10-Q

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, 2016

or

[ ] 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 ☐	Smaller reporting company ☒
(Do not check if a 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 14, 2016: 4,105,052

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, 2016 and November 30, 2015	1
		Condensed Consolidated Statements of Operations Three- and Six-month periods ended May 31, 2016 and May 31, 2015	2
		Condensed Consolidated Statements of Cash Flows Six-month periods ended May 31, 2016 and May 31, 2015	3
		Notes to Condensed Consolidated Financial Statements	4
	Item  2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
	Item 4.	Controls and Procedures	21
PART II – OTHER INFORMATION			22
	Item 1.	Legal Proceedings	22
	Item 1A.	Risk Factors	22
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
	Item 3.	Defaults Upon Senior Securities	22
	Item 4.	Mine Safety Disclosures	22
	Item 5.	Other Information	22
	Item 6.	Exhibits	22
		SIGNATURES	23
		Exhibit Index	24

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ART’S-WAY MANUFACTURING CO., INC.

Condensed Consolidated Balance Sheets

	(Unaudited)
	May 31, 2016		November 30, 2015
Assets
Current assets:
Cash	$	267,506	$	447,334
Accounts receivable-customers, net of allowance for doubtful accounts of $20,076 and $18,810 in 2016 and 2015, respectively		1,542,763		2,057,739
Inventories, net		14,492,969		15,699,084
Deferred taxes		1,152,700		1,146,242
Cost and Profit in Excess of Billings		74,837		206,672
Income taxes receivable		311,146		345,912
Other current assets		257,052		59,336
Total current assets		18,098,973		19,962,319
Property, plant, and equipment, net		9,360,707		9,694,913
Assets held for sale, net		114,858		1,245,432
Goodwill		375,000		375,000
Other Assets		45,724		53,944
Total assets	$	27,995,262	$	31,331,608
Liabilities and Stockholders’ Equity
Current liabilities:
Line of credit	$	2,101,610	$	3,959,656
Current portion of long-term debt		2,011,943		1,322,662
Accounts payable		616,741		522,400
Customer deposits		307,232		166,626
Billings in Excess of Cost and Profit		148,471		86,858
Accrued expenses		1,066,749		1,279,913
Total current liabilities		6,252,746		7,338,115
Long-term liabilities
Deferred taxes		835,828		846,960
Long-term debt, excluding current portion		2,322,992		4,626,667
Total liabilities		9,411,566		12,811,742
Commitments and Contingencies (Notes 6 and 7)
Stockholders’ equity:
Undesignated preferred stock - $0.01 par value. Authorized 500,000 shares in 2016 and 2015; issued and outstanding 0 shares in 2016 and 2015.		-		-
Common stock – $0.01 par value. Authorized 9,500,000 shares in 2016 and 2015; issued and outstanding 4,105,052 in 2016 and 4,061,052 in 2015		41,051		40,611
Additional paid-in capital		2,705,999		2,667,010
Retained earnings		15,836,646		15,812,245
Total stockholders’ equity		18,583,696		18,519,866
Total liabilities and stockholders’ equity	$	27,995,262	$	31,331,608

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, 2016			May 31, 2015			May 31, 2016			May 31, 2015
Sales	$	5,741,088		$	7,804,111		$	12,133,086		$	15,093,239
Cost of goods sold		4,241,153			5,596,379			8,930,851			10,833,376
Gross profit		1,499,935			2,207,732			3,202,235			4,259,863
Expenses:
Engineering		107,368			119,540			223,540			235,216
Selling		434,952			581,211			918,746			1,145,925
General and administrative		990,666			1,092,837			1,943,763			2,135,429
Total expenses		1,532,986			1,793,588			3,086,049			3,516,570
Income from operations		(33,051	)		414,144			116,186			743,293
Other income (expense):
Interest expense		(60,153	)		(81,582	)		(134,185	)		(161,067	)
Other		17,745			21,445			62,744			16,581
Total other income (expense)		(42,408	)		(60,137	)		(71,441	)		(144,486	)
Income before income taxes		(75,459	)		354,007			44,745			598,807
Income tax expense		(18,888	)		122,386			20,344			198,991
Net income	$	(56,571	)	$	231,621		$	24,401		$	399,816
Net income per share:
Basic net income per share	$	(0.01	)	$	0.06		$	0.01		$	0.10
Diluted net income per share	$	(0.01	)	$	0.06		$	0.01		$	0.10
Weighted average outstanding shares used to compute basic net income per share		4,101,810			4,060,775			4,088,073			4,055,698
Weighted average outstanding shares used to compute diluted net income per share		4,101,810			4,062,294			4,088,073			4,057,073

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, 2016			May 31, 2015
Cash flows from operations:
Net income	$	24,401		$	399,816
Adjustments to reconcile net income to net cash provided by operating activities:
Stock based compensation		39,429			28,484
(Gain)/Loss on disposal of property, plant, and equipment		(43,884	)		6,955
Depreciation and amortization expense		409,614			459,412
Bad debt expense (recovery)		2,255			3,240
Deferred income taxes		(17,590	)		(72,912	)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable		512,721			26,736
Inventories		1,206,115			(881,977	)
Income taxes receivable		34,766			100,417
Other assets		(191,626	)		(319,737	)
Increase (decrease) in:
Accounts payable		94,341			64,306
Contracts in progress, net		193,448			(37,362	)
Customer deposits		140,606			607,275
Income taxes payable		-			10,150
Accrued expenses		(213,164	)		(88,671	)
Net cash provided by operating activities		2,191,432			306,132
Cash flows from investing activities:
Purchases of property, plant, and equipment		(69,662	)		(139,994	)
Net proceeds from sale of assets		1,170,842			14,456
Net cash provided by (used in) investing activities		1,101,180			(125,538	)
Cash flows from financing activities:
Net change in line of credit		(1,858,046	)		749,772
Repayment of term debt		(1,614,394	)		(637,930	)
Dividends paid to stockholders		-			(202,428	)
Net cash (used in) financing activities		(3,472,440	)		(90,586	)
Net increase (decrease) in cash		(179,828	)		90,008
Cash at beginning of period		447,334			511,716
Cash at end of period	$	267,506		$	601,724
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	140,820		$	160,803
Income taxes		4,514			205,296

See accompanying notes to condensed consolidated financial statements. 

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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 12 “Segment Information.”

2) 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 for the fiscal year ended November 30, 2015. The results of operations for the three and six-months ended May 31, 2016 are not necessarily indicative of the results for the fiscal year ending November 30, 2016.

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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 to 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, 2016. Actual results could differ from those estimates.

3) 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.

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Basic and diluted earnings (loss) per common share have been computed based on the following as of May 31, 2016 and May 31, 2015:

	For the three months ended
	May 31, 2016			May 31, 2015
Basic:
Numerator: net income	$	(56,571	)	$	231,621
Denominator: average number of common shares outstanding		4,101,810			4,060,775
Basic earnings per common share	$	(0.01	)	$	0.06
Diluted:
Numerator: net income	$	(56,571	)	$	231,621
Average number of common shares outstanding		4,101,810			4,060,775
Effect of dilutive stock options		0			1,519
Denominator: dilutive average number of common shares outstanding		4,101,810			4,062,294
Diluted earnings per common share	$	(0.01	)	$	0.06

	For the six months ended
	May 31, 2016		May 31, 2015
Basic:
Numerator: net income	$	24,401	$	399,816
Denominator: average number of common shares outstanding		4,088,073		4,055,698
Basic earnings per common share	$	0.01	$	0.10
Diluted:
Numerator: net income	$	24,401	$	399,816
Average number of common shares outstanding		4,088,073		4,055,698
Effect of dilutive stock options		0		1,375
Denominator: dilutive average number of common shares outstanding		4,088,073		4,057,073
Diluted earnings per common share	$	0.01	$	0.10

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4) Inventory

Major classes of inventory are:

	May 31, 2016			November 30, 2015
Raw materials	$	9,354,426		$	10,058,894
Work in process		531,369			458,526
Finished goods		7,560,530			8,204,843
	$	17,446,325		$	18,722,263
Less: Reserves		(2,953,356	)		(3,023,179	)
	$	14,492,969		$	15,699,084

5) Accrued Expenses

Major components of accrued expenses are:

	May 31, 2016		November 30, 2015
Salaries, wages, and commissions	$	532,694	$	564,098
Accrued warranty expense		146,548		179,531
Other		387,507		536,284
	$	1,066,749	$	1,279,913

6) 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, 2016 and May 31, 2015 are as follows:

	For the three months ended
	May 31, 2016			May 31, 2015
Balance, beginning	$	178,978		$	246,490
Settlements / adjustments		(71,786	)		(78,611	)
Warranties issued		39,356			115,692
Balance, ending	$	146,548		$	283,571

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	For the six months ended
	May 31, 2016			May 31, 2015
Balance, beginning	$	179,531		$	234,266
Settlements / adjustments		(153,078	)		(170,136	)
Warranties issued		120,095			219,441
Balance, ending	$	146,548		$	283,571

7) Loan and Credit Agreements

The Company maintains lines of credit and term loans with U.S. Bank as well as a term loan with The First National Bank of West Union. Pursuant to a Loan Modification Agreement dated April 27, 2016 (the “Loan Modification”) entered into among U.S. Bank, as lender, the Company, as borrower, and Art’s-Way Scientific, Inc., Art’s-Way Vessels, Inc., and Ohio Metal Working Products/Art’s-Way, Inc., as guarantors, the agreements governing the U.S. Bank lines of credit and certain term loans were amended. Following the close of the second quarter, U.S. Bank, as lender, the Company, as borrower, and Art’s-Way Scientific, Inc., Art’s-Way Vessels, Inc., and Ohio Metal Working Products/Art’s-Way, Inc., as guarantors, entered into a Second Loan Modification Agreement dated July 12, 2016 and effective as of July 11, 2016 with respect to loan modification terms (the “Second Loan Modification”) governing the U.S. Bank lines of credit and certain term loans. The description that follows reflects such arrangements as amended by the Loan Modification. For more information regarding the Second Loan Modification, see Part II, Item 5 of this Report.

U.S. Bank Lines of Credit

The Company has a revolving line of credit (the “Line of Credit”) with U.S. Bank, which, following the Second Loan Modification, has an availability of $5,000,000, that was obtained on May 1, 2013, and is renewable annually with advances funding the Company’s working capital needs. As of May 31, 2016, the Company had a principal balance of $2,101,610 outstanding against the Line of Credit, with $2,953,005 remaining available, limited by the borrowing base calculation. The Line of Credit matures on May 1, 2017 and is secured by real property and fixed asset collateral. 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 $3,750,000 following the Second Loan Modification 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 the 2015 Line of Credit (defined below), and less undrawn amounts of outstanding letters of credit issued by U.S. Bank or any affiliate. Monthly interest-only payments are required and the unpaid principal and accrued interest is due on the maturity date. The Company’s obligations under the Line of Credit are evidence by a Revolving Credit Note effective May 1, 2013, a Revolving Credit Agreement dated May 1, 2013 and certain other ancillary documents.

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In addition to the Line of Credit, the Company maintains an additional $200,000 revolving line of credit from U.S. Bank that was obtained on July 16, 2015 (the “2015 Line of Credit”) and which also matures on May 1, 2017. As of May 31, 2016, the Company had a principal balance of $0 outstanding against the 2015 Line of Credit, with $200,000 remaining available. The 2015 Line of Credit was necessary to preserve the Company’s access to capital for a sales incentive program that offers extended payment terms up to 9 months on certain products for our dealers, subject to a Dealer’s Note and Dealer’s Security Agreement. These notes receivable are not included in the borrowing base of our Line of Credit. The 2015 Line of Credit is secured by real property and fixed asset collateral, as well as all of the Company’s right, title and interest in the Dealer’s Notes and Dealer’s Security Agreements related to advances under the 2015 Line of Credit. Advances under the 2015 Line of Credit are due at the earlier of nine months after the date of the advancement, the 2015 Line of Credit maturity date or the sale by the dealer of the equipment relating to the applicable advance. Monthly interest-only payments are required and the unpaid principal and accrued interest is due on the maturity date. The Company’s obligations under the 2015 Line of Credit are evidenced by a Promissory Note effective July 16, 2015 and certain other ancillary documents.

The Line of Credit and 2015 Line of Credit are subject to an unused fee which accrues at the rate of 0.25% per annum on the average daily amount by which the amount available for borrowing under each line of credit exceeds the outstanding principal amount relating to such line. The Line of Credit was previously subject to a minimum interest rate of 4.50% per annum under the Loan Modification and now is subject to a minimum interest rate of 5.00% per annum following the Second Loan Modification. The 2015 Line of Credit is subject to a minimum interest rate of 4.50% per annum. As of May 31, 2016, the interest rate on the Line of Credit and the 2015 Line of Credit was the minimum of 4.50%.

U.S. Bank Term Loans

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. The principal balance of this loan was $401,351 as of May 31, 2016 and it accrues interest at a fixed rate of 3.15% per annum. This loan was 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, which was released upon the sale of our Ames, Iowa facility. The U.S. Bank UHC Loan is also secured by a mortgage on the building and property in Monona, Iowa, pursuant to a Mortgage, Security Agreement and Assignment of Rents between the Company and U.S. Bank, dated May 1, 2013 and a mortgage on the building and property owned by Art’s-Way Vessels, Inc. in Dubuque, Iowa, pursuant to a Mortgage, Security Agreement and Assignment of Rents between Art’s-Way Vessels, Inc. and U.S. Bank, dated May 1, 2013. On May 1, 2013, the U.S. Bank UHC Loan and the mortgage were amended to extend the mortgage to secure the 2013 Term Notes (defined below) in addition to the U.S. Bank UHC Loan.

Three of the Company’s outstanding term loans were obtained from U.S. Bank on May 1, 2013. The principal balance of these loans totaled $2,428,992 at May 31, 2016, and they accrue interest at a fixed rate of 2.98% per annum (the “2013 Term Notes”). There was previously also a fourth term loan obtained from U.S. Bank on May 1, 2013, but the Company voluntarily paid off and terminated the note and the related Term Loan Agreement on February 10, 2016. The payoff amount of $1,078,196 included principal and accrued and unpaid interest. As detailed in the Company’s long-term debt summary below, monthly principal and interest payments in the aggregate amount of $51,350 are required on the remaining 2013 Term Notes, with final payments of principal and accrued interest on the three remaining loans in the aggregate amount of $1,363,000 due on May 1, 2018.

