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 February 28, 2017

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 [x] 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 [x] 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 [x]
(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 [x]

Number of common shares outstanding as of March 17, 2017: 4,156,752

Art’s-Way Manufacturing Co., Inc.

Index

		Page No.
PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets February 28, 2017 and November 30, 2016	1
	Condensed Consolidated Statements of Operations Three-month periods ended February 28, 2017 and February 29, 2016	2
	Condensed Consolidated Statements of Comprehensive Income Three-month periods ended February 28, 2017 and February 29, 2016	3
	Condensed Consolidated Statements of Cash Flows Three-month periods ended February 28, 2017 and February 29, 2016	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
PART II – OTHER INFORMATION		20
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Mine Safety Disclosures	21
Item 5.	Other Information	21
Item 6.	Exhibits	21
	SIGNATURES	22
	Exhibit Index	23

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ART’S-WAY MANUFACTURING CO., INC.

Condensed Consolidated Balance Sheets

	(Unaudited)
	February 28, 2017			November 30, 2016
Assets
Current assets:
Cash	$	750,779		$	1,063,716
Accounts receivable-customers, net of allowance for doubtful accounts of $17,145 and $22,746 in 2017 and 2016, respectively		1,458,539			1,420,051
Inventories, net		13,233,377			13,529,352
Deferred income taxes		-			1,066,740
Cost and profit in excess of billings		119,662			108,349
Income taxes receivable		271,461			265,924
Assets of discontinued operations		7,500			9,700
Other current assets		414,070			158,087
Total current assets		16,255,388			17,621,919
Property, plant, and equipment, net		7,398,748			7,387,187
Assets held for sale, net		70,000			70,000
Goodwill		375,000			375,000
Other assets of discontinued operations		1,716,565			1,745,528
Deferred income taxes		436,255			-
Other assets		40,620			42,956
Total assets	$	26,292,576		$	27,242,590
Liabilities and Stockholders’ Equity
Current liabilities:
Line of credit	$	3,034,114		$	3,284,114
Current portion of long-term debt		2,673,128			1,807,937
Accounts payable		550,115			469,481
Customer deposits		792,897			289,195
Billings in Excess of Cost and Profit		75,032			4,297
Accrued expenses		852,407			1,019,056
Liabilites of discontinued operations		717,235			182,426
Total current liabilities		8,694,928			7,056,506
Long-term liabilities
Deferred taxes		-			737,519
Long-term liabilities of discontinued operations		-			585,168
Long-term debt, excluding current portion		339,808			1,387,118
Total liabilities		9,034,736			9,766,311
Commitments and Contingencies (Notes 7 and 8)
Stockholders’ equity:
Undesignated preferred stock - $0.01 par value. Authorized 500,000 shares in 2017 and 2016; issued 0 shares in 2017 and 2016.		-			-
Common stock – $0.01 par value. Authorized 9,500,000 shares in 2017 and 2016; issued 4,156,752 in 2017 and 4,109,052 in 2016		41,568			41,091
Additional paid-in capital		2,772,589			2,746,509
Retained earnings		14,740,882			14,990,911
Accumulated other comprehensive income		(291,210	)		(302,232	)
Treasury stock, at cost (1,838 in 2017 and 0 in 2016 shares)		(5,989	)		-
Total stockholders’ equity		17,257,840			17,476,279
Total liabilities and stockholders’ equity	$	26,292,576		$	27,242,590

See accompanying notes to condensed consolidated financial statements.

1

ART’S-WAY MANUFACTURING CO., INC.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended
	February 28, 2017			February 29, 2016
Sales	$	4,421,168		$	5,712,681
Cost of goods sold		3,307,345			4,084,798
Gross profit		1,113,823			1,627,883
Expenses:
Engineering		132,640			99,416
Selling		485,380			464,913
General and administrative		848,236			842,586
Total expenses		1,466,256			1,406,915
Income (Loss) from operations		(352,433	)		220,968
Other income (expense):
Interest expense		(63,794	)		(67,839	)
Other		51,674			42,187
Total other income (expense)		(12,120	)		(25,652	)
Income (Loss) from continuing operations before income taxes		(364,553	)		195,316
Income tax expense (benefit)		(110,911	)		61,767
Income (Loss) from continuing operations		(253,642	)		133,549
Discontinued Operations
Income (loss) from operations of discontinued segment		4,877			(75,124	)
Income tax expense (benefit)		1,264			(22,537	)
Income (Loss) on discontinued operations		3,613			(52,587	)
Net Income (Loss)		(250,029	)		80,962
Earnings (Loss) per share - Basic:
Continuing Operations	$	(0.06	)	$	0.03
Discontinued Operations	$	0.00		$	(0.01	)
Net Income (Loss) per share	$	(0.06	)	$	0.02
Earnings (Loss) per share - Diluted:
Continuing Operations	$	(0.06	)	$	0.03
Discontinued Operations	$	0.00		$	(0.01	)
Net Income (Loss) per share	$	(0.06	)	$	0.02
Weighted average outstanding shares used to compute basic net income per share		4,126,012			4,074,338
Weighted average outstanding shares used to compute diluted net income per share		4,126,012			4,074,338

See accompanying notes to condensed consolidated financial statements.

2

ART’S-WAY MANUFACTURING CO., INC.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended
	February 28, 2017			February 29, 2016
Net Income (Loss)	$	(250,029	)	$	80,962
Other Comprehensive Income (Loss)
Foreign currency translation adjustsments		11,022			-
Total Other Comprehensive Income (Loss)		11,022			-
Comprehensive (Loss)	$	(239,007	)	$	80,962

See accompanying notes to condensed consolidated financial statements.

3

ART’S-WAY MANUFACTURING CO., INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended
	February 28, 2017			February 29, 2016
Cash flows from operations:
Net income (loss) from continuing operations	$	(253,642	)	$	133,549
Net income (loss) from discontinued operations		3,613			(52,587	)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Stock based compensation		26,557			11,252
(Gain)/Loss on disposal of property, plant, and equipment		2,463			(40,067	)
Depreciation and amortization expense		170,789			173,303
Bad debt expense		5,601			17,046
Deferred income taxes		(107,034	)		1,263
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable		(44,089	)		(585,088	)
Inventories		295,975			862,920
Income taxes receivable		(5,537	)		35,778
Other assets		(255,629	)		(198,801	)
Increase (decrease) in:
Accounts payable		80,634			53,272
Contracts in progress, net		59,422			87,430
Customer deposits		503,702			239,094
Accrued expenses		(166,649	)		(212,033	)
Net cash provided by operating activities - continuing operations		312,563			578,918
Net cash provided by (used in) operating activities - discontinued operations		(22,039	)		40,620
Net cash provided by operating activities		290,524			619,538
Cash flows from investing activities:
Purchases of property, plant, and equipment		(195,020	)		(26,257	)
Net proceeds from sale of assets		12,190			1,170,642
Net cash provided by (used in) investing activities - continuing operations		(182,830	)		1,144,385
Net cash provided by (used in) investing activities - discontinued operations		38,736			(8,437	)
Net cash provided by (used in) investing activities		(144,094	)		1,135,948
Cash flows from financing activities:
Net change in line of credit		(250,000	)		(169,481	)
Repayment of term debt		(182,119	)		(1,372,767	)
Repurchases of common stock		(5,989	)		-
Net cash (used in) financing activities - continuing operations		(438,108	)		(1,542,248	)
Net cash (used in) financing activities - discontinued operations		(32,281	)		(31,313	)
Net cash (used in) financing activities		(470,389	)		(1,573,561	)
Effect of exchange rate changes on cash		11,022			-
Net increase (decrease) in cash		(312,937	)		181,925
Cash at beginning of period		1,063,716			447,334
Cash at end of period	$	750,779		$	629,259
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	71,338		$	79,357
Income taxes	$	3,125		$	-

See accompanying notes to condensed consolidated financial statements.

4

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 three 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 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. During the third quarter of fiscal 2016, we discontinued our pressurized vessels segment (“Vessels”) that manufactured pressurized vessels. For more information on discontinued operations, see Note 3 “Discontinued Operations.” For detailed financial information relating to segment reporting, see Note 13 “Segment Information.”

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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, 2016. The results of operations for the three months ended February 28, 2017 are not necessarily indicative of the results for the fiscal year ending November 30, 2017.

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. Stockholders’ 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 is recorded in stockholders’ equity for 2017. Since the Company believes that it is more likely than not that no income tax benefit will occur if the foreign equity is sold or liquidated, the cumulative translation adjustment has not been tax adjusted.

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 months ended February 28, 2017. Actual results could differ from those estimates.

Reclassification

Certain amounts in the consolidated financial statements of the Company related to the discontinuation of operations at our Vessels segment have been reclassified to conform to classifications used in the current year. The reclassifications had no effect on previously reported results of operations or retained earnings.

6

3) Discontinued Operations

Effective October 31, 2016, the Company discontinued the operations of its Vessels segment in order to focus its efforts and resources on the business segments that have historically been more successful and that are expected to present greater opportunities for meaningful long-term shareholder returns. Our plan is to dispose of these assets over the next several quarters. At this time, we are working to dispose of the remaining assets, primarily the real estate.

As Vessels was a unique business unit of the Company, its liquidation was a strategic shift. In accordance with Accounting Standard Code Topic 360, the Company has classified Vessels as discontinued operations for all periods presented.

Income from discontinued operations, before income taxes in the accompanying Condensed Consolidated Statements of Operations is comprised of the following:

	Three Months Ended
	February 28, 2017			February 29, 2016
Revenue from external customers	$	-		$	679,316
Gross Profit		-			74,417
Operating Expense		32			146,160
Income (loss) from operations		(32	)		(71,743	)
Income (loss) before tax		4,877			(75,124	)

The components of discontinued operations in the accompanying Condensed Consolidated Balance Sheets are as follows:

	February 28, 2017		November 30, 2016
Accounts Receivable - Net	$	7,500	$	9,700
Property, plant, and equipment, net		1,716,565		1,745,528
Assets of discontinued operations	$	1,724,065	$	1,755,228
Accounts payable	$	-	$	1,588
Accrued expenses		33,570		50,061
Notes Payable		683,665		715,945
Liabilities of discontinued operations	$	717,235	$	767,594

4) 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 earnings (loss) per common share.

7

Basic and diluted earnings (loss) per common share have been computed based on the following as of February 28, 2017 and February 29, 2016:

	For the three months ended
	February 28, 2017			February 29, 2016
Numerator for basic and diluted (loss) earnings per common share:
Net (loss) income from continuing operations	$	(253,642	)	$	133,549
Net (loss) income from discontinued operations		3,613			(52,587	)
Net (loss) income	$	(250,029	)	$	80,962
Denominator:
For basic (loss) earnings per share - weighted average common shares outstanding		4,126,012			4,074,338
Effect of dilutive stock options		-			-
For diluted (loss) earnings per share - weighted average common shares outstanding		4,126,012			4,074,338
Earnings (Loss) per share - Basic:
Continuing Operations	$	(0.06	)	$	0.03
Discontinued Operations	$	0.00		$	(0.01	)
Net Income (Loss) per share	$	(0.06	)	$	0.02
Earnings (Loss) per share - Diluted:
Continuing Operations	$	(0.06	)	$	0.03
Discontinued Operations	$	0.00		$	(0.01	)
Net Income (Loss) per share	$	(0.06	)	$	0.02

5) Inventory

Major classes of inventory are:

	February 28, 2017			November 30, 2016
Raw materials	$	8,532,655		$	8,568,624
Work in process		440,902			509,198
Finished goods		6,898,083			7,054,736
	$	15,871,640		$	16,132,558
Less: Reserves		(2,638,263	)		(2,603,206	)
	$	13,233,377		$	13,529,352

8

6) Accrued Expenses

Major components of accrued expenses are:

	February 28, 2017		November 30, 2016
Salaries, wages, and commissions	$	454,506	$	542,449
Accrued warranty expense		125,672		134,373
Other		272,229		342,234
	$	852,407	$	1,019,056

7) 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 6. Changes in the Company’s product warranty liability for the three months ended February 28, 2017 and February 29, 2016 are as follows:

	For the three months ended
	February 28, 2017			February 29, 2016
Balance, beginning	$	134,373		$	176,531
Settlements / adjustments		(72,949	)		(81,292	)
Warranties issued		64,248			76,702
Balance, ending	$	125,672		$	171,941

8) Loan and Credit Agreements

The Company maintains a revolving line of credit and term loans with U.S. Bank as well as a term loan with The First National Bank of West Union (n/k/a Bank 1^st). Pursuant to a Second Loan Modification Agreement dated July 12, 2016 and effective July 11, 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 line of credit and certain term loans were amended, and a $200,000 line of credit that the Company had opened to facilitate dealer floorplan financing, but had not drawn on, was terminated along with the related agreements. The description that follows reflects such arrangements as amended by the Loan Modification. Following the close of the first quarter, U.S. Bank, as lender, the Company, as borrower, and Art’s-Way Scientific, Inc. and Ohio Metal Working Products/Art’s-Way, Inc., as guarantors, entered into a Third Loan Modification Agreement dated March 30, 2017 and effective as of May 1, 2017 with respect to certain modifications to the U.S. Bank UHC Loan (as defined below) and effective as of April 1, 2017 with respect to all other loan modification terms (the “Third Loan Modification”) governing the U.S. Bank lines of credit and certain term loans. For more information regarding the Third Loan Modification, see Part II, Item 5 of this Report.

