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 29, 2020

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. 000-05131

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) (Zip Code)

(712) 864-3131

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock $.01 par value	ARTW	The Nasdaq Stock Market LLC

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 every Interactive Data File required to be submitted 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 such files).  Yes [x] No [ ]

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

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [x]	Smaller reporting company [x]
	Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   [ ]

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 April 7, 2020: 4,425,478

Art’s-Way Manufacturing Co., Inc.

Index

		Page No.
PART I – FINANCIAL INFORMATION 1		1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets February 29, 2020 and November 30, 2019	1
	Condensed Consolidated Statements of Operations Three-month periods ended February 29, 2020 and February 28, 2019	2
	Condensed Consolidated Statements of Stockholders’ Equity Three-month periods ended February 29, 2020 and February 28, 2019	3
	Condensed Consolidated Statements of Cash Flows Three-month periods ended February 29, 2020 and February 28, 2019	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II – OTHER INFORMATION		25
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
	SIGNATURES	27

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ART’S-WAY MANUFACTURING CO., INC.

Condensed Consolidated Balance Sheets

	(Unaudited)
	February 29, 2020			November 30, 2019
Assets
Current assets:
Cash	$	3,287		$	3,145
Accounts receivable-customers, net of allowance for doubtful accounts of $32,611 and $22,925 in 2020 and 2019, respectively		2,657,281			1,679,975
Inventories, net		9,314,429			8,778,507
Cost and profit in excess of billings		512,618			726,667
Net investment in sales-type leases, current		116,556			148,005
Other current assets		262,414			70,931
Total current assets		12,866,585			11,407,230
Property, plant, and equipment, net		5,449,777			5,362,907
Assets held for lease, net		667,925			713,782
Deferred income taxes		1,911,301			1,786,048
Net investment in sales-type leases, long-term		-			5,782
Other assets		104,178			71,189
Total assets	$	20,999,766		$	19,346,938
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,554,569		$	1,205,313
Customer deposits		222,269			105,363
Billings in Excess of Cost and Profit		434,134			88,931
Income taxes payable		23,981			6,400
Accrued expenses		1,105,013			1,132,826
Line of credit		3,844,530			2,578,530
Current portion of long-term debt		86,497			85,401
Total current liabilities		7,270,993			5,202,764
Long-term liabilities
Long-term portion of operating lease liabilities		25,147			-
Long-term debt, excluding current portion		2,328,720			2,350,592
Total liabilities		9,624,860			7,553,356
Commitments and Contingencies
Stockholders’ equity:
Undesignated preferred stock - $0.01 par value. Authorized 500,000 shares in 2020 and 2019; issued 0 shares in 2020 and 2019.		-			-
Common stock – $0.01 par value. Authorized 9,500,000 shares in 2020 and 2019; issued 4,374,837 in 2020 and 4,321,087 in 2019		43,748			43,211
Additional paid-in capital		3,287,130			3,250,087
Retained earnings		8,110,150			8,547,342
Treasury stock, at cost (29,359 in 2020 and 18,842 in 2019 shares)		(66,122	)		(47,058	)
Total stockholders’ equity		11,374,906			11,793,582
Total liabilities and stockholders’ equity	$	20,999,766		$	19,346,938

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 29, 2020			February 28, 2019
Sales	$	5,025,924		$	4,124,226
Cost of goods sold		4,048,762			3,519,382
Gross profit		977,162			604,844
Expenses:
Engineering		109,852			147,214
Selling		455,684			343,349
General and administrative		881,322			836,906
Total expenses		1,446,858			1,327,469
Income (Loss) from operations		(469,696	)		(722,625	)
Other income (expense):
Interest expense		(83,274	)		(85,039	)
Other		9,199			26,824
Total other income (expense)		(74,075	)		(58,215	)
Income (Loss) before income taxes		(543,771	)		(780,840	)
Income tax expense (benefit)		(106,579	)		(174,908	)
Net Income (Loss)		(437,192	)		(605,932	)
Net Income (Loss) per share
Basic Net Income (Loss) per share	$	(0.10	)	$	(0.14	)
Diluted Net Income (Loss) per share	$	(0.10	)	$	(0.14	)
Weighted average outstanding shares used to compute basic net income per share		4,315,481			4,243,707
Weighted average outstanding shares used to compute diluted net income per share		4,315,481			4,243,707

See accompanying notes to condensed consolidated financial statements.

2

ART’S-WAY MANUFACTURING CO., INC.

Consolidated Statements of Stockholders' Equity

Three Months Ended February 29, 2020 and February 28, 2019

(Unaudited)

	Common Stock				Additional					Treasury Stock
	Number of				paid-in		Retained			Number of
	shares		Par value		capital		earnings			shares		Amount			Total
Balance, November 30, 2018		4,225,050	$	42,250	$	3,055,632	$	9,966,928			9,286	$	(27,735	)	$	13,037,075
Stock based compensation		71,653		717		64,829		-			5,493		(10,820	)		54,726
Net (loss)		-		-		-		(605,932	)		-		-			(605,932	)
Balance, February 28, 2019		4,296,703		42,967		3,120,461		9,360,996			14,779		(38,555	)		12,485,869

	Common Stock				Additional					Treasury Stock
	Number of				paid-in		Retained			Number of
	shares		Par value		capital		earnings			shares		Amount			Total
Balance, November 30, 2019		4,321,087	$	43,211	$	3,250,087	$	8,547,342			18,842	$	(47,058	)	$	11,793,582
Stock based compensation		53,750		537		37,043		-			10,517		(19,064	)		18,516
Net (loss)		-		-		-		(437,192	)		-		-			(437,192	)
Balance, February 29, 2020		4,374,837		43,748		3,287,130		8,110,150			29,359		(66,122	)		11,374,906

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 29, 2020			February 28, 2019
Cash flows from operations:
Net (loss) from continuing operations	$	(437,192	)	$	(605,932	)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Stock based compensation		37,580			65,546
Gain on disposal of property, plant, and equipment		(1,251	)		(15,086	)
Depreciation and amortization expense		227,456			289,072
Bad debt expense (recovery)		10,215			8,026
Deferred income taxes		(125,253	)		(170,796	)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable		(987,521	)		(132,985	)
Inventories		(535,922	)		48,417
Net investment in sales-type leases		37,231			12,791
Other assets		(191,484	)		(177,118	)
Increase (decrease) in:
Accounts payable		349,256			(7,571	)
Contracts in progress, net		559,252			(462,520	)
Customer deposits		116,906			569,168
Income taxes payable		17,581			(4,371	)
Accrued expenses		(36,982	)		(130,048	)
Net cash (used in) operating activities		(960,128	)		(713,407	)
Cash flows from investing activities:
Purchases of property, plant, and equipment		(267,141	)		(53,056	)
Net proceeds from sale of assets		1,251			893,713
Net cash provided by (used in) investing activities		(265,890	)		840,657
Cash flows from financing activities:
Net change in line of credit		1,266,000			136,000
Repayment of term debt		(20,776	)		(252,697	)
Repurchases of common stock		(19,064	)		(10,820	)
Net cash provided by (used in) financing activities		1,226,160			(127,517	)
Net increase (decrease) in cash		142			(267	)
Cash at beginning of period		3,145			3,512
Cash at end of period	$	3,287		$	3,245
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	77,238		$	81,186
Income taxes	$	1,093		$	260

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.

The Company began operations as a farm equipment manufacturer in 1956. Since that time, it has become a major worldwide manufacturer of agricultural equipment. Its principal manufacturing plant is located in Armstrong, Iowa.

The Company has organized its 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. The Agricultural Products segment manufactures and sells farm equipment and related replacement parts under the Art’s-Way Manufacturing label and private labels. The Modular Buildings segment manufactures and installs modular buildings for animal containment and various laboratory uses, and the tools segment manufactures steel cutting tools and inserts.

2) Summary of Significant Accounting Policies

Statement Presentation

The foregoing condensed consolidated financial statements of the Company are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s 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, 2019. The results of operations for the three months ended February 29, 2020 are not necessarily indicative of the results to be expected for the fiscal year ending November 30, 2020.

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 29, 2020. Actual results could differ from those estimates.

Revenue Recognition

In accordance with ASC 606, revenue is measured based on consideration specified in a contract with a customer and recognized when the Company satisfies the performance obligation specified in each contract. The major sources of revenue for the Agricultural Products and Tools segments are farm equipment, service parts related to farm equipment and steel cutting tools and inserts. The Agricultural Products and Tools segments generally execute short-term contracts that contain a single performance obligation – the delivery of product to the common carrier. The Company recognizes revenue for the production and sale of farm equipment, service parts and cutting tools upon shipment of the goods. Shipment of the goods is the point in time when risk of ownership and title pass to the buyer. All sales are made to authorized dealers whose application for dealer status has been approved and who have been informed of general sales policies. Any changes in the Company’s terms are documented in the most recently published price lists. Pricing is fixed and determinable according to the Company’s published equipment and parts price lists. Title to all equipment and parts sold pass to the buyer upon delivery to the carrier and is not subject to a customer acceptance provision. Proof of the passing of title is documented by the signing of the delivery receipt by a representative of the carrier. Post shipment obligations are limited to any claim with respect to the condition of the equipment or parts. The Agricultural Products and Tools segments each typically require payment in full 30 days after the ship date. To take advantage of program discounts, some customers pay deposits up front. Any deposits received are considered unearned revenue and increase contract liabilities.

5

In certain circumstances, upon the customer’s written request, the Company may recognize revenue when production is complete, and the goods are ready for shipment. At the buyer’s request, the Company will bill the buyer upon completing all performance obligations, but before shipment. The buyer dictates that the Company ship the goods per their direction from the Company’s manufacturing facility, as is customary with this type of agreement, in order to minimize shipping costs. The written agreement with the customer specifies that the goods will be delivered on a schedule to be determined by the customer, with a final specified delivery date, and that the Company will segregate the goods from its inventory, such that they are not available to fill other orders. This agreement also specifies that the buyer is required to purchase all goods manufactured under this agreement. Title of the goods will pass to the buyer when the goods are complete and ready for shipment, per the customer agreement. At the transfer of title, all risks of ownership have passed to the buyer, and the buyer agrees to maintain insurance on the manufactured items that have not yet been shipped. The Company has operated using bill and hold agreements with certain customers for many years, with consistent satisfactory results for both buyer and seller. The credit terms on this agreement are consistent with the credit terms on all other sales. All risks of loss are shouldered by the buyer, and there are no exceptions to the buyer’s commitment to accept and pay for these manufactured goods.

The Modular Buildings segment is in the construction industry with its major source of revenue arising from modular building sales. Sales of modular buildings are generally recognized using input methods to measure progress towards the satisfaction of a performance obligation using the percentage of completion method. Revenue and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion. Contract costs consist of direct costs on contracts, including labor, materials, amounts payable to subcontractors and those indirect costs related to contract performance, such as equipment costs, insurance and employee benefits. Contract cost is recorded as incurred, and revisions in contract revenues and cost estimates are reflected in the accounting period when known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Contract losses are recognized when current estimates of total contract revenue and contract cost indicate a loss. Estimated contract costs include any and all costs appropriately allocable to the contract. The provision for these contract losses will be the excess of estimated contract costs over estimated contract revenues. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract change orders, penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. The Company uses significant judgements in determining estimated contract costs and completion percentages throughout the life of the project. Stock modular building sales also occur and are recognized at a point in time when the performance obligation is fulfilled through substantial completion. Substantial completion is achieved through customer acceptance of the completed building. The Modular Buildings segment executes contracts with customers that can be short- or long-term in nature. These contracts can have multiple performance obligations and revenue from these can be recognized over time or at a point in time depending on the nature of the contracts. Payment terms for the Modular Buildings segment vary by contract, but typically utilize money down and progress payments throughout the life of the contract. The payment terms of the Modular Buildings segment have the most impact on the Company’s contract receivables, contract assets and contract liabilities. Project invoicing from the Modular Buildings segment increases contract receivables and has an effect on contract liabilities through billings in excess of costs and estimated gross profit and advanced payments. The balance of contract assets is typically made up of the balance of costs in and estimated gross profit in excess of billings. Costs and profit in excess of amounts billed are classified as current assets and billings in excess of cost and profit are classified as current liabilities.

6

The Company leases modular buildings to certain customers and accounts for these transactions as operating or sales-type leases. These leases have terms of up to 36 months and are collateralized by a security interest in the related modular building. On sales-type leases, the lessee has a bargain purchase option available at the end of the lease term. A minimum lease receivable is recorded net of unearned interest income and profit on sale at the time the building is substantially complete. Profit related to the sale of the building is recorded upon fulfillment of the Company’s obligation to the lessee. On operating leases, the Company recognizes rent when the lessee has all the rights and benefits of ownership of the asset.

The Agricultural Products segment offers variable consideration in the form of discounts depending on participation in yearly early order programs. This variable consideration is allocated to the transaction price of all products in a sales arrangement and is not contingent on future outcomes. The Agricultural Products segment does not offer rebates or credits. The Tools segment offers quantity discounts that are allocated to the transaction price of each product once the quantity break is achieved. The Tools segment does not offer rebates or credits. The Modular Buildings segment does not offer discounts, rebates or credits.

The Company’s returns policy allows for new and saleable parts to be returned, subject to inspection and a restocking charge, which is included in net sales. Whole goods are not returnable. Shipping costs charged to customers are included in net sales. Freight costs incurred are included in cost of goods sold. Customer deposits consist of advance payments from customers, in the form of cash, for revenue to be recognized in the following year.

For information on product warranty as it applies to ASC 606, refer to Note 9 “Product Warranty.”

Recently Issued Accounting Pronouncements

Recently Adopted Accounting Guidance

Leases

In February 2016, the Financial Accounting Standards Board 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 adopted this guidance for fiscal 2020 using the modified retrospective approach, including interim periods within that reporting period. Under the modified retrospective approach, the Company did not adjust prior comparative periods. The Company has a moderate amount of leasing activity mainly as the lessee of office equipment and as the lessor of modular rental buildings. As a result of adoption, the Company recognized $34,316 as a right-of-use asset and $34,316 of lease liabilities on the balance sheet for office equipment it leases. The Company’s activity as a lessor will remain mostly unaffected by this guidance. The Company’s additional disclosures may include, but are not limited to:

● Nature of its leases

● Significant assumptions and judgements used

● Information about leases that have not yet commenced

● Related-party lease transactions

● Accounting policy election regarding short-term leases

● Finance, operating, short-term and variable lease costs

● Maturity analysis of operating lease payments, lease receivables and lease obligations

● Tabular disclosure of lease-related income

● Components of the net investment in a lease

● Information on the management of risk associated with residual asset

7

3) Disaggregation of Revenue

The following table displays revenue by reportable segment from external customers, disaggregated by major source. The Company believes disaggregating by these categories depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

	Three Months Ended February 29, 2020
	Agricultural		Modular Buildings		Tools		Total
Farm equipment	$	2,349,000	$	-	$	-	$	2,349,000
Farm equipment service parts		532,000		-		-		532,000
Steel cutting tools and inserts		-		-		609,000		609,000
Modular buildings		-		1,271,000		-		1,271,000
Modular building lease income		-		156,000				156,000
Other		72,000		30,000		7,000		109,000
	$	2,953,000	$	1,457,000	$	616,000	$	5,026,000

	Three Months Ended February 28, 2019
	Agricultural		Modular Buildings		Tools		Total
Farm equipment	$	2,092,000	$	-	$	-	$	2,092,000
Farm equipment service parts		460,000		-		-		460,000
Steel cutting tools and inserts		-		-		484,000		484,000
Modular buildings		-		795,000		-		795,000
Modular building lease income		-		179,000				179,000
Other		58,000		48,000		8,000		114,000
	$	2,610,000	$	1,022,000	$	492,000	$	4,124,000

8

4) Contract Receivables, Contract Assets and Contract Liabilities

The following table provides information about contract receivables, contract assets, and contract liabilities from contracts with customers included on the Condensed Consolidated Balance Sheets.

	February 29, 2020		November 30, 2019
Receivables	$	998,000	$	115,000
Assets		513,000		727,000
Liabilities	$	519,000	$	89,000

The amount of revenue recognized in the first three months of fiscal 2020 that was included in a contract liability at November 30, 2019 was approximately $89,000 compared to $185,000 in the same period of fiscal 2019. The significant change in contract receivables reflected above is due to a large milestone invoice from the Modular Buildings Segment. This invoice also affected contract liabilities by increasing billings in excess of costs and estimated gross profit at February 29, 2020. Swings in contract assets from November 30, 2019 are due to changes in costs and estimated gross profit in excess of billings from the Modular Buildings segment.

The Company utilizes the practical expedient exception for these contracts and will report only on performance obligations greater than one year. As of February 29, 2020, the Company has no performance obligations with an original expected duration greater than one year.

5) Net Income (Loss) Per Share of Common Stock

Basic net income (loss) per share of common stock 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 net income (loss) per share.

