**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

**(MarkOne)**

| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                     |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                       |
|       |       | **For the  quarterly period ended April 1, 2006**                                                                     |
|       |       | ** **                                                                                                                 |
| **OR**     |
|       |       | ** **                                                                                                                 |
| **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. 1-8183**

 

**SUPREME INDUSTRIES, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                    |   | **75-1670945**                       |
|---------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of |   | (I.R.S. Employer Identification No.) |
| incorporation or organization)  |   |                                 |

 

**2581 E. Kercher Rd.,  P.O. Box 237,  Goshen, Indiana  46528**

(Address of principal executive offices)

 

Registrant’s telephone number, including area code:  **(574) 642-3070**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes  ý   No  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act (check one):

| Large  accelerated filer  o |   | Accelerated  filer  o |   | Non-accelerated  filer  ý |
|----------------------------------|--------|----------------------------|--------|-------------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes  o   No  ý

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

 

| **Common Stock ($.10 Par Value)** | ** ** | **Outstanding at April 21, 2006** |
|-------------------------------------------------------|------------|-------------------------------------------------------|
| **Class A**                                      |       | **10,585,826**                                        |
| **Class B**                                      |       | **2,109,133**                                         |

 

 

----

 

SUPREME INDUSTRIES, INC.

 

CONTENTS

 
| PART I.       |   | FINANCIAL  INFORMATION                                                                      |
|--------------------|--------|---------------------------------------------------------------------------------------------|
|               |   |                                                                                        |
| ITEM 1.            |   | Financial  Statements:                                                                      |
|               |   |                                                                                        |
|               |   | Consolidated Balance Sheets                                                                 |
|               |   |                                                                                        |
|               |   | Consolidated Statements of  Income                                                          |
|               |   |                                                                                        |
|               |   | Consolidated Statements of  Cash Flows                                                      |
|               |   |                                                                                        |
|               |   | Notes to Consolidated  Financial Statements                                                 |
|               |   |                                                                                        |
| ITEM 2.            |   | Management’s Discussion and  Analysis of Financial Condition and Results of Operations |
|               |   |                                                                                        |
| ITEM 3.            |   | Quantitative  and Qualitative Disclosures About Market Risk                                 |
|               |   |                                                                                        |
| ITEM 4.            |   | Controls and  Procedures                                                                    |
|               |   |                                                                                        |
| PART II.      |   | OTHER INFORMATION                                                                           |
|               |   |                                                                                        |
| ITEM 1.            |   | Legal Proceedings                                                                           |
|               |   |                                                                                        |
| ITEM 1A.           |   | Risk Factors                                                                                |
|               |   |                                                                                        |
| ITEM 2.            |   | Unregistered  Sales of Equity Securities and Use of Proceeds                                |
|               |   |                                                                                        |
| ITEM 3.            |   | Defaults  Upon Senior Securities                                                            |
|               |   |                                                                                        |
| ITEM 4.            |   | Submission  of Matters to a Vote of Security Holders                                        |
|               |   |                                                                                        |
| ITEM 5.            |   | Other Information                                                                           |
|               |   |                                                                                        |
| ITEM 6.            |   | Exhibits                                                                                    |
|               |   |                                                                                        |
| SIGNATURES         |   |
|               |   |                                                                                        |
| INDEX  TO EXHIBITS |   |
|               |   |                                                                                        |
| EXHIBITS           |   |
|                    |        |                                                                                             |  |  |  |

 

2

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**PART I. FINANCIAL INFORMATION**

 

**ITEM 1.**** FINANCIAL STATEMENTS**

 

**Supreme Industries, Inc. and Subsidiaries**

Consolidated Balance Sheets

 
| ** **                                      | ** ** | **April 1,** | ** **  | **December 31,** | ** ** |
|-------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| **Assets**                                      | ** ** | **2006**          | ** **  | **2005**              | ** ** |
| ** **                                      | ** ** | **(Unaudited)**   | ** **  | ** **            | ** ** |
| ** **                                      |       |              |        |                  |       |
| Current assets:                                 |       |              |        |                  |       |
| Cash and cash equivalents                       |       | $                 | 305,671     |                  | $          | 1,515,532 |   |
| Investments                                     |       | 2,353,922         |        | 1,168,922             |       |
| Accounts receivable, net                        |       | 35,892,557        |        | 29,594,819            |       |
| Inventories                                     |       | 58,051,041        |        | 50,730,205            |       |
| Other current assets                            |       | 5,007,530         |        | 5,600,299             |       |
|                                            |       |              |        |                  |       |
| **Total current assets**                        | ** ** | 101,610,721       |        | 88,609,777            |       |
|                                            |       |              |        |                  |       |
| **Property,  plant and equipment, at cost**     |       | 88,102,392        |        | 86,801,354            |       |
| Less, Accumulated depreciation and amortization |       | 40,338,028        |        | 39,343,641            |       |
|                                            |       |              |        |                  |       |
| **Property, plant and equipment, net**          | ** ** | 47,764,364        |        | 47,457,713            |       |
|                                            |       |              |        |                  |       |
| **Goodwill  and intangible assets**             |       | 1,426,833         |        | 735,014               |       |
| **Other  assets**                               |       | 777,157           |        | 549,350               |       |
|                                            |       |              |        |                  |       |
| **Total assets**                                | ** ** | $                 | 151,579,075 |                  | $          | 137,351,854 |   |

 

The accompanying notes are a part of the consolidated financialstatements.

 

3

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| ** **                                          | ** ** | **April 1,** | ** **  | **December 31,** | ** ** |
|-----------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| **Liabilities  and Stockholders’ Equity**      | ** ** | **2006**          | ** **  | **2005**              | ** ** |
| ** **                                          | ** ** | **(Unaudited)**   | ** **  | ** **            | ** ** |
| ** **                                          |       |              |        |                  |       |
| **Current  liabilities:**                           |       |              |        |                  |       |
| Current maturities of long-term debt                |       | $                 | 1,792,654   |                  | $          | 1,816,092 |   |
| Trade accounts payable                              |       | 21,109,542        |        | 15,675,073            |       |
| Accrued income taxes                                |       | 1,061,388         |        | 380,721               |       |
| Other accrued liabilities                           |       | 9,165,148         |        | 9,947,870             |       |
|                                                |       |              |        |                  |       |
| **Total current liabilities**                       | ** ** | 33,128,732        |        | 27,819,756            |       |
|                                                |       |              |        |                  |       |
| **Long-term  debt**                                 |       | 39,890,866        |        | 31,378,367            |       |
|                                                |       |              |        |                  |       |
| **Deferred  income taxes**                          |       | 3,074,675         |        | 2,988,275             |       |
|                                                |       |              |        |                  |       |
| **Total liabilities**                               | ** ** | 76,094,273        |        | 62,186,398            |       |
|                                                |       |              |        |                  |       |
| **Stockholders’  equity**                      |       | 75,484,802        |        | 75,165,456            |       |
|                                                |       |              |        |                  |       |
| **Total liabilities and stockholders’ equity** | ** ** | $                 | 151,579,075 |                  | $          | 137,351,854 |   |

 

The accompanying notes are a part of the consolidated financialstatements.