9 

U.S. Bank Revolving Line of Credit

The Company has a revolving line of credit (the “Line of Credit”) with U.S. Bank, which, following the Third Loan Modification, has an availability of $4,500,000, that was obtained on May 1, 2013, which is renewable annually with advances funding the Company’s working capital needs. As of February 28, 2017, the Company had a principal balance of $3,034,114 outstanding against the Line of Credit, with $1,699,433 remaining available, limited by the borrowing base calculation. The maturity date of the Line of Credit was scheduled to be May 1, 2017. Following the Third Loan Modification, the Line of Credit matures on September 25, 2017. The Line of Credit is secured by real property and fixed asset collateral. The Line of Credit, as amended by the Third Loan Modification, 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 $3,375,000 and only includes finished goods and raw materials deemed to be in good condition and not obsolete), less any outstanding loan balance of the Line of Credit, undrawn amounts of outstanding letters of credit issued by U.S. Bank or any affiliate, and any reserves that U.S. Bank may deem necessary to maintain. 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 evidenced by a Revolving Credit Note effective May 1, 2013, a Revolving Credit Agreement dated May 1, 2013, as amended, and certain other ancillary documents.

The Line of Credit is subject to: (i) a minimum interest rate of 5.0% per annum; and (ii) 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 the Line of Credit exceeds the outstanding principal amount. As of February 28, 2017, the interest rate on the Line of Credit was the minimum of 5.0%.

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 assets and operations of which are now held by Art’s Way Manufacturing Co., Inc. in Armstrong, Iowa. The maturity date of this loan was scheduled to be May 10, 2017, with a final payment of principal and accrued interest in the amount of $283,500 due May 10, 2017. This loan accrued interest at a fixed rate of 3.15% per annum. Following the Third Loan Modification the maturity date is September 25, 2017, and the interest rate is an annual rate equal to 1.5% plus the prime rate, but not less than 5%. The interest rate will be adjusted each time that the prime rate changes. The principal balance of this loan was $304,655 as of February 28, 2017. 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 the Company in Dubuque, Iowa, pursuant to a Mortgage, Security Agreement and Assignment of Rents between the Company (as successor by merger to 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 $2,018,184 at February 28, 2017, and they accrued interest at a fixed rate of 2.98% per annum (the “2013 Term Notes”). Following the Third Loan Modification, the 2013 Term Notes accrue interest at a rate of 1.5% plus the prime rate, with a minimum of 5% per annum. 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 debt summary below, following the Third Loan Modification, monthly principal and interest payments in the aggregate amount of $46,672 are required on the remaining 2013 Term Notes, with a revised maturity date of September 25, 2017. The 2013 Term Notes previously had a maturity date of May 1, 2018.

10 

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 $894,497 at February 28, 2017 and accrued interest at a fixed rate of 2.98%. Following the Third Loan Modification, the 2014 Term Note accrues interest at a rate of 1.5% plus the prime rate, with a minimum of 5% per annum. 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 was May 25, 2017, but is now September 25, 2017, as amended by the Third Loan Modification. 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

As of February 28, 2017, the U.S. Bank UHC Loan was not subject to financial covenants. However, under the U.S. Bank UHC Loan, the Company was required to provide to U.S. Bank information concerning its business affairs and financial condition as U.S. 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 Third Loan Modification adds certain financial covenants to the U.S. Bank UHC Loan that are consistent with the financial covenants for the remainder of the US Bank loans. For more information regarding the Third Loan Modification, see Part II, Item 5 of this Report.

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 1.0 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) a fiscal year-to-date fixed charge coverage ratio as of February 28, 2017 of at least 1.0 to 1.0, (iii) a fiscal year-to-date EBITDA (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) 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) 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 the Line of Credit, the 2013 Term Notes and the 2014 Term Note). The Company must also provide to U.S. Bank a 13-week cash flow forecast on Tuesday of each week, 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. As amended by the Third Loan Modification the Company is required to maintain (i) fiscal year-to-date EBIDTA (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) of $1 as of May 31, 2017 and $648,000 as of August 31, 2017, and (ii) minimum liquidity as of the end of each month commencing April 30, 2017 of not less than $500,000 (with minimum liquidity meaning unrestricted cash and cash equivalents plus borrowing base availability under the Line of Credit, the 2013 Term Notes and the 2014 Term Note). For more information regarding the Third Loan Modification, see Part II, Item 5 of this Report.

The 2013 Term Notes, 2014 Term Note, and 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 noted above in favor of U.S. Bank as documented by mortgage agreements dated May 1, 2013 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, or 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, 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 February 28, 2017, other than the fiscal year-to-date fixed charge ratio of 1.0 to 1.0. The main reason for the non-compliance result as of February 28, 2017 was the net loss from continuing operations. As part of a Third Loan Modification Agreement, U.S. Bank has issued a waiver forgiving the non-compliance for the quarter and no event of default occurred. The next measurement date is May 31, 2017. For more information regarding the Third 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, 2016. The First National Bank of West Union has issued a waiver, and the next measurement date is November 30, 2017.

Debt Summary

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

	February 28, 2017		November 30, 2016
U.S. Bank loan payable in monthly installments of $9,600 plus interest at 5.00%, due September 25, 2017	$	603,867	$	632,126
U.S. Bank loan payable in monthly installments of $10,965 plus interest at 5.0%, due September 25, 2017		683,665		715,945
U.S. Bank loan payable in monthly installments of $26,107 plus interest at 5.0%, due September 25, 2017		730,652		808,096
U.S. Bank loan payable in monthly installments of $10,960 plus interest at 5.0%, due September 25, 2017		304,655		337,147
U.S. Bank loan payable in monthly installments of $4,301 plus interest at 5.0%, due September 25, 2017		894,947		904,751
Iowa Finance Authority loan payable in monthly installments of $12,500 including interest at 2.75%, due June 1, 2020		478,815		512,935
Total term debt	$	3,696,601	$	3,911,000
Less current portion of term debt		2,673,128		1,807,937
Term debt of discontinued operations		683,665		715,945
Term debt, excluding current portion	$	339,808	$	1,387,118

* Terms are updated according to the Third Loan Modification

9) Assets Available for Sale

Major components of assets available for sale (excluding assets of discontinued operations as discussed in Note 3 “Discontinued Operations”) are:

	February 28, 2017		November 30, 2016
Ames, Iowa powder coat paint system	$	70,000	$	70,000
	$	70,000	$	70,000

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 into our Armstrong, Iowa facility. We continue to hold our powder coat system previously used in our Ames, Iowa location as available for sale. During fiscal 2016, we recognized an impairment of $44,858 related to this asset based on recent offers and comparable sales information

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10) Recently Issued Accounting Pronouncements

Adopted Accounting Pronouncements

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. 2014-15 is effective for annual reporting periods ending after December 15, 2016. The Company has adopted this guidance for the year ending November 30, 2017, and it will apply to each interim and annual period thereafter. Its adoption has not had 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 has adopted this guidance for the year ending November 30, 2017, including interim periods within that reporting period. The Company chose early adoption for this guidance, as its impact was expected not to be material, and it will allow us to focus more of our efforts on preparing The Company chose early adoption for this guidance, as its impact was expected not to be material, and it will allow us to focus more of our efforts on preparing for the adoption of more complex guidance. for the adoption of more complex guidance. Its adoption has not had a material impact on the Company’s 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. During the first quarter of fiscal 2017, the Company elected to prospectively adopt ASU 2015-17, thus reclassifying current deferred tax assets to noncurrent on the accompanying consolidated balance sheet. The prior reporting period was not retrospectively adjusted. The Company chose early adoption for this guidance, as its impact was expected not to be material, and it will allow us to focus more of our efforts on preparing for the adoption of more complex guidance.The adoption of this guidance had no impact on the Company’s consolidated statements of operations and comprehensive income.

Accounting Pronouncements Not Yet Adopted

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 not permitted. The Company is evaluating the new standard, and at this time believes that its Scientific segment will be impacted most significantly by this standard. The Company continues to research and assess the implications of the adoption of this standard on our consolidated financial statements.

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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 will adopt this guidance for the year ending November 30, 2020 including interim periods within that reporting period. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

11) 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 are 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 three months of fiscal 2017, 47,700 restricted stock awards have been issued to various employees, directors, and consultants, which vest over the next three years.

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. No stock options were granted during the three months ended February 28, 2017 or in the same respective period of fiscal 2016. We incurred a total of $26,557 of stock-based compensation expense for restricted stock awards during the three months ended February 28, 2017, compared to $11,252 of stock-based compensation expense for restricted stock awards and stock options for the same respective period of fiscal 2016.

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12) 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 February 28, 2017, and November 30, 2016, 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.

13) Segment Information

There are three reportable segments: agricultural products, 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 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. The tables below exclude income and balance sheet data from discontinued operations. See Note 3 “Discontinued Operations.”

	Three Months Ended February 28, 2017
	Agricultural Products			Modular Buildings			Tools		Consolidated
Revenue from external customers	$	3,368,000		$	388,000		$	665,000	$	4,421,000
Income (loss) from operations		(220,000	)		(154,000	)		21,000	$	(352,000	)
Income (loss) before tax		(217,000	)		(158,000	)		11,000	$	(365,000	)
Total Assets		19,063,000			2,849,000			2,657,000	$	24,569,000
Capital Expenditures		129,000			-			66,000	$	195,000
Depreciation & Amortization		125,000			15,000			31,000	$	171,000

	Three Months Ended February 29, 2016
	Agricultural Products		Modular Buildings		Tools			Consolidated
Revenue from external customers	$	4,198,000	$	943,000	$	572,000		$	5,713,000
Income (loss) from operations		248,000		9,000		(36,000	)	$	221,000
Income (loss) before tax		233,000		7,000		(44,000	)	$	195,000
Total Assets		21,844,000		2,838,000		2,736,000		$	27,418,000
Capital Expenditures		4,000		-		23,000		$	26,000
Depreciation & Amortization		128,000		15,000		30,000		$	173,000

*Segment figures in the table may not sum to the consolidated total due to rounding.

14) 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 8 and in Part II, Item 5 of this Report.

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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, 2016. 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 plan to discontinue the operations of our Vessels segment (ii) our warranty costs and order backlog; (iii) 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; (iv) the impact of recently issued accounting pronouncements; (v) our intentions and beliefs relating to our costs, business strategies, and future performance; (vi) our expected financial results; and (vii) our expectations concerning our primary capital and cash flow needs.

You should read this report thoroughly with the understanding that our actual results may differ materially from those set forth in the forward-looking statements for many reasons, including events beyond our control and assumptions that prove to be inaccurate or unfounded. We cannot provide any assurance with respect to our future performance or results. Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including but not limited to: (i) the impact of tightening credit markets on our ability to continue to obtain financing on reasonable terms; (ii) our ability to repay current debt, continue to meet debt obligations and comply with financial covenants; (iii) obstacles related to integration of acquired product lines and businesses; (iv) obstacles related to liquidation of product lines and segments (v) 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; (vi) fluctuations in seasonal demand and our production cycle; and (vii) 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.

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Critical Accounting Policies

Our critical accounting policies involving the more significant judgments and assumptions used in the preparation of the financial statements as of February 28, 2017 have remained unchanged from November 30, 2016, with the exception of the accounting pronouncements adopted discussed in Note 10 of the financial statements. 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, 2016.

