UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[x]	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended May 31, 2015

[ ]	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______

Commission File No. 0-5131

ART’S-WAY MANUFACTURING CO., INC.

(Exact name of registrant as specified in its charter)

DELAWARE	42-0920725
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5556 Highway 9

Armstrong, Iowa 50514

(Address of principal executive offices)

(712) 864-3131

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of common shares outstanding as of June 17, 2015: 4,061,052

Art’s-Way Manufacturing Co., Inc.

Index

Page No.

PART I – FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets May 31, 2015 and November 30, 2014	1

	Condensed Consolidated Statements of Operations Three- and Six-month periods ended May 31, 2015 and May 31, 2014	2

	Condensed Consolidated Statements of Cash Flows Six-month periods ended May 31, 2015 and May 31, 2014	3

	Notes to Condensed Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15

Item 4.	Controls and Procedures	16

PART II – OTHER INFORMATION		16

Item 1.	Legal Proceedings	16

Item 1A.	Risk Factors	16

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16

Item 3.	Defaults Upon Senior Securities	16

Item 4.	Mine Safety Disclosures	16

Item 5.	Other Information	16

Item 6.	Exhibits	16

	SIGNATURES	17

	Exhibit Index	18

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

ART’S-WAY MANUFACTURING CO., INC.

Condensed Consolidated Balance Sheets

	(Unaudited)
	May 31, 2015		November 30, 2014
Assets
Current assets:
Cash	$	601,724	$	511,716
Accounts receivable-customers, net of allowance for doubtful accounts of $38,415 and $35,175 in 2015 and 2014, respectively		2,931,858		2,961,834
Inventories, net		15,971,257		15,089,280
Deferred taxes		1,312,855		1,259,943
Cost and Profit in Excess of Billings		85,819		17,543
Income taxes receivable		-		100,417
Other current assets		449,434		125,228
Total current assets		21,352,947		20,065,961
Property, plant, and equipment, net		11,371,871		11,680,792
Assets held for lease, net		26,591		58,500
Goodwill		993,729		993,729
Other Assets		42,890		47,360
Total assets	$	33,788,028	$	32,846,342
Liabilities and Stockholders’ Equity
Current liabilities:
Line of credit	$	3,318,878	$	2,569,106
Current portion of term debt		1,302,741		1,283,897
Accounts payable		938,959		874,653
Customer deposits		702,686		95,411
Billings in Excess of Cost and Profit		127,296		96,382
Accrued expenses		1,495,657		1,584,328
Income taxes payable		10,150		-
Total current liabilities		7,896,367		6,503,777
Long-term liabilities
Deferred taxes		1,121,580		1,141,580
Long Term debt, excluding current portion		5,292,554		5,949,329
Total liabilities		14,310,501		13,594,686
Commitments and Contingencies (Notes 6 and 7)
Stockholders’ equity:
Undesignated preferred stock - $0.01 par value. Authorized 500,000 shares in 2015 and 2014; issued and outstanding 0 shares in 2015 and 2014.		-		-
Common stock – $0.01 par value. Authorized 9,500,000 shares in 2015 and 2014; issued and outstanding 4,061,052 in 2015 and 4,048,552 in 2014		40,610		40,486
Additional paid-in capital		2,667,010		2,638,651
Retained earnings		16,769,907		16,572,519
Total stockholders’ equity		19,477,527		19,251,656
Total liabilities and stockholders’ equity	$	33,788,028	$	32,846,342

See accompanying notes to condensed consolidated financial statements.

ART’S-WAY MANUFACTURING CO., INC.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Six Months Ended
	May 31, 2015			May 31, 2014			May 31, 2015			May 31, 2014
Sales	$	7,804,111		$	9,468,996		$	15,093,239		$	15,706,331
Cost of goods sold		5,596,379			7,141,227			10,833,376			12,038,146
Gross profit		2,207,732			2,327,769			4,259,863			3,668,185
Expenses:
Engineering		119,540			118,361			235,216			231,899
Selling		581,211			639,893			1,145,925			1,176,043
General and administrative		1,092,837			1,125,624			2,135,429			2,111,288
Total expenses		1,793,588			1,883,878			3,516,570			3,519,230
Income from operations		414,144			443,891			743,293			148,955
Other income (expense):
Interest expense		(81,582	)		(121,222	)		(161,067	)		(175,162	)
Other		21,445			11,431			16,581			17,105
Total other income (expense)		(60,137	)		(109,791	)		(144,486	)		(158,057	)
Income (loss) before income taxes		354,007			334,100			598,807			(9,102	)
Income tax expense (benefit)		122,386			80,945			198,991			(3,943	)
Net income (loss)	$	231,621		$	253,155		$	399,816		$	(5,159	)

Net income per share:
Basic net income (loss) per share	$	0.06		$	0.06		$	0.10		$	(0.00	)
Diluted net income (loss) per share	$	0.06		$	0.06		$	0.10		$	(0.00	)
Weighted average outstanding shares used to compute basic net income per share		4,060,775			4,047,487			4,055,698			4,047,025
Weighted average outstanding shares used to compute diluted net income per share		4,062,294			4,053,747			4,057,073			4,047,025

See accompanying notes to condensed consolidated financial statements.