Basic and diluted net income (loss) per share have been computed based on the following as of February 29, 2020 and February 28, 2019:

	For the Three Months Ended
	February 29, 2020			February 28, 2019
Numerator for basic and diluted net income (loss) per share:
Net income (loss)	$	(437,192	)	$	(605,932	)
Denominator:
For basic net income (loss) per share - weighted average common shares outstanding		4,315,481			4,243,707
Effect of dilutive stock options		-			-
For diluted net income (loss) per share - weighted average common shares outstanding		4,315,481			4,243,707
Net Income (Loss) per share - Basic:
Net Income (Loss) per share	$	(0.10	)	$	(0.14	)
Net Income (Loss) per share - Diluted:
Net Income (Loss) per share	$	(0.10	)	$	(0.14	)

9

6) Inventory

Major classes of inventory are:

	February 29, 2020			November 30, 2019
Raw materials	$	7,576,968		$	7,156,001
Work in process		332,668			492,125
Finished goods		4,042,034			3,905,373
Gross inventory	$	11,951,670		$	11,553,499
Less: Reserves		(2,637,241	)		(2,774,992	)
Net Inventory	$	9,314,429		$	8,778,507

7) Accrued Expenses

Major components of accrued expenses are:

	February 29, 2020		November 30, 2019
Salaries, wages, and commissions	$	592,892	$	555,201
Accrued warranty expense		239,233		203,185
Other		272,888		374,440
	$	1,105,013	$	1,132,826

8) Assets Held for Lease

Major components of assets held for lease are:

	February 29, 2020		November 30, 2019
Modular Buildings	$	667,925	$	713,782
Net assets held for lease	$	667,925	$	713,782

Rents recognized from assets held for lease included in sales on the Consolidated Statements of Operations during the three months ended February 29, 2020 were $155,508 compared to $179,044 for the three months ended February 28, 2019. Rents recognized in sales were related to the leasing of modular buildings as a part of the normal course of business operations of the Modular Buildings segment. Rents recognized from assets held for lease included in other income (expense) on the Consolidated Statements of Operations during the three months ended February 29, 2020 were $0 compared to $2,500 for the same period of fiscal 2019. Rents related to the West Union facility in the Agricultural Products segment were recognized in other income as such income was outside of the scope of this segment’s normal business operations. The West Union facility was sold on December 14, 2018 for $900,000.

Future minimum lease receipts from assets held for lease are as follows:

Future Minimum Leased Assets
Year Ending November 30,	Amount
2020	$	58,089
Total	$	58,089

10

9) 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. Product warranty is included in the price of the product and provides assurance that the product will function in accordance with agreed-upon specifications. It does not represent a separate performance obligation under ASC 606. 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 7 “Accrued Expenses.” Changes in the Company’s product warranty liability for the three months ended February 29, 2020 and February 28, 2019 are as follows:

	For the Three Months Ended
	February 29, 2020			February 28, 2019
Balance, beginning	$	203,185		$	96,785
Settlements / adjustments		(28,576	)		(132,297	)
Warranties issued		64,624			61,369
Balance, ending	$	239,233		$	25,857

10) Loan and Credit Agreements

The Company maintains two revolving lines of credit and a term loan with Bank Midwest. The Company also previously maintained a term loan with The First National Bank of West Union.

Bank Midwest Revolving Lines of Credit and Term Loans

The Company maintains a credit facility with Bank Midwest consisting of a $5,000,000 revolving line of credit (the “2017 Line of Credit”) and a $2,600,000 term loan due October 1, 2037 (the “Term Loan”). On February 29, 2020, the balance of the 2017 Line of Credit was $3,844,530 with $1,155,470 remaining available, as may be limited by the borrowing base calculation. The 2017 Line of Credit borrowing base is an amount equal to 75% of accounts receivable balances (discounted for aged receivables), plus 50% of inventory, less any outstanding loan balance on the 2017 Line of Credit. At February 29, 2020, the 2017 Line of Credit was not limited by the borrowing base calculation. Any unpaid principal amount borrowed on the 2017 Line of Credit accrues interest at a floating rate per annum equal to 1.00% above the Wall Street Journal rate published in the money rates section of the Wall Street Journal. The interest rate floor is set at 4.25% per annum and the current interest rate is 4.25% per annum. The 2017 Line of Credit was most recently renewed on March 30, 2020. The 2017 Line of Credit matures on March 30, 2021 and requires monthly interest-only payments.

11

The Term Loan accrues interest at a rate of 5.00% for the first sixty months. Thereafter, the Term Loan will accrue interest at a floating rate per annum equal to 0.75% above the Wall Street Journal rate published the money rates section of the Wall Street Journal. The interest rate floor is set at 4.15% per annum and the interest rate may only be adjusted by Bank Midwest once every five years. Monthly payments of $17,271 for principal and interest are required. The Term Loan is also guaranteed by the United States Department of Agriculture (“USDA”), which required an upfront guarantee fee of $62,400 and requires an annual fee of 0.5% of the unpaid balance. As part of the USDA guarantee requirements, shareholders owning more than 20% are required to personally guarantee a portion of the Term Loan, in an amount equal to their stock ownership percentage. J. Ward McConnell Jr., the Vice Chairman of the Board of Directors and a shareholder owning more than 20% of the Company’s outstanding stock, is guaranteeing approximately 38% of the Term Loan, for an annual fee of 2% of the personally guaranteed amount. The initial guarantee fee will be amortized over the life of the Term Loan, and the annual fees and personally guaranteed amounts are expensed monthly.

On February 13, 2019, the Company opened a $4,000,000 revolving line of credit (the “2019 Line of Credit”) with Bank Midwest in connection with bonding obligations for the Company’s performance of a large modular laboratory construction project. Funds under the 2019 Line of Credit will be undisbursed to the Company and will be held by Bank Midwest in connection with an Irrevocable Letter of Credit issued by Bank Midwest for the project. The 2019 Line of Credit accrues interest at a floating rate per annum equal to 1.00% above the Wall Street Journal rate published in the money rates section of the Wall Street Journal. The interest rate floor is set at 4.25% per annum and the current interest rate is 6.00% per annum. The 2019 Line of Credit was recently renewed on February 13, 2020. The 2019 Line of Credit is payable upon demand by Bank Midwest. If no earlier demand is made, the unpaid principal and accrued interest will be payable in one payment, due on February 13, 2021. As of February 29, 2020, the funds on the 2019 Line of Credit remain undisbursed and are held by Bank Midwest.

Each of the 2017 Line of Credit and the Term Loan are governed by the terms of a separate Promissory Note, dated September 28, 2017, entered into between the Company and Bank Midwest. The 2019 Line of Credit is governed by the terms of a Promissory Note, dated February 13, 2019, entered into between the Company and Bank Midwest.

In connection with the 2017 Line of Credit, the Company, Art’s-Way Scientific Inc. and Ohio Metal Working Products/Art’s-Way Inc. each entered into a Commercial Security Agreement with Bank Midwest, dated September 28, 2017, pursuant to which each granted to Bank Midwest a first priority security interest in certain inventory, equipment, accounts, chattel paper, instruments, letters of credit and other assets to secure the obligations of the Company under the line of credit. Each of Art’s-Way Scientific Inc. and Ohio Metal Working Products/Art’s-Way Inc. also agreed to guarantee the obligations of the Company pursuant to the 2017 Line of Credit, as set forth in Commercial Guaranties, each dated September 28, 2017. The 2019 Line of Credit is also secured by these existing security documents.

To further secure the 2017 Line of Credit, the Company granted Bank Midwest a mortgage on its Canton, Ohio property held by Ohio Metal Working Products/Art’s-Way Inc. The 2019 Line of Credit is also secured by the mortgage on the Canton, Ohio property. The Term Loan is secured by a mortgage on the Company’s Armstrong, Iowa and Monona, Iowa properties. Each mortgage is governed by the terms of a separate Mortgage, dated September 28, 2017, and each property is also subject to a separate Assignment of Rents, dated September 28, 2017.

If the Company or its subsidiaries (as guarantors pursuant to the Commercial Guaranties) commits an event of default with respect to the promissory notes and fails or is unable to cure that default, Bank Midwest may immediately terminate its obligation, if any, to make additional loans to the Company and may accelerate the Company’s obligations under the promissory notes. Bank Midwest 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. In addition, in an event of default, Bank Midwest may foreclose on the mortgaged property.

12

Compliance with Bank Midwest covenants is measured annually at November 30. The terms of the Bank Midwest loan agreements require the Company to maintain a minimum working capital ratio of 1.75, while maintaining a minimum of $5,100,000 of working capital. Additionally, a maximum debt to worth ratio of 1 to 1 must be maintained, with a minimum of 40% tangible balance sheet equity, with variations subject to mutual agreement. The Company is also required to maintain a minimum debt service coverage ratio of 1.25, with a 0.10 tolerance. The Company also must receive bank approval for purchases or sales of equipment over $100,000 annually and maintain reasonable salaries and owner compensation. The Company was in compliance with all covenants as of November 30, 2019 other than the debt service coverage ratio. Bank Midwest issued a waiver forgiving the noncompliance, and no event of default has occurred. The next measurement date is November 30, 2020.

First National Bank of West Union Term Loan

On May 1, 2010, the Company obtained a $1,300,000 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 loan was 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.

On December 14, 2018, the Company repaid this loan in full in connection with the sale of the West Union, Iowa facility.

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

	February 29, 2020		November 30, 2019
Bank Midwest loan payable in monthly installments of $17,271 including interest at 5.00%, due October 1, 2037	$	2,415,217	$	2,435,993
Total term debt	$	2,415,217	$	2,435,993
Less current portion of term debt		86,497		85,401
Term debt, excluding current portion	$	2,328,720	$	2,350,592

A summary of the minimum maturities of term debt follows for the years ending November 30:

Year	Amount
2020	$	64,625
2021		90,179
2022		94,858
2023		99,781
2024		104,665
2025 and thereafter		1,961,109
	$	2,415,217

13

11) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses.

12) Related Party Transactions

During the three months ended February 29, 2020 and February 28, 2019, the Company did not recognize any revenues from transactions with a related party, and no amounts in accounts receivable balances were due from a related party. From time to time, the Company purchases various supplies from related parties, which are companies owned by J. Ward McConnell, Jr., the Vice Chairman of the Company’s Board of Directors. Marc McConnell, the Chairman of the Company’s Board of Directors also serves as President of these companies. J. Ward McConnell, Jr., as a shareholder owning more than 20% of the Company’s outstanding stock, was required to guarantee a portion of the Company’s Term Loan in accordance with the USDA guarantee on the Company’s Term Loan. J. Ward McConnell, Jr. is paid a monthly fee for his guarantee. In the three months ended February 29, 2020, the Company recognized $4,588 of expense for transactions with related parties, compared to $8,148 for the three months ended February 28, 2019. As of February 29, 2020, accrued expenses contained a balance of $1,454 owed to a related party compared to $1,451 on February 28, 2019.

13) Sales-Type Leases

The Company accounts for leases of modular buildings to certain customers as sales-type leases. These leases have terms of up to 36 months and are collateralized by a security interest in the related modular building. The lessee has a bargain purchase option available at the end of the lease term. A minimum lease receivable is recorded net of unearned interest income and profit on sale at the time the Company’s obligation to the lessee is complete. Profit related to the sale of the building is recorded upon fulfillment of the Company’s obligation to the lessee.

Modular buildings held for lease by the Modular Buildings segment are recorded at cost. Amortization of each modular building is calculated over the useful life of the building. Estimated useful life is three to five years. Lease revenue is accounted for on a straight-line basis over the term of the related lease agreement. Lease income for modular buildings is included in sales on the consolidated statements of operations.

The components related to sales-type leases at February 29, 2020 and November 30, 2019 are as follows:

	February 29, 2020			November 30, 2019
Minimum lease receivable, current	$	124,776		$	162,425
Unearned interest income, current		(8,220	)		(14,420	)
Net investment in sales-type leases, current	$	116,556		$	148,005
Minimum lease receivable, long-term	$	-		$	5,851
Unearned interest income, long-term		-			(69	)
Net investment in sales-type leases, long-term	$	-		$	5,782

14

There was no sales activity related to sales-type leases for the three months ended February 29, 2020 and February 28,2019.

Future minimum lease receipts from sales-type leases are as follows:

Year Ending November 30,	Amount
2020	$	118,924
2021		5,852
Total	$	124,776

14) Operating Leases

The Company determines if an arrangement is a lease at inception of a contract. The nature of the Company’s operating leases at this time is office equipment, mainly copiers, with terms of 12 to 60 months. Operating leases are included in other assets as operating lease right-of-use (“ROU”) assets on the Condensed Consolidated Balance Sheets while current lease liabilities are included accrued expenses. The long-term portion of operating lease liabilities are shown as long-term liabilities on the Condensed Consolidated Balance Sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company has copier lease agreements with lease and non-lease components and has elected the practical expedient not to separate lease and non-lease components for this asset class. The Company has also elected not to recognize lease liabilities and ROU assets for short-term leases. The Company recognizes variable costs that depend on usage in profit or loss as they are incurred.

The components of operating leases on the Condensed Consolidated Balance Sheets at February 29, 2020 were as follows:

	February 29, 2020
Operating lease right-of-use assets	$	34,316
Current portion of operating lease liabilities	$	9,169
Long-term portion of operating lease liabilities		25,147
Total operating lease liabilities	$	34,316

The Company included $34,316 of operating lease right-of-use assets in other assets, the current portion of operating lease liabilities of $9,169 was included in accrued expenses and $25,147 of long-term operating lease liabilities in the long-term liability portion of the Condensed Consolidated Balance Sheets. The Company recorded $8,151 of operating lease costs in the three months ended February 29, 2020 which included variable costs tied to usage. The Company’s operating leases carry a weighted average lease term of 42 months and have a weighted average discount rate of 5.50%

15

Future maturities of operating lease liabilities are as follows:

Maturities of operating lease liabilities are as follows:
Year Ending November 30,
2020	8,135
2021	10,847
2022	10,847
2023	6,456
2024	1,630
Total lease payments	37,916
Less imputed interest	(3,600	)
Total operating lease liabilities	34,316

15) 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. Stock options granted prior to January 27, 2011 are governed by the applicable Prior Plan and the forms of agreement adopted thereunder. On February 25, 2020, the Board of Directors adopted, subject to stockholder approval, the Art’s-Way Manufacturing Co., Inc 2020 Equity Incentive Plan (the “2020 Plan”). If approved, the 2020 Plan will replace the 2011 Plan and will add an additional 500,000 shares to the number of shares reserved for issuance pursuant to equity awards.

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 fully vested common stock annually or initially upon their election to the Board and another 1,000 shares of fully vested common stock on the last business day of each fiscal quarter. During the first three months of fiscal 2020, restricted stock awards of 48,750 shares were issued to various employees, directors, and consultants, which vest over the next three years, and restricted stock awards of 5,000 shares were issued to directors as part of the director compensation policy, which vested immediately upon grant. In comparison, restricted stock awards of 67,053 shares were issued to various employees, directors, and consultants, which vest over the next three years, and restricted stock awards of 6,000 were issued to directors as part of the director compensation policy during the first three months of fiscal 2019. During the first three months of fiscal 2020, no shares of restricted stock were forfeited upon departure of certain employees compared to 1,400 shares of restricted stock for the same period of fiscal 2019.

16

Stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date and recognized over the relevant vesting period. The Company estimates 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 29, 2020 or in the same respective period of fiscal 2019. The Company incurred a total of $37,580 and $65,546 of stock-based compensation expense for restricted stock awards during the three months ended February 29, 2020 and February 28, 2019, respectively. The Company repurchased 10,517 shares and 5,493 shares from employees in the form of treasury stock as consideration for payroll taxes paid on the employee’s behalf for the three months ended February 29, 2020 and February 28, 2019, respectively. Stock compensation net of treasury shares repurchased for the three months ended February 29, 2020 was $18,516 compared to $54,726, for the same period in fiscal 2019.

16) 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 29, 2020 and November 30, 2019, the carrying amount approximated fair value for cash, accounts receivable, net investment in sales-type leases, accounts payable, notes payable to bank, and other current and long-term liabilities. The carrying amounts of current assets and liabilities approximate fair value because of the short maturity of these instruments. The fair value of the net investment in sales-type leases also approximates recorded value as that is based on discounting future cash flows at rates implicit in the lease. The rates implicit in the lease do not materially differ from current market rates. The fair value of the Company’s installment term loans payable also approximates recorded value because the interest rates charged under the loan terms are not substantially different from current interest rates.

17) Segment Information

The Company has three reportable segments: Agricultural Products, Modular Buildings and Tools. The Agricultural Products segment manufactures and sells farm equipment and related replacement parts under the Art’s-Way Manufacturing label and private labels. The Modular Buildings segment manufactures and installs modular buildings for various uses, commonly animal containment and research laboratories. 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.

17

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

	Three Months Ended February 29, 2020
	Agricultural Products			Modular Buildings		Tools			Consolidated
Revenue from external customers	$	2,953,000		$	1,457,000	$	616,000		$	5,026,000
Income (loss) from operations		(435,000	)		6,000		(41,000	)		(470,000	)
Income (loss) before tax		(498,000	)		6,000		(52,000	)		(544,000	)
Total Assets		13,870,000			4,373,000		2,757,000			21,000,000
Capital expenditures		241,000			26,000		-			267,000
Depreciation & Amortization		126,000			68,000		33,000			227,000

	Three Months Ended February 28, 2019
	Agricultural Products			Modular Buildings			Tools			Consolidated
Revenue from external customers	$	2,610,000		$	1,022,000		$	492,000		$	4,124,000
Income (loss) from operations		(602,000	)		(98,000	)		(23,000	)		(723,000	)
Income (loss) before tax		(649,000	)		(99,000	)		(32,000	)		(780,000	)
Total Assets		14,852,000			3,564,000			2,487,000			20,903,000
Capital expenditures		34,000			18,000			1,000			53,000
Depreciation & Amortization		125,000			132,000			32,000			289,000

*The consolidated total in the tables is a sum of segment figures and may not tie to actual figures in the condensed consolidated financial statements due to rounding.

