FORWARD LOOKING STATEMENTS

This reportAnnual Report on Form 10-K (this “report”) may contain forward-looking statements that reflect future events, future business, industry and other conditions, our future performance, and our plans and expectations for future operations and actions. In some cases 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 expectations regarding the impact of COVID-19 on our business condition and results of operations; our expectations regarding our warranty costs and order backlog; our beliefs regarding the sufficiency of working capital and cash flows; our expectations regarding our continued ability to renew or obtain financing on reasonable terms when necessary;necessary as well as our continued positive relationship with our creditors and lenders; the impact of recently issued accounting pronouncements; our intentions and beliefs relating to our costs, product developments and business strategies; our expectations concerning our continued expansion into international markets; our expectations with respect to government spending and programs that may directly or indirectly be used to purchase our products; our beliefs concerning our ability to attract and maintain an adequate workforce in a competitive labor market; our expected operating and financial results; our beliefs concerning the effects of, and costs of compliance with government regulations; 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 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 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, the ongoing COVID-19 pandemic; the impact of tighteningchanges in 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;lines; 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 original 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; a decrease in demand for our ability to predict and respond to any seasonal fluctuationsproducts in demand;international markets; 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 fill open positions within the Company and retain our 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; and other factors described in this report and from time to time in our other reports filed with the 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 investors not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. This 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 previously included the operations of our wholly-owned 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 dissolving International.name. 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. Our Tools segment manufactures standard single point brazed carbide tipped tools as well as PCD (polycrystalline diamond) and CBN (cubic boron nitride) inserts and OEM tools through our wholly-owned subsidiary, Ohio Metal Working Products/Art’s Way,Art’s-Way, Inc., an Ohio corporation (“Ohio Metal”).corporation. For detailed financial information relating to segment reporting, see Note 1816 “Segment Information” to our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.

InformationCorporate information about Art’s-Way can be found on our website, http://www.artsway-mfg.com/ while information on our agriculture products can be found on http://www.artsway.com/. We are not includingsubject 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 on our corporatewith the Securities and Exchange Commission (“SEC”). The SEC maintains a website as a part of or incorporating itthat contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by reference into this report. accessing the SEC’s website at http://www.sec.gov.

Business of Our Segments

Agricultural Products

Our Agricultural Products segment, which accounted for 72.7%67.4% of our net revenue in the 20182021 fiscal year and 74.4%58.4% of our net revenue in the 20172020 fiscal year, is located primarily in our Armstrong, Iowa facility.Iowa. This segment manufactures a variety of specialized farm machinery under our own label, 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,bale processors, running gear, and dump boxes; a line of portable grain augers; a line of manure spreaders; sugar beet harvesting equipment; and a line of land maintenance equipment; moldboard plows; and reels for combines and swathers. We also previously manufactured industrial grade snow blowers under the Agro Trend 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% and 4% of our sales from continuing operations on our statements of operations for the 2018 and 2017 fiscal years.dirt work equipment. We sell our labeled products through independent farm equipment dealers throughout the United States, Australia, Canada, Japan 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% of our consolidated sales for the 2018 fiscal year and 4% of our consolidated sales for the 2017 fiscal year.United Kingdom. We also provide after-market service parts that are available to keep our branded and OEM-produced equipment operating to the satisfaction of the end user of our products.

Modular Buildings

Our Modular Buildings segment, which accounted for 15.8%22.7% of our net revenue in the 20182021 fiscal year and 13.0%31.2% of our net revenue in the 20172020 fiscal year, is located in Monona, Iowa. This segment produces, sells and sellsleases 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 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 11.5%9.9% of our net revenue in the 20182021 fiscal year and 12.6%10.4% of our net revenue in the 20172020 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.

Our Principal Agricultural Products

From our beginningsArthur Luscombe built the first PTO powered grinder mixer on his farm near Dolliver, Iowa. The product’s ability to tackle even the most demanding workload made it an overwhelming success – and secured Luscombe’s reputation as a producer of portable grinder mixers,farmer, entrepreneur and independent thinker who did things his way. Over the years our Agricultural Products segment has grown through developing several new products and with acquisitions. We take pride in our acquisitions. In 2012, we acquired the assets of Universal Harvester Co., Inc. (“UHC”) in Ames, Iowa and began selling reels for combines and swathers as UHC by Art’s-Way. In 2013, we acquired the Agro Trend product line based in Clifford, Ontario and we sold Agro Trend industrial snow blowers and agricultural trailers through our International 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, andequipment, bale processors, dirt work equipment, sugar beet harvesting equipment. We primarily manufacture products under the Art’s-Way, Miller Pro, Roda, M&W, Badger,equipment and UHC by Art’s-Way brand names. Our Agricultural Products segment also maintains a small volume offeed mills. OEM work foris also supplied to the industry’s leading manufacturers.