ART’S-WAY MANUFACTURING CO., INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	May 31, 2015			May 31, 2014
Cash flows from operations:
Net income (loss)	$	399,816		$	(5,159	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Stock based compensation		28,484			14,504
Loss on disposal of property, plant, and equipment		6,955			(958	)
Depreciation expense		459,412			441,230
Bad debt expense (recovery)		3,240			10,939
Deferred income taxes		(72,912	)		(25,003	)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable		26,736			(288,590	)
Inventories		(881,977	)		(945,760	)
Income taxes receivable		100,417			(269,169	)
Other assets		(319,737	)		(371,738	)
Increase (decrease) in:
Accounts payable		64,306			223,896
Contracts in progress, net		(37,362	)		(8,375	)
Customer deposits		607,275			908,211
Income taxes payable		10,150			-
Accrued expenses		(88,671	)		(133,590	)
Net cash provided by (used in) operating activities		306,132			(449,562	)
Cash flows from investing activities:
Purchases of property, plant, and equipment		(139,994	)		(611,211	)
Proceeds from sale of assets		14,456			958
Net cash (used in) investing activities		(125,538	)		(610,253	)
Cash flows from financing activities:
Net change in line of credit		749,772			714,740
Proceeds from term debt		-			1,000,000
Repayment of term debt		(637,931	)		(620,243	)
Proceeds from the exercise of stock options		-			7,760
Dividends paid to stockholders		(202,428	)		-
Net cash provided by (used in) financing activities		(90,586	)		1,102,257
Net increase in cash		90,008			42,442
Cash at beginning of period		511,716			207,950
Cash at end of period	$	601,724		$	250,392

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	160,803		$	176,564
Income taxes		205,296			291,822

See accompanying notes to condensed consolidated financial statements.

Notes to Unaudited Condensed Consolidated Financial Statements

1)	Description of the Company

Unless otherwise specified, as used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “Art’s-Way,” and the “Company,” refer to Art’s-Way Manufacturing Co., Inc., a Delaware corporation headquartered in Armstrong, Iowa, and its wholly-owned subsidiaries.

We began operations as a farm equipment manufacturer in 1956. Since that time, we have become a major worldwide manufacturer of agricultural equipment. Our principal manufacturing plant is located in Armstrong, Iowa.

We have organized our business into four operating segments. Management separately evaluates the financial results of each segment because each is a strategic business unit offering different products and requiring different technology and marketing strategies. Our agricultural products segment (“Manufacturing”) manufactures farm equipment under the Art’s-Way Manufacturing label and private labels. Our pressurized vessels segment (“Vessels”) manufactures pressurized vessels. Our modular buildings segment (“Scientific”) manufactures modular buildings for various uses, commonly animal containment and research laboratories and our tools segment (“Metals”) manufactures steel cutting tools and inserts. For detailed financial information relating to segment reporting, see Note 11, “Segment Information.”

Summary of Significant Account Policies

Statement Presentation

The foregoing condensed consolidated financial statements of the Company are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K and the amendment thereto on Form 10-K/A for the fiscal year ended November 30, 2014. The results of operations for the three and six months ended May 31, 2015 are not necessarily indicative of the results for the fiscal year ending November 30, 2015.

The financial books of our Canadian operation are kept in the functional currency of Canadian dollars and the financial statements are converted to U.S. Dollars for consolidation. When consolidating the financial results of the Company into U.S. Dollars for reporting purposes, the Company uses the All-Current translation method. The All-Current method requires the balance sheet assets and liabilities be translated to U.S. Dollars at the exchange rate as of quarter end. Owner’s equity is translated at historical exchange rates and retained earnings are translated at an average exchange rate for the period. Additionally, revenue and expenses are translated at average exchange rates for the periods presented. The resulting cumulative translation adjustment is carried on the balance sheet and distributed among various balance sheet accounts. The Company monitors the amount of the adjustment and considers it to be immaterial.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the three and six months ended May 31, 2015. Actual results could differ from those estimates.

Net Income (Loss) Per Share of Common Stock

Basic net income (loss) per common share has been computed on the basis of the weighted average number of common shares outstanding. Diluted net income (loss) per share has been computed on the basis of the weighted average number of common shares outstanding plus equivalent shares assuming exercise of stock options. Potential shares of common stock that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

Basic and diluted earnings (loss) per common share have been computed based on the following as of May 31, 2015 and May 31, 2014:

	For the three months ended
	May 31, 2015		May 31, 2014
Basic:
Numerator: net income	$	231,621	$	253,155
Denominator: average number of common shares outstanding		4,060,775		4,047,487
Basic earnings per common share	$	0.06	$	0.06

