Good morning, ladies and gentlemen. Today is Thursday, October 6 and welcome to the Art's Way Manufacturing Quarterly Investor Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Your call leaders for today's call are Marc McConnell, Chairman of the Board of Directors of Art's Way Manufacturing; Carrie Gunnerson, CEO and President of Art's Way Manufacturing. I'll now turn the call over to Ms. Gunnerson. You may begin.

Thank you. I'm going to start by reading the forward-looking statement. You should note that some of the statements made during this call may be considered forward-looking statements. Forward-looking statements include, but are not limited to, statements relating to our market position, strategies for growth and future results of operation. Forward-looking statements are inherently subject to risks and uncertainties such as competitive factors, difficulties and delays in development, manufacturing, marketing and sales of Art's Way products, general economic conditions, and other risks and uncertainties described in Art's Way's periodic reports on file with the Securities and Exchange Commission. Actual results may differ materially from anticipated results and Art's Way does not undertake to update its forward-looking statements. With that, Marc, will you go ahead and start the call.

Sure. I'd like to thank all of you for calling in and for your interest and for your investment. Obviously, you've had a chance to review the results that we released and there are a number of bright spots we'll be talking about as well as challenges that we're still working on in the industries that we're in, some are still difficult, we'll be talking about that, and I'll let Carrie go through the numbers and we look forward to talking more in detail about where we're going after the quarter. Thank you.

Thank you, Marc. We're going to start today by again talking about our corporate initiatives that we set forth at the beginning of the year. We have five corporate initiatives, the first one being profitability. It has been extremely difficult given the severe decrease in sales due to the overall ag economy. We continue to push sales and reduce inventory levels, looking for cost savings and reductions in all aspects of our businesses. We believe that we have taken the necessary steps to strengthen our businesses and to maximize profitability as the markets start to improve. Our second initiative is reduction in our gross inventory levels. Our goal is to reduce these levels by $2 million or 10%. As of the end of our third quarter, we have attained our goal and we have reduced our inventory by $2,124,000 or 11%. We do still have one sector that has not decreased its inventory level, but they have increased, and that's Art's Way International. Again, their primary product is the snow blowers and they are highly, highly cyclical, and we do typically start delivering our snow blowers in the fourth quarter. So we definitely have an opportunity to bring down our inventory level specifically at that segment in the fourth quarter. Our next initiative was reduction of debt. At November 30, our total bank borrowing was $9,908,000. We had bank borrowings on August 31, at the end of our third quarter, of $7,557,000. That was a reduction in our debt of $2,351,000 or 24% from our year-end. Our next corporate initiative is customer service. This was an area that we really wanted to tackle this year. In the past, we've maybe been a little bit more difficult to deal with in terms of our customer service and our response time. In…

All right. Thank you, Carrie. I'd like to just build on what Carrie has said that emphasizing our focus on proactivity. We talk about this a lot and there's a lot of focus on positioning ourselves for strength going forward. We are making decisions looking further down the road to position ourselves well for particularly when the market is better and to earn a better position to gain business when it does come back. So a lot of this will be repetitive with what Carrie has said but our balance sheet is something we have been laser focused on and some of these things haven't happened as fast as we'd like, even though we have met our inventory reduction goal, we'd like to make further progress and reduce our debt that much further. The fact that we're selling the Vessels assets will be very impactful to that effort of improving the balance sheet. And ultimately we are looking at converting nonperforming assets into cash and thus eliminating debt, and I think that we can foresee not too distant future possibly getting to a point of having no debt, which I think for a company that is in businesses that are fairly cyclical and seasonal, that ultimately that makes you the most bulletproof, and I think that that would be a good place for us to be and we're working towards that. So, in the meantime, we really had a great emphasis on competing in the marketplace and doing a better job in a lot of respects, and we've talked about this on numerous calls and already today, but focusing on the customer experience is very important to us. It's a key part of how we see ourselves succeeding in the years ahead and this is the type of thing that…

[Operator Instructions] Our first question comes from Roger Miller. Please state your question.

