FORWARD LOOKING STATEMENTS

Some of the statements in thisThis 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 may be identified 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. Forward-looking statements in this report generally relate to: our plan to sell and liquidate the assets of our discontinued Pressurized Vessels segment; our expectations regarding our warranty costs and order backlog; our beliefs regarding the sufficiency of working capital and cash flows, andflows; our expectations regarding our continued ability to renew or obtain financing on reasonable terms when necessary; the impact of recently issued accounting pronouncements; our intentions and beliefs relating to our costs, product developments and business strategies; our expected operating and financial results; our expectations concerning our primary capital and cash flow needs; our beliefs regarding competitive factors and our competitive strengths; our expectations regarding our capabilities and demand;demand for our products; our predictions regarding the impact of seasonality; our beliefs regarding the impact of the farming industry on our business; our beliefs regarding our internal controls;controls over financial reporting; and our intentions for paying dividends. Many of these forward-looking statements are located in this report under “Item 1. BUSINESS” and “Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” but they may appear in other sections as well.

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:to, the impact of tightening credit markets on our ability to continue to obtain financing on reasonable terms; our ability to repay current debt, continue to meet debt obligations and comply with financial covenants; obstacles related to integration of acquired product lines and businesses; obstacles related to liquidation of product lines and segments; 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; fluctuations in seasonal demand and our production cycle; the ability of our suppliers to meet our demands for raw materials and component parts; our OEMoriginal equipment manufacturer customers’ decisions regarding supply chain structure, inventory levels, and overall business conditions; fluctuations in the price of raw materials, especially steel; our ability to predict and meet the demands of each market in which our segments operate; our ability to predict and respond to any seasonal fluctuations in demand; our ability to maintain intellectual property rights; the existence and outcome of product liability claims and other ordinary course litigation; changes in environmental, health and safety regulations and employment laws; our ability to retain our executive officers;key employees; the cost of complying with laws, regulations, and standards relating to corporate governance and public disclosure, and the demand such compliance places on management’s time; loan covenant restrictions on our ability to pay dividends; our ability to liquidate the assets of our discontinued Pressurized Vessels segment; and other factors described in this report and from time to time in our other reports tofiled with the SEC.Securities and Exchange Commission. We do not intend to update the forward-looking statements contained in this report other than as required by law. We caution youinvestors not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read thisThis report and the documents that we reference in this report and have filed as exhibits should be read 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.

PART I

Item 1. BUSINESS.

General

Art’s-Way Manufacturing Co., Inc., a Delaware corporation (“we,” “us,” “our,” and the “Company”), began operations as a farm equipment manufacturer in 1956. Since that time, we have become a worldwide manufacturer of agricultural equipment, specialized modular science buildings and steel cutting tools. Our principal manufacturing plant is located in Armstrong, Iowa.

We have organized our business into three operating segments. Management separately evaluates the financial results of each segment because each is a strategic business unit offering different products and requiring different technology and marketing strategies. Our Agricultural Products segment manufactures and distributes farm equipment under our own and private labels and includespreviously included the operations of our wholly-owned subsidiaries,subsidiary, Art’s-Way Manufacturing International LTD, a Canadian company (“International”). During the second quarter of the 2018 fiscal year, we liquidated our investment in our Canadian subsidiary by selling off remaining inventory and Universal Harvester by Art’s-Way, Inc., an Iowa corporation (“UHC by Art’s-Way” or “UHC”), which was merged into the Company effective November 30, 2015.dissolving International. Our Modular Buildings segment manufactures modular buildings for various uses, commonly animal containment and research laboratories, through our wholly-owned subsidiary, Art’s-Way Scientific, Inc., an Iowa corporation; and ourcorporation. Our Tools segment manufactures standard single point brazed carbide tipped tools as well as PCD (polycrystalline diamond) and CBN (cubic boron nitride) inserts and tools through our wholly-owned subsidiary, Ohio Metal Working Products/Art’s Way, Inc., an Ohio corporation (“Ohio Metal”). During the third quarter of fiscal 2016, we discontinued operations of a fourth segment, Pressurized Vessels, which manufactured pressure vessels through our wholly-owned subsidiary, Art’s-Way Vessels, Inc., an Iowa corporation, which was merged in the Company effective October 31, 2016. For detailed financial information relating to discontinued operations and segment reporting, see Note 2 and Note 17, respectively,18 “Segment Information” to our financial statements in Item 8“Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.

Information about Art’s-Way can be found on our website, http://www.artsway-mfg.com/. We are not including the information on our corporate website as a part of or incorporating it by reference into this report. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Exchange Act requires us to file periodic reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s website at http://www.sec.gov.

Business of Our Segments

Agricultural Products

Our Agricultural Products segment, which accounted for 73.1%59.0% of our net revenue in the 20162019 fiscal year and 78.8%72.7% of our net revenue in the 20152018 fiscal year, is located primarily in our Armstrong, Iowa facility. TheThis segment manufactures a variety of specialized farm machinery under our own label, including:including portable and stationary animal feed processing equipment and related attachments used to mill and mix feed grains into custom animal feed rations; a line of hay and forage equipment consisting of forage boxes, blowers, running gear, and dump boxes; a line of portable grain augers; a line of manure spreaders; sugar beet harvesting equipment; a line of land maintenance equipment; moldboard plows; and reels for combines and swathers; andswathers. We also previously manufactured industrial grade snow blowers under the Agro Trend by Art’s-Way Manufacturing International LTD.label, but we sold the Agro Trend product line to Metco, Inc. on December 15, 2017. The Agro Trend line under our Canadian subsidiary accounted for 2% of our sales from continuing operations on our statements of operations for the 2018 fiscal year. We sell our labeled products through independent farm equipment dealers throughout the United States and Canada. In addition, we manufacture and supply silage blowers and reels under original equipment manufacturer (“OEM”) agreements. Sales to our OEM customers accounted for 5%1% of our consolidated sales for the 2019 fiscal year ended November 30, 2016 and 5% of our consolidated sales for the 2018 fiscal year ended 2015.year. We also provide after-market service parts that are available to keep our branded and OEM producedOEM-produced equipment operating to the satisfaction of the end user of our products.

Modular Buildings

Our Modular Buildings segment, which accounted for 17.0%31.7% of our net revenue in the 20162019 fiscal year and 12.1%15.8% of our net revenue in the 20152018 fiscal year, is located in Monona, Iowa. This segment produces and sells modular buildings, which are custom-designed to meet the specific research needs of our customers. The buildings we commonly produce range from basic swine buildings to complex containment research laboratories. We plan to continue our focus on providing research facilities for academic research institutions, government research and diagnostic centers, public health institutions and private research and pharmaceutical companies, as those are our primary market sectors. We provide services from start to finish by designing, manufacturing, delivering and installing or renting the building units.these facilities to meet customers’ critical requirements. In addition to selling these facilities, we also offer a lease option to customers in need of temporary facilities.