Results of Operations – Continuing Operations

Net Sales and Cost of Sales

Our consolidated corporate sales for continuing operations for the three-month period ended February 28, 2017 were $4,421,000 compared to $5,713,000 during the same respective period in 2016, a $1,292,000, or 22.6%, decrease for the first fiscal quarter. The decreases in revenue are primarily due to the decreased demand for our agricultural products and decreased revenues in our modular buildings segment. Consolidated gross margin for the three-month period ended February 28, 2017 was 25.2% compared to 28.5% same period in fiscal 2016. 

Our first quarter sales at Manufacturing were $3,368,000 compared to $4,198,000 during the same period of 2016, a decrease of $830,000, or 19.8%. The revenue decrease is due to decreased demand across all of our agricultural products. The gross margin of our agricultural products segment for the three-month period ended February 28, 2017 was 25.1% compared to 30.8% for the same period in 2016. Our decreased gross margin is directly related to our decreased sales volume which affords less variable margin to cover fixed costs such as property taxes, salaries, and depreciation.

Our first quarter sales at Scientific were $388,000 compared to $943,000 for the same period in 2016, a decrease of $555,000, or 58.9%. Our decrease in revenue is due to decreases in our sales of our agricultural buildings. Gross margin for the quarter ended February 28, 2017 was 8.0% compared to 20.6% for the same period in 2016. The swings in gross margin are largely attributable to the changes in the timing of our revenues, which affects our variable gross margin available to cover fixed costs such as property taxes, depreciation, and management salaries.

Metals had sales of $665,000 during the three months ended February 28, 2017 compared to $572,000 for the same period in 2016, a 16.3% increase. The increase is due to the slight improvement in the energy industry. Gross margin was 35.3% for the three-month period ended February 28, 2017 compared to 24.3% for the same period of fiscal 2016. Our increased gross margin was largely due to higher revenues with more variable margin to absorb fixed costs, but was slightly offset by increases in our health insurance expenses.

Expenses 

Our first fiscal quarter consolidated selling expenses were $485,000 compared to $464,000 for the same period in 2016. The increase in selling expenses is due to increased salary expense compared to the prior year period as we have increased our sales force in the tools and agricultural products segments, which management believes will have a positive impact as this year progresses. Selling expenses as a percentage of sales were 11.0% for the three-month period ended February 28, 2017 compared to 8.1% for the same period in 2016.

Consolidated engineering expenses were $133,000 for the three-month period ended February 28, 2017 compared to $100,000 from the same period in 2016. The increases in engineering expenses are a result of management’s decision to offer new products into the market, which have been well-received at recent trade shows. Engineering expenses as a percentage of sales were 3.0% for the three-month period ended February 28, 2017 compared to 1.8% for the same period in 2016.

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Consolidated administrative expenses for the three-month period ended February 28, 2017 were $848,000 compared to $842,000 for the same period in 2016. Administrative expenses as a percentage of sales were 19.2% for the three-month period ended February 28, 2017 compared to 14.7% for the same period in 2016.

Income from Continuing Operations

Consolidated net (loss) from continuing operations was $(254,000) for the three-month period ended February 28, 2017 compared to net income of $134,000 for the same period in 2016. The decreased income from continuing operations was largely due to the decreased revenues for the first fiscal quarter of 2017.

Order Backlog

The consolidated order backlog net of discounts for continuing operations as of March 28, 2017 was $5,717,000 compared to $4,510,000 as of March 28, 2016. The agricultural products segment order backlog was $4,199,000 as of March 28, 2017 compared to $2,927,000 in fiscal 2016. The successful introduction of six new products at recent trade shows accounts for the increase in backlog. The backlog for the modular buildings segment was $1,390,000 as of March 28, 2017, compared to $1,465,000 in fiscal 2016. The backlog for the tools segment was $128,000 as of March 28, 2017, compared to $118,000 in fiscal 2016. 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.

Results of Operations – Discontinued Operations

During our third quarter of fiscal 2016, we made the decision to exit the pressure vessels industry and are currently working to liquidate the assets. We did not have any sales during the first fiscal quarter of 2017 compared to sales of $679,000 during the first quarter of 2016. At this time, we are working to dispose of the remaining assets, primarily the real estate. During the first quarter of 2017, our holding costs for this property were completely offset by sales of scrap material generated in our clean-up process, resulting in a gain on sales assets of $5,000 in fiscal 2017.

Liquidity and Capital Resources

Our primary sources of funds for the three months ended February 28, 2017 were funds received for customer deposits. Our primary uses of cash were costs of operation, purchases of equipment related to our manufacturing of new products, and payments on our line of credit and 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 Third Loan Modification described in further detail in Part II, Item 5, has an availability of $4,500,000, and which, as of February 28, 2017, had an outstanding principal balance of $3,034,114. As amended by the Third Loan Modification, the line of credit is scheduled to mature on September 25, 2017, and is renewable annually. In addition, as amended by the Third Loan Modification, all of our five outstanding term loans with U.S. Bank are scheduled to mature in September of 2017. For additional information about our financing activities, please refer to Note 10 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, 2016, as well as Note 8 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report and a description of the Third 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 current financing arrangements will provide sufficient cash to finance operations and pay debt when due during the next twelve months. We expect to continue to be able to procure financing upon reasonable terms; however, there is no assurance we will be able to do so. 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.

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

Changes in Internal Control over Financial Reporting

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

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

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

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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 March 30, 2017, the Company, as borrower, and Art’s-Way Scientific, Inc. and Ohio Metal Working Products/Art’s-Way, Inc., as guarantors, entered into a Third Loan Modification Agreement (the “Third 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”) and a Second Loan Modification Agreement dated July 12, 2016 (the “Second Loan Modification”), both of which were 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 line of credit and certain term loans include a revolving credit note dated May 1, 2013, which, following the Second Loan Modification, had an availability of $5,000,000 (the “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 Third Loan Modification changes the maturity date for the Line of Credit, the 2013 Term Notes and the 2014 Term Note to September 25, 2017 and modifies the interest rate for the Line of Credit, the 2013 Term Notes and the 2014 Term Note to 1.5% plus the prime rate, but not less than 5% per annum. The interest rate will be adjusted each time that the prime rate changes. Additionally, the Third Loan Modification reduces the available loan amount on the Line of Credit from $5 million to $4.5 million, reduces the borrowing base from $3.75 million to $3.375 million, and amends the borrowing base calculation to include a reserve that U.S. Bank may deem necessary from time to time.

The Third Loan Modification also amends certain financial covenants that apply to the Line of Credit, the 2013 Term Notes and the 2014 Term Note. The Third Loan Modification (i) removes the requirement that the Company maintain a fiscal year-to-date fixed charge coverage ratio of at least 1.0 to 1.0; (ii) removes the requirement that the Company maintain a fiscal year-to-date EBITDA of $400,000 as of November 30, 2016 (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 $1 as of May 31, 2017, and of $648,000 as of August 31, 2017 and; and (iv) removes the requirement that the Company maintain 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), and requires the Company to maintain minimum liquidity as of the end of each month of not less than $500,000. The Third Loan Modification also provides that, with respect to the Line of Credit, upon U.S. Bank’s request, the Company shall engage a reputable turnaround consulting firm of national or regional standing acceptable to U.S. Bank.

In addition to amending the agreements governing the U.S. Bank lines of credit and certain term loans, the Third Loan Modification includes a waiver forgiving the Company’s non-compliance with its covenant to maintain a fiscal year-to-date fixed charge ratio of 1.0 to 1.0 and states that no event of default occurred.

All other terms of the line 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 Third 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 Third Loan Modification, filed herewith and incorporated by reference herein.

Item 6. Exhibits.

See “Exhibit Index” on page 23 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: April 4, 2017	By:	/s/ Carrie L. Gunnerson
		Carrie L. Gunnerson
		President and Chief Executive Officer
Date: April 4, 2017	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 February 28, 2017

Exhibit No.	Description
10.1	Third Loan Modification Agreement dated March 30, 2017. – filed herewith.
31.1	Certificate of Chief Executive Officer pursuant to 17 CFR 13a-14(a) – filed herewith.
31.2	Certificate of Chief Financial Officer pursuant to 17 CFR 13a-14(a) – filed herewith.
32.1	Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 - filed herewith.
32.2	Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 - filed herewith.
101	The following materials from this report, formatted in XBRL (Extensible Business Reporting Language) are filed herewith: (i) condensed consolidated balance sheets, (ii) condensed consolidated statement of operations, (iii) condensed consolidated statements of cash flows, and (iv) the notes to the condensed consolidated financial statements.

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EX-10.1

Exhibit 10.1

THIRD LOAN MODIFICATION AGREEMENT

THIS THIRD 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”), Ohio Metal Working Products/Art’s-Way, Inc., an Ohio corporation (“Ohio Metal”; together with Scientific, 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 (a) with respect to the modifications set forth in Section 3 (other than the modifications set forth in Section 3(b)), as of April 1, 2017 and (b) with respect to the modifications set forth in Section 3(b), as of May 1, 2017 (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”; 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”);

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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 the Borrower (as successor by merger to Art’s Way Vessels, Inc. (“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 the Borrower (as successor by merger to 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 the Borrower (as successor by merger to 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.

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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; and

(ii) 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 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 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 March 24, 2017 (as calculated under the Loan Documents prior to the Effective Date of this Agreement) are:

Note	Principal		Interest		Prepayment Fee		Total
2012 Term Note	$	293,694.88	$	359.77	$	149.66	$	294,204.31
2013 Term Note	$	594,266.78	$	1,131.42	$	0.00	$	595,398.20
2013 Term Note	$	672,699.58	$	1,280.74	$	0.00	$	673,980.32
2013 Term Note	$	704,545.40	$	1,341.38	$	0.00	$	705,886.78
Revolving Note	$	3,284,114.05	$	10,942.71	$	0.00	$	3,295,056.76
2014 Term Note	$	894,946.90	$	2,000.21	$	0.00	$	896,947.11
TOTALS	$	6,444,267.59	$	17,056.23	$	149.66	$	6,461,473.48

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 4 are satisfied or waived as provided in Section 4:

(a)     Changes to the Loan Documents. The defined term “Obligations” in each applicable Loan Document is hereby amended and restated in its entirety to read as follows:

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“Obligations” mean all indebtedness evidenced by the Loan Documents, 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, including without limitation attorneys’ fees of both inside and outside counsel, and all other indebtedness, obligations and liabilities of any kind owing by any Borrower or Guarantor to the Bank or any of its affiliates, including without limitation in connection with any Banking Services or any Swap Obligations (each as defined herein). As used herein, (a) “Banking Services” means each and any of the following bank services provided to any Borrower or Guarantor by the Bank or any of its affiliates: (i) credit cards for commercial customers (including, without limitation, “commercial credit cards,” purchasing cards and procurement cards), (ii) stored value cards, (iii) credit card processing services, and (iv) treasury management services (including, without limitation, controlled disbursement, automated clearinghouse transactions, return items, overdrafts and interstate depository network services) and (b) “Swap Obligations” of a Person means any and all obligations of such Person owing to the Bank or its affiliates, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (i) any and all swap agreements, and (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any swap agreement transaction.

(b)     Changes to the 2012 Term Note. The 2012 Term Note is hereby amended as follows:

(i)     Change in Maturity Date. All references to “maturity date” and “maturity” in the 2012 Term Note are hereby deemed to be “September 25, 2017”.

(ii)     Change in Interest Rate. . Section 2 of the 2012 Term 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)     Change in Payment Schedule. Section 3 of the 2012 Term Note is hereby amended and restated in its entirety to read as follows:

(a)     Interest is payable beginning May 10, 2017, and on the same date of each consecutive month thereafter, plus a final interest payment with the final payment of principal. Interest will be computed for the actual number of days principal is unpaid, using a daily factor obtained by dividing the stated interest rate by 360 which pursuant to Iowa Stats. Section 537.2601 is the equivalent computation as using the same stated interest rate calculated on a 365-day basis times 1.0139.

(b)     Principal is payable in installments of $10,960.00 each, beginning May 10, 2017, 2017, and on the same date of each consecutive month thereafter (except that if a given month does not have such a date, the last day of such month), plus a final payment equal to all unpaid principal on September 25, 2017, the maturity date.

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(c)     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 Maturity Date. All references to “Maturity Date” in the Revolving Note and the Revolving Credit Agreement are hereby deemed to be “September 25, 2017”.

