Unassociated Document
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 February
29,
2008 |
|
|
o |
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 Incorporation or Organization)
|
I.R.S.
Employer Identification No.
|
5556
Highway 9, 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
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
Number
of
common shares outstanding as of March 11th,
2008:
1,986,176
Transitional
Small Business Disclosure Format (check one): Yes o No x
ART’S-WAY
MANUFACTURING CO., INC.
Consolidated
Balance Sheets
|
|
|
(Unaudited)
|
|
|
|
|
|
February
|
|
November
|
|
|
|
2008
|
|
2007
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
|
|
$
|
4,113,189
|
|
$
|
612,201
|
|
Accounts
receivable-customers, net of allowance for doubtful
|
|
|
|
|
|
|
|
accounts
of $129,423 and $148,636 in 2008 and 2007, respectively
|
|
|
2,758,393
|
|
|
3,087,781
|
|
Inventories,
net
|
|
|
10,252,366
|
|
|
8,636,602
|
|
Deferred
taxes
|
|
|
792,000
|
|
|
773,555
|
|
Cost
and Profit in Excess of Billings
|
|
|
9,101
|
|
|
265,615
|
|
Other
current assets
|
|
|
621,973
|
|
|
408,870
|
|
Total
current assets
|
|
|
18,547,022
|
|
|
13,784,624
|
|
Property,
plant, and equipment, net
|
|
|
6,005,820
|
|
|
5,497,200
|
|
Covenant
not to Compete
|
|
|
285,000
|
|
|
300,000
|
|
Goodwill
|
|
|
375,000
|
|
|
375,000
|
|
Other
Assets
|
|
|
-
|
|
|
9,771
|
|
Total
assets
|
|
$
|
25,212,842
|
|
$
|
19,966,595
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Notes
payable to bank
|
|
$
|
-
|
|
$
|
397,859
|
|
Current
portion of term debt
|
|
|
252,238
|
|
|
250,027
|
|
Accounts
payable
|
|
|
1,873,488
|
|
|
1,368,988
|
|
Customer
deposits
|
|
|
3,056,525
|
|
|
53,196
|
|
Billings
in Excess of Cost and Profit
|
|
|
1,024,954
|
|
|
7,675
|
|
Accrued
expenses
|
|
|
1,207,781
|
|
|
1,323,008
|
|
Income
taxes payable
|
|
|
394,078
|
|
|
146,905
|
|
Total
current liabilities
|
|
|
7,809,064
|
|
|
3,547,658
|
|
Long-term
liabilities
|
|
|
|
|
|
|
|
Deferred
taxes
|
|
|
201,010
|
|
|
205,998
|
|
Term
debt, excluding current portion
|
|
|
6,523,488
|
|
|
6,069,657
|
|
Total
liabilities
|
|
|
14,533,562
|
|
|
9,823,313
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Common
stock - $0.01 par value. Authorized 5,000,000 shares; issued
1,986,176 and
1,984,176 shares in 2008 and 2007
|
|
|
19,862
|
|
|
19,842
|
|
Additional
paid-in capital
|
|
|
1,887,572
|
|
|
1,828,427
|
|
Retained
earnings
|
|
|
8,771,846
|
|
|
8,295,013
|
|
Total
stockholders’ equity
|
|
|
10,679,280
|
|
|
10,143,282
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
25,212,842
|
|
$
|
19,966,595
|
|
See
accompanying notes to consolidated financial
statements.
|
ART’S-WAY
MANUFACTURING CO., INC.