Feed mills. There’s no one better than Art’s Way when it comes to processing feed. Stationary mills for livestock feeding or breweries, portable units for small operations and large grinder mixers for the modern feeding operation have our customers’ backs day in and day out. Hammer mills provide faster processing and easily changing micron size or roller mills offer more consistency. We offer the most complete lineup of equipment in feed processing.

Grinder mixer line. Manure spreaders.The grinder mixer line representsX Series spreaders have a unique vertical beater placement combined with guillotine slop gate controls to create the best spread pattern in the industry. Flared sides and densilite flooring provide easy loading and material movement. Backed by our original product line. Our founder, Arthur Luscombe, designedlimited lifetime warranty on the original power take-offapron chain, customers can depend on this rugged machine. The upgraded rate control option powered by Raven is the only unit (“PTO”) powered grinder-mixer priorin the industry to our inception. Grinder mixershave completely automatic spreading capabilities with apron speed and slop gate control.

Forage. The 2100 series are useduser-friendly forage boxes in different lengths and unload configurations. It is the only box in its class to grind grainoffer 100% in-cab controls. Tube side stakes 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 allowcorrugated sides give 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 tankconfidence when side-by-side with a 20-inch hammermill. Our 6140 grinder mixer is a medium sized product with a 140-bushel tank, a 20-inch hammermill, and an 8-inch discharge auger. We replaced our 6530 grinder mixer model with the 7165 in 2017, which at the time, wascompetitor models. The 9016-HD High Dump cart boasts the largest capacity in the industry at a 165-bushel tank with a 26-inch hammermill. It features self-contained hydraulics and 10-inch discharge augers, which yield the fastest unload times in the industry. In 2018, we developed 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. Also, in 2018, we added the JR50 and JR75 grinder mixer models to our line featuring 50- and 75-bushel mixing tanks, respectively.40,000 pounds.

Stationary feed grain processing line. Bale processors.We offer stationary hammermills Spread large round or square bales in the same machine attached to a skid steer, telehandler, or tractor with the patented TOP-SPREAD loader mounted spreader. The compact size fits into barns and rollermills. Harvesting leaves various amountsalleyways and is easy to maneuver. On a construction site, load on a flatbed pick and cover roadsides or fresh seeding quickly from the seat of extraneous materials that must be removed through processinga skid steer.

Dirt work equipment. Level out and shape fields with 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. Landsingle blade or folding land planes are used to ensure even distribution of rainfall or irrigationfeaturing our patented floating hitch design. Reduce erosion 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-typethe field. Shape yards or work sites with standard or rear steer graders to help our customers perform many tasks such as maintaining terraces and waterways, leveling ground, cleaning ditches, and removing snow. The pull-type gradersthat follow close toclosely behind 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.equipment. OurWe are proud to offer the best sugar beet defoliators and harvesters are innovative productscleaning in the industry due toduring muddy harvest conditions with our focus on continuous improvement, both in reaction to customer requests and in anticipation of our customers’ needs.patented grab roll bed. Our machines can harvest six, eight, or twelve rows at one time.  We were12-row harvester has been improved with an automatic leveling system add-on for consistent digging across the first manufacturer to introduce a larger, 12-row harvester.  We also manufacture the 692Z model, which is a smaller, more contained model, commonly used by smaller producers.  Our sugar beet defoliators cut and removefield. The defoliator cleanly removes the leaves ofoff the sugar beets without damagingprior to digging them and the leaf particlesup for harvest. The leaves are then incorporated back into the soil.soil to provide nutrients for next year’s crop.

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.

Manure spreadersline. 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.

Reelsline. 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-weight yet strong reel.