(ii)     Change in Loan Amount.

(A)     The amount “$5,000,000” in the Revolving Note is hereby deleted in each instance and the amount “$4,500,000” is inserted in substitution therefor.

(B)     All references to “Loan Amount” in the Revolving Credit Agreement are hereby deemed to be “$4,500,000”.

(iii)     Advances and Paying Procedure. The Revolving Credit Agreement is hereby amended by adding a new sentence to the end of the existing Section 1.4 to read as follows:

“The Bank is hereby authorized by the Borrower to make fundings under the revolving line of credit upon receipt of an oral or a written request therefor from an authorized person. The Bank shall be entitled to rely upon, and shall not incur any liability for relying upon, any such oral or written request believed by it to be genuine and to have been signed, sent or made by an authorized person. Upon request by the Bank, the Borrower agrees to deliver promptly to the Bank a written confirmation of each oral request. If the written confirmation of any oral request differs in any material respect from the action taken by the Bank, the records of the Bank will control, absent manifest error.”

(iv)     Engagement of Consultant. The Revolving Credit Agreement is hereby amended by adding a new Sections 2.16 immediately following the existing Section 2.15 to read as follows:

“2.16     Engagement of Consultant. Upon request of the Bank, the Borrower shall engage a reputable, professional turnaround consulting firm of national or regional standing acceptable to the Bank in its sole discretion (the “Consultant”), such engagement shall be evidenced by a fully executed engagement letter, in form and content acceptable to the Bank (the “Engagement Agreement”). The Borrower shall not terminate, extend, amend or otherwise change the terms of the Engagement Agreement without the prior written consent of the Bank. The Borrower irrevocably authorizes the Consultant to communicate directly with the Bank at any and all times to discuss or to review any aspect of the Borrower’s business and any other matter regarding the engagement between the Borrower and the Consultant, or to transmit any information relating to the Borrower’s business to the Bank, all without any further authorization from or notice to the Borrower. All fees, costs and expenses of the Consultant shall be paid by the Borrower.

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(v)     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 (x) deleting the financial covenant entitled “Fixed Charge Coverage Ratio” and the related defined term and (y) 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:

“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
May 30, 2017	$1
August 31, 2017	$648,000

“Minimum Liquidity as of the end of each month of not less than $500,000.”

(B)     Change in Borrowing Base. The Addendum to Revolving Credit Agreement and Note describing the Borrowing Base is hereby amended by amending and restating the Section entitled “Borrowing Base Provision and Definitions” in its entirety to read as follows:

“Borrowing Base Provision and Definitions. This provision replaces in its entirety the section of the Agreement titled “Borrowing Base” and is hereby made a part of the Agreement. The Borrowing Base will be an amount equal to (A) the sum of (i) seventy-five percent (75%) of the face amount of Eligible Accounts, and (ii) fifty percent (50%) of the Borrower’s cost (determined on a lower of cost or market basis or on such other basis as may be designated by the Bank from time to time) of Eligible Inventory, as such cost may be diminished as a result of any event causing loss or depreciation in value of Eligible Inventory, but in no event shall this component exceed $3,375,000.00, less (B) the sum of (i) the then-current outstanding loan balance on the Revolving Credit Note dated May 1, 2013 by the Borrower in favor of the Bank in the original principal amount of $6,000,000.00, as amended, (ii) undrawn amounts of outstanding letters of credit issued by the Bank or any affiliate thereof and (iii) Reserves. The Borrower will provide the Bank with information regarding the Borrowing Base in such form and at such times as the Bank may request. Capitalized terms used in this provision will have the meanings set forth below. Financial terms used herein which are not specifically defined herein shall have the meanings ascribed to them under generally accepted accounting principles.”

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The Borrower acknowledges that the Bank, from time to time, may do any one or more of the following: (a) establish, modify, or eliminate Reserves, (b) decrease the dollar limits on outstanding advances against the Borrowing Base or (c) decrease the advance rate applicable to Eligible Inventory or Eligible Accounts set forth within the definition of “Borrowing Base” at the sole discretion of the Bank. As used herein, “Reserves” means any and all reserves which the Bank deems necessary, in its sole discretion, to maintain (including, without limitation, reserves for rent at locations leased by the Borrower and for consignee’s, warehousemen’s and bailee’s charges, reserves for Swap Obligations, Banking Services, reserves for dilution of accounts, reserves for accrued and unpaid interest on the Obligations, reserves for inventory shrinkage, reserves for declines in inventory values and reserves for contingent liabilities of the Borrower) based on such considerations as the Bank deems appropriate in its sole discretion from time to time.

If, at any time, the Bank establishes, modifies or eliminates Reserves, decreases any of the dollar limits on outstanding advances against the Borrowing Base or decreases the advance rate applicable to Eligible Inventory or Eligible Accounts set forth within the definition of “Borrowing Base”, the Bank will give the Borrower contemporaneous oral or written notice of such change. 

(d)     Changes to the 2013 Term Notes and 2013 Term Loan Agreements. Each 2013 Term Note and each 2013 Term Loan Agreement is hereby amended as follows:

(i)     Change in Maturity Date. All references to “maturity date” and “maturity” in each 2013 Term Note and each 2013 Term Loan Agreement are hereby deemed to be “September 25, 2017”.

(ii)     Change in Interest Rate. . Section 2 of each 2013 Term 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)     Change in Payment Schedule. Section 3 of each 2013 Term Note is hereby amended and restated in its entirety to read as follows:

(a)     Interest is payable beginning May 1, 2017, and on the same date of each consecutive month thereafter, plus a final interest payment with the final payment of principal. Interest will be computed for the actual number of days principal is unpaid, using a daily factor obtained by dividing the stated interest rate by 360 which pursuant to Iowa Stats. Section 537.2601 is the equivalent computation as using the same stated interest rate calculated on a 365-day basis times 1.0139.

(b)     Principal is payable in installments of (i) $9,600.00 each with respect to the 2013 Term Note in the original principal amount of $1,006,500, (ii) $10,965.00 each with respect to the 2013 Term Note in the original principal amount of $1,143,600 and (iii) $26,107.00 each with respect to the 2013 Term Note in the original principal amount of $1,833,510.26, beginning May 1, 2017, and on the same date of each consecutive month thereafter (except that if a given month does not have such a date, the last day of such month), plus a final payment equal to all unpaid principal on September 25, 2017, the maturity date.

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(iv)     Changes to Addenda to Term Loan Agreements and Notes. The Addenda to Term Loan Agreement and Note attached to each 2013 Term Loan Agreement is 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 (x) deleting the financial covenant entitled “Fixed Charge Coverage Ratio” and the related defined term and (y) 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:

“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
May 30, 2017	$1
August 31, 2017	$648,000

“Minimum Liquidity as of the end of each month of not less than $500,000.”

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

(i)     Change in Maturity Date. All references to “maturity date” and “maturity” in the 2014 Term Note and 2014 Term Loan Agreement are hereby deemed to be “September 25, 2017”.

(ii)     Change in Interest Rate. The section describing the interest rate in the 2014 Term Note is hereby amended and restated in its entirety to read as follows:

“Interest. 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)     Change in Payment Schedule. The section describing the payment schedule in the 2014 Term Note is hereby amended and restated in its entirety to read as follows:

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“Payment Schedule.

(a)     Interest is payable beginning May 25, 2017, and on the same date of each consecutive month thereafter, plus a final interest payment with the final payment of principal. Interest will be computed for the actual number of days principal is unpaid, using a daily factor obtained by dividing the stated interest rate by 360 which pursuant to Iowa Stats. Section 537.2601 is the equivalent computation as using the same stated interest rate calculated on a 365-day basis times 1.0139.

(b)     Principal is payable in installments of $4,300.55 each, beginning May 25, 2017, and on the same date of each consecutive month thereafter (except that if a given month does not have such a date, the last day of such month), plus a final payment equal to all unpaid principal on September 25, 2017, the maturity date.”

(iv)     Changes to Financial Covenants. Section 2.14 of the 2014 Term Loan Agreement is hereby amended by (x) deleting the financial covenant entitled “Fixed Charge Coverage Ratio” and (y) 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:

“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
May 30, 2017	$1
August 31, 2017	$648,000

“Minimum Liquidity as of the end of each month of not less than $500,000.”

(v)     Changes to Financial Definitions. Section 2.15 of the 2014 Term Loan Agreement is hereby amended by deleting the defined term “Fixed Charge Coverage Ratio”.

(f)     Addenda to the Loan Agreements. Each Loan Agreement is hereby amended by adding an addendum entitled “OFAC, Anti-Corruption Laws and the Patriot Act” thereto in the form attached to this Agreement.

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

4.     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;

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(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 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)     payment of all fees and costs of the Bank in immediately available funds, including 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 4 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 4 are solely for the Bank’s benefit and protection.

5.     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.

6.     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 continue to secure the Obligations, as applicable.

10

7.     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 continue to secure the obligations of the Borrower under the Notes, as applicable.

8.     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 8 shall not be deemed to limit the terms of any Guaranty in any manner. Each Guarantor acknowledges that this Section 8 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.

9.     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.

11

(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 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. The Borrower has notified the Bank that it has failed to maintain such Year-To-Date Fixed Charge Coverage Ratio as of February 28, 2017, which would result in a default under each Loan Agreement upon the reporting thereof (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.

10.     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.

11.     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 9900 W. 87th Street Overland Park, KS 66212 Attn: Michael Gloviak Fax: (913) 652-5122
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

12

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 Ohio Metal Working Products/Art’s-Way, Inc. 5556 Highway 9 West Armstrong, Iowa 50514 Attn: Amber Murra, Chief Financial Officer

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

12.     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, 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.

13.     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.

13

14.     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.

15.     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.

16.     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.

17.     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.

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18.     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.

19.     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.]

15

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: March 30, 2017	ART’S-WAY MANUFACTURING COMPANY, INC., a Delaware corporation
	By:	/s/ Amber Murra
	Name: Amber Murra
	Title: CFO

Date: March 30, 2017	ART’S-WAY SCIENTIFIC, INC., an Iowa corporation
	By:	/s/ Amber Murra
	Name: Amber Murra
	Title: CFO

Date: March 30, 2017	Ohio Metal Working Products/Art’s-Way, Inc., an Ohio corporation
	By:	/s/ Amber Murra
	Name: Amber Murra
	Title: CFO

Date: March 30, 2017	U.S. BANK NATIONAL ASSOCIATION, a national banking association
	By:	/s/ Michael Gloviak
	Name: Michael Gloviak
	Title: Vice President

16

ADDENDUM TO LOAN AGREEMENT

OFAC, Anti-Corruption Laws and the Patriot Act

Reference is made to the (a) Revolving Credit Agreement dated as of May 1, 2013 between the ART’S WAY MANUFACTURING CO., INC., a Delaware corporation (the “Borrower”) and the U.S. BANK NATIONAL ASSOCIATION, a national banking association (the “Bank”) (as amended, restated, supplemented or otherwise modified from time to time, “Revolving Credit Agreement”); (b) 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”), (c) 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”), as applicable. Unless otherwise defined herein, terms defined in the Loan Agreement and used herein shall have the meanings given to them in the applicable Loan Agreement.

1.     Definitions. As used herein, the following terms shall have the meanings assigned to them below:

“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or its subsidiaries from time to time concerning or relating to bribery or corruption.

“OFAC” means the U.S. Department of the Treasury’s Office of Foreign Assets Control, and any successor thereto.

“PATRIOT Act” means the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), as amended from time to time, and any successor statute.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, governmental authority or other entity.

“Sanctioned Country” means, at any time, any country or territory which is itself the subject or target of any comprehensive Sanctions.

“Sanctioned Person” means, at any time, (a) any Person or group listed in any Sanctions related list of designated Persons maintained by OFAC or the U.S. Department of State, the United Nations Security Council, the European Union or any EU member state, (b) any Person or group operating, organized or resident in a Sanctioned Country, (c) any agency, political subdivision or instrumentality of the government of a Sanctioned Country, or (d) any Person 50% or more owned, directly or indirectly, by any of the above.

“Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by OFAC or the U.S. Department of State or (b) the United Nations Security Council, the European Union or Her Majesty’s Treasury of the United Kingdom.

2.     Representations and Warranties. In addition to any representations or warranties contained in the Note, the Agreement or other Loan Documents, the Borrower hereby represents and warrants to the Bank that the following are true, correct and complete:

(a) Anti-Corruption Laws; Sanctions; Anti-Terrorism Laws.