Consolidated
Statements of Operations
Condensed
|
|
|
Three
Months Ended
|
|
|
|
February
|
|
February
|
|
|
|
2008
|
|
2007
|
|
Net
sales
|
|
$
|
6,748,514
|
|
$
|
5,275,037
|
|
Cost
of goods sold
|
|
|
4,573,192
|
|
|
3,776,777
|
|
Gross
profit
|
|
|
2,175,322
|
|
|
1,498,260
|
|
Expenses:
|
|
|
|
|
|
|
|
Engineering
|
|
|
75,468
|
|
|
79,088
|
|
Selling
|
|
|
452,814
|
|
|
232,347
|
|
General
and administrative
|
|
|
833,115
|
|
|
679,826
|
|
Total
expenses
|
|
|
1,361,397
|
|
|
991,261
|
|
Income
from operations
|
|
|
813,925
|
|
|
506,999
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(122,632
|
)
|
|
(105,971
|
)
|
Other
|
|
|
41,779
|
|
|
182,689
|
|
Total
other expense
|
|
|
(80,853
|
)
|
|
76,718
|
|
Income
before income taxes
|
|
|
733,072
|
|
|
583,717
|
|
Income
tax
|
|
|
256,241
|
|
|
203,388
|
|
Net
income
|
|
$
|
476,831
|
|
$
|
380,329
|
|
Net
income per share:
|
|
|
|
|
|
|
|
Basic
|
|
|
0.24
|
|
|
0.19
|
|
Diluted
|
|
|
0.24
|
|
|
0.19
|
|
See
accompanying notes to consolidated financial
statements.
|
ART’S-WAY
MANUFACTURING CO., INC.
Consolidated
Statements of Cash Flows
Condensed
|
|
|
Three
Months Ended
|
|
|
|
February
|
|
February
|
|
|
|
2008
|
|
2007
|
|
Cash
flows from operations:
|
|
|
|
|
|
Net
income
|
|
$
|
476,831
|
|
$
|
380,329
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
43,805
|
|
|
1,375
|
|
(Gain)
Loss on sale of property, plant, and equipment
|
|
|
-
|
|
|
334,040
|
|
Depreciation
expense
|
|
|
124,663
|
|
|
75,957
|
|
Amortization
expense
|
|
|
15,000
|
|
|
-
|
|
Deferred
income taxes
|
|
|
(23,433
|
)
|
|
-
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
329,388
|
|
|
(637,125
|
)
|
Inventories
|
|
|
(1,615,764
|
)
|
|
(828,119
|
)
|
Other
current assets
|
|
|
(213,103
|
)
|
|
(37,282
|
)
|
Insurance
Receivable
|
|
|
248,872
|
|
|
(871,400
|
)
|
Other,
net
|
|
|
(239,100
|
)
|
|
13,762
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
504,500
|
|
|
762,998
|
|
Contracts
in progress, net
|
|
|
1,273,793
|
|
|
403,430
|
|
Customer
deposits
|
|
|
3,003,329
|
|
|
1,410,053
|
|
Income
taxes payable
|
|
|
247,173
|
|
|
107,005
|
|
Accrued
expenses
|
|
|
(115,227
|
)
|
|
(187,028
|
)
|
Net
cash provided by operating activities
|
|
|
4,060,727
|
|
|
927,995
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of property, plant, and equipment
|
|
|
(633,282
|
)
|
|
(71,101
|
)
|
Net
cash (used in) investing activities
|
|
|
(633,282
|
)
|
|
(71,101
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Net
change in line of credit
|
|
|
(397,859
|
)
|
|
412,527
|
|
Payments
of notes payable to bank
|
|
|
(43,958
|
)
|
|
(53,724
|
)
|
Proceeds
from term debt
|
|
|
500,000
|
|
|
-
|
|
Proceeds
from the exercise of stock options
|
|
|
15,360
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
73,543
|
|
|
358,803
|
|
Net
increase in cash
|
|
|
3,500,988
|
|
|
1,215,697
|
|
Cash
at beginning of period
|
|
|
612,201
|
|
|
2,072,121
|
|
Cash
at end of period
|
|
$
|
4,113,189
|
|
$
|
3,287,818
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid/(received) during the period for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
123,931
|
|
$
|
105,970
|
|
Income
taxes
|
|
|
32,500
|
|
|
282,000
|
|
See
accompanying notes to consolidated financial
statements.
|
Notes
to Consolidated Financial Statements
(1) Summary
of Significant Account 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, 2007.
The
results of operations for the three months ended February 29, 2008 are not
necessarily indicative of the results for the fiscal year ending November 30,
2008.