Diluted:
Numerator: net income	$	231,621	$	253,155
Average number of common shares outstanding		4,060,775		4,047,487
Effect of dilutive stock options		1,519		6,260
Denominator: dilutive average number of common shares outstanding		4,062,294		4,053,747
Diluted earnings per common share	$	0.06	$	0.06

	For the six months ended
	May 31, 2015		May 31, 2014
Basic:
Numerator: net income	$	399,816	$	(5,159	)
Denominator: average number of common shares outstanding		4,055,698		4,047,025
Basic earnings per common share	$	0.10	$	(0.00	)
Diluted:
Numerator: net income	$	399,816	$	(5,159	)
Average number of common shares outstanding		4,055,698		4,047,025
Effect of dilutive stock options		1,375		0
Denominator: dilutive average number of common shares outstanding		4,057,073		4,047,025
Diluted earnings per common share	$	0.10	$	(0.00	)

Inventory

Major classes of inventory are:

	May 31, 2015			November 30, 2014
Raw materials	$	10,440,327		$	10,037,055
Work in process		553,631			467,110
Finished goods		8,684,721			8,504,062
	$	19,678,679		$	19,008,227
Less: Reserves		(3,707,422	)		(3,918,947	)
	$	15,971,257		$	15,089,280

Accrued Expenses

Major components of accrued expenses are:

	May 31, 2015		November 30, 2014
Salaries, wages, and commissions	$	721,652	$	673,934
Accrued warranty expense		283,571		234,266
Other		490,434		676,128
	$	1,495,657	$	1,584,328

Product Warranty

The Company offers warranties of various lengths to its customers depending on the specific product and terms of the customer purchase agreement. The average length of the warranty period is one year from the date of purchase. The Company’s warranties require it to repair or replace defective products during the warranty period at no cost to the customer. The Company records a liability for estimated costs that may be incurred under its warranties. The costs are estimated based on historical experience and any specific warranty issues that have been identified. Although historical warranty costs have been within expectations, there can be no assurance that future warranty costs will not exceed historical amounts. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the balance as necessary. The accrued warranty balance is included in accrued expenses as shown in Note 5.

Changes in the Company’s product warranty liability for the three and six months ended May 31, 2015 and May 31, 2014 are as follows:

	For the three months ended
	May 31, 2015			May 31, 2014
Balance, beginning	$	246,490		$	153,455

Settlements / adjustments		(78,611	)		(43,493	)
Warranties issued		115,692			119,438
Balance, ending	$	283,571		$	229,400

	For the six months ended
	May 31, 2015			May 31, 2014
Balance, beginning	$	234,266		$	220,719

Settlements / adjustments		(170,136	)		(195,070	)
Warranties issued		219,441			203,751
Balance, ending	$	283,571		$	229,400

Loan and Credit Agreements

On May 1, 2013, the Company began a banking relationship with U.S. Bank, which includes an $8,000,000 revolving line of credit (the “Line of Credit”) which was renewed in 2014 and was scheduled to mature on May 1, 2015. The Line of Credit is renewable annually with advances funding the Company’s working capital needs and is secured by real property and fixed asset collateral. On May 1, 2015, we signed an extension for the line of credit extending the maturity date to July 1, 2015; on June 23, 2015 we signed an additional extension, extending the maturity date to May 1, 2016. We expect to renew the Line of Credit prior to its maturity date. The interest rate is U.S. Bank’s prime interest rate, adjusted each time that the Federal prime rate changes, with a minimum rate of 3.50%. As of May 31, 2015, the interest rate was the minimum of 3.50%. Monthly interest-only payments are required and the unpaid principal is due on the maturity date. As of May 31, 2015, the Company had a principal balance of $3,318,878 outstanding against the Line of Credit, with $4,255,255 remaining available The Line of Credit states that the borrowing base will be an amount equal to the sum of 75% of accounts receivable (discounted for aged accounts and customer balances exceeding 20% of aggregate receivables), plus 50% of inventory (this component cannot exceed $6,000,000 and only includes finished goods and raw materials deemed to be in good condition and not obsolete), less any outstanding loan balance of the Line of Credit, and less undrawn amounts of outstanding letters of credit issued by U.S. Bank or any affiliate. The Company’s obligations under the Line of Credit are evidenced by a Revolving Credit Note effective May 1, 2013, a Revolving Credit Agreement dated May 1, 2013 and certain other ancillary documents.

In addition to the Line of Credit, on May 1, 2013, the Company obtained four U.S. Bank loans totaling $6,319,000 at a fixed interest rate of 2.98% (the “2013 U.S. Bank Term Loans”). As detailed in the Company’s long-term debt summary below, monthly principal and interest payments in the aggregate amount of $93,850 are required, with final payments of principal and accrued interest on the four loans, in the aggregate amount of $1,372,000, due on May 1, 2018.

On May 29, 2014, the Company obtained $1,000,000 in long-term debt from U.S. Bank to partially pay down the Line of Credit draw from 2013 that it had used to finance the purchase of the building and property of Ohio Metal Working Products Company in Canton, Ohio. The maturity date of this loan is May 25, 2017, with a final payment of principal and accrued interest in the amount of $890,000 due May 25, 2017. This loan is secured by a mortgage on the building and property acquired from Ohio Metal Working Products Company in Canton, Ohio pursuant to a Mortgage, Security Agreement and Assignment of Rents between the Company and U.S. Bank, dated May 29, 2014.