 

4

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**Supreme Industries, Inc. and Subsidiaries**

Consolidated Statements of Income (Unaudited)

 
| ** **                                                 | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                 | ** ** | **April 1,**      | ** ** | **March 26,** | ** ** |
| ** **                                                 | ** ** | **2006**               | ** ** | **2005** | ** ** |
| **Revenue:**                                               |       |                   |       |   |   |
| Net sales                                                  |       | $                      | 85,747,138 |   | $ | 90,322,304 |   |
| Other income                                               |       | 107,240                |       | 161,304 |   |
|                                                       |       | 85,854,378             |       | 90,483,608 |   |
| **Costs  and expenses:**                                   |       |                   |       |   |   |
| Cost of sales                                              |       | 76,141,452             |       | 78,696,536 |   |
| Selling, general and administrative                        |       | 6,858,966              |       | 6,458,082 |   |
| Interest                                                   |       | 700,925                |       | 488,646 |   |
|                                                       |       | 83,701,343             |       | 85,643,264 |   |
|                                                       |       |                   |       |   |   |
| **Income before income taxes**                             | ** ** | 2,153,035              |       | 4,840,344 |   |
|                                                       |       |                   |       |   |   |
| Income taxes                                               |       | 780,000                |       | 1,746,000 |   |
|                                                       |       |                   |       |   |   |
| **Net income**                                             | ** ** | $                      | 1,373,035  |   | $ | 3,094,344 |   |
|                                                       |       |                   |       |   |   |
| **Earnings  per share:**                                   |       |                   |       |   |   |
| Basic                                                      |       | $                      | .11        |   | $ | .25 |   |
| Diluted                                                    |       | .11                    |       | .25 |   |
|                                                       |       |                   |       |   |   |
| **Shares  used in the computation of earnings per share:** | ** ** |                   |       |   |   |
| Basic                                                      |       | 12,689,654             |       | 12,184,495 |   |
| Diluted                                                    |       | 12,919,433             |       | 12,535,450 |   |
|                                                       |       |                   |       |   |   |
| **Cash  dividend per common share**                        |       | $                      | .095       |   | $ | .035 |   |

 

The accompanying notes are a part of the consolidated financialstatements.

 

5

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**Supreme Industries, Inc. and Subsidiaries**

Consolidated Statements of Cash Flows (Unaudited)

 
| ** **                                                                                 | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                 | ** ** | **April 1,**      | ** ** | **March 26,** | ** ** |
| ** **                                                                                 | ** ** | **2006**               | ** ** | **2005** | ** ** |
| **Cash flows from operating activities:**                                                  |       |                   |       |   |   |
| Net income                                                                                 |       | $                      | 1,373,035  |   | $ | 3,094,344 |   |
| Adjustments to reconcile net income to net cash used  in operating activities:             |       |                   |       |   |   |
| Depreciation and amortization                                                              |       | 1,076,163              |       | 1,006,693 |   |
| Provision for losses on doubtful receivables                                               |       | 46,656                 |       | 3,050 |   |
| Loss (gain) on disposal of equipment                                                       |       | 13,541                 |       | (2,310 | ) |
| Changes in operating assets and liabilities net of  effect of business acquisition in 2006 |       | (7,353,421             | )          | (17,008,536 | ) |
|                                                                                       |       |                   |       |   |   |
| **Net cash used in operating activities**                                                  | ** ** | (4,844,026             | )          | (12,906,759 | ) |
|                                                                                       |       |                   |       |   |   |
| **Cash flows from investing activities:**                                                  |       |                   |       |   |   |
| Business acquisition                                                                       |       | (1,050,000             | )          | (1,632,300 | ) |
| Additions to property, plant and equipment                                                 |       | (1,343,090             | )          | — |   |
| Proceeds from disposal of equipment                                                        |       | 4,700                  |       | 2,310 |   |
| Purchases of short-term investments                                                        |       | (1,185,000             | )          | — |   |
| Decrease (increase) in other assets                                                        |       | (75,880                | )          | 13,297 |   |
|                                                                                       |       |                   |       |   |   |
| **Net cash used in investing activities**                                                  | ** ** | (3,649,270             | )          | (1,616,693 | ) |
|                                                                                       |       |                   |       |   |   |
| **Cash flows from financing activities:**                                                  |       |                   |       |   |   |
| Proceeds from revolving line of credit and other  long-term debt                           |       | 27,270,784             |       | 34,397,341 |   |
| Repayments of revolving line of credit and other  long-term debt                           |       | (18,781,723            | )          | (20,200,000 | ) |
| Payment of cash dividends                                                                  |       | (1,205,626             | )          | (426,679 | ) |
| Proceeds from exercise of stock options                                                    |       | —                 |       | 526,373 |   |
|                                                                                       |       |                   |       |   |   |
| **Net cash provided by financing activities**                                              | ** ** | 7,283,435              |       | 14,297,035 |   |
|                                                                                       |       |                   |       |   |   |
| **Change in cash and cash equivalents**                                                    |       | (1,209,861             | )          | (226,417 | ) |
|                                                                                       |       |                   |       |   |   |
| **Cash and cash equivalents, beginning of period**                                         |       | 1,515,532              |       | 1,736,483 |   |
|                                                                                       |       |                   |       |   |   |
| **Cash and cash equivalents, end of period**                                               |       | $                      | 305,671    |   | $ | 1,510,066 |   |
|                                                                                       |       |                   |       |   |   |
| **Supplemental disclosure of noncash investing and  financing activities:**                | ** ** |                   |       |   |   |
| Liabilities assumed in business acquisition                                                |       | $                      | 529,347    |   | — |   |

 

The accompanying notes are a part of the consolidated financialstatements.

 

6

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

Notes To Consolidated Financial Statements

 

NOTE 1 - BASIS OF PRESENTATION AND OPINION OFMANAGEMENT

 

The accompanying unaudited consolidated financial statements have beenprepared in accordance with the instructions to Form 10-Q and therefore donot include all of the information and financial statement disclosuresnecessary for a fair presentation of consolidated financial position, resultsof operations and cash flows in conformity with accounting principles generallyaccepted in the United States of America. In the opinion of management, theinformation furnished herein includes all adjustments necessary to reflect afair statement of the interim periods reported. All adjustments are of a normaland recurring nature. The December 31, 2005 consolidated balance sheetdata was derived from audited financial statements, but does not include alldisclosures required by accounting principles generally accepted in the UnitedStates of America.