Tools

Our Tools segment, which is located in Canton, Ohio, accounted for 9.9%9.3% of our net revenue in the 20162019 fiscal year and 9.0%11.5% of our net revenue in the 20152018 fiscal year. This segment produces and sells standard single point brazed carbide tipped tools as well as PCD (polycrystalline diamond) and, CBN (cubic boron nitride) inserts and tools and OEM specialty tools. The tools are used by manufacturers in various industries to cut and shape various parts, pipes, and fittings. The marketing of the tools is primarily through independent distributors supplying manufacturers with industrial tools and supplies. We plan to continue our focus on providing cutting tools to industries such as automotive, aerospace, oil and gas piping, and appliances.

Pressurized Vessels – Discontinued Segment

Our Pressurized Vessels segment was discontinued during the third fiscal quarter of 2016 and was located in Dubuque, Iowa. The operations of the Pressure Vessels segment are reported in the accompanying financial statements as discontinued operations in accordance with GAAP. The Pressurized Vessels segment produced and sold pressurized vessels, both American Society of Mechanical Engineers (“ASME”) code and non-code. It provided a combination of services as a manufacturer and supplier of steel vessels and steel containment systems. We built in carbon steel and stainless steel, ranging from atmospheric (0 PSI) storage vessels up to any PSI pressure rating required. We provided vessels ranging in size from 4 inches to 168 inches in diameter and in various lengths as our customers required. The vessels were primarily sold to manufacturing facilities that used the vessel as a component part of their end product. We primarily served the following industries: water treatment; air receivers; refineries; co-generation; chemical; petrochemical; storage tanks; agriculture; marine; refrigeration; hydro pneumatic; heavy equipment; pharmaceuticals and mining. In addition to our role as a fabricator of vessels, we provided services including: custom CAD drawing; welding; interior linings and exterior finishing; passivation of stainless steel; hydrostatic and pneumatic testing; design, build and finishing of skids; installation of piping; non-destructive examination and heat treating. For detailed financial information relating to discontinued operations, see Note 2 to our financial statements in Item 8 of this report.

Our Principal Agricultural Products

Agricultural Products

From itsour beginnings as a producer of portable grinder mixers, our Agricultural Products segment has grown through developing several new products and with our acquisitions. In 2012, we acquired UHCthe assets of Universal Harvester Co., Inc. (“UHC”) in Ames, Iowa and began selling reels for combines and swathers as UHC by Art’s-Way, which was merged into the Company effective November 30, 2015.Art’s-Way. In 2013, we acquired the Agro Trend product line based in Clifford, Ontario through whichand we now sellsold Agro Trend industrial snow blowers and agricultural trailers as Art’s-Way Manufacturing International LTD.through our Canadian subsidiary. On December 15, 2017, we sold the Agro Trend product line to Metco, Inc. Today, our Agricultural Products segment manufactures a wide array of products relating to feed processing, crop production, augers, manure spreaders, hay and forage, tillage and land management, and sugar beet harvesting equipment. We primarily manufacture products under the Art’s-Way, Miller Pro, Roda, M&W, Badger, and UHC by Art’s-Way brand names. Our Agricultural Products segment also maintains a small volume of OEM work for the industry’s leading manufacturers.

Grinder mixer line.The grinder mixer line represents our original product line. Our founder, Arthur Luscombe, designed the original PTOpower take-off unit (“PTO”) powered grinder-mixer prior to the Company’sour inception. Grinder mixers are used to grind grain and mix in proteins for animal feed. They have several agricultural applications and are commonly used in livestock operations. Our grinder mixers have wide swing radiuses to allow users to reposition the discharge tube from one side of the tank to the other in one step. Our 6105 grinder mixer offers a 105-bushel tank with a 20-inch hammermill. Our 6140 grinder mixer is a medium sized product with a 140-bushel tank, a 20”20-inch hammermill, and an 8”8-inch discharge auger. Our 6530 is the largest in the industry at 165-bushel7165 grinder mixer has a large 165- bushel tank with a 26-inch hammermill. It featureshammermill featuring self-contained hydraulics and 10-inch discharge augers which yieldsyielding the fastest unload times in the industry. During the 2019 fiscal year, we completed development of the 8215 grinder mixer featuring a 215-bushel tank, which is now the largest in the industry. Our Cattle Maxx rollermill mixer products offer consistent feed grain rations for beef and dairy operations and are available in 105-bushel, 140-bushel, and 165-bushel capacities. We also offer the JR50 and JR75 grinder mixer models for smaller operations featuring 50- and 75-bushel mixing tanks, respectively.

Stationary feed grain processing line.We offer stationary hammermills and rollermills. Harvesting leaves various amounts of extraneous materials that must be removed through processing the seeds. Hammermills are aggressive pre-cleaners that are designed to remove appendages, awns, and other chaff from seeds by vigorously scraping the seed over and through the screen. The screen has holes that are big enough to let the seed pass through undamaged but are small enough to catch and remove the appendages. Our rollermills roll the feed grain to minimize dust, and they fracture the outside hull to release the digestive juices more rapidly. Rolling feed provides more palatable and digestible feed for use in animal feeding operations.

Land management line.Land planes are used to ensure even distribution of rainfall or irrigation by eliminating water pockets, furrows, and implement scars in fields. Our land planes have a patented Art’s-Way floating hitch design. We offer pull-type graders to help our customers perform many tasks such as maintaining terraces and waterways, leveling ground, cleaning ditches, and removing snow. The pull-type graders follow close to the back of a tractor for leveling uneven areas or for turning in smaller spaces.

Moldboard plow line. The Art’s-Way moldboard plows offer conservation tillage choices to match each customer’s preference. Our moldboard plows are designed to slice and invert the soil to leave a rough surface exposed, and they are primarily used on clean-tilled cropland with high amounts of crop residue.

Sugar beet harvesting line. Our sugar beet defoliators and harvesters are innovative products in the industry due to our focus on continuous improvement, both in reaction to customer requests and in anticipation of our customers’ needs. Our machines can harvest six, eight, or twelve rows at one time. Along with beingWe were the first manufacturer to introduce a larger, 12-row harvester, weharvester. We also sellmanufacture a self-propelled unit produced692Z model, which is a smaller, more contained model, commonly used by another manufacturer.smaller producers. Our sugar beet defoliators cut and remove the leaves of the sugar beets without damaging them, and the leaf particles are then incorporated back into the soil. In 2019, we introduced a sonar leveling axle to improve the harvesting capability of our beet equipment.