18) Subsequent Events

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 the renewal of the 2017 Line of Credit that was renewed on March 30, 2020.

18

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 Part I, Item 1 of this Quarterly Report on Form 10-Q (this “report”) and the audited consolidated financial statements and related notes thereto included in Part II, Item 8, “Financial Statements and Supplementary Data,” as well as Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the fiscal year ended November 30, 2019. 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 Part I, 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 warranty costs and order backlog; (ii) our beliefs regarding the sufficiency of working capital and cash flows; (iii) our expectation that we will continue to be able 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; and (viii) our expectations regarding the impact of COVID-19 on our business condition and results of operations.

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 changing 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) 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; (iv) the ongoing COVID-19 outbreak; (v) fluctuations in seasonal demand and our production cycle; and (vi) other factors described from time to time in our Securities and Exchange Commission filings. We do not intend to update the forward-looking statements contained in this report other than as required by law. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Critical Accounting Policies

Our critical accounting policies involving the more significant judgments and assumptions used in the preparation of our financial statements as of February 29, 2020 remain unchanged from November 30, 2019, other than the adoption of the new lease accounting standard in ASC 842, as  discussed in Note 2, “Summary of Significant Accounting Policies” included in Part I, Item I, “Financials Statements” of this report. Disclosure of these critical accounting policies is incorporated by reference from Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended November 30, 2019.

19

Results of Operations

Net Sales and Cost of Sales

Our consolidated corporate sales for the three-month period ended February 29, 2020 were $5,026,000 compared to $4,124,000 during the same period in fiscal 2019, an increase of $902,000, or 21.9%. The increase in consolidated revenue is due to increased sales across all three of our segments. Consolidated gross margin for the three-month period ended February 29, 2020 was 19.4% compared to 14.7% for the same period in fiscal 2019.

Our first quarter sales in our Agricultural Products segment were $2,953,000 compared to $2,610,000 for the same period in fiscal 2019, an increase of $343,000, or 13.1%. The increase in revenue is due to increased demand across our manure spreader, dump box and grinder product lines. The successful release of a new style manure spreader at the beginning of 2019 has made manure spreaders our second best-selling product line next to grinders. We also acquired market share of dump boxes at the end of fiscal 2019 and have continued to sell dump boxes into the first quarter of fiscal 2020. We are working to replace lost revenue from a decrease in sales to our OEM blower customer and our major OEM reel customers in fiscal year 2019. We have continued to develop and eliminate products from our diverse product offering to ensure our products remain relevant. Gross margin for the three-month period ended February 29, 2020 was 19.3% compared to 12.7% for the same period in fiscal 2019. The increase in gross margin is due to improved labor efficiency as the result of continuous improvement projects along with price increases that took place at the end of 2019. Continuous improvement projects included warehouse reorganization, fixturing to maximize process efficiency, waste elimination and fixed slot production scheduling to reduce stop/starts by product line.

Our first quarter sales in our Modular Buildings segment were $1,457,000 compared to $1,022,000 for the same period in fiscal 2019, an increase of $435,000, or 42.6%. Our increase in revenue is due largely to the progress on a large construction contract that will continue into the third quarter of fiscal 2020. However, even without this large construction contract our backlog at February 29, 2020 would still be up by more than $1 million from the same period in fiscal 2019. Gross margin for the three-month period ended February 29, 2020 was 17.6% compared to 11.7% for the same period in fiscal 2019. The increase in gross margin is attributable to more revenue available to cover fixed costs and improved workforce efficiency.

Our Tools segment had sales of $616,000 during the first quarter compared to $492,000 for the same period in fiscal 2019, a 25.2% increase. The increase is due to increased sales from an OEM agreement that was signed in fiscal 2019. We believe the full potential of this agreement has not been achieved at this point. Gross margin was 24.5% for the three-month period ended February 29, 2020 compared to 29.5% for the same period in fiscal 2019. The decreased gross margin is due to increased staffing levels to try and meet demand of our standard business coupled with our OEM tool agreement.

Expenses 

Our first quarter consolidated selling expenses were $456,000 compared to $343,000 for the same period in fiscal 2019. The increase in selling expenses is due to increased wages from the addition of a territory development manager, increased commissions as a result of higher sales and increased spending on advertising efforts. Selling expenses as a percentage of sales were 9.1% for the three-month period ended February 29, 2020 compared to 8.3% for the same period in fiscal 2019.

20

Consolidated engineering expenses were $110,000 for the three-month period ended February 29, 2020 compared to $147,000 from the same period in fiscal 2019. The decrease is due to lower research and development costs in the first quarter of fiscal 2020 as we focused predominantly on reengineering current processes to improve efficiency and reduce product costs. Engineering expenses as a percentage of sales were 2.2% for the three-month period ended February 29, 2020 compared to 3.6% for the same period in fiscal 2019.

Consolidated administrative expenses for the three-month period ended February 29, 2020 were $882,000 compared to $837,000 for the same period in fiscal 2019. The increase in administrative expenses is due to onetime costs in our Tools segment for implementing processes necessary for its OEM agreement and an additional bonus accrual put in place by the Board of Directors to help retain current talent. Administrative expenses as a percentage of sales were 17.5% for the three-month period ended February 29, 2020 compared to 20.3% for the same period in fiscal 2019.

Net Loss

Consolidated net loss was $(437,000) for the three-month period ended February 29, 2020 compared to net loss of $(606,000) for the same period in fiscal 2019. The decreased net loss is due to increased sales across all three segments, as well as conscious efforts to cut costs and improve workforce efficiency. As we continue to improve our processes, expand our product base and eliminate waste, we are positioning ourselves for sustained success in all economic conditions.

Order Backlog

The consolidated order backlog net of discounts as of April 6, 2020 was $7,451,000 compared to $10,209,000 as of April 6, 2019. The agricultural products segment order backlog was $2,699,000 as of April 6, 2020 compared to $2,032,000 in fiscal 2019. The increase in backlog from the agricultural products segment is due to the early success of our x-series manure spreaders and success of our early order program.  The backlog for the modular buildings segment was $4,528,000 as of April 6, 2020, compared to $7,897,000 in fiscal 2019.  The decrease is due to progress made on a large contract that is not part of our typical year.  Excluding this project from backlog, our backlog is up $962,000 compared to fiscal 2019.  The backlog for the tools segment was $224,000 as of April 6, 2020 compared to $190,000 in fiscal 2019. The increase in backlog for our tools segment is largely due to an OEM agreement that was signed in the third quarter of fiscal 2019. 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.

Potential Impact of COVID-19

While the COVID-19 outbreak had very little effect on the first quarter of fiscal 2020, we believe that the outbreak will impact our results of operations for the second quarter of fiscal 2020 and possibly beyond.  As of March 23, 2020, we have shifted the majority of our office staff in all three segments to remote workstations with the exception of key operations support. We expect this to continue until risks of transmission diminish to a level where we feel we can keep our staff safe.  We have also given high-risk individuals the option to self-quarantine, and to-date, our workforce is down approximately 17% due to self-quarantine. Despite this initial drop in workforce, our operations have continued with little disruption. However, we are concerned that any further drop in workforce could impact our operations.

21

Our Tools and Modular Buildings segments each have workforces under 25 employees and a large reduction of workforce for these segments could result in a halt of production. Our Tools segment, located in Canton, Ohio, is the only segment that operates in a state that is currently under a “shelter in place” order. However, we do have employees from our Modular Buildings and Agricultural Products segments commuting from Wisconsin and Minnesota, which are also under “shelter in place” orders. All three of our segments are essential businesses supporting agriculture, biomedical, or oil and gas industries and have not been required to shut down operations at this point.

In our Agricultural Products segment, we have not experienced order cancellations at this time and our backlog as of April 6, 2020 remains approximately 33% higher than a year ago. We have noticed a decrease in sales call activity over the past two weeks but are not yet able to predict any impact on future orders. We believe that farm operations will remain mostly unaffected by COVID-19 and that the food supply will remain in high demand. As our suppliers experience decreases in their workforce, we expect disruptions in our supply chain that could affect scheduled deliveries of our products and the efficiency of our workforce.

Our Modular Buildings segment has a more diverse backlog than we had a year ago; however, there are some concerns about ability to finish backlog with current COVID-19 restrictions. Our workforce consists of 24 employees and a significant decrease in this workforce would affect our ability to finish production on the current backlog. We are also scheduled to deliver multiple buildings over the next couple months. This work could be delayed due to travel restrictions or key vendors shutting down operations temporarily. We do have a large amount of onsite construction work that is scheduled to take place in the second quarter of fiscal 2020 and any inability to perform this work would impact our revenue and building schedules.

In our Tools segment, we are seeing depressed oil prices that could put additional strain on our customers as they navigate COVID-19 challenges. Our backlog on April 6, 2020 is 18% higher than that of a year ago. This segment employs 23 people and would be faced with production challenges if our workforce decreases.

Based on the limited data we have at this point; we predict decreased revenue across our segments compared to fiscal 2019 and our initial fiscal 2020 expectations due to inability to meet production demand as a result of decreased workforce and supply chain disruptions over the second quarter of fiscal 2020.  We will continue to operate as long as allowed by government authorities and as long as the health of our employees is not compromised.

Liquidity and Capital Resources

Our primary source of funds for the three months ended February 29, 2020 was cash generated by financing activities, or the use of our line of credit. Our operating activities consumed $960,000 of cash during the first three months of fiscal 2020. A large increase in receivables was our biggest use of cash, coupled with increases in inventory in all three segments. We expect our primary capital needs for the remainder of fiscal 2020 to relate to operating costs, primarily production costs and contract fulfilment, and the retirement of debt.

22

We have a $5,000,000 revolving line of credit with Bank Midwest that, as of February 29, 2020, had an outstanding principal balance of $3,844,530. The line of credit is scheduled to mature on March 30, 2021.

We believe that we may see a slowdown of cash inflows from operations due to COVID-19 and the disruption of our customers’ workforce.  We believe our 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 and have had discussions with our bank about obtaining additional financing should COVID-19 have a large impact on our ability to operate.  The COVID-19 outbreak has also opened up opportunities for federally funded loans and grants that we will attempt to utilize to meet our cash flow needs.

Off Balance Sheet Arrangements

None.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

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

Item 4.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The persons serving as our principal executive officer and principal financial officer have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 not effective as of February 29, 2020, due to the material weakness described below. Notwithstanding the material weakness discussed below, our management has concluded that the consolidated financial statements included in this report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

Remediation of Material Weakness

Management previously identified that a material weakness existed as of November 30, 2019 related to the estimation of completed subcontract work on modular building contracts. Management recognizes that estimates are a necessary part of financial reporting; however, proper controls did not exist to review the accuracy of these estimates at the time of the transactions. Because we recorded an adjustment to the financial statements, this control deficiency did not result in a material misstatement to our consolidated financial statements for the year ended November 30, 2019.

23

Management implemented new internal controls in the first quarter of fiscal 2020 to remediate this material weakness. All receiving transactions are reviewed and signed off on by the receiving clerk and general manager for accuracy and completeness on a monthly basis. Any subcontract work received over $75,000 requires approval signatures from the Chief Financial Officer and general manager. These controls will help prevent and detect material misstatements that could otherwise results from the estimation of subcontract work. These new internal controls are subject to continued management review supported by testing, as well as oversight by the Audit Committee of our Board of Directors. Since insufficient time has passed to allow us to adequately test these new internal controls, we are unable to determine at this time that the material weakness has been fully remediated. We will continue to assess these new internal controls and work to remediate our material weakness.

Changes in Internal Control over Financial Reporting

Other than the steps taken to remediate the material weakness discussed above, 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. If our workforce continues to decrease due to COVID-19, we may experience difficulties maintaining proper segregation of duties due to the limited number of staff we are able to keep working. Management will continue to assess risks and impacts on internal controls over financials reporting as they arise.

24

PART II – OTHER INFORMATION

Item 1.   Legal Proceedings.

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

Item 1A. Risk Factors.

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

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

The following table presents the information with respect to purchases made by us of our common stock during the first quarter of fiscal 2020:

	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs
December 1 to December 31, 2019		-	$	-		N/A		N/A
January 1 to January 31, 2020		7,848	$	1.77		N/A		N/A
February 1 to February 28, 2020		2,669	$	1.94		N/A		N/A
Total		10,517	$	1.81

⁽¹⁾ Reflects shares withheld pursuant to the terms of restricted stock awards under our 2011 Plan to offset tax withholding obligations that occur upon vesting and release of shares. The value of the shares withheld is the closing price of our common stock on the date the relevant transaction occurs.

Item 3.   Defaults Upon Senior Securities.

None.

Item 4.   Mine Safety Disclosures.

Not applicable.

Item 5.   Other Information.

David A. King Employment Agreement

As previously disclosed, on March 5, 2020, we entered into an offer letter with David A. King, pursuant to which Mr. King is expected to assume the role of Chief Executive Officer upon the anticipated resignation of Carrie Gunnerson as Chief Executive Officer of the Company in the third quarter of fiscal year 2020. Mr. King’s start date was March 23, 2020 and he will serve as an Executive Vice President prior to assuming the role of Chief Executive Officer.

25

Mr. King’s employment is governed by an employment agreement entered into effective March 30, 2020 (as amended, the “Agreement”). The Agreement provides for an annual base salary of $265,000. Mr. King is eligible to receive annual cash incentive compensation of up to 75% of his base salary based on the Company’s achievement of annual financial objectives and to receive annual equity awards, each as granted by the Board (or a committee authorized by the Board). Mr. King is eligible to participate in any and all other employee benefit plans that are generally available to the Company’s employees.

The Agreement may be terminated at any time by either party. If the Agreement is terminated by the Company without Cause (as defined in the Agreement), the Company may be required to pay up to 12 weeks of compensation and benefits to Mr. King, in exchange for his release of any and all claims against the Company and his compliance with the non-competition and non-solicitation provisions of the Agreement. The Agreement also contains confidentiality and assignment of inventions provisions that survive the termination of the Agreement for an indefinite period.

This foregoing summary does not purport to be complete and is qualified in its entirety by reference to the text of the Agreement, a copy of which is attached hereto as Exhibit 10.2 and is incorporated herein by reference.

Line of Credit Renewals

Effective February 13, 2020, we renewed our $4,000,000 revolving line of credit with Bank Midwest. The revolving line of credit is payable upon demand by Bank Midwest. If no earlier demand is made, the unpaid principal and accrued interest will be payable in one payment, due on February 13, 2021. The updated Promissory Note with Bank Midwest is included as Exhibit 10.5 hereto and is incorporated herein by reference.

Effective March 30, 2020, we renewed our $5,000,000 revolving line of credit with Bank Midwest. The revolving line of credit matures on March 30, 2021 and requires monthly interest-only payments. The updated Promissory Note with Bank Midwest is included as Exhibit 10.4 hereto and is incorporated herein by reference.

Item 6. Exhibits.

Exhibit No.	Description
10.1	Employment Agreement between the Company and Michael Woods, dated February 1, 2020 – incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 3, 2020.
10.2	Employment Agreement between the Company and David A. King, effective March 30, 2020 – filed herewith.
10.3	Offer Letter between the Company and David King, dated March 5, 2020 - incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 11, 2020
10.4	Promissory Note, between Bank Midwest and Art’s-Way Manufacturing Co., Inc., dated March 30, 2020 – filed herewith.
10.5	Promissory Note, between Bank Midwest and Art’s-Way Manufacturing Co., Inc., dated February 13, 2020 – 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.

26

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 14, 2020	By:	/s/ Carrie L. Gunnerson
		Carrie L. Gunnerson
		President and Chief Executive Officer
Date: April 14, 2020	By:	/s/ Michael W. Woods
		Michael W. Woods
		Chief Financial Officer

27

27

EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

(David A. King)

This Employment Agreement (“Agreement”) is entered into as of March 23, 2020 and effective as of March 30, 2020 by and between Art’s-Way Manufacturing Co., Inc. (the “Company”), and David A. King (“Employee”).

RECITALS

A. Employee desires to be employed by the Company as its President and Chief Executive Officer and the Company desires to employ Employee as its President and Chief Executive Officer under the terms and conditions of this Agreement.

B. Employee recognizes, agrees and understands that execution of this Agreement is an express condition of employment with the Company as its President and Chief Executive Officer under the terms of this Agreement.

NOW, THEREFORE, in consideration of the Company employing Employee as its President and Chief Executive Officer under this Agreement and/or other benefits now or hereafter paid or made available to Employee by the Company, Employee and the Company agree as follows:

ARTICLE 1

EMPLOYMENT AND TERMS OF AGREEMENT

1.      Employment. From the effective date set forth above until the date on which the Company’s current President and Chief Executive Officer, Carrie Gunnerson, resigns, the Company hereby employs Employee and Employee hereby accepts employment as the Executive Vice President. Starting on the date Ms. Gunnerson resigns, currently expected to occur in the third quarter of fiscal year 2020, the Company hereby employs Employee and Employee hereby accepts employment as the President and Chief Executive Officer of the Company. This is a full-time position.

2.      Term. This Agreement is effective, and Employee’s employment hereunder shall commence, as of the effective date set forth above and will continue until terminated pursuant to Section 3.1 of this Agreement.