 

The Company has adopted a 52 or 53 week fiscal year ending the lastSaturday in December. The results of operations for the three months ended April 1,2006 and March 26, 2005 are for 13 week periods.

 

NOTE 2 - OTHER COMPREHENSIVE INCOME

 

Other comprehensive income includes unrealized gains on hedge-activity,net of tax, and unrealized depreciation on available-for-sale securities, netof tax. Other comprehensive income for the three months ended April 1,2006 was $151,927. Total comprehensive income combines net income and othercomprehensive income. Total comprehensive income for the three months ended April 1,2006 was $1,524,962.

 

NOTE 3 - INVENTORIES

 

Inventories, which are stated at the lower of cost or market with costdetermined using the first-in, first-out method, consist of the following:

 
| ** **       | ** ** | **April 1,** | ** ** | **December 31,** | ** ** |
|------------------|------------|-------------------|------------|-----------------------|------------|
| ** **       | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Raw materials    |       | $                 | 31,947,984 |                  | $          | 28,160,860 |   |
| Work-in-progress |       | 9,723,363         |       | 8,880,436             |       |
| Finished goods   |       | 16,379,694        |       | 13,688,909            |       |
|             |       | $                 | 58,051,041 |                  | $          | 50,730,205 |   |

 

The valuation of raw materials, work-in-progress and finished goodsinventories at interim dates is based upon a gross profit percentage method andbills of materials. The Company has historically had favorable and unfavorableadjustments resulting from physical inventories. The Company continues torefine its costing procedures for valuation of interim inventories in an effortto minimize book to physical inventory adjustments.

 

7

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NOTE 4 - BUSINESS ACQUISITION

 

On February 28, 2006, the Company acquired the business operationsand assets of Pony Xpress, Inc. (“Pony XPress”) for a total purchase priceof $1,579,347 which consisted of $1,050,000 in cash and the assumption ofcertain liabilities. Pony Xpress is a manufacturer of highly specialized luxurytotor home products principally for the race car industry. This acquisitionbroadens the Company’s product line and the Company has purchased a newfacility in White Pigeon, Michigan for the operations of this acquiredbusiness. The acquisition has been accounted for as a purchase and,accordingly, the operating results have been included since the date ofacquisition. Pro forma financial information reflecting the acquired businesshas not been presented as it is not materially different from the Company’shistorical results. The final allocation of purchase price is subject tocompletion of valuations and analysis required by Statement of FinancialAccounting Standards No. 141, “Business Combinations”. A preliminaryallocation of purchase price is as follows:

 
| Trade accounts receivable      |   | $       | 638,858   |   |
|--------------------------------|--------|---------|-----------|--------|
| Inventories                    |   | 161,400 |      |
| Other current assets           |   | 29,305  |      |
| Equipment                      |   | 57,965  |      |
| Goodwill and intangible assets |   | 691,819 |      |
|                           |   | $       | 1,579,347 |   |

 

NOTE 5 - EARNINGS PER SHARE

 

The number of shares used in the computation of basic and dilutedearnings per share are as follows:

 
| ** **                                                                                       | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                       | ** ** | **April 1,**                | ** ** | **March 26,** | ** ** |
| ** **                                                                                       | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| Weighted average number of shares outstanding (used  in computation of basic earnings per share) |       | 12,689,654                       |       | 12,184,495 |   |
|                                                                                             |       |                             |       |   |   |
| Effect of dilutive stock options                                                                 |       | 229,779                          |       | 350,955 |   |
|                                                                                             |       |                             |       |   |   |
| Diluted shares outstanding (used in computation of  diluted earnings per share)                  |       | 12,919,433                       |       | 12,535,450 |   |

 

NOTE 6 - STOCK-BASED COMPENSATION

 

The Company currently has three stock option plans:  the 1998 Stock Option Plan under which869,087 shares of Class A Common Stock are reserved for grant, the 2001Stock Option Plan under which 825,000 shares of Class A Common Stock arereserved for grant and the 2004 Stock Option Plan under which 600,000 shares ofClass A Common Stock are reserved for grant. Under the terms of thesestock option plans, both incentive stock options and non-statutory stock

 

8

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options can be granted by a specially designated Stock OptionCommittee. Options granted under the stock option plans generally vest andbecome exercisable in annual installments of 33 1/3% beginning on the firstanniversary date and the options expire five years after the date of grant. On August 4,2005, the Company’s Board of Directors approved a plan to accelerate vesting ofall outstanding stock options which were unvested at December 31, 2005.Under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting forStock Issued to Employees”, there was no compensation expense related to thevesting of these options. As a result of the board’s action, stock options topurchase 430,831 shares of the Company’s common stock became exercisableeffective December 31, 2005. The Company generally issues new shares tosatisfy stock option exercises.

 

A summary of the status of the Company’s outstanding stock options asof April 1, 2006, and changes during the three months ended April 1,2006 are as follows:

 
| ** **                        | ** ** | ** **         | ** ** | **Weighted -**     | ** ** |
|-----------------------------------|------------|--------------------|------------|-------------------------|------------|
| ** **                        | ** ** | **Number of** | ** ** | **Average**             | ** ** |
| ** **                        | ** ** | **Shares**         | ** ** | **Exercise Price** | ** ** |
| Outstanding, January 1, 2006 |       | 921,823            |       | 5.67                    |       |
| Exercised                         |       | (11,000            | )          | 4.80                    |       |
| Outstanding, April 1, 2006   |       | 910,823            |       | 5.67                    |       |

 

The intrinsic value of the options exercised during the three monthsended April 1, 2006 was $29,850. The intrinsic value of all optionsoutstanding at April 1, 2006 was $1,633,227 and outstanding options had aweighted-average remaining contractual life of 2.75 years.

 

Prior to January 1, 2006, the Company accounted for its stockoptions under the recognition and measurement principles of APB Opinion No. 25,and related interpretations. Accordingly, no stock-based employee compensationcost was reflected in net earnings prior to January 1, 2006 as all optionsto purchase common stock of the Company had an exercise price equal to, orgreater than, the market value of the underlying common stock on the date ofgrant.

 

Effective January 1, 2006, the Company adopted Statement ofFinancial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-BasedPayment” as interpreted by SEC Staff Accounting Bulletin No. 107. SFAS No. 123Rsupersedes APB Opinion No. 25, and amends SFAS No. 95, “Statement ofCash Flows.” Generally, the approach in SFAS No. 123R is similar to theapproach described in SFAS No. 123, “Accounting for Stock-BasedCompensation.”  However, SFAS No. 123Rrequires all stock-based payments to employees, including grants of employeestock options, to be recognized in the income statement based on their fairvalues at the date of grant.