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The Company obtained a term loan from U.S. Bank on May 29, 2014 in the original principal amount of $1,000,000 (the “2014 Term Note”). The 2014 Term Note had a principal balance of $924,136 at May 31, 2016 and accrues interest at a fixed rate of 2.98%. The Company took on the 2014 Term Note in order to partially pay down a draw on its revolving line of credit 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 the 2014 Term Note 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, and is also subject to a Business Security Agreement between Ohio Metal Working Products/Art’s Way, Inc. (“Ohio Metal”) and U.S. Bank and a Continuing Guaranty (Unlimited) by Ohio Metal. Each of the Company’s term loans from U.S. Bank is governed by a Term Note and a Term Loan Agreement.

U.S. Bank Covenants

The U.S. Bank UHC Loan and the 2015 Line of Credit are not subject to financial covenants. However, under the U.S. Bank UHC Loan, the Company must provide to U.S. Bank information concerning its business affairs and financial condition as the bank may reasonably request, as well as annual financial statements prepared by an accounting firm acceptable to U.S. Bank within 120 days of the end of the year without request. The Company, in connection with any draws under the 2015 Line of Credit, must provide U.S. Bank with a security agreement and evidence of U.S. Bank’s security interest in the equipment relating to any borrowings thereunder.

As amended by the Loan Modification, the Line of Credit, the 2013 Term Notes and the 2014 Term Note require the Company to maintain (i) a fixed charge coverage ratio of at least 1.15 to 1.10 as of the end of each fiscal quarter (except for the fiscal quarters ended May 31, 2016 and August 31, 2016), (ii) a fiscal year-to-date fixed charge coverage ratio as of August 31, 2016 of at least 1.0 to 1.0, and (iii) a fiscal year-to-date EBITDA as of May 31, 2016 of at least $700,000 (with EBITDA meaning income, plus interest expense, plus income tax expense, plus depreciation expense, plus amortization expense, subject to adjustments in USB’s sole discretion). The Company must also provide to U.S. Bank a detailed backlog report by segment as of the last day of each calendar month, monthly internally prepared financial reports, year-end audited financial statements, and a monthly aging of accounts receivable, and must deliver along with any financial statements delivered to U.S. Bank a certificate of compliance executed by the Company’s chief financial officer certifying the Company’s compliance with the financial covenants. The Second Loan Modification further amends certain financial covenants that apply to the Line of Credit, the 2013 Term Notes and the 2014 Term Note. For more information regarding the Second Loan Modification, see Part II, Item 5 of this Report.

The 2013 Term Notes, 2014 Term Note, Line of Credit and 2015 Line of Credit 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 Business Security Agreements entered into by the Company and its subsidiaries, Pledge Agreements entered into by the subsidiaries and Collateral Assignment of Dealer’s Notes and Security Agreements entered into by the Company. Additionally, the Company has mortgaged certain real property in favor of U.S. Bank as documented by mortgage agreements dated May 1, 2013 (as noted above) and May 29, 2014 (together, the “Mortgages”).

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If the Company or its subsidiaries (as guarantors pursuant to continuing guaranties) commits an event of default with respect to the U.S. Bank UHC Loan, 2013 Term Notes, 2014 Term Note, Line of Credit or 2015 Line of Credit 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 by 10.0% per annum with respect to the 2015 Line of Credit, U.S. Bank can immediately terminate its obligation, if any, to make additional loans to the Company, and U.S. Bank may accelerate the Company’s obligations under the applicable loan or line of credit. U.S. Bank shall also 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.

The Company was in compliance with all covenants under the Line of Credit, the 2013 Term Notes and the 2014 Term Note as measured on May 31, 2016, other than its covenant to maintain a fiscal year-to-date EBITDA as of May 31, 2016 of at least $700,000. The main reason for the non-compliance result as of May 31, 2016 was the Company’s reduced earnings level, after the adjustment for goodwill impairment, over the last 12 months. As part of the Second Loan Modification Agreement, U.S. Bank has issued a waiver forgiving the non-compliance for the quarter. The next measurement date is August 31, 2016. For more information regarding the Second Loan Modification, see Part II, Item 5 of this Report.

Iowa Finance Authority Term Loan and Covenants

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, an interest rate of 3.5% per annum and a maturity date of June 1, 2020. On February 1, 2013, the interest rate was decreased to 2.75% per annum. 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 or the West Union Mortgage 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.

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The Company was in compliance with all covenants under the IFA Loan Agreement except the debt service coverage ratio as measured on November 30, 2015. The First National Bank of West Union has issued a waiver, and the next measurement date is November 30, 2016.

Long-Term Debt Summary

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

	May 31, 2016		November 30, 2015
U.S. Bank loan payable in monthly installments of $42,500 including interest at 2.98%, due May 1, 2018	$	-	$	1,196,088
U.S. Bank loan payable in monthly installments of $11,000 including interest at 2.98%, due May 1, 2018		688,000		743,149
U.S. Bank loan payable in monthly installments of $12,550 including interest at 2.98%, due May 1, 2018		779,773		842,769
U.S. Bank loan payable in monthly installments of $27,800 including interest at 2.98%, due May 1, 2018		961,219		1,112,205
U.S. Bank loan payable in monthly installments of $11,700 including interest at 3.15%, due May 10, 2017		401,351		464,605
U.S. Bank loan payable in monthly installments of $5,556 including interest at 2.98%, due May 25, 2017		924,136		943,381
Iowa Finance Authority loan payable in monthly installments of $12,500 including interest at 2.75%, due June 1, 2020		580,456		647,132
Total term debt	$	4,334,935	$	5,949,329
Less current portion of term debt		2,011,943		1,322,662
Term debt, excluding current portion	$	2,322,992	$	4,626,667

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8) Assets Available for Sale

Major components of assets available for sale are:

	May 31, 2016		November 30, 2015
Ames, Iowa production facility	$	-	$	1,093,632
Monona, Iowa storage building		-		36,942
Ames, Iowa powder coat paint system		114,858		114,858
	$	114,858	$	1,245,432

Due to reduced demand for our reels produced by the Universal Harvester by Art’s Way subsidiary, we have been able to absorb the production of reels in our Armstrong, Iowa facility. The Ames, Iowa facility was sold on February 10, 2016 for $1,192,000. After closing expenses, we recognized a gain on this sale of $36,000. The proceeds of this sale were used to pay down term debt, as previously discussed in Note 7.

The storage facility in Monona, Iowa is adjacent to our production facilities, and was sold in December 2015. We recorded a gain of $4,000 in December 2015 after closing costs associated with the sale.

9) Recently Issued Accounting Pronouncements

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, 2017, including interim periods within that reporting period and is to be applied retrospectively, with early application permitted only as of annual reporting periods beginning after December 15, 2016. 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.

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Inventory

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330)”, which requires inventory measured using any method other than last-in, first-out or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than the lower of cost or market. ASU No. 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. The Company will adopt this guidance for the year-ended November 30, 2017 including interim periods within that reporting period. Its adoption is not expected to have a material impact on our consolidated financial statements.

Income Taxes

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740)”, to simplify the presentation of deferred income taxes. Under the new standard, both deferred tax liabilities and assets are required to be classified as noncurrent in a classified balance sheet. ASU No. 2015-17 is effective for fiscal years beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases (topic 842)”, which requires a lessee to recognize a right-of-use asset and a lease liability on its balance sheet for all leases with terms of twelve months or greater. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. The Company is currently evaluating the impact of this guidance on its 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.

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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 restricted stock awards of 1,000 shares of common stock annually or initially upon their election to the Board, which are fully vested. During the first six months of fiscal 2016, 39,000 restricted stock awards have been issued to various employees and directors which vest over the next three years, and 5,000 restricted stock awards were issued to the directors upon their election in April 2016 for a total of 44,000 year-to-date.

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 option 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 a total of $28,177 and $39,429 of stock-based compensation expense for stock options and restricted stock awards during the three and six-months ended May 31, 2016, respectively, compared to $15,339 and $28,484 of stock-based compensation expense for restricted stock awards and stock options for the same respective periods of fiscal 2015.

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, 2016, and November 30, 2015, 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.

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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, 2016
	Agricultural Products			Pressurized Vessels			Modular Buildings		Tools			Consolidated
Revenue from external customers	$	3,567,000		$	443,000		$	1,250,000	$	481,000		$	5,741,000
Income (loss) from operations		(96,000	)		(97,000	)		203,000		(43,000	)	$	(33,000	)
Income (loss) before tax		(118,000	)		(105,000	)		199,000		(51,000	)	$	(75,000	)
Total Assets		20,415,000			2,306,000			2,626,000		2,648,000		$	27,995,000
Capital expenditures		25,000			-			-		10,000		$	35,000
Depreciation & Amortization		132,000			29,000			16,000		31,000		$	208,000

	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

	Six Months Ended May 31, 2016
	Agricultural Products		Pressurized Vessels			Modular Buildings		Tools			Consolidated
Revenue from external customers	$	7,765,000	$	1,122,000		$	2,193,000	$	1,053,000		$	12,133,000
Income (loss) from operations		152,000		(169,000	)		212,000		(79,000	)	$	116,000
Income (loss) before tax		115,000		(180,000	)		206,000		(95,000	)	$	46,000
Total Assets		20,415,000		2,306,000			2,626,000		2,648,000		$	27,995,000
Capital expenditures		29,000		8,000			-		33,000		$	70,000
Depreciation & Amortization		260,000		58,000			31,000		61,000		$	410,000

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	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		262,000		53,000			85,000			59,000		$	459,000

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 other than those previously described 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 for the fiscal year ended November 30, 2015. 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) our intentions and beliefs relating to our costs and business strategies; (v) our expected financial results; and (vi) our expectations concerning our primary capital and cash flow needs.

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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, 2016 have remained unchanged from November 30, 2015. 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, 2015.

Results of Operations

Net Sales and Cost of Sales

Our consolidated corporate sales for the three and six-month period ended May 31, 2016 were $5,741,000 and $12,133,000 compared to $7,804,000 and $15,093,000 during the same respective periods in 2015, a $2,063,000 or 26.4% decrease for the second fiscal quarter, and a $2,960,000 or 19.6% decrease year-to-date. The decreases in revenue are primarily due to the decreased demand for our agricultural products that we have been experiencing for the last year, but is somewhat offset by increases in revenues in our modular buildings segment. Consolidated gross margin for the three and six-month periods ended May 31, 2016 was 26.1% and 26.4% compared to 28.3% and 28.2% for the same respective period in fiscal 2015. Our efforts to decrease fixed costs and more closely match our expense load with our current demand have helped to minimize the negative pressures on our gross margins with the decreased revenue levels in 2016 compared to the same periods in 2015.

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Our second quarter sales at Manufacturing were $3,567,000 compared to $6,365,000 during the same period of 2015, a decrease of $2,798,000, or 44.0%. Our year-to-date sales at Manufacturing were $7,765,000 compared to $11,681,000 during the same period of 2015, a decrease of $3,916,000 or 33.5%. This revenue decrease is due to decreased demand across all of our agricultural products, including our UHC reels product which is now being produced in Armstrong after the sale of the facility in Ames, Iowa. The gross margin of our agricultural products segment for the three and six-month periods ended May 31, 2016 was 26.3% and 28.8% compared to 30.1% and 31.0% for the same respective periods in 2015. Our decreased gross margins for the second quarter of fiscal 2016 is directly related to our decreased sales volume. We have implemented several cost cutting measures, including staff and overhead reductions, to align our resources more closely with the current demand for agricultural products. These measures have somewhat decreased the pressures on our gross margin profile moving forward.

Our second quarter and year-to-date sales at Vessels were $443,000 and $1,122,000 compared to $476,000 and $1,003,000 for the same respective periods in 2015. Gross margin for the quarter and year-to-date ended May 31, 2016 was 3.6% and 8.0% compared to 16.2% and 10.6% in 2015. This decrease is largely attributable to employee time required for training as we train new staff on our manufacturing floor.

Our three and six-month sales at Scientific were $1,250,000 and $2,193,000 compared to $409,000 and $1,058,000 for the same periods in fiscal 2015, an increase of $841,000, or 205.6%, for the three-month period, and an increase of $1,135,000 or 107.3% for the six-month period. Gross margin for the quarter and year-to date ended May 31 2016 was 34.3% and 28.4% compared to 22.0% and 16.0% for the same period in 2015. The increases were attributable to our higher levels of revenue which increased our fixed cost absorption.

Metals had sales of $481,000 during the three months ended May 31, 2016, compared to $554,000 for the same period in 2015, a 13.2% decrease. Metals had sales of $1,053,000 during the six months ended May 31, 2016 compared to $1,351,000 for the same period in fiscal 2015, a $298,000 decrease, or 22.1%. These decreases on both a quarterly and year-to-date basis are largely due to a general decline in the energy industry. Gross margin for our tools segment was 24.1% and 24.2% for the three- and six-month periods ending May 31, 2016, compared to 22.4% and 26.7% for the same periods of fiscal 2015, respectively. Our lower revenues and reasonably stable fixed costs affect our gross margins at Metals.

Expenses 

Our second fiscal quarter consolidated selling expenses were $435,000 compared to $581,000 for the same period in 2015. Our year-to-date consolidated selling expenses were $918,000 in 2016 compared to $1,146,000 for the same period in 2015.The decreases in selling expenses are largely due to decreased commission and salary expense compared to the prior year periods. Selling expenses as a percentage of sales were 7.6% and 7.6% for the three and six-month periods ended May 31, 2016, compared to 7.4% and 7.6% for the same periods in 2015.

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Consolidated engineering expenses were $108,000 and $224,000 for the three and six-month periods ended May 31, 2016, compared to $120,000 and $235,000 from the same periods in 2015. Engineering expenses as a percentage of sales were 1.9% and 1.8% for the three and six-month period ended May 31, 2016, compared to 1.5% and 1.6% for the same periods in 2015.

Consolidated administrative expenses for the three and six-month periods ended May 31, 2016 were $991,000 and $1,944,000 compared to $1,093,000 and 2,135,000 for the same periods in 2015. Administrative expenses as a percentage of sales were 17.3% and 16.0% for the three and six-month periods ended May 31, 2016, compared to 14.0% and 14.1% for the same period in 2015.

Income

Consolidated net income (loss) was $(57,000) for the three-month period ended May 31, 2016, compared to $232,000 for the same period in 2015. Consolidated net income for the six-month period ended May 31, 2016 was $24,000 compared to $400,000 for the same period in 2015. The decreases are primarily due to the decreases in revenue described above.