ProductProduct Distribution and Markets

We distribute goods for our Agricultural Products segment primarily through a network of approximately 1,1001,000 U.S. and Canadian independent dealers, as well as overseas dealers in Australia, Japan and the 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.provinces. 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 fournine 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. Our international sales accounted for 7.7%2.6% of consolidated sales during the 20182021 fiscal year compared to 3.4% in the 2020 fiscal year.

Backlog. Our backlogs of orders vary on a daily basis. As of January 30, 2018,February 2, 2022, our Tools segment had approximately $95,000$503,000 of backlog ourcompared to $302,000 from the same date in 2021. This is the largest backlog on record for the Tools segment and while that is great news, there are capacity challenges ahead in order to fulfil these orders. In order to combat ongoing labor shortages, the Company issued a purchase order on January 31, 2022 for approximately $161,000 to purchase a Haas milling machine and robot package. Our Modular Buildings segment had approximately $333,000of $1,243,000 of backlog and ouras of February 2, 2022, compared to $1,226,000 on that date in 2021. While the total backlog year on year is similar, the quality of margin on the 2022 backlog is much improved as approximately $496,000 of the 2021 backlog was estimated to carry a 3% margin compared to typical margin of 25%. Our Agricultural Products segment had a net backlog of approximately $2,024,000.$10,459,000 as of February 2, 2022 compared to $6,363,000 on February 2, 2021. The continued strong demand in the Agricultural Products puts us in a position to have another successful year. We will be working to refine our process and improve our manufacturing volume outputs in fiscal 2022 to meet this added demand. On February 7, 2022 we signed a finance lease agreement to purchase three robotic weld cells for $297,600. We expect these weld robots to improve the efficiency of our weld shop and to alleviate capacity concerns related to a shortage in skilled welders. We expect that our order backlogs will continue to fluctuate as orders are received, filled, or cancelled,canceled, 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

DuringThroughout the 20182021 fiscal year, development inwe focused on capturing feedback from our Agricultural Products segment consistedcustomers to make improvements to our current long-standing reliable products and building out our line-up of severalquality livestock equipment for our producers. Projects include expanding our manure spreader model offerings, completing different configurations for our forage boxes and modernizing some of our manufacturing methods across all products. We introduced two new manure spreaders at the end of 2018, the X700 and X900. These units feature a guillotine slop gate for accurate metering and additional capacity due to flared sides. We also developed the 8215 grinder mixer, which we expect will be unveiled in the 2019 fiscal year. This model incorporates the quality and traditional features of previous units with our largest capacity in a grinder mixer of 215 bushels. We neared completion 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 also welded to a semi-trailer for straight from the field to over-the-road use.

Our Tools and Modular Buildings segments complete projects based on customer specifications and did not engage in specific product development during the 20182021 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 our Agricultural Products segment. 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.own label. 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 fournine foreign countries through a network of approximately 1,1001,000 independent dealers in the United States and Canada, as well as overseas dealers in Australia, Japan and the United Kingdom and Australia.Kingdom.

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 shoreoffshore products that have gained market share over the last twenty20 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 United States, enabling our customers to receive product quickly with minimal shipping costs. Our ability to produce special, engineered, value-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.

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 purchaseWe saw lead times increase on raw materials in 2021 as labor shortages from the lifter wheels used to manufactureCOVID-19 pandemic left many of our sugar beet harvesters from a supplier located in China.suppliers understaffed. We also purchase manure spreader beaters from a supplier in Italy.do rely on foreign suppliers and foreign markets for materials and components for some of our products. However, these suppliers are not principal suppliers and there are alternative sources for these materials.

We have an 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 expired in September 2006, but the agreement continues in force until terminated or cancelled by either party. Neither party has terminated or cancelledOn October 27, 2021, the Company informed CNH that it was terminating the OEM agreement as written. The agreement remains in place for one year from date of November 30, 2018. We also sell reels to Honey Bee and Agco under an OEM agreement. Fortermination. It is the 2018 fiscal year, sales to OEM customers were approximately 5% of consolidated sales compared to 4% inexpectation that the 2017 fiscal year. Company will enter into a new agreement with CNH at the expiration date.

We do not typically rely on sales to one customer or a small group of customers. During the 20182021 fiscal year, no one customer accounted for more than 6% of8% 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 supplier 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. During the third quarter of the 2016 fiscal year we entered into a licensing and royalty agreement with Martin Harvesting, LLC to produce a commercial forage box in exchange for royalty payments until August 2026. Our rights to manufacture and sell this product do not expire, but we will pay a royalty amount based on the sales price of each licensed product we sell. In the first quarter of the 2017 fiscal year we entered intoWe also have a licensing and royalty agreement with Spreader, LLC to produce a loader mounted spreader in exchange for royalty payments until December 2027.