Except for the U.S. Bank UHC Loan (as defined below), each of the Company’s term loans from U.S. Bank is governed by a Term Note and a Term Loan Agreement. Each Term Loan Agreement and the Revolving Credit Agreement require the Company to provide monthly internally prepared financial reports, year-end audited financial statements, and a monthly aging of accounts receivable. The Company, as of the end of each fiscal quarter, must maintain a debt to tangible net worth ratio of not more than 1.5 to 1.0 and a fixed charge coverage ratio of at least 1.15 to 1.00. The Company was in compliance with all covenants under the Term Loan Agreements and the Revolving Credit Agreement as measured on May 31, 2015. The next measurement date is August 31, 2015. The loans are secured by a first position security interest on the assets of the Company and its subsidiaries, including but not limited to, inventories, machinery, equipment and real estate, in accordance with the Business Security Agreements entered into by the Company and its subsidiaries and the Pledge Agreements entered into by the subsidiaries. Additionally, the Company has mortgaged certain real property in favor of U.S. Bank as documented by mortgage agreements dated May 1, 2013 and May 29, 2014 (together, the “Mortgages”).

If the Company or its subsidiaries (as guarantors pursuant to continuing guaranties) commits an event of default under the Term Loan Agreements, Business Security Agreements, Pledge Agreements, Mortgages, or Revolving Credit Agreement and fails or is unable to cure that default, the interest rate on each of the loans and Line of Credit could increase by 5.0% per annum and U.S. Bank can immediately terminate its obligation, if any, to make additional loans to the Company. In addition, U.S. Bank may collect any and all money due or to become due and shall have all other rights and remedies for default provided by the Uniform Commercial Code, as well as any other applicable law and the various loan agreements, including, without limitation, the right to repossess, render unusable and/or dispose of the collateral without judicial process. In addition, in an event of default, U.S. Bank may foreclose on mortgaged property pursuant to the terms of the Mortgages.

On May 10, 2012, the Company obtained $880,000 in long-term debt from U.S. Bank issued to acquire the building and property of Universal Harvester Co., Inc. located in Ames, Iowa (the “U.S. Bank UHC Loan”). The maturity date of this loan is May 10, 2017, with a final payment of principal and accrued interest in the amount of $283,500 due May 10, 2017. This loan is secured by a mortgage on the building and property acquired from Universal Harvester Co., Inc. in Ames, Iowa, pursuant to a Mortgage, Security Agreement and Assignment of Rents between the Company and U.S. Bank, dated May 10, 2012. On May 1, 2013, the U.S. Bank UHC Loan and the mortgage were amended to extend the mortgage to secure the 2013 U.S. Bank Term Loans in addition to the U.S. Bank UHC Loan.

If the Company or its subsidiaries (as guarantors) commits an event of default under the agreement governing the U.S. Bank UHC Loan and fails or is unable to cure during any applicable cure periods, the lender may cause the entire amount of the loan to be immediately due and payable, may foreclose on the property, or may increase the interest rate to 5.00% per annum, plus the interest rate otherwise payable under the U.S. Bank UHC Loan.

On May 1, 2010, the Company obtained a loan to finance the purchase of an additional facility located in West Union, Iowa to be used as a distribution center, warehouse facility, and manufacturing plant for certain products under the Art’s-Way brand. The funds for this loan were made available by the Iowa Finance Authority by the issuance of tax exempt bonds. This loan had an original principal amount of $1,300,000 and an interest rate of 3.5%. On February 1, 2013, the interest rate was decreased to 2.75%. The other terms of the loan remain unchanged.

This loan from the Iowa Finance Authority, which has been assigned to The First National Bank of West Union (n/k/a Bank 1^st), is governed by a Manufacturing Facility Revenue Note dated May 28, 2010 as amended February 1, 2013 and a Loan Agreement dated May 1, 2010 and a First Amendment to Loan Agreement dated February 1, 2013 (collectively, “the IFA Loan Agreement”), which requires the Company to provide quarterly internally prepared financial reports and year-end audited financial statements and to maintain a minimum debt service coverage ratio of 1.5 to 1.0, which is measured at November 30 of each year. Among other covenants, the IFA Loan Agreement also requires the Company to maintain proper insurance on, and maintain in good repair, the West Union Facility, and continue to conduct business and remain duly qualified to do business in the State of Iowa. The loan is secured by a mortgage on the Company’s West Union Facility, pursuant to a Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement dated May 1, 2010 between the Company and The First National Bank of West Union (the “West Union Mortgage”).

If the Company commits an event of default under the IFA Loan Agreement and does not cure the event of default within the time specified by the IFA Loan Agreement, the lender may cause the entire amount of the loan to be immediately due and payable and take any other action that it is lawfully permitted to take or in equity to enforce the Company’s performance.