Hay and forage line.We offer highly productive hay and forage tools for the full range of producers. This product line includes high capacity forage boxes for transporting hay from the field with optional running gear to provide superior stability and tracking. With recent product line additions, we offer the highest capacity forage boxes on the market. High velocity, high volume forage blowers are able to fill the tallest silos with lower power requirements. Cam action rotary rakes will gently lift the crop, carry it to the windrow and release it, saving more leaves and forming a faster drying, fluffier windrow.

Augers line.Our portable grain auger models are available painted white or hot dipped galvanized. Rolling hopper augers are constructed from 12 gauge tube and ¼” flighting. These augers feature an internal drive with externally mounted gear boxes for proper venting and easier maintenance. Driveline augers are also available with either power take-off unit (“PTO”) or electric drive. These heavy-duty augers have a reversible gear box which permits PTO operation from either side.

Manurespreaderspreaders line.Roda manure spreaders are a well-known name with a rich tradition in the West North Central region of the United States with the origin of the spreaders dating back to the 1950s. We offer vertical and horizontal beaters and rear discharge manure spreaders in both truck-mount and pull-type configurations. We also offer manure spreaders with flared sides for increased capacity and a guillotine slop gate for accurate metering. Our products are ideal for spreading livestock manure, compost, and lime. We offer a scale system and a scale system with GPS for proper nutrient placement. These spreaders boast a heavy-duty and rugged design with one of the best spread patterns in the industry, allowing for efficient and consistent nutrient and land management.

Reels line.line. In May of 2012 we purchased the assets of UHC and began selling reels for combines and swathers as UHC by Art’s-Way. These reels have a unique flip over action for self-cleaning in adverse conditions. They are manufactured with extruded aluminum creating a light weightlight-weight yet strong reel.

Snow blowers line. In June of 2013 we purchased certain assets of Agro Trend, a division of Rojac Industries, Inc. of Clifford, Ontario, Canada and began selling snow blowers, agricultural trailers, and dump boxes as Art’s-Way Manufacturing International LTD. We offer snow blowers in 28 models ranging from 54” wide to 120” wide. The styles also range from compact to heavy duty. Trailers range in sizes from 1.5 ton to 8 ton, and we offer two versions of dump boxes.

Modular Buildings

We supply laboratories for bio-containment, animal science, public health, and security requirements. We also supply facilities for animal housing. We custom design, manufacture, deliver, and install these facilities to meet customers’ critical requirements. In addition to selling these facilities, we also offer a lease option to customers in need of temporary facilities.

Tools

We supply standard single point brazed carbide tipped tools as well as PCD (polycrystalline diamond) and CBN (cubic boron nitride) inserts and tools. Our customers use the tools for various steel cutting applications.

Product Distribution and Markets

We distribute goods for our Agricultural Products segment primarily through a network of approximately 1,5001,100 U.S. and Canadian independent dealers, as well as overseas dealers in the U.K.United Kingdom and Australia, whose customers require specialized agricultural machinery. We have sales representation in 48 states and seven Canadian provinces; however, many dealers sell only service parts for our products. Our dealers sell our products to various agricultural and commercial customers. We also maintain a local sales force in our Armstrong, Iowa facility to provide oversight services for our distribution network, communicate with end users, and recruit and train dealers on the uses of our products. Our local service parts staff is available to help customers and dealers with their service parts needs. Our Modular Buildings segment typically sells products customized to the end-users’end-user’s requirements directly to the end-users.end-user. Our Tools segment distributes products through manufacturers’ representatives, direct sales, and OEM sales channels.

We currently export products to foureleven foreign countries. We have been shipping grinder mixers abroad since 2006 and have exported portable rollermills and sugar beet harvesters as well. We continue to strengthen these relationships and intend to develop new international markets, too.markets. Our international sales accounted for 10.2%5.0% of consolidated sales during the 20162019 fiscal year.

Backlog.OurOur backlogs of orders vary on a daily basis. As of January 30, 2017,2020, our Tools segment had approximately $135,000$285,000 of backlog, our Modular Buildings segment had approximately $716,000$5,106,000 of backlog, and our Agricultural Products segment had a net backlog of approximately $5,263,000.$3,592,000. Our backlog is up across all three segments and up approximately 266% in total compared to this same time last year. We expect that our order backlogs will continue to fluctuate as orders are received, filled, or cancelled, and, due to dealer discount arrangements we may enter into from time to time, these figures are not necessarily indicative of future revenue.

Recent Product Developments

During 2016,the 2019 fiscal year, development in our Agricultural Products segment consisted of several products. We finalized design on the 8215 grinder mixer which incorporates the quality and traditional features of previous units with our largest capacity in a grinder mixer of 215 bushels. We introduced two new manure spreaders at the end of 2018, the X700 and X900. These units feature a skid steer mounted snow blowerguillotine slop gate for accurate metering and additional capacity due to enhance our current line of snow blower offerings. We debuted a 9016 BT High Dump Wagon which is an adaptation of our previous Hi-Dump Wagon but was specifically designed to work in the sugar beet market.flared sides. In 2019, we readied and put these units into mass production. We also developed a 4226 HB Hammer Blower,sonar leveling axle for our sugar beet harvesters in 2019 that tracks harvesting depth to maximize crop extraction. We continued development on our 40-foot commercial forage box, which features a rear unload, has an all-welded design for greater strength and features polished stainless-steel sides. The 40-foot forage box is a new product created by using our current production hammer mill design mounted on a new frame and coupledalso welded to a new forage blower style fan.semi-trailer for straight from the field to over-the-road use. We also began the development of a hemp drying box in 2019.

    Our Pressurized Vessels, Tools and Modular Buildings segments completedcomplete projects based on customer specifications and did not engage in specific product development during 2016.the 2019 fiscal year.

Competition

In addition to the competitive strengths of each of our segments described below, we believe our diversified revenue base, sales presence and customer base drawn from these three segments helps to provide protection against competitive factors in any one industry. Our Modular Buildings and Tools segments provide us with diversified revenues rather than solely relying on the agricultural machinery sector. We are also diversified on the basis of our sales presence and customer base.

Agricultural Products

Our Agricultural Products segment competes in a highly competitive agricultural equipment industry. We compete with larger manufacturers and suppliers that have broader product offerings and significant resources at their disposal; however, we believe that our competitive strengths allow us to compete effectively in our market.

Management believes that grain and livestock producers, as well as those who provide services to grain and livestock operations, are the primary purchasers of agricultural equipment. Many factors influence a buyer’s choice for agricultural equipment. Any one or all factors may be determinative, but they include brand loyalty, the relationship with dealers, product quality and performance, product innovation, product availability, parts and warranty programs, price, and customer service.