 

The Company has elected to use the modified prospective transitionmethod for implementing SFAS No. 123R. Under this transition method,compensation expense will include:  (a) compensationexpense for all share-based payments granted prior to, but not yet vested asof, January 1, 2006, based on the grant date fair value estimated inaccordance with the original provisions of SFAS No. 123, and (b) compensationexpense for all share-based payments granted on or after January 1, 2006,based on the grant date fair value estimated in accordance with the provisionsof SFAS No. 123R. Because we elected to use the modified prospectivetransition method, results for prior periods

 

9

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have not been restated and new awards are valued and accounted forprospectively upon adoption. There was no compensation expense recorded in thefirst quarter of 2006 as all outstanding options were fully vested at December 31,2005 and there were no options granted during the first quarter.

 

We currently use the Black-Scholes option pricing model to determinethe fair value of stock options. The determination of the fair value ofstock-based payment awards on the date of grant using an option-pricing modelis affected by our stock price as well as assumptions regarding a number ofcomplex and subjective variables. These variables include our expected stockprice volatility over the term of the awards, actual and projected employeestock option exercise behaviors, risk-free interest rate and expecteddividends.

 

As of April 1, 2006, there was no unrecognized compensation costrelated to stock options granted to our employees since there were no unvestedstock options.

 

The following table illustrates the pro forma effect on net earningsand earnings per share if the Company had applied the fair value recognitionprovisions of SFAS No. 123 in the previous year:

 
| ** **                                                                                     | ** ** | **Three Months**        | ** ** |
|------------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                     | ** ** | **Ended**                    | ** ** |
| ** **                                                                                     | ** ** | **March 25, 2005** | ** ** |
| Net income, as reported                                                                        |       | $                            | 3,094,344  |   |
| Deduct, Stock-based compensation expense determined  under fair value based method, net of tax |       | (70,865                      | )          |
| Pro forma net income                                                                           |       | $                            | 3,023,479  |   |
|                                                                                           |       |                         |       |
| Basic and diluted earnings per share, as reported                                              |       | $                            | .25        |   |
|                                                                                           |       |                         |       |
| Pro forma basic earnings per share                                                             |       | $                            | .25        |   |
| Pro forma diluted earnings per share                                                           |       | $                            | .24        |   |

 

NOTE 7 - COMMON STOCK

 

The Company paid a nine and one-half cent ($.095) per share and a threeand one-half cent ($.035) per share cash dividend to all Class A and Class Bcommon stockholders during the quarters ended April 1, 2006 and March 26,2005, respectively.

 

NOTE 8 - SUBSEQUENT EVENT

 

On May 1, 2006, the Company’s Board of Directors declared a nineand one-half cent ($.095) per share cash dividend payable on May 22, 2006to all Class A and B common stockholders of record on May 15, 2006.

 

10

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**ITEM 2.**                     **MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

 

**Results of Operations**

 

***Revenue (includes net sales and other income)***

 

Net sales for thethree months ended April 1, 2006 decreased $4.6 million, or 5.1%, to $85.7million compared to $90.3 million for the three months ended March 26,2005. The decrease in net sales was primarily attributable to a reduction intruck purchases by our major fleet customers and a delay in our receipt of OEM(“original equipment manufacturer”) supplied chassis. We anticipate, based oninformation provided by the chassis manufacturer, that the issues causing thechassis delivery delay will be resolved during the second quarter.Additionally, a delay in unit shipments was caused by temporary productionconstraints at our fiberglass panel component manufacturing facility, whichhave since been resolved. The decrease in fleet sales was offset somewhat by anapproximate 6% increase in retail (non-fleet) sales during the first quarter of2006 compared to the first quarter of 2005 fueled by increased revenues at ourarmored and bus divisions.

 

On February 28,2006, we acquired the business operations and assets of Pony Xpress, Inc.,a manufacturer of highly specialized vehicles presently focused on the race carindustry (see Note 3 of Notes to Consolidated Financial Statements). Though thepurchase was not a large acquisition, it provides us with the foundations forour new newly formed “Silver Crown” subsidiary. Silver Crown has uniquemanufacturing expertise that will enable our entry into additional highlyspecialized vehicles including those used in homeland security. In the secondhalf of 2006, Silver Crown will be introducing higher-end products andbroadening the Pony Xpress product line.

 

Our sales backlogwas $90.9 million at April 1, 2006 compared to an $86.3 million salesbacklog at March 26, 2005.

 

Other income forthe three months ended April 1, 2006 was $.1 million compared to $.2million for the three months ended March 26, 2005. Other income consistsof interest income, rental income, gain on sale of assets and othermiscellaneous income received by the Company through its various businessactivities.

 

***Costof sales and gross profit***

 

Gross profitdecreased by $2.0 million, or 17.4%, to $9.6 million (11.2% of net sales) for thequarter ended April 1, 2006 compared to $11.6 million (12.9% of net sales)for the quarter ended March 26, 2005. The following table presents thecomponents of cost of sales as a percentage of net sales and the changes fromquarter-to-quarter:

 
| ** **    | ** ** | **April 1,  2006** | ** ** | **March 26,  2005** | ** ** | **Percent  Change** | ** ** |
|---------------|------------|-------------------------|------------|--------------------------|------------|---------------------|------------|
| Material      |       | 56.9                    | %          | 56.4                     | %          | 0.5                 | %          |
| Direct labor  |       | 14.1                    |       | 14.0                     |       | 0.1                 |       |
| Overhead      |       | 15.2                    |       | 14.0                     |       | 1.2                 |       |
| Delivery      |       | 2.6                     |       | 2.7                      |       | -0.1                |       |
|          |       |                    |       |                     |       |                |       |
| Cost of sales |       | 88.8                    |       | 87.1                     |       | 1.7                 |       |
|          |       |                    |       |                     |       |                |       |
| Gross profit  |       | 11.2                    | %          | 12.9                     | %          | -1.7                | %          |

 

11

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**Material** – Material cost as a percentage of netsales was 56.9% for the three months ended April 1, 2006 compared to 56.4%for the three months ended March 26, 2005. The slight increase in the materialpercentage of .5% was attributable to product mix and higher raw materialcosts.

 

Withregard to product mix, the bus division accounted for approximately 19% of netsales for the first quarter of 2006 as compared to 13% of net sales for thefirst quarter of 2005. The bus division products have a higher material costpercentage and the increased sales volume in this division elevated our overallmaterial cost percentage quarter-to-quarter.