3.      Duties.

(a) Employee agrees, during his employment with the Company, to devote his full business and professional time and best efforts to the business of the Company, including, without limitation, the performance of those duties and responsibilities reasonably and customarily associated with his position; provided, however, that Employee’s duties and responsibilities shall be subject to determination by the Board of Directors of the Company (the “Board”).

(b) Employee shall report to, and at all times shall be subject to the direction of the Board.

(c) Employee shall, at all times during his employment with the Company, comply with the Company’s reasonable standards, regulations and policies as determined or set forth by the Company from time to time.

4.     Outside Activities. During his employment with the Company, Employee shall not engage in any other business activity that would conflict or interfere with his ability to perform his duties under this Agreement.

1

ARTICLE 2

COMPENSATION AND BENEFITS

1.     Base Salary. Employee’s initial annual base salary under this Agreement shall be $265,000.00 subject to required and authorized deductions and withholdings. This base salary is subject to upward or downward adjustment at the recommendation of the Compensation Committee of the Board, with the approval of the Board. This base salary shall be reviewed at least annually. The Company shall pay the base salary to Employee in accordance with its standard payroll practices. Employee’s base salary may be subject to review and adjustment by the Company from time to time.

2.     Incentive Pay. Employee will be eligible to receive annual cash incentive compensation of up to 75% of his base salary based on the Company’s achievement of annual financial objectives and to receive annual equity awards, each as granted by the Board (or a committee authorized by the Board). For the 2020 fiscal year, the annual cash incentive compensation calls for Employee to earn approximately 30% of annual base salary (pro-rated to reflect Employee’s start date with the Company) if the Company meets its budgeted plan.

3.     Equity Grant. As consideration for Employee’s acceptance of the terms and conditions of this Agreement, including the covenants in Article 5, the Company shall grant to Employee upon the effective date of this Agreement a restricted stock grant for 80,000 shares with the risks of forfeiture for 20,000 shares lapsing immediately and the risks of forfeiture for the remaining 60,000 shares lapsing in increments of 20,000 shares on each of the first three anniversaries of the grant date.

4.     Other Benefit Plans. Employee shall be eligible to participate in any and all other employee benefit plans, health plans, or arrangements, if any, made available from time to time by the Company to its employees to the extent Employee meets the eligibility requirements to receive such benefits. Nothing in this Agreement is intended to or shall in any way restrict the Company’s right to, or not to, offer, amend, modify or terminate any of its benefits or benefit plans during the terms of Employee’s employment.

5.     Vacation & Sick Days. Employee shall be eligible to accrue vacation for up to 20 work days per year, accruing equally during the year as of each pay period. In accordance with current policies, Employee may accrue and carry forward up to 80 hours of vacation time, which upon termination from the Company would be paid for pro rata for the then-current annual base salary. In addition, in accordance with current policies, Employee may take sick leave in accordance with current Company policy. The Company reserves the right to modify and alter its vacation and sick day policies/personal days, and Employee’s benefits thereunder, in its sole discretion; provided, however, Employee shall have the right to use then-existing accrued and carried vacation time up to the current maximum of 80 hours.

6.     Expense Reimbursement. During the term of this Agreement, Employee shall be entitled to reimbursement of all ordinary and necessary expenses incurred by Employee for the Company, in accordance with the Company’s policies and practices with regard to documentation and payment of such expenses. Additionally, Employee shall be entitled to reimbursement of up to $10,000 in expenses incurred by Employee in connection with Employee’s relocation to the Company’s headquarters, in accordance with the Company’s policies and practices with regard to documentation and payment of such expenses.

7.     Company Vehicle. The Company shall furnish a vehicle (with a value not to exceed $50,000) for Employee for use in performing his role on behalf of the Company. The Company will pay all expenses related to its maintenance and use.

2

ARTICLE 3

TERMINATION OF EMPLOYMENT

1.     Termination. Employee’s employment with the Company may be terminated at any time upon occurrence of any of the following:

(a) By mutual written agreement of the Company and Employee.

(b) Immediately upon the death or Disability of Employee. “Disability” means Employee is entitled to receive long-term disability benefits under the Company's long-term disability plan, or if there is no such plan, the Executive's inability, due to physical or mental incapacity, to perform the essential functions of his job, with or without reasonable accommodation, for 120 days out of any 365-day period.

(c) Immediately by the Company for “Cause,” which means the following:

(i) Failure of Employee to (A) faithfully, diligently or competently perform the material duties, requirements and responsibilities of his employment as contemplated by this Agreement or as reasonably assigned by the Board; or (B) Employee’s material breach of any provision of this Agreement or of the policies, regulations and directives of the Company as in effect from time to time;

(ii) Any negligent or intentional act or omission on the part of Employee that is materially injurious (or would be reasonably likely to be materially injurious) to the reputation or business of the Company, including, but not limited to, professional or personal conduct of Employee which is dishonest, disloyal, or inconsistent with federal and state laws respecting harassment of, or discrimination against, one or more of the Company’s employees; or

(iii) Commission by or conviction of Employee of, or a guilty or nolo contendere plea by Employee with respect to, any crime punishable as a felony.

(d) Upon written notice by Employee for any reason, effective immediately, unless the Company, in its sole discretion, elects that Employee continue to provide services hereunder for up to 16 weeks from the date of such written notice, in which case the effective date shall be the date through which Employee provides services hereunder. Employee will use best efforts to provide 16 weeks written notice of Employee’s intent to terminate employment under this subsection 3.1(d) and agrees to provide services for up to 16 weeks from the date of such notice if requested by the Company.

(e) Upon written notice by the Company for any reason, effective upon the date specified therein, which may, at the Company’s sole discretion, be a date that is up to 16 weeks from the date of such written notice.

2. Compensation Upon Termination of Employee’s Employment.

(a) In the event that Employee’s employment with the Company terminates, the following provisions shall govern as applicable:

(i) If termination occurs pursuant to subsection 3.1(a), the agreement of the parties shall control.

(ii) If termination occurs pursuant to subsection 3.1(b), all benefits and compensation shall terminate as of the date of Employee’s death.

(iii) If termination occurs pursuant to subsection 3.1(c), all benefits and compensation shall terminate as of the termination date.

3

(iv) If termination occurs pursuant to subsection 3.1(d), all benefits and compensation shall terminate as of the date Employee ceases to provide services.

(v) If termination occurs pursuant to subsection 3.1(e), all benefits and compensation shall terminate as of the later of: (A) the date Employee ceases to provide services; or (B) the date that is 12 weeks from the date of the written notice provided by the Company, provided that any payments under this subsection 3.2(a)(v)(B) shall be contingent upon Employee’s compliance through this period with his obligations under Section 3.3 and Articles 4 - 6 and Employee’s execution, delivery, compliance with, and non-rescission of a full and final release of any and all claims in favor of the Company and any related entities, and all such entities’ officers, directors, shareholders, and employees, which release shall also affirm Employee’s compliance with his obligations under Section 3.3 and Articles 4 - 6. If payments are made to Employee under this subsection 3.2(a)(v)(B), the first such payment shall be made on the next regularly scheduled payroll date and provided that all payments due under this subsection 3.2(a)(v)(B) shall be made within 13 weeks of the date of the written notice provided by the Company.

(b) In addition to the consideration set forth in Section 2.3, the parties acknowledge that the Company’s agreement to provide separation payments in accordance with the terms of this Section 3.2 constitutes consideration for Employee’s acceptance of the terms and conditions of this Agreement, including the covenants in Article 5.

(c) Notwithstanding anything in this Agreement to the contrary, if any of the payments described in this Section 3.2 are subject to the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (“Code Section 409A”) and the Company determines that Employee is a “specified employee” as defined in Code Section 409A as of the date of Employee’s termination of employment, such payments shall not be paid or commence earlier than the first day of the seventh month following the date of Employee’s termination of employment.

3.     Return of Property. Immediately upon termination (or at such earlier time as requested by the Company or its designees), Employee shall deliver to the Company all of its property, including but not limited to the Company vehicle, all work in progress, research data, equipment, originals and copies of documents and software, client information and lists, financial information, and all other material in his possession or control that belongs to the Company or its clients or contains Confidential Information, as defined in Article 4.

ARTICLE 4

PROTECTION OF CONFIDENTIAL INFORMATION

1.      Confidential Information. “Confidential Information” shall mean any information not generally known or readily ascertainable by the Company’s competitors or the general public. Confidential Information includes, but is not limited to, use of or customization to computer, software, and/or internet applications; data of any type that is created by Employee, which is provided, or to which access is provided, in the course of Employee’s employment by the Company; data or conclusions or opinions formed by Employee in the course of employment; manuals; trade secrets; methods, procedures or techniques pertaining to the business of the Company; specifications; systems; price lists; marketing plans; sales or service analyses; financial information; client names, contact information, requirements, purchase history or other information; supplier names or other information; employee names or other information; research and development data; diagrams; drawings; videotapes, audiotapes, or computerized media used as training regimens; and notes, memoranda, notebooks, and records or documents that are created, handled, seen, or used by Employee in the course of employment. Confidential Information does not include information that Employee can demonstrate by reliable, corroborated documentary evidence (1) is generally available to the public or (2) became generally available to the public through no act or failure to act by Employee.

4

2.      Confidentiality Restrictions. Employee agrees at all times to use all reasonable means to keep Confidential Information secret and confidential. Employee shall not at any time (including during and after termination of his employment with the Company) use, disclose, duplicate, record, or in any other manner reproduce in whole or in part any Confidential Information, except as necessary for the performance of Employee’s duties on behalf of the Company. Employee shall not at any time provide services to any person or entity if providing such services would require or likely result in his using or disclosing Confidential Information. Upon termination of Employee’s employment with the Company, or upon the Company’s earlier request, Employee shall immediately return to the Company all originals and copies of Confidential Information and other Company materials and property in Employee’s possession. Employee acknowledges that use or disclosure of any of the Company’s confidential or proprietary information in violation of this Agreement would have a materially detrimental effect upon the Company, the monetary loss from which would be difficult, if not impossible, to measure.

ARTICLE 5

COVENANT NOT TO COMPETE

1.     Noncompetition. During Employee’s employment with the Company and for a period of one year following the termination of his employment for any reason, whether voluntary or involuntary, Employee agrees that he will not, anywhere in the United States (which Employee acknowledges to be the Company’s trade area), directly or indirectly, on behalf of himself or another individual or entity, own, manage, operate, control, be employed by, consult for, participate in, or provide services to any business, entity or person that is in competition with the Company or designs, manufactures, sells or provides products or services that are the same as or similar to, or compete with, products or services offered by the Company at the time.

2.     Nonsolicitation of Employees. During Employee’s employment with the Company and for a period of one year following the termination of his employment for any reason, whether voluntary or involuntary, Employee agrees that he will not, directly or indirectly, on behalf of himself or another individual or entity, solicit or hire for employment or any other arrangement for compensation to perform services, any employee of the Company. For purposes of this Section 5.2, an “employee” means any individual who is then employed by the Company or has been employed by the Company at any time within the six-month period prior to Employee’s separation from employment.

3.     Nonsolicitation of Clients. During Employee’s employment with the Company and for a period of one year following the termination of his employment for any reason, whether voluntary or involuntary, Employee agrees that he will not, directly or indirectly, on behalf of himself or another individual or entity, solicit or provide products or services that compete with the Company to any of the Company’s clients. For purposes of this Section 5.3, a “client” means any individual or entity that is then a client of the Company or has been a client of the Company at any time within the twelve-month period prior to Employee’s separation from employment.

4.     Non-Disparagement. Employee agrees that Employee will not at any time make, publish, or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments, or statements concerning the Company or its businesses, or any of its employees, officers, and existing and prospective customers, suppliers, investors, and other associated third parties. This Section does not, in any way, restrict or impede Employee from exercising protected rights to the extent that such rights cannot be waived by agreement, including but not limited to Employee's Section 7 rights under the NLRA or rights to communicate with securities regulators/any other administrative or regulatory agency to report suspected unlawful conduct or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation, or order. Employee shall promptly provide written notice of any such order to the Chairman of the Board.

5

5.     Understandings. Employee hereby acknowledges and agrees that the Company informed him that the restrictions contained in this Article 5 would be required as part of the terms and conditions of his employment under this Agreement; that he signed and returned this Agreement to the Company prior to commencing employment under the terms of this Agreement; that he has carefully considered the restrictions contained in this Agreement and that they are reasonable; and that the restrictions in this Agreement will not unduly restrict him in securing other employment in the event of a termination from the Company.

ARTICLE 6

INVENTIONS

1.      Invention. For purposes of this Agreement, the term “Invention” means ideas, discoveries, and improvements, whether or not shown or described in writing or reduced to practice, and whether patentable or not, relating to any of the Company’s present or future sales, research, or other business activities, or reasonably foreseeable business interests of the Company.

2.      Disclosure. Employee shall promptly and fully disclose to the Company, and will hold in trust for the Company’s sole right and benefit, any Invention which Employee, during the period of his employment, makes, conceives, or reduces to practice, or causes to be made, conceived, or reduced to practice, either alone or in conjunction with others, that:

(a) Relates to any subject matter pertaining to Employee’s employment;

(b) Relates to or is directly or indirectly connected with the business, products, projects, or Confidential Information of the Company; or

(c) Involves the use of any time, material, or facility of the Company.

3.     Assignment of Ownership. Employee hereby assigns to the Company all of Employee’s right, title, and interest in and to all such Inventions described in Section 6.2 and, upon request by the Company, Employee shall execute, verify, and deliver to the Company such documents, including, without limitation, assignments and applications for Letters Patent, and shall perform such other acts, including, without limitation, appearing as a witness in any action brought in connection with this Agreement that is necessary to enable the Company to obtain the sole right, title, and benefit to all such Inventions.

4.     Excluded Inventions. It is further agreed, and Employee is hereby so notified, that Section 6.3 does not apply to any invention for which no equipment, supplies, facility, or Confidential Information of the Company was used; which was developed entirely on Employee’s own time; and (a) which does not relate either to the Company’s businesses or actual or demonstrably anticipated research or development, or (b) which does not result from any work performed by Employee for the Company.

5.     Prior Inventions. Attached to this Agreement and initialed by both parties is a list of all of the Inventions, if any, in which Employee possesses any right, title, or interest prior to commencement of his employment with the Company, which are not subject to the terms of this Agreement.

6

ARTICLE 7

MISCELLANEOUS PROVISIONS

1.     Survival and Remedies. The parties agree that the restrictions contained in Articles 4 - 6 shall survive the termination of this Agreement and Employee’s employment with the Company and shall apply no matter how Employee’s employment terminates and regardless of whether his termination is voluntary or involuntary. The parties further acknowledge and agree that, if Employee breaches or threatens to breach the terms of Articles 4 - 6, the Company shall be entitled as a matter of right to injunctive relief, in addition to any other remedies available at law or equity. In the event any litigation, mediation or arbitration or other process that is instituted by any party in order to interpret or enforce any term or condition of this Agreement, including the payment of money, injunctive relief, and the matter is addressed or the money is collected, and the services of an attorney or attorneys are utilized for the same, the prevailing party will be entitled to recover from the losing party all attorney fees and costs, including court costs and fees and costs incurred through any appeal, collection or enforcement, incurred by the prevailing party.

2.     Notification. Employee authorizes the Company to notify third parties (including, but not limited to, Employee’s actual or potential future employers and the Company’s clients and employees) of the provisions of Articles 4 - 6, those provisions necessary for the enforcement of such articles, and Employee’s obligations hereunder.

3.     Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Iowa, without reference to its conflict of law provisions. Each of the parties agrees that any dispute between the parties will be resolved only in the courts of the State of Iowa or the United States District Court for the Northern District of Iowa and the appellate courts having jurisdiction of appeals in such courts.

4.     Entire Agreement. This Agreement constitutes the entire understanding of the Company and Employee and supersedes all prior agreements, understandings, and negotiations between the parties, whether oral or written. No modification, supplement, or amendment of any provision hereof shall be valid unless made in writing and signed by the parties.

5.     Successors and Assigns. This Agreement may be assigned by the Company to its successors and assigns. The services to be performed by Employee are personal and are not assignable.

6.     No Conflicting Obligations. Employee represents and warrants to the Company that he is not under, or bound to be under in the future, any obligation to any person or entity that is or would be inconsistent or in conflict with this Agreement or would prevent, limit, or impair in any way the performance by him of his obligations hereunder, including but not limited to any duties owed to any former employers not to compete or use or disclose confidential information. Employee represents and agrees that he will not disclose to the Company or use on behalf of the Company any confidential information belonging to a third party.

7.     Waivers. The failure of a party to require the performance or satisfaction of any term or obligation of this Agreement, or the waiver by a party of any breach of this Agreement, shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

8.     Severability. In the event that any provision hereof is held invalid or unenforceable by a court of competent jurisdiction, the Company and Employee agree that that part should be modified by the court to make it enforceable to the maximum extent possible. If the part cannot be modified, then that part may be severed, and the other parts of this Agreement shall remain enforceable.

7

9.     Counterparts. More than one counterpart of this Agreement may be executed by the parties hereto, and each fully executed counterpart shall be deemed an original.

[Signature Page Follows]

8

With the intention of being bound hereby, the parties have executed this Agreement as of the date set forth above.

EMPLOYEE

/s/ David A. King                          03-22-2020

David A. King

ART’S-WAY MANUFACTURING CO., INC.