The Company was in compliance with all covenants under the IFA Loan Agreement as measured on November 30, 2014. The next measurement date is November 30, 2015.

A summary of the Company’s term debt is as follows:

	May 31, 2015		November 30, 2014
U.S. Bank loan payable in monthly installments of $42,500 including interest at 2.98%, due May 1, 2018	$	1,430,781	$	1,662,311

U.S. Bank loan payable in monthly installments of $11,000 including interest at 2.98%, due May 1, 2018		797,347		850,930

U.S. Bank loan payable in monthly installments of $12,550 including interest at 2.98%, due May 1, 2018		904,682		965,889

U.S. Bank loan payable in monthly installments of $27,800 including interest at 2.98%, due May 1, 2018		1,260,742		1,407,366

U.S. Bank loan payable in monthly installments of $11,700 including interest at 3.15%, due May 10, 2017		526,776		588,101

U.S. Bank loan payable in monthly installments of $5,556 including interest at 2.98%, due May 25, 2017		962,183		980,940

Iowa Finance Authority loan payable in monthly installments of $12,500 including interest at 2.75%, due June 1, 2020		712,784		777,689
Total term debt	$	6,595,295	$	7,233,226
Less current portion of term debt		1,302,741		1,283,897
Term debt, excluding current portion	$	5,292,554	$	5,949,329

Related Party Transactions

During the second quarter of fiscal 2015 the Company recognized revenues of $15,718 for transactions with a related party, compared to $9,240 in the second quarter of fiscal 2014. The accounts receivable balance as of May 31, 2015 contains $15,718 due from a related party.

9)	Recently Issued Accounting Pronouncements

Presentation of an Unrecognized Tax Benefit

In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” that clarifies how an unrecognized tax benefit should be presented in the financial statements when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists; as a reduction to a deferred tax asset or as a liability. The amendments are meant to eliminate the diversity that exists in the financial statement presentation of the unrecognized tax benefits. The amendments in this ASU do not require new recurring disclosures and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. The effective date for the Company is our current fiscal year, which began on December 1, 2014. The Company currently has no unrecognized tax benefits that are impacted by the amendment and the implementation of this standard has not had a material impact on our consolidated financial statements.

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” which supersedes the guidance in “Revenue Recognition (Topic 605)” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. We are evaluating the new standard, but do not at this time expect this standard to have a material impact on our consolidated financial statements.

Going Concern

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern” which is authoritative guidance on management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and provide related footnote disclosures, codified in ASC 205-40, Going Concern. The guidance provides a definition of the term substantial doubt, requires an evaluation every reporting period including interim periods, provides principles for considering the mitigating effect of management’s plans, requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, requires an express statement and other disclosures when substantial doubt is not alleviated, and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU No. 2015-15 is effective for annual reporting periods ending after December 15, 2016. The Company will adopt this guidance for the fiscal year ending November 30, 2017, and it will apply to each interim and annual period thereafter. Its adoption is not expected to have a material effect on the Company's consolidated financial statements.

10)

Equity Incentive Plan and Stock Based Compensation

On January 27, 2011, the Board of Directors of the Company authorized and approved the Art’s-Way Manufacturing Co., Inc. 2011 Equity Incentive Plan (the “2011 Plan”). The 2011 Plan was approved by the stockholders on April 28, 2011. It replaced the Employee Stock Option Plan and the Directors’ Stock Option Plan (collectively, the “Prior Plans”), and no further stock options will be awarded under the Prior Plans. Awards to directors and executive officers under the 2011 Plan will be governed by the forms of agreement approved by the Board of Directors.

The 2011 Plan permits the plan administrator to award nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance awards, and stock appreciation rights to employees (including officers), directors, and consultants. The Board of Directors has approved a director compensation policy pursuant to which non-employee directors are automatically granted non-qualified stock options to purchase 2,000 shares of common stock annually or initially upon their election to the Board, which are fully vested.

Stock options granted prior to January 27, 2011 are governed by the applicable Prior Plan and the forms of agreement adopted thereunder.

Stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date and recognized over the relevant vesting period. We estimate the fair value of each stock-based award on the measurement date using the Black-Scholes option valuation model which incorporates assumptions as to stock price volatility, the expected life of the options, risk-free interest rate, and dividend yield. Expected volatility is based on historical volatility of the Company’s stock and other factors. The Company uses historical option exercise and termination data to estimate the expected term the options are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield is calculated using historical dividend amounts and the stock price at the option issuance date. We incurred $15,339 and $28,484 of stock-based compensation expense during the three and six months ended May 31, 2015, respectively, compared to $0 and $14,504 of stock-based compensation expense for the same respective periods of fiscal 2014.

11)

Disclosures About the Fair Value of Financial Instruments

The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. At May 31, 2015, and November 30, 2014, the carrying amount approximated fair value for cash, accounts receivable, accounts payable, notes payable to bank, and other current and long-term liabilities. The carrying amounts approximate fair value because of the short maturity of these instruments. The fair value of the Company’s installment term loans payable also approximate recorded value because the interest rates charged under the loan terms are not substantially different than current interest rates.