Order Backlog

The consolidated order backlog net of discounts as of July 8, 2016 was $,335,000 compared to $4,669,000 as of July 8, 2015. The agricultural products segment order backlog was $2,533,000 as of July 8, 2016 compared to $3,009,000 in fiscal 2015. We continue to see decreased order volume as a result of the overall downturn in the agricultural economy. The backlog for the pressurized vessels segment was $175,000 as of July 8, 2016, compared to $522,000 in fiscal 2015. During fiscal 2015 a large tank order was in progress for much of the year, and was delivered during the first quarter of fiscal 2016. The backlog for the modular buildings segment was $528,000 as of July 8, 2016, compared to $1,039,000 in fiscal 2015. The backlog for the tools segment was $98,000 as of July 8, 2016, compared to $99,000 in fiscal 2015. 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, 2016 were sales and decreases in our inventory balances; our primary uses of cash were costs of operation and payments on our line of credit and payments on term debt. We expect our primary capital needs for the remainder of the fiscal year to relate to costs of operation, including production.

We have a revolving line of credit with U.S. Bank, which, following the Second Loan Modification described in further detail in Part II, Item 5, has an availability of $5,000,000, and which, as of May 31, 2016, had an outstanding principal balance of $2,101,610. We also have a $200,000 equipment financing line of credit with U.S. Bank, which, as of May 31, 2016 had an outstanding principal balance of $0. The lines of credit are scheduled to mature on May 1, 2017, with the $5,000,000 line of credit being renewable annually. In addition, two of our five outstanding term loans with U.S. Bank are scheduled to mature in May of 2017, with a final payment of principal and accrued interest in the amount of $283,500 due May 10, 2017 and a final payment of principal and accrued interest in the amount of $890,000 due May 25, 2017. For additional information about our financing activities, please refer to Note 9 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 for the fiscal year ended November 30, 2015, as well as Note 7 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report and a description of the Second Loan Modification governing the U.S. Bank lines of credit and certain term loans included in Part II, Item 5 of this Report.

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We believe that our cash flows from operations and financing arrangements following the Second Loan Modification will 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.

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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 July 12, 2016, the Company, as borrower, and Art’s-Way Scientific, Inc., Art’s-Way Vessels, Inc., and Ohio Metal Working Products/Art’s-Way, Inc., as guarantors, entered into a Second Loan Modification Agreement (the “Second Loan Modification”) with U.S. Bank, relating to the Company’s financing obligations to U.S. Bank, as previously amended by a Loan Modification Agreement dated April 27, 2016 (the “Loan Modification”) entered into among U.S. Bank, as lender, the Company, as borrower, and Art’s-Way Scientific, Inc., Art’s-Way Vessels, Inc., and Ohio Metal Working Products/Art’s-Way, Inc., as guarantors. The agreements governing the U.S. Bank lines of credit and certain term loans include a revolving credit note dated May 1, 2013, which, following the Loan Modification, had an availability of $6,000,000 (the “Line of Credit”), a revolving credit note dated July 16, 2015 relating to the Company’s dealer financing program, which, following the Loan Modification, has an availability of $200,000 (the “2015 Line of Credit”), a term note dated May 10, 2012 in the original principal amount of $880,000 (the “U.S. Bank UHC Loan”), term notes dated May 1, 2013 in the original principal amounts of $1,006,500, $1,143, 600 and $1,833,510.26 (collectively, the “2013 Term Notes”), and a term note dated May 29, 2014 in the original principal amount of $1,000,000 (the “2014 Term Note”).

The Second Loan Modification reduces the available loan amount on the Line of Credit from $6 million to $5 million, reduces the borrowing base from $4 million to $3.75 million, and increases the minimum interest rate on the Line of Credit from 4.50% per annum to 5.00% per annum.

The Second Loan Modification also amends certain financial covenants that apply to the Line of Credit, the 2013 Term Notes and the 2014 Term Note. The Second Loan Modification (i) removes the requirement that the Company maintain a fixed charge coverage ratio of at least 1.15 to 1.10 as of the end of each fiscal quarter (except for the fiscal quarters ended May 31, 2016 and August 31, 2016), and requires the Company to maintain a fixed charge coverage ratio of at least 1.15 to 1.0 as of the end of each fiscal quarter (except for the fiscal quarters ended August 31, 2016, November 30, 2016 and February 28, 2017); (ii) removes the requirement that the Company maintain a fiscal year-to-date fixed charge coverage ratio as of August 31, 2016 of at least 1.0 to 1.0, and requires the Company to maintain a fiscal year-to-date fixed charge coverage ratio as of February 28, 2017 of at least 1.0 to 1.0; (iii) removes the requirement that the Company maintain a fiscal year-to-date EBITDA as of May 31, 2016 of at least $700,000 (with EBITDA meaning income, plus interest expense, plus income tax expense, plus depreciation expense, plus amortization expense, subject to adjustments in U.S. Bank’s sole discretion), and requires the Company to maintain a fiscal year-to-date EBITDA of $360,000 as of August 31, 2016, of $390,000 as of September 30, 2016, of $395,000 as of October 31, 2016, and of $400,000 as of November 30, 2016; and (iv) requires minimum liquidity as of the end of each month commencing August 31, 2016 of not less than $750,000 (with minimum liquidity meaning unrestricted cash and cash equivalents plus borrowing base availability under each of the Line of Credit, the 2013 Term Notes and the 2014 Term Note). The Second Loan Modification also requires the Company to provide to U.S. Bank a 13-week cash flow forecast on Tuesday of each week.

In addition to amending the agreements governing the U.S. Bank lines of credit and certain term loans, the Second Loan Modification includes a waiver forgiving the Company’s non-compliance with its covenant to maintain a fiscal year-to-date EBITDA as of May 31, 2016 of at least $700,000 and states that no event of default occurred.

All other terms of the two lines of credit and five term loans with U.S. Bank remain unchanged, and the agreements relating thereto remain in effect, including the various Business Security Agreements; Pledge Agreements; Mortgage, Security Agreement and Assignment of Rents of Iowa Real Estate; Open-End Mortgage, Security Agreement and Assignment of Rents and Leases (Including Fixture Filing Under Uniform Commercial Code); Collateral Assignment of Dealer’s Notes and Security Agreements; and Continuing Guaranty (Unlimited).

The foregoing description of the material terms of the Second Loan Modification does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to the full text of the Second Loan Modification, filed herewith and incorporated by reference herein.

Item 6.  Exhibits.

See “Exhibit Index” on page 21 of this report.

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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: July 15, 2016		By: /s/ Carrie L. Majeski
		Carrie L. Majeski
		President and Chief Executive Officer
Date: July 15, 2016		By: /s/ Amber J. Murra
		Amber J. Murra
		Chief Financial Officer

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Art’s-Way Manufacturing Co., Inc.

Exhibit Index

Form 10-Q for the Quarterly Period Ended May 31, 2016

Exhibit No.	Description
10.1	Second Loan Modification Agreement dated July 12, 2016.
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.

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EX-10.1

Exhibit 10.1

SECOND LOAN MODIFICATION AGREEMENT

THIS SECOND LOAN MODIFICATION AGREEMENT (this “Agreement”) is by and among ART’S WAY MANUFACTURING CO., INC., a Delaware corporation (the “Borrower”), Art’s-Way Scientific, Inc., an Iowa corporation (“Scientific”), Art’s-Way Vessels, Inc., an Iowa corporation (“Vessels”), Ohio Metal Working Products/Art’s-Way, Inc., an Ohio corporation (“Ohio Metal”; together, with Scientific and Vessels, collectively, the “Guarantors”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association (the “Bank”), and is made as of the date shown opposite the Bank’s signature on the signature page (the “Agreement Date”), but shall be deemed effective with respect to the modifications set forth in Section 3 as of July 11, 2016 (the “Effective Date”), subject to the terms and conditions below.

RECITALS:

WHEREAS, the Borrower has executed and delivered to the Bank an Installment or Single Payment Note dated May 10, 2012 in the original principal amount of $880,000 (as amended, restated, supplemented or otherwise modified from time to time, the “2012 Term Note”);

WHEREAS, the Borrower has executed and delivered to the Bank a Revolving Credit Note dated May 1, 2013 in the original principal amount of $8,000,000 (as amended, restated, supplemented or otherwise modified from time to time, the “Revolving Note”);

WHEREAS, the Borrower has executed and delivered to the Bank Term Notes each dated May 1, 2013 in the original principal amounts of (i) $1,006,500, (ii) 1,143,600 and (iii) 1,833,510.26 (each as amended, restated, supplemented or otherwise modified from time to time, collectively, the “2013 Term Notes”);

WHEREAS, the Borrower has executed and delivered to the Bank a Term Note dated May 29, 2014 in the original principal amount of $1,000,000 (as amended, restated, supplemented or otherwise modified from time to time, the “2014 Term Note”);

WHEREAS, the Borrower has executed and delivered to the Bank a Promissory Note dated July 16, 2015 in the original principal amount of $1,500,000 (as amended, restated, supplemented or otherwise modified from time to time, the “Dealer Note”; together with the 2012 Term Note, the Revolving Note, the 2013 Term Notes, and the 2014 Term Note, collectively, the “Notes”);

WHEREAS, the Revolving Note is subject to the terms and conditions set forth in the Revolving Credit Agreement dated as of May 1, 2013 between the Borrower and the Bank (as amended, restated, supplemented or otherwise modified from time to time, “Revolving Credit Agreement”);

WHEREAS, the 2013 Term Notes are subject to the terms and conditions set forth in the Term Loan Agreement dated as of May 1, 2013 between the Borrower and the Bank (as amended, restated, supplemented or otherwise modified from time to time, “2013 Term Loan Agreement”);

WHEREAS, the 2014 Term Note is subject to the terms and conditions set forth in the Term Loan Agreement dated as of May 29, 2014 between the Borrower and the Bank (as amended, restated, supplemented or otherwise modified from time to time, “2014 Term Loan Agreement”; together with the Revolving Credit Agreement and the 2013 Term Loan Agreements, collectively, the “Loan Agreements”);

WHEREAS, all indebtedness evidenced by the Notes and the Loan Agreements, and any extensions, renewals, restatements and modifications thereof and all principal, interest, fees and expenses relating thereto; however arising, whether liquidated or unliquidated, whether absolute or contingent, and of whatever nature, including without limitation, costs and expenses of collection and enforcement of the Loan Documents (as defined below), including without limitation attorneys’ fees of both inside and outside counsel, and all other indebtedness, obligations and liabilities of any kind owing by the Borrower or any Guarantor to the Bank or any of its affiliates are referred to in this Agreement as the “Obligations”;

WHEREAS, the Obligations are secured by the real and personal property (together with all substitutions and replacements for and products and proceeds of any of the foregoing, the “Collateral”) in which the Bank has been granted a lien pursuant to any of the following documents (together with any additional agreement or document entered into by the Borrower, any Guarantor or other Person for the benefit of the Bank to secure payment of the Obligations or otherwise relating to any Collateral, each as amended, restated or otherwise modified from time to time, collectively, the “Collateral Documents”):

(i) a Business Security Agreement dated May 1, 2013 by the Borrower in favor of the Bank;

(ii) a Business Security Agreement dated May 1, 2013 by Scientific in favor of the Bank;

(iii) a Business Security Agreement dated May 1, 2013 by Vessels in favor of the Bank;

(iv) a Business Security Agreement dated October 25, 2013 by Ohio Metal in favor of the Bank;

(v) a Pledge Agreement dated May 1, 2013 by Scientific in favor of the Bank;

(vi) a Pledge Agreement dated May 1, 2013 by Vessels in favor of the Bank;

(vii) a Pledge Agreement dated June 4, 2014 by Ohio Metal in favor of the Bank;

(viii) a Mortgage, Security Agreement and Assignment of Rents of Iowa Real Estate dated May 1, 2013 by the Borrower in favor of the Bank and recorded in the Office of the Clayton County Recorder on May 16, 2013 as Document No. 2013R02019;

(ix) a Mortgage, Security Agreement and Assignment of Rents of Iowa Real Estate dated May 1, 2013 by Vessels in favor of the Bank and recorded in the Office of the Dubuque County Recorder on May 16, 2013 as Document No. 007687140008; and

(x) a Mortgage, Security Agreement and Assignment of Rents of Iowa Real Estate dated August 30, 2013 by the Borrower in favor of the Bank and recorded in the Office of the Emmet County Recorder on September 23, 2013 as Document No. 2013-01380;

(xi) an Open-End Mortgage, Security Agreement and Assignment of Rents and Leases (Including Fixture Filing Under Uniform Commercial Code) (Ohio) dated May 29, 2014 by Ohio Metal in favor of the Bank and recorded in the Office of the Stark County Recorder on June 13, 2014 as Document No. 201406130021758.

WHEREAS, the Obligations of the Borrower under the Dealer Note are secured by a Collateral Assignment of Dealer’s Notes and Security Agreements dated July 16, 2015 between the Borrower and the Bank (amended, restated or otherwise modified from time to time, the “Collateral Assignment”);

WHEREAS, the Obligations of the Borrower are guaranteed pursuant to the following guaranties (each as amended, restated or otherwise modified from time to time, collectively, the “Guaranties”) in favor of the Bank:

(i) a Continuing Guaranty (Unlimited) dated May 1, 2013 by Scientific in favor of the Bank;

(ii) a Continuing Guaranty (Unlimited) dated May 1, 2013 by Vessels in favor of the Bank; and

(iii) a Continuing Guaranty (Unlimited) dated October 25, 2013 by Ohio Metal in favor of the Bank.

WHEREAS, the Notes, the Loan Agreements, the Collateral Documents, the Collateral Assignment and the Guaranties, as well as any other loan documents executed by the Borrower or any Guarantor pursuant thereto or in connection therewith, as the same may be amended from time to time, are referred to collectively in this Agreement as the “Loan Documents”;

WHEREAS, a certain default exists under the Loan Documents     ; and

WHEREAS, the Borrower has requested that the Bank modify the terms of the Loan Documents, and the Bank is willing to grant the Borrower’s request upon the terms and conditions set forth in this Agreement.

AGREEMENT:

NOW, THEREFORE, in consideration of the above recitals, the agreements set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties agree:

1.     Recitals; Capitalized Terms. The Borrower and each Guarantor acknowledges that the recitals set forth above are true and correct, and are made a part of this Agreement. Capitalized terms used and not defined in this Agreement have the meanings assigned to such terms in the Loan Documents.

2.     Confirmation of Indebtedness. The outstanding amounts under the Notes as of July 8, 2016 (as calculated under the Loan Documents prior to the Effective Date of this Agreement) are:

Note	Principal	Interest	Fees and Late Charges	Total
2012 Term Note	$390,733.22	$957.30	$0.00	$391,690.52
2013 Term Note	$669,451.32	$387.91	$0.00	$669,839.23
2013 Term Note	$758,583.81	$439.55	$0.00	$759,023.36
2013 Term Note	$910,415.51	$527.54	$0.00	$910,943.05
Revolving Note	$2,348,346.89	$2,113.98	$0.00	$2,350,460.87
2014 Term Note	$920,950.99	$991.04	$0.00	$921,942.03
Dealer Note	$0.00	$0.00	$0.00	$0.00
TOTALS	$5,998,481.74	$5,417.32	$ 0.00	$6,003,899.06

3.     Loan Modifications. As of the Effective Date, the Loan Documents are amended and supplemented as follows, so long as the conditions to effectiveness set forth in Section 5 are satisfied or waived as provided in Section 5:

(a)     Changes to the Revolving Note and the Revolving Loan Agreement. The Revolving Note and the Revolving Loan Agreement are hereby amended as follows:

(i)     Change in Loan Amount.

