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, 2007
[ ] 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 12, 2007: 1,978,176
Transitional Small Business Disclosure Format (check one): Yes _ No X
ARTS-WAY MANUFACTURING CO., INC.
Consolidated Statements of Operations
Condensed
(Unaudited)
Three Months Ended Year to Date
August 31, August 31, August 31, August 31,
2007 2006 2007 2006
Net sales $ 8,191,523 $ 6,056,267 $ 19,165,728 $ 14,470,084
Cost of goods sold 5,410,688 4,655,972 13,201,569 10,405,029
Gross profit 2,780,835 1,400,295 5,964,159 4,065,055
Expenses:
Engineering 59,401 101,263 273,510 301,161
Selling 297,522 217,684 750,573 602,921
General and
administrative 575,348 665,461 1,846,250 1,944,265
Total expenses 932,271 984,408 2,870,333 2,848,347
Income from operations 1,848,564 415,887 3,093,826 1,216,708
Other income (expense):
Interest expense (154,440) (112,446) (332,651) (294,757)
Other (177,309) 30,412 176,644 71,870
Total other expense (331,749) (82,034) (156,007) (222,887)
Income before
income taxes 1,516,815 333,853 2,937,819 993,821
Income tax (benefit) 586,767 153,488 1,069,312 388,317
Net income $ 930,048 $ 180,365 $ 1,868,507 $ 605,504
Net income per share:
Basic $ 0.47 $ 0.09 $ 0.94 $ 0.31
Diluted 0.47 0.09 0.94 0.31
Common shares and equivalent outstanding:
Basic 1,978,176 1,973,176 1,978,176 1,970,037
Diluted 1,987,952 1,979,701 1,983,425 1,978,092
See accompanying notes to consolidated financial statements.
ARTS-WAY MANUFACTURING CO., INC.
Consolidated Balance Sheets
Condensed
(Unaudited)
August November
Assets 2007 2006
Current assets:
Cash $ 2,240,304 $ 2,072,121
Accounts receivable-customers, net of
allowance for doubtful accounts of
$136,296 and $108,372 in August and
November, respectively 2,734,917 2,313,290
Inventories, net 7,489,817 5,998,175
Profit in excess of billings 137,770 0
Deferred taxes 728,599 672,000
Insurance Receivable 248,872 0
Other current assets 193,716 163,114
Total current assets 13,773,995 11,218,700
Property, plant, and equipment, net 3,871,545 3,185,298
Deferred taxes 0 100,000
Other assets 0 110,240
Total assets $ 17,645,540 $ 14,614,238
Liabilities and Stockholders Equity
Current liabilities:
Notes payable to bank $ 390,531 $ 0
Current portion of term debt 222,948 220,559
Accounts payable 867,890 587,555
Customer deposits 282,552 424,205
Billings in excess of cost and profit 350,821 57,266
Accrued expenses 1,640,157 1,427,658
Total current liabilities 3,754,899 2,717,243
Deferred taxes 111,948 0
Term debt, excluding current portion 3,822,797 3,852,372
Total liabilities 7,689,644 6,569,615
Stockholders equity:
Common stock $0.01 par value. Authorized
5,000,000 shares; issued 1,978,176 and
1,978,176 shares in 2007 and 2006 19,782 19,782
Additional paid-in capital 1,808,463 1,765,697
Retained earnings 8,127,651 6,259,144
Total stockholders equity 9,955,896 8,044,623
Total liabilities and stockholders equity $ 17,645,540 $ 14,614,238
See accompanying notes to consolidated financial statements.
ARTS-WAY MANUFACTURING CO., INC.