While our larger competitors may have resources greater than ours, we believe we compete effectively in the farm equipment industry by serving smaller markets in specific product areas rather than directly competing with larger competitors across an extensive range of products. Our Agricultural Products segment caters to niche markets in the agricultural industry. We do not have a direct competitor that has the same product offerings that we do. Instead, each of our product lines competes with similar products of many other manufacturers. Some of our product lines face greater competition than others, but we believe that our products are competitively priced with greater diversity than most competitor product lines. Other companies produce feed processing equipment, sugar beet harvesting and defoliating equipment, grinders, and other products similar to ours; therefore, we focus on providing the best product available at a reasonable price. Overall, we believe our products are competitively priced with above average quality and performance, in a market where price, product performance, and quality are principal elements.

In addition, in order to capitalize on brand recognition for our Agricultural Products segment, we have numerous product lines produced under our labels and private labels, and we have made strategic acquisitions to strengthen our dealer base. We also provide aftermarket service parts which are available to keep our branded and OEM-produced equipment operating to the satisfaction of the customer. We sell products to customers in the United States and foureleven foreign countries through a network of approximately 1,5001,100 independent dealers in the United States and Canada, as well as overseas dealers in the United Kingdom and Australia.

We believe that our competitive pricing, product quality and performance, network of worldwide and domestic distributors, and strong market share for many of our products allow us to compete effectively in the agricultural products market.

Modular Buildings

We expect continued competition from our Modular Buildings segment’s existing competitors, which include conventional design/build firms, as well as competition from new entrants into the modular building market. To some extent, we believe barriers to entry in the modular building industry limit the competition we face in the industry. Barriers to entry in the market consist primarily of access to capital, access to a qualified labor pool, and the bidding process that accompanies many jobs in the health and education markets. Despite these barriers, manufacturers who have a skilled work force and adequate production facilities could adapt their manufacturing facilities to produce modular structures.

We believe the competitive strength of our Modular Buildings segment is our ability to design and produce high-tech modular buildings more quickly than conventional design/build firms. Conventional design/build construction may take two to five years, while our modular laboratories can be delivered in as little as six months. As one of the few companies in the industry to supply turnkey modular buildings and laboratories, we believe we provide high-quality buildings at reasonable prices that meet our customers’ time, flexibility, and security expectations.

Tools

We expect competition in our Tools segment from off shore products whichthat have gained market share over the last twenty years. Our greatest threat continues to be emerging technologies that replace the need for brazed tools.These competitive threats are countered by our ability to offer the widest range of standard carbide tipped brazed tool inventories to be found in North America. These inventories are strategically located in four warehouses across the U.S.,United States, enabling our customers to receive product quickly with minimal shipping costs. Our ability to produce special, engineered, value addedvalue-added products in volume with short lead times sets us apart from our competitors. This is most evident in certain segments of the pipe processing industry, where we have been able to establish and maintain market share despite efforts from companies significantly larger than ourselves. In 2019 we expanded our tool offering by entering into an OEM agreement with a specialty tool manufacturer.

Raw Materials, Principal Suppliers, and Customers

Raw materials for our various segments are acquired from domestic and foreign sources and normally are readily available. Currently, we purchase the lifter wheels used to manufacture our sugar beet harvesters from a supplier located in China. We also purchase gearboxes and manure spreader beaters from a supplier in Italy. However, these suppliers are not principal suppliers and there are alternative sources for these materials.

We have an original equipment manufacturer (“OEM”)OEM supplier agreement with Case New Holland (“CNH”) for our Agricultural Products segment. Under the OEM agreement, we have agreed to supply CNH’s requirements for certain feed processing and service parts, primarily blowers, under CNH’s label. The agreement has no minimum requirements and can be cancelled upon certain conditions. The initial term of the agreement with CNH ran throughexpired in September 2006, but the agreement continues in force until terminated or cancelled by either party. Neither party has terminated or cancelled the agreement as of November 30, 2016.2019. We also sell reels to Honey Bee and Agco under an OEM agreement. For the 2019 fiscal year, ended November 30, 2016, sales to OEM customers were approximately 5%1% of consolidated sales.sales compared to 5% in the 2018 fiscal year.

We do not typically rely on sales to one customer or a small group of customers. During the 2019 fiscal year, ended November 30, 2016, no one customer accounted for more than 8%21% of consolidated revenues as the result of a large contract in our Modular Buildings segment. Our highest recurring customer accounted for just under 10% of our consolidated net revenues.

Intellectual Property

We maintain manufacturing rights on several products, which cover unique aspects of design. We also have trademarks covering product identification. We believe our trademarks and licenses help us to retain existing business and secure new relationships with customers. The duration of these rights ranges from 5 to 10 years, with options for renewal. We currently have no pending applications for intellectual property rights.

We pay royalties for our use of certain manufacturing rights. Under our OEM and royaltysupplier agreement with CNH, CNH sold us the license to manufacture, sell, and distribute certain plow products designed by CNH and their replacement and component parts. We pay semi-annual royalty payments based on the invoiced price of each licensed product and service part we sell. Under agreements with Roda and M&W, we acquired an ongoing license to manufacture, sell, and distribute Roda-branded manure spreaders and M&W-branded balers in exchange for royalty payments for certain time periods which expired in January 2015 and May 2015, respectively. Having fulfilled our royalty obligations under the Roda and M&W agreements, we no longer are required to make payments, but retain the rights to manufacture, sell, and distribute these products. During the third fiscal quarter of 2016 we entered intoWe have a licensing and royalty agreement with Martin Harvesting, LLC to produce a commercial forage box in exchange for royalty payments in effect until August 2026. Our rights to manufacture and sell thethis product do not expire. Weexpire, but we will pay a royalty amount based on the sales price of each licensed product we sell. We are currently workingalso have a licensing and royalty agreement with Spreader, LLC to integrate the design into our manufacturing facility, and expect to being selling these forage boxesproduce a loader mounted spreader in fiscal 2017.

Research and Development Activities

Our Agricultural Products segment is continually engaged in research and development activities to improve and enhance our existing products. We perform research and development activities internally, and the cost of our research and development activities is not borne by our customers. Our research and development expenses are cyclical; they may be high in one year, but would tend to be lower the next, with an increase in production expenses as our new ideas are manufactured. Research and development expenses during our 2016 fiscal year accountedexchange for $140,000 of our total consolidated engineering expenses, compared to $162,000 during our 2015 fiscal year.royalty payments until December 2027.

Our Tools segment produces standard cutting tools and inserts and special tools per customer specifications. Our Modular Buildings segment designs modular buildings in accordance with customer specifications.

