-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BfMzXd1CX3E2lyLRW2EA67x29YtSyrCp1IVrKzoJb4SzLIpXVHmAZiwM6c5r+r00 +p1KgOJYch/cxdmj63vy3w== 0000007623-06-000014.txt : 20061016 0000007623-06-000014.hdr.sgml : 20061016 20061016161019 ACCESSION NUMBER: 0000007623-06-000014 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20060831 FILED AS OF DATE: 20061016 DATE AS OF CHANGE: 20061016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARTS WAY MANUFACTURING CO INC CENTRAL INDEX KEY: 0000007623 STANDARD INDUSTRIAL CLASSIFICATION: FARM MACHINERY & EQUIPMENT [3523] IRS NUMBER: 420920725 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-05131 FILM NUMBER: 061146422 BUSINESS ADDRESS: STREET 1: P O BOX 288 CITY: ARMSTRONG STATE: IA ZIP: 50514 BUSINESS PHONE: 7128643131 MAIL ADDRESS: STREET 1: P O BOX 288 CITY: ARMSTRONG STATE: IA ZIP: 50514 10QSB 1 aug0610.txt 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. EX-31 2 ceo321my.txt Exhibit 31.1 CERTIFICATIONS I, Michael B. Hilderbrand, certify that: 1. I have reviewed this report on Form 10-QSB of Art's-Way Manufacturing Co., Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure control and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has most recent fiscal affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: October 16, 2006 /s/ Michael B. Hilderbrand - ------------------------ Chief Executive Officer EX-31 3 cfo321my.txt Exhibit 31.2 CERTIFICATIONS I, Carrie L. Majeski, certify that: 1. I have reviewed this report on Form 10-QSB of Art's-Way Manufacturing Co., Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure control and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has most recent fiscal affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: October 16, 2006 /s/ Carrie L. Majeski - ---------------------------- Chief Financial Officer EX-10 4 exhbt101.txt Exhibit 10.10 ASSET PURCHASE AGREEMENT THIS AGREEMENT is made and entered into this 2nd day of August, 2006 by and among Arts-Way Manufacturing Co., Inc., a Delaware corporation ("Buyer"), and Freedom Bank, a bank organized and existing under the laws of the State of Iowa ("Seller"). RECITALS Seller is presently the owner as the secured party transferee of certain assets and properties formerly used by Techspace, Inc., in the business of the design, manufacture, and installation of custom research or diagnostic facilities for laboratory animal research, for biocontainment, public health and general laboratory requirements that are distributed to third party purchasers (the "Subject Business") which assets were voluntarily surrendered to Seller who was the holder of a security interest therein. Buyer desires to purchase the Subject Business, including the assets connected therewith, from Seller all on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual promises, covenants, agreements and other good and valuable consideration hereinafter set forth, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby promise and agree as follows: 1. ASSETS TO BE PURCHASED AND EXCLUDED. (a) Personal Property. Subject to the terms and conditions set forth in this Agreement, Seller agrees to sell, convey, assign and deliver to Buyer and Buyer agrees to purchase from Seller at the Closing (as defined in Section 6) the following assets owned as provided above by Seller and used by Techspace, lnc%, in the operation of the Subject Business as they exist on the Closing Date (collectively, the "Subject Assets"): (i) all machinery, equipment, furniture and fixed assets surrendered by Techspace, Inc. to Seller including without limitation those items identified or described, on attached Exhibit A and incorporated herein. (ii) all inventories of raw materials, work in process, and finished goods (including all such inventory at Techspace, Inc.s facility in Monona, Iowa); (the "Inventory"); (iii) all purchase orders, order backlog, engineering, all drawings, designs, specifications, process information, performance data, software, programs, backlog, contracts, proprietary designs and other information, and data relating to the Subject Business and related equipment listed; (iv) all sales and customer lists and records, personnel and payroll records, purchasing, supplier and sale records (the "Subject Business Records"); (v) all supplies, packaging materials, marketing and sales literature, consumable materials and other miscellaneous items of similar character; and, (vi) any and all intellectual