/s/ Marc McConnell                                        

Marc McConnell

Chairman of the Board of Directors

9

EX-10.4

Exhibit 10.4

EX-10.5

Exhibit 10.5

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 annual 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 control over financial reporting.

		ART’S-WAY MANUFACTURING CO., INC.
Date:	April 14, 2020	/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, Michael W. Woods, certify that:

1. I have reviewed this annual 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 control over financial reporting.

		ART’S-WAY MANUFACTURING CO., INC.
Date:	April 14, 2020	/s/ Michael W. Woods
		Michael W. Woods
		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 annual report on Form 10-Q of Art’s-Way Manufacturing Co., Inc. (the “Company”) for the fiscal quarter ended February 29, 2020, 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.

Date:	April 14, 2020	/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 annual report on Form 10-Q of Art’s-Way Manufacturing Co., Inc. (the “Company”) for the fiscal quarter ended February 29, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael W. Woods, 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:

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

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

Date:	April 14, 2020	/s/ Michael W. Woods
		Michael W. Woods
		Chief Financial Officer

XML

Note 8 - Assets Held for Lease - Summary of Assets Held for Lease (Details) - USD ($)	Feb. 29, 2020	Nov. 30, 2019
Net assets held for lease	$ 5,449,777	$ 5,362,907
Assets Leased to Others, Modular Buildings [Member]
Net assets held for lease	667,925	713,782
Assets Leased to Others [Member]
Net assets held for lease	$ 667,925	$ 713,782

XML

Note 5 - Net Income (Loss) Per Share of Common Stock - Basic and Diluted Earnings Per Common Share (Details) - USD ($)	3 Months Ended
	Feb. 29, 2020	Feb. 28, 2019
Numerator for basic and diluted net income (loss) per share:
Net income (loss)	$ (437,192)	$ (605,932)
Denominator:
For basic net income (loss) per share - weighted average common shares outstanding (in shares)	4,315,481	4,243,707
Effect of dilutive stock options (in shares)
For diluted net income (loss) per share - weighted average common shares outstanding (in shares)	4,315,481	4,243,707
Net Income (Loss) per share - Basic:
Net Income (Loss) per share (in dollars per share)	$ (0.10)	$ (0.14)
Net Income (Loss) per share - Diluted:
Net Income (Loss) per share (in dollars per share)	$ (0.10)	$ (0.14)

XML

Note 15 - Equity Incentive Plan and Stock Based Compensation (Details Textual) - USD ($)		3 Months Ended
	Feb. 25, 2020	Feb. 29, 2020	Feb. 28, 2019	Nov. 30, 2019	Jan. 27, 2011
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares)		0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in shares)		0	0
Share-based Payment Arrangement, Shares Withheld for Tax Withholding Obligation (in shares)		10,517	5,493
Share-based Payment Arrangement, Expense, Net of Shares Repurchased		$ 18,516	$ 54,726
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 (in shares)				1,000	1,000
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)		3 years	3 years
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period (in shares)		0	1,400
Share-based Payment Arrangement, Expense		$ 37,580	$ 65,546
Restricted Stock [Member] | Employees, Directors, and Consultants [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)		48,750	67,053
Restricted Stock [Member] | Director [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)		5,000	6,000
The 2020 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized (in shares)	500,000

XML

Note 17 - Segment Information

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

17 ) Segment Information

The Company has

three

reportable segments: Agricultural Products, Modular Buildings and Tools. The Agricultural Products segment manufactures and sells farm equipment and related replacement parts under the Art’s-Way Manufacturing label and private labels. The Modular Buildings segment manufactures and installs modular buildings for various uses, commonly animal containment and research laboratories. The Tools segment manufactures steel cutting tools and inserts.

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

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

	Three Months Ended February 29, 2020
	Agricultural Products			Modular Buildings		Tools			Consolidated
Revenue from external customers	$	2,953,000		$	1,457,000	$	616,000		$	5,026,000
Income (loss) from operations		(435,000	)		6,000		(41,000	)		(470,000	)
Income (loss) before tax		(498,000	)		6,000		(52,000	)		(544,000	)
Total Assets		13,870,000			4,373,000		2,757,000			21,000,000
Capital expenditures		241,000			26,000		-			267,000
Depreciation & Amortization		126,000			68,000		33,000			227,000

	Three Months Ended February 28, 2019
	Agricultural Products			Modular Buildings			Tools			Consolidated
Revenue from external customers	$	2,610,000		$	1,022,000		$	492,000		$	4,124,000
Income (loss) from operations		(602,000	)		(98,000	)		(23,000	)		(723,000	)
Income (loss) before tax		(649,000	)		(99,000	)		(32,000	)		(780,000	)
Total Assets		14,852,000			3,564,000			2,487,000			20,903,000
Capital expenditures		34,000			18,000			1,000			53,000
Depreciation & Amortization		125,000			132,000			32,000			289,000

*The consolidated total in the tables is a sum of segment figures and

may

not

tie to actual figures in the condensed consolidated financial statements due to rounding.

XML

Note 4 - Contract Receivables, Contract Assets and Contract Liabilities (Tables)

3 Months Ended

Feb. 29, 2020

Notes Tables

Contract with Customer, Contract Asset, Contract Liability, and Receivable [Table Text Block]

	February 29, 2020		November 30, 2019
Receivables	$	998,000	$	115,000
Assets		513,000		727,000
Liabilities	$	519,000	$	89,000

XML

Note 5 - Net Income (Loss) Per Share of Common Stock

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Earnings Per Share [Text Block]

5 ) Net Income (Loss) Per Share of Common Stock

Basic net income (loss) per share of common stock 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 net income (loss) per share.

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

February

29,

2020

and

February 28, 2019:

	For the Three Months Ended
	February 29, 2020			February 28, 2019
Numerator for basic and diluted net income (loss) per share:
Net income (loss)	$	(437,192	)	$	(605,932	)
Denominator:
For basic net income (loss) per share - weighted average common shares outstanding		4,315,481			4,243,707
Effect of dilutive stock options		-			-
For diluted net income (loss) per share - weighted average common shares outstanding		4,315,481			4,243,707
Net Income (Loss) per share - Basic:
Net Income (Loss) per share	$	(0.10	)	$	(0.14	)
Net Income (Loss) per share - Diluted:
Net Income (Loss) per share	$	(0.10	)	$	(0.14	)

XML

Note 9 - Product Warranty

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Product Warranty Disclosure [Text Block]

9 ) 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. Product warranty is included in the price of the product and provides assurance that the product will function in accordance with agreed-upon specifications. It does

not

represent a separate performance obligation under ASC

606.

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

7

“Accrued Expenses.” Changes in the Company’s product warranty liability for the

three

months ended

February

29,

2020

and

February 28, 2019

are as follows:

	For the Three Months Ended
	February 29, 2020			February 28, 2019
Balance, beginning	$	203,185		$	96,785
Settlements / adjustments		(28,576	)		(132,297	)
Warranties issued		64,624			61,369
Balance, ending	$	239,233		$	25,857

XML

Note 13 - Sales-type Leases

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Lessor, Sales-type Leases [Text Block]

13 ) Sales-Type Leases

The Company accounts for leases of modular buildings to certain customers as sales-type leases. These leases have terms of up to

36

months and are collateralized by a security interest in the related modular building. The lessee has a bargain purchase option available at the end of the lease term. A minimum lease receivable is recorded net of unearned interest income and profit on sale at the time the Company’s obligation to the lessee is complete. Profit related to the sale of the building is recorded upon fulfillment of the Company’s obligation to the lessee.

Modular buildings held for lease by the Modular Buildings segment are recorded at cost. Amortization of each modular building is calculated over the useful life of the building. Estimated useful life is

three

to

five

years. Lease revenue is accounted for on a straight-line basis over the term of the related lease agreement. Lease income for modular buildings is included in sales on the consolidated statements of operations.

The components related to sales-type leases at

February

29,

2020

and

November 30, 2019

are as follows:

	February 29, 2020			November 30, 2019
Minimum lease receivable, current	$	124,776		$	162,425
Unearned interest income, current		(8,220	)		(14,420	)
Net investment in sales-type leases, current	$	116,556		$	148,005
Minimum lease receivable, long-term	$	-		$	5,851
Unearned interest income, long-term		-			(69	)
Net investment in sales-type leases, long-term	$	-		$	5,782

There was

no

sales activity related to sales-type leases for the

three

months ended

February

29,

2020

and

February

28,2019.

Future minimum lease receipts from sales-type leases are as follows:

Year Ending November 30,	Amount
2020	$	118,924
2021		5,852
Total	$	124,776

XML

Note 17 - Segment Information (Tables)

3 Months Ended

Feb. 29, 2020

Notes Tables

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

	Three Months Ended February 29, 2020
	Agricultural Products			Modular Buildings		Tools			Consolidated
Revenue from external customers	$	2,953,000		$	1,457,000	$	616,000		$	5,026,000
Income (loss) from operations		(435,000	)		6,000		(41,000	)		(470,000	)
Income (loss) before tax		(498,000	)		6,000		(52,000	)		(544,000	)
Total Assets		13,870,000			4,373,000		2,757,000			21,000,000
Capital expenditures		241,000			26,000		-			267,000
Depreciation & Amortization		126,000			68,000		33,000			227,000

	Three Months Ended February 28, 2019
	Agricultural Products			Modular Buildings			Tools			Consolidated
Revenue from external customers	$	2,610,000		$	1,022,000		$	492,000		$	4,124,000
Income (loss) from operations		(602,000	)		(98,000	)		(23,000	)		(723,000	)
Income (loss) before tax		(649,000	)		(99,000	)		(32,000	)		(780,000	)
Total Assets		14,852,000			3,564,000			2,487,000			20,903,000
Capital expenditures		34,000			18,000			1,000			53,000
Depreciation & Amortization		125,000			132,000			32,000			289,000

XML

Note 9 - Product Warranty (Tables)

3 Months Ended

Feb. 29, 2020

Notes Tables

Schedule of Product Warranty Liability [Table Text Block]

	For the Three Months Ended
	February 29, 2020			February 28, 2019
Balance, beginning	$	203,185		$	96,785
Settlements / adjustments		(28,576	)		(132,297	)
Warranties issued		64,624			61,369
Balance, ending	$	239,233		$	25,857

XML

Note 10 - Loan and Credit Agreements - Summary of Minimum Maturities of Term Debt (Details) - USD ($)	Feb. 29, 2020	Nov. 30, 2019
2020	$ 64,625
2021	90,179
2022	94,858
2023	99,781
2024	104,665
2025 and thereafter	1,961,109
Long-term Debt, Total	$ 2,415,217	$ 2,435,993

XML

Note 13 - Sales-type Leases - Future Minimum Lease Receipts (Details)	Feb. 29, 2020 USD ($)
2020	$ 118,924
2021	5,852
Total	$ 124,776

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Feb. 29, 2020	Nov. 30, 2019
Allowance for doubtful accounts	$ 32,611	$ 22,925
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	500,000	500,000
Preferred stock, shares issued (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)	4,374,837	4,321,087
Treasury stock (in shares)	29,359	18,842

XML

Note 1 - Description of the Company

3 Months Ended

Feb. 29, 2020

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.

The Company began operations as a farm equipment manufacturer in

1956.

Since that time, it has become a major worldwide manufacturer of agricultural equipment. Its principal manufacturing plant is located in Armstrong, Iowa.

The Company has organized its 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. The Agricultural Products segment manufactures and sells farm equipment and related replacement parts under the Art’s-Way Manufacturing label and private labels. The Modular Buildings segment manufactures and installs modular buildings for animal containment and various laboratory uses, and the tools segment manufactures steel cutting tools and inserts.

XML

Note 12 - Related Party Transactions

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

12 ) Related Party Transactions

During the

three

months ended

February

29,

2020

and

February 28, 2019,

the Company did

not

recognize any revenues from transactions with a related party, and

no

amounts in accounts receivable balances were due from a related party. From time to time, the Company purchases various supplies from related parties, which are companies owned by J. Ward McConnell, Jr., the Vice Chairman of the Company’s Board of Directors. Marc McConnell, the Chairman of the Company’s Board of Directors also serves as President of these companies. J. Ward McConnell, Jr., as a shareholder owning more than

20%

of the Company’s outstanding stock, was required to guarantee a portion of the Company’s Term Loan in accordance with the USDA guarantee on the Company’s Term Loan. J. Ward McConnell, Jr. is paid a monthly fee for his guarantee. In the

three

months ended

February

29,

2020,

the Company recognized

$4,588

of expense for transactions with related parties, compared to

$8,148

for the

three

months ended

February 28, 2019.

As of

February

29,

2020,

accrued expenses contained a balance of

$1,454

owed to a related party compared to

$1,451

on

February 28, 2019.

XML

Note 4 - Contract Receivables, Contract Assets and Contract Liabilities

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Contract Receivable, Contract Assets, and Contract Liabilities [Text Block]

4 ) Contract Receivables, Contract Assets and Contract Liabilities

The following table provides information about contract receivables, contract assets, and contract liabilities from contracts with customers included on the Condensed Consolidated Balance Sheets.

	February 29, 2020		November 30, 2019
Receivables	$	998,000	$	115,000
Assets		513,000		727,000
Liabilities	$	519,000	$	89,000

The amount of revenue recognized in the

first

three

months of fiscal

2020

that was included in a contract liability at

November 30, 2019

was approximately

$89,000

compared to

$185,000

in the same period of fiscal

2019.

The significant change in contract receivables reflected above is due to a large milestone invoice from the Modular Buildings Segment. This invoice also affected contract liabilities by increasing billings in excess of costs and estimated gross profit at

February

29,

2020.

Swings in contract assets from

November 30, 2019

are due to changes in costs and estimated gross profit in excess of billings from the Modular Buildings segment.

The Company utilizes the practical expedient exception for these contracts and will report only on performance obligations greater than

one

year. As of

February

29,

2020,

the Company has

no

performance obligations with an original expected duration greater than

one

year.

XML

Note 8 - Assets Held for Lease

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

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

8 ) Assets Held for Lease

Major components of assets held for lease are:

	February 29, 2020		November 30, 2019
Modular Buildings	$	667,925	$	713,782
Net assets held for lease	$	667,925	$	713,782

Rents recognized from assets held for lease included in sales on the Consolidated Statements of Operations during the

three

months ended

February

29,

2020

were

$155,508

compared to

$179,044

for the

three

months ended

February 28, 2019.

Rents recognized in sales were related to the leasing of modular buildings as a part of the normal course of business operations of the Modular Buildings segment. Rents recognized from assets held for lease included in other income (expense) on the Consolidated Statements of Operations during the

three

months ended

February

29,

2020

were

$0

compared to

$2,500

for the same period of fiscal

2019.

Rents related to the West Union facility in the Agricultural Products segment were recognized in other income as such income was outside of the scope of this segment’s normal business operations. The West Union facility was sold on

December 14, 2018

for

$900,000.

Future minimum lease receipts from assets held for lease are as follows:

Future Minimum Leased Assets
Year Ending November 30,	Amount
2020	$	58,089
Total	$	58,089

XML

Note 1 - Description of the Company (Details Textual)	3 Months Ended
	Feb. 29, 2020
Number of Operating Segments	3

XML

Note 10 - Loan and Credit Agreements (Tables)

3 Months Ended

Feb. 29, 2020

Notes Tables

Schedule of Debt [Table Text Block]

	February 29, 2020		November 30, 2019
Bank Midwest loan payable in monthly installments of $17,271 including interest at 5.00%, due October 1, 2037	$	2,415,217	$	2,435,993
Total term debt	$	2,415,217	$	2,435,993
Less current portion of term debt		86,497		85,401
Term debt, excluding current portion	$	2,328,720	$	2,350,592

Schedule of Maturities of Long-term Debt [Table Text Block]

Year	Amount
2020	$	64,625
2021		90,179
2022		94,858
2023		99,781
2024		104,665
2025 and thereafter		1,961,109
	$	2,415,217

XML

Note 10 - Loan and Credit Agreements - Summary of Term Debt (Details) (Parentheticals) - Term Loan Due October 2037 [Member] - USD ($)	3 Months Ended	12 Months Ended
	Feb. 29, 2020	Nov. 30, 2019
Debt instrument, periodic payment	$ 17,271	$ 17,271
Debt instrument, interest rate, stated percentage	5.00%	5.00%

XML

Note 13 - Sales-type Leases - Components Related to Sales-type Leases (Details) - USD ($)	Feb. 29, 2020	Nov. 30, 2019
Minimum lease receivable, current	$ 124,776	$ 162,425
Unearned interest income, current	(8,220)	(14,420)
Net investment in sales-type leases, current	116,556	148,005
Minimum lease receivable, long-term		5,851
Unearned interest income, long-term		(69)
Net investment in sales-type leases, long-term		$ 5,782