Consolidated Statements of Cash Flows
Condensed
(Unaudited)
Year to Date
August August
2007 2006
Cash flows from operations:
Net income $ 1,868,507 $ 605,504
Adjustments to reconcile net income
to net cash provided by operating activities:
Stock based compensation 42,766 4,020
(Gain) Loss on sale of property, plant, and equipment (329,258) (41,048)
Depreciation and amortization 244,112 222,901
Fire loss of operating supplies (364,409) 0
Deferred income taxes 155,349 132,000
Other net 110,240 863
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable (421,627) (718,595)
Inventories (1,561,847) 508,017
Other current assets (30,602) (13,987)
Increase (decrease) in:
Accounts payable 280,335 168,950
Contracts in progress, net (223,590) 0
Customer deposits (141,653) (406,808)
Accrued expenses 212,499 502,080
Net cash provided by operating activities (159,178) 963,897
Cash flows from investing activities:
Purchases of property, plant, and equipment (1,269,618) (743,522)
Proceeds from insurance recoveries 1,233,633 0
Purchases of assets of Tech Space, Inc. 0 (1,137,606)
Proceeds from sale of property, plant, and equipment 0 132,089
Net cash (used in) investing activities (35,985) (1,749,039)
Cash flows from financing activities:
Net change in line of credit 390,531 0
Payments of notes payable to bank (27,185) (158,275)
Loan Origination Fee Paid 0 (27,070)
Proceeds from term debt 0 1,500,000
Proceeds from the exercise of stock options 0 23,200
Net cash provided by (used in) financing activities 363,346 1,337,855
Net increase/(decrease) in cash 168,183 552,713
Cash at beginning of period 2,072,121 1,198,238
Cash at end of period $ 2,240,304 $ 1,750,951
Supplemental disclosures of cash flow information:
Cash paid/(received) during the period for:
Interest $ 330,534 $ 294,758
Income taxes 863,129 25,217
Supplemental disclosures of noncash investing activities:
Proceeds from insurance recoveries $ 1,233,633 $ 0
Insurance recoveries receivable 248,872 0
Net book value of assets destroyed
Property, plant and equipment (339,258) 0
Cost incurred on contracts in progress (379,375) 0
Cost incurred for plant supplies (364,409) 0
Inventories (70,205) 0
Gain on insurance recovery $ 329,258 $ 0
Supplemental schedule of investing activities:
Tech Space Inc. acquisition:
Accounts Receivable $ 0 $ 325,825
Inventories 0 447,639
Property, plant and equipment 0 678,395
Customer deposits 0 (314,253)
Cash paid $ 0 $ 1,137,606
Noncash financing activity:
Refinanced existing debt with West Bank $ 4,100,000 $ 0
See accompanying notes to consolidated financial statements.
ART'S-WAY MANUFACTURING CO., INC.
NOTES TO CONSOLIDATED CONDENSED 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, 2006. The results of
operations for the nine months ended August 31, 2007 are not necessarily
indicative of the results for the fiscal year ending November 30, 2007.
2. INVENTORIES
Major classes of inventory are:
August 31, November 30,
2007 2006
Raw material $ 4,658,678 $ 3,260,897
Work-in-process 938,510 981,979
Finished goods 2,934,714 2,886,860
Total $ 8,531,902 $ 7,129,736
Less reserves 1,042,085 1,131,561
Inventories $ 7,489,817 $ 5,998,175
3. ACCRUED EXPENSES
Major components of accrued expenses are:
August 31, November 30,
2007 2006
Salaries, wages and commissions $ 546,553 $ 464,609
Accrued warranty expense 362,531 230,740
Income tax 407,546 356,712
Other 323,527 375,597
Total $ 1,640,157 $ 1,427,658
4. 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, 2007 and 2006 are as follows:
Three Months Ended Nine Months Ended
Aug 31, Aug31, Aug 31, Aug 31,
2007 2006 2007 2006
Balance, beginning $253,853 $167,487 $230,740 $131,832
Settlements made in
cash or in-kind 58,112 (76,898) (60,707) (224,216)
Warranties issued 50,566 144,098 192,498 327,071
Balance, ending $362,531 $234,687 $362,531 $234,687
5. 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, 2008. 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, 2007 and 2006, the Company had
borrowed approximately $391,000 and $0, respectively. Total amount
available for borrowing at August 31, 2007 was $3,109,000. 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 line
of credit to 60% of accounts receivable less than 90 days, 60% of
finished goods inventory, 50% of raw material inventory and 50% of
workin-process inventory plus 40% of appraisal value of machinery and
equipment.