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 we 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, 2018,2021, we employed approximately 9092 employees in our Agricultural Products segment, twoseven of whom were employed on a part-time basis. As of the same date, we had 1825 employees in our Tools segment, one of whom was employed on a part-time basis. Nearly allThe 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 2422 full-time employees as of the same date, one of whom worked on a part-time basis.date. These numbers do not necessarily represent peak employment during the 20182021 fiscal 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.

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 including most recently updating our office spaces and plan to complete a reroofing project over the next several years.employee break room in 2021. 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 fiscal 2010. The property contained approximately 190,000 square feet of usable space. A substantial portion of the facility was leased to third parties during the 2018 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 2018 fiscal year.

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 manufacture, market and sell Agro Trend products from Canada. This facility was used in connection with our Agricultural Products segment. We vacated the premises as of December 31, 2017 following the sale of the Agro Trend product line.

In February 2008, we completed construction on a facility in Dubuque, Iowa, which was used for our discontinued Pressurized Vessels segment. The facility was 34,450 square feet, steel-framed, with a crane that ran the length of the building. A paint booth and a blast booth were installed in the first quarter of the 2009 fiscal year. On March 29, 2018, we sold this facility for $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 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 withby our Tools segment.

All of our owned real property is subject to mortgages granted to 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 MattersMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.’

Market Information

Our common stock trades on the Nasdaq Stock Market LLC under the symbol “ARTW.”

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, 2019,February 4, 2022, we had 9079 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 20182021 or 20172020 fiscal years. We expect that the payment of and the amount of any future dividends will depend on our financial condition at that time.

Unregistered Sales of Equity Securities

None.

Purchases of Equity Securities by the Company

None.There were no purchases of common stock by the Company made in the fourth quarter of fiscal 2021.

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.Not applicable.

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

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“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 “Item 88. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.

Financial Condition

InThe 2021 fiscal year proved to be a turning point for our 62 years, we have maneuvered the peaks and valleys of the agriculture market many times, but the last several years of the struggling economy have been especially trying. With our core business strugglingcompany. Our Agricultural Products segment saw a 28.6% increase in sales from the depressed agriculture economy, we were not able to properly provide resources to turn around prior acquisitions and had to make difficult decisions to abandon some of these segments. Our strategy going forward is to focus on the key product lines that support our customer base, provide us with an opportunity to distinguish ourselves from competition, and enable us to grow in both volume and profitability.

We continued our balance sheet cleanup in the 20182020 fiscal year and the segment recorded its first profitable year since fiscal 2015. We are seeing even higher demand for our products at the start of fiscal 2022 and believe another year of continued improvement is ahead of us. Our Modular Buildings segment struggled in the first six months of fiscal 2021 as we believeclosed out a large contract that demanded a large portion of our resources. Pent up demand for agriculture buildings and research labs from the pandemic started to give way in the second half of fiscal 2021. The Modular Buildings segment finished the year strong and showed profit for fiscal 2021. Our Tools segment experienced steady demand increases in fiscal 2021, but labor shortages hampered its ability to take advantage of a strengthening economy. We made some wage and benefit improvements in the second half of fiscal 2021 that we anticipate will help with hiring and retainage in fiscal 2022.

Our consolidated balance sheet indicates a stable financial position as of November 30, 2018. Despite showing a2021. We finished the year with approximately $213,000 of consolidated net loss from continuing operations of $(3,336,000)income and saw our working capital increase by approximately $350,000. Our inventory saw the most significant increase year on year as we prepare to fill our significant demand for the 2018 fiscal year we were able to decrease our total liabilities by $100,000 compared to the 2017 fiscal year. Our debt dropped to the lowest level it has been in almost ten years after the sale of our West Union facility on December 14, 2018, and we made indirect cuts in December of 2018 to help us continue to weather this economic storm.2022.