12)

Segment Information

There are four reportable segments: agricultural products, pressurized vessels, modular buildings and tools. The agricultural products segment fabricates and sells farming products as well as related equipment and replacement parts for these products in the United States and worldwide. The pressurized vessels segment produces and services pressurized tanks. The modular buildings segment manufactures and installs modular buildings for animal containment and various laboratory uses. The tools segment manufactures steel cutting tools and inserts.

The accounting policies applied to determine the segment information are the same as those described in the summary of significant accounting policies. Management evaluates the performance of each segment based on profit or loss from operations before income taxes, exclusive of nonrecurring gains and losses.

Approximate financial information with respect to the reportable segments is as follows.

	Three Months Ended May 31, 2015

	Agricultural Products		Pressurized Vessels			Modular Buildings			Tools			Consolidated
Revenue from external customers	$	6,365,000	$	476,000		$	409,000		$	554,000		$	7,804,000
Income (loss) from operations		579,000		(5,000	)		(97,000	)		(63,000	)	$	414,000
Income (loss) before tax		538,000		(11,000	)		(104,000	)		(69,000	)	$	354,000
Total Assets		25,330,000		2,765,000			2,659,000			3,034,000		$	33,788,000
Capital expenditures		55,000		-			(2,000	)		5,000		$	58,000
Depreciation & Amortization		126,000		29,000			52,000			30,000		$	237,000

	Three Months Ended May 31, 2014

	Agricultural Products		Pressurized Vessels			Modular Buildings			Tools			Consolidated
Revenue from external customers	$	7,562,000	$	475,000		$	537,000		$	895,000		$	9,469,000
Income (loss) from operations		599,000		(77,000	)		(114,000	)		36,000		$	444,000
Income (loss) before tax		542,000		(85,000	)		(120,000	)		(2,000	)	$	335,000
Total Assets		26,147,000		2,715,000			2,708,000			3,438,000		$	35,008,000
Capital expenditures		162,000		16,000			-			1,000		$	179,000
Depreciation & Amortization		136,000		27,000			37,000			28,000		$	228,000

	Six Months Ended May 31, 2015

	Agricultural Products		Pressurized Vessels			Modular Buildings			Tools			Consolidated
Revenue from external customers	$	11,681,000	$	1,003,000		$	1,058,000		$	1,351,000		$	15,093,000
Income (loss) from operations		1,018,000		(66,000	)		(164,000	)		(45,000	)	$	743,000
Income (loss) before tax		937,000		(78,000	)		(177,000	)		(83,000	)	$	599,000
Total Assets		25,330,000		2,765,000			2,659,000			3,034,000		$	33,788,000
Capital expenditures		133,000		2,000			-			5,000		$	140,000
Depreciation & Amortization		266,000		53,000			85,000			59,000		$	463,000

	Six Months Ended May 31, 2014

	Agricultural Products		Pressurized Vessels			Modular Buildings			Tools		Consolidated
Revenue from external customers	$	12,004,000	$	898,000		$	998,000		$	1,806,000	$	15,706,000
Income (loss) from operations		396,000		(109,000	)		(240,000	)		102,000	$	149,000
Income (loss) before tax		301,000		(125,000	)		(249,000	)		64,000	$	(9,000	)
Total Assets		26,147,000		2,715,000			2,708,000			3,438,000	$	35,008,000
Capital expenditures		574,000		27,000			-			10,000	$	611,000
Depreciation & Amortization		256,000		54,000			74,000			57,000	$	441,000

13)

Subsequent Event

Management evaluated all other activity of the Company and concluded that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes to the condensed consolidated financial statements other than the extension of the U.S. Bank line of credit as previously discussed in Note 7.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of Part I of this report and the audited consolidated financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K and the amendment thereto on Form 10-K/A for the fiscal year ended November 30, 2014. Some of the statements in this report may contain forward-looking statements that reflect our current view on future events, future business, industry and other conditions, our future performance, and our plans and expectations for future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “may,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. Many of these forward-looking statements are located in this report under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” but they may appear in other sections as well. Forward-looking statements in this report generally relate to: (i) our expectations regarding our warranty costs and order backlog; (ii) our beliefs regarding the sufficiency of working capital and cash flows, and our continued ability to renew or obtain financing on reasonable terms when necessary; (iii) the impact of recently issued accounting pronouncements; (iv) and our expectations concerning our primary capital and cash flow needs.