property, trademarks, patents, phone numbers, website, e-mail addresses, and any other goodwill of the Subject Business. (vii) all accounts receivable that are less than 91 days old arising in the ordinary course of Techspace, Inc.s business from the sale of products to customers. (viii) all other property located at Techspace, Inc.s facility in Monona, Iowa. (b) Real Property. The real property previously occupied by Techspace, Inc., was deeded to Freedom Bank and is being transferred to Arts Way Manufacturing Company, Inc. by Freedom Bank. The real property being transferred to Arts Way Manufacturing Company, Inc. is legally described as follows: Lot One (1) of Lot One (1) of Lot Nine (9) in the Northeast Quarter (NEI/4) of the Southeast Quarter (SE1/4) of Section Fourteen (14), Township Ninety-five (95) North, Range Five (5), West of the 5th P.M., in the City of Monona, Clayton County, Iowa, according to Plat recorded in Book 8, Plats, Page 85; EXCEPT Lot One (1) of Lot One (1) of Lot One (1) of Lot Nine (9) thereof; AND Lot One (1) of Lot One (1) of Lot One (1) of Lot Nine (9) in the Northeast Quarter (NE1/4) of the Southeast Quarter (SE1/4) of Section Fourteen (14), Township Ninety-Five (95) North, Range Five (5), West of the P.M., in the City of Monona, in Clayton County, Iowa, according to Plat recorded in Book 14, Plats, Page 49. AND Lot Two (2) of Lot One (1) of Lot Nine (9) of the Northeast Quarter (NE1/4) of the Southeast Quarter (SE1/4) of Section Fourteen (14), Township Ninety-Five (95) North, Range Five(s), West of the hh1 P.M., in Clayton County, Iowa, according to the recorded Platthereof in Book 8, Land Rats, Page 85 in the office of the Clayton County Recorder. (c) Excluded Assets. Except as provided, the Subject Assets shall not include any of the following (collectively, the "Excluded Assets"): (i) any cash, or cash equivalent assets of Subject Business; (ii) Techspace, Inc.s corporate minute book, financial statements and records, stock records or tax returns; (iii) any personal effects of the shareholders, directors, officers and employees of the Techspace, Inc. described on the attached Exhbit B; and (iv) a certain Kyocera Mita KM3035 copier with Base, Finisher, Print Controller and Document Feeder that are subject to a lease with Great America Leasing Corporation lease number 330332 of Cedar Rapids, Iowa. 2. NO ASSUMPTION OF LIABILITIES. Buyer shall assume no obligations or liabilities of Seller or Techspace, Inc., whatsoever, of any kind or nature, whether they are accrued, absolute, contingent or otherwise. Arts-Way Manufacturing Company, Inc. shall be liable for any road use taxes payable in connection with the purchase of vehicles contemplated herein. The transfer taxes on the real estate shall be charged against the purchase price to be received by Seller at closing. Seller assumes no liability for any and all taxes, accounts payable, claims (both known and unknown), and debts incurred by, assessed against, and/or in the name of Techspace, Inc. 3. PURCHASE PRICE; ADJUSTMENT; PAYMENT; ALLOCATION. (a) Purchase Price for Personal Property. Subject to the adjustments in Section 3(b), the purchase price for the Subject Assets is One Million Four Hundred Fifty One Thousand Eight Hundred Fifty Nine Dollars ($1,451,859). Buyer has deposited with Techspace, Inc.s broker, Equity Partners, Inc. the sum of $145,000 as earnest money (herein "Earnest Money") which Earnest Money, together with any interest thereon, shall be applied to the purchase price at closing. (b) Adjustments to Purchase Price. The Purchase Price shall be adjusted upward or downward by the sum of the following adjustments: (i) Accounts Receivable Adjustment. The purchase price shall be calculated as a percentage of their face amount according to age as follows: those less than 30 days old shall be valued at 90% of the face amount thereof; those 31 to 60 days old shall be valued at 80% of the face amount thereof; and, those 61 to 90 days old shall be valued at 70% of the face amount thereof. No accounts receivable more than 90 days old shall be purchased. The valuation of the currently existing accounts receivable is calculated as set forth in the following table: Age Less Than 31-60 Days 61-90 Days Total 30 Days Valuation Face Amount* 360,749.20 1,181.21 295.00 $362,225.38 Percentage 90% 80% 70% of Face Amount Valuation 324,674.28 944.97 206.50 $325,825.75 No account receivable shall be given a value in making such calculation that is not