 

Additionally,during the first quarter of 2006 we began to experience significant upward costpressures on aluminum, steel and wood components used in the production oftruck bodies. To combat these cost increases, the Company has announced priceincreases ranging from 3% to 5% on certain high volume truck division products,effective late April 2006. We continue to closely monitor our majorcommodity costs through communication with key suppliers, utilizing costmonitoring tools and developing strategies to mitigate cost and availabilityissues. The Company also continually strives to reduce the cost of its productofferings through the use of innovative materials, robotics and improvedprocesses.

 

**DirectLabor** – Directlabor as a percentage of net sales was 14.1% for the three months ended April 1,2006 compared to 14.0% for the three months ended March 26, 2005.

 

Thedelay in OEM supplied chassis caused the Company to temporarily shut downproduction lines which negatively affected direct labor efficiencies andoverhead absorption. Despite these challenges, direct labor as a percentage ofnet sales remained relatively constant when comparing quarter-to-quarter. Asthe fleet contracts are completed and future revenues reflect a greaterpercentage of customized retail units, direct labor as a percentage of net salesis expected to increase for the second half of 2006. The increase would beconsistent with our historical pattern in years in which we have had largefleet contracts.

 

**Overhead** – Overhead as a percentage of net saleswas 15.2% for the three months ended April 1, 2006 compared to 14.0% forthe three months ended March 26, 2005.

 

Theincrease in overhead percentage of 1.2% was due to the fixed nature of certainexpenses that do not fluctuate when volume changes and the unfavorable overheadabsorption resulting from the delay in OEM supplied chassis. Additionally, theCompany was unfavorably impacted by higher utility costs due to rising naturalgas prices and higher depreciation expense resulting from the $6.4 million ofadditions to property, plant and equipment in 2005.

 

**Delivery** – Delivery expense as a percentage ofnet sales was 2.6% for the three months ended April 1, 2006 compared to2.7% for the three months ended March 26, 2005.

 

12

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Deliveryexpense as a percentage of net sales remained relatively constant as theCompany utilized more cost effective outside delivery methods versus using itsemployees and owned equipment to deliver units. However, escalating fuel costsremain a concern and the Company will attempt to pass on these higher fuelcosts despite competitive pressures in its marketplace, though no assurance canbe given in this regard. 

 

***Selling,general and administrative expenses***

 

Selling, generaland administrative expenses increased by $.4 million, or 6.2%, to $6.9 million(8.0% of net sales) for the three months ended April 1, 2006 from $6.5million (7.2% of net sales) for the three months ended March 26, 2005. Thefollowing table presents selling, general and administrative expenses as apercentage of net sales and the changes from quarter-to-quarter:

 
| ** **                | ** ** | **April 1,  2006** | ** ** | **March 26,  2005** | ** ** | **Percent  Change** | ** ** |
|---------------------------|------------|-------------------------|------------|--------------------------|------------|---------------------|------------|
| Selling expenses          |       | 2.8                     | %          | 2.3                      | %          | 0.5                 | %          |
| General and adm. expenses |       | 5.2                     |       | 4.9                      |       | 0.3                 |       |
|                      |       |                    |       |                     |       |                |       |
| Total                     |       | 8.0                     | %          | 7.2                      | %          | 0.8                 | %          |

 

**Sellingexpenses** – Sellingexpenses increased by $.3 million, or 15.6%, to $2.4 million for the threemonths ended April 1, 2006 from $2.1 million for the three months ended March 26,2005.

 

Thehigher selling expenses related primarily to a reduction in cooperativemarketing funds the Company receives from chassis manufacturers. These funds,determined solely by programs established by the chassis manufacturers, havehistorically been used to offset marketing and promotional expenses.Additionally, industry show expenses increased to promote the Company’sextensive product line.

 

**Generaland administrative expenses** – General and administrative expenses increased by$.1 million, or 1.7%, to $4.4 million for the three months ended April 1,2006 from $4.3 million for the three months ended March 26, 2005.

 

Theincrease in general and administrative expenses as a percentage of net saleswas primarily due to the fixed nature of certain expenses that do not fluctuatewith changes in volume.

 

***Interestexpense***

 

Interest expenseincreased by $.2 million, or 43.4%, to $.7 million (.8% of net sales) for thethree months ended April 1, 2006 from $.5 million (.5% of net sales) forthe three months ended March 26, 2005.

 

13

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The increase ininterest expense resulted from higher levels of borrowings against the Company’srevolving line of credit and higher short-term interest rates. The additionalborrowings were utilized to finance working capital requirements to produce theseasonal fleet business products. In July 2005, the Company entered into aderivative swap agreement in an effort to mitigate the effect of the risinginterest rate environment for a portion of the Company’s variable rate debt. Theswap agreement exchanges the debt obligations floating rate for fixed interestpayments over the life of the debt. At April 1, 2006, the interest rateswap agreement had a notional amount of $15 million.

 

***Incometaxes***

 

The Company’seffective income tax rate was 36.2% for the three months ended April 1,2006 compared to 36.1% for the three months ended March 26, 2005.

 

***Netincome and earnings per share***

 

Net incomedecreased by $1.7 million to $1.4 million (1.6% of net sales) for the threemonths ended April 1, 2006 from $3.1 million (3.4% of net sales) for thethree months ended March 26, 2005.

 

Basic and dilutedearnings per share decreased $.14 cents per share to $.11 cents per share forthe three months ended April 1, 2006 from $.25 cents per share for thethree months ended March 26, 2005.

 

**Liquidity and Capital Resources**

 

The Company’s cashmanagement system and revolving line of credit are designed to maintain zerocash balances and, accordingly, excess cash generated from operations isutilized to reduce borrowings.

 

Borrowings under the Company’s revolving line of credit at April 1,2006 were $32.5 million, an $11.1 million increase since December 31, 2005.The increased borrowings are directly associated with the higher levels ofaccounts receivable and inventories that generally occur during the firstquarter. The Company believes that operating cash flows and funds availableunder the revolving line of credit will be sufficient to meet the Company’scash needs during the remainder of 2006 and the next twelve months.

 

***Operatingactivities***

 

Operatingactivities used $4.8 million of cash in the three months ended April 1,2006 compared to $12.9 million in the three months ended March 26, 2005. Netincome was the largest source of cash generated from operations in the threemonths ended April 1, 2006. Working capital increased $7.4 million duringthe three months ended April 1, 2006, principally due to higher levels ofaccounts receivable and inventories which were somewhat offset by an increase in trade accounts payable. Inventoriesincreased as a result of higher levels of finished goods related to theadvanced production of units to fulfill two large fleet contracts within ashort delivery time frame and higher levels of purchased chassis in our bus andarmored divisions.

 

14

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**Liquidity and Capital Resources, Concluded**

 

***Investingactivities***

 

Investingactivities used $3.6 million of cash in the three months ended April 1,2006 compared to $1.6 million in the three months ended March 26, 2005.

