segments are strategic business units that offer
different products. They are managed separately because each business
requires different technology and marketing strategies.
There are three reportable segments: agricultural products, pressurized
vessels and modular buildings. The agricultural products segment
fabricates and sells farming products as well as replacement parts for
these products throughout the United States. The pressurized vessel
segment produces pressurized tanks. The modular building segment
manufactures modular buildings for swine and scientific laboratories.
The accounting policies applied to determine the segment information are
the same as those described in the summary of significant accounting
policies. Intersegment sales and transfers, if any, are accounted for at
historical cost.
Management evaluates the performance of each segment based on profit or
loss from operations before income taxes, exclusive of nonrecurring
gains and losses.
Approximate financial information with respect to the reportable
segments is as follows. The agricultural products, pressurized vessels,
and modular segment information is for the three and nine months ended
August 31, 2006.
Three Months Ended August 31, 2006
Agricultural Pressurized Modular Consolidated
Products Vessels Buildings
Revenue from
external customers $4,804,000 $1,151,000 $101,000 $6,056,000
Income from operations 316,000 170,000 (70,000) 416,000
Income before tax 253,000 151,000 (70,000) 334,000
Total Assets 13,169,000 714,000 452,000 14,335,000
Capital expenditures 26,000 6,000 0 32,000
Depreciation &
Amortization 68,000 17,000 6,000 91,000
Nine Months Ended August 31, 2006
Agricultural Pressurized Modular Consolidated
Products Vessels Buildings
Revenue from
external customers $11,733,000 $2,636,000 $101,000 $14,470,000
Income from operations 900,000 387,000 (70,000) 1,217,000
Income before tax 686,000 378,000 (70,000) 994,000
Total Assets 13,169,000 714,000 452,000 14,335,000
Capital expenditures 707,000 37,000 0 744,000
Depreciation &
Amortization 179,000 38,000 6,000 223,000
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with
the condensed consolidated financial statements and notes thereto
appearing elsewhere in this report. Management's discussion and analysis
contains forward-looking statements that involve risks and
uncertainties, including but not limited to, quarterly fluctuations in
results; customer demand for our products; economic conditions; the
achievement of lower costs and expenses; the continued availability of
financing in the amount and on the terms required to support future
business; and other risks detailed from time to time in our other
Securities and Exchange Commission filings. Actual results may differ
materially from management's expectations.
(a) Plan of Operation
In the current fiscal year we plan to continue growth through new
product development and when appropriate acquisition. We continue to
look for new and better ways to improve our product offerings for our
end users. We persist in our attempt to improve our efficiencies,
through the implementation of lean manufacturing processes.
On August 3, 2006 Art's-Way acquired the operating assets of TechSpace
Inc. for a cash purchase price of approximately $1,138,000. The
acquisition was made to continue the Company's growth strategy and
diversify its product offerings outside the agricultural industry. The
purchase price was determined based on an arms-length negotiated value.
The transaction was accounted for under the purchase method of
accounting, with the purchase price allocated to the individual assets
acquired. (See cash flow statement supplemental disclosure)
(b) Management's Discussion and Analysis of Financial Condition and
Results of Operations
(i) Critical Accounting Policies
Our critical accounting policies involving the more significant
judgments and assumptions used in the preparation of the financial
statements as of August 31, 2006 have remained unchanged from November
30, 2005. These policies involve revenue recognition, inventory
valuation and income taxes. Disclosure of these critical accounting
policies is incorporated by reference under Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operation"
in our Annual Report on Form 10-KSB for the year ended November 30,
2005.
On September 15, 2006, the FASB issued FASB Statement No. 157, Fair
Value Measurements (FAS 157), which addresses how companies should
measure fair value when they are required to use a fair value measure
for recognition or disclosure purposes under generally accepted
accounting principles (GAAP). As a result of FAS 157 there is now a
common definition of fair value to be used throughout GAAP. The FASB
believes that the new standard will make the measurement of fair value
more consistent and comparable and improve disclosures about those
measures. FAS 157 is effective for fiscal years beginning after November
15, 2007. The Company is currently evaluating the impact of this
standard on its Consolidated Financial Statements.