(2)
Income Per Share
Basic
net
income per common share has been computed on the basis of the weighted average
number of common shares outstanding. Diluted net income per share has been
computed on the basis of the weighted average number of common shares
outstanding plus equivalent shares assuming exercise of stock
options.
Basic
and
diluted earnings per common share have been computed based on the following
as
of February 29, 2008 and 2007:
|
|
2008
|
|
2007
|
|
Basic:
|
|
|
|
|
|
Numerator,
net income
|
|
$
|
476,831
|
|
$
|
380,329
|
|
Denominator:
Average number
|
|
|
|
|
|
|
|
of
common shares
|
|
|
|
|
|
|
|
outstanding
|
|
|
1,985,055
|
|
|
1,978,176
|
|
Basic
earnings per
|
|
|
|
|
|
|
|
common
share
|
|
$
|
0
.24
|
|
$
|
0.19
|
|
Diluted
|
|
|
|
|
|
|
|
Numerator,
net income
|
|
$
|
476,831
|
|
$
|
380,329
|
|
Denominator:
Average number
|
|
|
|
|
|
|
|
of
common shares outstanding
|
|
|
1,985,055
|
|
|
1,978,176
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive stock options
|
|
|
10,690
|
|
|
254
|
|
|
|
|
1,995,745
|
|
|
1,978,430
|
|
Diluted
earnings per
|
|
|
|
|
|
|
|
common
share
|
|
$
|
0.24
|
|
$
|
0.19
|
|
Major
classes of inventory are:
|
|
February
29, 2008
|
|
November
30, 2007
|
|
Raw
materials
|
|
$
|
6,389,118
|
|
$
|
4,468,920
|
|
Work
in process
|
|
|
567,062
|
|
|
336,108
|
|
Finished
goods
|
|
|
4,578,231
|
|
|
5,033,063
|
|
|
|
$
|
11,534,411
|
|
$
|
9,838,091
|
|
Less:
Reserves
|
|
|
(1,282,045
|
)
|
|
(1,201,489
|
)
|
|
|
$
|
10,252,366
|
|
$
|
8,636,602
|
|
(4) Accrued
Expenses
Major
components of accrued expenses are:
|
|
February
29, 2008
|
|
November
30, 2007
|
|
Salaries,
wages, and commissions
|
|
$
|
682,767
|
|
$
|
562,806
|
|
Accrued
warranty expense
|
|
|
238,198
|
|
|
262,665
|
|
Other
|
|
|
286,816
|
|
|
497,537
|
|
|
|
$
|
1,207,781
|
|
$
|
1,323,008
|
|
(5) Product
Warranty
The
Company offers 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 1 year from the 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 months ended February
29, 2008 and February 28, 2007 are as follows:
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Balance,
beginning
|
|
$
|
262,665
|
|
$
|
230,740
|
|
Settlements
made in cash or in-kind
|
|
|
(150,652
|
)
|
|
(107,694
|
)
|
Warranties
issued
|
|
|
126,185
|
|
|
98,043
|
|
Balance,
ending
|
|
$
|
238,198
|
|
$
|
221,089
|
|
(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 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 February 29, 2008 and November 30,
2007, the Company had borrowed $0 and $397,859 respectively, against the line
of
credit. The available amounts remaining on the line of credit were $3,500,000
and $3,102,141 on February 29, 2008 and November 30, 2007, respectively. 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 work-in-process inventory plus 40% of
appraisal value of machinery and equipment.
On
June
7, 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 plus 2.75 bps fixed for 5
years
and then adjusted to the prevailing same index and margin on the fifth
anniversary of the loan for the balance of the term. For the first five years
the interest is fixed 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. A final payment of principal and accrued interest is due on May 1, 2017.