an account receivable from a customer arising from the sale of goods by Techspace, Inc., in the ordinary course of business. In applying the foregoing valuation, the face amount of all accounts receivable shall be net of all offsets and applicable discounts. No account receivable which is contested in whole or in part by the debtor thereon shall be included as an account receivable in determining the foregoing valuation nor shall it be transferred to Buyer but shall be retained by Seller. No account receivable shall be given a value in making such calculation with respect to which the debtor on such account receivable is also a creditor of Techspace, Inc. (ii) Inventory Valuation. The purchase price of the inventory shall be calculated as a percentage of such inventorys original cost or its current market value if lower than original cost (hereinafter "Inventory Cost") according to age as follows: Inventories (including both Work in Process (WIP) and other inventory less than six months old shall be valued at 75% of the Inventory Cost thereof, Inventories (including both Work in Process (WIP) and other inventory six month old or more than six months old shall be valued at 0% of the Inventory Cost thereof (Note a shrink factor was determined to be 3.13% based on a sampling of inventory counted by Buyer and Techspace, Inc. representatives and has been taken into account in calculating the current inventory value shown in the table below), Obsolete inventory that is useable in existing orders shall be valued at 10% of the Inventory Cost thereof. The valuation of the currently existing Inventory valued using the foregoing schedule, is illustrated on Exhibit "C". Any item of inventory that is not new, is damaged, is otherwise unusable for the purpose intended, is in excess of a 6 month supply at current production rates, or is not used in the production of products in Techspace, Inc.s current product line shall be given a value of zero with the exception of the useable old inventory referred to above. (iii) Adjustment for Customer Deposits. The purchase price shall be reduced by the amount of any customer deposits or prepayments for future delivery of goods that are not turned over to purchaser. (c) Purchase Price for Real Property. At the closing, Buyer shall pay Seller the sum of $539,030 for the real property deeded to it as is legally described in paragraph 1(b) above subject to adjustments for real estate closing costs as are set forth on Exhibit C attached. (d) Paymentof Purchase Price. AttheClosing, Buyershall paythe Purchase Price via cashiers check or wire transfer, as the parties shall agree. Seller agrees that certain lien, lease, tax, commissions or other payments with respect to the Subject Assets and the property subject to the lease provided for in Paragraph 4. shall be made out of the purchase price and that the purchase price shall be distributed to those persons and in those amounts shown on the Schedule of Distribution of Purchase Price attached hereto as Exhibit C-I at closing. Payment of the Purchase Price in accordance with said Schedule shall constitute full payment of the Purchase Price by Buyer. (e) Allocation of Purchase Price. The Purchase Price shall be allocated among the Subject Assets as follows: Item Amount Real Property 539,030.00 Rental Buildings 325,525.00 Equipment and Machinery 105,937.00 Intellectual Property and Intangibles Accounts Receivable 11,573.00 Vehicles 33,428.00 WIP 94,040.00 Inventories 28,074.00 Total $1,137,606.00 The parties hereto agree to report the amounts payable under this Agreement and under the documents and agreements executed in connection herewith in a manner consistent with the intentions of the parties as indicated in such documents and agreements. In addition, the parties hereto agree not to take any position on their respective federal income tax returns (including Internal Revenue Service form 8594) which is inconsistent with such allocations. The allocations above contain the allocation of purchase price among whole categories of Assets. Buyer may at any time up to the date of closing make further allocations of the amount designated for each category of Assets to the specific items within each such category. (f) Good Faith Deposit Buyer has deposited with Techspace, Inc.s broker, Equity Partners, Inc. $145,000.00 representing a Good Faith Deposit. Said Good Faith Deposit, together with all accrued interest, shall be applied against payment of the purchase price set forth above at Closing. 