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Feb. 29, 2020	Nov. 30, 2019
Current assets:
Cash	$ 3,287	$ 3,145
Accounts receivable-customers, net of allowance for doubtful accounts of $32,611 and $22,925 in 2020 and 2019, respectively	2,657,281	1,679,975
Inventories, net	9,314,429	8,778,507
Cost and profit in excess of billings	512,618	726,667
Net investment in sales-type leases, current	116,556	148,005
Other current assets	262,414	70,931
Total current assets	12,866,585	11,407,230
Property, plant, and equipment, net	5,449,777	5,362,907
Assets held for lease, net	667,925	713,782
Deferred income taxes	1,911,301	1,786,048
Net investment in sales-type leases, long-term		5,782
Other assets	104,178	71,189
Total assets	20,999,766	19,346,938
Current liabilities:
Accounts payable	1,554,569	1,205,313
Customer deposits	222,269	105,363
Billings in Excess of Cost and Profit	434,134	88,931
Income taxes payable	23,981	6,400
Accrued expenses	1,105,013	1,132,826
Line of credit	3,844,530	2,578,530
Current portion of long-term debt	86,497	85,401
Total current liabilities	7,270,993	5,202,764
Long-term liabilities
Long-term portion of operating lease liabilities	25,147
Long-term debt, excluding current portion	2,328,720	2,350,592
Total liabilities	9,624,860	7,553,356
Commitments and Contingencies
Stockholders’ equity:
Undesignated preferred stock - $0.01 par value. Authorized 500,000 shares in 2020 and 2019; issued 0 shares in 2020 and 2019.
Common stock – $0.01 par value. Authorized 9,500,000 shares in 2020 and 2019; issued 4,374,837 in 2020 and 4,321,087 in 2019	43,748	43,211
Additional paid-in capital	3,287,130	3,250,087
Retained earnings	8,110,150	8,547,342
Treasury stock, at cost (29,359 in 2020 and 18,842 in 2019 shares)	(66,122)	(47,058)
Total stockholders’ equity	11,374,906	11,793,582
Total liabilities and stockholders’ equity	$ 20,999,766	$ 19,346,938

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Feb. 29, 2020	Feb. 28, 2019
Cash flows from operations:
Net (loss) from continuing operations	$ (437,192)	$ (605,932)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Stock based compensation	37,580	65,546
Gain on disposal of property, plant, and equipment	(1,251)	(15,086)
Depreciation and amortization expense	227,456	289,072
Bad debt expense (recovery)	10,215	8,026
Deferred income taxes	(125,253)	(170,796)
Changes in assets and liabilities:
Accounts receivable	(987,521)	(132,985)
Inventories	(535,922)	48,417
Net investment in sales-type leases	37,231	12,791
Other assets	(191,484)	(177,118)
Accounts payable	349,256	(7,571)
Contracts in progress, net	559,252	(462,520)
Customer deposits	116,906	569,168
Income taxes payable	17,581	(4,371)
Accrued expenses	(36,982)	(130,048)
Net cash (used in) operating activities	(960,128)	(713,407)
Cash flows from investing activities:
Purchases of property, plant, and equipment	(267,141)	(53,056)
Net proceeds from sale of assets	1,251	893,713
Net cash provided by (used in) investing activities	(265,890)	840,657
Cash flows from financing activities:
Net change in line of credit	(1,266,000)	(136,000)
Repayment of term debt	(20,776)	(252,697)
Repurchases of common stock	(19,064)	(10,820)
Net cash provided by (used in) financing activities	1,226,160	(127,517)
Net increase (decrease) in cash	142	(267)
Cash at beginning of period	3,145	3,512
Cash at end of period	3,287	3,245
Supplemental disclosures of cash flow information:
Interest	77,238	81,186
Income taxes	$ 1,093	$ 260

XML

Note 8 - Assets Held for Lease - Future Minimum Lease Receipts From Assets Held for Lease (Details)	Feb. 29, 2020 USD ($)
2020	$ 58,089
Total	$ 58,089

XML

Note 6 - Inventory - Major Classes of Inventory (Details) - USD ($)	Feb. 29, 2020	Nov. 30, 2019	Feb. 28, 2019
Raw materials		$ 7,156,001	$ 7,576,968
Work in process		492,125	332,668
Finished goods		3,905,373	4,042,034
Gross inventory		11,553,499	11,951,670
Less: Reserves		(2,774,992)	(2,637,241)
Net Inventory	$ 9,314,429	$ 8,778,507	$ 9,314,429

XML

Note 14 - Operating Leases - Maturities of Operating Lease Liabilities (Details)	Feb. 29, 2020 USD ($)
2020	$ 8,135
2021	10,847
2022	10,847
2023	6,456
2024	1,630
Total lease payments	37,916
Less imputed interest	(3,600)
Total operating lease liabilities	$ 34,316

XML

Note 16 - Disclosures About the Fair Value of Financial Instruments

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

16 ) 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

29,

2020

and

November 30, 2019,

the carrying amount approximated fair value for cash, accounts receivable, net investment in sales-type leases, accounts payable, notes payable to bank, and other current and long-term liabilities. The carrying amounts of current assets and liabilities approximate fair value because of the short maturity of these instruments. The fair value of the net investment in sales-type leases also approximates recorded value as that is based on discounting future cash flows at rates implicit in the lease. The rates implicit in the lease do

not

materially differ from current market rates. The fair value of the Company’s installment term loans payable also approximates recorded value because the interest rates charged under the loan terms are

not

substantially different from current interest rates.

XML

Note 3 - Disaggregation of Revenue (Tables)

3 Months Ended

Feb. 29, 2020

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Three Months Ended February 29, 2020
	Agricultural		Modular Buildings		Tools		Total
Farm equipment	$	2,349,000	$	-	$	-	$	2,349,000
Farm equipment service parts		532,000		-		-		532,000
Steel cutting tools and inserts		-		-		609,000		609,000
Modular buildings		-		1,271,000		-		1,271,000
Modular building lease income		-		156,000				156,000
Other		72,000		30,000		7,000		109,000
	$	2,953,000	$	1,457,000	$	616,000	$	5,026,000

	Three Months Ended February 28, 2019
	Agricultural		Modular Buildings		Tools		Total
Farm equipment	$	2,092,000	$	-	$	-	$	2,092,000
Farm equipment service parts		460,000		-		-		460,000
Steel cutting tools and inserts		-		-		484,000		484,000
Modular buildings		-		795,000		-		795,000
Modular building lease income		-		179,000				179,000
Other		58,000		48,000		8,000		114,000
	$	2,610,000	$	1,022,000	$	492,000	$	4,124,000

XML

Note 3 - Disaggregation of Revenue - Disaggregated Revenue From External Customer (Details) - USD ($)	3 Months Ended
	Feb. 29, 2020	Feb. 28, 2019
Revenue	$ 5,026,000	$ 4,124,000
Farm Equipment [Member]
Revenue	2,349,000	2,092,000
Farm Equipment Service Parts [Member]
Revenue	532,000	460,000
Steel Cutting Tools and Inserts [Member]
Revenue	609,000	484,000
Modular Buildings [Member]
Revenue	1,271,000	795,000
Modular Buildings Lease Income [Member]
Revenue	156,000	179,000
Product and Service, Other [Member]
Revenue	109,000	114,000
Agricultural Products [Member]
Revenue	2,953,000	2,610,000
Agricultural Products [Member] | Farm Equipment [Member]
Revenue	2,349,000	2,092,000
Agricultural Products [Member] | Farm Equipment Service Parts [Member]
Revenue	532,000	460,000
Agricultural Products [Member] | Steel Cutting Tools and Inserts [Member]
Revenue
Agricultural Products [Member] | Modular Buildings [Member]
Revenue
Agricultural Products [Member] | Modular Buildings Lease Income [Member]
Revenue
Agricultural Products [Member] | Product and Service, Other [Member]
Revenue	72,000	58,000
Modular Buildings [Member]
Revenue	1,457,000	1,022,000
Modular Buildings [Member] | Farm Equipment [Member]
Revenue
Modular Buildings [Member] | Farm Equipment Service Parts [Member]
Revenue
Modular Buildings [Member] | Steel Cutting Tools and Inserts [Member]
Revenue
Modular Buildings [Member] | Modular Buildings [Member]
Revenue	1,271,000	795,000
Modular Buildings [Member] | Modular Buildings Lease Income [Member]
Revenue	156,000	179,000
Modular Buildings [Member] | Product and Service, Other [Member]
Revenue	30,000	48,000
Tools [Member]
Revenue	616,000	492,000
Tools [Member] | Farm Equipment [Member]
Revenue
Tools [Member] | Farm Equipment Service Parts [Member]
Revenue
Tools [Member] | Steel Cutting Tools and Inserts [Member]
Revenue	609,000	484,000
Tools [Member] | Modular Buildings [Member]
Revenue
Tools [Member] | Modular Buildings Lease Income [Member]
Revenue
Tools [Member] | Product and Service, Other [Member]
Revenue	$ 7,000	$ 8,000

XML

Note 14 - Operating Leases (Tables)

3 Months Ended

Feb. 29, 2020

Notes Tables

Lessee, Operating Leases, Assets and Liabilities [Table Text Block]

	February 29, 2020
Operating lease right-of-use assets	$	34,316
Current portion of operating lease liabilities	$	9,169
Long-term portion of operating lease liabilities		25,147
Total operating lease liabilities	$	34,316

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

Maturities of operating lease liabilities are as follows:
Year Ending November 30,
2020	8,135
2021	10,847
2022	10,847
2023	6,456
2024	1,630
Total lease payments	37,916
Less imputed interest	(3,600	)
Total operating lease liabilities	34,316

XML

Note 8 - Assets Held for Lease (Tables)

3 Months Ended

Feb. 29, 2020

Notes Tables

Components of Assets Held for Lease [Table Text Block]

	February 29, 2020		November 30, 2019
Modular Buildings	$	667,925	$	713,782
Net assets held for lease	$	667,925	$	713,782

Lessor, Operating Lease, Payment to be Received, Fiscal Year Maturity [Table Text Block]

Future Minimum Leased Assets
Year Ending November 30,	Amount
2020	$	58,089
Total	$	58,089

XML

Note 6 - Inventory

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Inventory Disclosure [Text Block]

6 ) Inventory

Major classes of inventory are:

	February 2 9 , 20 20			November 30, 2019
Raw materials	$	7,576,968		$	7,156,001
Work in process		332,668			492,125
Finished goods		4,042,034			3,905,373
Gross inventory	$	11,951,670		$	11,553,499
Less: Reserves		(2,637,241	)		(2,774,992	)
Net Inventory	$	9,314,429		$	8,778,507

XML

Note 10 - Loan and Credit Agreements

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Debt Disclosure [Text Block]

10 ) Loan and Credit Agreements

The Company maintains

two

revolving lines of credit and a term loan with Bank Midwest. The Company also previously maintained a term loan with The First National Bank of West Union.

Bank Midwest Revolving Lines of Credit and Term Loans

The Company maintains a credit facility with Bank Midwest consisting of a

$5,000,000

revolving line of credit (the

“2017

Line of Credit”) and a

$2,600,000

term loan due

October 1, 2037 (

the “Term Loan”). On

February

29,

2020,

the balance of the

2017

Line of Credit was

$3,844,530

with

$1,155,470

remaining available, as

may

be limited by the borrowing base calculation. The

2017

Line of Credit borrowing base is an amount equal to

75%

of accounts receivable balances (discounted for aged receivables), plus

50%

of inventory, less any outstanding loan balance on the

2017

Line of Credit. At

February

29,

2020,

the

2017

Line of Credit was

not

limited by the borrowing base calculation. Any unpaid principal amount borrowed on the

2017

Line of Credit accrues interest at a floating rate per annum equal to

1.00%

above the Wall Street Journal rate published in the money rates section of the Wall Street Journal. The interest rate floor is set at

4.25%

per annum and the current interest rate is

4.25%

per annum. The

2017

Line of Credit was most recently renewed on

March 30, 2020.

The

2017

Line of Credit matures on

March 30, 2021

and requires monthly interest-only payments.

The Term Loan accrues interest at a rate of

5.00%

for the

first

sixty

months. Thereafter, the Term Loan will accrue interest at a floating rate per annum equal to

0.75%

above the Wall Street Journal rate published the money rates section of the Wall Street Journal. The interest rate floor is set at

4.15%

per annum and the interest rate

may

only be adjusted by Bank Midwest once every

five

years. Monthly payments of

$17,271

for principal and interest are required. The Term Loan is also guaranteed by the United States Department of Agriculture (“USDA”), which required an upfront guarantee fee of

$62,400

and requires an annual fee of

0.5%

of the unpaid balance. As part of the USDA guarantee requirements, shareholders owning more than

20%

are required to personally guarantee a portion of the Term Loan, in an amount equal to their stock ownership percentage. J. Ward McConnell Jr., the Vice Chairman of the Board of Directors and a shareholder owning more than

20%

of the Company’s outstanding stock, is guaranteeing approximately

38%

of the Term Loan, for an annual fee of

2%

of the personally guaranteed amount. The initial guarantee fee will be amortized over the life of the Term Loan, and the annual fees and personally guaranteed amounts are expensed monthly.

On

February 13, 2019,

the Company opened a

$4,000,000

revolving line of credit (the

“2019

Line of Credit”) with Bank Midwest in connection with bonding obligations for the Company’s performance of a large modular laboratory construction project. Funds under the

2019

Line of Credit will be undisbursed to the Company and will be held by Bank Midwest in connection with an Irrevocable Letter of Credit issued by Bank Midwest for the project. The

2019

Line of Credit accrues interest at a floating rate per annum equal to

1.00%

above the Wall Street Journal rate published in the money rates section of the Wall Street Journal. The interest rate floor is set at

4.25%

per annum and the current interest rate is

6.00%

per annum. The

2019

Line of Credit was recently renewed on

February 13, 2020.

The

2019

Line of Credit is payable upon demand by Bank Midwest. If

no

earlier demand is made, the unpaid principal and accrued interest will be payable in

one

payment, due on

February 13, 2021.

As of

February

29,

2020,

the funds on the

2019

Line of Credit remain undisbursed and are held by Bank Midwest.

Each of the

2017

Line of Credit and the Term Loan are governed by the terms of a separate Promissory Note, dated

September 28, 2017,

entered into between the Company and Bank Midwest. The

2019

Line of Credit is governed by the terms of a Promissory Note, dated

February 13, 2019,

entered into between the Company and Bank Midwest.

In connection with the

2017

Line of Credit, the Company, Art’s-Way Scientific Inc. and Ohio Metal Working Products/Art’s-Way Inc. each entered into a Commercial Security Agreement with Bank Midwest, dated

September 28, 2017,

pursuant to which each granted to Bank Midwest a

first

priority security interest in certain inventory, equipment, accounts, chattel paper, instruments, letters of credit and other assets to secure the obligations of the Company under the line of credit. Each of Art’s-Way Scientific Inc. and Ohio Metal Working Products/Art’s-Way Inc. also agreed to guarantee the obligations of the Company pursuant to the

2017

Line of Credit, as set forth in Commercial Guaranties, each dated

September 28, 2017.

The

2019

Line of Credit is also secured by these existing security documents.

To further secure the

2017

Line of Credit, the Company granted Bank Midwest a mortgage on its Canton, Ohio property held by Ohio Metal Working Products/Art’s-Way Inc. The

2019

Line of Credit is also secured by the mortgage on the Canton, Ohio property. The Term Loan is secured by a mortgage on the Company’s Armstrong, Iowa and Monona, Iowa properties. Each mortgage is governed by the terms of a separate Mortgage, dated

September 28, 2017,

and each property is also subject to a separate Assignment of Rents, dated

September 28, 2017.

If the Company or its subsidiaries (as guarantors pursuant to the Commercial Guaranties) commits an event of default with respect to the promissory notes and fails or is unable to cure that default, Bank Midwest

may

immediately terminate its obligation, if any, to make additional loans to the Company and

may

accelerate the Company’s obligations under the promissory notes. Bank Midwest 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. In addition, in an event of default, Bank Midwest

may

foreclose on the mortgaged property.

Compliance with Bank Midwest covenants is measured annually at

November 30.

The terms of the Bank Midwest loan agreements require the Company to maintain a minimum working capital ratio of

1.75,

while maintaining a minimum of

$5,100,000

of working capital. Additionally, a maximum debt to worth ratio of

1

to

1

must be maintained, with a minimum of

40%

tangible balance sheet equity, with variations subject to mutual agreement. The Company is also required to maintain a minimum debt service coverage ratio of

1.25,

with a

0.10

tolerance. The Company also must receive bank approval for purchases or sales of equipment over

$100,000

annually and maintain reasonable salaries and owner compensation. The Company was in compliance with all covenants as of

November 30, 2019

other than the debt service coverage ratio. Bank Midwest issued a waiver forgiving the noncompliance, and

no

event of default has occurred. The next measurement date is

November 30, 2020.

First National Bank of West Union Term Loan

On

May 1, 2010,

the Company obtained a

$1,300,000

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 loan was 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.

On

December 14, 2018,

the Company repaid this loan in full in connection with the sale of the West Union, Iowa facility.

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

	February 29, 2020		November 30, 2019
Bank Midwest loan payable in monthly installments of $17,271 including interest at 5.00%, due October 1, 2037	$	2,415,217	$	2,435,993
Total term debt	$	2,415,217	$	2,435,993
Less current portion of term debt		86,497		85,401
Term debt, excluding current portion	$	2,328,720	$	2,350,592

A summary of the minimum maturities of term debt follows for the years ending

November 30:

Year	Amount
2020	$	64,625
2021		90,179
2022		94,858
2023		99,781
2024		104,665
2025 and thereafter		1,961,109
	$	2,415,217

XML

Note 2 - Summary of Significant Account Policies

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Significant Accounting Policies [Text Block]

2 ) Summary of Significant Account ing Policies

Statement Presentation

The foregoing condensed consolidated financial statements of the Company are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s 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, 2019.

The results of operations for the

three

months ended

February

29,

2020

are

not

necessarily indicative of the results to be expected for the fiscal year ending

November 30, 2020.