That was quick. I missed the last conference call and unfortunately I had other demands that exceeded, which is hard to believe but it happened. First I want to talk about Scientific. You're proceeding along and this quarter business was down 17%, is that right?

It was down. Is that the percent, Carrie?

I believe that's correct.

Yes.

And for the year?

For the year, it's up 43%.

Yes.

And do you have any vision going forward, where you see it going into for the final year-end or is it too soon?

It's kind of hard to predict. They do have some backlog and I feel like we have a good bit of work through – our quarter end is November 30. I don't think we have backlog that goes that far, but nearly that far and I know that we're at the World Dairy Expo which historically causes a fair bit of business for us on ag buildings, and particularly this year being there with the new stalls, that should catch some attention. We feel like that's kind of a well-timed show for us and we should be adding to our backlog after this week's show. So they've been fairly steady and busy, but as for the shortfall in the third quarter here, I guess we didn't perform enough work. We never purely ran out of work, but we didn't wrap-up enough of it to bill.

These stalls that you have, you completely redesigned them, is that correct?

We, I guess you could say, co-designed them with somebody that's already specifically in the stall business.

And are you manufacturing them or they manufacturing them, you are buying them?

We will buy them.

And it's profitable to do that?

Yes.

Are these things unique or other companies may have them?

This particular design we feel is pretty unique.

So Scientific is moving more and more into food safety, correct?

We are aiming in that direction, yes.

And how is the competition there at the moment do you feel?

Much of our intent has been to be early in food safety as far as our industry is concerned, and we have been. I don't believe that our primary competitor is there yet, but they probably will be at some point, but we certainly want to have a bit of a head-start. And early on, we were fairly quiet about the food safety business because of that, but as we got into shows that we wanted to do to present that, as we did this year, it was not going to be something that could be a secret really any longer. So they don't appear to be there yet but we guess at some point they may be.

I know we talked on conference calls about food safety in the past.

Yes, we have.

And when I think about food safety, the first thing I think about other than who's in food safety is China, and China has purchased American companies in the U.S., specifically in pork, and now they have opened up a new office in Des Moines, Iowa for seed and biotech. Are you aware of that? It just opened this week. That's Origin Agritech.

I hadn't read that this week, no.

The symbol is SEED and I'm wondering if you could do any business with them in some cross-venture, which would lead you ultimately into China, which you probably have no plans at the moment, but with this office right in Iowa, in Des Moines, I would think you could go welcome on them and see what they are doing. Obviously, they are here to sell and they recently sold part of their business for $60 million. They have debt of $44 million. So they have money to spend.

We should look into that, yes.

That's something new as far as I know for the Chinese to be moving into this country and they must be looking for product and for sales. And then you mentioned going into South America with the sales rep that have experience there.

Are you talking about when we referred to Ohio Metal?

Right. So have you thought about taking Ohio Metal, and this would cost money obviously, which is maybe a difficult thing right now, and merging it with another company that was similar to them? Have you looked into any of that?

We've looked into it.

Because I know some of these companies are doing extremely well, that are manufacturing in the automobile industry, and they are listed on the stock market and they are extremely low P/Es at the moment.

Is there someone specific you are referring to?

I do have someone specific but I'm going to probably have to get back with you as the exact name of the company. I was looking at it this week and I was shocked to see how well they were doing. So I can get back with you on that. If you want me to, I can e-mail. Who would you suggest?

Carrie, is your e-mail on the Web-site?

Yes, my e-mail is on the Web-site, and if you look I think on the earnings release, that typically will have our Investor Relations e-mail on that and that will come to me as well.

Okay. I'd want to e-mail you and we'll leave it at that. Going forward, obviously the most important thing is to become profitable in all the divisions. So, for next year, what are your plans for profitability other than what you've mentioned? Is there anything that stands out that you think you can extract more profit out of including Scientific, which I know that's a very competitive business, but at one point the competition was real strong there?