(A)     The amount “$6,000,000” in the Revolving Note is hereby deleted in each instance and the amount “$5,000,000” is inserted in substitution therefor.

(B)     All references to “Loan Amount” in the Revolving Credit Agreement are hereby deemed to be “$5,000,000”.

(ii)     Change in Interest Rate. The paragraph describing the interest rate in the Revolving Note is hereby amended and restated in its entirety to read as follows:

“The unpaid principal balance will bear interest at an annual rate equal to 1.5% plus the prime rate announced by the Bank from time to time; provided that the interest rate will not be less than 5.00% per annum at any time. The interest rate hereunder will be adjusted each time that the prime rate changes.”

(iii)     Changes to Addenda to Revolving Credit Agreement and Note. The Addenda to the Revolving Credit Agreement and Note are hereby amended as set forth below. Except as set forth herein, all other requirements of each Addendum to Revolving Credit Agreement and Note shall remain in full force and effect.

(A)     Change in Financial Covenants. The Addendum to Revolving Credit Agreement and Note describing the financial covenants and financial reporting is hereby amended by adding or amending, as the case may be, the financial covenants or defined terms shown below for the period beginning on the Effective Date and thereafter:

“Fixed Charge Coverage Ratio as of the end of each fiscal quarter for the four (4) fiscal quarters then ended of at least 1.15 to 1.0, except for the fiscal quarters ended August 31, 2016, November 30, 2016 and February 28, 2017.”

“Year-To-Date Fixed Charge Coverage Ratio as of February 28, 2017 for the fiscal year to date then ended of at least 1.0 to 1.0.”

“Year-To-Date EBITDA as of the end of each month set forth below for the fiscal year to date then ended of not less than the amount set forth opposite such date:

Year-To-Date Ending	Amount
August 31, 2016	$360,000
September 30, 2016	$390,000
October 31, 2016	$395,000
November 30, 2016	$400,000

“Minimum Liquidity as of the end of each month commencing August 31, 2016 of not less than $750,000.”

“‘Minimum Liquidity’ shall mean, as of any date of determination, an amount equal to the sum of (a) the aggregate unrestricted cash and cash equivalents held by the Borrower as of such date plus (b) the Availability as of such date.”

“‘Availability’ shall mean, as of any date of determination, the amount by which (a) the lesser of the Borrowing Base and Loan Amount as of such date exceeds (b) the aggregate amount of all loans outstanding under the Revolving Credit Note as of such date.”

(B)     Change in Financial Information and Reporting. The Addendum to Revolving Credit Agreement and Note describing the financial covenants and financial reporting is hereby amended by adding a certain reporting requirement to read as follows:

“Cash Flow Forecast: On Tuesday of each week, the Borrower shall deliver a 13-week cash flow forecast to the Bank in form and substance acceptable to the Bank in its sole discretion.”

(C)     Change in Borrowing Base Eligible Inventory Maximum Amount. Section (A)(ii) of the definition of “Borrowing Base” in the Addendum to Revolving Credit Agreement and Note describing the Borrowing Base is hereby amended by deleting the amount “$4,000,000” and inserting the amount “$3,750,000” in substitution therefor.

(b)     Changes to the 2013 Term Loan Agreements. Each 2013 Term Loan Agreement is hereby amended as follows:

(i)     Changes to Addenda to Term Loan Agreements and Notes. The Addenda to Term Loan Agreement and Note attached to the 2013 Term Loan Agreements are hereby amended as set forth below. Except as set forth herein, all other requirements of each Addendum to Term Loan Agreement and Note shall remain in full force and effect.

(A)     Change in Financial Covenants. Each Addendum to Term Loan Agreement and Note is hereby amended by adding or amending, as the case may be, the financial covenants or defined terms shown below for the period beginning on the Effective Date and thereafter:

“Fixed Charge Coverage Ratio as of the end of each fiscal quarter for the four (4) fiscal quarters then ended of at least 1.15 to 1.0, except for the fiscal quarters ended August 31, 2016, November 30, 2016 and February 28, 2017.”

“Year-To-Date Fixed Charge Coverage Ratio as of February 28, 2017 for the fiscal year to date then ended of at least 1.0 to 1.0.”

“Year-To-Date EBITDA as of the end of each month set forth below for the fiscal year to date then ended of not less than the amount set forth opposite such date:

Year-To-Date Ending	Amount
August 31, 2016	$360,000
September 30, 2016	$390,000
October 31, 2016	$395,000
November 30, 2016	$400,000

“Minimum Liquidity as of the end of each month commencing August 31, 2016 of not less than $750,000.”

“‘Minimum Liquidity’ shall mean, as of any date of determination, an amount equal to the sum of (a) the aggregate unrestricted cash and cash equivalents held by the Borrower as of such date plus (b) the Availability as of such date.”

“‘Availability’ means, as of any date of determination, the amount by which (a) the lesser of the Borrowing Base and Loan Amount (each as defined in the Revolving Credit Agreement described below) as of such date exceeds (b) the aggregate amount of all loans outstanding under the Revolving Credit Note dated May 1, 2013 by the Borrower in favor of the Bank issued in connection with the Revolving Credit Agreement dated as of May 1, 2013 between the Borrower and the Bank (as amended, restated, supplemented or otherwise modified from time to time, “Revolving Credit Agreement”) as of such date.”

(B)     Change in Financial Information and Reporting. Each Addendum to Term Loan Agreement and Note is hereby amended by adding a certain reporting requirement to read as follows:

“Cash Flow Forecast: On Tuesday of each week, the Borrower shall deliver a 13-week cash flow forecast to the Bank in form and substance acceptable to the Bank in its sole discretion.”

(c)     Changes to the 2014 Term Loan Agreement. The 2014 Term Loan Agreement is hereby amended as follows:

(i)     Change in Financial Information and Reporting. Section 2.13 of the 2014 Term Loan Agreement is hereby amended by adding a certain reporting requirement to read as follows:

“Cash Flow Forecast: On Tuesday of each week, the Borrower shall deliver a 13-week cash flow forecast to the Bank in form and substance acceptable to the Bank in its sole discretion.”

(ii)     Changes to Financial Covenants. Section 2.14 of the 2014 Term Loan Agreement is hereby amended by adding or amending, as the case may be, the financial covenants or defined terms shown below for the period beginning on the Effective Date and thereafter:

“Fixed Charge Coverage Ratio as of the end of each fiscal quarter for the four (4) fiscal quarters then ended of at least 1.15 to 1.0, except for the fiscal quarters ended August 31, 2016, November 30, 2016 and February 28, 2017.”

“Year-To-Date Fixed Charge Coverage Ratio as of February 28, 2017 for the fiscal year to date then ended of at least 1.0 to 1.0.”

“Year-To-Date EBITDA as of the end of each month set forth below for the fiscal year to date then ended of not less than the amount set forth opposite such date:

Year-To-Date Ending	Amount
August 31, 2016	$360,000
September 30, 2016	$390,000
October 31, 2016	$395,000
November 30, 2016	$400,000

“Minimum Liquidity as of the end of each month commencing August 31, 2016 of not less than $750,000.”

“‘Minimum Liquidity’ shall mean, as of any date of determination, an amount equal to the sum of (a) the aggregate unrestricted cash and cash equivalents held by the Borrower as of such date plus (b) the Availability as of such date.”

“‘Availability’ means, as of any date of determination, the amount by which (a) the lesser of the Borrowing Base and Loan Amount (each as defined in the Revolving Credit Agreement described below) as of such date exceeds (b) the aggregate amount of all loans outstanding under the Revolving Credit Note dated May 1, 2013 by the Borrower in favor of the Bank issued in connection with the Revolving Credit Agreement dated as of May 1, 2013 between the Borrower and the Bank (as amended, restated, supplemented or otherwise modified from time to time, “Revolving Credit Agreement”) as of such date.”

(d)     Changes to the Dealer Note. The first sentence of Section 3 of the Dealer Note is hereby amended and restated to read as follows:

“Except as expressly provided herein, Lender shall make available to Borrower one or more Advances (as defined herein) during the period that begins on the Commencement Date and which ends on July 11, 2016, in an aggregate amount not to exceed the principal amount of this Note.”

(e)     Miscellaneous. All references in the Loan Documents to a Loan Document means such Loan Document as modified and supplemented by this Agreement.

4.     Amendment Fee. In consideration of the Bank entering into this Agreement, the Borrower will pay to the Bank a non-refundable and fully earned amendment fee in the amount of $10,000 (the “Amendment Fee”). The Amendment Fee shall be paid in immediately available funds by the Borrower to the Bank on or before the Closing Date (defined below).

5.     Conditions to Effectiveness of Agreement. The Borrower shall deliver (or cause to be delivered) to the Bank each of the following, each in form and substance satisfactory to the Bank:

(a)     this Agreement, duly executed by the Borrower and the Guarantors;

(b)     a certificate of the secretary or other appropriate officer of the Borrower, certifying (i) that the execution and delivery of this Agreement and the performance by the Borrower of this Agreement and the Loan Documents as amended hereby have been duly approved by all necessary action of the board of directors of the Borrower, and attaching true, correct and complete copies of the applicable resolutions granting such approval; (ii) that attached to such certificate are true and correct copies of the articles of incorporation and bylaws of the Borrower, together with such copies; and (iii) the names of the officers of the Borrower that are authorized to sign the Loan Documents and other documents contemplated hereunder, together with the true signatures of such officers; the Bank may conclusively rely on such certificate until the Bank receives a further certificate of the secretary or other appropriate officer of the Borrower canceling or amending the prior certificate and submitting the signatures of the officers named in such further certificate;

(c)     a certificate of the secretary or other appropriate officer of each Guarantor certifying (i) that the execution and delivery of the to this Agreement, and the performance by such Guarantor of this Agreement and the Guaranty to which such Guarantor is a party have been duly approved by all necessary action of the board of directors of such Guarantor, and attaching true, correct and complete copies of the applicable resolutions granting such approval; (ii) that attached to such certificate are true and correct copies of the articles of incorporation and bylaws of such Guarantor, together with such copies; and (iii) the names of the officers of such Guarantor that are authorized to sign the Loan Documents and other documents contemplated hereunder, together with the true signatures of such officers; the Bank may conclusively rely on such certificate until the Bank receives a further certificate of the secretary or other appropriate office of such Guarantor canceling or amending the prior certificate and submitting the signatures of the officers named in such further certificate;

(d)     evidence of all insurance required by the terms of the Loan Documents, together with certificates and loss payable endorsements showing the Bank as additional insured and lender loss payee thereunder;

(e)     all fees and costs of the Bank, including the Amendment Fee and all attorney’s fees, incurred in connection with the drafting and preparation of this Agreement and any related documents; and

(f)     such additional information or documentation as the Bank may require.

The later of (x) the date on which the last of the conditions and requirements in this Section 5 has been satisfied, or waived in writing by the Bank; and (y) the Agreement Date is called the “Closing Date.” The provisions of this Section 5 are solely for the Bank’s benefit and protection.

6.     Further Assurances. Following the receipt of any real estate appraisal with respect to any Collateral constituting real property, promptly upon request by the Bank, the Borrower and the Guarantors shall take such additional actions and execute such documents as the Bank may reasonably require from time to time in order (i) to perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents, including without limitation any mortgage, and (ii) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Bank the rights granted or now or hereafter intended to be granted to Bank under any Collateral Document or any other Loan Document, including without limitation any mortgage and the amount secured thereunder.

7.     Acknowledgments. The Borrower and each Guarantor acknowledges and agrees that as of the Closing Date: (a) the Obligations exist and are owing without offset, defense or counterclaim assertable by the Borrower or any Guarantor against the Bank; and (b) the Collateral Documents and the Collateral Assignment continue to secure the Obligations, as applicable.

8.     Ratification of Loan Documents. The Borrower and each Guarantor represents that on and as of the Closing Date and after giving effect to this Agreement all of the representations and warranties contained in the Loan Documents to which it is a party are true, correct and complete in all respects as of the Closing Date as though made on and as of such date, except for changes expressly permitted by the terms of the Loan Documents. The parties further acknowledge that the Loan Documents, as amended and supplemented by this Agreement, remain in full force and effect. Without limiting the generality of the foregoing, the Borrower represents and warrants that the Collateral Documents and the Collateral Assignment continue to secure the obligations of the Borrower under the Notes, as applicable.

9.     Confirmation of Guarantors. Each Guarantor consents to the terms of this Agreement and acknowledges that all indebtedness of the Borrower arising under the Loan Agreements and the Notes, each as amended hereby, constitutes Obligations (as defined in each Guaranty) under the Guaranty of such Guarantor. The confirmation set forth in this Section 9 shall not be deemed to limit the terms of any Guaranty in any manner. Each Guarantor acknowledges that this Section 9 merely confirms the terms of the Guaranty to which it is a party; that no such confirmation is required in connection with this Agreement or any future amendment to or restatement of any Loan Agreement, any Note or any document executed in connection with the Loan Agreements or this Agreement.

10.     General Release and Waivers.

(a)     The Borrower and each Guarantor, for and on behalf of itself and its legal representatives, successors and assigns, does waive, release, relinquish and forever discharge the Bank, its parents, subsidiaries, and affiliates, its and their respective past, present and future directors, officers, managers, agents, employees, insurers, attorneys, representatives and all of their respective heirs, successors and assigns (collectively, the “Released Parties”), of and from any and all manner of action or causes of action, suits, claims, demands, judgments, damages, levies and executions of whatsoever kind, nature or description arising on or before the Closing Date, including, without limitation, any claims, losses, costs or damages, including compensatory and punitive damages, in each case whether known or unknown, asserted or unasserted, liquidated or unliquidated, fixed or contingent, direct or indirect, which the Borrower or such Guarantor, or its legal representatives, successors or assigns, ever had or now has or may claim to have against any of the Released Parties, with respect to any matter whatsoever, including, without limitation, the Loan Documents, the administration of the Loan Documents, the negotiations relating to this Agreement and the other Loan Documents executed in connection with this Agreement and any other instruments and agreements executed by the Borrower or such Guarantor in connection with the Loan Documents or this Agreement, arising on or before the Closing Date (collectively, “Claims”). The Borrower and each Guarantor acknowledges that it is aware that it may discover facts different from or in addition to those it now knows or believes to be true with respect to the Claims, and agrees that the release contained in this Agreement is and will remain in effect in all respects as a complete and general release as to all matters released in this Agreement, notwithstanding any such different or additional facts. The Borrower and each Guarantor agrees not to sue any Released Party or in any way assist any other person or entity in suing a Released Party with respect to any claim released in this Section.