17

(i)     The Borrower and each Guarantor, their respective subsidiaries and their respective officers and employees and to the knowledge of the Borrower or such Guarantor, its directors and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. None of the Borrower, any Guarantor or any subsidiary thereor or to the knowledge of the Borrower or such Guarantor, any of their respective directors, officers or employees is a Sanctioned Person. No loan, use of the proceeds of any loan or other transactions contemplated by the Agreement, the Note or any other Loan Document will violate Anti-Corruption Laws or applicable Sanctions.

(ii)     Neither the making of the loans under the Note or the Agreement nor the use of the proceeds thereof will violate the PATRIOT Act, the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto or successor statute thereto. The Borrower, each Guarantor and their subsidiaries are in compliance in all material respects with the PATRIOT Act.

3.     Covenants. In addition to any representations or warranties contained in the Note, the Agreement or other Loan Documents, the Borrower and each Guarantor covenants and agrees that, so long as any loan or other Obligation (as defined in the Agreement) (other than contingent indemnification Obligations to the extent no claim giving rise thereto has been asserted) shall remain unpaid or unsatisfied or any commitment shall remain outstanding:

(a)     Use of Proceeds. The Borrower will not request any loan, and the Borrower shall not use, and the Borrower shall ensure that its subsidiaries and its or their respective directors, officers, employees and agents shall not use, the proceeds of any loan (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws or (ii) in any manner that would result in the violation of any applicable Sanctions.

(b)     Compliance with Laws. The Borrower will, and will cause each subsidiary to, comply in all material respects with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject including, without limitation, all Environmental Laws, Anti-Corruption Laws and applicable Sanctions.

(c)     PATRIOT Act Compliance. The Borrower shall, and shall cause each subsidiary to, provide such information and take such actions as are reasonably requested by the Bank in order to assist the Bank in maintaining compliance with the PATRIOT Act.

THIS ADDENDUM SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF IOWA.

Signature page follows.

18

IN WITNESS WHEREOF, the undersigned caused this Addendum to be duly executed and delivered as of the date set forth below.

Date: March 30, 2017	ART’S-WAY MANUFACTURING COMPANY, INC., a Delaware corporation
	By:	/s/ Amber Murra
	Name:	Amber Murra
	Title:	CFO

19

EX-31.1

Exhibit 31.1

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

(SECTION 302 CERTIFICATION)

I, Carrie L. Gunnerson, 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:	April 4, 2017	/s/ Carrie L. Gunnerson
		Carrie L. Gunnerson
		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:	April 4, 2017	/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 February 28, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Carrie L. Gunnerson, 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:	April 4, 2017	/s/ Carrie L. Gunnerson
		Carrie L. Gunnerson
		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 February 28, 2017, 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:	April 4, 2017	/s/ Amber J. Murra
		Amber J. Murra
		Chief Financial Officer

XML

Document And Entity Information - shares	3 Months Ended
	Feb. 28, 2017	Mar. 17, 2017
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)		4,156,752
Document Type	10-Q
Document Period End Date	Feb. 28, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1
Amendment Flag	false

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Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Feb. 28, 2017	Nov. 30, 2016
Current assets:
Cash	$ 750,779	$ 1,063,716
Accounts receivable-customers, net of allowance for doubtful accounts of $17,145 and $22,746 in 2017 and 2016, respectively	1,458,539	1,420,051
Inventories, net	13,233,377	13,529,352
Deferred income taxes		1,066,740
Cost and profit in excess of billings	119,662	108,349
Income taxes receivable	271,461	265,924
Assets of discontinued operations	7,500	9,700
Other current assets	414,070	158,087
Total current assets	16,255,388	17,621,919
Property, plant, and equipment, net	7,398,748	7,387,187
Assets held for sale, net	70,000	70,000
Goodwill	375,000	375,000
Other assets of discontinued operations	1,716,565	1,745,528
Deferred income taxes	436,255
Other assets	40,620	42,956
Total assets	26,292,576	27,242,590
Current liabilities:
Line of credit	3,034,114	3,284,114
Current portion of long-term debt	2,673,128	1,807,937
Accounts payable	550,115	469,481
Customer deposits	792,897	289,195
Billings in Excess of Cost and Profit	75,032	4,297
Accrued expenses	852,407	1,019,056
Liabilites of discontinued operations	717,235	182,426
Total current liabilities	8,694,928	7,056,506
Long-term liabilities
Deferred taxes		737,519
Long-term liabilities of discontinued operations		585,168
Long-term debt, excluding current portion	339,808	1,387,118
Total liabilities	9,034,736	9,766,311
Commitments and Contingencies (Notes 7 and 8)
Stockholders’ equity:
Undesignated preferred stock - $0.01 par value. Authorized 500,000 shares in 2017 and 2016; issued 0 shares in 2017 and 2016.
Common stock – $0.01 par value. Authorized 9,500,000 shares in 2017 and 2016; issued 4,156,752 in 2017 and 4,109,052 in 2016	41,568	41,091
Additional paid-in capital	2,772,589	2,746,509
Retained earnings	14,740,882	14,990,911
Accumulated other comprehensive income	(291,210)	(302,232)
Treasury stock, at cost (1,838 in 2017 and 0 in 2016 shares)	(5,989)
Total stockholders’ equity	17,257,840	17,476,279
Total liabilities and stockholders’ equity	$ 26,292,576	$ 27,242,590

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Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Feb. 28, 2017	Nov. 30, 2016
Allowance for doubtful accounts	$ 17,145	$ 22,746
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)	4,156,752	4,109,052
Common stock, outstanding (in shares)	4,156,752	4,109,052
Treasury stock (in shares)	1,838	0

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Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Feb. 28, 2017	Feb. 29, 2016
Sales	$ 4,421,168	$ 5,712,681
Cost of goods sold	3,307,345	4,084,798
Gross profit	1,113,823	1,627,883
Expenses:
Engineering	132,640	99,416
Selling	485,380	464,913
General and administrative	848,236	842,586
Total expenses	1,466,256	1,406,915
Income (Loss) from operations	(352,433)	220,968
Other income (expense):
Interest expense	(63,794)	(67,839)
Other	51,674	42,187
Total other income (expense)	(12,120)	(25,652)
Income (Loss) from continuing operations before income taxes	(364,553)	195,316
Income tax expense (benefit)	(110,911)	61,767
Income (Loss) from continuing operations	(253,642)	133,549
Discontinued Operations
Income (loss) from operations of discontinued segment	4,877	(75,124)
Income tax expense (benefit)	1,264	(22,537)
Income (Loss) on discontinued operations	3,613	(52,587)
Net Income (Loss)	$ (250,029)	$ 80,962
Earnings (Loss) per share - Basic:
Continuing Operations (in dollars per share)	$ (0.06)	$ 0.03
Discontinued Operations (in dollars per share)	0	(0.01)
Net Income (Loss) per share (in dollars per share)	(0.06)	0.02
Earnings (Loss) per share - Diluted:
Continuing Operations (in dollars per share)	(0.06)	0.03
Discontinued Operations (in dollars per share)	0	(0.01)
Net Income (Loss) per share (in dollars per share)	$ (0.06)	$ 0.02
Weighted average outstanding shares used to compute basic net income per share (in shares)	4,126,012	4,074,338
Weighted average outstanding shares used to compute diluted net income per share (in shares)	4,126,012	4,074,338

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Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)	3 Months Ended
	Feb. 28, 2017	Feb. 29, 2016
Net Income (Loss)	$ (250,029)	$ 80,962
Other Comprehensive Income (Loss)
Foreign currency translation adjustsments	11,022
Total Other Comprehensive Income (Loss)	11,022
Comprehensive (Loss)	$ (239,007)	$ 80,962

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Feb. 28, 2017	Feb. 29, 2016
Cash flows from operations:
Net income (loss) from continuing operations	$ (253,642)	$ 133,549
Net income (loss) from discontinued operations	3,613	(52,587)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Stock based compensation	26,557	11,252
(Gain)/Loss on disposal of property, plant, and equipment	2,463	(40,067)
Depreciation and amortization expense	170,789	173,303
Bad debt expense	5,601	17,046
Deferred income taxes	(107,034)	1,263
Changes in assets and liabilities:
Accounts receivable	(44,089)	(585,088)
Inventories	295,975	862,920
Income taxes receivable	(5,537)	35,778
Other assets	(255,629)	(198,801)
Accounts payable	80,634	53,272
Contracts in progress, net	59,422	87,430
Customer deposits	503,702	239,094
Accrued expenses	(166,649)	(212,033)
Net cash provided by operating activities - continuing operations	312,563	578,918
Net cash provided by (used in) operating activities - discontinued operations	(22,039)	40,620
Net cash provided by operating activities	290,524	619,538
Cash flows from investing activities:
Purchases of property, plant, and equipment	(195,020)	(26,257)
Net proceeds from sale of assets	12,190	1,170,642
Net cash provided by (used in) investing activities - continuing operations	(182,830)	1,144,385
Net cash provided by (used in) investing activities - discontinued operations	38,736	(8,437)
Net cash provided by (used in) investing activities	(144,094)	1,135,948
Cash flows from financing activities:
Net change in line of credit	250,000	169,481
Repayment of term debt	(182,119)	(1,372,767)
Repurchases of common stock	(5,989)
Net cash (used in) financing activities - continuing operations	(438,108)	(1,542,248)
Net cash (used in) financing activities - discontinued operations	(32,281)	(31,313)
Net cash (used in) financing activities	(470,389)	(1,573,561)
Effect of exchange rate changes on cash	11,022
Net increase (decrease) in cash	(312,937)	181,925
Cash at beginning of period	1,063,716	447,334
Cash at end of period	750,779	629,259
Supplemental disclosures of cash flow information:
Interest	71,338	79,357
Income taxes	$ 3,125

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Note 1 - Description of the Company

3 Months Ended

Feb. 28, 2017

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

three

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 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. During the

third

quarter of fiscal

2016,

we discontinued our pressurized vessels segment (“Vessels”) that manufactured pressurized vessels. For more information on discontinued operations, see Note

3

“Discontinued Operations.” For detailed financial information relating to segment reporting, see Note

13

“Segment Information.”

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Note 2 - Summary of Significant Account Policies

3 Months Ended

Feb. 28, 2017

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,

2016.

The results of operations for the

three

months ended

February

28,

2017

are not necessarily indicative of the results for the fiscal year ending

November

30,

2017.

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. Stockholders’ 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 is recorded in stockholders’ equity for

2017.

Since the Company believes that it is more likely than not that no income tax benefit will occur if the foreign equity is sold or liquidated, the cumulative translation adjustment has not been tax adjusted.

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

months ended

February

28,

2017.

Actual results could differ from those estimates.

Reclassification

Certain amounts in the consolidated financial statements of the Company related to the discontinuation of operations at our Vessels segment have been reclassified to conform to classifications used in the current year. The reclassifications had no effect on previously reported results of operations or retained earnings.

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Note 3 - Discontinued Operations

3 Months Ended

Feb. 28, 2017

Notes to Financial Statements

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

3) Discontinued Operations

Effective

October

31,

2016,

the Company discontinued the operations of its Vessels segment in order to focus its efforts and resources on the business segments that have historically been more successful and that are expected to present greater opportunities for meaningful long-term shareholder returns. Our plan is to dispose of these assets over the next several quarters. At this time, we are working to dispose of the remaining assets, primarily the real estate.

As Vessels was a unique business unit of the Company, its liquidation was a strategic shift. In accordance with Accounting Standard Code Topic

360,

the Company has classified Vessels as discontinued operations for all periods presented.

Income from discontinued operations, before income taxes in the accompanying Condensed Consolidated Statements of Operations is comprised of the following:

	Three Months Ended
	February 28, 2017			February 29, 2016
Revenue from external customers	$	-		$	679,316
Gross Profit		-			74,417
Operating Expense		32			146,160
Income (loss) from operations		(32	)		(71,743	)
Income (loss) before tax		4,877			(75,124	)

The components of discontinued operations in the accompanying Condensed Consolidated Balance Sheets are as follows:

	February 28, 2017		November 30, 2016
Accounts Receivable - Net	$	7,500	$	9,700
Property, plant, and equipment, net		1,716,565		1,745,528
Assets of discontinued operations	$	1,724,065	$	1,755,228
Accounts payable	$	-	$	1,588
Accrued expenses		33,570		50,061
Notes Payable		683,665		715,945
Liabilities of discontinued operations	$	717,235	$	767,594

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Note 4 - Net Income (Loss) Per Share of Common Stock

3 Months Ended

Feb. 28, 2017

Notes to Financial Statements

Earnings Per Share [Text Block]

4) 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 earnings (loss) per common share

.