Government Relationships and Regulations; Environmental Compliance

Our Modular Buildings segment must design, manufacture, and install its modular buildings in accordance with state building codes, and the Company haswe have been able to achieve the code standards in all instances. In addition, we are subject to various federal, state, and local laws and regulations pertaining to environmental protection and the discharge of materials into the environment. We do not expect that the cost of complying with these regulations will have a material impact on our consolidated results of operations, financial position, or cash flows.

Employees

As of November 30, 2016,2019, we employed approximately ninety-three79 employees in our Agricultural Products segment, onetwo of whom waswere employed on a part-time basis. As of the same date, we had seventeen full-time24 employees in our Tools segment, nearly allone of whom was employed on a part-time basis. The majority of the employees in our Tools segment are represented by a union and covered by a collective bargaining agreement. In addition, our Modular Buildings segment employed approximately sixteen22 employees twoas of the same date, one of whom worked on a part-time basis. These numbers do not necessarily represent peak employment during the 2019 fiscal 2016.year.

Item 1A. RISK FACTORS.FACTORS.

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

Item 1B. UNRESOLVED STAFF COMMENTS.COMMENTS.

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

Item 2. PROPERTIES.

Our executive offices, as well as the primary production and warehousing facilities for our Agricultural Products segment, are located in Armstrong, Iowa. These facilities were constructed after 1965 and remain in fair condition. The facilities in Armstrong contain approximately 249,000 square feet of usable space. We have engaged in several building improvement projects during the last several years and plan to complete a reroofing project over the next several years. In addition, we own approximately 127 acres of land west of Armstrong, on which the factory and inventory storage space is situated for our Agricultural Products segment.

We purchased an office, production, and warehousing facility for our Agricultural Products segment located in West Union, Iowa on approximately 29 acres in the 2010 fiscal 2010.year. The property is in good condition and containscontained approximately 190,000 square feet of usable space. A substantial portion of the facility has beenwas leased to third parties and we are currently usingduring the remainder2018 fiscal year. This property was sold on December 14, 2018 for $900,000. We recognized an impairment of approximately $216,000 on this property in the space for inventory storage.2018 fiscal year.

In connection with the acquisition of certain assets of UHC in May 2012,February 2008, we also purchased the land and building used for manufacturing of the products sold by UHC, located in Ames, Iowa. We sold this facility, which contained approximately 41,640 square feet of usable space and land of approximately 10 acres, on February 10, 2016 for $1,192,000. After closing expenses, we recognized a gain on the sale of $36,000.

In connection with the acquisition of certain assets of Agro Trend in June of 2013, we assumed the lease on an 8,500 square foot facility in Clifford, Ontario, Canada. The lease on this facility was for a term of two years and expired on May 23, 2015. We entered into a two year lease agreement on April 22, 2015 for a 14,000 square foot facility in Listowel, Ontario, Canada in order to continue the manufacturing, marketing and sales of Agro Trend products from Canada. This facility is used in connection with our Agricultural Products segment.

We completed construction on a facility for our recently closed Pressurized Vessels segment in Dubuque, Iowa, as of February 2008.which was used for our discontinued Pressurized Vessels segment. The facility iswas 34,450 square feet, steel-framed, with a crane that runsran the length of the building. A paint booth and a blast booth were installed in the first quarter of 2009. This property is currently heldthe 2009 fiscal year. On March 29, 2018, we sold this facility for sale.$1,500,000.

We completed construction in November 2007 of our facility in Monona, Iowa, which houses the manufacturing for our Modular Buildings segment. The new facility was custom-designed to meet our production needs. It has approximately 50,000 square feet of useable space and accommodates a sprinkler system and crane.

In connection with the acquisition of certain assets of Ohio Metal Working Products Company in September 2013, we also purchased the land and building used for manufacturing of the products sold by Ohio Metal Working Products Company, located in Canton, Ohio. The building contains approximately 39,000 square feet of usable space and is in good condition. The purchased land is approximately 4.50 acres and is used in connection with our Tools segment.

Our owned real property in West Union, Iowa is subject to a mortgage granted to The First National Bank of West Union (n/k/a Bank 1st) as security for a term loan. All of our remaining owned real property is subject to mortgages granted to U.S. Bank Midwest as security for our long-term debt and our line of credit. See “Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Liquidity and Capital Resources” for more information.

Item 3. LEGAL PROCEEDINGS.

From time to time in the ordinary course of business, we may be named as a defendant in legal proceedings incidental to the business, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings, directly or indirectly, and we are not aware of any claims pending or threatened against us or any of the directors that could result in the commencement of material legal proceedings.

Item 4. MINE SAFETY DISCLOSURES.DISCLOSURES.

Not applicable.

PART II

Item 5.Market for REGISTRANT’S Common Equity, Related Stockholder Matters AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock trades on the NASDAQNasdaq Stock Market LLCunder the symbol “ARTW.” The ranges of high and low sales prices for each quarter, as reported by NASDAQ, are shown below.

Stockholders

We have two classes of stock, undesignated preferred stock and $0.01 par value common stock. No shares of preferred stock have been issued or are outstanding. As of January 30, 2017,2020, we had 8983 common stock stockholders of record, which number does not include stockholders who hold our common stock in street name.

Dividends

We did not pay a dividend during the 20162019 or 2018 fiscal year. On January 26, 2015 we announced a dividend of $0.05 per share paid on February 27, 2015 to shareholders of record on February 12, 2015.years. We expect that the payment of and the amount of any future dividends will depend on our financial condition at that time. Our loans with U.S. Bank require us to obtain consent from U.S. Bank prior to declaring a dividend payment.

Unregistered Sales of Equity Securities

None.

Purchases of Equity Securities by the Company

None.The following table presents the information with respect to purchases made by us for our common stock during the fourth fiscal quarter of 2019:

⁽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.

Equity Compensation Plans

For information on our equity compensation plans, refer to Item 12, “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.”

Item 6. SELECTED FINANCIAL DATA.DATA.

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

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This report contains forward-looking statements that involve significant risks and uncertainties. The following discussion, which focuses on our results of operations, contains forward-looking information and statements. Actual events or results may differ materially from those indicated or anticipated, as discussed in the section entitled “Forward Looking Statements.” The following discussion of our financial condition and results of operations should also be read in conjunction with our financial statements and notes to financial statements contained in “Item8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” - of this report.