The
Company obtained two additional loans in 2007. Both of these loans are to
finance the construction of the new facilities in Monona and Dubuque. On October
9, 2007, the Company obtained a loan for $1,330,000 that bears interest at
the
U.S. daily 5-year treasury index plus 2.75 bps, fixed at 7% for 5 years and
then
adjusted to the prevailing same index and margin on the fifth anniversary for
the balance of the term. Monthly payments of $9,500 are required for principal
and interest, with a final payment of accrued interest and principal due on
May
1, 2017. On November 30, 2007, the Company obtained a construction loan to
finance the Dubuque, Iowa facility. This loan has a principal amount of
$1,500,000. The loan bears interest at the U.S. daily 5-year treasury index
plus
2.75 bps, fixed at 7.25% for 5 years and then adjusted to the prevailing same
index and margin on the fifth anniversary for the balance of the term. On
December 19, 2007, the additional $500,000 available was disbursed. Payments
of
$11,000 are due monthly for principal and interest, with a final accrued
interest and principal payment due on May 1, 2017. Both loans are secured by
unlimited guarantees of Art’s Way Vessels, Inc. and Art’s Way Scientific,
Inc.
Prior
to
the refinancing discussed above, 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 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 $15,000
for the quarter ended February 28, 2007.
A
summary
of the Company’s term debt is as follows:
|
|
February
29, 2008
|
|
November
30, 2007
|
|
|
|
|
|
|
|
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
then due May 1, 2017 (A)
|
|
|
3,954,319
|
|
|
3,989,684
|
|
|
|
|
|
|
|
|
|
West
Bank loan payable in monthly installments of $9,500 including interest at
the U.S daily 5-year treasury index plus 2.75 bps fixed for 5 years
and
then due May 1, 2017 (A)
|
|
|
1,321,407
|
|
|
1,330,000
|
|
|
|
|
|
|
|
|
|
West
Bank loan payable in monthly installments of $11,000 including interest
at
the U.S daily 5-year treasury index plus 2.75 bps fixed for 5 years
and
then due May 1, 2017 (A)
|
|
|
1,500,000
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
Total
term debt
|
|
|
6,775,726
|
|
|
6,319,684
|
|
Less
current portion of term debt
|
|
|
252,238
|
|
|
250,027
|
|
Term
debt, excluding current portion
|
|
$
|
6,523,488
|
|
$
|
6,069,657
|
|
(A)
Covenants include, but are not limited to, debt service coverage ratio and
debt/tangible net worth ratio. These loans are secured by real estate and an
unlimited guarantee of Art’s Way Vessels, Inc. and Art’s Way Scientific,
Inc.
(7) 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 adoption
of
FIN 48 has not had any material impact on the Company’s financial position,
results of operations, or cash flows.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosure about fair
value measurements. The statement does not require any new fair value
measurements, but for some entities, the application of the statement will
change current practice. This statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. FASB Staff Position FAS 157-1 and FAS 157-2 were
issued in February 2008. FSP FAS 157-1 amends SFAS No. 157 to exclude
pronouncements that address the fair value measurement for lease classifications
from the scope of SFAS No. 157. FSP FAS 157-2 delays the effective date of
SFAS
No. 157 to fiscal years beginning after November 15, 2008. This delay does
not
include items that are recognized or disclosed at fair value in the financial
statements on a recurring basis. Neither FSP FAS 157-1 nor FSB FAS 157-2 have
had any material effect on the financial statements. SFAS No. 157 has been
adopted by the Company, and has had no material impact on its financial
statements.
In
December 2007, the FASB issued FASB Statement No. 141 (Revised 2007) “Business
Combinations,” which requires the Company to record fair value estimates of
contingent consideration and certain other potential liabilities during the
original purchase price allocation, expense acquisistion costs as incurred
and
does not permit certain restructuring activities previously allowed to be
recorded as a component of purchase accounting. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is on
or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008, except for the presentation and disclosure requirements,
which shall be applied retrospectively for all periods presented. The Company
has not determined the effect that the adoption of SFAS No. 141(R) will have
on
the financial results of the Company.
In
December 2007, the FASB issued FASB Statement No. 160 “Noncontrolling Interests
in Consolidated Financial Statements - an amendment of ARB No. 51,” which causes
noncontrolling interests in subsidiaries to be included in the equity section
of
the balance sheet. SFAS No. 160 applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008, except for the
presentation and disclosure requirements, which shall be applied retrospectively
for all periods presented. The Company has not determined the effect that the
adoptions of SFAS No. 160 will have on the financial results of the
Company.