Basic and diluted earnings (loss) per common share have been computed based on the following as of

February

28,

2017

and

February

29,

2016:

	For the three months ended
	February 28, 2017			February 29, 2016
Numerator for basic and diluted (loss) earnings per common share:
Net (loss) income from continuing operations	$	(253,642	)	$	133,549
Net (loss) income from discontinued operations		3,613			(52,587	)
Net (loss) income	$	(250,029	)	$	80,962
Denominator:
For basic (loss) earnings per share - weighted average common shares outstanding		4,126,012			4,074,338
Effect of dilutive stock options		-			-
For diluted (loss) earnings per share - weighted average common shares outstanding		4,126,012			4,074,338
Earnings (Loss) per share - Basic:
Continuing Operations	$	(0.06	)	$	0.03
Discontinued Operations	$	0.00		$	(0.01	)
Net Income (Loss) per share	$	(0.06	)	$	0.02
Earnings (Loss) per share - Diluted:
Continuing Operations	$	(0.06	)	$	0.03
Discontinued Operations	$	0.00		$	(0.01	)
Net Income (Loss) per share	$	(0.06	)	$	0.02

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Note 5 - Inventory

3 Months Ended

Feb. 28, 2017

Notes to Financial Statements

Inventory Disclosure [Text Block]

5) Inventory

Major classes of inventory are:

	February 28, 2017			November 30, 2016
Raw materials	$	8,532,655		$	8,568,624
Work in process		440,902			509,198
Finished goods		6,898,083			7,054,736
	$	15,871,640		$	16,132,558
Less: Reserves		(2,638,263	)		(2,603,206	)
	$	13,233,377		$	13,529,352

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Note 6 - Accrued Expenses

3 Months Ended

Feb. 28, 2017

Notes to Financial Statements

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

6) Accrued Expenses

Major components of accrued expenses are:

	February 28, 2017		November 30, 2016
Salaries, wages, and commissions	$	454,506	$	542,449
Accrued warranty expense		125,672		134,373
Other		272,229		342,234
	$	852,407	$	1,019,056

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Note 7 - Product Warranty

3 Months Ended

Feb. 28, 2017

Notes to Financial Statements

Product Warranty Disclosure [Text Block]

7) 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

6.

Changes in the Company’s product warranty liability for the

three

months ended

February

28,

2017

and

February

29,

2016

are as follows:

	For the three months ended
	February 28, 2017			February 29, 2016
Balance, beginning	$	134,373		$	176,531
Settlements / adjustments		(72,949	)		(81,292	)
Warranties issued		64,248			76,702
Balance, ending	$	125,672		$	171,941

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Note 8 - Loan and Credit Agreements

3 Months Ended

Feb. 28, 2017

Notes to Financial Statements

Debt Disclosure [Text Block]

8) Loan and Credit Agreements

The Company maintains a revolving line of credit and term loans with U.S. Bank as well as a term loan with The First National Bank of West Union (n/k/a Bank

1

st

). Pursuant to a Second Loan Modification Agreement dated

July

12,

2016

and effective

July

11,

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 line of credit and certain term loans were amended, and a

$200,000

line of credit that the Company had opened to facilitate dealer floorplan financing

, but had not drawn on, was terminated along with the related agreements. The description that follows reflects such arrangements as amended by the Loan Modification. Following the close of the

first

quarter, U.S. Bank, as lender, the Company, as borrower, and Art’s-Way Scientific, Inc. and Ohio Metal Working Products/Art’s-Way, Inc., as guarantors, entered into a Third Loan Modification Agreement dated

March

30,

2017

and effective as of

May

1,

2017

with respect to certain modifications to the U.S. Bank UHC Loan (as defined below) and effective as of

April

1,

2017

with respect to all other loan modification terms (the “Third Loan Modification”) governing the U.S. Bank lines of credit and certain term loans. For more information regarding the Third Loan Modification, see Part II, Item

5

of this Report.

U.S. Bank Revolving Line of Credit

The Company has a revolving line of credit (the “Line of Credit”) with U.S. Bank, which, following the Third Loan Modification, has an availability of

$4,500,000

, that was obtained on

May

1,

2013,

which is renewable annually with advances funding the Company’s working capital needs. As of

February

28,

2017,

the Company had a principal balance of

$3,034,114

outstanding against the Line of Credit, with

$1,699,433

remaining available, limited by the borrowing base calculation. The maturity date of the Line of Credit was scheduled to be

May

1,

2017.

Following the Third Loan Modification, the Line of Credit matures on

September

25,

2017.

The Line of Credit is secured by real property and fixed asset collateral. The Line of Credit, as amended by the Third Loan Modification, 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

$3,375,000

and only includes finished goods and raw materials deemed to be in good condition and not obsolete), less any outstanding loan balance of the Line of Credit, undrawn amounts of outstanding letters of credit issued by U.S. Bank or any affiliate

, and any reserves that U.S. Bank

may

deem necessary to maintain. 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 evidenced by a Revolving Credit Note effective

May

1,

2013,

a Revolving Credit Agreement dated

May

1,

2013,

as amended, and certain other ancillary documents.

The Line of Credit is subject to: (i) a minimum interest rate of

5.0%

per annum; and (ii) 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 the Line of Credit exceeds the outstanding principal amount. As of

February

28,

2017,

the interest rate on the Line of Credit was the minimum of

5.0%.

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 assets and operations of which are now held by Art’s Way Manufacturing Co., Inc. in Armstrong, Iowa. The maturity date of this loan was scheduled to be

May

10,

2017,

with a final payment of principal and accrued interest in the amount of

$283,500

due

May

10,

2017.

This loan accrued interest at a fixed rate of

3.15%

per annum

. Following the Third Loan Modification the maturity date is

September

25,

2017,

and the interest rate is an annual rate equal to

1.5%

plus the prime rate, but not less than

5%.

The interest rate will be adjusted each time that the prime rate changes. The principal balance of this loan was

$304,655

as of

February

28,

2017.

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 the Company in Dubuque, Iowa, pursuant to a Mortgage, Security Agreement and Assignment of Rents between the Company (as successor by merger to 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

$2,018,184

at

February

28,

2017,

and they accrued interest at a fixed rate of

2.98%

per annum (the

“2013

Term Notes”). Following the Third Loan Modification, the

2013

Term Notes accrue interest at a rate of

1.5%

plus the prime rate, with a minimum of

5%

per annum. 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 debt summary below, following the Third Loan Modification, monthly principal and interest payments in the aggregate amount of

$46,672

are required on the remaining

2013

Term Notes, with a revised maturity date of

September

25,

2017.

The

2013

Term Notes previously had a maturity date of

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

$894,497

at

February

28,

2017

and accrued interest at a fixed rate of

2.98%.

Following the Third Loan Modification, the

2014

Term Note accrues interest at a rate of

1.5%

plus the prime rate, with a minimum of

5%

per annum. 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 was

May

25,

2017,

but is now

September

25,

2017,

as amended by the Third Loan Modification. 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

As of

February

28,

2017,

the U.S. Bank UHC Loan was not subject to financial covenants. However, under the U.S. Bank UHC Loan, the Company was required to provide to U.S. Bank information concerning its business affairs and financial condition as U.S. 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 Third Loan Modification adds certain financial covenants to the U.S. Bank UHC Loan that are consistent with the financial covenants for the remainder of the US Bank loans. For more information regarding the Third Loan Modification, see Part II, Item

5

of this Report.

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

1.0

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) a fiscal year-to-date fixed charge coverage ratio as of

February

28,

2017

of at least

1.0

to

1.0,

(iii) a fiscal year-to-date EBITDA (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) 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) 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 the Line of Credit, the

2013

Term Notes and the

2014

Term Note). The Company must also provide to U.S. Bank a

13

-week cash flow forecast on Tuesday of each week, 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. As amended by the Third Loan Modification the Company is required to maintain (i) fiscal year-to-date EBIDTA (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) of

$1

as of

May

31,

2017

and

$648,000

as of

August

31,

2017,

and (ii) minimum liquidity as of the end of each month commencing

April

30,

2017

of not less than

$500,000

(with minimum liquidity meaning unrestricted cash and cash equivalents plus borrowing base availability under the Line of Credit, the

2013

Term Notes and the

2014

Term Note). For more information regarding the Third Loan Modification, see Part II, Item

5

of this Report.

The

2013

Term Notes,

2014

Term Note, and 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 noted above in favor of U.S. Bank as documented by mortgage agreements dated

May

1,

2013

and

May

29,

2014

(together, the “Mortgages”).

If the Company or its subsidiaries (as guarantors pursuant to continuing guaranties) commits an event of default with respect to the U.S. Bank UHC Loan,

2013

Term Notes,

2014

Term Note, or 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, 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

February

28,

2017,

other than the fiscal year-to-date fixed charge ratio of

1.0

to

1.0.

The main reason for the non-compliance result as of

February

28,

2017

was the net loss from continuing operations. As part of a Third Loan Modification Agreement, U.S. Bank has issued a waiver forgiving the non-compliance for the quarter and no event of default occurred. The next measurement date is

May

31,

2017.

For more information regarding the Third 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,

2016.

The First National Bank of West Union has issued a waiver, and the next measurement date is

November

30,

2017.

Debt Summary

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

	February 28, 2017		November 30, 2016
U.S. Bank loan payable in monthly installments of $9,600 plus interest at 5.00%, due September 25, 2017	$	603,867	$	632,126
U.S. Bank loan payable in monthly installments of $10,965 plus interest at 5.0%, due September 25, 2017		683,665		715,945
U.S. Bank loan payable in monthly installments of $26,107 plus interest at 5.0%, due September 25, 2017		730,652		808,096
U.S. Bank loan payable in monthly installments of $10,960 plus interest at 5.0%, due September 25, 2017		304,655		337,147
U.S. Bank loan payable in monthly installments of $4,301 plus interest at 5.0%, due September 25, 2017		894,947		904,751
Iowa Finance Authority loan payable in monthly installments of $12,500 including interest at 2.75%, due June 1, 2020		478,815		512,935
Total term debt	$	3,696,601	$	3,911,000
Less current portion of term debt		2,673,128		1,807,937
Term debt of discontinued operations		683,665		715,945
Term debt, excluding current portion	$	339,808	$	1,387,118

* Terms are updated according to the Third Loan Modification

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Note 9 - Assets Available for Sale

3 Months Ended

Feb. 28, 2017

Notes to Financial Statements

Disclosure of Assets Available for Sale, Not Part of Discontinued Operations [Text Block]

9) Assets Available for Sale

Major components of assets available for sale (excluding assets of discontinued operations as discussed in Note

3

“Discontinued Operations”) are:

	February 28, 2017		November 30, 2016
Ames, Iowa powder coat paint system	$	70,000	$	70,000
	$	70,000	$	70,000

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 into our Armstrong, Iowa facility. We continue to hold our powder coat system previously used in our Ames, Iowa location as available for sale. During fiscal

2016,

we recognized an impairment of

$44,858

related to this asset based on recent offers and comparable sales information

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Note 10 - Recently Issued Accounting Pronouncements

3 Months Ended

Feb. 28, 2017

Notes to Financial Statements

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

10) Recently Issued Accounting Pronouncements

Adopted Accounting Pronouncements

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.

2014

-

15

is effective for annual reporting periods ending after

December

15,

2016.

The Company has adopted this guidance for the year ending

November

30,

2017,

and it will apply to each interim and annual period thereafter. Its adoption has not had 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 has adopted this guidance for the year ending

November

30,

2017

, including interim periods within that reporting period. The Company chose early adoption for this guidance, as its impact was expected not to be material, and it will allow us to focus more of our efforts on preparing The Company chose early adoption for this guidance, as its impact was expected not to be material, and it will allow us to focus more of our efforts on preparing for the adoption of more complex guidance. for the adoption of more complex guidance. Its adoption has not had a material impact on the Company’s 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.