Financial PositionCondition

Fiscal year 2019 proved to be another adverse year in the agricultural sector. We believehave now seen five consecutive years of decreased net sales for our Agricultural Products segment. At the end of the third fiscal quarter, we found ourselves down approximately 18% in net sales year on year in this segment. By end of the fourth fiscal quarter, we had closed this gap to only be a 6% decrease year on year. Our 2019 fourth fiscal quarter had increased agricultural product sales of 59% year on year and the highest fourth quarter total since our 2014 fiscal year. This strong fourth quarter provides us renewed optimism about the state of the agricultural market. In the 2019 fiscal year, we continued our continuous improvement projects including warehouse reorganization, improved product routings for efficiency and general cost cutting. These projects will improve our operational effectiveness and will allow us to thrive in periods of agricultural economic boom. Despite the struggles in our Agricultural Products segment, our diversification through different industries has helped us tremendously. Our Modular Building segment was profitable in the 2019 fiscal year mainly due a large contract that is approximately 55% complete. This segment carries a strong backlog into 2020 that will provide a great start to our 2020 fiscal year. Our Tools segment did not have a strong year financially but did sign an OEM agreement that has the potential to increase their sales in the 2020 fiscal year.

Our consolidated balance sheet indicates a stable financial position. Duringposition as of November 30, 2019. Despite showing a net loss from continuing operations of $(1,420,000) for the 2019 fiscal year 2016, we decreasedwere able to decrease our total liabilities by $3,045,000—a 23.8% decrease. $735,000 compared to the 2018 fiscal year. Our total borrowings were reduced by $1,241,000 in fiscal year 2019 compared to fiscal year 2018.

We expect ourto have access to capital will continue to provide future cash for equipment investments, acquisitions, or debt pay down. During fiscal 2016, our working capital decreased nearly $2,000,000, primarily as a resultneeded throughout 2020 through the sale of inventory reductions. We have approximately $1,559,000and from the use our line of credit. At November 30, 2019 we had $2,421,470 available on our line of credit ascredit. Despite the continued losses, our banking relationship has remained positive through transparency and continued communication. Our working capital remained strong around $6,204,000 in the 2019 fiscal year with a current ratio of November 30, 2016.2.19, up eight points from 2018. We continue to put emphasis on reducing our inventory to more manageable levels to decrease carrying costs, implement lean manufacturing practices and improve our inventory turnover. We do not foresee liquidity issues within the next twelve months.

Critical Accounting Policies

Our significant accounting policies are described in Note 1 “Summary of Significant Accounting Policies” to our Consolidated Financial Statements containedfinancial statements in Item 8“Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report, which were prepared in accordance with Generally Accepted Accounting Principles.report. Critical accounting policies are those that we believe are both important to the portrayal of our financial condition and results and require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

We believe that the following discussion represents the most critical accounting policies and estimates used in the preparation of our consolidated financial statements, although it is not inclusive.statements.

Inventories

Inventories are stated at the lower of cost or market,net realizable value, and cost is determined using the standard costing method. Management monitors the carrying value of inventories using inventory control and review processes that include, but are not limited to, sales forecast review, inventory status reports, and inventory reduction programs. We record inventory write downs to marketnet realizable value based on expected usage information for raw materials and historical selling trends for finished goods. If the assumptions made by management do not occur, we may need to record additional write downs.

Revenue Recognition

Effective December 1, 2018 we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective adoption method. The adoption of ASC 606 had no impact on prior year or previously disclosed amounts. In accordance with ASC 606, revenue is measured based on consideration specified in a contract with a customer and recognized when we satisfy the performance obligation specified in each contract.

Our revenues primarily result from contracts with customers. 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. We recognize 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, generally upon the shipment of the product.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 Companyour terms are documented in the most recently published price lists. Pricing is fixed and determinable according to the Company’sour published equipment and parts price lists. Title to all equipment and parts sold shall 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. A provision for warranty expenses, based on sales volume, is includedThe agricultural products and tools segments each typically require payment in full 30 days after the financial statements. Our returns policy allows for newship date. To take advantage of program discounts, some customers pay deposits up front. Any deposits received are considered unearned revenue 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.increase contract liabilities.

In certain circumstances, upon the customer’s written request, we may recognize revenue when production is complete, and the good isgoods are ready for shipment. At the buyer’s request, we will bill the buyer upon completing all performance obligations, but before shipment. The buyer dictates that we ship the goods per their direction from our 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 we will segregate the goods from our 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. We have 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. Revenues recognized at the completion of production in 2016the 2019 and 20152018 fiscal years were approximately $424,000$16,000 and $634,000,$202,000, respectively.

Our Modular Buildings segment is in the construction industry and, as such, accounts for long-term contracts onwith 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 percentage-of-completionsatisfaction 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. We use 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 our 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.

We lease modular buildings to certain customers and account 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 our obligation to the lessee. On operating leases, we recognize 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.

Our 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,” contained in our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.

Results of Operations – Continuing Operations

FiscalYear EndedNovember 30, 20162019 Compared to Fiscal Year EndedNovember 30, 2015

2018

Our consolidated net sales for continuing operations totaled $21,558,000$22,889,000 for the 2019 fiscal year, ended November 30, 2016, which represents a 18.1% decrease16.0% increase from our consolidated net sales of $26,326,000 in 2015.$19,727,000 for the 2018 fiscal year. The decreaseincrease in revenue is primarily due to decreaseda 133.5% increase in sales ofin our Modular Buildings segment due to the progress on a large contract. We experienced approximately a 6% and 7% decrease in sales in our Agricultural Products segment. We are experiencing decreased demand of nearly all our agricultural products.and Tools segments, respectively, for the 2019 fiscal year. Our consolidated gross profit decreased as a percentage of net sales remained fairly steady at 17.2% in the 2019 fiscal year when compared to 24.7% in 2016 from 26.3%17.8% of net sales in 2015. Measures taken during the year to control our costs helped preserve2018 fiscal year. We saw an increased gross profit but did not completely offset the impact of declining revenues as compared to relatively stable fixed costs.percentage in our Modular Buildings segment while we had slight decreases in gross profit percentage in our Agricultural Products and Tools segments. Our consolidated operating expenses from continuing operations decreased by 17.7%17.9%, from $6,989,000$6,607,000 in 2015the 2018 fiscal year to $5,751,000$5,424,000 in 2016. In addition to our work to reduce expenses, we also had a $618,729 non-cash expense recognized in August 2015 for the impairment of goodwill associated with the 2012 acquisition of Universal Harvester.2019 fiscal year. Because the majority of our corporate general and administrative expenses are borne by our Agricultural Products segment, that segment represented $4,191,000$3,796,000 of our total consolidated operating expenses, while our Modular Buildings segment represented $890,000,$962,000 and our Tools segment represented $670,000 of the total.$666,000.

Our consolidated operating loss from continuing operations for the 20162019 fiscal year was $(431,000)$(1,497,000) compared to an operating loss of $(77,000)$(3,095,000) for the 20152018 fiscal year. Our Modular Buildings segment provided operating income of $88,000. Our Agricultural Products segment had an operating loss of $(378,000)$(1,599,000), our Modular Buildings segment had operating income of $208,000, and our Tools segment had an operating loss of $(141,000)$(106,000).