 

Major capitalexpenditures in the three months ended April 1, 2006 related to thepurchase of a manufacturing facility located in White Pigeon, Michigan, for theexpansion of the recently acquired operations of Pony Xpress, as discussed herein.Also, the Company had an increase in its short-term investments related to itscaptive insurance subsidiary for the three months ended April 1, 2006. TheCompany intends to spend less on property, plant and equipment in 2006 ascompared with 2005 expenditures. However, we will consider strategicopportunities for growth and expansion should they present themselves.

 

***Financingactivities***

 

Financingactivities provided $7.3 million of cash in the three months ended April 1,2006 compared to $14.3 million in the three months ended March 26, 2005.

 

The lower level offinancing activity occurred primarily as a result of the $9.7 million reductionin working capital in the first quarter of 2006 as compared to the firstquarter of 2005. The Company paid $1.2 million of cash dividends in the firstquarter of 2006 compared to $.4 million in the first quarter of 2005. Our boardof directors approved an increase in the quarterly cash dividend from three andone-half cents per share to nine and one-half cents per share beginning withthe third quarter 2005 dividend. Business conditions permitting, the quarterlycash dividend will remain at nine and one-half cents per share during 2006which will approximate $4.8 million of cash dividends for the year. The Company’scredit agreement was amended in September 2005 to delete negativecovenants related to the declaration or authorization of dividends and theentering into or the assumption of operating lease obligations. The amendmentalso involved more favorable performance pricing based on the Company’s strongbalance sheet. All borrowings under the revolving line of credit remainunsecured.

 

**Contractual Obligations**

 

Our fixed, noncancelable obligations as of April 1, 2006 were asfollows:

 
| ** **            | ** ** | **Payments due by period** | ** ** |
|-----------------------|------------|----------------------------|------------|
| ** **            | ** ** | **Total**                  | ** ** | **Less than  1 Year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **More than  5 Years** | ** ** |
| Debt (a)              |       | $                          | 41,683,520 |   | $ | 1,792,654 |   | $ | 36,479,909 |   | $ | 2,410,957 |   | $ | 1,000,000 |   |
| Operating leases  (b) |       | 3,378,089                  |       | 762,105 |   | 1,514,535 |   | 1,070,863 |   | 30,586 |   |
|                  |       |                       |       |   |   |   |   |   |   |   |   |
| Total                 |       | $                          | 45,061,609 |   | $ | 2,554,759 |   | $ | 37,994,444 |   | $ | 3,481,820 |   | $ | 1,030,586 |   |

 

----

(a)  Amounts are included on the Consolidated Balance Sheets.For additional information regarding debt and related matters, see Note 5 ofthe Notes to Consolidated Financial Statements included in the Annual Report onForm 10-K for the year ended December 31, 2005.

 

(b)  For additional information regarding operating leases,see Note 9 of the Notes to Consolidated Financial Statements included in theAnnual Report on Form 10-K for the year ended December 31, 2005.

 

15

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**Off-Balance-Sheet Arrangements**

 

As of April 1, 2006, we did not have any off-balance-sheetarrangements, as defined in Item 303(a)(4)(11) of SEC Regulation S-K.

 

**Critical Accounting Policies and Estimates**

 

Management’s discussion and analysis of its financial position andresults of operations are based upon the Company’s consolidated financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States of America. The preparation of thesefinancial statements requires management to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses andrelated disclosure of contingent assets and liabilities. The Company’ssignificant accounting policies are discussed in Note 1 of the Notes toConsolidated Financial Statements included in the Annual Report on Form 10-Kfor the year ended December 31, 2005. In management’s opinion, the Company’scritical accounting policies include allowance for doubtful accounts, excessand obsolete inventories, inventory relief, accrued insurance and accruedwarranty.

 

Allowance for Doubtful Accounts - The Company maintains an allowancefor doubtful accounts for estimated losses resulting from the inability ofcustomers to make required payments. If the financial condition of customerswere to deteriorate, resulting in an impairment of their ability to makepayments, additional allowances may be required which would affect futureoperating results.

 

Excess and Obsolete Inventories - The Company must make estimatesregarding the future use of products and provides a provision for obsolete orslow-moving inventories. If actual product life-cycles, product demand ormarket conditions are less favorable than those projected by management,additional inventory write-downs may be required which would affect futureoperating results.

 

Inventory Relief - For monthly and quarterly financial reporting, costof sales is recorded and inventories are relieved by the use of standard billsof material. Because of the customized nature of the Company’s products, it isdifficult to place full reliance on the bills of material for accurate reliefof inventories. Although the Company continues to refine the process ofcreating accurate bills of materials, manual adjustments, which are based onestimates, are necessary in an effort to assure correct relief of inventoriesfor products sold. The estimate calculations consider the customized nature ofproducts, historical inventory relief percentages, scrap variances and otherfactors which could impact inventory relief. The accuracy of the inventoryrelief is not known until the annual physical inventories. In prior years, managementhad concluded that it was not practical to consider more frequent physicalinventories because of the sales order backlog and the costs associated withceasing production for the purpose of conducting physical inventories. During2005, the Company’s annual physical inventories resulted in a net unfavorableadjustment of $1.1 million which was recorded in the third quarter. Subsequently,management has dedicated significant in-house resources refining bills ofmaterials, improving cost accounting functions and instituting new inventorypolicies and procedures. In addition, management has implemented more frequentphysical inventories and expects the new policies, procedures and frequentphysical inventories will minimize inventory and cost of sales adjustments. Favorablephysical inventory adjustments of approximately $42 thousand were recorded inthe first quarter of 2006.

 

Accrued Insurance - The Company has a self-insured retention againstproduct liability claims with insurance coverage over and above the retention. TheCompany is also self-insured for a portion of its employee medical benefits andworkers’ compensation. Product liability claims are routinely

 

16

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**Critical Accounting Policies and Estimates,Concluded**

 

reviewed by the Company’s insurance carrier and management routinelyreviews other self-insurance risks for purposes of establishing ultimate lossestimates. In addition, management must determine estimated liability forclaims incurred but not reported. Such estimates and any subsequent changes inestimates may result in adjustments to the Company’s operating results inthe future.

 

Effective January 1, 2005, the Company began utilizing its newlyformed and wholly-owned small captive insurance company to insure certain ofits business risks. Certain risks, previously self insured by the Company andits subsidiaries, are now insured by the captive insurance subsidiary. Inaddition, certain business risks not previously insured are now insured by thecaptive insurance subsidiary. Since the captive insurance company has notreinsured any of its coverages, the Company’s overall self insurance risk hasnot changed. The captive insurance subsidiary is expected to help the Companymanage its risk exposures. Under the Internal Revenue Code, the netunderwriting income of a small captive, as defined, is not taxable.