You should read this report thoroughly with the understanding that our actual results may differ materially from those set forth in the forward-looking statements for many reasons, including events beyond our control and assumptions that prove to be inaccurate or unfounded. We cannot provide any assurance with respect to our future performance or results. Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including but not limited to: (i) the impact of tightening credit markets on our ability to continue to obtain financing on reasonable terms; (ii) our ability to continue to meet debt obligations and comply with financial covenants; (iii) obstacles related to integration of acquired product lines and businesses; (iv) the effect of general economic conditions, including consumer and governmental spending, on the demand for our products and the cost of our supplies and materials; (v) fluctuations in seasonal demand and our production cycle; and (vi) other factors described from time to time in our reports to the SEC. We do not intend to update the forward-looking statements contained in this report other than as required by law. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Critical Accounting Policies

Our critical accounting policies involving the more significant judgments and assumptions used in the preparation of the financial statements as of May 31, 2015 have remained unchanged from November 30, 2014. Disclosure of these critical accounting policies is incorporated by reference from Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended November 30, 2014.

Results of Operations

Net Sales and Cost of Sales

Our consolidated corporate sales for the three- and six-month periods ended May 31, 2015 were $7,804,000 and $15,093,000, respectively, compared to $9,469,000 and $15,706,000 during the same respective periods in 2014, a $1,665,000, or 17.6%, decrease for the quarter and a $613,000 or 3.9% decrease year-to-date. On a quarterly basis, much of the decrease is due to the delay of shipments due to extreme weather conditions in 2014, which shifted revenues traditionally recognized in the first fiscal quarter to the second. The decreases year-to-date in revenue are primarily due to decreased sales of our Universal Harvester line of reels and at our tools segment. Consolidated gross margin for the three- and six-month periods ended May 31, 2015 was 28.3% and 28.2%, respectively, compared to 24.6% and 23.4% for the same respective periods in fiscal 2014.

Our second quarter agricultural segment sales were $6,365,000 compared to $7,562,000 during the same period of 2014, a decrease of $1,197,000, or 15.8%. This decrease is primarily due to higher second quarter sales in 2014 that had been delayed from the first quarter due to inclement weather. Our year-to-date agricultural segment sales were $11,681,000 in 2015 as compared to $12,004,000 in 2014, a $323,000, or 2.7% decrease. This decrease is largely due to the previously mentioned decline in sales of Universal Harvester reels, but is offset by increased grinder mixer sales. The gross margin of our agricultural products segment for the three- and six-months ended May 31, 2015 was 30.1% and 31.0%, respectively, compared to 26.3% and 24.6% for the same respective periods in 2014. Most of this increase is due to greater efficiencies in our manufacturing facilities and improved management of our inventories as compared to the previous year.

Our second quarter and year-to-date sales at our pressurized vessels segment were $476,000 and $1,003,000, respectively, compared to $475,000 and $898,000 for the same respective periods in 2014. The year-to-date increase of $105,000, or 11.7%, was caused in part by the addition of our new line of stock tanks available for sale. Gross margin for the quarter and year-to-date ended May 31, 2015 was 16.2% and 10.6% respectively, compared to 3.8% and 6% for the same respective periods in 2014. This increase is largely due to manufacturing efficiencies gained to-date during fiscal 2015.

Our three- and six-month sales for our modular building segment were $409,000 and $1,058,000, respectively, compared to $537,000 and $998,000 for the same respective periods in fiscal 2014, a decrease of $128,000, or 23.8%, for the three-month period but a $60,000, or 6.0%, increase for the six-month period. Gross margin for the quarter and year-to-date ended May 31, 2015 was 22.0% and 16.0%, respectively, compared to 10.2% and 11.7% for the same respective periods in 2014.

Our tools segment had sales of $554,000 during the three months ended May 31, 2015, compared to $895,000 for the same period in 2014, a 38.1% decrease. Year-to-date sales for our tools segment were $1,351,000 in 2015 compared to $1,806,000 in 2014, a $455,000, or 25.2%, decrease. These decreases are largely due to a general decline in the energy industry. Gross margin for out tools segment was 22.4% and 26.7% for the three-and six-month periods ending May 31, 2015, respectively, compared to 29.5% and 30.1% for the same respective periods of fiscal 2014.

Expenses

Our second fiscal quarter consolidated selling expenses were $581,000 compared to $640,000 for the same period in 2014. Our year-to-date consolidated selling expenses were $1,146,000 in 2015 compared to $1,176,000 for the same period in 2014. The decreases in the second quarter and year-to-date are largely due to decreased commission and salary expense compared to prior year periods. Selling expenses as a percentage of sales were 7.4% and 7.6% for the three- and six-month periods ended May 31, 2015, respectively, compared to 6.8% and 7.5% for the same respective periods in 2014.

Consolidated engineering expenses were $120,000 and $235,000 for the three and six months ended May 31, 2015, respectively, compared to $118,000 and $232,000 for the same respective periods in 2014. Engineering expenses as a percentage of sales were 1.5% and 1.6% for the three- and six-month periods ended May 31, 2015, respectively, compared to 1.2% and 1.5% for the same respective periods in 2014.

Consolidated administrative expenses for the three and six months ended May 31, 2015 were $1,093,000 and $2,136,000, respectively, compared to $1,126,000 and $2,111,000 for the same respective periods in 2014. Administrative expenses as a percentage of sales were 14.0% and 14.2% for the three- and six-month periods ended May 31, 2015, respectively, compared to 11.9% and 13.4% for the same respective periods in 2014.