(b)     The Borrower and each Guarantor irrevocably waives, to the extent permissible under law, any and all rights of redemption, the right to notice of any proposed sale of any of the Collateral constituting personal property (the “Personal Property Collateral”), or of any other disposition of any of the Personal Property Collateral, and any other rights with respect to the Personal Property Collateral under the Uniform Commercial Code or other laws of any state.

(c)     Pursuant to each of the (i) Addenda to the Revolving Credit Agreement and Note, (ii) Addenda to 2013 Term Loan Agreements and Notes and (iii) Section 2.14 of the 2014 Term Loan Agreement, the Borrower was required to maintain a Year-To-Date EBITDA as of May 31, 2016 for the fiscal year to date then ended of at least $700,000. As of May 31, 2016 for the fiscal year to date then ended, the Borrower’s Year-To-Date EBITDA was $584,000, resulting in a default under each Loan Agreement (such default, the “Identified Default”). The Borrower has requested that the Bank waive the Identified Default. Effective upon the Closing Date, the Bank waives the Identified Default, provided, however, that the waiver granted in this Agreement is limited to the Identified Default and is not intended, and will not be construed, to be a general waiver of any term or provision of any Loan Agreement or a waiver of any other existing or future default.

11.     No Duress or Reliance. The Borrower and each Guarantor acknowledges and agrees that the Borrower or such Guarantor has received the advice of independent counsel, appraisers and accountants selected by the Borrower or such Guarantor, or the opportunity to obtain such advice, before entering into this Agreement and the other Loan Documents to which it is party referred to in this Agreement, and has not relied upon the Bank or any of its officers, directors, employees, agents or attorneys concerning any aspect of the transactions contemplated by this Agreement and the other Loan Documents to which it is a party referred to in this Agreement. The Borrower or such Guarantor executed and delivered this Agreement of the Borrower’s or such Guarantor’s own free will and will execute and deliver the other instruments required by this Agreement of the Borrower’s or such Guarantor’s own free will. The Borrower and such Guarantor further acknowledges that the Bank has not taken advantage of the Borrower or such Guarantor by threats, overreaching, unconscionable conduct or other activities and that the Borrower or such Guarantor is proceeding in all transactions contemplated in this Agreement as a volunteer and in what such Borrower or Guarantor perceives to be the Borrower’s or such Guarantor’s own best interest.

12.     Notices. Any notice or other communication to any party in connection with this Agreement or any Loan Document shall be in writing and shall be sent by manual delivery, facsimile transmission, overnight courier or United States mail (postage prepaid) addressed to such party at the address specified below, or at such other or additional address as such party shall have specified to the other party in writing. All periods of notice (if any) shall be measured from the date of delivery of the notice if manually delivered, from the date of sending if sent by facsimile transmission, from the first business day after the date of sending if sent by overnight courier, or from four days after the date of mailing if mailed. Each notice or other communication should be addressed as follows:

If to the Bank:                      U.S. Bank National Association

St. Louis Plaza

7th & Washington

St. Louis, MO 63101

Attn: Roger Gross

                                Fax: (314) 418-2135

If to the Borrower:               Art’s-Way Manufacturing Company, Inc.

5556 Highway 9 West

Armstrong, Iowa 50514

Attn: Amber Murra, Chief Financial Officer

Fax: (712) 864-3154

If to the Guarantors:                        Art’s-Way Scientific, Inc.

5556 Highway 9 West

Armstrong, Iowa 50514

Attn: Amber Murra, Chief Financial Officer

Fax: (712) 864-3154

and

Art’s-Way Vessels, Inc.

5556 Highway 9 West

Armstrong, Iowa 50514

Attn: Amber Murra, Chief Financial Officer

Fax: (712) 864-3154

and

Ohio Metal Working Products/Art’s-Way, Inc.

5556 Highway 9 West

Armstrong, Iowa 50514

Attn: Amber Murra, Chief Financial Officer

Fax: (712) 864-3154

The parties agree that the notice addresses set forth in this Agreement supersede and replace all prior notice addresses.

13.     Representations and Warranties. The Borrower and each Guarantor warrants and represents that (a) on and as of the Closing Date and after giving effect to this Agreement, other than the Identified Default, there will exist no default under the Loan Documents, as amended by this Agreement, or any other instruments executed by the Borrower or such Guarantor in connection with this Agreement or the Loan Documents, or circumstances that with the giving of notice, the passage of time or both will constitute an Event of Default under any Loan Document on such date; (b) the Borrower or such Guarantor has the power and legal right and authority to enter into, deliver and perform this Agreement, and any other documents or agreements executed by the Borrower or such Guarantor in connection with this Agreement, and that neither this Agreement, nor the agreements contained in this Agreement or any documents or agreements executed by the Borrower or such Guarantor in connection with this Agreement contravene any provision of or constitute a default under any agreement, instrument or indenture to which the Borrower or such Guarantor is a party or signatory or any provision of the Borrower’s or such Guarantor ’s constituent documents, if applicable, or any other agreement or requirement of law; (c) this Agreement and all other documents or agreements executed by the Borrower or such Guarantor in connection with this Agreement have been duly executed and delivered by the Borrower or such Guarantor and constitute the legal, valid and binding obligation of the Borrower or such Guarantor, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and by general principles of equity; and (d) no consent, approval or authorization of or registration or declaration with any party, including but not limited to any governmental authority, is required (except for those which the Borrower or such Guarantor has obtained or provided) in connection with the execution and delivery by the Borrower or such Guarantor of this Agreement, or any other documents or agreements executed by the Borrower or such Guarantor in connection with this Agreement, or the performance of the obligations of the Borrower or such Guarantor described in this Agreement.

14.     Further Assurances. The Borrower shall promptly correct any defect or error that may be discovered in any Loan Document or in the execution, acknowledgment or recordation of any Loan Document. Promptly upon request by the Bank, the Borrower also shall do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register, any and all deeds, conveyances, mortgages, deeds of trust, trust deeds, assignments, estoppel certificates, financing statements and continuations thereof, notices of assignment, transfers, certificates, assurances and other instruments as the Bank may reasonably require from time to time in order: (a) to carry out more effectively the purposes of the Loan Documents; (b) to perfect and maintain the validity, effectiveness and priority of any security interests intended to be created by the Loan Documents; and (c) to better assure, convey, grant, assign, transfer, preserve, protect and confirm unto the Bank the rights granted now or hereafter intended to be granted to the Bank under any Loan Document or under any other instrument executed in connection with any Loan Document or that the Borrower may be or become bound to convey, mortgage or assign to the Bank in order to carry out the intention or facilitate the performance of the provisions of any Loan Document. The Borrower shall furnish to the Bank evidence satisfactory to the Bank of every such recording, filing or registration.

15.     Copies; Entire Agreement; Modification. The Borrower acknowledges the receipt of a copy of the Notes and all other Loan Documents. The Notes and all of the Loan Documents are each a “transferable record” as defined in applicable law relating to electronic transactions. Therefore, the Bank may, on behalf of the Borrower, create a microfilm or optical disk or other electronic image of the Notes and any or all of the Loan Documents that is an authoritative copy as defined in such law. The Bank may store the authoritative copy of such Notes and any or all of the Loan Documents in its electronic form and then destroy the paper original as part of the Bank’s normal business practices. The Bank, on its own behalf, may control and transfer such authoritative copy as permitted by such law.

16.     Additional Provisions. TIME IS OF THE ESSENCE WITH RESPECT TO ALL PROVISIONS OF THIS AGREEMENT. No amendment, modification or waiver of the provisions of this Agreement or any Loan Document is effective unless the same is in writing and signed by the party against whom it is to be enforced, and then such amendment, modification or waiver shall be effective only in the specific instance and for the specific purpose for which given. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF IOWA, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS. The Loan Documents as modified by this Agreement, and this Agreement, shall represent the entire agreement among the Borrower, the Guarantors and the Bank with respect to the modification of the Loan Documents, shall supersede any prior oral negotiations or agreements, and shall be binding upon the parties to this Agreement and their respective legal representatives, successors and assigns. In the event of any conflict between the provisions of this Agreement and the provisions of any Loan Document, the provisions of this Agreement shall govern. If any part of this Agreement is held to be illegal, invalid or unenforceable, (a) the remainder of this Agreement shall continue in full force and effect, notwithstanding such illegality, invalidity or unenforceability and (b) the judge or arbiter holding that part illegal, invalid or unenforceable shall attempt to reform that part so as to give effect to the original intent of the parties. Section headings in this Agreement are for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. This Agreement may be executed in different counterparts with the same effect as if the signatures were on the same instrument, and will be effective upon delivery of all such counterparts to the Bank. Facsimiles or other photocopies or images of executed signature pages to this Agreement shall be considered originals.

17.     Waiver of Jury Trial. THE BORROWER, EACH GUARANTOR AND THE BANK IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY LOAN DOCUMENT.

18.     No Commitment to Extend, Modify or Forbear. EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, THE BANK IS NOT COMMITTED, AND IS NOT COMMITTING AT THIS TIME, TO EXTEND, MODIFY OR OTHERWISE RESTRUCTURE ANY LOAN, OR FORBEAR FROM EXERCISING ANY OF ITS RIGHTS OR REMEDIES UNDER THE LOAN DOCUMENTS, AS AMENDED BY THIS AGREEMENT. NO PRIOR COURSE OF DEALING, NO USAGE OF TRADE, AND NO ORAL STATEMENTS OR COMMENTS BY THE BANK OR ITS OFFICERS, EMPLOYEES, ATTORNEYS OR OTHER AGENTS WILL BE DEEMED TO BE A COMMITMENT BY THE BANK TO EXTEND, MODIFY, OR OTHERWISE RESTRUCTURE ANY LOAN OR FORBEAR FROM EXERCISING ANY OF ITS RIGHTS OR REMEDIES, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, OR UNLESS THE SAME SHALL BE REDUCED IN WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE BANK.

19.     Borrower’s Understanding. THE BORROWER ACKNOWLEDGES THAT: (A) THIS AGREEMENT CONTAINS A COMPLETE RELEASE OF CLAIMS AND WAIVERS OF CERTAIN RIGHTS; (B) THE BORROWER HAS READ AND UNDERSTOOD THIS AGREEMENT IN ITS ENTIRETY PRIOR TO SIGNING AND FULLY AGREES TO EACH, ALL AND EVERY PROVISION OF THIS AGREEMENT; AND (C) THE BORROWER HAS RECEIVED A COPY OF THIS AGREEMENT.

20.     IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING AND SIGNED BY THE PARTIES ARE ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED. THE TERMS OF THIS AGREEMENT MAY ONLY BE CHANGED BY ANOTHER WRITTEN AGREEMENT. THIS NOTICE SHALL ALSO BE EFFECTIVE WITH RESPECT TO ALL OTHER CREDIT AGREEMENTS NOW IN EFFECT BETWEEN THE BORROWER AND THE BANK. A MODIFICATION OF ANY OTHER CREDIT AGREEMENTS NOW IN EFFECT BETWEEN THE BORROWER AND THE BANK, WHICH OCCURS AFTER RECEIPT BY THE BORROWER OF THIS NOTICE, MAY BE MADE ONLY BY ANOTHER WRITTEN INSTRUMENT. ORAL OR IMPLIED MODIFICATIONS TO SUCH CREDIT AGREEMENTS ARE NOT ENFORCEABLE AND SHOULD NOT BE RELIED UPON.

[The next page is the signature page.]

IN WITNESS WHEREOF, the parties to this Loan Modification Agreement have caused it to be duly executed as of the date set forth below.

Date: July 12, 2016	ART’S-WAY MANUFACTURING COMPANY, INC.,
	a Delaware corporation
	By: /s/ Amber J. Murra
	Name: Amber J. Murra
	Title: Chief Financial Officer

Date: July 12, 2016	ART’S-WAY SCIENTIFIC, INC.,
	an Iowa corporation
	By: /s/ Amber J. Murra
	Name: Amber J. Murra
	Title: Chief Financial Officer

Date: July 12, 2016	ART’S-WAY VESSELS, INC.,
	an Iowa corporation
	By: /s/ Amber J. Murra
	Name: Amber J. Murra
	Title: Chief Financial Officer

Date: July 12, 2016	Ohio Metal Working Products/Art’s-Way, Inc.,
	an Ohio corporation
	By: /s/ Amber J. Murra
	Name: Amber J. Murra
	Title: Chief Financial Officer

 

Date: July 12, 2016	U.S. BANK NATIONAL ASSOCIATION, a national banking association
	By: /s/ Roger Gross
	Name: Roger Gross
	Title: Vice President

 

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO 17 CFR 240.13(a)-14(a)

(SECTION 302 CERTIFICATION)

I, Carrie L. Majeski, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Art’s-Way Manufacturing Co., Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

		ART’S-WAY MANUFACTURING CO., INC.
Date:	July 15, 2016	/s/ Carrie L. Majeski
		Carrie L. Majeski
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO 17 CFR 240.13(a)-14(a)

(SECTION 302 CERTIFICATION)

I, Amber J. Murra, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Art’s-Way Manufacturing Co., Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

		ART’S-WAY MANUFACTURING CO., INC.
Date:	July 15, 2016	/s/ Amber J. Murra
		Amber J. Murra
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Art’s-Way Manufacturing Co., Inc. (the “Company”) for the fiscal quarter ended May 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Carrie L. Majeski, as the President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

		ART’S-WAY MANUFACTURING CO., INC.
Date:	July 15, 2016	/s/ Carrie L. Majeski
		Carrie L. Majeski
		President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Art’s-Way Manufacturing Co., Inc. (the “Company”) for the fiscal quarter ended May 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Amber J. Murra, as the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

		ART’S-WAY MANUFACTURING CO., INC.
Date:	July 15, 2016	/s/ Amber J. Murra
		Amber J. Murra
		Chief Financial Officer