On June 7th, 2007 the Company restructured its long-term debt with
West Bank. The Company now has one loan for $4,100,000. The loan
matures on May 1, 2017 and bears interest at the U.S. daily 5-year
treasury index (presently 4.16%) plus 2.75 bps fixed for 5 years and
then adjusted to the prevailing same index and margin on the sixth
anniversary of the loan for the balance of the term. For the first five
years the interest is capped at 7.25%. Monthly principal and interest
payments in the amount of $42,500 are required compared to $50,000 with
the previous three loans. The new loan is not required to be guaranteed
by the USDA or by J. Ward McConnell, Jr.
J. Ward McConnell, Jr. was required to personally guarantee the debt on
the old loans with West Bank on an unlimited and unconditional basis.
The guarantee of the term debt was reduced after the first three years
to a percentage representing his ownership of the Company. Mr.
McConnell's guarantee would have been removed from the term debt in the
event that his ownership interest in the Company was reduced to a level
less than 20% after the first three years of the loan. The Company
compensated Mr. McConnell for his personal guarantee at an annual
percentage rate of 2% of the outstanding balance to be paid monthly.
Guarantee fee payments to Mr. McConnell were approximately $30,000 and
$45,000, for the nine months ended August 31, 2007, and 2006,
respectively.
A summary of the Company's term debt is as follows:
August 31, November 30,
2007 2006
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) $ 0 $ 1,701,843
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) $ 0 $ 943,034
West Bank loan payable in monthly
installments of $22,063 including
interest at Bank's prime rate plus
1.0% due April 2016 (A) (B) $ 0 $1,428,054
West Bank loan payable in monthly
installments of $42,500 including
interest at the U.S daily 5-year
treasury index plus 2.75 bps fixed
for 5 years and ten due May 1,
2017 (B) $4,045,746 $ 0
Total term debt $ 4,045,746 $ 4,072,931
Less current portion of term debt $ 222,949 $ 220,559
Term debt, excluding current portion $ 3,822,797 $ 3,852,372
(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.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2006, the FASB issued Financial Interpretation No. 48,
Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109 (Issued 6/06). This Interpretation prescribes a
recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. It also provides guidance on
derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. For the Company, the
Statement is effective for fiscal years beginning after December 15,
2006. The Company is assessing the effects of Financial Interpretation
No. 48.
7. STOCK OPTION PLANS
On January 25, 2007 the Board of Directors adopted the 2007 Non-Employee
Directors' Stock Option Plan. Options will be granted to non-employee
directors to purchase shares of common stock of the Company at a price
not less than fair market value at the date the options are granted.
Non-employee directors are automatically granted options to purchase
1,000 shares of common stock annually or initially upon their election
to the Board, which are automatically vested. Options granted are
nonqualified stock options.
On February 5, 2007 the Board of Directors adopted the 2007 Employee
Stock Option Plan which was approved by the stockholders at the Annual
Stockholders' Meeting on April 26, 2007.
8. SUBSEQUENT EVENTS
On June 26, 2007 the Company announced the signing of a letter of intent
with Miller - St. Nazianz, Inc. The letter of intent calls for Miller -
St. Nazianz to sell to Art's-Way Manufacturing Co., Inc. portions of its
Miller Pro product offerings, specifically the hay and forage lines. The
sale is to include all inventories, tooling and other proprietary rights
of these products. On September 5th of 2007 the Company closed on the
asset purchase agreement with Miller - St. Nazianz. The Company has
moved the production of the Miller lines to its Armstrong, Iowa location
where it produces its other agricultural equipment.
On October 4, 2007 the Company's lease expired with Markee on the
facility in Dubuque, Iowa. The Company has started construction on a new
facility. The Company's new production facility for Art's-Way Vessels
will be located in the same Industrial Park in Dubuque, Iowa.
Construction is expected to be completed in January of 2008. The
facility will be 25,000 square feet and is expected to cost
approximately $1.500,000.
9. SEGMENT INFORMATION
On October 4, 2005, the Company purchased certain assets of Vessels
Systems, Inc. which created a separate operating segment. On August 2,
2006, the Company purchased certain assets of Tech Space, Inc. which
created a third operating segment. Prior to these acquisitions the
Company operated in one reportable segment.