4. REAL ESTATE. Subject to and in accordance with the terms of this Agreement, Freedom Bank shall deed the real property formerly owned by Techspace, Inc. located at 203 Oak Street, Monona, Iowa, legally described in Paragraph 1(b) above to Buyer via Warranty Deed in substantially the form of Exhibit D and incorporated herein. 5. CLOSING. (i) Time and Place of Closing. The closing of the purchase and sale contemplated herein (the "Closing") shall take place on August 1, 2006 or as soon thereafter after as Buyer shall be satisfied with Sellers ability to deliver clear title to the assets being sold. Closing shall take place at the offices of Freedom Bank, in Monona, Iowa or such other time and place as Seller and Buyer may agree. The effective time of the Closing shall be deemed to 12:01 a.m. CDT on the Closing Date. (b) Sellers Deliveries. At the Closing, Seller shall deliver to Buyer the following: (i) a transfer statement pursuant to Section 554.9619 of the Iowa Code, together with any bills of sale, assignments, certificates of title and such other instruments of conveyance as Buyer shall reasonably require, in a form reasonably satisfactoryto Buyer and Buyers counsel, duly executed, conveying to Buyerthe Subject Assets, free and clear of all liens, claims and encumbrances; (ii) a certificate from the Secretary of Seller, in a form reasonably satisfactory to Buyer and Buyers counsel, setting forth the resolutions adopted by the board of directors of Seller authorizing the execution of this Agreement and all documents to be executed in connection herewith and the taking of any and all actions deemed necessary and advisable to consummate the sale of the Subject Assets; (iii) actual or constructive possession of the Subject Assets and the Subject Business Records; (iv) duly executed satisfactions, termination statements and/or releases in form and substance reasonably satisfactory to Buyer and its counsel sufficient to release any and all liens, claims or encumbrances of Seller affecting the Subject Assets; (v) such other instruments as Buyer may reasonably request to vest in Buyer, full and unencumbered title to the Subject Assets. (c) Buyers Deliveries. At the Closing, Buyer shall deliver to Seller the Purchase Price in the manner specified pursuant to Section 3(a). 6. WARRANTIES AND REPRESENTATIONS OF SELLER. Seller hereby warrants and represents to Buyer, which warranties and representations shall survive the Closing as hereinafter set forth, as follows: (a) Corporate Matters. (i) Seller is a corporation duly incorporated and validly existing under the laws of the State of Iowa and has the authority and power, corporate and otherwise, to carry on all business activities currently or previously conducted by it. Seller has the corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement, the agreements and instruments relating hereto and the consummation of the transactions contemplated hereby have been approved by the board of directors of Seller and are and shall constitute valid and legally binding obligations of Seller, enforceable against it in accordance with their respective terms. (ii) The execution of this agreement and the consummation hereof, do not conflict, or result in the breach of, or constitute a default under, the articles of incorporation or bylaws of Seller or any material agreement or instrument affecting the Subject Assets of which Seller has knowledge and to which Seller is a party or by which it is bound. (b) No Consent. No consent, approval, order or authorization of, registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, is required to be obtained or made by or with respect to the Subject Assets as a condition to the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. (c) Title to Subject Assets. Seller owns as hereinbefore provided, and shall at closing assign, transfer and convey to Buyer all of Techspace, Inc.s rights to legal and beneficial ownership of all of the Subject Assets free and clear of all liens or encumbrances whatsoever. (d) Compliance with Law. Seller has complied in all material respects with applicable Iowa Law concerning obtainment of the Subject Assets and transfer of same to Buyer. (d) Location of Assets: All of the Subject Assets are located at 203 Oak Street, Monona, Iowa unless they are on assignment to a project in the state of Iowa. (e) Notice Regarding Changes: Seller shall promptly inform Buyer in writing of any change in facts and circumstances that will render any of the representations or warranties made herein by Seller inadequate or misleading if such representations and warranties had been made upon the occurrence of the fact or circumstance in question. 