We expect to have access to capital as needed in 2019throughout fiscal 2022 through the sale of inventory and from the use of our line of credit. AtOn November 30, 20182021 we had $1,494,470$925,470 available on our line of credit.credit and $2,257,904 of excess collateral towards our borrowing base. Our working capital remained strong at approximately $4,487,000 in fiscal 2021 with a current ratio of 1.58. Our banking relationship has remainedremains positive and we expect it to only strengthen as our financial results continue to improve. We do not foresee liquidity issues within the next twelve months.

While we have largely returned to normal operations, the COVID-19 pandemic continues to cause challenges. During fiscal 2021, we experienced supply chain disruptions and an overall increase in good favor despite the recent losses,price of raw materials and other components used in our products. We also incurred higher labor costs and challenges to fill open positions due to a highly competitive job market. Additionally, we experienced periodic operational disruptions as our transparencyemployees contracted or were potentially exposed to COVID-19 and ongoing corporate strategy. Duringwere forced to self-isolate in accordance with state and federal guidelines. The extent of the 2018 fiscal year,pandemic’s effect on our working capital decreased approximately $3,003,000, primarily as a resultfinancial condition and results of a reductionoperations will depend in large part on future developments which cannot be reasonably estimated at this time. Future developments include the duration, scope and severity of inventorythe pandemic, the emergence of new virus variants that are more contagious or harmful than prior variants, the actions taken to contain or mitigate the pandemic’s impact both within and an increaseoutside the jurisdictions in which we operate, and the potential adverse effects on the global supply chain, labor market, and general economic activity. Due to the inherent uncertainty associated with the COVID-19 pandemic, we are unable to predict the impact the pandemic may have on our linefuture results of credit at November 30, 2018. Despite the drop, our current ratio still remains strong at 2.11. We do expect our inventory value to continue to drop as we bring our inventory to more manageable levels and implement lean manufacturing practices. We also are placing an emphasis on debt retirement as we go forward.operations or financial condition.

Critical Accounting Policies

Our significant accounting policies are described in Note 1 “Summary of Significant Accounting Policies” to our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report. Critical accounting policies are those that we believe are both important to the portrayal of our financial condition and results of operations 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 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 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 net 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

RevenueIn 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 uponcustomer. The Tools segment has an OEM agreement with one customer for which sales are recognized FOB destination – when the shipment ofgoods hit the product.customer’s dock. 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 our terms are documented in the most recently published price lists. Pricing is fixed and determinable according to our published equipment and parts price lists. Title to all equipment and parts sold pass to the buyercustomer 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. Customer deposits consist of advance payments from customers, in the form of cash, for revenue to be recognized in the following year.increase contract liabilities.

In certain circumstances, upon the customer’s written request, we may recognize revenue when production is complete, and the goods are ready for shipment. At the buyer’scustomer’s request, we will bill the buyercustomer upon completing all performance obligations, but before shipment. The buyercustomer dictates that we ship the goods per theirits 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 buyercustomer is required to purchase all goods manufactured under this agreement. Title of the goods will pass to the buyercustomer 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,customer, and the buyercustomer 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 buyerthe customers and seller.us. 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,customer, and there are no exceptions to the buyer’scustomer’s commitment to accept and pay for these manufactured goods. Revenues recognized at the completion of productionwhen goods were ready for shipment in the 2018 and 2017 fiscal years2021 were approximately $202,000$711,000, while we had no bill and $184,000, respectively.        hold revenue in fiscal 2020.

OurThe Modular Buildings segment is in the construction industry and as such accounts for 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 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, and 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 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 interestThe Agricultural Products segment offers variable consideration in the related modular building. On sales-type leases, the lessee has a bargain purchase option available at the endform of the lease term. A minimum lease receivablediscounts depending on participation in yearly early order programs. This variable consideration is recorded net of unearned interest income and profit on sale at the time the building is substantially complete. Profit relatedallocated to the saletransaction price of the buildingall products in a sales arrangement and is recorded upon fulfillment of our obligationnot 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 lessee. On operating leases, we recognize rent whentransaction price of each product once the lessee has all the rights and benefits of ownership of the asset.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 8 “Product Warranty” contained in our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.