Yes, it has been strong particularly in certain areas. In food safety, it's early. So I don't see competition being an obstacle right now. It's a matter of getting the early adopters because modular is sort of a new concept to that business. But overall, I mean there are a lot of moving parts of course, but having Vessels not drag anymore is the key part of the equation. Having new products for the ag business historically has been something that causes sales to happen. That's good. Our whole beet industry offering is something that we're making more competitive. That should increase business there we feel. Scientific, we expect a lot of the food safety stuff to come to fruition during 2017, and the shows that we've talked about were only here recently. I mean they were like May and August. It's been this year that that industry really got to see what we have, and so we've been following leads and there is a ton of interest and it needs some time, and I think 2017 is when you see more of that convert to business. And in the meantime, we've made the leasing part of our offering which should help ease that I think. And Ohio Metal, we've talked about seeing the improvement there and now just increasing our sales staff and having a specific opportunity that appears like it may well come to fruition for us next year. Those things I've mentioned there should all be impactful I think.

How much were you losing from Vessels a year per share approximately?

Per share it would be around probably $0.08 or $0.09, I don't know, $0.07 to $0.09 probably.

Plus the amount of time it took and research and cost in just sending people trying to examine how to make it profitable.

We put a lot of resources into it, from Carrie and people from her management team spending time there and just having a hard time getting the team that was based there together in a way to get the progress going. So, yes, there was a lot of resource going that direction, and frankly I'm excited to have that going in a better direction towards something more fruitful. So that is a factor. [Indiscernible]

And obviously now you can concentrate on new ventures and everything it seems like you are doing is going forward. So just real quick, give me an idea what a forage box cost, what you sell it for not what it cost you?

Okay, like the new product in particular?

Yes.

That product will be approximately I think around $50,000.

That's substantial. How about these hammer blowers that you are combining?

Carrie, is that about $14,000 or $15,000?

Yes, that's right, Marc.

Now is that going to take away from existing sales because you are combining them or is that going to just be something innovative that farmers want?

We don't feel like it's going to cannibalize. Frankly, our blower business has been a bit like the last couple of years and to come out with a new product that combines hammermill with a blower, maybe that stirs up activity that had gone away. But no, we don't feel like it's cannibalizing or that it's going to anyway.

Okay. So I know you're researching the marketplace for new products but do you feel there is anything out there between one of the large companies that they may want to sell because there's just not enough business for them, that would then enhance you? In the past you've bought everything from augers to whatever.

So, you mean a small piece of Case New Holland or AGCO or Deere or something like that?

Right, right, something that they just don't want to manufacture anymore but would enhance you.

There have been a couple of things that I thought that maybe they would not be interested in and tried to pursue that a little bit and haven't found that they wanted to give up anything that gave revenue at this point in time. So there have been a couple of things. So there's not – I wouldn't say there's some product that we're dying to buy off of one of the majors, but at times I've thought there might have been a little opportunity where something was under their radar but [indiscernible] and I mean we know how to get a hold of these people and have had some of those conversations, but they haven't led to anything.

So I presume none of them are trying to get a hold of you?

No, they have not been as of late.

Okay. Is there any new interest in doing business with Titan, anything you can do with them?

I think in some specific areas that are beet, sugar beet heavy, that there is potentially opportunity there, but as far as something that goes across a whole lot of stores of theirs, I don't really see that because a lot of what we sell is fairly specific to the region. But we are talking to them on something fairly specific and fairly specific locations too.

Okay. That's all I have today but I'm glad I'm back on the conference call and hope it is important to you too and I hope you do take that one lead I gave you on SEED just to look at it and think about if there's any cross-business, maybe even in food safety, and I'll give you the other company, I'll e-mail that to you.

Okay, very good. Thank you. Good to have you back.

[Operator Instructions] There are no further questions at this time.

Okay. Thank you all for calling in and being part of our call and having interest in our Company. We thank you for your investment and obviously we've gone over a lot of this in great detail but we feel like we have a lot of good opportunities in front of us and we feel like we are putting ourselves in a good position to take advantage of it, and we hope that you'll continue to be interested and be with us going forward. So, thank you very much and we look forward to talking to you next quarter. Thank you.

This concludes today's conference call. Thank you for attending.