In
December 2007, the SEC published SAB 110, Share-Based
Payment.
The
interpretations in SAB 110 express the SEC staff's views regarding the
acceptability of the use of a "simplified" method, as discussed in SAB 107,
in developing an estimate of expected term of share options in accordance with
FASB Statement No. 123 (Revised) Share-Based
Payment.
The use
of the simplified method requires
our option plan to be consistent with a "plain vanilla" plan and was originally
permitted through December 31, 2007 under SAB 107. In December 2007,
the SEC issued SAB 110, Share-Based
Payment,
to
amend the SEC's views discussed in SAB 107 regarding the use of the
simplified method in developing an estimate of expected life of share options
in
accordance with FAS No. 123(R). SAB 110 is effective for the Company
beginning December 31, 2007. The Company will continue to use the
simplified method until it has the historical data necessary to provide a
reasonable estimate of expected life, in accordance with SAB 107, as
amended by SAB 110.
In
February 2007, the FASB issued SFAS No. 159, the Fair Value Option for Financial
Assets and Financial Liabilities. SFAS 159 provides entities with an option
to
report selected financial assets and liabilities at fair value and establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that select different measurement attributes. SFAS 159 is
effective for fiscal years beginning after November 15, 2007. SFAS No. 159
has
been adopted by the Company, and has had no material impact on its financial
statements.
(8) Stock
Option Plan
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.
(9) 2007
Acquisition
Effective
September 5, 2007, the Company acquired the product lines of Miller Pro, Victor
and Badger from Miller-St. Nazianz, Inc. for a cash purchase price of
approximately $2,338,000. The operating results of the acquired business are
reflected in the Company’s consolidated statement of operations from the
acquisition date forward. The acquisition was made to continue the Company’s
growth strategy and diversify its product offerings inside 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.
(10) Segment
Information
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. 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.
|
|
|
|
|
|
Three
Months Ended February 29,
2008
|
|
|
|
Agricultural
Products
|
|
Pressurized
Vessels
|
|
Modular
Buildings
|
|
Consolidated
|
|
Revenue
from external customers
|
|
$
|
4,127,000
|
|
$
|
114,000
|
|
$
|
2,508,000
|
|
$
|
6,749,000
|
|
Income
from operations
|
|
|
531,000
|
|
|
(236,000
|
)
|
|
519,000
|
|
|
814,000
|
|
Income
before tax
|
|
|
514,000
|
|
|
(263,000
|
)
|
|
482,000
|
|
|
733,000
|
|
Total
Assets
|
|
|
18,767,000
|
|
|
2,642,000
|
|
|
3,804,000
|
|
|
25,213,000
|
|
Capital
expenditures
|
|
|
32,000
|
|
|
523,000
|
|
|
78,000
|
|
|
633,000
|
|
Depreciation
& Amortization
|
|
|
111,000
|
|
|
10,000
|
|
|
19,000
|
|
|
140,000
|
|
|
|
Three
Months Ended February 28,
2007
|
|
|
|
Agricultural
Products
|
|
Pressurized
Vessels
|
|
Modular
Buildings
|
|
Consolidated
|
|
Revenue
from external customers
|
|
$
|
3,272,000
|
|
$
|
1,052,000
|
|
$
|
951,000
|
|
$
|
5,275,000
|
|
Income
from operations
|
|
|
288,000
|
|
|
209,000
|
|
|
10,000
|
|
|
507,000
|
|
Income
before tax
|
|
|
236,000
|
|
|
187,000
|
|
|
161,000
|
|
|
584,000
|
|
Total
Assets
|
|
|
13,497,000
|
|
|
1,842,000
|
|
|
2,525,000
|
|
|
17,864,000
|
|
Capital
expenditures
|
|
|
65,000
|
|
|
6,000
|
|
|
0
|
|
|
71,000
|
|
Depreciation
& Amortization
|
|
|
60,000
|
|
|
12,000
|
|
|
4,000
|
|
|
76,000
|
|
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. Some of the statements in this report may contain forward-looking
statements that reflect our current view on future events, future business,
industry and other conditions, our future performance, and our plans and
expectations for future operations and actions. In some cases you can identify
forward-looking statements by the use of words such as “may,” “should,”
“anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,”
“estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these
terms or other similar expressions. Many of these forward-looking statements
are
located in this report under “Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION,” but they may appear in other sections as well.