The Company's 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 in the United States and worldwide. Export sales year to
date amounted to $1,059,824 and $457,584 in 2007 and 2006 respectively.
The pressurized vessel segment produces pressurized tanks. The modular
building segment produces modular buildings for animal containment and
various laboratory uses.
The accounting policies applied to determine the segment information are
the same as those described in the summary of significant accounting
policies. 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 building segment information are for the three and nine
months ended August 31, 2007 and August 31, 2006.
Three Months Ended August 31, 2007
Agricultural Pressurized Modular Consolidated
Products Vessels Buildings
Revenue from external customers 4,552,000 1,319,000 2,321,000 8,192,000
Income from operations 943,000 286,000 620,000 1,849,000
Income before tax 679,000 266,000 572,000 1,517,000
Segment profit 417,000 159,000 354,000 930,000
Total Assets 11,956,000 2,094,000 3,596,000 17,646,000
Capital expenditures 34,000 55,000 1,017,000 1,106,000
Depreciation 60,000 14,000 0 74,000
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
Segment profit 116,000 134,000 (70,000) 180,000
Total Assets 10,776,000 1,853,000 1,706,000 14,335,000
Capital expenditures 26,000 6,000 0 32,000
Depreciation 68,000 17,000 6,000 91,000
Nine Months Ended August 31, 2007
Agricultural Pressurized Modular Consolidated
Products Vessels Buildings
Revenue from external customers 10,927,000 3,573,000 4,666,000 19,166,000
Income from operations 1,329,000 816,000 949,000 3,094,000
Income before tax 1,008,000 752,000 1,178,000 2,938,000
Segment profit 634,000 481,000 754,000 1,869,000
Total Assets 11,956,000 2,094,000 3,596,000 17,646,000
Capital expenditures 150,000 72,000 1,048,000 1,270,000
Depreciation 189,000 39,000 16,000 244,000
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
Segment profit 401,000 275,000 (70,000) 606,000
Total Assets 10,776,000 1,853,000 1,706,000 14,335,000
Capital expenditures 707,000 37,000 0 744,000
Depreciation 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 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.
(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, 2007 have remained unchanged from November
30, 2006. 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,
2006.
(ii) Results of Operations
Our consolidated net sales for the nine months ended were $19,166,000,
representing a 32% increase compared to the same period one year ago. A
majority of this increase was due to the inclusion of Art's-Way
Scientific, Inc., net sales of $4,666,000, for the nine months just
ended. Art's-Way Scientific, Inc. was acquired in August of 2006 and
therefore only included $101,000 of year to date sales for 2006.
Art's-Way Manufacturing had revenues totaling $10,926,000 for the nine
months just ended, compared to $11,733,000 for the same period in 2006.
This decrease was due to a reduction in sales to our OEM dealers for
blowers as well as our delivery schedule for beet equipment being later
than last year pushing some of our beet equipment sales into the fourth
quarter. Art's-Way Vessels had revenues totaling $3,573,000 for the nine
months just ended, compared to $2,636,000 for the same period in 2006.
Art's-Way Vessels has succeeded in increasing sales since the
acquisition date through on time delivery of a quality product, to new
and existing customers.
Consolidated gross profit increased during the quarter to 34% compared
to 23% in 2006. Year to date gross profit is 31% compared to 28% in
2006. When we purchased Art's-Way Scientific we also purchased their
backlog and had to honor pricing from the prior owners. Art's-Way
Scientific's gross profit was 20% for the first quarter of 2007, year to
date, gross profit has increased to 29%. Art's-Way Manufacturing's gross
profit was 30% while Art's-Way Vessel's was 34% year to date.
Operating expenses for the quarter decreased $52,000 compared to 2006.
As a percent of sales, operating expenses decreased by five percentage
points- 11% in 2007 compared to 16% in 2006. Year to date operating
expenses are 15% compared to 20% in 2006. Art's-Way Manufacturing's year
to date operating expense as a percentage of sales was 19%, Art's-Way
Vessel 11% and Art's-Way Scientific was 9%.
General and administrative expenses for the quarter decreased $90,000 as
compared to 2006. Year to date general and administrative expenses as a
percentage of sales was 10% compared to 13% in 2006.