Results of Operations – Continuing Operations

Fiscal Year Ended November 30, 20182021 Compared to Fiscal Year Ended November 30,2017 2020

Our consolidated net sales for continuing operations totaled $19,727,000$24,965,000 for the 20182021 fiscal year, which represents a 4.8% decrease11.4% increase from our consolidated net sales of $20,715,000$22,409,000 for the 20172020 fiscal year. The decreaseincrease in revenue is due to decreased sales in our Agricultural Products and Tools segments. We experienced fairly steadyincreased demand in the 2018 fiscal year in our Agricultural Products segment and attribute the sales decrease to our decision to terminate a relationship to sell passthrough beet equipment and to liquidate our Canadian operations. The decrease in our Tools segment is due to the loss of a high-volume customer.segments. Our consolidated gross profit decreased as a percentage of net sales increased to 17.8%26.4% in the 20182021 fiscal year from 19.7%when compared to 10.7% of net sales in the 20172020 fiscal year. OurWe saw increased gross profit was downpercentage in alltwo of three segments for the 2018in fiscal year, mainly due to increased material costs. The increased material costs drove price increases at the end of the 2018 fiscal year to help mitigate this concern for the 2019 fiscal year.2021. Our consolidated operating expenses increaseddecreased by 13.8%3.8%, from $5,804,000$6,309,000 in the 20172020 fiscal year to $6,607,000$6,073,000 in the 20182021 fiscal year. This was due largely to one-time non-cash expenses in our Agricultural Products segment further described below. Because the majority of our corporate general and administrative expenses are borne by our Agricultural Products segment, that segment represented $4,959,000$4,571,000 of our total consolidated operating expenses, while our Modular Buildings segment represented $939,000$928,000 and our Tools segment represented $709,000.$574,000.

Our consolidated operating loss from continuing operationsincome for the 20182021 fiscal year was $(3,095,000)$523,000 compared to an operating loss of $(1,722,000)$(3,910,000) for the 20172020 fiscal year. Our Agricultural Products segment had an operating lossincome of $(2,462,000),$599,000, our Modular Buildings segment had an operating lossincome of $(566,000),$74,000 and our Tools segment had an operating loss of $(67,000)$(150,000).

Consolidated net lossincome for the 20182021 fiscal year was $(3,336,000) for continuing operations$213,000 compared to net loss of $(1,369,000)$(2,103,000) in the 20172020 fiscal year, for continuing operations, an increase in lossimprovement of $1,967,000. This increased loss is due to several factors. In the first quarter of the 2018 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 selling price less commissions. 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. Another factor contributing to the increased loss was management’s decision to place increased reserves on inventory resulting in expense of approximately $543,000 in the fourth quarter of the 2018 fiscal year. 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. Net loss from our discontinued Pressurized Vessels segment was $(51,000) in the 2018 fiscal year compared to $(268,000) in the 2017 fiscal year.$2,316,000.

Our effective tax rate for continuing operations for the 20182021 and 20172020 fiscal years was 13.3%20.3% and 23.6%28.9%, respectively. The decrease in the effective tax rate is due to the Tax Cuts and Job Acttax treatment of 2017Paycheck Protection Program loan forgiveness as discussed in Note 1 from fiscal year 2020, “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 net sales revenue for the 20182021 fiscal year were $16,826,000 compared to $13,085,000 during the 2020 fiscal year, an increase of $3,741,000, or 28.6%. The sales increase is attributable to favorable agriculture market conditions as commodity prices hit five year highs. We saw increased demand for our grinder mixers, manure spreaders and beet harvesting equipment in fiscal 2021. We are carrying even higher backlog numbers than we saw in fiscal 2021 as we transition to fiscal 2022.

Gross profit percentage for the 2021 fiscal year was $14,344,00030.7% compared to $15,407,000 during16.5% for the 20172020 fiscal year. Despite continued margin pressure from increasing material and component costs in fiscal 2021, Art’s-Way was able to combat margin erosion through multiple price increases to customers. Much of the gross margin improvement year a decrease of $1,063,000, or 6.9%. The decrease in saleson year was primarily due to terminating a relationship$996,000 of inventory obsolescence expense we had in 2018 in which we sold beet harvesters as passthrough equipment. Total sales revenuefiscal 2020 that was related to this relationshipincreasing reserves on product lines we eliminated strategically from our offering including UHC reels, Miller Pro forage boxes, rakes and augers which was not repeated in the 2017 fiscal year was $727,000 compared to $0 in the 2018 fiscal year.2021. We also attribute $687,000 of decreased sales to the liquidation of our Canadian operations in December 2017. Gross profit for the 2018 fiscal year was 17.4% compared to 18.1% for the 2017 fiscal year. The decrease in margin is attributable tosaw an 18% increase in steel prices driven by economic factors. We implemented two separate price increasesour labor output on roughly the same amount of wages in 20182021 due to mitigate the impact on our gross profit, but ultimately were unable to entirely avoid the decrease.increased demand and better shop floor planning.