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

29,

2020.

Actual results could differ from those estimates.

Revenue Recognition

In accordance with ASC

606,

revenue is measured based on consideration specified in a contract with a customer and recognized when the Company satisfies the performance obligation specified in each contract. The major sources of revenue for the Agricultural Products and Tools segments are farm equipment, service parts related to farm equipment and steel cutting tools and inserts. The Agricultural Products and Tools segments generally execute short-term contracts that contain a single performance obligation – the delivery of product to the common carrier. The Company recognizes revenue for the production and sale of farm equipment, service parts and cutting tools upon shipment of the goods. Shipment of the goods is the point in time when risk of ownership and title pass to the buyer. All sales are made to authorized dealers whose application for dealer status has been approved and who have been informed of general sales policies. Any changes in the Company’s terms are documented in the most recently published price lists. Pricing is fixed and determinable according to the Company’s published equipment and parts price lists. Title to all equipment and parts sold pass to the buyer upon delivery to the carrier and is

not

subject to a customer acceptance provision. Proof of the passing of title is documented by the signing of the delivery receipt by a representative of the carrier. Post shipment obligations are limited to any claim with respect to the condition of the equipment or parts. The Agricultural Products and Tools segments each typically require payment in full

30

days after the ship date. To take advantage of program discounts, some customers pay deposits up front. Any deposits received are considered unearned revenue and increase contract liabilities.

In certain circumstances, upon the customer’s written request, the Company

may

recognize revenue when production is complete, and the goods are ready for shipment. At the buyer’s request, the Company will bill the buyer upon completing all performance obligations, but before shipment. The buyer dictates that the Company ship the goods per their direction from the Company’s manufacturing facility, as is customary with this type of agreement, in order to minimize shipping costs. The written agreement with the customer specifies that the goods will be delivered on a schedule to be determined by the customer, with a final specified delivery date, and that the Company will segregate the goods from its inventory, such that they are

not

available to fill other orders. This agreement also specifies that the buyer is required to purchase all goods manufactured under this agreement. Title of the goods will pass to the buyer when the goods are complete and ready for shipment, per the customer agreement. At the transfer of title, all risks of ownership have passed to the buyer, and the buyer agrees to maintain insurance on the manufactured items that have

not

yet been shipped. The Company has operated using bill and hold agreements with certain customers for many years, with consistent satisfactory results for both buyer and seller. The credit terms on this agreement are consistent with the credit terms on all other sales. All risks of loss are shouldered by the buyer, and there are

no

exceptions to the buyer’s commitment to accept and pay for these manufactured goods.

The Modular Buildings segment is in the construction industry with its major source of revenue arising from modular building sales. Sales of modular buildings are generally recognized using input methods to measure progress towards the satisfaction of a performance obligation using the percentage of completion method. Revenue and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion. Contract costs consist of direct costs on contracts, including labor, materials, amounts payable to subcontractors and those indirect costs related to contract performance, such as equipment costs, insurance and employee benefits. Contract cost is recorded as incurred, and revisions in contract revenues and cost estimates are reflected in the accounting period when known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Contract losses are recognized when current estimates of total contract revenue and contract cost indicate a loss. Estimated contract costs include any and all costs appropriately allocable to the contract. The provision for these contract losses will be the excess of estimated contract costs over estimated contract revenues. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract change orders, penalty provisions and final contract settlements

may

result in revisions to costs and income and are recognized in the period in which the revisions are determined. The Company uses significant judgements in determining estimated contract costs and completion percentages throughout the life of the project. Stock modular building sales also occur and are recognized at a point in time when the performance obligation is fulfilled through substantial completion. Substantial completion is achieved through customer acceptance of the completed building. The Modular Buildings segment executes contracts with customers that can be short- or long-term in nature. These contracts can have multiple performance obligations and revenue from these can be recognized over time or at a point in time depending on the nature of the contracts. Payment terms for the Modular Buildings segment vary by contract, but typically utilize money down and progress payments throughout the life of the contract. The payment terms of the Modular Buildings segment have the most impact on the Company’s contract receivables, contract assets and contract liabilities. Project invoicing from the Modular Buildings segment increases contract receivables and has an effect on contract liabilities through billings in excess of costs and estimated gross profit and advanced payments. The balance of contract assets is typically made up of the balance of costs in and estimated gross profit in excess of billings. Costs and profit in excess of amounts billed are classified as current assets and billings in excess of cost and profit are classified as current liabilities.

The Company leases modular buildings to certain customers and accounts for these transactions as operating or sales-type leases. These leases have terms of up to

36

months and are collateralized by a security interest in the related modular building. On sales-type leases, the lessee has a bargain purchase option available at the end of the lease term. A minimum lease receivable is recorded net of unearned interest income and profit on sale at the time the building is substantially complete. Profit related to the sale of the building is recorded upon fulfillment of the Company’s obligation to the lessee. On operating leases, the Company recognizes rent when the lessee has all the rights and benefits of ownership of the asset.

The Agricultural Products segment offers variable consideration in the form of discounts depending on participation in yearly early order programs. This variable consideration is allocated to the transaction price of all products in a sales arrangement and is

not

contingent on future outcomes. The Agricultural Products segment does

not

offer rebates or credits. The Tools segment offers quantity discounts that are allocated to the transaction price of each product once the quantity break is achieved. The Tools segment does

not

offer rebates or credits. The Modular Buildings segment does

not

offer discounts, rebates or credits.

The Company’s returns policy allows for new and saleable parts to be returned, subject to inspection and a restocking charge, which is included in net sales. Whole goods are

not

returnable. Shipping costs charged to customers are included in net sales. Freight costs incurred are included in cost of goods sold. Customer deposits consist of advance payments from customers, in the form of cash, for revenue to be recognized in the following year.

For information on product warranty as it applies to ASC

606,

refer to Note

9

“Product Warranty.”

Recently Issued Accounting Pronouncements

Recently Adopted Accounting Guidance

Leases

In

February 2016,

the Financial Accounting Standards Board 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 adopted this guidance for fiscal

2020

using the modified retrospective approach, including interim periods within that reporting period. Under the modified retrospective approach, the Company did

not

adjust prior comparative periods. The Company has a moderate amount of leasing activity mainly as the lessee of office equipment and as the lessor of modular rental buildings. As a result of adoption, the Company recognized

$34,316

as a right-of-use asset and

$34,316

of lease liabilities on the balance sheet for office equipment it leases. The Company’s activity as a lessor will remain mostly unaffected by this guidance. The Company’s additional disclosures

may

include, but are

not

limited to:

● Nature of its leases

● Significant assumptions and judgements used

● Information about leases that have not yet commenced

● Related-party lease transactions

● Accounting policy election regarding short-term leases

● Finance, operating, short-term and variable lease costs

● Maturity analysis of operating lease payments, lease receivables and lease obligations

● Tabular disclosure of lease-related income

● Components of the net investment in a lease

● Information on the management of risk associated with residual asset

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Feb. 29, 2020	Feb. 28, 2019
Sales	$ 5,025,924	$ 4,124,226
Cost of goods sold	4,048,762	3,519,382
Gross profit	977,162	604,844
Expenses:
Engineering	109,852	147,214
Selling	455,684	343,349
General and administrative	881,322	836,906
Total expenses	1,446,858	1,327,469
Income (Loss) from operations	(469,696)	(722,625)
Other income (expense):
Interest expense	(83,274)	(85,039)
Other	9,199	26,824
Total other income (expense)	(74,075)	(58,215)
Income (Loss) before income taxes	(543,771)	(780,840)
Income tax expense (benefit)	(106,579)	(174,908)
Net Income (Loss)	$ (437,192)	$ (605,932)
Net Income (Loss) per share
Net Income (Loss) per share (in dollars per share)	$ (0.10)	$ (0.14)
Diluted Net Income (Loss) per share (in dollars per share)	$ (0.10)	$ (0.14)
Weighted average outstanding shares used to compute basic net income per share (in shares)	4,315,481	4,243,707
Weighted average outstanding shares used to compute diluted net income per share (in shares)	4,315,481	4,243,707

XML

Note 10 - Loan and Credit Agreements (Details Textual)			3 Months Ended	12 Months Ended
	Feb. 13, 2019 USD ($)	Sep. 28, 2017 USD ($)	Feb. 29, 2020 USD ($)	Nov. 30, 2019 USD ($)	May 01, 2010 USD ($)
Long-term Debt, Total			$ 2,415,217	$ 2,435,993
Term Loan Due October 2037 [Member]
Long-term Debt, Total			$ 2,415,217	$ 2,435,993
Debt Instrument, Interest Rate, Stated Percentage			5.00%	5.00%
Debt Instrument, Periodic Payment, Total			$ 17,271	$ 17,271
Bank Midwest [Member]
Line of Credit, Borrowing Base, Accounts Receivable			75.00%
Line of Credit, Borrowing Base, Inventory			50.00%
Debt Instrument, Covenant, Minimum Working Capital Ratio		1.75
Debt Instrument, Covenant, Minimum Working Capital		$ 5,100,000
Debt Instrument, Covenant, Maximum Debt to Worth Ratio		1
Debt Instrument, Covenant, Minimum Tangible Balance Sheet Equity, Percentage		40.00%
Debt Instrument, Covenant, Minimum Debt Service Coverage Ratio		1.25
Debt Instrument, Covenant, Minimum Debt Service Coverage Ratio, Tolerance		0.1
Debt Instrument, Covenant, Annual Purchases or Sales Price of Equipment Before Requiring Bank Approval		$ 100,000
Bank Midwest [Member] | Term Loan Due October 2037 [Member]
Long-term Debt, Total		2,600,000
Debt Instrument, Periodic Payment, Total			$ 17,271
Bank Midwest [Member] | Term Loan Due October 2037 [Member] | United States Department of Agriculture [Member]
Upfront Guarantee Fee			$ 62,400
Guarantee Fee, Annual Fee, Percentage			0.50%
Guarantee Requirement, Personally Guarantee, Shareholders Ownership Percentage			20.00%
Bank Midwest [Member] | Term Loan Due October 2037 [Member] | J. Ward McConnell Jr. [Member]
Personally Guaranteed, Percentage of Loan			38.00%
Personally Guaranteed, Fee, Percentage of Guaranteed Amount			2.00%
Bank Midwest [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity		$ 5,000,000
Long-term Line of Credit, Total			$ 3,844,530
Line of Credit Facility, Remaining Borrowing Capacity			$ 1,155,470
Debt Instrument, Basis Spread on Variable Rate	1.00%
Line of Credit Facility, Interest Rate During Period			4.25%
Debt Instrument, Interest Rate, Effective Percentage	4.25%		6.00%
Bank Midwest [Member] | Revolving Credit Facility [Member] | Wall Street Journal Rate [Member]
Long-term Line of Credit, Total	$ 4,000,000
Debt Instrument, Basis Spread on Variable Rate			1.00%
Line of Credit Facility, Interest Rate During Period			4.25%
Bank Midwest [Member] | Term Loan Due October 2037 [Member]
Debt Instrument, Interest Rate, Stated Percentage			5.00%
Bank Midwest [Member] | Term Loan Due October 2037 [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Effective Percentage			4.15%
Bank Midwest [Member] | Term Loan Due October 2037 [Member] | Wall Street Journal Rate [Member]
Debt Instrument, Basis Spread on Variable Rate			0.75%
The First National Bank of West Union [Member] | Iowa Finance Authority Term Loan [Member]
Debt Instrument, Face Amount					$ 1,300,000

XML

Note 12 - Related Party Transactions (Details Textual) - USD ($)	3 Months Ended
	Feb. 29, 2020	Feb. 28, 2019
Revenue from Related Parties	$ 0	$ 0
Due from Related Parties, Total	0	0
Related Party Transaction, Expenses from Transactions with Related Party	4,588	8,148
Due to Related Parties, Total	$ 1,454	$ 1,451
J. Ward McConnell Jr. [Member]
Related Party, Ownership Percentage	20.00%

XML

Note 14 - Operating Leases (Details Textual) - USD ($)	3 Months Ended
	Feb. 29, 2020	Nov. 30, 2019
Operating Lease, Right-of-Use Asset	$ 34,316
Operating Lease, Liability, Current	9,169
Operating Lease, Liability, Noncurrent	25,147
Lease, Cost, Total	$ 8,151
Operating Lease, Weighted Average Remaining Lease Term (Month)	3 years 180 days
Operating Lease, Weighted Average Discount Rate, Percent	5.50%
Other Assets [Member]
Operating Lease, Right-of-Use Asset	$ 34,316
Accrued Expenses [Member]
Operating Lease, Liability, Current	$ 9,169
Minimum [Member]
Lessee, Operating Lease, Term of Contract (Month)	1 year
Maximum [Member]
Lessee, Operating Lease, Term of Contract (Month)	5 years

XML

Note 17 - Segment Information (Details Textual)	3 Months Ended
	Feb. 29, 2020
Number of Reportable Segments	3

XML

Note 9 - Product Warranty - Changes in Product Warranty Liability (Details) - USD ($)	3 Months Ended
	Feb. 29, 2020	Feb. 28, 2019
Balance, beginning	$ 203,185	$ 96,785
Settlements / adjustments	(28,576)	(132,297)
Warranties issued	64,624	61,369
Balance, ending	$ 239,233	$ 25,857

XML

Note 8 - Assets Held for Lease (Details Textual) - USD ($)		3 Months Ended
	Dec. 14, 2018	Feb. 29, 2020	Feb. 28, 2019
Proceeds from Sale of Property, Plant, and Equipment, Total		$ 1,251	$ 893,713
West Union Facility [Member]
Proceeds from Sale of Property, Plant, and Equipment, Total	$ 900,000
Sales [Member]
Operating Lease, Lease Income, Total		155,508	179,044
Other Nonoperating Income (Expense) [Member]
Operating Lease, Lease Income, Total		$ 0	$ 2,500

XML

Note 4 - Contract Receivables, Contract Assets, and Contract Liabilities - Contract With Customers (Details) - USD ($)	Mar. 29, 2020	Nov. 30, 2019
Receivables	$ 998,000	$ 115,000
Assets	513,000	727,000
Liabilities	$ 519,000	$ 89,000

XML

Note 14 - Operating Leases

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

14 ) Operating Leases

The Company determines if an arrangement is a lease at inception of a contract. The nature of the Company’s operating leases at this time is office equipment, mainly copiers, with terms of

12

to

60

months. Operating leases are included in other assets as operating lease right-of-use (“ROU”) assets on the Condensed Consolidated Balance Sheets while current lease liabilities are included accrued expenses. The long-term portion of operating lease liabilities are shown as long-term liabilities on the Condensed Consolidated Balance Sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value payments over the lease term. As most of the Company’s leases do

not

provide an implicit rate, the Company generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The lease terms

may

include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company has copier lease agreements with lease and non-lease components and has elected the practical expedient

not

to separate lease and non-lease components for this asset class. The Company has also elected

not

to recognize lease liabilities and ROU assets for short-term leases. The Company recognizes variable costs that depend on usage in profit or loss as they are incurred.

The components of operating leases on the Condensed Consolidated Balance Sheets at

February

29,

2020

were as follows:

	February 29, 2020
Operating lease right-of-use assets	$	34,316
Current portion of operating lease liabilities	$	9,169
Long-term portion of operating lease liabilities		25,147
Total operating lease liabilities	$	34,316

The Company included

$34,316

of operating lease right-of-use assets in other assets, the current portion of operating lease liabilities of

$9,169

was included in accrued expenses and

$25,147

of long-term operating lease liabilities in the long-term liability portion of the Condensed Consolidated Balance Sheets. The Company recorded

$8,151

of operating lease costs in the

three

months ended

February

29,

2020

which included variable costs tied to usage. The Company’s operating leases carry a weighted average lease term of

42

months and have a weighted average discount rate of

5.50%

Future maturities of operating lease liabilities are as follows:

Maturities of operating lease liabilities are as follows:
Year Ending November 30,
2020	8,135
2021	10,847
2022	10,847
2023	6,456
2024	1,630
Total lease payments	37,916
Less imputed interest	(3,600	)
Total operating lease liabilities	34,316

XML

Note 18 - Subsequent Events

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Subsequent Events [Text Block]

18 ) Subsequent Events

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 the renewal of the

2017

Line of Credit that was renewed on

March 30, 2020.