Engineering expenses are down $42,000 for the quarter compared to the
same quarter in 2006. As a percent of year to date sales, engineering
expenses are down for 2.1% to 1.5%. We are currently looking for
replacements for two engineers that left in June of 2007 for our
engineering department.
Selling expenses were up for the quarter by $80,000 compared to the same
quarter in 2006. However as a percent of sales, selling expenses are
consistent for the quarter at 3.6%, as sales increase commission expense
also increases. As a percent of sales, year to date selling expenses are
3.9% compared to 4.2% in 2006.
Interest expense quarter to date and year to date have increased due to
the addition of $1,500,000 loan in the third quarter of 2006. Other
income increased by $104,000 in 2007 compared to 2006. Of that increase,
$312,000 is the result of our accounting for the fire and insurance
recoveries in Monona, Iowa, offset by $200,000 additional expenses
related to early payoff penalties and amortization costs on our loan
refinancing package.
As previously disclosed on January 16th, 2007, one of our buildings in
Monona, Iowa, was completely destroyed by fire. The building housed the
production and offices for Art's-Way Scientific. The 36,000 square foot
building was a stick built structure with steel siding. We were insured
for the loss of the building, its contents as well as the disruption in
business. We are currently working with our insurance company to settle
the claim. At this time we have received $1,234,000 towards the claim
and we have booked a receivable for the estimated loss of the building
of $249,000. We have incurred costs in excess of $1,153,000 related to
the fire, including $334,000 in losses of fixed assets. We are currently
working from one of our other buildings in Monona, Iowa. We have started
construction on our replacement building. The new building will be
located in Monona on the same site as the building that was destroyed.
It is our intent to be in a new building by October 31, 2007. We
continue to manufacture buildings and have not lost any orders to date.
The consolidated order backlog as of October 2007 is $12,453,000
compared to $4,210,000 one year ago. Art's-Way Manufacturing's order
backlog as of October is $2,773,000 compared to $980,000 in 2006. This
backlog is due primarily to strong grinder sales as well as shredders
for the 2007 season that have yet to ship. Art's-Way Vessels backlog is
$417,000 compared to $1,894,000 in 2006. The difference in Vessel's
backlog is due to a large blanket order with a major customer in 2006
that covered several months that has not been renewed. We were required
to be out of our leased building on October 4. We have moved out of the
leased building and will not be in our new facility until January of
2008. While we do expect to have some disruption in the fourth quarter
of 2007 and into the first quarter of 2008, we expect it to have a minor
impact on the consolidated result, as we have been able to cut expenses
significantly. Art's-Way Scientific's backlog is $9,263,000 compared to
$1,336,000 in 2006.
The Companies new production facility for Art's-Way Vessels will be
located in the same Industrial Park in Dubuque, Iowa. Construction is
expected to be completed in January of 2008. The facility will be 25,000
square feet and is expected to cost approximately $1.500,000. Art's-Way
Vessels has lost a number of employees but is working on having a full
staff by the time we move into the new facility in January.
(iii) Liquidity and Capital Resources
Our main source of funds year to date came from net income of
$1,869,000. We are working to settle the insurance claim for the
building, inventory and assets that were destroyed in Monona, Iowa. We
have currently recorded a gain of $694,000 as the result of the
difference between anticipated fire insurance proceeds and the net book
value of assets destroyed in the fire. We are also showing proceeds from
insurance recoveries of $1,234,000 that relates directly to the expected
insurance proceeds on the building. We have spent $1,270,000 on the
purchase of property, plant and equipment. Of that $1,010,000 has been
spent on our new replacement production facility that was lost in the
fire. Another $55,000 was spent on our new production facility for
Art's-Way Vessels. Inventories increased $1,562,000. We have bought in
large quantities of steel for our current build of sugar beet equipment
and shedders.
See footnote 5 of the notes to the consolidated condensed financial
statements for a 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 of this report.
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: ______________________________
E.W. Muehlhausen Carrie L. Majeski
President Chief Financial Officer
Date:_________________________ Date:_________________________
Exhibits Index
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.