Consolidated net loss for the 20162019 fiscal year was $(426,000)$(1,420,000) for continuing operations compared to net loss of $(310,000)$(3,336,000) in the 20152018 fiscal year for continuing operations, an increasea decrease in loss of $116,000. This increased$1,916,000. The decreased loss is primarily a result of soft demand that resulted in lower net sales in every segment, but was also affected by our analysisdue to several factors. In the first quarter of the realizability2018 fiscal year we recognized a loss of approximately $298,000 from the revaluation of our deferred tax asset at the new income tax rates. We also recognized a loss of approximately $253,000 from the liquidation of our Canadian subsidiary related to the cumulative translation adjustment in the second quarter of the 2018 fiscal year. We recognized an impairment of approximately $216,000 on our West Union facility during the third and fourth quarters of the 2018 fiscal year which was equal to the expected loss on the sale of the property. This facility required mold remediation of $235,000 and scrapping of $67,000 of inventory, which was captured in the third quarter of the 2018 fiscal year. We also impaired our goodwill on our Miller Pro product line in the amount of $375,000 in the fourth quarter of the 2018 fiscal year. Moreover, in the fourth quarter of the 2018 fiscal year, management decided to place increased reserves on inventory resulting in expense of approximately $543,000. The revaluation of our deferred tax asset, release of our current translation adjustment, impairment of assets and inventory reserve revaluation were all one-time non-cash expenses that greatly impacted our bottom line in the 2018 fiscal year. We also did not recognize a net operating loss tax benefits. Loss from operations at our discontinued Pressurized Vessels segment was $(598,000)in 2019 compared to $(51,000) in the 2016 fiscal year compared to $(327,000) in the 20152018 fiscal year.

Our effective tax rate for continuing operations for the 2019 and 2018 fiscal years ending November 30, 2016was 19.7% and 2015 was 18.5% and 39.3%13.3%, respectively. The increase in the effective tax rate is due to a onetime adjustment to our deferred tax asset in 2018 from the Tax Cuts and Job Act of 2017 as discussed in Note 1, “Summary of Significant Accounting Policies” to our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.

Agricultural Products.Products. Our Agricultural Products segment’s sales revenue for the 2019 fiscal year ended November 30, 2016 was $15,756,000,$13,508,000 compared to $20,756,000$14,344,000 during the same period of 2015,2018 fiscal year, a decrease of $5,000,000,$836,000, or 24.1%5.8%. We experiencedsaw decreased demand for our portable feed equipment in 2019, which resulted in decreased sales year on year of $1,329,000. Continued struggles in nearly every product manufactured in our Agricultural Products segment. Gross profit for the fiscal year ended November 30, 2016 was 24.2% compareddairy market, coupled with market shifts to 25.6% forlarge cattle operations from the fiscal year ended November 30, 2015. We were abletraditional small cattle farmer also contributed to maintain relatively stable gross margins on decreased sales volume with various cost-cutting measures, as well as utilizing our inventory more efficiently. Thethis decrease. Additionally, we also saw a decrease in sales of approximately $451,000 in our Agricultural Products segment is not unlike all other companies that serve this market, both large and small. We do not believe that the sales decreases in fiscal 2016 representUHC reels year on year due to a loss of our primary reel customer after a strategic decision to not offer such customer discounted prices at unfavorable margins to us. Moreover, OEM blower revenue of approximately $262,000 in the 2018 fiscal year was not repeated in the 2019 fiscal year as our OEM blower customer elected not to purchase any blowers from us in fiscal 2019 due to slow-moving inventory on their dealer lots relating to poor agricultural market share, but rather lowerconditions. While we saw decreased demand in the overall market placeabove product lines, we saw increased demand in dump boxes, land maintenance equipment, bale processors and beet equipment for agricultural equipment.a combined $1,500,000 increase in sales. At the end of our third fiscal quarter of 2019 our year to date sales were down 18.4% in this segment. Our strongest fourth quarter since the 2014 fiscal year brought us to within approximately 6% of the 2018 fiscal year’s total.   Gross profit percentage for the 2019 fiscal year was 16.3% compared to 17.4% for the 2018 fiscal year. Our decreased gross profit percentage is due largely to a decrease in workforce efficiency. With the absence of steady demand for portable feed equipment, our most efficient equipment to build, we have struggled to gain operational efficiencies that are generally gained by continued production of a single product. Our efficiency has also been affected by the diversion of direct labor for operational changes that will have long-term benefits. We anticipate the decreased markethave partially completed warehouse reorganization, which we expect will improve inventory accuracy and decrease travel time for material handlers and machine operators. We have also implemented a material review board to decrease scrap and eliminate production errors. We believe our continued operational improvement projects will put us in a position to meet increased demand to continue through fiscal 2017.in an improved agriculture economy.

Our Agricultural Products segment’s operating expenses for the 2019 fiscal year ended November 30, 2016 were $4,191,000,$3,796,000 compared to $5,394,000$4,959,000 for the same period in 2015,2018 fiscal year, a decrease of $1,203,000$1,163,000, or 22.3%23.5%. As previously discussed, theseIn the 2018 fiscal year, operating expenses include aincluded one-time non-cash expenseexpenses of $216,000 for the impairment of our West Union facility and $375,000 for the impairment of goodwill at UHCrelated to our Miller Pro product line. These expenses were not repeated in the 2019 fiscal year. We also saw decreased selling expense in the 2019 fiscal year due to decreased commissions as a result of $618,729lower sales along with refocused marketing techniques. Our new marketing efforts include a shift to social media from more expensive print advertisements along with less participation in trade shows in the 2019 fiscal 2015.year. This segment’s operating expenses for the 2019 fiscal year ended November 30, 2016 were 26.6%28.1% of sales compared to 26.0%34.6% of sales for the same period in 2015.2018 fiscal year. Total loss from operations for our Agricultural Products segment during the 2019 fiscal year ended November 30, 2016 was $(378,000),$(1,599,000) compared to an operating loss of $(84,000)$(2,462,000) for the same period in 2015, an increase2018 fiscal year, a decrease in loss of $(294,000).$863,000.