During the

first

quarter of fiscal

2017,

the Company elected to prospectively adopt ASU

2015

-

17,

thus reclassifying current deferred tax assets to noncurrent on the accompanying consolidated balance sheet. The prior reporting period was not retrospectively adjusted. The Company chose early adoption for this guidance, as its impact was expected not to be material, and it will allow us to focus more of our efforts on preparing for the adoption of more complex guidance.

The adoption of this guidance had no impact on the Company’s consolidated statements of operations and comprehensive income.

Accounting Pronouncements Not Yet Adopted

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 not permitted. The Company is evaluating the new standard, and at this time believes that its Scientific segment will be impacted most significantly by this standard. The Company continues to research and assess the implications of the adoption of this standard on our 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 will adopt this guidance for the year ending

November

30,

2020

including interim periods within that reporting period. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

XML

Note 11 - Equity Incentive Plan and Stock Based Compensation

3 Months Ended

Feb. 28, 2017

Notes to Financial Statements

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

11) 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 are 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

three

months of fiscal

2017,

47,700

restricted stock awards have been issued to various employees, directors, and consultants, which vest over the next

three

years.

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. No stock options were granted during the

three

months ended

February

28,

2017

or in the same respective period of fiscal

2016.

We incurred a total of

$26,557

of stock-based compensation expense for restricted stock awards during the

three

months ended

February

28,

2017,

compared to

$11,252

of stock-based compensation expense for restricted stock awards and stock options for the same respective period of fiscal

2016.

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Note 12 - Disclosures About the Fair Value of Financial Instruments

3 Months Ended

Feb. 28, 2017

Notes to Financial Statements

Fair Value Disclosures [Text Block]

12) 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

February

28,

2017,

and

November

30,

2016,

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.

XML

Note 13 - Segment Information

3 Months Ended

Feb. 28, 2017

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

13) Segment Information

There are

three

reportable segments: agricultural products, 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 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. The tables below exclude income and balance sheet data from discontinued operations. See Note

3

“Discontinued Operations.”

	Three Months Ended February 28, 2017
	Agricultural Products			Modular Buildings			Tools		Consolidated
Revenue from external customers	$	3,368,000		$	388,000		$	665,000	$	4,421,000
Income (loss) from operations		(220,000	)		(154,000	)		21,000	$	(352,000	)
Income (loss) before tax		(217,000	)		(158,000	)		11,000	$	(365,000	)
Total Assets		19,063,000			2,849,000			2,657,000	$	24,569,000
Capital Expenditures		129,000			-			66,000	$	195,000
Depreciation & Amortization		125,000			15,000			31,000	$	171,000

	Three Months Ended February 29, 2016
	Agricultural Products		Modular Buildings		Tools			Consolidated
Revenue from external customers	$	4,198,000	$	943,000	$	572,000		$	5,713,000
Income (loss) from operations		248,000		9,000		(36,000	)	$	221,000
Income (loss) before tax		233,000		7,000		(44,000	)	$	195,000
Total Assets		21,844,000		2,838,000		2,736,000		$	27,418,000
Capital Expenditures		4,000		-		23,000		$	26,000
Depreciation & Amortization		128,000		15,000		30,000		$	173,000

*Segment figures in the table

may

not sum to the consolidated total due to rounding.

XML

Note 14 - Subsequent Event

3 Months Ended

Feb. 28, 2017

Notes to Financial Statements

Subsequent Events [Text Block]

14) 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

8

and in

Part II, Item

5

of this Report

.

XML

Significant Accounting Policies (Policies)

3 Months Ended

Feb. 28, 2017

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,

2016.

The results of operations for the

three

months ended

February

28,

2017

are not necessarily indicative of the results for the fiscal year ending

November

30,

2017.

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. Stockholders’ 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 is recorded in stockholders’ equity for

2017.

Since the Company believes that it is more likely than not that no income tax benefit will occur if the foreign equity is sold or liquidated, the cumulative translation adjustment has not been tax adjusted.

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

months ended

February

28,

2017.

Actual results could differ from those estimates.

Reclassification, Policy [Policy Text Block]

Reclassification

Certain amounts in the consolidated financial statements of the Company related to the discontinuation of operations at our Vessels segment have been reclassified to conform to classifications used in the current year. The reclassifications had no effect on previously reported results of operations or retained earnings.

XML

Note 3 - Discontinued Operations (Tables)

3 Months Ended

Feb. 28, 2017

Notes Tables

Schedule of Disposal Groups, Including Discontinued Operations, Income Statement [Table Text Block]

	Three Months Ended
	February 28, 2017			February 29, 2016
Revenue from external customers	$	-		$	679,316
Gross Profit		-			74,417
Operating Expense		32			146,160
Income (loss) from operations		(32	)		(71,743	)
Income (loss) before tax		4,877			(75,124	)

Disposal Groups, Including Discontinued Operations [Table Text Block]

	February 28, 2017		November 30, 2016
Accounts Receivable - Net	$	7,500	$	9,700
Property, plant, and equipment, net		1,716,565		1,745,528
Assets of discontinued operations	$	1,724,065	$	1,755,228
Accounts payable	$	-	$	1,588
Accrued expenses		33,570		50,061
Notes Payable		683,665		715,945
Liabilities of discontinued operations	$	717,235	$	767,594

XML

Note 4 - Net Income (Loss) Per Share of Common Stock (Tables)

3 Months Ended

Feb. 28, 2017

Notes Tables

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

	For the three months ended
	February 28, 2017			February 29, 2016
Numerator for basic and diluted (loss) earnings per common share:
Net (loss) income from continuing operations	$	(253,642	)	$	133,549
Net (loss) income from discontinued operations		3,613			(52,587	)
Net (loss) income	$	(250,029	)	$	80,962
Denominator:
For basic (loss) earnings per share - weighted average common shares outstanding		4,126,012			4,074,338
Effect of dilutive stock options		-			-
For diluted (loss) earnings per share - weighted average common shares outstanding		4,126,012			4,074,338
Earnings (Loss) per share - Basic:
Continuing Operations	$	(0.06	)	$	0.03
Discontinued Operations	$	0.00		$	(0.01	)
Net Income (Loss) per share	$	(0.06	)	$	0.02
Earnings (Loss) per share - Diluted:
Continuing Operations	$	(0.06	)	$	0.03
Discontinued Operations	$	0.00		$	(0.01	)
Net Income (Loss) per share	$	(0.06	)	$	0.02

XML

Note 5 - Inventory (Tables)

3 Months Ended

Feb. 28, 2017

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	February 28, 2017			November 30, 2016
Raw materials	$	8,532,655		$	8,568,624
Work in process		440,902			509,198
Finished goods		6,898,083			7,054,736
	$	15,871,640		$	16,132,558
Less: Reserves		(2,638,263	)		(2,603,206	)
	$	13,233,377		$	13,529,352

XML

Note 6 - Accrued Expenses (Tables)

3 Months Ended

Feb. 28, 2017

Notes Tables

Schedule of Accrued Liabilities [Table Text Block]

	February 28, 2017		November 30, 2016
Salaries, wages, and commissions	$	454,506	$	542,449
Accrued warranty expense		125,672		134,373
Other		272,229		342,234
	$	852,407	$	1,019,056

XML

Note 7 - Product Warranty (Tables)

3 Months Ended

Feb. 28, 2017

Notes Tables

Schedule of Product Warranty Liability [Table Text Block]

	For the three months ended
	February 28, 2017			February 29, 2016
Balance, beginning	$	134,373		$	176,531
Settlements / adjustments		(72,949	)		(81,292	)
Warranties issued		64,248			76,702
Balance, ending	$	125,672		$	171,941

XML

Note 8 - Loan and Credit Agreements (Tables)

3 Months Ended

Feb. 28, 2017

Notes Tables

Schedule of Debt [Table Text Block]

	February 28, 2017		November 30, 2016
U.S. Bank loan payable in monthly installments of $9,600 plus interest at 5.00%, due September 25, 2017	$	603,867	$	632,126
U.S. Bank loan payable in monthly installments of $10,965 plus interest at 5.0%, due September 25, 2017		683,665		715,945
U.S. Bank loan payable in monthly installments of $26,107 plus interest at 5.0%, due September 25, 2017		730,652		808,096
U.S. Bank loan payable in monthly installments of $10,960 plus interest at 5.0%, due September 25, 2017		304,655		337,147
U.S. Bank loan payable in monthly installments of $4,301 plus interest at 5.0%, due September 25, 2017		894,947		904,751
Iowa Finance Authority loan payable in monthly installments of $12,500 including interest at 2.75%, due June 1, 2020		478,815		512,935
Total term debt	$	3,696,601	$	3,911,000
Less current portion of term debt		2,673,128		1,807,937
Term debt of discontinued operations		683,665		715,945
Term debt, excluding current portion	$	339,808	$	1,387,118

XML

Note 9 - Assets Available for Sale (Tables)

3 Months Ended

Feb. 28, 2017

Notes Tables

Disclosure of Long Lived Assets Held-for-sale [Table Text Block]

	February 28, 2017		November 30, 2016
Ames, Iowa powder coat paint system	$	70,000	$	70,000
	$	70,000	$	70,000

XML

Note 13 - Segment Information (Tables)

3 Months Ended

Feb. 28, 2017

Notes Tables

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

	Three Months Ended February 28, 2017
	Agricultural Products			Modular Buildings			Tools		Consolidated
Revenue from external customers	$	3,368,000		$	388,000		$	665,000	$	4,421,000
Income (loss) from operations		(220,000	)		(154,000	)		21,000	$	(352,000	)
Income (loss) before tax		(217,000	)		(158,000	)		11,000	$	(365,000	)
Total Assets		19,063,000			2,849,000			2,657,000	$	24,569,000
Capital Expenditures		129,000			-			66,000	$	195,000
Depreciation & Amortization		125,000			15,000			31,000	$	171,000

	Three Months Ended February 29, 2016
	Agricultural Products		Modular Buildings		Tools			Consolidated
Revenue from external customers	$	4,198,000	$	943,000	$	572,000		$	5,713,000
Income (loss) from operations		248,000		9,000		(36,000	)	$	221,000
Income (loss) before tax		233,000		7,000		(44,000	)	$	195,000
Total Assets		21,844,000		2,838,000		2,736,000		$	27,418,000
Capital Expenditures		4,000		-		23,000		$	26,000
Depreciation & Amortization		128,000		15,000		30,000		$	173,000

XML

Note 1 - Description of the Company (Details Textual)	3 Months Ended
	Feb. 28, 2017
Number of Operating Segments	3

XML

Note 3 - Discontinued Operations - Income from Discontinued Operations before Income Taxes (Details) - USD ($)	3 Months Ended
	Feb. 28, 2017	Feb. 29, 2016
Income (loss) from operations of discontinued segment	$ 4,877	$ (75,124)
Discontinued Operations, Held-for-sale [Member] | Vessels Segment [Member]
Revenue from external customers		679,316
Gross Profit		74,417
Operating Expense	32	146,160
Income (loss) from operations	(32)	(71,743)
Income (loss) from operations of discontinued segment	$ 4,877	$ (75,124)

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Note 3 - Discontinued Operations - Components of Discontinued Operations (Details) - USD ($)	Feb. 28, 2017	Nov. 30, 2016
Notes Payable	$ 683,665	$ 715,945
Discontinued Operations, Held-for-sale [Member] | Vessels Segment [Member]
Accounts Receivable - Net	7,500	9,700
Property, plant, and equipment, net	1,716,565	1,745,528
Assets of discontinued operations	1,724,065	1,755,228
Accounts payable		1,588
Accrued expenses	33,570	50,061
Notes Payable	683,665	715,945
Liabilities of discontinued operations	$ 717,235	$ 767,594

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Note 4 - Net Income (Loss) Per Share of Common Stock - Basic and Diluted Earnings Per Common Share (Details) - USD ($)	3 Months Ended
	Feb. 28, 2017	Feb. 29, 2016
Numerator for basic and diluted (loss) earnings per common share:
Net (loss) income from continuing operations	$ (253,642)	$ 133,549
Net (loss) income from discontinued operations	3,613	(52,587)
Net (loss) income	$ (250,029)	$ 80,962
Denominator:
For basic (loss) earnings per share - weighted average common shares outstanding (in shares)	4,126,012	4,074,338
Effect of dilutive stock options (in shares)
For diluted (loss) earnings per share - weighted average common shares outstanding (in shares)	4,126,012	4,074,338
Earnings (Loss) per share - Basic:
Continuing Operations (in dollars per share)	$ (0.06)	$ 0.03
Discontinued Operations (in dollars per share)	0	(0.01)
Net Income (Loss) per share (in dollars per share)	(0.06)	0.02
Earnings (Loss) per share - Diluted:
Continuing Operations (in dollars per share)	(0.06)	0.03
Discontinued Operations (in dollars per share)	0	(0.01)
Net Income (Loss) per share (in dollars per share)	$ (0.06)	$ 0.02