You
should read this report thoroughly with the understanding that our actual
results may differ materially from those set forth in the forward-looking
statements for many reasons, including events beyond our control and assumptions
that prove to be inaccurate or unfounded. We cannot provide any assurance with
respect to our future performance or results. Our actual results or actions
could and likely will differ materially from those anticipated in the
forward-looking statements for many reasons, including the reasons described
in
this report. We are not under any duty to update the forward-looking statements
contained in this report. We cannot guarantee future results, levels of
activity, performance or achievements. We caution you not to put undue reliance
on any forward-looking statements, which speak only as of the date of this
report. You should read this report and the documents that we reference in
this
report and have filed as exhibits completely and with the understanding that
our
actual future results may be materially different from what we currently expect.
We qualify all of our forward-looking statements by these cautionary statements.
(a)
|
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 February
29, 2008 have remained unchanged from November 30, 2007. These policies involve
revenue recognition, inventory valuation and income taxes. Disclosure of these
critical accounting policies is incorporated by reference under Item 6,
“Management’s Discussion and Analysis” in our Annual Report on Form 10-KSB for
the year ended November 30, 2007.
|
(ii) |
Results
of Operations
|
Net
Sales
Our
consolidated net sales for the first quarter of 2008 were $6,749,000,
representing a 27.9% increase compared to the same period one year ago. We
believe a majority of this increase was due to the increased sales of Art’s-Way
Scientific, Inc. by 163.7% and Art’s-Way Manufacturing’s sales increase of
26.1%. These two increases, however, were offset by Art’s-Way Vessel’s decrease
in net sales of 89.2%. Art’s-Way Manufacturing had revenues totaling $4,127,074
for the three months just ended, compared to $3,272,484 for the same period
in
2007. We believe this increase in sales for Art’s-Way Manufacturing was largely
due to the 38.65% increase in sales of our grinder mixers. Art’s-Way Vessels had
revenues totaling $113,414 for the three months just ended, compared to
$1,051,596 for the same period in 2007. We believe this decrease at Art’s-Way
Vessels is primarily due to the interruption of operations during the process
of
moving into our new facility. Art’s Way Scientific has revenues totaling
$2,508,026 for the three months just ended, compared to $950,957 for the same
period in 2007. On January 16, 2007, Art’s-Way Scientific suffered the loss of
the Monona manufacturing facility to fire. The growth in revenues at Art’s-Way
Scientific is primarily due to resuming full operations in our newly constructed
manufacturing facility. Consolidated gross profit increased during the quarter
to 32.2% compared to 28.4% in 2007.
Expenses
Consolidated
operating expenses for the quarter increased $370,000 compared to 2007. As
a
percent of sales, operating expenses increased by 1.4 percentage points- 20.2%
in 2008 compared to 18.8% in 2007. Art’s-Way Manufacturing’s year to date
operating expense as a percentage of sales was 25.6%, Art’s-Way Vessels
was 95.2% and Art’s-Way Scientific was 7.8%.
General
and administrative expenses for the quarter increased $153,000 as compared
to
2007. Year to date general and administrative expenses as a percentage of sales
was 12.3% compared to 12.9% in 2007.
Engineering
expenses are down $3,600 for the quarter compared to the same quarter in 2007.
As a percent of sales, engineering expenses are down from 1.5% to 1.1%.
Selling
expenses were up for the quarter by $220,000 compared to the same quarter in
2007. As a percent of sales, selling expenses increased from 4.4% in 2007 to
6.7% in 2008. The majority of the increase is due to additional sales staff
and
trade show expenses for the Miller Pro product line.
Interest
expense for the first quarter increased due to the addition of a $1,500,000
loan
and a $1,330,000 loan in the fourth quarter of 2007. Other income decreased
by
$141,000 in the first quarter of 2008 compared to the same period in 2007.