 

Accrued Warranty - The Company provides limited warranties for periodsof up to five years from the date of retail sales. Estimated warranty costs areprovided for at the time of sale and are based upon historical experience.

 

**Forward-Looking Statements**

 

This report contains forward-looking statements, other than historicalfacts, which reflect the view of the Company’s management with respect tofuture events. When used in this report, words such as “believe,” “expect,” “anticipate,”“estimate,” “intend,” and similar expressions, as they relate to the Company orits plans or operations, identify forward-looking statements. Such forward-lookingstatements are based on assumptions made by and information currently availableto the Company’s management. Although management believes that the expectationsreflected in such forward-looking statements are reasonable, it can give noassurance that such expectations are reasonable, and it can give no assurancethat such expectations will prove to have been correct. Important factors thatcould cause actual results to differ materially from such expectations include,without limitation, limitations on the availability of chassis on which theCompany’s product is dependent, availability of raw materials, raw materialcost increases, and severe interest rate increases. Furthermore, the Companycan provide no assurance that such raw material cost increases can be passed onto its customers through implementation of price increases for the Company’sproducts. The forward-looking statements contained herein reflect the currentviews of the Company’s management with respect to future events and are subjectto those factors and other risks, uncertainties and assumptions relating to theoperations, results of operations, cash flows and financial position of theCompany. The Company assumes no obligation to update the forward-lookingstatements or to update the reasons actual results could differ from thosecontemplated by such forward-looking statements.

 

**ITEM 3.             QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

 

There has been no material change from the information provided in theCompany’s Annual Report on Form 10-K for the year ended December 31,2005.

 

17

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**ITEM 4.             CONTROLS  AND PROCEDURES.**

 

Evaluation of Disclosure Controls and Procedures - The Company’s ChiefExecutive Officer and its Chief Financial Officer, after evaluating theeffectiveness of the Company’s disclosure controls and procedures (as definedin the rules of the Securities Exchange Act of 1934) as of the end of theperiod covered by this quarterly report (the “Evaluation Date”), have concludedthat as of the Evaluation Date the Company’s disclosure controls and procedureswere adequate and effective to ensure that material information relating to theCompany and its consolidated subsidiaries would be made known to them by otherswithin those entities, particularly during the period in which this quarterlyreport was being prepared.

 

Changes in Internal Controls - There were no changes in the Company’sinternal controls over financial reporting that have materially affected or arereasonably likely to materially affect the Company’s internal control overfinancial reporting.

 

The Companycontinues to take action to assure compliance with the internal controls,disclosure controls, and other requirements of the Sarbanes-Oxley Act of 2002. Ourmanagement, including our Chief Executive Officer and Chief Financial Officer,cannot guarantee that our internal controls and disclosure controls willprevent all possible errors or all fraud. A control system, no matter how wellconceived and operated, can provide only reasonable, not absolute, assurancethat the objectives of the control system are met. In addition, the design of acontrol system must reflect the fact that there are resource constraints, andthe benefit of controls must be relative to their costs. Because of theinherent limitations in all control systems, no system of controls can provideabsolute assurance that all control issues and instances of fraud, if any,within the Company have been detected. These inherent limitations include therealities that judgments in decision-making can be faulty and that breakdownscan occur because of simple error or mistake. Further, controls can becircumvented by individual acts of some persons, by collusion of two or more persons,or by management override of the controls.

 

The design of anysystem of controls also is based in part upon certain assumptions aboutthe likelihood of future events, and there can be no assurance that any designwill succeed in achieving its stated goals under all potential futureconditions. Over time, a control may be inadequate because of changes inconditions or the degree of compliance with the policies or procedures may deteriorate.Because of inherent limitations in a cost-effective control system,misstatements due to error or fraud may occur and not be detected.

 

**PART II. OTHER INFORMATION**

 

**ITEM 1.****             LEGALPROCEEDINGS.**

 

Not applicable

 

18

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**ITEM 1A.     RISKFACTORS.**

 

Any investment in our Common Stock involves a high degree of risk. Youshould carefully consider the risks and uncertainties described below and theother information included in this quarterly report Form 10-Q beforepurchasing our Common Stock. Although the risks described below are the risksthat we believe are material, they are not the only risks relating to ourbusiness and our Common Stock. Additional risks and uncertainties, includingthose that are not yet identified or that we currently believe are immaterial, may alsoadversely affect our business, financial condition, or results of operations. Ifany of the events described below occur, our business and financial resultscould be materially and adversely affected. The market price of our CommonStock could decline due to any of these risks, perhaps significantly, and youcould lose all or part of your investment. In assessing these risks, youshould also refer to the other information contained or incorporated byreference in our Annual Report on Form 10-K for the year ended December 31,2005 filed with the Securities and Exchange Commission, including ourconsolidated financial statements and related notes.

 

**Raw materials**

 

The Company does not have long-term raw material contracts and isdependent upon suppliers of steel, aluminum, wood products and fiberglassmaterials, for its manufacturing operations. Consequently, our ability toproduce and deliver our products could be affected by disruptions encounteredby our raw material suppliers or freight carriers. Additionally, competitivemarket conditions may prevent the Company from implementing priceincreases to offset raw material cost increases.

 

**Chassis availability**

 

The Company generally does not purchase vehicle chassis for itsinventory. The Company accepts shipment of vehicle chassis owned by dealers orend-users, for the purpose of installing and/or manufacturing its specializedtruck bodies and buses on such chassis. In the event of a labor disruption orother uncontrollable event adversely affecting the limited number of companieswhich manufacture and/or deliver such chassis, the Company’s level ofmanufacturing could be substantially reduced. The Company has establishedrelationships with all major chassis manufacturers, and in the event of adisruption in supply from one manufacturer, the Company would attempt to divertits demand to the other manufacturers. Approximately 30% of the chassisinvolved in the Company’s manufacturing have been secured through converterpool agreements with three major chassis manufacturers that provide for truckchassis pools at each of the Company’s manufacturing facilities.

 

**Competition**

 

The competitive nature of the specialized vehicle industry creates anumber of challenges for the Company. Important factors include productpricing, quality of product, lead times, geographic proximity to customers andthe ability to manufacture a product customized to customer specifications. Managementbelieves that the Company has a competitive advantage in each of these areasdue to its years of experience in the industry, established dealer/distributorrelationships, strong relationships with chassis manufacturers and itsnationwide presence. However, specialized vehicles are produced by a number ofsmaller, regional companies, which create product pricing pressures that couldadversely impact the Company’s profits. Chassis

 

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manufacturers have not generally shown an interest in manufacturingspecialized vehicles, including truck bodies and shuttle buses, because suchmanufacturers’ highly-automated assembly line operations do not lend themselvesto the efficient production of a wide variety of highly specialized vehicleswith various options and equipment.

