-----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, AOuh9mIs/8Z5RjrBZkQsUo5MGAItWuAARYhsF8A5rbVTwWxvbqM960BaXCNgy8yu YMOZ+o2gKHgzxrwUd1clsw== 0000007623-07-000012.txt : 20071015 0000007623-07-000012.hdr.sgml : 20071015 20071012184542 ACCESSION NUMBER: 0000007623-07-000012 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070831 FILED AS OF DATE: 20071015 DATE AS OF CHANGE: 20071012 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: 071170508 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 o10qsb07.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, 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. EX-31 2 exb31207.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 12, 2007 /s/ Carrie L. Majeski - ---------------------------- Chief Financial Officer (Principal Financial Officer) EX-31 3 exh31107.txt Exhibit 31.1 CERTIFICATIONS I, E.W. Muehlhausen, 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 12, 2007 /s/ E.W. Muehlhausen - ------------------------ President (Principal Executive Officer) EX-32 4 exh32107.txt Exhibit 32.1 CERTIFICATION OF FINANCIAL STATEMENTS Pursuant to 18 U.S.C. 63 1350, the President 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/ E.W. Muehlhausen Name: E.W. Muehlhausen President Date 10/12/07 EX-32 5 exh32207.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 10/12/07 -----END PRIVACY-ENHANCED MESSAGE-----