XML

Document And Entity Information - shares	6 Months Ended
	May 31, 2016	Jun. 14, 2016
Document Information [Line Items]
Entity Registrant Name	ARTS WAY MANUFACTURING CO INC
Entity Central Index Key	0000007623
Trading Symbol	artw
Current Fiscal Year End Date	--11-30
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		4,105,052
Document Type	10-Q
Document Period End Date	May 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	May 31, 2016	Nov. 30, 2015
Current assets:
Cash	$ 267,506	$ 447,334
Accounts receivable-customers, net of allowance for doubtful accounts of $20,076 and $18,810 in 2016 and 2015, respectively	1,542,763	2,057,739
Inventories, net	14,492,969	15,699,084
Deferred taxes	1,152,700	1,146,242
Cost and Profit in Excess of Billings	74,837	206,672
Income taxes receivable	311,146	345,912
Other current assets	257,052	59,336
Total current assets	18,098,973	19,962,319
Property, plant, and equipment, net	9,360,707	9,694,913
Assets held for sale, net	114,858	1,245,432
Goodwill	375,000	375,000
Other Assets	45,724	53,944
Total assets	27,995,262	31,331,608
Current liabilities:
Line of credit	2,101,610	3,959,656
Current portion of long-term debt	2,011,943	1,322,662
Accounts payable	616,741	522,400
Customer deposits	307,232	166,626
Billings in Excess of Cost and Profit	148,471	86,858
Accrued expenses	1,066,749	1,279,913
Total current liabilities	6,252,746	7,338,115
Long-term liabilities
Deferred taxes	835,828	846,960
Long-term debt, excluding current portion	2,322,992	4,626,667
Total liabilities	9,411,566	12,811,742
Stockholders’ equity:
Undesignated preferred stock - $0.01 par value. Authorized 500,000 shares in 2016 and 2015; issued and outstanding 0 shares in 2016 and 2015.
Common stock – $0.01 par value. Authorized 9,500,000 shares in 2016 and 2015; issued and outstanding 4,105,052 in 2016 and 4,061,052 in 2015	41,051	40,611
Additional paid-in capital	2,705,999	2,667,010
Retained earnings	15,836,646	15,812,245
Total stockholders’ equity	18,583,696	18,519,866
Total liabilities and stockholders’ equity	$ 27,995,262	$ 31,331,608

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	May 31, 2016	Nov. 30, 2015
Allowance for doubtful accounts	$ 20,076	$ 18,810
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, authorized (in shares)	500,000	500,000
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized (in shares)	9,500,000	9,500,000
Common stock, issued (in shares)	4,105,052	4,061,052
Common stock, outstanding (in shares)	4,105,052	4,061,052

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	May 31, 2016	May 31, 2015	May 31, 2016	May 31, 2015
Sales	$ 5,741,088	$ 7,804,111	$ 12,133,086	$ 15,093,239
Cost of goods sold	4,241,153	5,596,379	8,930,851	10,833,376
Gross profit	1,499,935	2,207,732	3,202,235	4,259,863
Expenses:
Engineering	107,368	119,540	223,540	235,216
Selling	434,952	581,211	918,746	1,145,925
General and administrative	990,666	1,092,837	1,943,763	2,135,429
Total expenses	1,532,986	1,793,588	3,086,049	3,516,570
Income from operations	(33,051)	414,144	116,186	743,293
Other income (expense):
Interest expense	(60,153)	(81,582)	(134,185)	(161,067)
Other	17,745	21,445	62,744	16,581
Total other income (expense)	(42,408)	(60,137)	(71,441)	(144,486)
Income before income taxes	(75,459)	354,007	44,745	598,807
Income tax expense	(18,888)	122,386	20,344	198,991
Net income	$ (56,571)	$ 231,621	$ 24,401	$ 399,816
Net income per share:
Basic net income per share (in dollars per share)	$ (0.01)	$ 0.06	$ 0.01	$ 0.10
Diluted net income per share (in dollars per share)	$ (0.01)	$ 0.06	$ 0.01	$ 0.10
Weighted average outstanding shares used to compute basic net income per share (in shares)	4,101,810	4,060,775	4,088,073	4,055,698
Weighted average outstanding shares used to compute diluted net income per share (in shares)	4,101,810	4,062,294	4,088,073	4,057,073

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	May 31, 2016	May 31, 2015
Cash flows from operations:
Net income	$ 24,401	$ 399,816
Adjustments to reconcile net income to net cash provided by operating activities:
Stock based compensation	39,429	28,484
(Gain)/Loss on disposal of property, plant, and equipment	(43,884)	6,955
Depreciation and amortization expense	409,614	459,412
Bad debt expense (recovery)	2,255	3,240
Deferred income taxes	(17,590)	(72,912)
Changes in assets and liabilities:
Accounts receivable	512,721	26,736
Inventories	1,206,115	(881,977)
Income taxes receivable	34,766	100,417
Other assets	(191,626)	(319,737)
Accounts payable	94,341	64,306
Contracts in progress, net	193,448	(37,362)
Customer deposits	140,606	607,275
Income taxes payable		10,150
Accrued expenses	(213,164)	(88,671)
Net cash provided by operating activities	2,191,432	306,132
Cash flows from investing activities:
Purchases of property, plant, and equipment	(69,662)	(139,994)
Net proceeds from sale of assets	1,170,842	14,456
Net cash provided by (used in) investing activities	1,101,180	(125,538)
Cash flows from financing activities:
Net change in line of credit	1,858,046	(749,772)
Repayment of term debt	(1,614,394)	(637,930)
Dividends paid to stockholders		(202,428)
Net cash (used in) financing activities	(3,472,440)	(90,586)
Net increase (decrease) in cash	(179,828)	90,008
Cash at beginning of period	447,334	511,716
Cash at end of period	267,506	601,724
Supplemental disclosures of cash flow information:
Interest	140,820	160,803
Income taxes	$ 4,514	$ 205,296

XML

Note 1 - Description of the Company

6 Months Ended

May 31, 2016

Notes to Financial Statements

Nature of Operations [Text Block]

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 12 “Segment Information.”

XML

Note 2 - Summary of Significant Account Policies

6 Months Ended

May 31, 2016

Notes to Financial Statements

Significant Accounting Policies [Text Block]

2) 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 for the fiscal year ended November 30, 2015. The results of operations for the three and six-months ended May 31, 2016 are not necessarily indicative of the results for the fiscal year ending November 30, 2016

.

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 to 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, 2016. Actual results could differ from those estimates.

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Note 3 - Net Income (Loss) Per Share of Common Stock

6 Months Ended

May 31, 2016

Notes to Financial Statements

Earnings Per Share [Text Block]

3) 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, 2016 and May 31, 2015:

	For the three months ended
	May 31, 2016			May 31, 2015
Basic:
Numerator: net income	$	(56,571	)	$	231,621
Denominator: average number of common shares outstanding		4,101,810			4,060,775
Basic earnings per common share	$	(0.01	)	$	0.06
Diluted:
Numerator: net income	$	(56,571	)	$	231,621
Average number of common shares outstanding		4,101,810			4,060,775
Effect of dilutive stock options		0			1,519
Denominator: dilutive average number of common shares outstanding		4,101,810			4,062,294
Diluted earnings per common share	$	(0.01	)	$	0.06

	For the six months ended
	May 31, 2016		May 31, 2015
Basic:
Numerator: net income	$	24,401	$	399,816
Denominator: average number of common shares outstanding		4,088,073		4,055,698
Basic earnings per common share	$	0.01	$	0.10
Diluted:
Numerator: net income	$	24,401	$	399,816
Average number of common shares outstanding		4,088,073		4,055,698
Effect of dilutive stock options		0		1,375
Denominator: dilutive average number of common shares outstanding		4,088,073		4,057,073
Diluted earnings per common share	$	0.01	$	0.10

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Note 4 - Inventory

6 Months Ended

May 31, 2016

Notes to Financial Statements

Inventory Disclosure [Text Block]

4) Inventory

Major classes of inventory are:

	May 31, 2016			November 30, 2015
Raw materials	$	9,354,426		$	10,058,894
Work in process		531,369			458,526
Finished goods		7,560,530			8,204,843
	$	17,446,325		$	18,722,263
Less: Reserves		(2,953,356	)		(3,023,179	)
	$	14,492,969		$	15,699,084

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Note 5 - Accrued Expenses

6 Months Ended

May 31, 2016

Notes to Financial Statements

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

5) Accrued Expenses

Major components of accrued expenses are:

	May 31, 2016		November 30, 2015
Salaries, wages, and commissions	$	532,694	$	564,098
Accrued warranty expense		146,548		179,531
Other		387,507		536,284
	$	1,066,749	$	1,279,913

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Note 6 - Product Warranty

6 Months Ended

May 31, 2016

Notes to Financial Statements

Product Warranty Disclosure [Text Block]

6) 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, 2016 and May 31, 2015 are as follows:

	For the three months ended
	May 31, 2016			May 31, 2015
Balance, beginning	$	178,978		$	246,490
Settlements / adjustments		(71,786	)		(78,611	)
Warranties issued		39,356			115,692
Balance, ending	$	146,548		$	283,571

	For the six months ended
	May 31, 2016			May 31, 2015
Balance, beginning	$	179,531		$	234,266
Settlements / adjustments		(153,078	)		(170,136	)
Warranties issued		120,095			219,441
Balance, ending	$	146,548		$	283,571

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Note 7 - Loan and Credit Agreements

6 Months Ended

May 31, 2016

Notes to Financial Statements

Debt Disclosure [Text Block]

7) Loan and Credit Agreements

The Company maintains lines of credit and term loans with U.S. Bank as well as a term loan with The First National Bank of West Union. Pursuant to a Loan Modification Agreement dated April 27, 2016 (the “Loan Modification”) entered into among U.S. Bank, as lender, the Company, as borrower, and Art’s-Way Scientific, Inc., Art’s-Way Vessels, Inc., and Ohio Metal Working Products/Art’s-Way, Inc., as guarantors, the agreements governing the U.S. Bank lines of credit and certain term loans were amended.

Following the close of the second quarter, U.S. Bank, as lender, the Company, as borrower, and Art’s-Way Scientific, Inc., Art’s-Way Vessels, Inc., and Ohio Metal Working Products/Art’s-Way, Inc., as guarantors, entered into a Second Loan Modification Agreement dated July 12, 2016 and effective as of July 11, 2016 with respect to loan modification terms (the “Second Loan Modification”) governing the U.S. Bank lines of credit and certain term loans.

The description that follows reflects such arrangements as amended by the Loan Modification.

For more information regarding the Second Loan Modification, see Part II, Item 5 of this Report.

U.S. Bank Lines of Credit

The Company has a revolving line of credit (the “Line of Credit”) with U.S. Bank, which, following the Second Loan Modification, has an availability of $5,000,000, that was obtained on May 1, 2013, and is renewable annually with advances funding the Company’s working capital needs. As of May 31, 2016, the Company had a principal balance of $2,101,610 outstanding against the Line of Credit, with $2,953,005 remaining available, limited by the borrowing base calculation. The Line of Credit matures on May 1, 2017 and is secured by real property and fixed asset collateral. 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 $3,750,000 following the Second Loan Modification 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 the 2015 Line of Credit (defined below), and less undrawn amounts of outstanding letters of credit issued by U.S. Bank or any affiliate. Monthly interest-only payments are required and the unpaid principal and accrued interest is due on the maturity date. The Company’s obligations under the Line of Credit are evidence 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, the Company maintains an additional $200,000 revolving line of credit from U.S. Bank that was obtained on July 16, 2015 (the “2015 Line of Credit”) and which also matures on May 1, 2017. As of May 31, 2016, the Company had a principal balance of $0 outstanding against the 2015 Line of Credit, with $200,000 remaining available. The 2015 Line of Credit was necessary to preserve the Company’s access to capital for a sales incentive program that offers extended payment terms up to 9 months on certain products for our dealers, subject to a Dealer’s Note and Dealer’s Security Agreement. These notes receivable are not included in the borrowing base of our Line of Credit. The 2015 Line of Credit is secured by real property and fixed asset collateral, as well as all of the Company’s right, title and interest in the Dealer’s Notes and Dealer’s Security Agreements related to advances under the 2015 Line of Credit. Advances under the 2015 Line of Credit are due at the earlier of nine months after the date of the advancement, the 2015 Line of Credit maturity date or the sale by the dealer of the equipment relating to the applicable advance. Monthly interest-only payments are required and the unpaid principal and accrued interest is due on the maturity date. The Company’s obligations under the 2015 Line of Credit are evidenced by a Promissory Note effective July 16, 2015 and certain other ancillary documents.

The Line of Credit and 2015 Line of Credit are subject to an unused fee which accrues at the rate of 0.25% per annum on the average daily amount by which the amount available for borrowing under each line of credit exceeds the outstanding principal amount relating to such line. The Line of Credit was previously subject to a minimum interest rate of 4.50% per annum under the Loan Modification and now is subject to a minimum interest rate of 5.00% per annum following the Second Loan Modification. The 2015 Line of Credit is subject to a minimum interest rate of 4.50% per annum. As of May 31, 2016, the interest rate on the Line of Credit and the 2015 Line of Credit was the minimum of 4.50%.

U.S. Bank Term Loans

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. The principal balance of this loan was $401,351 as of May 31, 2016 and it accrues interest at a fixed rate of 3.15% per annum. This loan was 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, which was released upon the sale of our Ames, Iowa facility. The U.S. Bank UHC Loan is also secured by a mortgage on the building and property in Monona, Iowa, pursuant to a Mortgage, Security Agreement and Assignment of Rents between the Company and U.S. Bank, dated May 1, 2013 and a mortgage on the building and property owned by Art’s-Way Vessels, Inc. in Dubuque, Iowa, pursuant to a Mortgage, Security Agreement and Assignment of Rents between Art’s-Way Vessels, Inc. and U.S. Bank, dated May 1, 2013. On May 1, 2013, the U.S. Bank UHC Loan and the

mortgage were amended to extend the mortgage to secure the 2013 Term Notes (defined below) in addition to the U.S. Bank UHC Loan.

Three of the Company’s outstanding term loans were obtained from U.S. Bank on May 1, 2013. The principal balance of these loans totaled $2,428,992 at May 31, 2016, and they accrue interest at a fixed rate of 2.98% per annum (the “2013 Term Notes”). There was previously also a fourth term loan obtained from U.S. Bank on May 1, 2013, but the Company voluntarily paid off and terminated the note and the related Term Loan Agreement on February 10, 2016. The payoff amount of $1,078,196 included principal and accrued and unpaid interest. As detailed in the Company’s long-term debt summary below, monthly principal and interest payments in the aggregate amount of $51,350 are required on the remaining 2013 Term Notes, with final payments of principal and accrued interest on the three remaining loans in the aggregate amount of $1,363,000 due on May 1, 2018.

The Company obtained a term loan from U.S. Bank on May 29, 2014 in the original principal amount of $1,000,000 (the “2014 Term Note”). The 2014 Term Note had a principal balance of $924,136 at May 31, 2016 and accrues interest at a fixed rate of 2.98%. The Company took on the 2014 Term Note in order to partially pay down a draw on its revolving line of credit 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 the 2014 Term Note 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, and is also subject to a Business Security Agreement between Ohio Metal Working Products/Art’s Way, Inc. (“Ohio Metal”) and U.S. Bank and a Continuing Guaranty (Unlimited) by Ohio Metal. Each of the Company’s term loans from U.S. Bank is governed by a Term Note and a Term Loan Agreement.