 

**Environmentaland health and safety liabilities**

 

Our operations aresubject to a variety of federal, state and local environmental and health andsafety statutes and regulations, including those relating to emissions to theair, discharges to water, treatment, storage and disposal of waste andremediation of contaminated sites. In certain cases, these requirements may limitthe productive capacity of our operations. However, other companies are subjectto similar regulations. As a result, these regulations are not believed to havean adverse effect on the Company’s competitive position.

 

Certain laws,including the Federal Comprehensive Environmental Response, Compensation, andLiability Act of 1980, as amended, have imposed strict and, under certaincircumstances, joint and several liability for costs to remediate contaminatedsites upon designated responsible parties including site owners or operatorsand persons who dispose of wastes at, or transport wastes to, such sites.

 

From time to time,we have received notices of noncompliance with respect to our operations. Thesehave typically been resolved by investigating the alleged noncompliance andcorrecting any non compliant conditions. New environmental requirements, moreaggressive enforcement of existing ones, or discovery of presently unknownconditions could require material expenditures or result in liabilities whichcould limit expansion or otherwise have a material adverse effect on ourbusiness, financial condition and operating cash flows.

 

**Possibilityof material losses from product liability and warranty claims**

 

We face aninherent risk of exposure to product liability claims if the use of our currentand formally manufactured products result, or are alleged to result, inpersonal injury and/or property damage. If we manufacture a defective product,we may experience material product liability losses in the future. Inaddition, we may incur significant costs to defend product liabilityclaims. We could also incur damages and significant costs in correcting anydefects, lost sales, and suffer damage to our reputation. Our product liabilityinsurance coverage may not be adequate for liabilities we could incur and may notcontinue to be available on terms acceptable to us.

 

We are alsosubject to product warranty claims in the ordinary course of our business. Ifwe manufacture poor quality products or receive defective materials, we may incurunforeseen costs in excess of what we have reserved in our financial statements.These costs could have a material adverse effect on our business and operatingcash flows.

 

**We dependon the services of key management personnel, the loss of whom could materiallyharm us**

 

Our ability tocompete successfully and implement our business strategy depends on the effortsof our senior management personnel. The loss of the services of any one or moreof these individuals could have a material adverse effect on our business. Wedo not maintain key-man life insurance policies on any of our executives. If wewere unable to attract qualified personnel to our management, our existingmanagement resources could become strained, which would harm our business andour ability to implement our strategies.

 

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**Pricevolatility and low trading volumes**

 

Our Class ACommon Stock has experienced, and may continue to experience, pricevolatility and low trading volumes. It may be difficult for you to sellyour shares in the public market at any given time at prevailing prices, andthe price of our Class A Common Stock may, therefore, be volatile. Overallmarket conditions and other risk factors described herein, may cause themarket price of our Class A Common Stock to fall. Our high and low salesprices for the twelve months period ended December 31, 2005, were $9.56and $5.90, respectively. Our Class A Common Stock is listed on theAmerican Stock Exchange under the symbol “STS.” However, daily trading volumes for our Class A Common Stock are,and may continue to be, relatively small compared to many otherpublicly-traded securities. For example, during the twelve month period ended December 31,2005, our daily trading volume has been as low as zero.

 

**Ourofficers and directors own a large percentage of our common stock, and they may controlour business and affairs**.

 

Our officers anddirectors as a group beneficially own approximately 33.2% of our Class ACommon Stock and 90.9% of our Class B Common Stock. As a result, they willcontinue to be able to exercise significant influence, and in most cases,control, over matters requiring shareholder approval, including the election ofdirectors, changes to our charter documents and significant corporatetransactions. This concentration of ownership makes it unlikely that any otherholder or group of holders of our Class A Common Stock will be able toaffect the way we are managed or the direction of our business.

 

**Splitclasses of stock make it difficult for a third party to acquire the Company**

 

Our outstandingCommon Stock is split into two classes. The Class A Common Stock is listedon the American Stock Exchange, and the holders thereof are entitled to electthree members of the Company’s Board of Directors. The majority (90.9%) of the Class BCommon Stock is owned or controlled by the Company’s officers and directors andis entitled to elect the remaining six members of the Company’s Board ofDirectors. The continuing ability of the holders of our Class B CommonStock to elect a majority of the members of the Company’s Board of Directorswill make it difficult for another company to acquire us and for you to receiveany related take-over premium for your shares (unless the controlling groupapproves the acquisition).

 

(See other risk factors listed under the following captions:  Critical Accounting Policies and Estimates,Forward-Looking Statements, and Control Risks)

 

**ITEM 2.             UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**

 

Not applicable

 

**ITEM 3.             DEFAULTSUPON SENIOR SECURITIES.**

 

Not applicable

 

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**ITEM 4.             SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS,**

 

Not applicable

 

**ITEM 5.             OTHERINFORMATION.**

 

Not applicable

 

**ITEM 6.             EXHIBITS.**

 

Exhibits:

 
| Exhibit 31.1 |   | Certification of  Chief Executive Officer Pursuant to |
|-------------------|--------|-------------------------------------------------------|
|              |   | Section 302 of the Sarbanes-Oxley Act of 2002    |
|              |   |                                                  |
| Exhibit 31.2 |   | Certification of  Chief Financial Officer Pursuant to |
|              |   | Section 302 of the Sarbanes-Oxley Act of 2002    |
|              |   |                                                  |
| Exhibit 32.1 |   | Certification of Chief Executive Officer Pursuant to  |
|              |   | Section 906 of the Sarbanes-Oxley Act of 2002    |
|              |   |                                                  |
| Exhibit 32.2 |   | Certification of Chief Financial Officer Pursuant to  |
|              |   | Section 906 of the Sarbanes-Oxley Act of 2002    |

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|                    |   | SUPREME INDUSTRIES, INC.               |
|-------------------------|--------|---------------------------------------------|
|                    |   |                                        |
|                    |   |                                        |
|                    |   | BY: /s/ Jeffery D. Mowery                   |   |
| DATE: May 16, 2006 |   | Jeffery D. Mowery                           |
|                    |   |                                        |
|                    |   | Vice President of Finance and Chief         |
|                    |   | Financial Officer                           |
|                    |   |                                        |
|                    |   | (Signing on behalf of the Registrant and as |
|                    |   | Principal Financial and Accounting Officer) |

 

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INDEX TO EXHIBITS

 
| **Exhibit  Number** | ** ** | **Description of Document**                                                                                |
|---------------------|------------|------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                       |
| 31.1                |       | Certification of  Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002. |
|                |       |                                                                                                       |
| 31.2                |       | Certification of  Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002. |
|                |       |                                                                                                       |
| 32.1                |       | Certification of  Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002. |
|                |       |                                                                                                       |
| 32.2                |       | Certification of  Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002. |

 

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