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Note 5 - Inventory - Major Classes of Inventory (Details) - USD ($)	Feb. 28, 2017	Nov. 30, 2016
Raw materials	$ 8,532,655	$ 8,568,624
Work in process	440,902	509,198
Finished goods	6,898,083	7,054,736
	15,871,640	16,132,558
Less: Reserves	(2,638,263)	(2,603,206)
	$ 13,233,377	$ 13,529,352

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Note 6 - Accrued Expenses - Major Components Of Accrued Expenses (Details) - USD ($)	Feb. 28, 2017	Nov. 30, 2016
Salaries, wages, and commissions	$ 454,506	$ 542,449
Accrued warranty expense	125,672	134,373
Other	272,229	342,234
Total accrued liabilities, current	$ 852,407	$ 1,019,056

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Note 7 - Product Warranty (Details Textual)	3 Months Ended
	Feb. 28, 2017
Standard Product Warrant Term	1 year

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Note 7 - Product Warranty - Changes In Product Warranty Liability (Details) - USD ($)	3 Months Ended
	Feb. 28, 2017	Feb. 29, 2016
Balance, beginning	$ 134,373	$ 176,531
Settlements / adjustments	(72,949)	(81,292)
Warranties issued	64,248	76,702
Balance, ending	$ 125,672	$ 171,941

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Note 8 - Loan and Credit Agreements (Details Textual)				3 Months Ended		12 Months Ended
	Feb. 28, 2017 USD ($)	Jul. 11, 2016 USD ($)	Feb. 10, 2016 USD ($)	Feb. 28, 2017 USD ($)	Feb. 29, 2016 USD ($)	Nov. 30, 2016 USD ($)	Aug. 31, 2017 USD ($)	May 31, 2017 USD ($)	Apr. 30, 2017 USD ($)	Oct. 31, 2016 USD ($)	Sep. 30, 2016 USD ($)	Aug. 31, 2016	May 29, 2014 USD ($)	May 01, 2013 USD ($)	Feb. 01, 2013	May 10, 2012 USD ($)	May 01, 2010 USD ($)
Long-term Debt	$ 3,696,601			$ 3,696,601		$ 3,911,000
Repayments of Long-term Debt				$ 182,119	$ 1,372,767
Iowa Finance Authority Term Loan [Member]
Debt Instrument, Interest Rate, Stated Percentage	2.75%			2.75%		2.75%
Long-term Debt	$ 478,815			$ 478,815		$ 512,935
Debt Instrument, Periodic Payment				12,500		12,500
US Bank [Member]
Line of Credit Facility, Capacity Available, Terminated		$ 200,000
US Bank [Member] | The Line of Credit [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity														$ 4,500,000
Long-term Line of Credit	3,034,114			3,034,114
Line of Credit Facility, Remaining Borrowing Capacity	$ 1,699,433			$ 1,699,433
Line of Credit Facility Borrowing Capacity Borrowing Base Percentage of Accounts Receivable	75.00%			75.00%
Line of Credit Facility Borrowing Capacity Borrowing Base Minimum Percentage of Aggregate Receivables	20.00%			20.00%
Line of Credit Facility Borrowing Capacity Borrowing Base Percentage of Inventory	50.00%			50.00%
Line of Credit Facility Borrowing Capacity Borrowing Base Maximum Inventory Amount	$ 3,375,000			$ 3,375,000
US Bank [Member] | The Line of Credit [Member] | Revolving Credit Facility [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Stated Percentage	5.00%			5.00%
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage				0.25%
US Bank [Member] | US Bank UHC Loan [Member]
Debt Instrument, Interest Rate, Stated Percentage	3.15%			3.15%
Debt Instrument, Face Amount																$ 880,000
Term Loan Final Payment																$ 283,500
Long-term Debt	$ 304,655			$ 304,655
US Bank [Member] | US Bank UHC Loan [Member] | Prime Rate [Member]
Debt Instrument, Basis Spread on Variable Rate	1.50%
US Bank [Member] | US Bank UHC Loan [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Stated Percentage	5.00%			5.00%
US Bank [Member] | The 2013 Term Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	2.98%			2.98%
Long-term Debt	$ 2,018,184			$ 2,018,184
Repayments of Long-term Debt			$ 1,078,196
Debt Instrument, Periodic Payment				46,672
Debt Instrument, Periodic Payment Terms, Balloon Payment to be Paid	$ 2,017			$ 2,017
US Bank [Member] | The 2013 Term Notes [Member] | Prime Rate [Member]
Debt Instrument, Basis Spread on Variable Rate	1.50%
US Bank [Member] | The 2013 Term Notes [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Stated Percentage	5.00%			5.00%
US Bank [Member] | The 2014 Term Note [Member]
Debt Instrument, Interest Rate, Stated Percentage	2.98%			2.98%
Debt Instrument, Face Amount													$ 1,000,000
Long-term Debt	$ 894,497			$ 894,497
US Bank [Member] | The 2014 Term Note [Member] | Prime Rate [Member]
Debt Instrument, Basis Spread on Variable Rate	1.50%
US Bank [Member] | The 2014 Term Note [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Stated Percentage	5.00%			5.00%
US Bank [Member] | Line of Credit, 2013 Term Notes, and 2014 Term Notes [Member]
Debt Instrument, Covenant Quarterly Fixed Charge Coverage Ratio	1.15			1.15
Debt Instrument, Covenant EBITDA Amount, Period One	$ 360,000			$ 360,000
Debt Instrument, Covenant EBITDA Amount, Period Two											$ 390,000
Debt Instrument, Covenant EBITDA Amount, Period Three										$ 395,000
Debt Instrument, Covenant EBITDA Amount, Period Four						$ 400,000
Debt Instrument, Covenant Monthly Minimum Liquidity Amount	$ 750,000			$ 750,000
Debt Instrument, Covenant Year-to-Date Fixed Charge Coverage Ratio	1			1
US Bank [Member] | Line of Credit, 2013 Term Notes, and 2014 Term Notes [Member] | Scenario, Forecast [Member]
Debt Instrument, Requirement, Minimum EBIDTA							$ 648,000	$ 1
Debt Instrument, Requirement, Minimum Liquidity									$ 500,000
US Bank [Member] | US Bank UHC Loan, Line of Credit, 2013 Term Notes, and 2014 Term Notes [Member]
Debt Instrument, Covenant Interest Rate Increase in Event of Default	5.00%			5.00%
Debt Instrument, Covenant Year-to-Date Fixed Charge Coverage Ratio	1			1
The First National Bank of West Union [Member] | Iowa Finance Authority Term Loan [Member]
Debt Instrument, Interest Rate, Stated Percentage															2.75%		3.50%
Debt Instrument, Face Amount																	$ 1,300,000
Debt Instrument, Covenant Debt Service Coverage Ratio												1.5

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Note 8 - Loan and Credit Agreements - Summary Of Term Debt (Details) - USD ($)	Feb. 28, 2017	Nov. 30, 2016
Term debt	$ 3,696,601	$ 3,911,000
Less current portion of term debt	2,673,128	1,807,937
Term debt of discontinued operations	683,665	715,945
Term debt, excluding current portion	339,808	1,387,118
US Bank Loan 2 [Member]
Term debt	603,867	632,126
US Bank Loan 3 [Member]
Term debt	683,665	715,945
US Bank Loan 4 [Member]
Term debt	730,652	808,096
US Bank Loan 5 [Member]
Term debt	304,655	337,147
US Bank Loan 6 [Member]
Term debt	894,947	904,751
Iowa Finance Authority Term Loan [Member]
Term debt	$ 478,815	$ 512,935

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Note 8 - Loan and Credit Agreements - Summary Of Term Debt (Details) (Parentheticals) - USD ($)	3 Months Ended	12 Months Ended
	Feb. 28, 2017	Nov. 30, 2016
US Bank Loan 2 [Member]
Debt Instrument, Periodic Payment	$ 9,600	$ 9,600
Debt Instrument, Interest Rate, Stated Percentage	5.00%	5.00%
US Bank Loan 3 [Member]
Debt Instrument, Periodic Payment	$ 10,965	$ 10,965
Debt Instrument, Interest Rate, Stated Percentage	5.00%	5.00%
US Bank Loan 4 [Member]
Debt Instrument, Periodic Payment	$ 26,107	$ 26,107
Debt Instrument, Interest Rate, Stated Percentage	5.00%	5.00%
US Bank Loan 5 [Member]
Debt Instrument, Periodic Payment	$ 10,960	$ 10,960
Debt Instrument, Interest Rate, Stated Percentage	5.00%	5.00%
US Bank Loan 6 [Member]
Debt Instrument, Periodic Payment	$ 4,301	$ 4,301
Debt Instrument, Interest Rate, Stated Percentage	5.00%	5.00%
Iowa Finance Authority Term Loan [Member]
Debt Instrument, Periodic Payment	$ 12,500	$ 12,500
Debt Instrument, Interest Rate, Stated Percentage	2.75%	2.75%

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Note 9 - Assets Available for Sale (Details Textual)	12 Months Ended
	Nov. 30, 2016 USD ($)
Ames, Iowa Powder Coat Print System [Member]
Asset Impairment Charges	$ 44,858

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Note 9 - Assets Available for Sale - Major Components Assets Available for Sale (Details) - USD ($)	Feb. 28, 2017	Nov. 30, 2016
Assets available for sale	$ 70,000	$ 70,000
Ames, Iowa Powder Coat Print System [Member]
Assets available for sale	$ 70,000	$ 70,000

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Note 11 - Equity Incentive Plan and Stock Based Compensation (Details Textual) - USD ($)	3 Months Ended
	Feb. 28, 2017	Feb. 29, 2016	Aug. 31, 2016
Allocated Share-based Compensation Expense	$ 26,557	$ 11,252
Non-qualified Stock Units to Non-employee Directors Annually or Upon Election [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized			1,000
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	47,700
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years

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Note 13 - Segment Information (Details Textual)	3 Months Ended
	Feb. 28, 2017
Number of Reportable Segments	3

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Note 13 - Segment Information - Segment Reporting Information (Details) - USD ($)		3 Months Ended
		Feb. 28, 2017	Feb. 29, 2016	Nov. 30, 2016
Revenue from external customers		$ 4,421,168	$ 5,712,681
Income (loss) from operations		(352,433)	220,968
Total Assets		26,292,576		$ 27,242,590
Capital Expenditures		195,020	26,257
Depreciation & Amortization		170,789	173,303
Operating Segments [Member]
Revenue from external customers	[1]	4,421,000	5,713,000
Income (loss) from operations	[1]	(352,000)	221,000
Income (loss) before tax	[1]	(365,000)	195,000
Total Assets	[1]	24,569,000	27,418,000
Capital Expenditures	[1]	195,000	26,000
Depreciation & Amortization	[1]	171,000	173,000
Operating Segments [Member] | Agricultural Products [Member]
Revenue from external customers	[1]	3,368,000	4,198,000
Income (loss) from operations	[1]	(220,000)	248,000
Income (loss) before tax	[1]	(217,000)	233,000
Total Assets	[1]	19,063,000	21,844,000
Capital Expenditures	[1]	129,000	4,000
Depreciation & Amortization	[1]	125,000	128,000
Operating Segments [Member] | Modular Buildings [Member]
Revenue from external customers	[1]	388,000	943,000
Income (loss) from operations	[1]	(154,000)	9,000
Income (loss) before tax	[1]	(158,000)	7,000
Total Assets	[1]	2,849,000	2,838,000
Capital Expenditures	[1]
Depreciation & Amortization	[1]	15,000	15,000
Operating Segments [Member] | Tools [Member]
Revenue from external customers	[1]	665,000	572,000
Income (loss) from operations	[1]	21,000	(36,000)
Income (loss) before tax	[1]	11,000	(44,000)
Total Assets	[1]	2,657,000	2,736,000
Capital Expenditures	[1]	66,000	23,000
Depreciation & Amortization	[1]	$ 31,000	$ 30,000

[1] Segment figures in the table may not sum to the consolidated total due to rounding.