Our Agricultural Products segment’s operating expenses for the 20182021 fiscal year were $4,959,000$4,571,000 compared to $4,173,000$4,483,000 for the 20172020 fiscal year, an increase of $786,000$88,000, or 18.8%2.0%. In the 2018 fiscal year,The increase in operating expenses includedwas primarily due to increased selling expenses from a rebranding initiative that took place in fiscal 2021 and the addition of a product development manager to help drive our product lines towards the needs of the customer. The rebranding initiative refreshed the Art’s-Way logo, website, and literature to better fit the customers we serve. Our general and administrative expenses were down in fiscal 2021 as we incurred some one-time non-cashpandemic and dual salaries expense in 2020 as we transitioned two members of senior management. We saw a slight increase in engineering expenses of $216,000 for the impairment of our West Union facility and $375,000 for the impairment of goodwill related to our Miller Pro product line.  We also increased our obsolescence reserve by $543,000 in the fourth quarterAgricultural Products segment in fiscal 2021 as we made market competitive salary adjustments for slow-moving inventory related to prior acquisitions.  This segment’s operating expenses for the 2018 fiscal year were 34.6% of sales compared to 27.1% of sales for the 2017 fiscal year.our engineering department. Total lossincome from operations for our Agricultural Products segment during the 20172021 fiscal year was $(2,462,000)$599,000 compared to an operating loss of $(1,381,000)$(2,318,000) for the 20172020 fiscal year, an increase in lossimprovement of $1,081,000.$2,917,000.

Modular Buildings.Buildings. Our Modular Buildings segment’s net sales for the 20182021 fiscal year were $3,109,000$5,678,000 compared to $2,700,000$6,993,000 for the 20172020 fiscal year, an increasea decrease of $409,000,$1,315,000, or 15.1%18.8%. The increasedecrease in sales was attributable to increased capital and operating lease activitya large construction project spanning the last three fiscal years that reached completion in 2018.fiscal 2021. Gross profit for the 20182021 fiscal year was 12.0%17.7% compared to 18.3%(3.7)% during the 20172020 fiscal year. The decreaseincrease in gross profit was largely due to the depreciationcompletion of leased assetsa large construction contract that negatively affected our margin and the execution of new contracts with short estimated useful lives.higher quality margins. Operating expenses for the 20182021 fiscal year were 30.2% of sales$928,000 compared to 29.9%$1,034,000 for the 20172020 fiscal year.year, a decrease of $106,000, or 10.3%. While overall our operating expenses declined, we did see approximately $83,000 of increased selling expenses from commissions on the sale of modular agriculture buildings and increased trade show participation. Our general and administrative expenses were down approximately $189,000 due to decreased bonus expense, one-time pandemic expense in 2020 and reduced corporate allocation expense in fiscal 2021. Total lossincome from operations from our Modular Buildings segment during the 20182021 fiscal year was $(566,000)$74,000 compared to an operating loss of $(313,000)$(1,295,000) in the 20172020 fiscal year, an increasea reduction in loss of $253,000.$1,369,000.

Tools. Our Tools segment’s net sales for the 20182021 fiscal year were $2,274,000$2,461,000 compared to $2,608,000$2,331,000 for the 20172020 fiscal year, an increase of $130,000, or 5.6%. This segment has not fully recovered from the drop in oil prices at the start of the pandemic in fiscal 2020 that flattened our sales. Our backlog has remained steady and strong since the pandemic. Like the majority of businesses in current economic conditions, we are having trouble maintaining a skilled workforce, but have taken steps to increase automation to lessen this burden. Gross profit for the 2021 fiscal year was 17.2% compared to 21.3% for the 2020 fiscal year. Our gross margin decreased in fiscal 2021 as we raised wages in order to attract and retain shop employees. We saw a 2% increase in wages while not achieving the same efficiency output we did in 2020 due to the loss of some longer tenured employees and high turnover. Operating expenses were $574,000 for the 2021 fiscal year compared to $792,000 for the 2020 fiscal year, a decrease of $334,000,$219,000, or 12.8%27.6%. The decrease is primarilyThis decreased operating expenses were due to the loss of a large volume customer. Gross profit for the 2018decreases in general administrative costs, primarily deceased bonus expense, corporate expense allocation and OEM implementation costs in fiscal year was 28.2%2021 compared to 30.6% for the 2017 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 $709,000 for the 2018 fiscal year compared to $825,000 for the 2017 fiscal year, a decrease of $116,000, or 14.1%. This decrease is largely a reduction of our sales force from two traveling salesmen to one, along with decreased commissions as a result of lower revenues.