7. CONDITIONS TO CLOSING. The obligations of the Buyer to close this transaction are specifically conditioned upon the occurrence of, or satisfaction of, the following events and conditions: (a) Techspace, Inc. and Buyer shall have conducted a physical inventory on or before closing which results are satisfactory to Buyer and approved and accepted by Techspace, Inc. for purposes of determining an adjustment to the purchase price under paragraph 3(b); (b) All representations and warranties of Seller as contained in this agreement shall be true and correct in all material respects at and as of the closing as if such representations and warranties were made at and as of the closing (except for changes contemplated by the terms of this agreement), and Seller shall have performed and satisfied in all material respects all covenants and agreements required by this agreement to be performed and satisfied by it at or prior to closing. (c) There shall not have occurred any damage, destruction or loss of any of the Subject Assets (whether or not covered by insurance). 8. CONDUCT SUBSEQUENT TO CLOSING. (a) Execution and Delivery of Further Instruments by Seller. Seller shall as reasonably necessary upon the request of Buyer or its successors or assigns, execute, acknowledge and deliver to Buyer or its successors or assigns such further instruments of conveyance, assignment, transfer, powers of attorney, consents and assurances and shall take such other action as Buyer or its successors or assigns may reasonably request in order to convey, assign, transfer and deliver any of the Subject Assets to Buyer. (b) Execution and Delivery of Further Instruments by Buyer. Buyer shall at anytime, and from time to time after the Closing upon the request of Seller, or its successors or assigns, execute, acknowledge and deliver to the requesting party such further instruments and take such other actions as Seller may reasonably request in order to more effectively consummate the transactions contemplated by this Agreement. (c) Access to Business Records. From and after the Closing Date, the Buyer shall use ordinary care to maintain the business records of Techspace, Inc. acquired by it pursuant hereto and, damage by fire or other casualty or accident excepted, shall not for a period of seven (7) years after the Closing Date destroy or dispose of any such records unless it shall first have notified Seller of its intention to do so in writing and shall have afforded Seller an opportunity to take possession thereof. For the seven calendar years following closing, Seller, Techspace, Inc. and its owners shall have access to business records of Techspace, Inc., as needed, on all normal business days provided that Seller, Techspace, Inc., or either of its owners, Daniel H. Palmer, J. Keith Wilson, Margaret H. Wilson, William E. Britz, Jr. Marina S. Britz, provide 48 hour written notice to Buyer or its assigns. The obligation contained herein to provide access to business records shall survive the closing and shall be an obligation of any successor in interest to Buyer. (d) Survival of Obligations. Unless otherwise provided, the representations and obligations contained in this Agreement will survive the consummation of the transactions contemplated by this Agreement. Any investigation made at any time by Buyer or Buyers representatives shall not constitute a waiver of Buyers rights under any representation set forth in this Agreement. 9. BUYERS RIGHT OF TERMINATION: Buyer shall have the right and option to terminate this contract immediately upon the happening of any of the following: a. Upon breach by Seller of any representation or warranty made by Seller herein. b. Upon Sellers ceasing, prior to closing, operations of its business in the normal course and as a going concern. c. Upon the failure of Seller to satisfy any condition precedent to Buyers obligation to close hereunder set forth in this agreement In the event Buyer shall elect to terminate this agreement pursuant to the option to terminate contained in this Paragraph 9, upon written notice of such election by Buyer to Seller, this contract shall be deemed terminated. 