In June 2006, the Financial Accounting Standards Board ("FASB") issue FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes,
("FIN 48") an interpretation of FASB Statement No. 109, Accounting for
Income Taxes. FIN 48 requires that a position taken or expected to be
taken in a tax return be recognized in the financial statements when it
is more likely than not (i.e. a likelihood of more than fifty percent)
that the position would be sustained upon examination by tax authorities.
A recognized tax position is then measured at the largest amount of
benefit that is greater than fifty percent likely of being realized upon
ultimate settlement. Upon adoption, the cumulative effect of applying
the recognition and measurement provisions of FIN 48, if any, shall be
reflected as an adjustment to the opening balance of retained earnings.
FIN 48 requires that subsequent to initial adoption a change in judgment
that results in subsequent recognition, derecognition or change in a
measurement of a tax position taken in a prior annual period (including
any related interest and penalties) be recognized as a discrete item in
the period in which the change occurs. Currently, we record such changes
in judgment, including audit settlements, as a component of the
Company's income tax provision. Thus, the Company's reported quarterly
income tax rate may become more volatile upon adoption of FIN 48. This
change will not impact the manner in which we record income tax expense
on an annual basis. FIN 48 also requires expanded disclosures including
identification of tax positions for which it is reasonably possible that
total amounts of unrecognized tax benefits will significantly change in
the next twelve months, a description of tax years that remain subject
to examination by major tax jurisdiction, a tabular reconciliation of
the total amount of unrecognized tax benefits at the beginning and end
of each annual reporting period, the total amount of unrecognized tax
benefits that, if recognized, would affect the effective tax rate and
the total amounts of interest and penalties recognized in the statements
of operations and financial position. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company is currently
evaluating the impact of this standard on its Consolidated Financial
Statements.
(ii)Results of Operations
The third quarter and year to date net sales were 45% and 25%
respectively, higher than for the comparable periods one year ago. In
addition to the sales from our two new subsidiaries, we experienced a
shift in sales in 2006. Art's Way Manufacturing's sales of grinder
mixers were spread more evenly in 2006 compared to 2005 when we shipped
a large amount of grinders in the first quarter.
Consolidated revenues increased $1,866,000 for the third quarter of 2006.
Art's-Way Manufacturing's revenues increased $614,000, Art's-Way Vessel's
(acquired in October of 2005) revenues increased $1,151,000, and
Art's-Way Scientific's (acquired in August of 2006) revenues increased
$101,000. Year to date revenues of $14,470,000 for 2006 represent an
increase of $2,888,000 over the same period in 2005. Sales increased by
$151,000 for Art's-Way Manufacturing, $2,636,000 for Art's-Way Vessels
and $101,000 for Art's-Way Scientific.
Art's-Way Manufacturing's consolidated gross profit of 28% year to date
has remained stable compared to the same period one year ago of 29%.
Art's-Way Manufacturing's gross profit is down from 29% to 26% year to
date. Quarterly gross profit is down 2.4%. This decline is due to a
reduction in sales of grinder mixers which have a slightly higher margin
than some of our other product offerings. Art's-Way Vessel's had a gross
profit of 40% year to date.
Consolidated operating expenses as a percent of sales increased by 1%
for the quarter ended August 2006. Year to date operating expenses
increased $810,000 compared to 2005 or by 2% of sales. Of this amount
$667,000 relates directly to the addition of Art's-Way Vessels and
$77,000 relates directly to the addition of Art's-Way Scientific.
Art's-Way Manufacturing's consolidated engineering expenses were down
$74,000 for the first nine months of 2006 as compared to 2005. In 2005
we hired an outside engineering firm to aid in the development of an
exportable beet harvester.
Art's-Way Manufacturing's selling expenses were up for the first nine
months of 2006 by $86,000 over the same period one year ago. This
increase is mainly due to an increase in commission, advertising and
trade show expenses. Commission expense increased $42,000 as our sales
increased 23%. Advertising expenses were up by approximately $10,000 as
we have tried to reach new customers. Trade show expense was also up by
approximately $34,000 due to machine enhancement for show purposes.