Results of Operations – Discontinued Operations2020.

During the third quarter of the 2016 fiscal year, we made the decision to exit the pressure vessels industry. On March 29, 2018 we disposed of the remaining assets for $1,500,000. We did not have net sales from our Pressurized Vessels segment in 2018 or 2017. We continued to incur expenses during the 2018 and 2017 fiscal years due to holding the facility in Dubuque, Iowa. An impairment to our assets of $289,000 was recorded in the 2017 fiscal year. Our pretax loss in the 2018 fiscal year was $(67,000) compared to $(401,000) in the 2017 fiscal year, a decrease of $334,000, or 83.3%.

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 declininghave been increasing in the past two years 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 harmnegatively affect 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 the 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.sectors and by creating repeatable business opportunities.

Liquidity and Capital Resources

Our main source of funds during the 20182021 fiscal year was cash generated by financing activities. We used proceeds of $1,715,000 from our line of credit to fund our operating and investing activities,activities. Our operations consumed approximately $986,000 of cash, the majority of which was primarily from the sale ofused to increase our Dubuque, Iowa facility.inventory levels to combat supply chain delays and to fulfill our massive backlog. We used approximately $435,000$620,000 of cash to update facilities and equipment which includes softwareincluded development of a new customer portal and hardware relatedwebsite and facility upgrades. We expect to information technology advances, transportationuse cash in fiscal 2022 to acquire equipment that improves our shop output and manufacturing equipment.efficiency including robotic weld cells and improved plasma cutting and roller technology. We used another $330,000believe these additions will be key to add additional assets held for leasefulfilling customer demand and allow us to be more competitive in our modular building rental fleet.industry.

On September 28, 2017, we entered into

We have a new credit facility with Bank Midwest, which superseded and replaced in its entirety our previous credit facility with U.S. Bank National Association (“U.S. Bank”). The Bank Midwest credit facility consistsconsisting of a $5,000,000 revolving line of credit, pursuant to which we had borrowed $3,505,530,$4,074,530, with $1,494,470$925,470 remaining, as of November 30, 2018,2021, and twoone term loans,loan, which had an outstanding principal balancesbalance of $2,517,510 and $0$2,260,412 as of November 30, 2018. Proceeds of the new line of credit and two term loans were used to refinance all of the indebtedness outstanding under the U.S. Bank credit facility in the amount of approximately $6,562,030, which consisted of $6,528,223 in unpaid principal and approximately $33,807 in accrued and unpaid interest and fees.2021. The revolving line of credit is being used for working capital purposes.

We also had a loan relating to our production facility in West Union, Iowa, fromhave three Economic Injury Disaster Loans provided by the Iowa Finance Authority, which hadU.S. Small Business Administration with an outstandingaggregate principal balance of $232,967$450,000 as of November 30, 2018. This loan was paid in full with the sale of the West Union facility on December 14, 2018.2021.

Our loans require us to comply with various covenants, including maintaining certain financial ratios and obtaining prior written consent from Bank Midwest for any investment in, acquisition of, or guaranty relating to another business or entity. We were inout of compliance with all covenantsour debt to worth ratio covenant in place under the Bank Midwest loans as of November 30, 2018 except for the debt service coverage ratio as measured on November 30, 2018. We were also in compliance with all covenants under the Iowa Finance Authority loan agreement except for the debt service coverage ratio as measured on November 30, 2018. The First National Bank of West Union loan was paid off on December 14, 2018 with the sale of our West Union building rendering a waiver unnecessary.2021. Bank Midwest has issued a waiver forgiving the noncompliance as of November 30, 2018,2021, and noin turn waived the event of default has occurred.default.

For additional information about our financing activities, please refer to Note 109 “Loan and Credit Agreements:Agreements” to our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.

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