10. MISCELLANEOUS. (a) Expenses. The parties hereto shall pay their own expenses, including, without limitation, accountants and attorneys fees incurred in connection with the negotiation and consummation of the transactions contemplated by this Agreement. (b) Notices. All notices or other communications required or permitted to be given hereunder to either party shall be in writing and shall be considered to be given and received in all respects when personally delivered or sent by prepaid telex, cable or telecopy or sent by reputable overnight courier service or three days after deposited in the United States mail, certified mail, postage prepaid, return receipt requested, addressed as follows, orto such other address as shall be designated by notice duly given: IF TO BUYER: Arts-Way Manufacturing Co., Inc. Attn: Michael B. Hilderbrand, President P0 Box 288 Armstrong, Iowa 50514 (712) 864-3131, ext. 222 fax (712) 864-3393 e-mail artsway@ncn.net WITH A COPY TO: Everette L. Wooten, Jr. 600 Plaza Blvd. Kinston, NC 28501-1600 (252) 523-8000 fax (252) 523-2060 e-mail wootencolevearthlink. net IF TO SELLER: Freedom Bank c/o James Burger, President 106 South Main Monona, IA 52159 WITH A COPY TO: Kevin Clefisch Clefisch & Saunders Attorneys at Law 108 S. Main, Box 37 Garnavillo, IA 52049 (c) Public Announcements. The parties shall mutually agree as to what, if any, public announcements are to be made after the sale. Except as may be required by law there shall be no announcement of the Purchase Price by either party. (d) Entire Agreement This Agreement, and the agreements executed and delivered simultaneously herewith constitute the entire agreement between the parties hereto relating to the subject matter hereof, and all prior agreements, correspondence, discussions and understandings of the parties (whether oral or written) are hereby superseded, it being the intention of the parties hereto that this agreement shall serve as the complete and exclusive statement of the terms of their agreement together. No amendment, waiver or modification hereto or hereunder shall be valid unless in writing signed by an authorized signatory of the party or parties to be affected thereby. (e) Binding Effect. This Agreement shall be binding upon the parties hereto, their respective legal representative, successors, and assigns. (f) Paragraph Headings. The headings in this Agreement are for purposes of convenience and ease of reference only and shall not be construed to limit or otherwise affect the meaning of any part of this Agreement. (g) Severability. The parties agree that if any provision of this Agreement shall under any circumstances be deemed invalid or inoperative, this Agreement shall be construed with the invalid or inoperative provision deleted, and the rights and obligations of the parties shall be construed and enforces accordingly. (h) Applicable Law. This Agreement and all questions arising in connection herewith shall be governed by and construed in accordance with the laws of the State of Iowa. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day, month and year first above written. SELLER: BUYER: Freedom Bank Arts-Way Manufacturing Co., Inc. By: /s/ Keith L. Garms By: /s/ J. Ward McConnell, Jr. Keith L. Garms, President J. Ward McConnell, Jr. Chairman of the Board EX-32 5 exhbt321.txt Exhibit 32.1 CERTIFICATION OF FINANCIAL STATEMENTS Pursuant to 18 U.S.C. 63 1350, the President/Chief Executive Officer of Art's-Way Manufacturing Co., Inc. (the "Company"), hereby certify that this Form 10-QSB and the financial statements thereto fully comply with the requirements of Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-QSB and the financial statements thereto fairly present, in all material respects, the financial condition and results of operations of the Company. By: /s/ Michael B. Hilderbrand Name: Michael B. Hilderbrand President and Chief Executive Officer Date 10/16/06 EX-32 6 exhbt322.txt Exhibit 32.2 CERTIFICATION OF FINANCIAL STATEMENTS Pursuant to 18 U.S.C. 63 1350, the Chief Financial Officer of Art's-Way Manufacturing Co., Inc. (the "Company"), hereby certify that this Form 10-QSB and the financial statements thereto fully comply with the requirements of Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-QSB and the financial statements thereto fairly present, in all material respects, the financial condition and results of operations of the Company. By: /s/ Carrie L. Majeski Name: Carrie L. Majeski Chief Financial Officer Date 10/16/06 -----END PRIVACY-ENHANCED MESSAGE-----