U.S. Bank Covenants

The U.S. Bank UHC Loan and the 2015 Line of Credit are not subject to financial covenants. However, under the U.S. Bank UHC Loan, the Company must provide to U.S. Bank information concerning its business affairs and financial condition as the bank may reasonably request, as well as annual financial statements prepared by an accounting firm acceptable to U.S. Bank within 120 days of the end of the year without request. The Company, in connection with any draws under the 2015 Line of Credit, must provide U.S. Bank with a security agreement and evidence of U.S. Bank’s security interest in the equipment relating to any borrowings thereunder.

As amended by the Loan Modification, the Line of Credit, the 2013 Term Notes and the 2014 Term Note require the Company to maintain (i) a fixed charge coverage ratio of at least 1.15 to 1.10 as of the end of each fiscal quarter (except for the fiscal quarters ended May 31, 2016 and August 31, 2016), (ii) a fiscal year-to-date fixed charge coverage ratio as of August 31, 2016 of at least 1.0 to 1.0, and (iii) a fiscal year-to-date EBITDA as of May 31, 2016 of at least $700,000 (with EBITDA meaning income, plus interest expense, plus income tax expense, plus depreciation expense, plus amortization expense, subject to adjustments in USB’s sole discretion). The Company must also provide to U.S. Bank a detailed backlog report by segment as of the last day of each calendar month, monthly internally prepared financial reports, year-end audited financial statements, and a monthly aging of accounts receivable, and must deliver along with any financial statements delivered to U.S. Bank a certificate of compliance executed by the Company’s chief financial officer certifying the Company’s compliance with the financial covenants. The Second Loan Modification further amends certain financial covenants that apply to the Line of Credit, the 2013 Term Notes and the 2014 Term Note. For more information regarding the Second Loan Modification, see Part II, Item 5 of this Report.

The 2013 Term Notes, 2014 Term Note, Line of Credit and 2015 Line of Credit 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 Business Security Agreements entered into by the Company and its subsidiaries, Pledge Agreements entered into by the subsidiaries and Collateral Assignment of Dealer’s Notes and Security Agreements entered into by the Company. Additionally, the Company has mortgaged certain real property in favor of U.S. Bank as documented by mortgage agreements dated May 1, 2013 (as noted above) and May 29, 2014 (together, the “Mortgages”).

If the Company or its subsidiaries (as guarantors pursuant to continuing guaranties) commits an event of default with respect to the U.S. Bank UHC Loan, 2013 Term Notes, 2014 Term Note, Line of Credit or 2015 Line of Credit 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 by 10.0% per annum with respect to the 2015 Line of Credit, U.S. Bank can immediately terminate its obligation, if any, to make additional loans to the Company, and U.S. Bank may accelerate the Company’s obligations under the applicable loan or line of credit. U.S. Bank shall also 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.

The Company was in compliance with all covenants under the Line of Credit, the 2013 Term Notes and the 2014 Term Note as measured on May 31, 2016, other than its covenant to maintain a fiscal year-to-date EBITDA as of May 31, 2016 of at least $700,000. The main reason for the non-compliance result as of May 31, 2016 was the Company’s reduced earnings level, after the adjustment for goodwill impairment, over the last 12 months. As part of the Second Loan Modification Agreement, U.S. Bank has issued a waiver forgiving the non-compliance for the quarter. The next measurement date is August 31, 2016. For more information regarding the Second Loan Modification, see Part II, Item 5 of this Report.

Iowa Finance Authority Term Loan and Covenants

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, an interest rate of 3.5% per annum and a maturity date of June 1, 2020. On February 1, 2013, the interest rate was decreased to 2.75% per annum. 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 or the West Union Mortgage 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 except the debt service coverage ratio as measured on November 30, 2015. The First National Bank of West Union has issued a waiver, and the next measurement date is November 30, 2016.

Long-Term Debt Summary

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

	May 31, 2016		November 30, 2015
U.S. Bank loan payable in monthly installments of $42,500 including interest at 2.98%, due May 1, 2018	$	-	$	1,196,088
U.S. Bank loan payable in monthly installments of $11,000 including interest at 2.98%, due May 1, 2018		688,000		743,149
U.S. Bank loan payable in monthly installments of $12,550 including interest at 2.98%, due May 1, 2018		779,773		842,769
U.S. Bank loan payable in monthly installments of $27,800 including interest at 2.98%, due May 1, 2018		961,219		1,112,205
U.S. Bank loan payable in monthly installments of $11,700 including interest at 3.15%, due May 10, 2017		401,351		464,605
U.S. Bank loan payable in monthly installments of $5,556 including interest at 2.98%, due May 25, 2017		924,136		943,381
Iowa Finance Authority loan payable in monthly installments of $12,500 including interest at 2.75%, due June 1, 2020		580,456		647,132
Total term debt	$	4,334,935	$	5,949,329
Less current portion of term debt		2,011,943		1,322,662
Term debt, excluding current portion	$	2,322,992	$	4,626,667

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Note 8 - Assets Available for Sale

6 Months Ended

May 31, 2016

Notes to Financial Statements

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

8) Assets Available for Sale

Major components of assets available for sale are:

	May 31, 2016		November 30, 2015
Ames, Iowa production facility	$	-	$	1,093,632
Monona, Iowa storage building		-		36,942
Ames, Iowa powder coat paint system		114,858		114,858
	$	114,858	$	1,245,432

Due to reduced demand for our reels produced by the Universal Harvester by Art’s Way subsidiary, we have been able to absorb the production of reels in our Armstrong, Iowa facility. The Ames, Iowa facility was sold on February 10, 2016 for $1,192,000. After closing expenses, we recognized a gain on this sale of $36,000. The proceeds of this sale were used to pay down term debt, as previously discussed in Note 7.

The storage facility in Monona, Iowa is adjacent to our production facilities, and was sold in December 2015. We recorded a gain of $4,000 in December 2015 after closing costs associated with the sale.

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Note 9 - Recently Issued Accounting Pronouncements

6 Months Ended

May 31, 2016

Notes to Financial Statements

Description of New Accounting Pronouncements Not yet Adopted [Text Block]

9) Recently Issued Accounting Pronouncements

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, 2017, including interim periods within that reporting period and is to be applied retrospectively, with early application permitted only as of annual reporting periods beginning after December 15, 2016. 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.

Inventory

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330)”, which requires inventory measured using any method other than last-in, first-out or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than the lower of cost or market. ASU No. 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. The Company will adopt this guidance for the year-ended November 30, 2017 including interim periods within that reporting period. Its adoption is not expected to have a material impact on our consolidated financial statements.

Income Taxes

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740)”, to simplify the presentation of deferred income taxes. Under the new standard, both deferred tax liabilities and assets are required to be classified as noncurrent in a classified balance sheet. ASU No. 2015-17 is effective for fiscal years beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases (topic 842)”, which requires a lessee to recognize a right-of-use asset and a lease liability on its balance sheet for all leases with terms of twelve months or greater. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

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Note 10 - Equity Incentive Plan and Stock Based Compensation

6 Months Ended

May 31, 2016

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

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 restricted stock awards of 1,000 shares of common stock annually or initially upon their election to the Board, which are fully vested. During the first six months of fiscal 2016, 39,000 restricted stock awards have been issued to various employees and directors which vest over the next three years, and 5,000 restricted stock awards were issued to the directors upon their election in April 2016 for a total of 44,000 year-to-date.

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 option 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 a total of $28,177 and $39,429 of stock-based compensation expense for stock options and restricted stock awards during the three and six-months ended May 31, 2016, respectively, compared to $15,339 and $28,484 of stock-based compensation expense for restricted stock awards and stock options for the same respective periods of fiscal 2015

.

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Note 11 - Disclosures About the Fair Value of Financial Instruments

6 Months Ended

May 31, 2016

Notes to Financial Statements

Fair Value Disclosures [Text Block]

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, 2016, and November 30, 2015, 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.

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Note 12 - Segment Information

6 Months Ended

May 31, 2016

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

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, 2016
	Agricultural Products			Pressurized Vessels			Modular Buildings		Tools			Consolidated
Revenue from external customers	$	3,567,000		$	443,000		$	1,250,000	$	481,000		$	5,741,000
Income (loss) from operations		(96,000	)		(97,000	)		203,000		(43,000	)	$	(33,000	)
Income (loss) before tax		(118,000	)		(105,000	)		199,000		(51,000	)	$	(75,000	)
Total Assets		20,415,000			2,306,000			2,626,000		2,648,000		$	27,995,000
Capital expenditures		25,000			-			-		10,000		$	35,000
Depreciation & Amortization		132,000			29,000			16,000		31,000		$	208,000

	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

	Six Months Ended May 31, 2016
	Agricultural Products		Pressurized Vessels			Modular Buildings		Tools			Consolidated
Revenue from external customers	$	7,765,000	$	1,122,000		$	2,193,000	$	1,053,000		$	12,133,000
Income (loss) from operations		152,000		(169,000	)		212,000		(79,000	)	$	116,000
Income (loss) before tax		115,000		(180,000	)		206,000		(95,000	)	$	46,000
Total Assets		20,415,000		2,306,000			2,626,000		2,648,000		$	27,995,000
Capital expenditures		29,000		8,000			-		33,000		$	70,000
Depreciation & Amortization		260,000		58,000			31,000		61,000		$	410,000

	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		262,000		53,000			85,000			59,000		$	459,000

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Note 13 - Subsequent Event

6 Months Ended

May 31, 2016

Notes to Financial Statements

Subsequent Events [Text Block]

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

other than those previously described in Note 7.

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Significant Accounting Policies (Policies)

6 Months Ended

May 31, 2016

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

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 for the fiscal year ended November 30, 2015. The results of operations for the three and six-months ended May 31, 2016 are not necessarily indicative of the results for the fiscal year ending November 30, 2016

.

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 to 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.

Use of Estimates, Policy [Policy Text Block]

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, 2016. Actual results could differ from those estimates.

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Note 3 - Net Income (Loss) Per Share of Common Stock (Tables)

6 Months Ended

May 31, 2016

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	For the three months ended
	May 31, 2016			May 31, 2015
Basic:
Numerator: net income	$	(56,571	)	$	231,621
Denominator: average number of common shares outstanding		4,101,810			4,060,775
Basic earnings per common share	$	(0.01	)	$	0.06
Diluted:
Numerator: net income	$	(56,571	)	$	231,621
Average number of common shares outstanding		4,101,810			4,060,775
Effect of dilutive stock options		0			1,519
Denominator: dilutive average number of common shares outstanding		4,101,810			4,062,294
Diluted earnings per common share	$	(0.01	)	$	0.06

	For the six months ended
	May 31, 2016		May 31, 2015
Basic:
Numerator: net income	$	24,401	$	399,816
Denominator: average number of common shares outstanding		4,088,073		4,055,698
Basic earnings per common share	$	0.01	$	0.10
Diluted:
Numerator: net income	$	24,401	$	399,816
Average number of common shares outstanding		4,088,073		4,055,698
Effect of dilutive stock options		0		1,375
Denominator: dilutive average number of common shares outstanding		4,088,073		4,057,073
Diluted earnings per common share	$	0.01	$	0.10

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Note 4 - Inventory (Tables)

6 Months Ended

May 31, 2016

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	May 31, 2016			November 30, 2015
Raw materials	$	9,354,426		$	10,058,894
Work in process		531,369			458,526
Finished goods		7,560,530			8,204,843
	$	17,446,325		$	18,722,263
Less: Reserves		(2,953,356	)		(3,023,179	)
	$	14,492,969		$	15,699,084

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Note 5 - Accrued Expenses (Tables)

6 Months Ended

May 31, 2016

Notes Tables

Schedule of Accrued Liabilities [Table Text Block]

	May 31, 2016		November 30, 2015
Salaries, wages, and commissions	$	532,694	$	564,098
Accrued warranty expense		146,548		179,531
Other		387,507		536,284
	$	1,066,749	$	1,279,913

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Note 6 - Product Warranty (Tables)

6 Months Ended

May 31, 2016

Notes Tables

Schedule of Product Warranty Liability [Table Text Block]

	For the three months ended
	May 31, 2016			May 31, 2015
Balance, beginning	$	178,978		$	246,490
Settlements / adjustments		(71,786	)		(78,611	)
Warranties issued		39,356			115,692
Balance, ending	$	146,548		$	283,571

	For the six months ended
	May 31, 2016			May 31, 2015
Balance, beginning	$	179,531		$	234,266
Settlements / adjustments		(153,078	)		(170,136	)
Warranties issued		120,095			219,441
Balance, ending	$	146,548		$	283,571

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Note 7 - Loan and Credit Agreements (Tables)

6 Months Ended

May 31, 2016

Notes Tables

Schedule of Debt [Table Text Block]

	May 31, 2016		November 30, 2015
U.S. Bank loan payable in monthly installments of $42,500 including interest at 2.98%, due May 1, 2018	$	-	$	1,196,088
U.S. Bank loan payable in monthly installments of $11,000 including interest at 2.98%, due May 1, 2018		688,000		743,149
U.S. Bank loan payable in monthly installments of $12,550 including interest at 2.98%, due May 1, 2018		779,773		842,769
U.S. Bank loan payable in monthly installments of $27,800 including interest at 2.98%, due May 1, 2018		961,219		1,112,205
U.S. Bank loan payable in monthly installments of $11,700 including interest at 3.15%, due May 10, 2017		401,351		464,605
U.S. Bank loan payable in monthly installments of $5,556 including interest at 2.98%, due May 25, 2017		924,136		943,381
Iowa Finance Authority loan payable in monthly installments of $12,500 including interest at 2.75%, due June 1, 2020		580,456		647,132
Total term debt	$	4,334,935	$	5,949,329
Less current portion of term debt		2,011,943		1,322,662
Term debt, excluding current portion	$	2,322,992	$	4,626,667

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Note 8 - Assets Available for Sale (Tables)

6 Months Ended

May 31, 2016

Notes Tables

Disposal Groups, Including Discontinued Operations [Table Text Block]

	May 31, 2016		November 30, 2015
Ames, Iowa production facility	$	-	$	1,093,632
Monona, Iowa storage building		-		36,942
Ames, Iowa powder coat paint system		114,858		114,858
	$	114,858	$	1,245,432

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Note 12 - Segment Information (Tables)