The
decrease is primarily due to the gain recognized for the fire in Monona in
2007.
Order
Backlog
The
consolidated order backlog as of March 2008 is $20,864,000 compared to
$12,112,000 one year ago. Art’s-Way Manufacturing’s order backlog as of March is
$15,324,000 compared to $3,899,000 in 2007. Art’s-Way Vessels backlog is $83,000
compared to $2,149,000 in 2007. Our lease for our Dubuque facility for Art’s-Way
Vessels expired on October 4, 2007, and we moved into our newly constructed
facility in February 2008. We are currently finishing the installation of key
machinery, and anticipate resuming normal operations in April 2008. Art’s-Way
Scientific’s backlog is $5,457,000 as of compared to $6,064,000 in 2007. In
2007, the backlog at Art’s-Way Scientific included orders that had been
destroyed by fire during production.
Property
The
Company’s new production facility for Art’s-Way Vessels is located in the same
Industrial Park in Dubuque, Iowa. Construction is expected to be completed
in
April of 2008. The facility is 35,000 square feet and is expected to cost
approximately $2,000,000. Art’s-Way Vessels has lost a number of employees but
is working on having a full staff by the time we expect to resume complete
operations in April.
|
(iii) |
Liquidity
and Capital Resources
|
Our
main
source of funds year to date came from customer deposits which increased by
$3,003,000 over our 2007 year end. This
is a
traditional increase for us, as our beet programs run in the first quarter
and
we offer discounts to our customers for making down payments on their orders.
Art’s Way Scientific is working on two large projects that increased contracts
in progress by $1,274,000, which also increased our funds available. The
majority of the cash used by operations was due to the increased purchasing
for
Miller Pro inventory items, as well as the early purchase of steel for
production of beet harvesting equipment. Another significant use of cash was
the
expenditures for plant and equipment, primarily due to the construction of
the
manufacturing facility in Dubuque.
See
note
6 of the notes to the consolidated condensed financial statements for a
discussion of our credit facilities.
(b)
|
Off
Balance Sheet Arrangements.
|
Item
3
CONTROLS
AND PROCEDURES
Senior
management, including the Chief Executive 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 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, 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
2.
Unregistered Sales of Equity Securities
Options
Exercised
On
December 13, 2007, our director, James Lynch, exercised options to purchase
1,000 shares which were granted under our 2007 Non-employee Directors’ Stock
Option Plan. The exercise price of 1,000 shares was $7.68 per share. The total
exercise price of Mr. Lynch’s options was $7,680, which was paid in cash to the
company.
On
February 27, 2008, our Executive Chairman, J. Ward McConnell, Jr., exercised
options to purchase 1,000 shares which were granted under our 2007 Non-employee
Directors’ Stock Option Plan. The exercise price of the 1,000 shares was $7.68
per share. The total exercise price of Mr. McConnell’s options was $7,680, which
was paid in cash to the company.
ITEM
3.
Defaults Upon Senior Securities
None.
ITEM
4.
Submission of Matters to a Vote of Security Holders
None.
ITEM
5.
Other Information
None.
ITEM
6.
Exhibits
See
Exhibit Index on page 16 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:
/s/ Carrie L. Majeski
Carrie
L.Majeski
Chief
Executive Officer/President
(principal
executive and financial officer)
Exhibits
Index
Exhibit
No.
|
|
Description
|
|
Method
of Filing
|
3.1
|
|
Articles
of Incorporation of Art’s-Way Manufacturing Co., Inc.
|
|
1
|
3.2
|
|
Bylaws
of Art’s-Way Manufacturing Co., Inc.
|
|
1
|
31.1
|
|
Certificate
pursuant to 17 CFR 240 13(a)-14(a)
|
|
*
|
32.1
|
|
Certificate
pursuant to 18 U.S.C. Section 1350
|
|
*
|
(1)
|
Incorporated
by reference to the exhibit of the same number on our annual report
on
Form 10-K for the fiscal year ended May 27,
1989.
|