Modular Buildings.Our Modular Buildings segment’s net sales for the 2019 fiscal year ended November 30, 2016 were $3,674,000$7,260,000 compared to $3,191,000$3,109,000 for the same period in 2015,2018 fiscal year, an increase of $483,000,$4,151,000, or 15.1%133.5%. The increase in sales was attributable to increased operating lease activity in 2019 and progress on a $8.5 million project. Gross profit for the 2019 fiscal year ended November 30, 2016 was $978,00016.1% compared to $970,00012.0% during the same period of 2015.2018 fiscal year. The increase in gross profit was largely due to increased revenue providing more variable margin to cover fixed costs. Operating expenses for the 2019 fiscal year ended November 30, 2016 were $890,00013.3% of sales compared to $820,00030.2% for the same period in 2015.2018 fiscal year. Total income from operations from our Modular Buildings segment during the 2019 fiscal year was $88,000$208,000 compared to $150,000an operating loss of $(566,000) in the 2018 fiscal 2015,year, a decrease in loss of $62,000.$774,000.

Tools. Our Tools segment’s net sales for the 2019 fiscal year ended November 30, 2016 were $2,128,000$2,121,000 compared to $2,379,000$2,274,000 for the same period in 2015,2018 fiscal year, a decrease of $251,000$153,000, or 10.6%, which we believe was6.7%. The decrease is primarily due to the loss of a decrease in market demand, most notably inlarge volume customer near the energy industry.end of the first fiscal quarter of 2018. This segment began integration of an OEM product line at the end of the fourth fiscal quarter of 2019 that is expected to more than make up for the loss of this customer. Gross profit for the 2019 fiscal year ended November 30, 2016 was 24.9%26.4% compared to 26.6%28.2% for the same period in 2015.2018 fiscal year. Our decreased gross margin for the twelve months is largely due to lower revenues with less variable margin to absorb fixed costs. Operating expenses were $670,000$666,000 for the 2019 fiscal year ended November 30, 2016 compared to $775,000$709,000 for the same period in 2015,2018 fiscal year, a decrease of $105,000$43,000, or 13.5%6.1%. This decrease is largely duerelated to administrative staffing reductions andreduction of commission expense as the replacementresult of our self-funded health insurance plan.lower sales levels.

Results of Operations – Discontinued Operations

During ourthe third quarter of the 2016 fiscal 2016,year, we made the decision to exit the pressure vessels industry and are currently working to liquidateindustry. On March 29, 2018 we disposed of the assets. Ourremaining assets for $1,500,000. We did not have net sales from our Pressurized Vessels segment’s net sales forsegment in the 2019 or 2018 fiscal year. We continued to incur expenses during the 2018 fiscal year ended November 30, 2016 were $1,598,000, compared to $1,610,000 for the same period in 2015, a decrease of $12,000, or 0.7%. This decrease is largely due to our ceasing operations duringholding the fourth quarter of 2016. Fiscalfacility in Dubuque, Iowa. Our pretax loss in the 2018 fiscal year 2016 gross margin was (12.5)% compared to 4.5% as of November 30, 2015. Operating expenses at Vessels were nearly flat year over year at $400,000 in 2016 and $399,000 in 2015.$(67,000).

Trends and Uncertainties

We are subject to a number of trends and uncertainties that may affect our short-term or long-term liquidity, sales revenues, and operations. Similar to other farm equipment manufacturers, we are affected by items unique to the farm industry, including fluctuations in farm income resulting from the change in commodity prices, crop damage caused by weather and insects, government farm programs, interest rate fluctuations, and other unpredictable variables. Other uncertainties include our OEM customers and the decisions they make regarding their current supply chain structure, inventory levels, and overall business conditions. Management believes that our business is dependent on the farming industry for the bulk of our sales revenues. As such, our business tends to reap the benefits of increases in farm net income, as farmers tend to purchase equipment in lucrative times and forgo purchases in less profitable years. Direct government payments are declining and costs of agricultural production are increasing; therefore, we anticipate that further increases in the value of production will benefit our business, while any future decreases in the value of production will decrease farm net income and may harm our financial results.

As with other farm equipment manufacturers, we depend on our network of dealers to influence customers’ decisions, and dealer influence is often more persuasive than a manufacturer’s reputation or the price of the product.

Seasonality

Sales of our agricultural products are seasonal; however, we have tried to decrease thisthe impact of this seasonality through the development of beet harvesting machinery coupled with private labeled products, as the peak periods for these different products occur at different times.

We believe that our tool sales are not seasonal. Our modular building sales are somewhat seasonal, and we believe that this is due to the budgeting and funding cycles of the universities that commonly purchase our modular buildings. We believe that this cycle can be offset by building backlogs of inventory and by increasing sales to other public and private sectors.

Liquidity and Capital Resources

Our main source of funds during the 2019 fiscal 2016year was cash generated by operating activities, which was primarily from inventory reductionsthe sale and reduction of inventory. We did have substantial positive cash flow from investing activities related to the sale of real property in Ames, Iowa. Art’s-Wayour West Union facility as well. We used $274,000approximately $447,000 of cash to update facilities and equipment which includes software and hardware related to information technology advances, transportation equipment, and manufacturing equipment.

We have a Bank Midwest credit facility consisting of a $5,000,000 revolving line of credit, with U.S. Bank, pursuant to which we had borrowed $3,284,114$2,578,530, with $2,421,470 remaining, as of November 30, 2016, with $1,559,208 remaining available, limited by the borrowing base. We have five2019, and one term loans from U.S. Bank,loan, which had an outstanding principal balancesbalance of $632,000, $716,000, $808,000, $337,000, and $905,000$2,435,993 as of November 30, 2016.  2019. The revolving line of credit is being used for working capital purposes.

We also havehad a loan relating to our production facility in West Union, Iowa, from the Iowa Finance Authority, which had an outstanding balancewas paid in full in connection with the sale of $513,000 as of November 30, 2016.the West Union facility on December 14, 2018.

Our loans require us to comply with various covenants, including maintaining certain financial ratios and obtaining prior written consent from U.S. Bank Midwest for any investment in, acquisition of, or guaranty relating to another business or entity. We were in compliance with all covenants in place under USthe Bank Midwest loans as of November 30, 2016. We were in compliance with all covenants under the IFA Loan Agreement2019 except for the debt service coverage ratio as measured on November 30, 2016. The First National2019. Bank of West UnionMidwest has issued a waiver forgiving the noncompliance for the year endedas of November 30, 2016,2019, and no event of default has occurred.

For additional information about our financing activities, please refer to Note 10 “Loan and Credit Agreements” to the audited consolidatedour financial statements contained in Part II, Item 8“Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this Annual Report on Form 10-K, which is incorporated herein by reference.report.

The following table represents our working capital and current ratio for the past two fiscal years:

We believe that our current cash and financing arrangements provide sufficient cash to finance operations for the next 12 months. We expect to continue to rely on cash from financing activities to supplement our cash flows from operations in order to meet our liquidity and capital expenditure needs in the near future. We expect to continue to be able to procure financing upon reasonable terms.