XML

Note 5 - Net Income (Loss) Per Share of Common Stock (Tables)

3 Months Ended

Feb. 29, 2020

Notes Tables

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

	For the Three Months Ended
	February 29, 2020			February 28, 2019
Numerator for basic and diluted net income (loss) per share:
Net income (loss)	$	(437,192	)	$	(605,932	)
Denominator:
For basic net income (loss) per share - weighted average common shares outstanding		4,315,481			4,243,707
Effect of dilutive stock options		-			-
For diluted net income (loss) per share - weighted average common shares outstanding		4,315,481			4,243,707
Net Income (Loss) per share - Basic:
Net Income (Loss) per share	$	(0.10	)	$	(0.14	)
Net Income (Loss) per share - Diluted:
Net Income (Loss) per share	$	(0.10	)	$	(0.14	)

XML

Note 17 - Segment Information - Segment Reporting Information (Details) - USD ($)	3 Months Ended
	Feb. 29, 2020	Feb. 28, 2019	Nov. 30, 2019
Revenue from external customers	$ 5,025,924	$ 4,124,226
Income (loss) from operations	(469,696)	(722,625)
Total Assets	20,999,766		$ 19,346,938
Capital expenditures	267,141	53,056
Depreciation & Amortization	227,456	289,072
Operating Segments [Member]
Revenue from external customers	5,026,000	4,124,000
Income (loss) from operations	(470,000)	(723,000)
Income (loss) before tax	(544,000)	(780,000)
Total Assets	21,000,000	20,903,000
Capital expenditures	267,000	53,000
Depreciation & Amortization	227,000	289,000
Operating Segments [Member] | Agricultural Products [Member]
Revenue from external customers	2,953,000	2,610,000
Income (loss) from operations	(435,000)	(602,000)
Income (loss) before tax	(498,000)	(649,000)
Total Assets	13,870,000	14,852,000
Capital expenditures	241,000	34,000
Depreciation & Amortization	126,000	125,000
Operating Segments [Member] | Modular Buildings [Member]
Revenue from external customers	1,457,000	1,022,000
Income (loss) from operations	6,000	(98,000)
Income (loss) before tax	6,000	(99,000)
Total Assets	4,373,000	3,564,000
Capital expenditures	26,000	18,000
Depreciation & Amortization	68,000	132,000
Operating Segments [Member] | Tools [Member]
Revenue from external customers	616,000	492,000
Income (loss) from operations	(41,000)	(23,000)
Income (loss) before tax	(52,000)	(32,000)
Total Assets	2,757,000	2,487,000
Capital expenditures		1,000
Depreciation & Amortization	$ 33,000	$ 32,000

XML

Note 7 - Accrued Expenses - Major Components Of Accrued Expenses (Details) - USD ($)	Feb. 29, 2020	Nov. 30, 2019
Salaries, wages, and commissions	$ 592,892	$ 555,201
Accrued warranty expense	239,233	203,185
Other	272,888	374,440
Total accrued liabilities, current	$ 1,105,013	$ 1,132,826

XML

Note 4 - Contract Receivables, Contract Assets and Contract Liabilities (Details Textual) - USD ($)	3 Months Ended
	Feb. 29, 2020	Feb. 28, 2019
Contract with Customer, Liability, Revenue Recognized	$ 89,000	$ 185,000

XML

Note 9 - Product Warranty (Details Textual)	3 Months Ended
	Feb. 29, 2020
Standard Product Warrant Term (Year)	1 year

XML

Note 6 - Inventory (Tables)

3 Months Ended

Feb. 29, 2020

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	February 2 9 , 20 20			November 30, 2019
Raw materials	$	7,576,968		$	7,156,001
Work in process		332,668			492,125
Finished goods		4,042,034			3,905,373
Gross inventory	$	11,951,670		$	11,553,499
Less: Reserves		(2,637,241	)		(2,774,992	)
Net Inventory	$	9,314,429		$	8,778,507

XML

Note 15 - Equity Incentive Plan and Stock Based Compensation

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

15 ) 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. Stock options granted prior to

January 27, 2011

are governed by the applicable Prior Plan and the forms of agreement adopted thereunder. On

February 25, 2020,

the Board of Directors adopted, subject to stockholder approval, the Art’s-Way Manufacturing Co., Inc

2020

Equity Incentive Plan (the

“2020

Plan”). If approved, the

2020

Plan will replace the

2011

Plan and will add an additional

500,000

shares to the number of shares reserved for issuance pursuant to equity awards.

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 fully vested common stock annually or initially upon their election to the Board and another

1,000

shares of fully vested common stock on the last business day of each fiscal quarter. During the

first

three

months of fiscal

2020,

restricted stock awards of

48,750

shares were issued to various employees, directors, and consultants, which vest over the next

three

years, and restricted stock awards of

5,000

shares were issued to directors as part of the director compensation policy, which vested immediately upon grant. In comparison, restricted stock awards of

67,053

shares were issued to various employees, directors, and consultants, which vest over the next

three

years, and restricted stock awards of

6,000

were issued to directors as part of the director compensation policy during the

first

three

months of fiscal

2019.

During the

first

three

months of fiscal

2020,

no

shares of restricted stock were forfeited upon departure of certain employees compared to

1,400

shares of restricted stock for the same period of fiscal

2019.

Stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date and recognized over the relevant vesting period. The Company estimates 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

29,

2020

or in the same respective period of fiscal

2019.

The Company incurred a total of

$37,580

and

$65,546

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

three

months ended

February

29,

2020

and

February 28, 2019,

respectively. The Company repurchased

10,517

shares and

5,493

shares from employees in the form of treasury stock as consideration for payroll taxes paid on the employee’s behalf for the

three

months ended

February

29,

2020

and

February 28, 2019,

respectively. Stock compensation net of treasury shares repurchased for the

three

months ended

February

29,

2020

was

$18,516

compared to

$54,726,

for the same period in fiscal

2019.

XML

Significant Accounting Policies (Policies)

3 Months Ended

Feb. 29, 2020

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) that are, in the opinion of management, necessary for a fair presentation of the Company’s 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, 2019.

The results of operations for the

three

months ended

February

29,

2020

are

not

necessarily indicative of the results to be expected for the fiscal year ending

November 30, 2020.

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

29,

2020.

Actual results could differ from those estimates.

Revenue from Contract with Customer [Policy Text Block]

Revenue Recognition

In accordance with ASC

606,

revenue is measured based on consideration specified in a contract with a customer and recognized when the Company satisfies the performance obligation specified in each contract. The major sources of revenue for the Agricultural Products and Tools segments are farm equipment, service parts related to farm equipment and steel cutting tools and inserts. The Agricultural Products and Tools segments generally execute short-term contracts that contain a single performance obligation – the delivery of product to the common carrier. The Company recognizes revenue for the production and sale of farm equipment, service parts and cutting tools upon shipment of the goods. Shipment of the goods is the point in time when risk of ownership and title pass to the buyer. All sales are made to authorized dealers whose application for dealer status has been approved and who have been informed of general sales policies. Any changes in the Company’s terms are documented in the most recently published price lists. Pricing is fixed and determinable according to the Company’s published equipment and parts price lists. Title to all equipment and parts sold pass to the buyer upon delivery to the carrier and is

not

subject to a customer acceptance provision. Proof of the passing of title is documented by the signing of the delivery receipt by a representative of the carrier. Post shipment obligations are limited to any claim with respect to the condition of the equipment or parts. The Agricultural Products and Tools segments each typically require payment in full

30

days after the ship date. To take advantage of program discounts, some customers pay deposits up front. Any deposits received are considered unearned revenue and increase contract liabilities.

In certain circumstances, upon the customer’s written request, the Company

may

recognize revenue when production is complete, and the goods are ready for shipment. At the buyer’s request, the Company will bill the buyer upon completing all performance obligations, but before shipment. The buyer dictates that the Company ship the goods per their direction from the Company’s manufacturing facility, as is customary with this type of agreement, in order to minimize shipping costs. The written agreement with the customer specifies that the goods will be delivered on a schedule to be determined by the customer, with a final specified delivery date, and that the Company will segregate the goods from its inventory, such that they are

not

available to fill other orders. This agreement also specifies that the buyer is required to purchase all goods manufactured under this agreement. Title of the goods will pass to the buyer when the goods are complete and ready for shipment, per the customer agreement. At the transfer of title, all risks of ownership have passed to the buyer, and the buyer agrees to maintain insurance on the manufactured items that have

not

yet been shipped. The Company has operated using bill and hold agreements with certain customers for many years, with consistent satisfactory results for both buyer and seller. The credit terms on this agreement are consistent with the credit terms on all other sales. All risks of loss are shouldered by the buyer, and there are

no

exceptions to the buyer’s commitment to accept and pay for these manufactured goods.

The Modular Buildings segment is in the construction industry with its major source of revenue arising from modular building sales. Sales of modular buildings are generally recognized using input methods to measure progress towards the satisfaction of a performance obligation using the percentage of completion method. Revenue and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion. Contract costs consist of direct costs on contracts, including labor, materials, amounts payable to subcontractors and those indirect costs related to contract performance, such as equipment costs, insurance and employee benefits. Contract cost is recorded as incurred, and revisions in contract revenues and cost estimates are reflected in the accounting period when known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Contract losses are recognized when current estimates of total contract revenue and contract cost indicate a loss. Estimated contract costs include any and all costs appropriately allocable to the contract. The provision for these contract losses will be the excess of estimated contract costs over estimated contract revenues. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract change orders, penalty provisions and final contract settlements

may

result in revisions to costs and income and are recognized in the period in which the revisions are determined. The Company uses significant judgements in determining estimated contract costs and completion percentages throughout the life of the project. Stock modular building sales also occur and are recognized at a point in time when the performance obligation is fulfilled through substantial completion. Substantial completion is achieved through customer acceptance of the completed building. The Modular Buildings segment executes contracts with customers that can be short- or long-term in nature. These contracts can have multiple performance obligations and revenue from these can be recognized over time or at a point in time depending on the nature of the contracts. Payment terms for the Modular Buildings segment vary by contract, but typically utilize money down and progress payments throughout the life of the contract. The payment terms of the Modular Buildings segment have the most impact on the Company’s contract receivables, contract assets and contract liabilities. Project invoicing from the Modular Buildings segment increases contract receivables and has an effect on contract liabilities through billings in excess of costs and estimated gross profit and advanced payments. The balance of contract assets is typically made up of the balance of costs in and estimated gross profit in excess of billings. Costs and profit in excess of amounts billed are classified as current assets and billings in excess of cost and profit are classified as current liabilities.

The Company leases modular buildings to certain customers and accounts for these transactions as operating or sales-type leases. These leases have terms of up to

36

months and are collateralized by a security interest in the related modular building. On sales-type leases, the lessee has a bargain purchase option available at the end of the lease term. A minimum lease receivable is recorded net of unearned interest income and profit on sale at the time the building is substantially complete. Profit related to the sale of the building is recorded upon fulfillment of the Company’s obligation to the lessee. On operating leases, the Company recognizes rent when the lessee has all the rights and benefits of ownership of the asset.

The Agricultural Products segment offers variable consideration in the form of discounts depending on participation in yearly early order programs. This variable consideration is allocated to the transaction price of all products in a sales arrangement and is

not

contingent on future outcomes. The Agricultural Products segment does

not

offer rebates or credits. The Tools segment offers quantity discounts that are allocated to the transaction price of each product once the quantity break is achieved. The Tools segment does

not

offer rebates or credits. The Modular Buildings segment does

not

offer discounts, rebates or credits.

The Company’s returns policy allows for new and saleable parts to be returned, subject to inspection and a restocking charge, which is included in net sales. Whole goods are

not

returnable. Shipping costs charged to customers are included in net sales. Freight costs incurred are included in cost of goods sold. Customer deposits consist of advance payments from customers, in the form of cash, for revenue to be recognized in the following year.

For information on product warranty as it applies to ASC

606,

refer to Note

9

“Product Warranty.”

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued Accounting Pronouncements

Recently Adopted Accounting Guidance

Leases

In

February 2016,

the Financial Accounting Standards Board 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 adopted this guidance for fiscal

2020

using the modified retrospective approach, including interim periods within that reporting period. Under the modified retrospective approach, the Company did

not

adjust prior comparative periods. The Company has a moderate amount of leasing activity mainly as the lessee of office equipment and as the lessor of modular rental buildings. As a result of adoption, the Company recognized

$34,316

as a right-of-use asset and

$34,316

of lease liabilities on the balance sheet for office equipment it leases. The Company’s activity as a lessor will remain mostly unaffected by this guidance. The Company’s additional disclosures

may

include, but are

not

limited to:

● Nature of its leases

● Significant assumptions and judgements used

● Information about leases that have not yet commenced

● Related-party lease transactions

● Accounting policy election regarding short-term leases

● Finance, operating, short-term and variable lease costs

● Maturity analysis of operating lease payments, lease receivables and lease obligations

● Tabular disclosure of lease-related income

● Components of the net investment in a lease

● Information on the management of risk associated with residual asset

XML

Note 13 - Sales-type Leases (Tables)

3 Months Ended

Feb. 29, 2020

Notes Tables

Schedule of Sales-type Leases [Table Text Block]

	February 29, 2020			November 30, 2019
Minimum lease receivable, current	$	124,776		$	162,425
Unearned interest income, current		(8,220	)		(14,420	)
Net investment in sales-type leases, current	$	116,556		$	148,005
Minimum lease receivable, long-term	$	-		$	5,851
Unearned interest income, long-term		-			(69	)
Net investment in sales-type leases, long-term	$	-		$	5,782

Sales-type and Direct Financing Leases, Lease Receivable, Maturity [Table Text Block]

Year Ending November 30,	Amount
2020	$	118,924
2021		5,852
Total	$	124,776

XML

Note 7 - Accrued Expenses (Tables)

3 Months Ended

Feb. 29, 2020

Notes Tables

Schedule of Accrued Liabilities [Table Text Block]

	February 2 9 , 20 20		November 30, 2019
Salaries, wages, and commissions	$	592,892	$	555,201
Accrued warranty expense		239,233		203,185
Other		272,888		374,440
	$	1,105,013	$	1,132,826

XML

Note 2 - Summary of Significant Account Policies (Details Textual)	Feb. 29, 2020 USD ($)
Operating Lease, Right-of-Use Asset	$ 34,316
Operating Lease, Liability, Total	$ 34,316

XML

Note 7 - Accrued Expenses

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

7 ) Accrued Expenses

Major components of accrued expenses are:

	February 2 9 , 20 20		November 30, 2019
Salaries, wages, and commissions	$	592,892	$	555,201
Accrued warranty expense		239,233		203,185
Other		272,888		374,440
	$	1,105,013	$	1,132,826

XML

Note 11 - Income Taxes

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

11 ) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses.

XML

Document And Entity Information - shares	3 Months Ended
	Feb. 29, 2020	Apr. 07, 2020
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	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		4,425,478
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Feb. 29, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Title of 12(b) Security	Common stock $.01 par value

XML

Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Total
Balance (in shares) at Nov. 30, 2018	4,225,050			9,286
Balance at Nov. 30, 2018	$ 42,250	$ 3,055,632	$ 9,966,928	$ (27,735)	$ 13,037,075
Stock based compensation (in shares)	71,653			5,493
Stock based compensation	$ 717	64,829		$ (10,820)	54,726
Net (loss)			(605,932)		(605,932)
Balance (in shares) at Feb. 28, 2019	4,296,703			14,779
Balance at Feb. 28, 2019	$ 42,967	3,120,461	9,360,996	$ (38,555)	12,485,869
Balance (in shares) at Nov. 30, 2019	4,321,087			18,842
Balance at Nov. 30, 2019	$ 43,211	3,250,087	8,547,342	$ (47,058)	11,793,582
Stock based compensation (in shares)	53,750			10,517
Stock based compensation	$ 537	37,043		$ (19,064)	18,516
Net (loss)			(437,192)		(437,192)
Balance (in shares) at Feb. 29, 2020	4,374,837			29,359
Balance at Feb. 29, 2020	$ 43,748	$ 3,287,130	$ 8,110,150	$ (66,122)	$ 11,374,906

XML

Note 3 - Disaggregation of Revenue

3 Months Ended

Feb. 29, 2020

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

3 ) Disaggregation of Revenue

The following table displays revenue by reportable segment from external customers, disaggregated by major source. The Company believes disaggregating by these categories depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

	Three Months Ended February 29, 2020
	Agricultural		Modular Buildings		Tools		Total
Farm equipment	$	2,349,000	$	-	$	-	$	2,349,000
Farm equipment service parts		532,000		-		-		532,000
Steel cutting tools and inserts		-		-		609,000		609,000
Modular buildings		-		1,271,000		-		1,271,000
Modular building lease income		-		156,000				156,000
Other		72,000		30,000		7,000		109,000
	$	2,953,000	$	1,457,000	$	616,000	$	5,026,000

	Three Months Ended February 28, 2019
	Agricultural		Modular Buildings		Tools		Total
Farm equipment	$	2,092,000	$	-	$	-	$	2,092,000
Farm equipment service parts		460,000		-		-		460,000
Steel cutting tools and inserts		-		-		484,000		484,000
Modular buildings		-		795,000		-		795,000
Modular building lease income		-		179,000				179,000
Other		58,000		48,000		8,000		114,000
	$	2,610,000	$	1,022,000	$	492,000	$	4,124,000

XML

Note 14 - Operating Leases - Components of Operating Leases (Details) - USD ($)	Feb. 29, 2020	Nov. 30, 2019
Operating lease right-of-use assets	$ 34,316
Current portion of operating lease liabilities	9,169
Long-term portion of operating lease liabilities	25,147
Total operating lease liabilities	$ 34,316

XML

Note 10 - Loan and Credit Agreements - Summary of Term Debt (Details) - USD ($)	Feb. 29, 2020	Nov. 30, 2019
Term debt	$ 2,415,217	$ 2,435,993
Less current portion of term debt	86,497	85,401
Term debt, excluding current portion	2,328,720	2,350,592
Term Loan Due October 2037 [Member]
Term debt	$ 2,415,217	$ 2,435,993

XML

Note 13 - Sales-type Leases (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Feb. 29, 2020	Feb. 28, 2019
Sales-type Lease, Lease Income, Total	$ 0	$ 0
Minimum [Member] | Assets Leased to Others, Modular Buildings [Member]
Property, Plant and Equipment, Useful Life (Year)	3 years
Maximum [Member] | Assets Leased to Others, Modular Buildings [Member]
Property, Plant and Equipment, Useful Life (Year)	5 years