6 Months Ended

May 31, 2016

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended May 31, 2016
	Agricultural Products			Pressurized Vessels			Modular Buildings		Tools			Consolidated
Revenue from external customers	$	3,567,000		$	443,000		$	1,250,000	$	481,000		$	5,741,000
Income (loss) from operations		(96,000	)		(97,000	)		203,000		(43,000	)	$	(33,000	)
Income (loss) before tax		(118,000	)		(105,000	)		199,000		(51,000	)	$	(75,000	)
Total Assets		20,415,000			2,306,000			2,626,000		2,648,000		$	27,995,000
Capital expenditures		25,000			-			-		10,000		$	35,000
Depreciation & Amortization		132,000			29,000			16,000		31,000		$	208,000

	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

	Six Months Ended May 31, 2016
	Agricultural Products		Pressurized Vessels			Modular Buildings		Tools			Consolidated
Revenue from external customers	$	7,765,000	$	1,122,000		$	2,193,000	$	1,053,000		$	12,133,000
Income (loss) from operations		152,000		(169,000	)		212,000		(79,000	)	$	116,000
Income (loss) before tax		115,000		(180,000	)		206,000		(95,000	)	$	46,000
Total Assets		20,415,000		2,306,000			2,626,000		2,648,000		$	27,995,000
Capital expenditures		29,000		8,000			-		33,000		$	70,000
Depreciation & Amortization		260,000		58,000			31,000		61,000		$	410,000

	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		262,000		53,000			85,000			59,000		$	459,000

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Note 1 - Description of the Company (Details Textual)	6 Months Ended
	May 31, 2016
Number of Operating Segments	4

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Note 3 - Basic and Diluted Earnings Per Common Share (Details) - USD ($)	3 Months Ended		6 Months Ended
	May 31, 2016	May 31, 2015	May 31, 2016	May 31, 2015
Basic:
Numerator: net income	$ (56,571)	$ 231,621	$ 24,401	$ 399,816
Denominator: average number of common shares outstanding (in shares)	4,101,810	4,060,775	4,088,073	4,055,698
Basic earnings per common share (in dollars per share)	$ (0.01)	$ 0.06	$ 0.01	$ 0.10
Diluted:
Numerator: net income	$ (56,571)	$ 231,621	$ 24,401	$ 399,816
Denominator: average number of common shares outstanding (in shares)	4,101,810	4,060,775	4,088,073	4,055,698
Effect of dilutive stock options (in shares)	0	1,519	0	1,375
Denominator: dilutive average number of common shares outstanding (in shares)	4,101,810	4,062,294	4,088,073	4,057,073
Diluted earnings per common share (in dollars per share)	$ (0.01)	$ 0.06	$ 0.01	$ 0.10

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Note 4 - Inventory - Major Classes of Inventory (Details) - USD ($)	May 31, 2016	Nov. 30, 2015
Raw materials	$ 9,354,426	$ 10,058,894
Work in process	531,369	458,526
Finished goods	7,560,530	8,204,843
Inventory, gross	17,446,325	18,722,263
Less: Reserves	(2,953,356)	(3,023,179)
Inventory, net	$ 14,492,969	$ 15,699,084

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Note 5 - Major Components Of Accrued Expenses (Details) - USD ($)	May 31, 2016	Nov. 30, 2015
Salaries, wages, and commissions	$ 532,694	$ 564,098
Accrued warranty expense	146,548	179,531
Other	387,507	536,284
Accrued expenses	$ 1,066,749	$ 1,279,913

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Note 6 - Product Warranty (Details Textual)	6 Months Ended
	May 31, 2016
Standard Product Warrant Term	1 year

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Note 6 - Changes In Product Warranty Liability (Details) - USD ($)	3 Months Ended		6 Months Ended
	May 31, 2016	May 31, 2015	May 31, 2016	May 31, 2015
Balance, beginning	$ 178,978	$ 246,490	$ 179,531	$ 234,266
Settlements / adjustments	(71,786)	(78,611)	(153,078)	(170,136)
Warranties issued	39,356	115,692	120,095	219,441
Balance, ending	$ 146,548	$ 283,571	$ 146,548	$ 283,571

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Note 7 - Loan and Credit Agreements (Details Textual)		6 Months Ended		12 Months Ended
	Feb. 10, 2016 USD ($)	May 31, 2016 USD ($)	May 31, 2015 USD ($)	Nov. 30, 2015 USD ($)	Jul. 12, 2016	Apr. 27, 2016	Jul. 16, 2015 USD ($)	May 29, 2014 USD ($)	Feb. 01, 2013	May 10, 2012 USD ($)	May 01, 2010 USD ($)
The Line of Credit [Member] | US Bank [Member] | Minimum [Member] | Subsequent Event [Member]
Debt Instrument, Interest Rate, Stated Percentage					5.00%
The Line of Credit [Member] | US Bank [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Stated Percentage						4.50%
The Line of Credit [Member] | US Bank [Member]
Line of Credit Facility, Interest Rate at Period End		4.50%
The Line of Credit [Member]
Line of Credit Facility, Maximum Borrowing Capacity		$ 5,000,000
Long-term Line of Credit		2,101,610
Line of Credit Facility, Remaining Borrowing Capacity		$ 2,953,005
Line of Credit Facility Borrowing Capacity Borrowing Base Percentage of Accounts Receivable		75.00%
Line of Credit Facility Borrowing Capacity Borrowing Base Minimum Percentage of Aggregate Receivables		20.00%
Line of Credit Facility Borrowing Capacity Borrowing Base Percentage of Inventory		50.00%
Line of Credit Facility Borrowing Capacity Borrowing Base Maximum Inventory Amount		$ 3,750,000
The 2015 Line of Credit [Member] | US Bank [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Stated Percentage							4.50%
The 2015 Line of Credit [Member] | US Bank [Member]
Line of Credit Facility, Maximum Borrowing Capacity							$ 200,000
Long-term Line of Credit		0
Line of Credit Facility, Remaining Borrowing Capacity		$ 200,000
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage		0.25%
Line of Credit Facility, Interest Rate at Period End		4.50%
The 2015 Line of Credit [Member]
Debt Instrument Covenant Interest Rate Increase in Event of Default				10.00%
US Bank UHC Loan [Member]
Debt Instrument, Face Amount										$ 880,000
US Bank [Member]
Debt Instrument, Interest Rate, Stated Percentage		3.15%
Term Loan Final Payment										$ 283,500
Long-term Debt		$ 401,351
The 2013 Term Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage		2.98%
Long-term Debt		$ 2,428,992
Repayments of Long-term Debt	$ 1,078,196
Debt Instrument, Periodic Payment		51,350
Debt Instrument, Periodic Payment Terms, Balloon Payment to be Paid		$ 1,363,000
The 2014 Term Note [Member]
Debt Instrument, Interest Rate, Stated Percentage		2.98%
Debt Instrument, Face Amount								$ 1,000,000
Long-term Debt		$ 924,136
Debt Instrument, Periodic Payment Terms, Balloon Payment to be Paid		$ 890,000
US Bank New Loans [Member]
Debt Instrument Covenant Fixed Charge Coverage Ratio		1		1.15
EBITA, Amount		$ 700,000
Debt Instrument Covenant Interest Rate Increase in Event of Default				5.00%
Iowa Finance Authority [Member]
Debt Instrument, Interest Rate, Stated Percentage		2.75%		2.75%					2.75%		3.50%
Debt Instrument, Face Amount											$ 1,300,000
Long-term Debt		$ 580,456		$ 647,132
Debt Instrument, Periodic Payment		$ 12,500		12,500
Debt Instrument Covenant Debt Service Coverage Ratio		1.5
Long-term Debt		$ 4,334,935		$ 5,949,329
Repayments of Long-term Debt		$ 1,614,394	$ 637,930

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Note 7 - Summary Of Term Debt (Details) - USD ($)	May 31, 2016	Nov. 30, 2015
US Bank Loan 1 [Member]
Long-term Debt		$ 1,196,088
US Bank Loan 2 [Member]
Long-term Debt	688,000	743,149
US Bank Loan 3 [Member]
Long-term Debt	779,773	842,769
US Bank Loan 4 [Member]
Long-term Debt	961,219	1,112,205
US Bank Loan 5 [Member]
Long-term Debt	401,351	464,605
US Bank Loan 6 [Member]
Long-term Debt	924,136	943,381
Iowa Finance Authority [Member]
Long-term Debt	580,456	647,132
Long-term Debt	4,334,935	5,949,329
Less current portion of term debt	2,011,943	1,322,662
Term debt, excluding current portion	$ 2,322,992	$ 4,626,667

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Note 7 - Summary Of Term Debt (Details) (Parentheticals) - USD ($)	6 Months Ended	12 Months Ended
	May 31, 2016	Nov. 30, 2015	Feb. 01, 2013	May 01, 2010
US Bank Loan 1 [Member]
Debt Instrument, Periodic Payment	$ 42,000	$ 42,000
Debt Instrument, Interest Rate, Stated Percentage	2.98%	2.98%
US Bank Loan 2 [Member]
Debt Instrument, Periodic Payment	$ 11,000	$ 11,000
Debt Instrument, Interest Rate, Stated Percentage	2.98%	2.98%
US Bank Loan 3 [Member]
Debt Instrument, Periodic Payment	$ 12,550	$ 12,550
Debt Instrument, Interest Rate, Stated Percentage	2.98%	2.98%
US Bank Loan 4 [Member]
Debt Instrument, Periodic Payment	$ 27,800	$ 27,800
Debt Instrument, Interest Rate, Stated Percentage	2.98%	2.98%
US Bank Loan 5 [Member]
Debt Instrument, Periodic Payment	$ 11,700	$ 11,700
Debt Instrument, Interest Rate, Stated Percentage	3.15%	3.15%
US Bank Loan 6 [Member]
Debt Instrument, Periodic Payment	$ 5,556	$ 5,556
Debt Instrument, Interest Rate, Stated Percentage	2.98%	2.98%
Iowa Finance Authority [Member]
Debt Instrument, Periodic Payment	$ 12,500	$ 12,500
Debt Instrument, Interest Rate, Stated Percentage	2.75%	2.75%	2.75%	3.50%

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Note 8 - Assets Available for Sale (Details Textual) - USD ($)		1 Months Ended
	Feb. 10, 2016	Dec. 31, 2015
Ames, Iowa Production Facility [Member]
Disposal Group, Including Discontinued Operation, Consideration	$ 1,192,000
Disposal Group, Not Discontinued Operation, Gain (Loss) on Disposal	$ 36,000
Monona, Iowa Storage Facility [Member]
Disposal Group, Not Discontinued Operation, Gain (Loss) on Disposal		$ 4,000

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Note 8 - Major Components Assets Available for Sale (Details) - USD ($)	May 31, 2016	Nov. 30, 2015
Ames, Iowa Production Facility [Member]
Assets available for sale		$ 1,093,632
Monona, Iowa Storage Facility [Member]
Assets available for sale		36,942
Ames, Iowa Powder Coat Print System [Member]
Assets available for sale	114,858	114,858
Assets available for sale	$ 114,858	$ 1,245,432

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Note 10 - Equity Incentive Plan and Stock Based Compensation (Details Textual) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended
	Apr. 30, 2016	May 31, 2016	May 31, 2015	May 31, 2016	May 31, 2015
Non Qualified Options to Each Director Annually or Upon Election [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized		1,000		1,000
Restricted Stock [Member] | Employees and Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	5,000			39,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period				3 years
Restricted Stock [Member]
Allocated Share-based Compensation Expense		$ 28,177	$ 15,339	$ 39,429	$ 28,484
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period				44,000

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Note 12 - Segment Information (Details Textual)	6 Months Ended
	May 31, 2016
Number of Reportable Segments	4

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Note 12 - Segment Reporting Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	May 31, 2016	May 31, 2015	May 31, 2016	May 31, 2015	Nov. 30, 2015
Operating Segments [Member] | Agricultural Products [Member]
Revenue from external customers	$ 3,567,000	$ 6,365,000	$ 7,765,000	$ 11,681,000
Income (loss) from operations	(96,000)	579,000	152,000	1,018,000
Income (loss) before tax	(118,000)	538,000	115,000	937,000
Total Assets	20,415,000	25,330,000	20,415,000	25,330,000
Capital expenditures	25,000	55,000	29,000	133,000
Depreciation & Amortization	132,000	126,000	260,000	262,000
Capital expenditures	(25,000)	(55,000)	(29,000)	(133,000)
Operating Segments [Member] | Pressurized Vessels [Member]
Revenue from external customers	443,000	476,000	1,122,000	1,003,000
Income (loss) from operations	(97,000)	(5,000)	(169,000)	(66,000)
Income (loss) before tax	(105,000)	(11,000)	(180,000)	(78,000)
Total Assets	2,306,000	2,765,000	2,306,000	2,765,000
Capital expenditures			8,000	2,000
Depreciation & Amortization	29,000	29,000	58,000	53,000
Capital expenditures			(8,000)	(2,000)
Operating Segments [Member] | Modular Buildings [Member]
Revenue from external customers	1,250,000	409,000	2,193,000	1,058,000
Income (loss) from operations	203,000	(97,000)	212,000	(164,000)
Income (loss) before tax	199,000	(104,000)	206,000	(177,000)
Total Assets	2,626,000	2,659,000	2,626,000	2,659,000
Capital expenditures		2,000
Depreciation & Amortization	16,000	52,000	31,000	85,000
Capital expenditures		(2,000)
Operating Segments [Member] | Tools [Member]
Revenue from external customers	481,000	554,000	1,053,000	1,351,000
Income (loss) from operations	(43,000)	(63,000)	(79,000)	(45,000)
Income (loss) before tax	(51,000)	(69,000)	(95,000)	(83,000)
Total Assets	2,648,000	3,034,000	2,648,000	3,034,000
Capital expenditures	10,000	5,000	33,000	5,000
Depreciation & Amortization	31,000	30,000	61,000	59,000
Capital expenditures	(10,000)	(5,000)	(33,000)	(5,000)
Operating Segments [Member]
Revenue from external customers	5,741,000	7,804,000	12,133,000	15,093,000
Income (loss) from operations	(33,000)	414,000	116,000	743,000
Income (loss) before tax	(75,000)	354,000	46,000	599,000
Total Assets	27,995,000	33,788,000	27,995,000	33,788,000
Capital expenditures	35,000	58,000	70,000	140,000
Depreciation & Amortization	208,000	237,000	410,000	459,000
Capital expenditures	(35,000)	(58,000)	(70,000)	(140,000)
Revenue from external customers	5,741,088	7,804,111	12,133,086	15,093,239
Income (loss) from operations	(33,051)	414,144	116,186	743,293
Income (loss) before tax	(75,459)	$ 354,007	44,745	598,807
Total Assets	$ 27,995,262		27,995,262		$ 31,331,608
Capital expenditures			69,662	139,994
Depreciation & Amortization			409,614	459,412
Capital expenditures			$ (69,662)	$ (139,994)