We experienced an increase in interest expense of $96,000 in the first
nine months of 2006 as a result of the rising prime interest rate over
the past 21 months and an additional borrowing of $1,500,000 during the
second quarter of fiscal 2006.
The order backlog at the end of September 2006 was $ 4,210,000 compared
to $2,629,000 one year ago. Art's-Way Manufacturing's order backlog as
of September 22, was $980,000 while Art's-Way Vessel's was $1,894,000
and Art's-Way Scientific's was $1,336,000.
In 2005 our backlog included approximately $1,850,000 in blower orders
for Art's-Way Manufacturing's OEM dealers. This year, CNH has extended
its order writing period to its dealers and has not submitted a firm
purchase order. We estimate Art's-Way Manufacturing's backlog will
increase by approximately $1,300,000 once we receive a firm purchase
orders. This estimate is based on preliminary forecasts by CNH and H&S
Manufacturing.
Gehl, one of our main competitors in the grinder mixer market, announced
in April, that it was ceasing operation of its agricultual product
lines. We feel that we are in an excellent position to capture some of
this market share and are optimistic that this will increase our grinder
mixer sales.
(iii)Liquidity and Capital Resources
On August 3, 2006 Art's-Way acquired substantially all the assets of
TechSpace Inc. for a cash purchase price of approximately $1,138,000.
There were no liabilities purchased or assumed in this transaction. The
acquisition was made to continue the Company's growth strategy and
diversify its product offerings outside the agricultural industry. The
purchase price was determined based on an arms-length negotiated value.
The transaction was accounted for under the purchase method of
accounting, with the purchase price allocated to the individual assets
acquired. (See cash flow statement supplemental disclosure)
Accounts receivable increased $719,000 during the first nine months of
2006. This is due primarily to sales of our beet harvesting equipment.
Our customer deposits have decreased by $407,000 as our beet equipment,
on which we offer discounts to our customers for making down payments on
their orders, has now started shipping.
Our inventory level decreased $508,000 over November 2005. This is due
to the completed production and sale of the majority our beet harvesting
equipment. We are also working on a continuous flow line for our grinder
mixers. This will allow us to reduce our whole goods and work in process
inventory, while maximzing product quality.
In late 2005 we entered into an agreement to purchase a new Bystronic
laser, used to cut metal, which called for three payments totaling
approximately $627,000. We made the second and third payments in the
first half of 2006. In May we completed our new whole goods paint booth
for $47,000.
In April of 2006 we obtained additional long term financing through West
Bank of $1,500,000.
See footnote 6 of the notes to the condensed consolidated financial
statements for further discussion of our credit facilities.
Item 3
CONTROLS AND PROCEDURES
Senior management, including the Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this
report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures
are effective to ensure that information required to be disclosed by us
in the reports that we file or submit under the Exchange Act is (a)
accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure; and (b) recorded,
processed, summarized and reported, within the time specified in the
SEC's rules and forms. Since that evaluation process was completed there
have been no significant changes in our disclosure controls or in other
factors that could significantly affect these controls.
There were no changes in our internal control over financial reporting,
identified in connection with this evaluation that occurred during the
period covered by this report that materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
During the period covered by this report, we were not a party to any
legal action or claim which was other than routine litigation incidental
to our business.
ITEM 6. EXHIBITS
See exhibit index on page 15.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ART'S-WAY MANUFACTURING CO., INC.
By: _________________________________ By: ___________________________
Michael B. Hilderbrand Carrie L. Majeski
Chief Executive Officer Chief Financial Officer
Date: ___________________________ Date:______________________
Exhibits Index
10.10 Puchase Agreement with TechSpace, Inc.
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
32.1 Certification of Chief Executive Officer under 18 U.S.C. Section
1350.
32.2 Certification of Chief Financial Officer under 18 U.S.C. Section 1350.