Income

Consolidated net income was $232,000 for the three-month period ended May 31, 2015, compared to $253,000 for the same period in 2014. This decrease is due to the decreased revenue levels in the second quarter of fiscal 2015. Consolidated net income for the six-month period ended May 31, 2015 was $400,000 compared to a net loss of $5,000 in the same period of 2014. This increase in income is due to a $622,000 increase in operating income in our agricultural products segment in the first six months of 2015 compared to 2014, but was offset by operating losses at our tools and modular buildings segments.

Order Backlog

The consolidated order backlog net of discounts as of June 25, 2015 was $5,706,000 compared to $6,747,000 as of June 25, 2014. The agricultural products segment order backlog was $3,316,000 as of June 25, 2015 compared to $5,821,000 in fiscal 2014. We are just now experiencing decreased order volume as a result of the overall downturn in the agricultural economy, which has been affecting other agricultural manufacturers for some time. The backlog for the pressurized vessels segment was $463,000 as of June 25, 2015, compared to $227,000 in fiscal 2014. The backlog for the modular buildings segment was $1,388,000 as of June 25, 2015, compared to $200,000 in fiscal 2014. Most of this increase is due to a new order for seven Calf Care buildings that will be joined into a single complex. The backlog for the tools segment was $539,000 as of June 25, 2015, compared to $499,000 in fiscal 2014. Our order backlog is not necessarily indicative of future revenue to be generated from such orders due to the possibility of order cancellations and dealer discount arrangements we may enter into from time to time.

Liquidity and Capital Resources

Our primary sources of funds for the six months ended May 31, 2015 were proceeds from the U.S. Bank Line of Credit and increased customer deposits; our primary uses of cash were for inventories, payments on term debt, and dividends paid to stockholders. We expect our primary capital needs to relate to costs of operation, including production.

We have an $8,000,000 revolving Line of Credit with U.S. Bank, which, as of May 31, 2015, had an outstanding principal balance of $3,318,878. The Line of Credit is renewable annually, and is scheduled to mature on May 1, 2016. For additional information about our financing activities, please refer to Note 8 to the audited consolidated financial statements and to the discussion entitled “Liquidity and Capital Resources,” each contained in our Annual Report on Form 10-K and our amendment thereto on Form 10-K/A for the fiscal year ended November 30, 2014, as well as Note 7 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.

We believe that our cash flows from operations and current financing arrangements provide sufficient cash to finance operations for the next twelve months. We expect to continue to rely on cash from financing activities to supplement our cash flows from operations in order to meet our liquidity and capital expenditure needs in the near future. We expect to continue to be able to procure financing upon reasonable terms.

Off Balance Sheet Arrangements

None.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The persons serving as our principal executive officer and principal financial officer have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e), as of the end of the period subject to this Report. Based on this evaluation, the persons serving as our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective and provide reasonable assurance that information required to be disclosed by us in the periodic and current reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the periods specified by the Securities and Exchange Commission’s rules and forms.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings.

We are currently not a party to any material pending legal proceedings.

Item 1A.

Risk Factors.

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

On May 1, 2015, the Company extended the maturity date of its $8,000,000 revolving line of credit with U.S. Bank from May 1, 2015 to July 1, 2015 pursuant to the terms of an Amendment to Loan Agreement and Note with U.S. Bank. On June 23, 2015, the Company further extended the maturity date of its line of credit from July 1, 2015 to May 1, 2016. These Amendments to Loan Agreement and Note are attached hereto as Exhibit 10.1 and 10.2 and are incorporated herein by reference.

Item 6.

Exhibits.

See “Exhibit Index” on page 20 of this report.

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 the undersigned thereunto duly authorized.

	ART’S-WAY MANUFACTURING CO., INC.


Date: June 30, 2015		By:	/s/ Carrie L. Majeski
			Carrie L. Majeski
			President and Chief Executive Officer

Date: June 30, 2015		By:	/s/ Amber J. Murra
			Amber J. Murra
			Chief Financial Officer

Art’s-Way Manufacturing Co., Inc.

Exhibit Index

Form 10-Q for the Quarterly Period Ended May 31, 2015

Exhibit No.	Description
10.1	Amendment to Loan Agreement and Note dated May 1, 2015 – filed herewith.
10.2	Amendment to Loan Agreement and Note dated June 23, 2015 – filed herewith.
31.1	Certificate of Chief Executive Officer pursuant to 17 CFR 13a-14(a) – filed herewith.
31.2	Certificate of Chief Financial Officer pursuant to 17 CFR 13a-14(a) – filed herewith.
32.1	Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 - filed herewith.
32.2	Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 - filed herewith.
101	The following materials from this report, formatted in XBRL (Extensible Business Reporting Language) are filed herewith: (i) condensed consolidated balance sheets, (ii) condensed consolidated statement of operations, (iii) condensed consolidated statements of cash flows, and (iv) the notes to the condensed consolidated financial statements.